UNIVERSITY COLLEGE OF THE CARIBBEAN

Incorporating Institute Of Management Sciences & Institute Of Management & Production A Member of the Commonwealth & OAS Consortia of Universities

ASSOCIATE OF SCIENCE DEGREE IN BUSINESS ADMINISTRATION & MIS

END OF MODULE EXAMINATION
CENTRE MODULE DATE TIME : OXFORD TERRACE, MAY PEN & OCHI CAMPUSES : FINANCIAL ACCOUNTING [ACT100] : AUGUST 24, 2011 : 6:00 PM

DURATION : 3 Hours

INSTRUCTIONS:
1. 2. 3. 4. Please read all instructions carefully before attempting any question. This paper consists of fourteen (14) printed pages and two (2) sections. Section [1] is compulsory. (40 marks) Section [2] requires candidates to answer any three (3) questions. ( 20 marks each)

ALL QUESTIONS MUST BE ANSWERED IN THE ANSWER BOOKLET PROVIDED. PLEASE ENSURE THAT YOU NUMBER YOUR QUESTIONS CORRECTLY. CLEARLY WRITE THE NUMBER OF THE QUESTION ON EACH OF THE RELEVANT PAGES. WHERE QUESTIONS HAVE MULTIPLE PARTS, ALL PARTS MUST BE ANSWERED. START THE RESPONSE TO EACH QUESTION ON A NEW PAGE.

Write your REGISTRATION NUMBER clearly on each page of your answer booklet. DO NOT WRITE YOUR NAME. NB. Your script will not be marked if it has your name.

DO NOT TURN OVER UNTIL YOU ARE TOLD TO DO SO

Section 1. (Compulsory: 40 marks)

Archie Bunker is a manufacturing of E-Z Boy Lounge Chairs. The following balances were obtained at December 31, 2002 Direct expenses Direct wages Carriage in on raw material Rent Insurance Factory general expenses Office expenses Purchases of raw material Purchases of indirect material Opening stock of raw material Opening stock of finished goods Opening stock of work in progress Opening stock of indirect material Indirect factory wages Factory assets at cost Prov for depn factory assets Admin assets Prov for depn on admin assets Motor vehicles ( cost 155,000) Drawings Sales Loan Cash Bank OD Carriage out Prov for unrealized profits Debtors & Creditors Capital Prov for bad debts Commission received 15,000 30,000 5,000 10,000 3,000 8,000 22,000 60,000 15,000 12,500 17,600 5,000 3,000 16,000 120,000 24,000 80,000 15,200 150,000 16,050 260,000 100,000 7,200 10,000 2,200 23,400 1,600 11,000 165,000 3,150 31,000 ------------620,950

----------620,950 End of year notes included

======= ========

1. Closing stock raw material 11,200; finished goods 18,900; indirect material 4,000, work in progress 5,200 2. Rent owing 2,000; insurance prepaid 1,500 3. Provide for depreciation factory assets 10% SL; admin assets 10% RB, motor Page 2 of 14

vehicle 10% SL. The motor vehicle is used equally in the factory and office 4. Rent is to be apportioned 60% to the office, insurance20% in the office 5. Provision for bad debts to be adjusted to 10% of debtors 6. Goods produced are to be transferred at cost plus 5% factory mark up Required: Prepare the Manufacturing, Trading, and Profit & Loss Account for the year ending December 31, 2002; as well as the Balance Sheet as at that date.

SECTION 11: ANSWER ANY THREE QUESTIONS ( 20 Marks each) Question 2 X and Y are in partnership sharing profits and losses in the ration 2:1, respectively. Their balances as at December 31, 2005 was as follows: X and Y Balance Sheet as at December 31, 2005 Fixed Assets Premises Motor Vehicles $ 10,000 5,000 $ Capital & Liabilities Capital Account X Y Current Accounts: X Y 6,500 Current Liabilities Creditors Accruals 21,000 900 100 1,000 21,000 $ 12,000 8,000 20,000 Currrent Assets Stock Debtors Bamk 2,300 1,700 2,500 825 (325) 500 $

15,000

On January 1, 2006, Z was admitted into the partnership, the new agreement providing for : 1. Z to bring in $5,000 as capital, plus $3,000 for his share of the goodwill

2. Profits and losses to be shared in proportioned to ending capitals. 3. Interest on capitals and on drawing to be 10% per annum. 4. X to receive a salary of $800 per annum. Page 3 of 14

5. Z to receive a bonus of $100 for every $1,000 worth of net profit in excess of $5,000 per annum. The Net Profit of the partnership for the year ended December 31, 2006 were $12,000 and the partners drawings for the year were X $3,000, Y $4,000: Z $2,000. Required: a. Show the journal entries and the resulting balance sheet upon admission of Z.

b. Prepare the profit and loss appropriation account for the year ended December 31, 2006 and the balance sheet extract (displaying capital and current accounts) as at that date. Question 3. The payroll information is extracted from the records of Allens Service Station for the week ended April 16, 2007. Employee Position Accum ulated or year to date earning $ Hourly Rate Regular hours Overtime Income hours Tax National Life Credit Insurance Insurance Union

No. of hours 40

No. of hours 8

Rate

Rate

P. Allen

Manager

18, 000

15

10%

2%

35

150

R. Bascoe

Mechanic 6,500

40

10%

2%

20

50

N. Cummings

Garage Attendance

230

40

10%

2%

10

25

Additional Information: i. Employees are paid weekly

ii. Income tax is calculated on the balance remaining after National Insurance is deducted. iii. Overtime is paid at the rate of time-and-a-half for more than 40 hour s per week. iv. Deduction s for Life Insurance and Credit Union are the same every pay period. v. The year-to date accumulated earnings do not include the current weeks earnings. You are required to prepared the Payroll Register for the payroll period ended April 16, 2007; as well as the Balance Sheet as at that date. Page 4 of 14

Question 4 The Harry Watson Company manufactures and sells a line of exclusive sportswear. The firms sales were $600,000 for the year just ended, and its total assets exceeded $400,000. The company was started by Mr. Watson 10 years ago and has been profitable every year since its inception. The Chief Financial Officer for the firm, Mike Fisher, has decided to seek a line of credit from the firms bank totaling $80,000. In the past, the company has relied on its suppliers to finance a large part of its needs for inventory. However, in recent months, right money conditions have led the firms suppliers to offer sizable cash discounts to speed up payments for purchases. Mr. Fisher wants to use the line of credit to supplant (replace) a large portion of the firms payables during the summer months, which are the firm's peak seasonal sales period. The firms two most recent balance sheets were presented to the bank in support of its loan request. In addition, the firms income statement for the year just ended was provided to support the loan request. The statements are as follows:

Harry Watson Company Balance Sheets as at 31/12/07 and 31/12/08 2007 $ 15,000 6,000 42,000 51,000 1,200 115,200 286,000 401,200 ====== 2008 $ 14,000 6,200 33,000 84,000 1,100 138,300 270,000 408,300 ====== 57,000 13,000 5,000 75,000 150,000 183,300 408,300 ======

ASSETS Cash Marketable Securities Accounts Receivable Inventory Prepaid Rent Total Current Assets Net Plant and Equipment Total Assets

LIABILITIES AND EQUITY Accounts Payable 48,000 Notes Payable 15,000 Accruals 6,000 Total Current Liabilities 69,000 Long-Term Debt 160,000 Common Stockholder Equity 172,000 Total Liabilities & Equity 401,200 ======

Page 5 of 14

Harry Watson Company Income Statement for the Year Ended 31/12/08 2008 $ 600,000 460,000 140,000

Sales Less: Cost of Goods Sold Gross Profits Less: Operating and Interest expenses General and Administrative 30,000 Interest 10,000 Depreciation 30,000 Total Earnings before Taxes Less: Taxes Net Income Available to Common Stockholders

70,000 70,000 27,100 42,900 =====

Janet Gibson, associate credit analyst for the Capital Merchant Bank of St. Andrew, was assigned the task of analyzing Watsons loan request. a. Calculate the financial ratios for 2008 corresponding to the industry ratio norms provided below: (14 marks) [Use year-end figures and 365 days = 1 year your calculations. It is to your advantage to show workings and present your summary in a clear fashion. Do your ratios to two (2) decimal points where applicable]: Watson Ratios Industry 2008 Ratio Norm Current ratio 1.8 Acid-test ratio 0.9 Debt ratio 0.5 Times interest earned 10.0 Average collection period 20.0 days Inventory turnover 7.0 Return on common equity 12.0% Operating income return on investment 16.8% Total asset turnover 1.20 Fixed asset turnover 1.80 Return on assets 6% Return on equity 12% b. Which of the ratios reported in the industry norms do you think should be most critical in (6 marks) determining whether the bank should extend the line of credit? Why? Page 6 of 14

Question 5 The following trial is the trial balance of Capletons Limited as on 31 December 19x4. Debit $ Bank Debtors Creditors Stock at 31 December 19x3 Building at cost Equipment at cost Profit and loss account as at 31.12.19x3 General reserve Foreign exchange reserve Authorized and issued share capital Purchases Sales Carriage inwards Carriage outwards Salaries Rates Office expenses Sundry expenses Provision for depreciation at 31.12.19x3 Buildings Equipment Directors remuneration 9 500 ______ 323 276 _______ 323 276 Page 7 of 14 32 000 16 000 1 570 1 390 18 310 4 235 3 022 1 896 72 360 135 486 40 360 100 000 45 000 15 286 8 000 4 200 100 000 18 910 12 304 Credit $ 6 723

Notes at 31 December 19x4:

(i) (ii) (iii) (iv) (v)

Stock at 31 December 19x4 $52 360. Rates owing $280; Office expenses owing $190. Dividend of 10 per cent proposed. Transfers to reserves: General $1 000; Foreign exchange $800. Depreciation on cost: Buildings 5 per cent; Equipment 20 per cent.

You are required to prepare:

(a)

Trading and profit and loss account for the period ended 31 December 19x4 (10 marks) Balance sheet as at 31 December 19x4 (10 marks)

(b)

QUESTION 6 D Angel Company Limited had the following balances for the month of January 2004: $ Sales ledger debit balance 1 January Sales ledger credit balance 1 January 48 290 120

Purchases Ledger credit balance 1 January Purchases Ledger debit balance 1 January

34 366 85

Sales

cash - credit

5 000 65 000 3 050 Page 8 of 14

Returns by debtors

Purchases -

cash credit

2 500 48 599 5 255 40 355 3 254 25 600 1 500 320 2 590 680 1 000 850 210

Returns to creditors Cheques received from customers Discounts allowed (to credit customers) Payments to suppliers by cheques Refunds given to cash customers Sales ledger debits written off to creditors accounts Discounts received (all from credit suppliers) Returned cheques Increase in provision for bad debts Bad Debts written off Interest charge on overdue debtors accounts . Sales ledger credit balances 31 January Purchases ledger debit balances 31 January

66 45

a) b)

Prepare the purchases and sales ledger control accounts for the month of March. (16 marks) State TWO purposes of each of the following: (i) Sales ledger control account (ii) Purchases ledger control accounts ( 4 marks)

Page 9 of 14

Question 7 The trial balance of Macka Diamond on December 31, 2007 is given below. Account Debit $ Capital Drawings Long-term loan Purchases Purchases Return Cash Sales Credit Sales Sales Return Inventory @ Jan. 1, 2007 Wages & Salaries Rent Insurance Carriage Inwards Carriage Outwards Light & Power Office Expense Office Furniture at cost Motor Vehicles at cost 1 000 23 000 20 000 3 000 4 000 400 600 21 000 8 500 20 000 80 000 42 000 2 000 30 000 71 000 1 000 100 000 Credit $ 51 000

Page 10 of 14

Provision for Depreciation (Jan. 1, 2007) Office Furniture Motor Vehicles Travelling Discount Allowed & Received Debtors & Creditors Provision for Bad Debts Bank Account Petty Cash 13 000 2 000 ______ 303 000 ______ 303 000 3 000 1 500 59 000 1 000 25 000 3 000 4 000 16 000

Additional Information 1. Inventory at December 31, 2007 was $22 000.

2. Office Furniture is to be depreciated at 10% per annum on cost, and Motor Vehicles at 20% per annum on the reducing balance basis. 3. 4. 5. 6. 7. 8. Travelling expenses accrued at December 31, 2007 was $2 000. Insurance paid in advance at December 31, 2007 was $1 000. The provision for bad debts should be 10% of debtors. The proprietor took goods at a cost of $4 000 during the financial year. Bad Debts amounting to $1 000 should be written off. Commission Receivable at December 31, 2007 was $9 000.

You are required to prepare: (a) (b) The Income Statement for the financial year ended December 31, 2007. (10 marks) A Balance Sheet as at December 31, 2007. (10 marks) Page 11 of 14

Question 8 The following is a summary of the receipts and payments for the year to March 31, 1999 of the Y Men Social Club:

Receipts Club subscriptions Donations Christmas dance Bar takings

$ 8 500 750 425 13 500

Payments Rates General expenses Bar purchases Christmas dance expenses 450 13 100 9 250 75

Other relevant information at the beginning and end of the year is as follows: April 1, 1998 March 31, 1999 $ Subscription due Subscriptions paid in advance Rates owing Bar stock Club premises Furniture Bank and cash in hand 450 25 225 1 000 10 000 1 500 800 $ 300 50 250 1 250 9 000 1 000 1 100 Page 12 of 14

Prepare for Y Men Social Club: (a) (b) (c) (d) The Bar Trading Account The Subscription Account A statement to show the Accumulated Fund at April 1, 1998 (3 marks) (2 marks) (4 marks)

The Income and Expenditure Account for the year ended March 31, 1999. (5 marks)

(e)

Balance Sheet as at March 31, 1999

(6 marks)

Question 9 The following is a summary of Mavados bank account for the year ended 31 December 1997: $ Balance 1.1.1996 Receipts from debtors Balance 31.12.1997 405 37 936 602 Payments to creditors for goods Rent Rates Sundry expenses Drawings _____ 38 943 38 943 29 487 1 650 890 375 6 541 _____ $

All the business takings have been paid into the bank with the exception of $9 630. Out of this, Mavado has paid wages of $5 472, drawings of $1 164 and purchases of goods $2 994. The following additional information is available:

Page 13 of 14

31.12.1996 $ Stock Creditors for goods Debtors for goods Rates prepaid Rent owing Fixtures at valuation You are required to prepare: (a) 13 862 5 624 9 031 210 150 2 500 $ 15 144 7 389 8 624

31.12.1997

225 2 250

A trading and profit and loss account for the year ended 31 December 1997 (10 marks)

(b)

A balance sheet as at that date.

(10 marks)

Question 10 James Lee purchased two computers on January 1, 2003: one for $8,000 and the other for $7,000, payment being by cheque. The rate of depreciation on computers is 10% per annum on the reduced balance basis. The computer which was brought for $7,000 kept breaking down and was sold on January 5, 2005 for $6, 000 cash.

Show the following for the first three years. a. Computer Account b. Provision for Depreciation Account c. Disposal Account d. Profit and Loss Account and Balance Sheet Extract.

END OF QUESTION PAPER

Page 14 of 14