Workshop Solutions T1 2014

Workshop Solutions Trimester 1, 2014
SESSION TWO Chapter 1

Questions
3. (a) Income statement.
(b) Balance sheet.
(c) Income statement.
(d) Balance sheet.
(e) Balance sheet.
(f) Balance sheet.
5. It is important to determine if a business is a reporting entity as it is only reporting entities that are
required to prepare general purpose financial reports in accordance with the accounting standards.
Three main indicators determine which of the forms of business organisation fall into the category of a
reporting entity. That is, an entity is more likely to be classified as a reporting entity if it is (1) managed
by individuals who are not owners of the entity, (2) politically or economically important, and (3) sizable
in any of the following ways sales, assets, borrowings, customers or employees.
8. The going concern principle lends credibility to the cost principle; otherwise items would be reported at
liquidation value. By assuming the entity will continue to operate, assets can continue to be reported at
cost because they are expected to bring benefits to the business through use even though they may
have little or no resale value.

BRIEF EXERCISE 1.2
(a) False
(b) True
(c) False
BRIEF EXERCISE 1.5
IS (a) Expenses during the period.
SFP (b) Accounts payable at the end of the year.
SCF (c) Cash received from borrowing during the period.
SCF (d) Cash payments for the purchase of property, plant and equipment.

BRIEF EXERCISE 1.6
Taylor Ltd
Balance Sheet (Partial)

Current assets:
Cash $3,000
Short-term investments 8,200
Accounts receivable 20,000
Supplies 1,500
Prepaid rent 4,000
Total current assets 36,700
Non-current assets:
Property, plant and equipment 10,000
Total non-current assets 10,000

Total assets $46,700

EXERCISE 1.9
(a)
Wellington Wall Coverings Pty Ltd
Income Statement
for the year ended 31 July 2012

$ $
Revenues:
Sales revenue 100,000
Less: Cost of sales 60,000
Gross profit 40,000
Other revenue
Rent revenue 50,000
Expenses:
Salaries expense 40,000
Depreciation expense 7,000
Other expenses 38,000
Total expense (85,000)
Profit $5,000

Calculation of Retained Earnings
for the year ended 31 July 2012

$
Retained earnings, 1 August 2011 3,000
Add: Profit 5,000
Retained earnings, 31 J uly 2012 $8,000

(b)
Wellington Wall Coverings Pty Ltd
Statement of financial position
as at 31 July 2012

$ $
Current assets:
Cash 25,000
Inventory 20,000
Total current assets 45,000

Non-current assets:
Land 120 000
Building 140,000
Less: Accumulated depreciation (14,000) 126,000
Total non-current assets 246,000

Total Assets 291,000

Current liabilities:
Accounts payable 11,000
Rent received in advance 2,000
Total current liabilities 13,000

Non-current liabilities
Bank loan 110 000
Total non-current liabilities 110,000
Total liabilities 123 000
Net Assets $168 000

Equity
Share capital 160,000
Retained earnings 8,000
Total equity $168,000

PROBLEM SET A 1.2
(a) In deciding whether to extend credit for 30 days you would be most interested in the Statement of
financial position because it shows the assets on hand that would be available for settlement of the
debt in the near-term.
(b) In purchasing an investment that will be held for an extended period, the investor must try to predict
the future performance of Dominos. The income statement provides the most useful information for
predicting future performance.
(c) In extending a loan for a relatively long period of time, the bank is most interested in the probability
that the company will generate sufficient income to meet its interest payments and repay its
principal. The bank would therefore be interested in predicting future profit using the income
statement.
It should be noted, however, that the lender would also be very interested in both the Statement of
financial position and the Statement of cash flows the Statement of financial position would show
the amount of debt the company has already incurred, as well as assets that could be liquidated to
repay the loan. And the bank would be interested in the Statement of cash flows because it would
provide useful information for predicting the companys ability to generate cash to repay its
obligations.

(d) The finance director would be most interested in the Statement of cash flows since it shows how
much cash the company generates and how that cash is used. The Statement of cash flows can be
used to predict the companys future cash-generating ability.

IN-CLASS PROBLEM
PROBLEM SET A 1.3
Ultimo Travel Goods Pty Ltd
(a) 1. The accounting entity concept states that economic events can be identified with a
particular unit of accountability. Since the Gold Coast villa is the personal property of
Mark Austin not Ultimo Travel Goods Pty Ltd it should not be reported on the
companys balance sheet. Likewise, the loan is a personal loan of Mark Austin not
a liability of the company.

2. The cost principle dictates that assets are recorded at their original cost. Therefore
reporting the inventory at $30,000 would be improper and violates the cost principle.
The inventory should be reported at $10,000.

3. Including the personal telephone account payable is a violation of the accounting
entity concept. The $5,000 payable is not a liability of Ultimo Travel Goods Pty Ltd. If
the company pays the telephone account on behalf of Mark Austin, it should be
accounted for as a loan to Mark or as drawings.

(b)
Ultimo Travel Goods Pty Ltd
Balance Sheet
as at 30 June 2009
$
Cash 20,000
Inventory 10,000
Total assets $85,000

Accounts payable ($40,000-$5,000) 35,000
Notes payable 15,000
Total liabilities 50,000
Equity *35,000
Total liabilities and equity $85,000

*$85,000 - $50,000 (Total assets minus total liabilities)

SESSION THREE
Chapter 2
Questions
3. (a) Decrease assets, cash and decrease in equity, cleaning expenses.
(b) Increase assets, equipment and decrease assets cash.
(c) Increase assets, cash and increase equity, share capital
(d) Decrease assets, cash and decrease liabilities, accounts payable.
7. (a) Accounts Receivable debit balance.
(b) Cash debit balance.
(c) Machinery debit balance.
(d) Accounts Payable credit balance.
(e) Service Revenue credit balance.
(f) Advertising Expense debit balance.
(g) Share Capital credit balance.

BRIEF EXERCISE 2.7
Jagoda Ltd
Trial Balance
as at 31 December 2012

Account name Debit Credit
$ $
Cash 20,800
Prepaid Insurance 3,500
Accounts Payable 5,000
Revenue Received in Advance 4,200
Share Capital 10,000
Retained Earnings 9,000
Dividends 4,500
Service Revenue 11,600
Salaries Expense 8,600
Rent Expense 2,400
$39,800 $39,800

EXERCISE 2.4
Expensive Designs Pty Ltd
Account debited

Account credited

Transaction
(a)
Basic
Type
(b)
Specific
Account
(c)

Effect
(d)
Normal
balance
(a)
Basic
type
(b)
Specific
account
(c)

Effect
(d)
Normal
balance

1 Asset Cash Increase Debit Equity Share
Capital
Increase Credit

2 Asset Equipment/
Motor
Vehicles
Increase Debit Asset Cash Decrease Debit

3 Asset Supplies Increase Debit Liability Accounts
Payable
Increase Credit

4 Asset Accounts
Receivable
Increase Debit Equity Service
Revenue
Increase Credit

5 Equity Advertising
Expense
Increase Debit Asset Cash Decrease Debit

6 Asset Cash Increase Debit Asset Accounts
Receivable
Decrease Debit

7 Liability Accounts
Payable
Decrease Credit Asset Cash Decrease Debit

8 Equity Dividends Increase Debit Asset Cash Decrease Debit

EXERCISE 2.7
Better Books Pty Ltd
General Journal
Transaction Account Titles Debit Credit
$ $
1 Cash 20,000
(Issued shares to investors for cash)
2 Equipment/Photocopier 6,000
Cash 6,000
(Purchased photocopier for business on account)

3 Supplies 800
Accounts Payable 800
(Purchased supplies on account)

4 Accounts Receivable 3,600
(Invoiced customers for services performed)

5 Advertising Expense 600
Cash 600
(Paid advertising expense)

6 Cash 1,500
Accounts Receivable 1,500
(Received cash from customers on account)

7 Accounts Payable 6,300
Cash 6,300
(Paid amount owing to accounts payable)

8 Rent Expense 1,200
Cash 1,200
(Paid dividends to shareholders)

EXERCISE 2.8
Ink Pad Printers Ltd
(a)
Cash
1/8 Share Capital 17,000 12/8 Office Equipment 1,000
10/8 Service Revenue 12,400 31/8 Closing Balance 29,000
31/8 Accounts Receivable 600
30,000 30,000
1/9 Opening Balance 29,000

Accounts Receivable
25/8 Service Revenue 1,500 31/8 Cash 600
Closing Balance 900
1,500 1,500
1/9 Opening Balance 900
Office Equipment
12/8 Cash/Bank Loan 4,000

Bank Loan
12/8 Office Equipment 3,000

Share Capital
1/8 Cash 17,000

Service Revenue
31/8 Closing balance 13,900 10/8 Cash 12,400
25/8 Accounts Receivable 1,500
13,900 13,900
31/8 Balance 13,900

(b)
Ink Pad Printers Ltd
Trial Balance
as at 31 August 2011

Debit Credit
$ $
Cash 29,000
Accounts Receivable 900
Office Equipment 4,000
Bank Loan 3,000
$33,900 $33,900

EXERCISE 2.12
Sushi To Go Ltd
Trial Balance
as at 31 July 2013

Account Name Debit Credit
$ $
Cash ($193,314 Debit total without Cash $163,880) 29,434
Prepaid Insurance 3,836
Delivery Equipment 118,620
Bank Loan $56,800
Salaries Payable 1,530
Dividends 1,300
Fuel Expense 1,416
Repair Expense 1,822
Insurance Expense 946
$193,314 $193,314

PROBLEM SET B 2.4
Too Much Fun Park
Date Account Titles and Explanation Debit Credit
Apr. 1 Cash
Share capital
(Issued shares for cash)
60,000
60,000
4 Land
Cash
(Purchased land for cash)
30,000
30,000
8 Advertising Expense
Accounts Payable
(Incurred advertising expense on account)
1,800
1,800
11 Salaries Expense
Cash
(Paid salaries)
1,700
1,700
12 No entry.
13 Prepaid Insurance
Cash
(Paid for one-year insurance policy)
3,000
3,000
17 Dividends
Cash
(Payment of cash dividend)
600
600
20 Cash
Admission Revenue
(Received cash for services rendered)
5,700
5,700
25 Cash
Revenue received in advance
(Received advance for future services)
2,500
2,500
30 Cash
Admission Revenue
(Received cash for services provided)
7,900
7,900
30 Accounts Payable
Cash
(Paid creditor on account)
700
700

IN-CLASS PROBLEM (OPTIONAL)

PROBLEM SET A 2.5
Liu Advertising Pty Ltd
(a)

Date Account Titles and Explanation
Post
Ref
Debit Credit

Apr. 1 Cash 100 25,500
Share Capital 300 25,500

1 No entry not a transaction.

2 Rent Expense 510 950
Cash 100 950
(Paid monthly office rent)

3 Supplies 115 2,550
Accounts Payable 200 2,550
(Purchased supplies on account from Speedy
Art Supplies)

10 Accounts Receivable 110 1,350
Service Revenue 400 1,350
(Invoiced clients for services rendered)

11 Cash 100 550
Revenue Received in Advance 209 550
(Received cash advance for future service)

20 Cash 100 3,150
Service Revenue 400 3,150
(Revenue received in cash)

30 Salaries Expense 500 1,950
Cash 100 1,950
(Paid monthly salary)

30 Accounts Payable 200 1,150
Cash 100 1,150
(Paid Speedy Art Supplies on account)

(b)

Cash 100
Share Capital 25,500 2/4 Rent Expense 950
11/4 Revenue Received in
Advance
550 30/4 Salaries Expense 1,950
20/4 Service Revenue 3,150 30/4 Accounts Payable 1,150
30/4 Closing Balance 25,150
29,200 29,200

10/4 Service Revenue 1,350

Supplies 115

30/4 Cash 1,150 3/4 Supplies 2,550
2,250 2,250

Revenue Received in Advance 209
11/4 Cash 550

Share Capital 300
1/4 Cash 25,500

Service Revenue 400
20/4 Cash 3,150
4,500

Salaries Expense 500
30/4 Cash 1,950

Rent Expense 510
2/4 Cash 950

(c)

Liu Advertising Pty Ltd
Trial Balance
as at 30 April 2012

Account Name Debit Credit
$ $
Cash 25,150
Supplies 2,550
Revenue Received in Advance 550
Rent Expense 950
$31,950 $31,950

SESSI ON FOUR
QUESTIONS
.6. The two categories of adjusting entries are prepayments and accruals. Prepayments are either
revenues received in advance or prepayments of amounts that provide economic benefit for more
than one period, e.g. prepaid rent. Accruals consist of revenues and expenses earned or incurred
but which have not been recorded through daily transactions.
In a prepaid expense adjusting entry, expenses are debited and assets are credited. In a revenue
received in advance adjusting entry liabilities are debited and revenues are credited.

BRIEF EXERCISE 3.4
DeVoe Ltd
(a) June 30 Interest Expense 400
Interest Payable 400
(Accrual of interest on loan)
(b) 30 Service Revenue Receivable 1,400
(Accrual of revenue)
(c) 30 Salaries Expense 700
Salaries Payable 700
(Accrual of salaries)

BRIEF EXERCISE 3.7
The proper sequencing of the required steps in the accounting cycle is as follows:
1. (c) Analyse business transactions.
2. (e) Journalise the transactions.
3. (i) Post to ledger accounts.
4. (d) Prepare a trial balance.
5. (h) Journalise and post adjusting entries.
6. (b) Prepare an adjusted trial balance.
7. (g) Prepare financial statements.
8. (f) Journalise and post closing entries.
9. (a) Prepare a post-closing balance.

EXERCISE 3.5
Zimbabwe Ltd

Item
(1)
Type of Adjustment
(2)
Accounts Before Adjustment
(b)
Effect on profit
Overstated
/(understated)
(a) Accrued Revenue Asset Understated Understated
Revenue Understated

(b) Prepaid Expense Asset Overstated Overstated
Expense Understated

(c) Accrued Expense Expense Understated Overstated
Liabilities Understated

(d) Revenue Received in Advance Liability Overstated Understated
Revenue Understated

(e) Accrued Expense Expense Understated Overstated
Liability Understated

(f) Prepaid Expense Asset Overstated Overstated
Expense Understated

EXERCISE 3.9
Wolfmother Ltd
Income Statement
for the month ended 31 July 2014

Revenues: $ $
Service revenue ($5 500 +$800) 6 300
Expenses:
Wages expense ($2 300 +$300) 2 600
Supplies expense ($1 200 - $400) 800
Electricity expense 600
Insurance expense 300
Depreciation expense 150
Total expenses 4 450
Profit $1 850

EXERCISE 3.13
Woks Ltd
General Journal
Date Account name (narration) $
Debit
$
Credit
2013
1. J une 30 Insurance Expense 10 570
Prepaid Insurance 10 570
Calculations:
$22200 3 yrs = $7 400 per annum, 1.5 yrs remain
$6 340 2 yrs= 3 170 per annum, 1 year remains
$10 570
Prepayment of B4564 at 30/6/13 is $11 100
Prepayment of A2958 at 30/6/09 is 3 170 $14 270
Pre adjustment balance or Prepaid Insurance $24 840
Adjustment required to be recognised as exp $10 570

2. 30 Subscription Revenue Received in Advance 16 859
Subscription Revenue 16 859
Calculations:
Apr 300 x $85 x 3/12 = $6 375
May 400 x $85 x 2/12 = 5 667
J un 680 x $85 x 1/12 = 4 817
Subscriptions earned and to
be recognised as revenue $16 859

3. 30 Interest Expense 2 550
Interest Payable 2 550
Calculation:
$85,000 x 9% x 4/12 = $2 550

4. 30 Salaries Expense 4 410
Salaries Payable 4 410
Calculations:
5 x $840 x 3/5 = $2 520
3 x $1050 x 3/5 = 1 890
$4 410

(b) Subscriptions are usually paid in advance and for revenue to be recognised it needs to meet the revenue
recognition criteria. The revenue is recognised as the work is performed not when the cash is received.

PROBLEM SET B 3.8
(a)
Corellian Windows Ltd
General Journal
Date Account name (narration)
Post
Ref.
$
Debit
$
Credit
2012
J uly 1 Cash 100 13 500
Share Capital 300 13 500

1 Motor Vehicles 171 9 000
Cash 100 4 500
Accounts Payable 200 4 500
(Purchased truck)

3 Cleaning Supplies 120 1 350
Accounts Payable 200 1 350
(Purchased cleaning supplies)

5 Prepaid Insurance 130 1 800
Cash 100 1 800
(Paid insurance)

12 Accounts Receivable 110 3 750
Service Revenue 400 3 750
(Invoiced customers)

18 Accounts Payable 200 2 250
Cash 100 2 250
(Paid accounts payable)

20 Salaries Expense 540 1 800
Cash 100 1 800
(Paid salaries)

21 Cash 100 2 100
Accounts Receivable 110 2 100
(Collected cash from customers on account)

25 Accounts Receivable 110 3 000
(Invoiced customers)

31 Petrol & Oil Expense 500 300
Cash 100 300
(Paid for petrol and oil)

31 Dividends 315 900
Cash 100 900
(Paid cash dividend)
(b), (e) & (h)

Cash 100
1/7 Share Capital 13,500 1/7 Motor Vehicles 4,500
21/7 Accounts Receivable 2,100 5/7 Prepaid Insurance 1,800
18/7 Accounts Payable 2,250
20/7 Salaries Expense 1,800
31/7 Petrol & Oil Expense 300
31/7 Dividends 900
15,600 15,600

12/7 Service Revenue 3,750 21/7 Cash 2,100
25/7 Service Revenue 3,000
31/7 Service Revenue* 1,650 31/7 Closing Balance 6,300
8,400 8,400
* (e) adjusting entry, balance was $4,650 dr before adjusting entry

Cleaning Supplies 120
3/7 Accounts Payable 1,350 31/7 Cleaning Supplies Expense* 450
31/7 Closing Balance 900
1,350 1,350

Prepaid Insurance 130
5/7 Cash 1,800 31/7 Insurance Expense* 150
1,800 1,800
Motor Vehicles 171
1/7 Cash/Accounts
Payable
9,000

Accumulated Depreciation Motor Vehicles 172
31/7 Depreciation Expense* 300
* (e) adjusting entry, nil balance before adjusting entry

18/7 Cash 2,250 1/7 Motor Vehicles 4,500
31/7 Closing Balance 3,600 3/7 Cleaning Supplies 1,350
5,850 5,850

31/7 Salaries Expense* 600

Share Capital 300
1/7 Cash 13,500

Retained Earnings 310
31/7 Dividends 900 31/7 Income Summary 4,800
4,800 4,800

Dividends 315
31/7 Cash 900 31/7 Retained Earnings 900

Income Summary 320
31/7 Expenses 3,600 31/7 Revenue 8,400
31/7 Retained Earnings 4,800
8,400 8,400
Entries to this account are closing entries. It has a nil balance before and after closing entries
because the balance, profit, is closed to retained earnings,
Service Revenue 400
31/7 P & L Summary 8,400 12/7 Accounts Receivable 3,750
31/7 Accounts
Receivable*
1,650
8,400 8,400
* (e) Adjusting entry,$6,750 cr balance before adjusting entry, $8,400 cr after adjustment, before
closing

Petrol & Oil Expense 500
31/7 Cash 300 31/7 P & L Summary 300

Cleaning Supplies Expense 510
31/7 Cleaning Supplies* 450 31/7 P & L Summary 450

* (e) Adjusting entry, nil balance before adjusting entry, $450 dr after adjustment, before closing

Depreciation Expense 520
31/7 Accumulated Depreciation* 300 31/7 P & L Summary 300

31/7 Prepaid Insurance* 150 31/7 P & L Summary 150

* (e) Adjusting entry, nil balance before adjusting entry, $150 dr after adjustment, before closing
20/7 Cash 1,800 31/7 P & L Summary 2,400
31/7 Salaries Payable* 600
2,400 2,400
* (e) adjusting entry $1800 dr balance before adjusting entry, $2400 dr after adjusting entry before
closing

(c) & (f)
Trial Balance
as at 31 July 2012

(c) Unadjusted (f) Adjusted
No. Account name Debit $ Credit $ Debit $ Credit $
100 Cash 4 050 4 050
110 Accounts Receivable 4 650 6 300
120 Cleaning Supplies 1 350 900
130 Prepaid Insurance 1 800 1 650
171 Motor Vehicles 9 000 9 000
172 Acced Depreciation M. Vehicles 300
200 Accounts Payable 3 600 3 600
210 Salaries Payable 600
300 Share Capital 13 500 13 500
310 Dividends 900 900
400 Service Revenue 6 750 8 400
500 Petrol & Oil Expense 300 300
510 Cleaning Supplies Expense 450
520 Depreciation Expense 300
530 Insurance Expense 150
540 Salaries Expense 1 800 2 400
$23 850 $23 850 $26 400 $26 400

(d)
General Journal Corellian Windows Ltd
Date Account name (narration) Post
Ref.
Debit Credit
1. J uly 31 Accounts Receivable 110 1 650
(Accrued revenue)

2. 31 Depreciation Expense 520 300
Accumulated Depreciation 172 300
(Depreciation expense)

3. 31 Insurance Expense 530 150
Prepaid Insurance 130 150
(Prepaid insurance expired)

4. 31 Cleaning Supplies Expense 510 450
Cleaning Supplies 120 450
(Supplies used)

5. 31 Salaries Expense 540 600
Salaries Payable 210 600
(Accrued salaries)

(g)
Income Statement

$ $
Revenues:
Service revenue 8 400
Expenses:
Salaries expense 2 ,400
Cleaning supplies expense 450
Depreciation expense 300
Petrol & Oil expense 300
Insurance expense 150
Total expenses 3 600
Profit $4 800

Calculation of retained earnings

Retained earnings 1 J uly $-
Add: Profit 4 800
4 800
Less: Dividends (900)
Retained earnings 31 J uly $3 900

Statement of financial position
as at 31 July 2012

$ $
ASSETS
Current assets
Cash 4 050
Accounts receivable 6 300
Cleaning supplies 900
Prepaid insurance 1 650
Total current assets 12 900
Non-current assets:
Motor Vehicles 9 000
Less: Accumulated depreciation (300)
Total non-current assets 8 700
Total assets 21 600
LIABILITIES
Current liabilities:
Accounts payable 3 600
Salaries payable 600
Total current liabilities 4 200
NET ASSETS $17 400

EQUITY:
Share capital 13 500
Retained earnings 3 900
TOTAL EQUITY $17 400

(h)
General Journal closing entries

Date Account name (narration) Post
Ref
Debit Credit
J uly 31 Service Revenue 400 8 400
Income Summary 320 8 400
(Close revenue accounts)

31 Income Summary 320 3 600
Petrol & Oil Expense 500 300
Cleaning Supplies Expense 510 450
Depreciation Expense 520 300
Insurance Expense 530 150
Salaries Expense 540 2 400
(Close expense accounts)

31 Income Summary 320 4 800
Retained Earnings 310 4 800
(Close Income summary account)

31 Retained Earnings 310 900
Dividends 315 900
(Close dividends account)

i)
Post-Closing Trial Balance
as at 31 July 2012
No. Account name Debit $ Credit
$
100 Cash 4 050
110 Accounts Receivable 6 300
120 Cleaning Supplies 900
130 Prepaid Insurance 1 650
150 Motor Vehicles 9 000
151 Accumulated Depreciation Motor Vehicles 300
200 Accounts Payable 3 600
210 Salaries Payable 600
300 Share Capital 13 500
310 Retained Earnings 3 900
$21 900 $21 900

PROBLEM SET B 3.2
(a).
Coen Ltd
General Journal

Date

Account name (narration)
Post
Ref.
$
Debit
$
Credit
2013
1. June 30 Supplies Expense 505 3 720
Supplies ($4700 - $980) 113 3 720
(To adjust supplies account to reflect supplies used)

2. 30 Electricity Expense 530 220
Electricity Payable 218 220
(Accrued electricity)

3. 30 Insurance Expense 515 2 100
Prepaid Insurance 112 2 100
(Prepaid insurance( ($5040 12 months)x 5 months))

4. 30 Service Revenue Received in Advance 213 1 600
(Services performed in relation to revenue received in
advance)

5. 30 Salaries Expense 500 1 540
Salaries Payable 215 1 540
(Accrued salaries)

6. 30 Depreciation Expense 520 3 750
Accumulated Depreciation Office Equipment
($45,000 60 months x 5)
131 3 750
(Record depreciation expense)

7. 30 Accounts Receivable 104 3 000
(Accrued revenue)

(b) Coen Ltd General Ledger
Cash 100
30/6 Balance 18 960

30/6 Balance 6 300 30/6 Balance 9 300
30/6 Service Revenue 3 000
9 300 9 300
1/7 Opening Balance 9 300

112
Prepaid Insurance
30/6 Balance 5 040 30/6 Insurance Expense 2 100
30/6 Closing Balance 2 940
5 040 5 040

Supplies 113
30/6 Balance 4 700 30/6 Supplies Expense 3 720
30/6 Closing Balance 980
4 700 4 700

Office Equipment 130
30/6 Balance 45 000

Accumulated Depreciation Office Equipment 131
30/6 Depreciation Expense 3 750

30/6 Balance 3 100

Service Revenue Received in Advance 213
30/6 Service Revenue 1 600 30/6 Balance 3 000
30/6 Closing Balance 1 400
3 000 3 000

30/6 Salaries Expense 1 540

Electricity Payable 218
30/6 Electricity Expense 220

Share Capital 300
30/6 Balance 40 000

Service Revenue 400
30/6 Balance 50 990
30/6 Accounts Receivable 3 000
30/6 Service Revenue in Advance
1 600
55 590

30/6 Balance 6 590
30/6 Salaries Payable 1 540
8 130

Supplies Expense 505
30/6 Supplies 3 720

Rent Expense 510
30/6 Balance 10 500

30/6 Prepaid Insurance 2 100

Depreciation Expense 520
30/6 Accumulated Depreciation 3 750

Electricity Expense 530
30/6 Electricity Expense 220

(c)
Coen Ltd
Adjusted Trial Balance
as at 30 June 2013

No. Account name Debit Credit
$ $
100 Cash 18 960
104 Accounts Receivable 9 300
112 Prepaid Insurance 2 940
113 Supplies 980
130 Office Equipment 45 000
131 Accumulated Depreciation Office Equipment 3 750
200 Accounts Payable 3 100
213 Service Revenue Received in Advance 1 400
215 Salaries Payable 1 540
218 Electricity Payable 220
300 Share Capital 40 000
400 Service Revenue 55 590
500 Salaries Expense 8 130
505 Supplies Expense 3 720
515 Insurance Expense 2 100
520 Depreciation Expense 3 750
530 Electricity Expense 220
$105 600 $105 600

(d) To report the higher profit the adjustments to accrue expense and not write down assets would be avoided
hence depreciation, writing down supplies and the prepaid insurance, recognising salaries and electricity
expense. The shareholders old and potential new shareholders and the creditors would be affected as they
would make incorrect assumptions about the profitability and liquidity of the business

SESSION FIVE
Chapter 4
QUESTIONS
3.
Net sales revenues $110,000
Cost of goods sold 77,000
Gross profit $33,000
6.
24 J uly Accounts Payable ($4,480 - 280) 4,200
Discount Received ($4,200 x 2%) 84
Cash ($4,200- $84) 4,116

BRIEF EXERCISE 4.3
Hunt Ltd

(a) 2 Mar Accounts Receivable 900,000
Sales 900,000
Cost of Goods Sold 600,000
Inventory 600,000

(b) 6 Mar Sales Returns and Allowances 130,000
Inventory 80,000

(c) 8 Mar Cash ($770,000 - $15,400) 754,600
Discount Allowed ($770,000x 2%) 15,400
Accounts Receivable ($900,000 - $130,000) 770,000
BRIEF EXERCISE 4.5
These items and where they would appear in a fully classified income statement are listed below:
Item Section

Interest revenue Other revenues (below gross profit)
Cost of goods sold Cost of goods sold
Depreciation expense Operating expenses. Depreciation expenses could be further
classified either as an administrative expense (e.g. depreciation
of office equipment) or a selling expense (e.g. depreciation of
store or warehouse equipment).
Sales returns and allowances Sales revenue.
Purchase returns and
allowances
Under the periodic inventory system, purchase returns and
allowances appears in the income statement in the calculation
of cost of goods sold as part of the determination of gross profit.
Under the perpetual inventory system, purchase returns and
allowances are recorded as a decrease in inventory and
therefore do not appear on the income statement
Discount received Other revenue
Discount allowed Financial expenses

EXERCISE 4.4
University Office Supplies

6 Sept. Inventory (80 x $20) 1,600
Cash 1,600

9 Sept. Freight In 80
Cash 80

10 Sept. Accounts Receivable 40
Inventory 40

12 Sept. Accounts Receivable (26 x $30) 780
Sales 780
Cost of sales (26 x $20) 520
Inventory 520

14 Sept. Sales Returns and Allowances 30

Inventory 20
Cost of sales 20

Sales 900
Cost of sales (30 x $20) 600
Inventory 600

CHAPTER 5
BRIEF EXERCISE 5.2
Bass Ltd

OPERATING REVENUE
Sales revenue:
Gross sales revenue 945,000
Less: Sales returns and allowances -
Net sales revenue 945,000
Cost of goods sold:
Beginning inventory 90,000
Purchases 600,000
Less: Purchase returns and allowances (28,500)
Net purchases 571,000
Add: Freight-in 24,000
Cost of goods purchased 595,500
Cost of goods available for sale 685,500
Less: Ending inventory 135,000
Cost of goods sold 550,500
GROSS PROFIT 394500

EXERCISE 5.2 McAlpine Pty Ltd
Income Statement (partial)
for the year ended 30 June 2010

Beginning inventory 1 J uly 2009 $37,840
Purchases $313280
Less: Purchase returns and allowances 4,400
Ending inventory 30 J une 2010 57,200
Cost of goods sold $289,520

PROBLEM SET B 5.7
Kicked-Back Tennis Shop Pty Ltd
General Journal
(a)

Date

Particulars

Debit

Credit

Oct. 4 Purchases 940
(Terms 3/7, n/30)

6 Freight-in 40
Cash 40

8 Accounts Receivable 900
Sales 900

10 Accounts Payable 40
Purchase Returns and Allowances 40

11 Purchases 600
Cash 600

11 Accounts Payable ($940 - $40) 900
Discount Received ($900 x 3%) 27
Cash ($900 - $27) 873

14 Purchases 500
Accounts Payable
(Terms 2/7, n/60)
500

15 Cash 50

17 Freight-in 30
Cash 30

Sales 800

20 Cash 500

Discount Received ($500 x 2%) 10
Cash 490

27 Sales Returns and Allowances 30

Sales 900

30 Cash 500

(b)
Cash
1/10 Opening Balance 2,500 6/10 Freight-in 40
15/10 Purchase returns 50 11/10 Purchases 600
20/10 Accounts
Receivable
500 11/10 Accounts
Payable
873
30/10 Accounts
Receivable
500 17/10 Freight-in 30
20/10 Accounts
Payable
490
31/10 Closing
Balance
1,517
3,550 3,550

Accounts Receivable
8/10 Sales 900 20/10 Cash 500
18/10 Sales 800 27/10 Sales Returns 30
30/10 Sales 900 30/10 Cash 500
31/10 Closing
Balance
1,570
2,600 2,600

Inventory

Accounts Payable
10/10 Purchase Returns 40 4/10 Purchases 940
11/10 Discounts
Received & Cash
900 14/10 Purchases 500
20/10 Discounts
Received & Cash
500
1,440 1,440

Share Capital

1/10 Opening
Balance
4,200

Sales
8/10 Accounts
Receivable
900
18/10 Accounts
Receivable
800
30/10 Accounts
Receivable
900
2,600

Sales Returns and Allowances
27/10 Accounts
Receivable
30

Purchases
4/10 Accounts Payable 940
11/10 Cash 600
14/10 Accounts Payable 500
2,040

Purchase Returns and Allowances
10/10 Accounts
Payable
40
15/10 Cash 50
90

Discount Received
11/10 Accounts
Payable
27
20/10 Accounts
Payable
10
37

Freight-in

6/10 Cash 40
17/10 Cash 30
70

(c)
Trial Balance
as at 31 October 2013

Debit Credit

Cash $1,517
Inventory 1,700
Accounts Payable $-
Share Capital 4,200
Sales 2,600
Sales Returns and Allowances 30
Purchases 2,040
Discount Received 37
Freight-in 70
$6,927 $6,927

(d) Closing entries:

Income summary 3,840
Sales returns and allowances 30
Purchases 2,040
Freight inwards 70
(To close various debits amounts to the Income Summary)

Ending inventory 1,800
Sales 2,600
Purchases returns and allowances 90
Discount received 37
(To close various credit accounts to income summary)

(e)
Partial Income Statement
for the month ended 31 October 2013

Sales revenues:
Sales $2,600
Less: Sales returns and allowances (30)
Net sales revenue $2,570
Cost of sales:
Beginning inventory 1 October 1,700
Purchases $2,040
Less: Purchase returns and allowances (90)
Net purchases 1,950
Add: Freight-in 70
Ending inventory 31 October 1,800
Cost of sales 1,920
Gross profit $650

In-Class Problem (Optional)
PROBLEM SET A 4.7
Funky Fashion Distributing Pty Ltd
General Journal

(a)
April 4 Inventory 6,490

Sales 5,500

Cost of Sales 4,400
Inventory 4,400

Inventory 330

7 Freight Out 220
Cash 220

11 Accounts Payable ($6,490 - $330) 6,160
Cash 6,037

13 Cash 5,390
Discount Allowed ($5,500 x 2%) 110

14 Inventory 4,840
Cash 4,840

16 Cash 550
Inventory 550

21 Inventory 6,300

22 Freight In 110
Cash 110

23 Cash 8,140
Sales 8,140

Cost of Sales 6,732
Inventory 6,732

26 Inventory 2,530
Cash 2,530

Cash 6,174

Cash 99

Inventory 77
Cost of Sales 77

Sales 4,070

Cost of Sales 3,300
Inventory 3,300

(b)
Cash
April 1 Opening Bal. 9,900 April 7 Freight Out 220
13 Accounts
Receivable
5,390 11 Accounts Payable 6,037
16 Inventory 550 14 Inventory 4,840
23 Sales 8,140 22 Freight In 110
26 Inventory 2,530
29 Sales Returns 99
30 Closing Bal. 3,970
$23,980 $23,980
May 1 Opening Bal. 3,970

Accounts Receivable
April 6 Sales 5,500 April 13 Cash & Discount 5,500
30 Sales 4,070 30 Closing Bal. 4,070
9,570 9,570

Inventory
April 4 Accounts Payable 6,490 April 6 Cost of sales 4,400
14 Cash 4,840 6 Accounts Payable 330
21 Accounts Payable 6,300 16 Cash 550
26 Cash 2,530 23 Cost of sales 6,732
29 Cost of sales 77 30 Cost of sales 3,300
20,237 20,237

Accounts Payable
April 6 Inventory 330 April 4 Inventory 6,490
11 Cash & Discount 6,160 21 Inventory 6,300
27 Cash & Discount 6,300
12,790 12,790

Share Capital
April 1 Opening Bal. 9,900

Sales
April 6 Accounts Receivable 5,500
23 Cash 8,140
17,710

Sales Returns and Allowances
April 29 Cash 99

Discount Received
April 11 Accounts Payable 123
249

Discount Allowed
April 13 Accounts
Receivable
110

Freight In
April 22 Cash 110

Freight Out
April 7 Cash 220

Cost of Sales
April 6 Inventory 4,400 April 29 Inventory 77
23 Inventory 6,732 30 Closing Bal. 14,355
30 Inventory 3,300
14,432 14,432

(c)
Funky Fashion Distributing Pty Ltd
Income Statement (Partial)
for the month ended 30 April 2012

OPERATING REVENUE
Sales revenue:
Gross sales revenue $17,710
Less: Cost of sales (14,355)
Freight in (110) (14,465)
GROSS PROFIT $3,146

(d)
Profit margin ratio =
Profit
Net sales
GP 3,146 990 oper.
Expen* +disc. recd $249
13.7%
17,611
2,405
=

Gross profit ratio =
Sales Net
Profit Gross

17.9%
17,611
3,146
=
*Note: It is assumed that discounts allowed and freight out are included in operating expenses.

SESSION SIX
Chapter 4
QUESTIONS
10. (a) False. GST may be paid on taxable supplies at each stage in the commercial chain, however, it is the
final consumer, not the first purchaser, who bears the cost of the GST.
(b) True. The GST is a value-added tax, which means that tax is levied on the value added by a
business at each stage in the production and distribution chain. The GST is not a tax on business
income.
EXERCISE 4.11
Peters Pottery Ltd

(a) Dr Cash/Accounts Receivable $6,600
Cr GST Collected (liability) $600
Cr Sales $6,000

Dr Inventory $1,100
Dr GST Paid (asset) $110
Cr Cash/Accounts Payable $1,210

(b) Dr GST Collected $600
Cr GST Paid $110
Cr Cash $490

Alternatively a single GST clearing account can be used instead of GST Collected and GST Paid
accounts

EXERCISE 4.12
Rock Shop Ltd

(a) May 3 Dr Inventory $400
Dr GST Paid 40
Cr Cash/Accounts payable $440

May 10 Dr Cash/Accounts receivable $550
Cr Sales $500
Cr GST collected $50

Dr GST Collected $50
Cr GST Paid $40
Cr Cash $10

EXERCISE 4.13
Peters Pottery Ltd

(a) Dr Cash/Accounts Receivable $6,600
Cr GST Clearing $600
Cr Sales $6,000

Dr Inventory $1,100
Dr GST Clearing $110
Cr Cash/Accounts Payable $1,210

(b) Dr GST Clearing $490
Cr Cash $490

PROBLEM SET A 4.2
The Reading Warehouse
General Journal

J une 2 Inventory (130 x $6) 780
(Terms 1/7, n/30)
Freight In 60
Cash 60

3 Accounts Receivable (140 x $12) 1,680
Sales
(Terms 2/7, n/30)
1,680
Cost of Sales (140 x $6) 840
Inventory 840

Inventory 60

9 Accounts Payable ($780 - $60) 720
Discount Received ($720 x 1%*) 7
Cash 713

15 Cash 1,680

Sales 1,440
(Term 2/7, n/30)
Inventory 720

20 Inventory (120 x $6) 720
Accounts Payable
(Term 2/7, n/30)
720

24 Cash 1,411
Discount Allowed ($1,440 x 2%*) 29

Discount Received ($720 x 2%*) 14
Cash 706

Sales 1,320

Inventory 660


Inventory 90
Cost of Sales 90

(*to the nearest dollar)
(b) The advantages for The Reading Warehouse of using a perpetual inventory system as opposed to a
periodic inventory system are:
Inventory is constantly updated every time a purchase or sale is made. This means that The
Reading Warehouse will be aware of when to reorder items of inventory.
Cost of sales is updated every time a sale is made so interim financial statements can be prepared
without having to conduct an inventory count.
When The Reading Warehouse does conduct an inventory count (which should be at least
annually), any inventory losses can be accurately determined.
Using a perpetual inventory system would be a disadvantage for The Reading Warehouse if the
business does not have a suitable computer system to maintain inventory records.

Chapter 5
EXERCISE 5.5
Bozic Ltd
Income Statement
for the month ended 31 January 2013

INCOME
Sales revenue:
Gross sales revenue $405,600
Less: Sales returns and allowances 16,900

Cost of sales:
Beginning inventory 1 J anuary 54,600
Purchases $260,000
Less: Purchase returns and allowances 11,700
Add: Freight-in 13,000
Less: Ending Inventory 31 J anuary 81,900
Cost of sales 234,000
GROSS PROFIT 154,700

OPERATING EXPENSES
Selling expenses:
Freight-out 9,100
Rent expense store space 13,000
Sales salaries expense 27,300 49,400

Administrative expenses:
Insurance expense 15,600
Office salaries expense 52,000
Rent expense office space 13,000 80,600

Financial expenses:
Discount allowed 10,400 10,400
Total operating expenses 140,400
PROFIT $14,300

In-Class Problem (Optional)
PROBLEM SET A 4.4
(a)
Tigers Tennis Pro Shop Pty Ltd
General Journal

Date

Particulars
Post
Ref

Debit

Credit

April 7 Inventory
GST Paid
115 2,040
204

Accounts Payable 200 2,244

8 Freight Inwards
GST Paid
505 96
10

Cash 100 106

9 Accounts Payable
GST Paid
200 264

24
Inventory 115 240

10 Accounts Receivable
GST Collected
105 1,188

108
Sales 400 1,080

Cost of Goods Sold 500 756
Inventory 115 756

14 Inventory
GST Paid
115 792
79

Accounts Payable 200 871

Accounts Payable ($2,244 $264) 200 1,980
Discount Received ($1,980 x 2%)
GST Paid
410 36
4
Cash 100 1,940

17 Accounts Payable
GST Paid
200 79

7
Inventory 115 72

20 Accounts Receivable
GST Collected
105 924

84
Sales 400 840

Cost of Goods Sold 500 588
Inventory 115 588

Accounts Payable ($871 - $79) 200 792

21
Discount Received ($792 x 1%)
GST Paid
410 7
1
Cash 100 784

27 Sales Returns and Allowances
GST Collected
405 72
7

Accounts Receivable

Inventory
Cost of goods sold
105

50
79

50

30 Cash 100 1,320
Accounts Receivable 105 1,320

(b)
Cash 100
April 1 Opening Bal 3,000 April 8 Freight Inwards 106
April 14 Accounts Payable 1,940
30 Accounts
Receivable
1,320 21 784
4,320 4,320

April 10 Sales 1188 April 27 Sales Returns &
Allowances
79
20 Sales 924 30 Cash 1,320
2,112 30 Closing Bal. 713
2,112
May 1 Opening Bal. 713

Inventory 115
April 1 Opening Bal. 4,200 April 9 Accounts Payable 240
7 Accounts Payable 2,040 10 Cost of Goods Sold 756
14
27
Accounts Payable
Cost of goods sold
792
50
20 Cost of Goods Sold 588
7,082 7,082

April 9 Inventory 264 April 7 Inventory 2,244
14 Cash & Discount 1,980 14 Inventory 871
17 Inventory 79
21 Cash & Discount 792
3,115 3,115

Share Capital 300
April 1 Opening Bal. 7,200

Sales 400
April 10 Accounts Receivable 1080
1,920

April 27 Accounts
Receivable
72

Discount Received 410
April 14 Accounts Payable 36
43

Cost of Goods Sold 500
May 10 Inventory 756 April 27 Inventory 50
20 Inventory 588
1,294

Freight Inwards 505
April 8 Cash 96

GST PAID
April 7 Accts Pay 204 April 9 Accts Pay 24
8 Cash 10 14 Accts Pay 4
14 Accts Pay 79 17 Accts Pay 7
293 21 Accts Pay 1
Balance 257
293
GST COLLECTED
April 27 Accts Rec 7 April 10 Accts Rec 108
Balance 185 20 Accts Rec 84
192 192

(c)
Trial Balance
as at April 30, 2011
Debit Credit

Cash $1,490
Inventory 5,426
Accounts Payable -
Share Capital $7,200
Sales 1,920
Discount Received
GST Collected
43
185
Freight Inwards
GST Paid
96
257

$9,348 $9,348

(d)
Income Statement (Partial)
for the month ended 30 April 2011

Sales revenues
Sales $1,920
Net sales $1,848
Less: Cost of goods sold 1,344
Freight inwards 96 1440
Gross Profit $ 408

SESSION SEVEN
TO BE DONE IN CLASS AFTER REVIEW OF MID-SEMESTER TEST
PSB 5.11 & PSB5.12
PROBLEM SET B 5.11
(a)
Jones Ltd
Perceptual Inventory Method
Sales Revenue 93,500
Income Summary 93,500

Cost Of Sales 63,360
Sales Returns and Allowances 5,500
(To close various debit amounts to the Income
Summary)

(To close Income Summary to Retained Earnings )

OR one net entry
Sales Revenue 93,500
Cost Of Sales 63,360
Sales Returns and Allowances 5,500
(To close various debit and credit amounts to the Income Summary)

Brown Ltd

Periodic Inventory Method

Sales returns and allowances 5,500
Purchases 66,000
Freight inwards 660
(To close various debit amounts to the Income
Summary)

Ending inventory 17,600
Sales 93,500
Purchases returns and allowances 1,100

(To close Income Summary to Retained Earnings )

(b)

General ledgers

Perpetual method
Income Summary
Cost of Sales, etc. 68,860 Sales revenue 93,500

93,500 93,500

Periodic method
Income Summary
Beginning Inventory, etc. 87,560 Ending Inventory etc 112,200


112,200 112,200

PROBLEM SET B 5.12
Thompson Office Supplies

6 Sept. Inventory (120 x $29*) $3 480
GST Paid (120 x $3) 360
Cash $3 840
(Purchase 120 USB @ $32)

9 Sept. Freight Inwards/Inventory 120
GST Paid 12
Cash 132
(Paid freight )

Inventory (2 x $29) 58
GST Paid 6
(Returned 2 USB - credit given)

12 Sept. Accounts Receivable (39 x $43) 1 677
Sales 1 521
GST Collected 156

Cost of Sales (39 x $30) 1 170
Inventory 1 170
(Sold 39 USB)

14 Sept. Sales Returns and Allowances 39
GST Collected 4

Inventory 30
Cost of Sales 30
(1 USB was returned into stock)

20 Sept. Accounts Receivable (45 x $43) 1 935
Sales 1 755
GST Collected 180

Cost of Sales [(7 x $30) +(38 x $29)] * 1 312
Inventory 1 312
(Sold 45 USB)

*Rounding to the nearest dollar

**Note: Thompson Office Supplies uses the FIFO inventory cost flow assumption, which means that
inventory purchased earlier will be sold first. On 1st September, Thompson Office Supplies had 45 USB on
stock @ $30 each. The first 39 USB were sold to Sunny Store on 12th September, so there were 6 USB left
@ $20. But 1 USB was returned from Sunny Store on 14
th
September. When Thompson Office Supplies
sold 45 USB to Martins Ltd on 20th September, 7 USB from old stock @ $30 each were sold first, and the
remaining 38 were taken from the new stock purchased on 6th September @ $29 each.
SESSION EIGHT
Chapter 6
Questions
6. At the end of the month, after all posting to both the general ledger and the subsidiary ledger
accounts have been made, a total of a subsidiary ledger account balances should equal the balance
of the control account in the general ledger. In this case, the control account balance will be $450
larger than the total of the subsidiary accounts. The difference would be investigated by checking
the postings made to the control account and subsidiary ledger accounts and the error would be
discovered.
8. (a) General journal (d) Sales journal
(b) General journal (e) Cash receipts journal
(c) Cash receipts journal (f) General journal

BRIEF EXERCISE 6.4
(a) Cash receipts journal
(b) Cash payments journal
(c) Cash payments journal
(d) Sales journal
(e) Purchases journal
(f) Cash receipts journal

BRIEF EXERCISE 6.6
(a) Both in total and daily
(b) In total
(c) In total
(d) Only daily (Note: They can also be individually posted at the end of the month.)

EXERCISE 6.4 Pena Pipes
(a) & (b)
Cash Receipts Journal
CR1

Date

Account
Credited

Ref

Cash Dr
Discount
Al lowed
Dr
Accounts
Receivable
Cr

Sales
Cr
Other
Accounts
Cr
Cost of Goods
Sold Dr
Inventory Cr
2010
May 1 R Pena,
Cap.
60,000 60,000
2 6,000 6,000 4,200
22 R Dusto 9,000 9,000
75,000 9,000 6,000 60,000 4,200

Pena Pipes
Cash Payments Journal
CP1

Date

Ch. No.

Account
Debited

Ref.

Other
Accounts
Dr

Accounts
Payable
Dr

Discount
Received
Cr

Cash
Cr
2010
May 3 101 Inventory 9,000 9,000
14 102 Salary
Expense
700 700
9,700 9,700

EXERCISE 6.7
Poullos Printworks
1. Cash Payments J ournal 8. Cash Receipts J ournal
2. General J ournal 9. Cash Payments J ournal
3. Cash Receipts J ournal 10. General J ournal
4. Cash Receipts J ournal 11. General J ournal
5. Sales J ournal 12. Cash Payments J ournal
6. Cash Receipts J ournal 13. Purchases J ournal
7. General J ournal

EXERCISE 6.8
Williams Ltd

(a) The debit posting reference on 28 February should be from the cash payments journal (CP) to record the
payments made during the month. The missing general ledger debit amount should be $29,500 to balance.
Wangs ending balance must be $3,240. (Accounts Payable control balance of $9,840 less Scaly, $4,600,
and Gates, $2,000.)

(b) All amounts posted in total to the control account are also posted in detail in the accounts payable subsidiary
ledger account. This system ensures that the total of the subsidiary ledger accounts will equal the total in the
corresponding control account.

PROBLEM SET A 6.5
Byron Bay Bikes
(a), (d) & (g)
General Ledger
Cash
No. 101
Date Explanation Ref Debit Credit Balance
J uly 31 CR16 117,918 117,918
31 CP16 46,166 71,752

Accounts Receivable No. 112
J uly 31 S15 21,480 21,480
31 CR16 16,680 4,800

Inventory No. 120
J uly 31 P14 50,784 50,784
29 CR16 540 50,244
31 S15 13,962 36,282
31 CR16 3,120 33,162

Store Supplies No. 127
J uly 4 CP16 720 720
31 Adjusting entry G5 552 168

Prepaid Rent No. 131
J uly 11 CP16 7,200 7,200
31 Adjusting entry G5 600 6,600

Accounts Payable No. 201
J uly 31 P14 50,784 50,784
31 CP16 35,520 15,264

Collins, Capital No. 301
J uly 1 CR16 96,000 96,000

Collins, Drawings No. 306
J uly 19 CP16 3,000 3,000

Sales No. 401
J uly 31 S15 21,480 21,480
31 CR16 4,800 26,280

Discount Received No. 405
J uly 31 CP16 274 274

Cost of Goods Sold No. 505
J uly 31 S15 13,962 13,962
31 CR16 3,120 17,082

Discount Allowed No. 614
J uly 31 CR16 102 102

Supplies Expense No. 631
J uly 31 Adjusting entry G5 552 552

Rent Expense No. 729
J uly 31 Adjusting entry G5 600 600

(b) Sales Journal
S15

Date
Account
Debited
Post
Ref
Accounts Receivable
Dr
Sales Cr
Cost of Goods Sold Dr
Inventory Cr

J uly 6 Toy World
Co.
6,480 4,212
8 Biker Ltd 4,320 2,808
10 L Lemansky 5,880 3,822
21 S Kane 4,800 3,120
21,480 13,962
(112)/(401) (505)/(120)

Cash Receipts Journal
CR16

Date

Account
Credited

Ref

Cash Dr

Discount
Allowed
Dr

Accounts
Receivable
Cr

Sales
Cr

Other
Accounts
Cr

Cost of
Goods Sold
Dr
Inventory Cr
J uly
1 Williams,
Capital
301 96,000 96,000
7 4,800 4,800 3,120
13 Biker Limited 4,277 43 4,320
16 L Lemansky 5,821 59 5,880
20 Toy World 6,480 6,480
29 Inventory 120 540 540
117,918 102 16,680 4,800 96,540 3,120
(101) (614) (112) (401) (x) (505)/(120)

Cross-footing Totals $121,140
Dr Total =$121,140 ($117,918 +$102 +$3,120)
Cr Total =$121,140 ($16,680 +$4,800 +$95,540 +$3,120)

Accounts Payable Subsidiary Ledger
Dixons Bikes
J uly 4 P14 8,160 6,800
15 CP16 8,160 0

Bike Supplies
J uly 5 P14 9,000 7,500
10 CP16 9,000 0

R Gamble
J uly 11 P14 4,704 4,704

M Hill
J uly 13 P14 18,360 18,360
21 CP16 18,360 0

D Jacob
J uly 20 P14 10,560 10,560

Accounts Receivable Subsidiary Ledger
Toy World Co.
J uly 6 S15 6,480 5,400
20 CR16 6,480 0

S Kane
J uly 21 S15 4,800 4,800

L Lemansky
J uly 10 S15 5,880 5,880
16 CR16 5,880 0

Biker Ltd
J uly 8 S15 4,320 4,320
13 CR16 4,320 0

(e)
Byron Bay Bikes
Unadjusted Trial Balance
as at 31 July 2011
Debit Credit

101 Cash $71,752
120 Inventory 33,162
127 Store Supplies 720
131 Prepaid Rent 7,200
201 Accounts Payable $15,264
301 Williams, Capital 96,000
306 Williams, Drawings 3,000
401 Sales 26280
405 Discount Received 274
505 Cost of Goods Sold 17,082
614 Discount Allowed 102
$137,818 $137,818

(f)
Accounts Payable Control Balance $15,264

Schedule of Accounts Payable 31/7/11:
D J acob $10,560
R Gamble 4,704
$15,264

Accounts Receivable Control Balance $4,800

Schedule of Accounts Receivable 31/7/11:
S Kane $4,800

(b) & (g)
General Journal
G5
Date Account Titles and Explanation Ref Debit Credit

J uly 31 Supplies Expense 631 552
Store Supplies 127 552
(Adjusting entry to record supplies used)

Prepaid Rent 131 600
(Adjusting entry to recognise J uly rent expense)

(h)
Byron Bay Bikes
as at 31 July 2011

Debit Credit

101 Cash $71,752
127 Store Supplies 168
131 Prepaid Rent 6600
301 Williams, Capital 96,000
306 Williams, Drawings 3,000
401 Sales 26280
505 Cost of Goods Sold 17,082
631 Supplies Expense 552
729 Rent Expense 600
$137,818 $137,818

(i) If the trial balance desnt balance:
Re-add the columns
Check that all balances have been accurately transferred from the general ledger
If the difference between the total of the debit and credit columns is divisible by 2, it may
indicate an amount that was posted to the same side twice instead of once as a debit and
once as a credit.
If the difference is divisible by 9, a transposition error may have been made ie: the order of
the digits in a number may have been reversed, or the error may be a slide ie: the decimal
place has been incorrectly placed in one of the postings.

PROBLEM SET A 6.8

Toko Futons
(b)
Purchases Journal
P1

Date

Account Credited

Terms

Ref.
Inventory Dr
Accounts Payable Cr
Feb. 6 S Healy 1/7, n/30 4,000
9 L Held 1/10, n/30 30,000
16 R Landly 2/7, n/30 2,400
21 J Able 1/7, n/30 6,500
42,900
(120)/(201)

Cash Payments Journal
CP1

Date

Account Debited

Ref.
Other
Accounts
Dr.

Accounts
Payable Dr.

Inventory
Dr

Discount
Received Cr.

Cash Cr.

Feb. 9 Supplies 126 1,000 1,000
12 S Healy 4,000 40 3,960
15 Equipment 157 8,000 8,000
17 L Held 30,000 300 29,700
20 J Toko, Drawings 306 1,100 1,100
28 R Landly 2,400 2,400
10,100 36,400 0 340 46,160
(x) (201) (405) (101)

(a), (d) & (g)

Note: Corrected post references for Sales Journal and Cash Receipts Journal are S1 and CR1 respectively as
illustrated in the solution below.

General Ledger
Cash No. 101
Date Explanation Ref. Debit Credit Balance
Feb. 28 CR1 48,595 48,595
28 CP1 46,160 2,435

Accounts Receivable No. 112
Feb 28 S1 26,000 26,000
28 CR1 12,000 14,000

Inventory No. 120
Feb. 28 P1 42,900 42,900
18 CR1 150 42,750
28 S1 17,160 25,590
28 CR1 4,290 21,300

Supplies No. 126
Feb. 9 CP1 1,000 1,000
28 Adjusting entry G1 700 300

Equipment No. 157
Feb. 15 CP1 8,000 8,000

Accumulated Depreciation - Equipment No. 158
Feb. 28 Adjusting entry G1 200 200

Accounts Payable No. 201
Feb. 28 P1 42,900 42,900
28 CP1 36,400 6,500

J Toko, Capital No. 301
Feb. 1 CR1 30,000 30,000

J Toko, Drawings No. 306
Feb. 20 CP1 1,100 1,100

Sales No. 401
Feb. 28 S1 26,000 26,000
28 CR1 6,500 32,500

Discount Received No. 405
Feb. 28 CP1 340 340

Cost of Sales No. 505
Feb. 28 S1 17,160 17,160
28 CR1 4,290 21,450

Discount Allowed No. 614
Feb. 28 CR1 55 55

Supplies Expense No. 631

Depreciation Expense No. 711

(c)
Accounts Receivable Subsidiary Ledger

D Adams
Feb. 3 S1 5,500 5,500
13 CR1 5,500 0

P Babcock
Feb. 9 S1 6,500 6,500
26 CR1 6,500 0

D Chambers
Feb. 12 S1 8,000 8,000

K Dawson
Feb. 26 S1 6,000 6,000

Accounts Payable Subsidiary Ledger

J Able
Feb. 21 P1 6,500 6,500

S Healy
Feb. 6 P1 4,000 4,000
12 CP1 4,000 0

L Held
Feb. 9 P1 30,000 30,000
17 CP1 30,000 0

R Landly
Feb. 16 P1 2,400 2,400
28 CP1 2,400 0

(e)
Toko Futons
Trial Balance
as at 28 February 2013

Debit Credit

101 Cash $2,435
126 Supplies 1,000
157 Equipment 8,000
301 J Toko, Capital 30,000
306 J Toko, Drawings 1,100
401 Sales 32,500
505 Cost of Sales 21,450
$69,340 $69,340

(f)
Accounts Receivable Control Account $14,000

Accounts Receivable Subsidiary Accounts:
D Chambers $8,000
K Dawson 6,000 $14,000

Accounts Payable Control Account $6,500

Accounts Payable Subsidiary Account:
J Able $6,500

(g)
General Journal
G1
Date Account Titles and Explanation Ref. Debit Credit

Feb. 28 Supplies Expense 631 700
Supplies 126 700
(Record supplies used)

28 Depreciation Expense 711 200
Accumulated Depreciation Equipment 158 200
(Record depreciation expense)

(h)
Toko Futons
as at 28 February 2013

Debit Credit

101 Cash $2,435
126 Supplies 300
157 Equipment 8,000
158 Accumulated Depreciation Equipment $200
301 J Toko, Capital 30,000
306 J Toko, Drawings 1,100
401 Sales 32,500
505 Cost of Sales 21,450
631 Supplies Expense 700
711 Depreciation Expense 200
$69,540 $69,540

SESSION NINE
Chapter 7
Questions
2. Cash should be reported at $17,850 ($5,000 +$850 +$12,000).

5. (a) A dishonoured cheque occurs when the bank on which the cheque is drawn refuses to pay the
cheque, because it has been cancelled or because the balance of the account on which it is drawn is
less than the amount of the cheque.
(b) It reduced the balance of the bank account reported on the bank statement. The dishonoured cheque
should be recorded in the Cash at Bank account. It does not appear in the bank reconciliation
statement.
(c) A dishonoured cheque should be entered into the cash receipts as a reduction in cash receipts. The
adjusting entry in the companys ledger accounts is a debit to Accounts Receivable and a credit to
Cash.
BRIEF EXERCISE 7.6
Massey Ltd

(a) Bad Debts Expense [($500,000 x 1%) - $3,000] 2,000
Allowance for Doubtful Debts 2,000

(b) Bad Debts Expense [($500,000 x 1%) + $800] 5,800
EXERCISE 7.3
Shoe City Ltd
(a) Balance as per bank statement $4,392.20
Add: Outstanding deposits 708.00
5,100.20
Less: Unpresented cheques (876.00)
Balance as per Cash at Bank account (1) $4,224.20

(1) Cash balance per books $4,770.20
Less: Dishonoured cheque $516.00
Bank charges 30.00 455.00
Adjusted cash balance per books $4,224.20

(b) (In general journal form)

Accounts Receivable 516.00
Cash at Bank 516.00

Bank Charges 30.00
Cash at Bank 30.00

EXERCISE 7.6
Garcia Pty Ltd
(a)
Accounts Receivable

Amount

%
Estimated
Uncollectables

Current $65,000 2.0 $1,300
1-30 days past due 12,600 5.0 630
31-90 days past due 8,500 30.0 2,550
Over 90 days 6,400 50.0 3,200
$7,680

(b) Mar. 31 Bad Debts Expense 6,080
($7,680 - $1,600)

(c) The total balance of receivables increased from 2009 to 2010. However, of concern is the
fact that each of the three categories of older accounts increased substantially during 2010.
That is, customers are taking longer to pay and bad debts are likely to increase.
Management needs to investigate the causes of this change.

PROBLEM SET B 7.4
(a) Interactive Ltd
Bank Reconciliation Statement
31 May 2010

Balance as per bank statement $15,569.20
Add: Outstanding deposits $1,672.30
Bank error teller cheque 1,200.00 2,872.30
18,441.50
Less: Unpresented cheques (2,552.50)
Balance as per Cash at Bank account (1) $15,889.00

Adjustment to bank account balance

(1) Original Cash at Bank balance per books $10,949.00
Add: Error in recording cheque no. 1181 360.00
Add: Collection of note receivable 6,120.00
17,429.00
Less: Dishonoured cheque ($1,400.00)
Error in 12 May receipt (20.00)

Bank cheque printing charge (120.00) (1,540.00)
Adjusted Cash at Bank account balance $15,889.00

(b) (In general journal form)

Date Account Titles and Explanation Debit Credit
May 31 Cash at Bank 6,120
Bank Charges 40
Note Receivable 6,000

Interest Revenue
160

31 Accounts Receivable W Hoad 1,400
Cash at Bank 1,400

31 Sales 20
Cash at Bank 20

31 Cash at bank 360
Accounts Payable M Helms 360

31 Bank Charges 120
Cash at Bank 120

PROBLEM SET B 7.7

Bantax Ltd

(a) $7,250.

(b) $1,750 [($115,000 X 5%) $4,000].

(c) $8,625 [($115,000 X 5%) +$2,875].

(d) Under the direct write-off method, accounts receivable are overstated because future
estimated write-offs are not anticipatedwrite-offs are journalized as they occur. In contrast, under the
allowance method, anticipated write-offs are estimated and reduce the ending accounts receivable
balance. The resulting estimated balance of accounts receivable, stated at recoverable amount, then
represents the present value of the cash flows expected to be derived from the receivable.

IN-CLASS PROBLEM (Optional)

PROBLEM SET B 7.8
Gleason Ltd

(a) Dec. 31 Bad Debts Expense ($16,750 - $1,500) 15,250

(b) Dec. 31 Bad Debts Expense ($16,750 + $1,500) 18,250

(c) Allowance for Doubtful Debts 4,500

(d) Bad Debts Expense 4,500

(e) The advantages of the allowance method over the direct write-off method are that it
attempts to show the recoverable amount of the accounts receivable on the balance
sheet and recognises a bad debts expense when the loss of future economic benefits is
probable.

SESSION TEN
Chapter 8
Questions
8. After initial recognition of cost, each class of non-current asset may be measured on the cost or fair
value basis. Any revaluations of non-current assets must be carried out by class of asset. For
intangibles to be revalued there must be an active market. Increments and decrements within the
same class must not be offset against one another. Any initial revaluation to a value above the up-
to-date carrying amount is referred to as a revaluation increment and is credited directly to equity to
an account entitled Revaluation Reserve. Any initial revaluation to a value below the up-to-date
carrying amount is a revaluation decrement. A revaluation decrement is treated as an expense in
the income statement. If in a subsequent period the initial revaluations reverse, the revaluation
increment (decrement) for an asset it should be offset against the previous revaluation decrement
(increment) of that asset, to the extent of the amount of the previous revaluations. For reversals
against the Revaluation Reserve there must be balances available for that asset in the reserve.
The steps to record the revaluation are:
(a) Record the depreciation (if it is a depreciable asset) to date of revaluation
(b) Transfer the balance of the contra account, Accumulated Depreciation, to the asset
account to give the assets carrying value
(c) Record the revaluation.

10. By selecting a higher estimated useful life, Betty Ltd is spreading the PPE assets cost over a longer
period of time. The depreciation expense reported in each period is lower and profit is higher.
Barneys choice of a shorter estimated useful life will result in higher depreciation expense reported
in each period and lower profit. Therefore, Betty Ltd may appear to be a better performer.

EXERCISE 8.5
Abbey Ltd
Balance date 30 June

1 Oct 2010 Equipment Cost $80,000
Estimated Residual 5,000
Depreciable Amount $75,000

Useful life is 5 years depreciation rate 20%
Depreciation 30/6/2011 = $75,000 x 20% x 9/12 = $11,250

Carrying amount 30/6/2011= $80,000 - $11,250 = $68,750
Recoverable amount $48,750 is higher net selling price ($48,750) and value in use ($45,000).

Impairment write down = $68,750 - $48,750 = $20,000
Journal Entries
1/10/10 Machinery $80,000
Cash/Payables $80,000
(Being purchase)
30/6/11 Depreciation Expense 11,250
Accumulated Depn Mach 11,250
(Being annual depreciation)
1/7/11 Impairment Loss 20,000
Accumulated impairment loss 20,000
(Being impairment writedown)

EXERCISE 8.6
Walpole Ltd

1 April 2007 Equipment Cost $53,000

Useful life 8 years. Depreciation rate 100% 8 years = 12.5%
Annual depreciation is $6,000 p.a. ($48,000 8 or $48,000 x 12.5%)
After revaluation 1 July 2009, new depreciation is over 7 years.

Journal Entries $ $
1/4/07 Equipment 53,000
Cash 53,000
(Being purchase of equipment)

Accumulated Depreciation Equipment 1,500
($48,000 8 x 3/12)

($48,000 8)

($48,000 8)

Revaluation
1/7/09 Accumulated Depreciation Equipment 13,500
Equipment 13,500
(Carrying value before revaluation = $39,500)

Equipment 11,000
Revaluation Reserve 11,000
(new carrying amount $39,500 + $11,000 = $50,500)

[($50,500 - $5,000) 7 years]

Sale
[($50,500 - $5,000) 7 years x 6/12 depn to date of sale]

Cash 42,000
Equipment 50,500
Gain on sale of equipment 1,250
(Being disposal of equipment)

Calculation of gain on sale
Cost $50,500
Accumulated Depreciation (6,500 + 3,250) (9,750)
Carrying amount of equipment sold 40,750
Proceeds from sale 42,000
Gain on sale $1,250

EXERCISE 8.7
Warren Ltd
Balance date 30 June
1 July 2006 Equipment Cost $180,000

Useful life 10 years. Depreciation rate 100% 10 years = 10.0%
Annual depreciation is $16,000 p.a. ($160,000 x 10%)

Journal Entries $ $
1/7/06 Equipment 180,000
Cash 180,000
(Being purchase of equipment)

($160,000 x 10%)

($160,000 x 10%)

Revaluation
Equipment 32,000
(Carrying value before revaluation = $148,000)

Equipment 17,000
(new carrying amt $148,000 + $17,000 = $165,000)

[($165,000 - $15,000) 6 years]

Revaluation downward
[($165,000 - $15,000) 6 years x 6/12]

Equipment 37,500
(Carrying value before devaluation = $127,500)

Loss on revaluation expense 8,000
Equipment 25,000
(Being revaluation downward by $25,000)

PROBLEM SET A 8.1
Fleming Ltd

Item Land Building Other Accounts
1 $250,000
2 $4,900 Land Improvements
3 27,000
4 7,270
5 $21,900
6 51,000
7 629,500
8 31,800 Land Improvements
9 5,320 Land Tax Expense
(12,700)
$271,570 $702,400 $42,020

PROBLEM SET A 8.5
Dragon Ltd
Year ending 30 June
$ $
(a) 30/6/09 Depreciation Expense Machinery 10,000
Accumulated depreciation Machinery 10,000
($50,000 x 1/5 or #1 $2000, #2 $5000, #3 $3000)

(b) 30/0/09 Impairment Loss 7,000
Accumulated impairment loss Machine #2 7,000
(Writedown of mach #2 to recoverable amount)

Machine WDV Recoverable Amt Adj
1 $8,000 $9,000 nil
2 20,000 13,000 7,000
3 12,000 13,000 nil

(c) 30/6/10 Depreciation Expense Machinery 8,250
Accumulated depreciation Machinery 8,250
(Depn #1 $2000, #2 $3,250(13,000/4), #3 $3000)

(d) 30/0/10 Accumulated impairment loss Machine #2 5,250
Income Impairment loss reversal 5,250
(Writedown of mach #2 to recoverable amount)

Machine WDV Recoverable Amt Adj
1 $6,000 6,500 nil
2 9,750* 17,000 5,250**
3 9,000 9,500 nil

* $25,000 -5,000-7,000-3,250=$9,750
**#2WDV had the machine not been impaired
$25,000-$5,000-$5,000=$15,000 max reversal
permitted $15,000-9750 =$5,250

This will reinstate #2 to WDV of $15,000


PROBLEM SET A 8.6
Payne Ltd

Journal Entries $ $
(a)
30/6/12 Land Brisbane 250,000
Land Sydney 200,000
Revaluation Surplus 450,000
(Revaluation of land Bris $250,000, Syd $200,000)

30/6/12 Accumulated Depn Buildings 75,000
Buildings Sydney 75,000
(to close off the accumulated depn to asset A/c)
Revaluation Surplus 25,000
Loss on revaluation of building 25,000
Buildings Sydney 50,000
(Revalue building from $425,000 to $375,000)

(b)
30/6/13 Depreciation Expense Buildings 25,000
Accumulated Depn Buildings 25,000
(Depreciation expense for the year $375,000 x 1/15)

SESSION ELEVEN
Chapter 11
Questions
6. Sales $4,000,000
Less: Increase in receivables 400,000
Cash receipts from customers $3,600,000

7. A number of factors could have caused an increase in cash despite the loss for the period. These
are:
(1) high cash revenues relative to low cash expenses
(2) sales of property, plant, and equipment
(3) sales of investments
(4) issue of debt or shares for cash.

9. This transaction is reported in the note or schedule entitled Noncash investing and financing activities as
follows: Issue of 2 million ordinary shares in consideration for equipment.

BRIEF EXERCISE 11.1
Riley Ltd

(a) Cash inflow from financing activity, $200,000
(b) Cash outflow from investing activity, $150,000
(c) Cash inflow from investing activity, $ 20,000
(d) Cash outflow from financing activity, $ 50,000

BRIEF EXERCISE 11.6
Wellington Manufacturing Ltd

Original cost of equipment sold $22,000
Less Accumulated depreciation (6,000)
Carrying amount of equipment sold 16,000
Add: Gain on sale of equipment 3,000
Cash flow from sale of equipment $19,000

EXERCISE 11.5
Thomas Ltd

(a) Investing activity (h) Financing activity
(b) Financing activity (i) Operating activity (reconciliation)
(c) Investing activity (j) Financing activity
(d) Non-cash investing and financing
activity
(k) Operating activity
(e) Operating activity (reconciliation) (l) Non-cash financing activity
(f) Financing activity (m) Investing activity (cash proceeds from
sale)
(g) Operating activity (n) Operating activity
EXERCISE 11.8
Flypaper Airlines Ltd
Partial Cash Flow Statement
for the year ended 31 December 2009

Cash flows from operating activities:
Cash receipts from:
Customers *$250,000
Dividends on investment 14,000
264,000
Cash payments:
To suppliers for inventory $100,000
For operating expenses 20,000
For salaries and wages 68,000
For interest 15,000
For income taxes 16,000 219,000
Net cash provided by operating activities $45,000

*$60,000 +$190,000

EXERCISE 11.11
Dynasty Ltd
Partial Statement of Cash Flows
for the year ended 30 June 2013

Cash receipts from:
Customers *$350,000
Dividends on investment 19,600
369,600
Cash payments:
To suppliers for inventory $140,000
For operating expenses 28,000
For salaries and wages 95,200
For interest 21,000
For income taxes 22,400 306,600

*$84,000 +$266,000

EXERCISE 11.12
Dunmore Enterprises Ltd

Profit $153,000
Adjustments to reconcile profit to net cash provided by operating
activities:

Depreciation expense $19,000
Increase in accounts receivable (31,000)
Decrease in accounts payable (10,000)
Increase in prepaid expenses (5,000)
Decrease in inventory 25,000 (2,000)

PROBLEM SET A 11.5
(a)
Tasman Oak Ltd
Statement of Cash Flows
for the year ended 31 March 2013

Cash receipts from customers $284,200 (1)
Cash payments:
To suppliers $100,410 (2)
For operating expenses 15,110 (3)
For income taxes 7,000
For interest 2,230 (124,750)
Net cash provided by operating activities 159,450

Cash flows from investing activities:
Purchase of investments (14,000)
Sale of machinery 1,500
Purchase of machinery (85,000)
Net cash used by investing activities (97,500)

Cash flows from financing activities:
Issue of shares 35,000
Redemption of debentures (15,000)
Payment of cash dividends (22,350)
Net cash used by financing activities (2,350)

Net increase in cash 59,600
Cash at beginning of period 38,400
Cash at end of period $98,000

Computations:

(1) Cash receipts from customers:
Sales $342,000
Deduct: Increase in accounts receivable (57,800)
Cash receipts from customers $284,200

(2) Cash payments to suppliers:
Cost of sales $115,460
Add: Increase in inventory 9,650
Cost of purchases 125,110
Deduct: Increase in accounts payable (24,700)
Cash payments to suppliers $100,410

(3) Cash payments for operating expenses:
Operating expenses excluding depreciation $12,410
Add: Increase in prepaid expenses $2,400
Decrease in accrued expenses
payable

300

2,700

Cash payments for operating expenses $15,110

(b)
Tasman Oak Ltd
Note to Statement of Cash Flows
(Indirect method)
for the year ended 31 March 2013

Reconciliation of profit to cash provided by operating activities.
Profit $150,900
Adjustments to reconcile profit to net cash
provided by operating activities:

Loss on sale of machinery 7,500
Increase in inventory (9,650)
Increase in accounts payable 24,700
Decrease in accrued expenses payable (300)
Increase in prepaid expenses (2,400) 8,550

IN-CLASS PROBLEM (Optional)
PROBLEM SET A 11.8
(a)
Swan Lake Cruises Ltd
Cash Flow Statement

Cash receipts from customers $246,000 (1)
Cash payments:
To suppliers $183,000 (2)
For operating expenses 33,000 (3)
For interest 2,000
For income taxes 12,000 (4) 230,000)

Cash flows from investing activities:
Sale of equipment 10,000
Purchase of motors (7,000)
Net cash provided by investing activities 3,000

Cash flows from financing activities:
Proceeds from issue of shares 5,000
Proceeds from issue of debentures 5,000
Payment of cash dividends (12,000)
Net cash used by financing activities (2,000)

Net increase in cash 17,000
Cash at beginning of period 13,000
Cash at end of period $30,000

Computations:

(1) Cash receipts from customers:
Sales $250,000
Deduct: Increase in accounts receivable (4,000)
Cash receipts from customers $246,000

(2) Cash payments to suppliers:
Cost of goods sold $180,000
Deduct: Decrease in inventory (1,000)
Cost of purchases 179,000
Add: Decrease in accounts payable 4,000
Cash payments to suppliers $183,000

(3) Operating expenses $28 000 + $16 000 $44,000
Less depreciation (11,000)
$33,000
(4) Cash payments for income taxes:
Income tax expense $7,000
Add: Decrease in income taxes payable 5,000
Cash payments for income taxes $12,000

(b)
Swan Lake Cruises Ltd
Note to Cash Flow Statement
Reconciliation of profit to cash provided by operating activities.
Profit $17,000
Adjustments to reconcile profit to net cash
provided by operating activities:

Decrease in inventory 1,000
Decrease in income taxes payable (5,000) (1,000)

SESSION TWELVE

Chapter 9

Questions
1. While this is generally true, more precisely a current liability is a debt that can reasonably be
expected to be paid within one year or the operating cycle, whichever is longer.

6. A
provision is a liability for which the amount or timing (AASB 137 para 10) of the future sacrifice
is uncertain. It requires estimation for recognition as a liability. An example is a provision for
warranty claims. A contingent liability is not recognised because they are not probable or are
unable to be measured reliably, or both. A liability may be classified as a contingent liability
because it is so uncertain that it cannot be measured reliably, or because it does not satisfy the
probability criterion, or if it is dependent upon the occurrence of a future uncertain event outside
the control of the entity. An example of a contingent liability is an unresolved lawsuit brought
against the company. It is contingent upon the outcome of the court case.

BRIEF EXERCISE 9.1
Fresno Ltd

(a) A note payable due in two years is a non-current liability.

(b) Part of the mortgage payable is a current maturity of long-term debt. This amount should be reported
as a current liability.

(c) Interest payable is a current liability, assuming it is due for payment within the next 12 months.

(d) Accounts payable is a current liability because it is due for payment within the next 12 months.

EXERCISE 9.9

Summary entry for claims during the year ended 31 December
Warranty Provision $85,000
Wages Payable $85,000
(To record work performed under warranty)

31 Dec Warranty Expense $75,000
(To adjust the liability for Warranty Provision account to total estimated liability for
contracts outstanding at balance date)
PROBLEM SET A 9.1
Cling-on Ltd

(a) Sept. 1 Inventory or Purchases ..................................... 16,000
Notes Payable .................................................. 16,000

30 Interest Expense............................................... 120
($16,000 X .09 X 1/12)
Interest Payable ................................................ 120
Oct. 1 Climbing Wall ................................................... 10,000
Notes Payable .................................................. 10,000

31 Interest Expense............................................... 220
($10,000 X .12 X 1/12 +$120)

Nov. 1 Vehicles ............................................................ 26,000
Notes Payable .................................................. 18,000
Cash at Bank .................................................... 8,000

Nov. 30 Interest Expense............................................... 430
($18,000 X .14 X 1/12 +$100 +$120)

Dec. 1 Notes Payable .................................................. 16,000
Interest Payable................................................ 360
Cash at Bank .................................................... 16,360

31 Interest Expense ($100 +$210)........................ 310
(b)
Notes Payable
$ $
1/12 16,000

Clos. Bal. 28,000
1/9 16,000
1/10 10,000
1/11 18,000
44,000 44,000
Op. Bal. 28,000
Interest Payable
$ $
1/12 360

Clos. Bal. 720
30/9 120
31/10 220
30/11 430
31/12 310
1,080 1,080
Op. Bal. 720

Interest Expense
$
30/9 120
31/10 220
30/11 430
31/12 310
$
Closing
Entry to
P/L summary
1,080
1,080 1,080

(c) Current liabilities
Notes payable ..................................................................................... 28,000
Interest payable ................................................................................... 720

(d) Total interest expense is $1,080.

(e) The advantage of using notes payable for purchasing inventory is that the purchaser will probably
have a longer period of time to pay for the inventory and at a lower rate of interest that with the normal
credit terms for accounts payable.
The disadvantage is that interest will have to be paid on the notes whereas payment for inventory within
any discount period offered would not attract an interest charge.

PROBLEM SET A 9.8
(a)

WARRANTY PROVISION ACCOUNT
Spare parts inventory (amount of
warranty claims) $11,000

2009 Beginning balance $10,000

Closing balance 13,000
Warranty Expense (amount of
adjusting journal entry)
14,000

$24,000 $24,000
2010 Beginning balance $13,000

(b) Summary entry for the year
Spare Parts Inventory $11,000
(To record plumbing repairs under warranty)

Balance day adjustment
Warranty Expense $14,000
(To adjust the liability for Warranty Provision account to total estimated liability for
contracts outstanding at balance date)

Chapter 10

Questions

10. The Statement of comprehensive income shows the change in equity during a period resulting from
transactions and other events, other than those changes resulting from transactions with owners in their
capacity as owners.

The income statement forms part of the statement of comprehensive income and shows the income and
expenses for the period resulting in the profit or loss which is then transferred to retained earnings.

As the name suggests, the statement of changes in equity reflects the net changes in the equity accounts for
the period. It shows the total comprehensive income for the period; the effects of any retrospective
adjustments for accounting errors, changes in accounting policies and reclassification of amounts, as
outlined in the previous section in this chapter; and the results of transactions with owners/shareholders in
their capacity as owners, that is, contributions and distributions. Lastly, the statement of changes in equity
must show, for each equity account, a reconciliation between the opening and closing balances, separately
disclosing each change.

11. Share capital is increased by the issue of shares. Reserves are increased by upward asset
revaluations (in the case of the Revaluation Reserve) and transfers from Retained Earnings.
Retained earnings are increased when profit is closed to retained earnings from Income Summary
account.

BRIEF EXERCISE 10.4
Homespun Yarn Ltd
General Journal

Date Account name (narration) Debit $ Credit $
2013
June 30

Dividend Declared/Retained Earnings

500

Dividend Payable 500
(To record declaration of dividend (5000 X $0.10)
July 31 Dividend Payable 500
Cash at Bank 500
(To record the payment of the dividend)

EXERCISE 10.7
Express Deliveries Retained Earnings
Retained earnings 1 January 2009 $24 000
Add: Profit 16 000
40 000
Less:
Interim dividend (20 000 x $0.10) (2 000)
Final dividend (20 000 x $0.20) (4 000)
Transfer to dividends equalisation reserve (6 000) (12 000)
Retained earnings 31 December 2009 $28 000

IN-CLASS PROBLEM

PROBLEM SET A 10.3
General Journal
Date Account name (narration) Debit $ Credit $
2011
May 1 Cash 10 000
Share Capital 10 000
(To record initial capital investment )

2 Rent Expense 800
GST Paid 80
Cash 880
(To record office rent paid)

3 Office Supplies 500
GST Paid 50
(Purchased office supplies on account)

5 Advertising Expense 50
GST Paid 5
Cash 55
(Paid advertising)

9 Cash 1 100
GST Collected 100
Sales 1 000
(To record Cash for services)

12 Retained Earnings/Dividend 200
Cash 200
(To record dividend payments)

15 Accounts receivable 3 300
GST Collected 300
Sales 3 000
(To record service provided on credit)

17 Salaries Expense 2 950
PAYG withholding 450
Cash 2 500
(To record salaries paid)

Cash 550
(To record payment of creditor)

23 Cash 2 200
Accounts Receivable 2 200
(To record debtor receipt)

26 Cash 5 000
Bank Loan 5 000
(To record loan from bank)

29 Office Equipment 2 400
GST Paid 240
Accounts Payable 2 640
(To record equipment purchase on account)
30 Electricity Expense 150
GST Paid 15
Cash 165
(To record electricity payment)

LEDGER ACCOUNTS
Date Account Debit Credit Balance
Cash
Income 11,000
Bank loan 5,000
Rent 880
Advertising 55
Dividends 200
Wages 2,050
Accounts payable 550
Electricity 165 14,400

Share Capital
Cash 10,000 10,000

Office equipment
Accounts payable 2,400 2,400

Rent
Cash 800 800
Income summary 800 nil

Accounts payable
Cash 550
Supplies 550
Office equipment 2,640 2,640

Supplies
Accounts payable 500 500

Wages
Cash 2,500 2,500
Income Summary 2,500 Nil

Advertising
Cash 50
Income summary 50 ni

Date account Debit Credit Balance
Office equipment
Accounts payable 2,400 2,400

Bank loan
Cash 5,000 5,000

Accounts receivable
Income 3,300
Cash 2,200 1,100

Income
Cash 1,000
Accounts receivable 3,000 4,000
Income summary 4,000 Nil
GST Paid
Rent 80
Supplies 50
Advertising 5
Office equipment 240
Electricity 15 390

GST Collected
Income 100
Accounts receivable 300 400
Electricity
Cash 150
Income summary 150 Nil

Payroll liability
Wages 450 450

Income 4,000
Income summary 4,000 4,000

Rent 800
Wages 2,500
Advertising 50
Electricity 150 Nil

Retained profits
Income summary 500
Dividends 200 300

Balance Sheet
as at 31 May
Assets
Cash at bank 14,400
Supplies 500
GST paid 390 16,390

Non-current assets
Office equipment 2,400
Total Assets 18,790

Liabilities
Accounts payable 2,640
Payroll liability 450
GST collected 400 3,490

Non-current liabilities
Bank loan 5,000
Total liabilities 8,490
Net Assets 10,300

Equity
Retained profits 300
Total equity 10,300

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Workshop Solutions Trimester 1, 2014

SESSION TWO Chapter 1

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