You are on page 1of 17

Exam 2014, Questions and answers - S1

Accounting and Financial Management 1A (University of New South Wales)

Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

QUESTION 1 (8 Marks) Financial Reporting Principles, Accounting Standards


and Auditing, & Sustainability Reporting
Provide short answers to the following:
1. What are generally accepted accounting principles? (2 Marks)

The rules, standards and usual practices that companies are expected to follow in
preparing their financial statements.
2 marks must refer to both of (1) rules/standards (or like term e.g. laws) and (2)
practices and relate to accounting reports or financial statements or financial
accounting
1 mark must refer to one of rules/standards/practices and relate to accounting
reports or financial statements or financial accounting

2. If you have a good idea and expect to make a lot of money from the idea is
that a sufficient reason to recognise an asset? Explain why or why not. (2
Marks)

The definition of an asset requires a past transaction or event. It is unlikely that a


mere act of having an idea would satisfy this part of the definition.
OR
An asset could not be recognised because there is no indication that the idea will
yield probable future economic benefits or that reliable measurement is possible.
2 marks must refer to no recognition because the probability criteria is not met
2 marks must refer to no recognition because the asset would not have a cost or
other value that could be reliably measured
1 mark the definition of an asset requires a past transaction or event. The mere act
of having an idea may not satisfy this part of the definition.

1
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

3. How can financial information be relevant to the users of financial reports? (2


Marks)

Information is relevant when it fulfils the roles of aiding prediction and


confirmation. It assists users to make predictions about future financial affairs and
confiim to what extent past predictions have been realised.
2 marks must refer to information being useful for making economic decisions by
aiding either of prediction or confirmation.
1 mark must refer to the information being useful for making economic decisions.

4. What is meant by sustainability reporting? (2 Marks)

Sustainability reporting describes an organisations' reporting on its environmental,


social and economic performance.
2 marks must refer to reporting on all three dimensions environmental social and
economic performance
1 mark must refer to reporting on at least one of environmental or social
performance

2
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

QUESTION 2 Financial Statement Analysis (8 marks)


BPS Ltd, a supplier of telecommunications equipment, retails its products through
suburban outlets. Shown below are the calculations of some of its key financial ratios
for 2011 and 2012.
2012
2011
Return on Equity
13%
12%
Return on Assets
8%
9%
Profit margin
20%
18%
Asset turnover
0.40
0.50
Days in inventory
72 days
55 days
Days in debtors
42 days
42 days
Current ratio
1.6
1.5
Quick ratio
0.7
1.1
Debt-to-Equity ratio
1.4
1.0
Return on Equity

Operating Profit after Tax


Shareholders' Equity

Return on Assets

Operating Profit after Tax


Total Assets

Financial Leverage

Total Assets
Total Shareholders Equity

Profit Margin

Earnings Before Interest and Tax


Sales

Asset Turnover

Sales
Total Assets

Days in Inventory

Average Inventory x 365


COGS

Days in Debtors

Average Trade Debtors x 365


Credit Sales

Current Ratio

Current Assets
Current Liabilities

Quick Ratio

Current Assets - Inventory


Current Liabilities
Total Liabilities
Total Shareholders' Equity

Debt to Equity Ratio

3
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

Required
Analyse BPSs profitability, asset management, liquidity and financial
structure for 2012 using the ratio information shown above.

Profitability
ROE has increased from 12 per cent to 13 per cent while the return on assets has
fallen from 9 per cent to 8 per cent. Given that ROA = Profit Margin Asset
Turnover (e.g. 20 x 0.4 per cent = 8 per cent for 2012), the fall in ROA is due to the
fall in asset turnover. While the profit margin has increased from 18 per cent to 20
per cent, asset turnover has decreased from 0.50 to 0.40, thus overall ROA has
decreased.
[2 marks fully correct; 1 mark partially correct]
Asset management:
The average time to collect debtors has stayed constant. However, the days in
inventory has increased from 55 days to 72 days, meaning that, on average, it is
taking much longer to sell inventory. These extra days need to be financed by the
company. The reasons for the build up in inventory should be investigated (e.g.
stocking up for some large orders, as opposed to lack of demand, for the product,
require very different actions).
[2 marks fully correct; 1 mark partially correct]
Liquidity:
The current ratio has increased (mainly due to the build up in inventory, see above)
while the quick ratio has dropped below 1 to 0.7 indicating the company may have
problems paying their bills in the short term.
[2 mark fully correct; 1 mark partially correct]
Financial structure:
Debt-to-equity ratio has increased substantially from 1 to 1.4. The ability of the
company to pay its interest bill needs to be considered, particularly given the
decrease in profitability as indicated by the lower ROA.
[2 marks fully correct; 1 mark partially correct]

4
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

QUESTION 3

(7 marks)

2014S1

Accounts Receivable

On 1st January 2011, Parker Company has a debit balance of $21,000 in Accounts
Receivable and a credit balance of $1,550 in the Allowance for Doubtful Debts.
During the year to 31st December 2011, Parker made sales on credit terms for $99,100
and collected cash from customers on accounts receivable amounting to $82,000. On
1st August 2011, Parker wrote off a bad debt on an account for $230. An ageing
analysis at 31st December 2011 indicates that the allowance for doubtful debts account
should have a credit balance of $2,150.
Parker Companys financial year ends on 31st December 2011.

Required:
a)

(i) Prepare the journal entry to record credit sales.

(1 mark)

Debit
99,100

Accounts receivable
Sales revenue
[1 mark: entries and amount correct]

Credit

99,100

(ii) Prepare the journal entry to record cash collected from customers
Debit
82,000

Cash
Accounts receivable
[1 mark: entries and amount correct]

(1 mark)
Credit

82,000

(iii) Prepare the journal entry to write off the uncollectible account of $230
against the allowance for doubtful debts

(1 mark)
Debit

Allowance for doubtful debts

Credit

230

Accounts receivable
[1 mark: entries and amount correct]

230

5
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

(iv) Prepare the adjusting journal entry to the allowance for doubtful debts
based on the ageing analysis at 31st December 2011

(2 marks)
Debit

Bade debts expense

Credit

830

Allowance for doubtful debts


[2 marks: 1 mark for each account]

830

(v) Prepare the closing journal entry for bad debts expense

(2 marks)

Debit
Profit and loss summary

Credit

830

Bad debts expense


[2 marks: 1 mark for each account]

830

6
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

QUESTION 4 ADJUSTING ENTRIES AND FINANCIAL STATEMENTS (22


Marks)
The following pre-adjusted trial balance has been prepared for Sydney Company as at
30 June 2014 (for the 12 months beginning on 1 July 2013):
DR
Cash at Bank

CR
10,000

Accounts Receivable

200,000

Allowance for Doubtful Debts

1,000

Inventory

100,000

Prepaid Rent

10,000

Property, Plant and Equipment

450,000

Accumulated Depreciation - PPE

200,000

Accounts Payable

60,000

Bank loan

50,000

Contributed Capital

310,000

Retained Profit at 1 July 2013

34,000

Sales

450,000

Cost of Goods Sold

265,000

Interest Expense

5,000

Wages Expenses

80,000

Rent Expense

5,000
1,115,000

1,115,000

The following information is given which may give rise to year end adjustments:
Depreciation on Property, Plant and Equipment is provided for on a straight line
basis at 10% per annum, and it is assumed that it will have no salvage value.
The balance in Prepaid Rent relates to the 12 month period from 1 January 2014 to
31 December 2014.
An ageing analysis shows that $4,000 of Accounts Receivable is estimated to be
uncollectible.
On 30 June 2014, the directors declared a dividend of $5,000, which the
shareholders authorised. The dividend is to be paid on 15 September 2014.

7
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

It is discovered that $10,000 cash received during the year and credited to sales are
actually related to services to be delivered in July 2014.
$5,000 of wages relating to June 2014 have not been paid and need to be accrued.
Part A (12 Marks)
Prepare journal entries for the necessary end of period adjustments.
Debit
Depreciation Expense PPE
Accumulated Depreciation PPE
(1 mark for each entry)

45 000

Rent Expense
Prepaid Rent
(1 mark for each entry)

5 000

Bad Debts Expense


Allowance for doubtful debts
(1 mark for each entry)

3 000

Retained Profits
Dividend Payable
(1 mark for each entry)

5 000

Sales

10,000

Credit

45 000

5 000

3 000

5 000

Unearned revenue
(1 mark for each entry)

10,000

Wages Expense
Wages Payable
(1 mark for each entry)

5,000
5,000

8
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

Part B (6 Marks)
Prepare an Income Statement for the year ended 30 June 2014:
Sydney Company
Income Statement for year ended 30 June 2014
440 000
265 000
175 000

Sales
(1 mark)
Less COGS ( 1 mark if COGS is in correct place)
Gross Profit
Less Operating Expenses
Interest expense
Depreciation expense
(1 mark)
Rent expense
(1 mark)
Bad debts expense
(1 mark)
Wages expense
(1 mark)

5 000
45 000
10 000
3 000
85 000

148 000
$27 000

Net Profit

Part C (4 Marks)
In the Balance Sheet as at 30 June 2014, what would be the closing balance of
retained profits? Show all workings.

Opening Balance
Plus Net Profit for Period
Less Dividends declared
Closing Balance

34 000 (1 mark)
27 000 (1 mark)
5 000 (1 mark)
$56 000 (1 mark)

(1 mark for each item & correct figure )

9
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

QUESTION 5 (12 Marks) Inventory

The following information is taken from the accounting records of Noiseworks Ltd
for the year ended 30 June 2011.

$
Inventory 1 July 2010

50,000

Purchases (all credit)

300,000

Sales (all credit)

360,000

Inventory 30 June 2011

90,000

The companys mark-up is 50% on cost


Required:
a) Assuming all purchases and sales were in single transactions, prepare the
summary journal entries relevant to the determination of the balances for
inventory and cost of sales using:
i. Perpetual inventory method (4 marks)
Debit
300,000

Inventory
Accounts payable
[1 mark: entries and amount correct]

Credit
300,000

COGS
Inventory
[1 mark: entries and amount correct]

240,000

Inventory shortage expense


Inventory
[1 mark: entries and amount correct]

20,000

Profit and loss summary


COGS
Inventory shortage expense
[1 mark: entries and amount correct]

260,000

240,000

20,000

240,000
20,000

10
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

ii. Periodic inventory method (4 marks)


Debit
300,000

Purchases
Accounts payable
[1 mark: entries and amount correct]

Credit
300,000

Profit and loss summary


Inventory 30 June 2011
Purchases
Inventory 1 July 2010

260,000
90,000
300,000
50,000

[1 mark: entries and amount correct]


Inventory 1 July 2010
Inventory

50,000
50,000

[1 mark: entries and amount correct]


Inventory
Inventory 30 June 2011

90,000
90,000

[1 mark: entries and amount correct]

b) Prepare an extract of income statements for the year ended 30 June 2011
showing sales, cost of sales and gross profit based on:
i. Perpetual inventory method (2 marks)

Noiseworks Ltd
Extract of Income Statement for year ended 30 June 2011
$
Sales

$
360,000

Less: Cost of goods sold

240,000

Inventory shortage

20,000

Gross profit

260,000
100,000

[2 marks fully correct; 1 mark partially correct]

11
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

ii. Periodic inventory method (2 marks)


Noiseworks Ltd
Extract of Income Statement for year ended 30 June 2011
$
Sales

$
360,000

Less: Cost of goods sold


Inventory 1 July 2010

50,000

Purchases

300,000

Available for sale

350,000

Less Inventory 30 June 2011

90,000

Gross profit

260,000
100,000

[2 marks fully correct; 1 mark partially correct]

12
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

QUESTION 6 (8 Marks) Non-current Assets


A car was purchased on 1 January 2009 for $50,000. The car was depreciated using
straight-line depreciation with an estimated useful life of four years and expected
residual value of $10,000.
1. Calculate depreciation for the first year that the company holds the car, and
provide the journal entry. What is the carrying value of the car on January 1,
2010? (4 marks)
Straight Line Depreciation = (Cost Residual) / Useful Life
Cost = 50,000 Residual = 10 000
Useful Life = 4 years
Depreciation Expense per year = (50 000 10 000) / 4
= 10 000 (1 mark)
Dec 31 2009
Dr Depreciation expense -car 10 000
Cr Accumulated depreciation car 10 000
1 mark for each correct line (2 marks total)
Carrying value of the car on Jan 1 2010 = 50,000 -10,000 = 40,000 (1 mark)
2. On 31 December 2012 the car was sold for $8,000. Determine the profit or loss
on disposal, and show the relevant accounting journal entries to account for the
disposal. (4 marks)

Sold after 4 years. Since we are depreciating the car on a straight-line basis over 4
years, the book value at the end of the fourth year will be the residual value.
Accumulated depreciation on the car at 31 Dec 2012 = 40,000 (50k 10k)
(1 mark)
Loss on sale = Sale price Carrying value
= 8,000 10,000 = -2,000 (1 mark. Do not penalize for carry-on errors)
Journal Entry to record the sale:
Dr Cash at bank 8 000
Dr Accumulated Depreciation Car 40 000
Dr Loss on sale 2000
Cr Car
50 000
(2 marks = 0.5 for each part of the journal entry)

13
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

Question 7 Management Accounting and Cost Concepts (9 marks)


Part A (7 marks)
Earth Ltd. manufactures tents. At the beginning and end of June 2011, the following
information on inventory was provided by the companys accountant:
1 June 2011
$255,000
$180,000
$110,000

Raw Materials inventory


Work in progress inventory
Finished Goods inventory

30 June 2011
$236,000
$220,000
$95,000

During June, cost for direct labour amounted to $350,000, new purchases for raw
materials were $200,000 on 6 June and $300,000 on 27 June. The total overhead cost
was $1,200,000.
Prepare a cost of goods manufactured statement for June 2011.

Earth Ltd.
Statement of Cost of Goods Manufactured
For the Month Ended June 30, 2011 (correct title 0.5)
Direct materials:
Beginning raw materials
inventory
Add: Purchases
Materials available
Less: Ending inventory
Direct materials used
Direct labour
Manufacturing overhead
Manufacturing costs added
Add: Beginning work in process
Total manufacturing costs
Less: Ending work in process
Cost of goods manufactured

$255,000 name and figure 0.5


500,000 (name 0.5; figure 0.5)
$755,000 name and figure 0.5
236,000 name and figure 0.5
name and figure 0.5
$ 519,000
350,000
name and figure 0.5
name and figure 0.5
1,200,000
name and figure 0.5
$2,069,000
name and figure 0.5
180,000
name and figure 0.5
$2,249,000
name and figure 0.5
220,000
name and figure 0.5
$2,029,000

14
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

2014S1

Part B (2 marks)
Tree & Woods Corp., an international furniture company, manufactures and sells
furniture of unique natural material. In 2010, the company sold all 25,000 chairs that
it produced at $200 each. Total costs amounted to $3,300,000 comprised of
$1,300,000 variable costs and $2,000,000 fixed costs. In 2011, the company purchases
a new saw mill for $110,000. The useful life is estimated to be 5 years with a salvage
value of $10,000. Each year, the same amount of depreciation expense is recorded.
The usage of the new saw mill allows Tree & Woods to reduce variable costs for
producing one chair by $7. All other costs remain the same as in 2010.
What was Tree & Woods Corp.s break-even point in number of units in 2010?

Production and sale of 25,000 units => UVC = $52 (1,300,000 / 25,000)
BEP = FC/(Price UVC) = 13,513.51 => 13,514 units
Calculation 2 marks
UVC 1 mark, correct result 1 mark
[Note: allow 0.5 marks if wrong figures but correct formula written down
somewhere]

15
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

ACCT1501 Practice Exam Questions & Solutions

Question 8 - MCQ practice questions


You have seen samples of MCQ in the lectures and in your quiz attempts.

16
Distributing prohibited | Downloaded by xiaoying wang (sharonwang0729@gmail.com)

2014S1

You might also like