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(Solved) UTS BUSINESS SCHOOL - ACCOUNTING UNIVERSITY OF TECHNOLOGY SYDNEY 22107 ACCOUNTING FOR BUSINESS DECISIONS A AUTUMN SESSION 2016 SAMPLE MID-SEMESTER...


Does anyone kindly can help me question 7 and question 8. Thanks

UTS BUSINESS SCHOOL – ACCOUNTING
UNIVERSITY OF TECHNOLOGY SYDNEY
22107 ACCOUNTING FOR BUSINESS DECISIONS A
AUTUMN SESSION 2016
SAMPLE MID-SEMESTER EXAMINATION
Released in Teaching Week 4 on UTSonline The examination will be held during your tutorial in the week commencing Monday 16th May
2016. Students will be given ONE HOUR to complete the examination. Please note that the
exam is closed book.
Two questions will be asked in the mid-semester examination. The first question will be an
extended response question, similar in style to questions 1-4 in Part A (Theory) of this sample
exam. It is not advisable to memorise word for word answers to questions 1-4 because while the
style of the question in the mid-semester exam will be similar, the content will be different and
could be combined or different elements of two or more of questions 1-4. The second question
will be similar in style to the questions in Part B (Practical – Questions 5-10) of this sample
exam. It is important to note that while the style of the exam question will be similar to
questions in part B, the numbers in the question and information provided will differ.
Accordingly, it is important to understand the process of completing the practical questions,
because memorised answers will be of no value. Both in this sample exam and the actual exam,
both questions (theory and practical) are of equal value - plan to devote equal time to the theory
question and to the practical question. Therefore, the theory question should be 30 minutes of
thoughtful writing, not a set number of words or pages. Remember to explicitly answer the
question asked in your exam.
Students are permitted to bring writing implements and a non-data storage/retrieval calculator to
the exam. No notes, textbooks, notebooks, laptops, personal organisers, mobile phones,
electronic, transmitting or receiving equipment will be permitted.
The examination requires the knowledge of material covered in lectures 1-6 and tutorials 1-7.
Students should be cautious of material placed on UTSonline by fellow students. Any
information to be officially provided will be put on the “Announcement” page. Separate
discussion boards for each question from this sample exam have been setup on UTSonline.
Students are to use the correct folder when posting questions or comments and make
sure they read the previous postings before asking a question.
The mid-semester exam is compulsory for all students regardless of the assessment option
chosen.
Any questions of clarification should be asked on the Discussion Boards on UTSonline or in
lectures. Only questions about student personal matters should be emailed directly to the Subject
Coordinator, James Wakefield.
Good Luck!
Carin, Cheryl, Chris, Don, Ella, Fernando, James, Jon, Khalil, Kristina, Raechel, Stephen, Tia 1 PART A - THEORY
Address all of the following points using examples where appropriate. Please make sure your answer
is logically structured.
Question 1
Financial statements are prepared for a range of different business entities.
1. Identify the different entities financial statements can be prepared for.
2. Identify the different financial statements and explain the type of information contained within
each of the financial statements.
3. Explain the purpose of accounting information and how this purpose is linked to the needs of
stakeholders involved with different entities.
Question 2
Accounting information is guided by various principles, assumptions and qualitative characteristics.
1. Describe the process of generating accounting information.
2. Identify and describe the assumptions, qualitative characteristics and framework which guide
the preparation of accounting information.
3. Explain why accountants have flexibility in accounting choices.
4. Explain how the assumptions and qualitative characteristics of accounting guide the choice of
the following accounting methods.
a. Revenue recognition
b. Accounting for bad debts
Question 3
Accountants have the ability to choose different ways to report accounting information, and this
choice can have an impact on the reported financial performance and position of an entity.
1. Identify and describe in detail the different methods available when making reporting
decisions for:
a. Revenue recognition
b. Accounting for uncollectible receivables (bad debts)
2. Explain the advantages and disadvantages of each method you have just described in part one
of this question.
3. Explain why accountants are able to choose different ways to report accounting information.
In your answer you may like to discuss the advantages and disadvantages of being able to
make different accounting choices with brief reference to the article Gowthorpe and Amat
(2005), Creative Accounting: Some Ethical Issues of Macro- and Micro-Manipulation.
4. Explain how the choice of these accounting methods can be used by managers for earnings
management. In your answer you may like to refer to how the assumptions and qualitative
characteristics of accounting reduce earnings management.
Question 4
Predicting future cash flows is important to determine the viability and value of a company.
1. Describe the different components of the cash flow statement and the information it provides
to users.
2. Explain the relation between the following accruals and future cash flow as suggested by
Barth, Cram and Nelson (2001).
a. Accounts receivable
b. Accounts payable
c. Inventory
d. Depreciation and amortization 2 PART B – PRACTICAL
Question 5
The comparative income statement for the financial year ended June 30 for Fiona Flamingo Farms is as follows:
Fiona Flamingo Farms
Comparative statement of comprehensive income
For the years ended 30 June Sales Revenue
Less: Cost of Goods Sold
Gross Profit 2016
$
770,000
487,000
283,000 2015
$
690,000
345,000
345,000 Selling Expenses
Administrative expenses
Finance Expenses
Profit before income tax expense
Income tax expense
Profit after income tax expense 97,000
71,000
9,000
106,000
31,800
74,200 82,000
79,000
3,000
181,000
54,300
126,700 Required:
A. Perform horizontal analysis and vertical analysis (for 2016 only) on
the income statement. In your answer please remember to indicate if it
is an INCREASE or (DECREASE) and round your findings to ONE
decimal place [e.g. -32.996% is -33.0% or minus 33.0% or (33.0%). B. Comment on the significant changes disclosed by the comparative
statement of comprehensive income. C. Prepare a statement of retained earnings for the year ended June 30,
2016. (Retained earnings at July 1, 2015 were $58,000, dividends
declared and paid during the financial year were $37,000. D. Explain how profits for the year ended June 30, 2015 were $126,700
yet Retained Earnings at July 1, 2015 were only $58,000. 3 Question 6
The comparative balance sheet for the financial year ended June 30 for Radical Road Trips is
as follows:
Radical Road Trips Ltd.
Comparative Statements of Financial Position
As at 30/06/2016
$
Current Assets
Cash
Accounts Receivable
Less: Allowance for Bad Debts
Supplies
Prepaid Insurance
Total Current Assets
Non-current Assets
Vehicles
Less: Accumulated Depreciation - Vehicles
Total Non-current Assets
TOTAL ASSETS 90,000
30,000
3,900
200
1,320 As at 30/06/2015
$
85,000
40,000
2,400
300
1,200 117,620
60,000
10,000 124,100
40,000
4,000 50,000
167,620 Current Liabilities
Accounts Payable
Unearned Revenue
Total Current Liabilities
Non-current Liabilities
Long Term Loan
Total Non-current Liabilities
TOTAL LIABILITIES 15,000
9,000 36,000
160,100 20,000
7,000
24,000 25,000 27,000
5,000 25,000
49,000 Shareholders’ Equity
Contributed Capital
Retained Earnings
Total Shareholders’ Equity 50,000
68,620 Total Liabilities & Shareholders’ Equity 5,000
32,000 40,000
88,100
118,620 128,100 167,620 160,100 Required:
A. Perform horizontal analysis and vertical analysis (for 2016 only) on the comparative
balance sheet. In your answer please remember to indicate if it is an INCREASE or
(DECREASE) and round your findings to ONE decimal place [e.g. -32.996% is -33.0%
or minus 33.0% or (33.0%).
B. Calculate the current ratio for 2016.
C. Assuming credit sales for 2016 were $300,000 calculate the receivables turnover ratio
for 2016.
D. Calculate the days in receivables ratio for 2016.
E. Calculate the allowance ratio for 2016.
F. Comment on the significant changes disclosed by the comparative balance sheet. In your
analysis include:
a. The main findings from the horizontal analysis and vertical analysis
b. An interpretation of what each of the ratios mean for Radical Road Trips.
c. The advantages and limitations of each of the ratios. 4 Question 7
Carin owns and operates the Carin Consulting business. On August 1, 2016 her ledger showed
the following account balances (Ignore GST). Cash
Accounts Receivable
Inventory
Supplies
Prepaid Insurance
Computer
Accumulated Depreciation— Computer
Equipment
Accumulated Depreciation— Equipment
Motor Vehicle
Accumulated Depreciation— Motor Vehicle
Land
Accounts Payable
Unearned Revenue
Telephone Payable
Notes Payable
Mortgage Payable
Contributed Capital
Retained Earnings
Consulting Service Revenue
Sales Revenue
Cost of Goods Sold
Supplies Expense
Advertising Expense
Insurance Expense
Telephone Expense
Rent Expense
Depreciation Expense
Dividends
TOTAL Debit
$
20,000
16,000
18,000
1,000
0
0 Credit
$ 0
10,000
5,000
0
0
0
4,000
700
150
0
0
25,000
30,150
0
0
0
0
0
0
0
0
0
0
65,000 65,000 The following transactions occurred during August 2016:
1. The owner contributed an additional $2,000 cash and equipment valued at $5,000 to the
business. 2. Purchased land for $260,000 by arranging a mortgage with the bank. 3. Paid $1,500 cash to purchase a computer for the business. 4. Purchased a motor vehicle for $36,000 by arranging a promissory note with a lender. 5. Paid $3,000 to creditor (Accounts Payable) for goods previously purchased in July.
5 6. Paid $150 for a telephone bill that related to charges incurred during July. An adjusting
entry for $150 was made at the end of July to accrue this telephone expense. 7. Performed consulting services for a customer and received $6,000 cash. 8. Billed (invoiced) a client $9,000 for consulting services performed during August. 9. Received $4,000 cash from customers who had previously been billed (invoiced) for
services performed during July. 10. Received and paid an invoice for $2,000 relating to August’s advertising expense. 11. Distributed $7,000 cash dividends to the owner of the business. 12. Sold inventory on credit to a customer for $5,000. The inventory cost $3,000 and was
recorded using the perpetual inventory system. 13. Received $1,000 cash for consulting services to be performed in September. The cash
receipt was recorded as a liability. 14. Received $2,000 cash for consulting services to be performed in September. The cash
receipt was recorded as revenue. 15. Purchased supplies on credit $700. The supplies purchased were recorded as an asset. 16. Paid $1,200 for a 12-month insurance policy. The insurance was recorded as an asset. 17. Paid $6,000 cash for rent for August, September and October. The business recorded
the rent as an expense. Required:
A. Record the above transactions in a general journal using only the ledger accounts given.
B. Post to the ledger, (remembering first to enter the opening balances). 6 Question 8
For each of the following independent situations and from the information below record the
adjusting entry (and only the adjusting entry – do not record the original transaction or
opening balance) in the General Journal, being as precise with your account titles as possible,
e.g. not using “supplies” but “supplies expense” or “supplies on hand”. Please ignore GST. All
calculations are to be worked out on a monthly (not daily) basis.
Note: alternative versions of some of the questions are included. You are expected to know how
to record both as you may be examined on either the question or the alternative version.
Required: Record the Adjusting Entries
i. Ella Auditors is conducting the audit on Swan Productions. It is normal practice not bill
or invoice the client until the audit is completed. By the end of the financial year 43 hours
have been spent on the audit. The average rate is $370 per hour. Record the adjusting entry
for Ella Auditors.
(Alternative: record the adjusting entry for Swan Productions) ii. Jon Ltd. invested $40,000 in a term deposit at Murray River Bank on 1 May 2016.
Interest is received after one year and interest rates are 6%. Record the adjusting entry for
Jon Ltd. when their financial year ends on 30 November 2016.
(Alternative: record the adjusting entry for Murray River Bank) iii. On 1 March 2016, Martin Ltd. accepts a $15,000, five percent, ten month note receivable.
Record the adjusting entry for Martin Ltd. when their financial year ends on 30 June
2016. iv. At Ian Industries salaries are paid and recorded weekly at the end of the week late on a
Saturday evening for all work performed up to and including Saturday evening. The
weekly salary bill is $36,000 for a six-day working week (Mon – Sat). Ian’s accounting
period ends on Tuesday evening. Record the adjusting entry. v. Jenny borrowed $120,000 from Eastpac Bank on 1 February 2016. Interest is paid after
six months and interest rates are 8%. Record the adjusting entry for Jenny on 30 April
2016.
(Alternative: record the adjusting entry for Eastpac Bank on 30 April) vi. Electricity expenses average $2,400 per year. The Electricity meter was last read exactly
three months ago. The bill was received 2 months ago and paid last month. The financial
year ends today. Record the adjusting entry for the three months ended today. vii. Chang Ltd. records uncollectible receivables using the allowance method, calculating the
amount of the adjustment using the percentage of receivables approach. At the end of the
financial year the balance of the Accounts Receivable account of Chang Ltd. is $78,000
debit, the balance of the Allowance for Bad Debts account is $1,000 credit and estimates
that 2% of its receivables balance will be uncollectible. Record the adjusting entry.
(Alternative: record the adjusting entry assuming the balance of the Allowance for Bad
Debts account is $1,000 debit)
(Alternative: record the adjusting entry using the percentage of sales approach, assuming
net credit Sales Revenue was $78,000 and 2% of credit sales revenue will not be
collected) 7 viii. When supplies are purchased by Andrea they were recorded as an asset. Calculations
after an end of period stock-take revealed a closing stock (balance) of $2,000. There was
an opening balance of $3,000 and during the period $8,000 of supplies were purchased.
Record the adjusting entry.
(Alternative: record the adjusting entry assuming the supplies were recorded as an
expense when purchased.) ix. Raechel pays her insurance of $24,000 annually in early September. The insurance policy
covers all her claims from 12.01 a.m. on September 1. Insurance is recorded as an
expense when paid and the financial year ends on December 31. Record Raechel’s
adjusting entry for the four months ended December 31.
(Alternative: record the adjusting entry assuming the insurance was recorded as a
prepayment (asset) when paid.)
(Alternative: record the adjusting entry from the perspective of the insurance company
assuming the insurance was recorded as a liability when received.)
(Alternative: record the adjusting entry from the perspective of the insurance company
assuming the insurance was recorded as revenue when received.) x. On 1 March, Ryan Rockclimbing paid $1,200 to the local rockclimbing magazine for a
one-page advertisement for Ryan’s rockclimbing skills courses. The advertisements will
run each month for the next 12 months. Ryan initially recorded the advertising as a
prepayment (asset). Record the adjusting entry for Ryan for the month of March.
(Alternative: record the adjusting entry assuming the advertising was recorded as an
expense when paid.)
(Alternative: record the adjusting entry from the perspective of the magazine company
assuming the advertising was recorded as a liability when received.)
(Alternative: record the adjusting entry from the perspective of the magazine company
assuming the advertising was recorded as revenue when received.) xi. When office photocopying paper is purchased it is recorded as an expense. An end of
period stock-take (count) revealed a closing balance of $3,000. There was an opening
balance of $1,000 and during the period $5,000 of photocopying paper was purchased.
Record the adjusting entry.
(Alternative: record the adjusting entry assuming the photocopying paper was recorded as
an asset when purchased.) xii. xiii. James Limited received rent on the first day of November 2015, a total of $70,200 in
advance for twelve months commencing on that day and records it as revenue. Record the
adjusting entry for the year ending June 30, 2016 for James Limited.
(Alternative: record the adjusting entry assuming the rent was recorded as a liability when
received.)
(Alternative: record the adjusting entry from the perspective of the tenant assuming the
rent was recorded as an asset when paid.)
(Alternative: record the adjusting entry from the perspective of the tenant assuming the
rent was recorded as an expense when paid.)
Adriel Construction received $500,000 in August 2015 for a new building project and
recorded this initial cash receipt as a liability. The project is 75% complete at financial
year-end. Record the adjusting entry for financial year ending June 30, 2016 for
Adriel.
(Alternative: record the adjusting entry assuming the initial cash receipt was recorded as
revenue when received.) 8 xiv. A tennis club offered a special rate for upfront annual memberships at the start of the
season. If patrons paid their 12 months’ fees in advance they only had to pay $1,200. The
tennis club recorded the fees received as “Membership Revenue”, and 300 people signed
up. At the end of the financial year the tennis club had been operational for 3 months.
Record the adjusting entry for the tennis club.
(Alternative: record the adjusting entry assuming the initial cash receipt was recorded as a
liability when received.) xv. Nelson owns a cruise ship and leased it for 8 years receiving $9.6 million (the entire lease
amount) at the commencement of the lease. Nelson recorded the receipt of the money as
Unearned Rent Revenue. Record the adjusting entry when his first financial year ends
two months after the lease commenced.
(Alternative: record the adjusting entry assuming the initial cash receipt was recorded as
revenue when received.) xvi. On 1 September 2013, Stephen Services purchased a new digital SLR camera for
$18,500. The depreciation charge for the camera is $3,000 per year. Record the adjusting
entry for depreciation for the financial year ending 30 June 2016.
(Alternative: record the adjusting entry assuming the camera was purchased on 1
September 2015.)
(Alternative: record the adjusting entry assuming the depreciation charge was $350 per
month and the camera was purchased on 1 September 2013.)
(Alternative: record the adjusting entry assuming the depreciation charge was $350 per
month and the camera was purchased on 1 September 2015.) 9 Question 9
Eric Enterprises has asked for your assistance in preparing their financial statements. Eric has
provided you with the following list of accounts and their account balances. Eric advises you
that all accounts have a normal balance and that the balance of the Retained Earnings account
reflects the net profit that has been retained in the business.
$
Accounts Payable
Accounts Receivable
Accumulated Depreciation - Delivery Van
Advertising Expense
Bad Debts Expense
Bank Loan
Cash
Contributed Capital
Cost of Goods Sold
Delivery Van
Depreciation Expense
Dividends
Electricity Expense
Electricity Payable
Insurance Expense
Interest Expense
Interest Payable
Interest Receivable
Inventory
Prepaid Insurance
Prepaid Rent
Rent Expense
Retained Earnings, April 1
Salaries Expense
Salaries Payable
Sales Revenue
Supplies
Supplies Expense
Unearned Revenue Debit Credit 1,200
12,000
12,000
10,000
3,600
50,000
28,000
13,000
55,000
36,000
3,600
10,000
800
240
6,000
5,000
100
840
25,000
8,000
2,000
20,000
40,000
15,000
1,500
120,000
400
1,300
4,500 Required:
A. Identify the normal balance of each account by transferring the dollar amount into the
correct debit or credit column.
B. Prepare the following financial statements:
a. Income Statement
b. Statement of Changes in Equity (Retained Earnings)
c. Balance sheet
C. Record the closing entries in a general journal using only the ledger accounts given. 10 Question 10
Tim Textile Company (TTC) prepares monthly bank reconciliations of the company’s cheque
account balance. An extract of the bank statement of TTC showing the last entries for for
May 2016 indicated the following: May 28
May 29
May 31
May 31 NSF - cheque No. 399
DEPOSIT – Franc’s Fabrics
Service Charges
Interest Withdrawals Deposits
Balance
1,000
6,767
2,700
9,467
30
9,437
40
9,477 On investigation it was found that:
• The NSF cheque No. 399 was a customer’s cheque previously deposited into the bank
account that bounced due to insufficient funds in the customer’s bank account.
• The deposit from Franc’s Fabrics related to the collection of a note ($2,500) and the
related interest ($200). A previous adjusting entry had recorded the interest revenue as
a receivable at the time it was earned. This $2,700 cash deposit had not been recorded
in the accounting records of TTC.
• The May 31 Interest deposit had not been recorded in the accounting records of TTC.
An analysis of TTC’s accounting records revealed the following items that appeared in the
accounts of TTC but did not appear in the bank statement for May:
• Cheque number #5489 for $650 paid to Electric Energy for an electricity bill and
cheque number #5490 for $230 paid to Officegear Supplies for stationery.
• A cheque for $1,780 received from Ben Robbins and a cheque for $1,560 received
from GeoTex. Both were for textile designing services and were deposited into the
bank on May 30.
Additionally, it was found that cheque #5488 correctly appeared as a withdrawal of $780 in
the bank statement but was incorrectly recorded as a cash disbursement of $870 in the
accounting records of TTC. The cheque was to pay an open account payable.
The closing balance of the cheque account per TTC’s accounting records on May 31 was
$10,137
Required:
A) Prepare a bank reconciliation in proper form for May 31, 2016. B) Record the transactions (adjustments) Tim Textile Company will need as a
result of this bank reconciliation process? C) What amount would Tim Textile Company report as the cash balance in the
statement of financial position (balance sheet) at May 31, 2016? D) How does the preparation of bank reconciliations aid in internal control? THE END 11

 


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