Practice Questions and Answers.

313 code
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SECTION A – Multiple Choice Questions (20 Marks)

Answer ALL questions. Each question carries 1 mark.

1. A balance sheet:
a. Is classified into operating, investing and financing activities
b. Must always be prepared in the account or ‘T’ format
c. Shows how profit was determined
d. Lists assets, liabilities and equity at a specific point in time

2. ZZZ Company reports the following balance sheet information for 2013:
1 January 2013 31 December 2013
Assets $60 000 $70 000
Liabilities $12 000 $14 000
Assuming the capital contribution made by the owners during 2013 was $3000 and
withdrawals were $12 000, profit for 2013 must have been:
a. $17 000
b. $14 000
c. $16 000
d. $12,000

3. In order to provide timely information for decision-making the life of the business is
divided into arbitrary time periods of equal length called:
a. Life cycles
b. Operating cycles
c. Accounting periods
d. Months

4. The accounting entry to record the payment of a liability is

a. Debit an asset account and credit a liability account
b. Debit a liability account and credit an asset account
c. Debit an equity account and credit a liability account
d. Debit a liability account and credit an equity account

5. GST paid by a business on the purchase of its goods and services, and for which a
reduction of GST collected will be claimed from the tax department, is stored in an
account called:
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a. GST outlays
b. GST collections
c. Creditable acquisitions
d. Input credits

6. On July 1 2013 the Pepper Diner rented out part of its property and collected $9000 in
advance for a nine-month period. The receipt was credited to a liability account. At
31 December 2013, Pepper Diner's year-end, which of the following adjusting journal
entries should be made?
a. Dr. Cash, $6000; Cr. Rent Income, $6000
b. Dr. Rent Income, $3000; Cr Unearned Rent Income, $3000
c. Dr. Unearned Rent Income, $6000; Cr. Rent Income, $6000
d. Dr. Rent Receivable, $6000; Cr. Rent Income, $6000

7. Determine the cash payments made during the year for insurance premiums from the
following information:
Insurance expense (in the income statement) $ 475
Prepaid Insurance:
Beginning Balance $ 220
Ending Balance $ 195
Assume all insurance premiums are paid in cash.
a. $475
b. $195
c. $695
d. $450

8. Accounting entries made to reduce the temporary accounts to zero balances are known
as:
a. Correcting entries
b. Adjusting entries
c. Closing entries
d. Reversing entries

9. End of year records from Abbi's Boutique show:

$
Cash 20
GST Outlays 35
Salaries Payable 10
Rent Expense 100
Interest Expense 50
Prepaid Rent 30
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Salary Expense 20
Rent Collected in Advance 20
During the closing process the total debit to the Profit and Loss Summary account
would be:
a. $90
b. $170
c. $80
d. $110

10. Under the periodic inventory system, inventory purchased is debited to which
account?
a. Purchases
b. Selling expenses
c. Prepaid expenses
d. Inventory

11. Under the perpetual inventory system, an inventory loss can be calculated as the
difference between:
a. The ledger balance of the inventory account and the total of the physical stocktake
b. Sales less cost of sales
c. Inventory at start less inventory at end
d. A inventory loss cannot be calculated using the perpetual inventory system

12. The statement about control accounts that is not correct is:
a. They provide summarised data
b. They follow the normal rules of debit and credit
c. They appear in the subsidiary ledger
d. They appear in the trial balance

13. The correct order in which the steps in the bank reconciliation process occur is:
1. Tick off the items in the prior reconciliation with the bank statement
2. Prepare the bank reconciliation
3. Tick off the cash journals with the bank statement
4. Update the cash journals with unticked items from the bank statement
a. 1, 2, 3, 4
b. 4, 3, 2, 1
c. 1, 3, 4, 2
d. 1, 4, 3, 2

14. How many of these are an issue in a firm’s management of its accounts receivable?
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> Deciding which customers to offer credit to
> Minimising the costs of carrying accounts receivables
> Following up slow paying customers
a. 0
b. 1
c. 2
d. 3

15. At 31 December 2012, the end of their accounting year, the Black Sheep Wool
Cooperative understated ending inventory by $3,000. The profit for 2012 will be:
a. Overstated
b. Understated
c. Correctly stated
d. It depends on whether or not the inventory increased during 2012

16. HRH ‘s balance sheet of 30 June 2012 shows a motor vehicle at a cost price of
$72,000 less accumulated depreciation of $33,000. Depreciation is calculated on a
straight-line basis. If the vehicle had a useful life of 6 years at the time of purchase
and a residual value of $6,000 what is its carrying amount on 1 July 2013?
a. $14 000
b. $17 000
c. $26 000
d. $28 000

17. On 31 December 2012 an aeroplane with a cost of $200 000 has accumulated
depreciation written off of $90 000. If it is sold for $130 000 on 1 January 2013 what
will be the net effect of the sale on the income statement?
a. $20 000 profit
b. $20 000 loss
c. $70 000 loss
d. $40 000 profit
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18. Possum Pty Ltd made this journal entry to accrue payroll for the week ended 28
February 2013:
Dr. Cr.
$ $
Office salaries expense 14 500
Sales salaries expense 5 500
Taxation Office 3 800
Superannuation fund 1 000
Clerks union 200
Salaries payable 15 000
The cash payable to Possum Pty Ltd's employees for the week is:
a. $14 500
b. $15 000
c. $17 000
d. $20 000

19. During the year a firm reported that accounts receivable had increased by $35 000. If
accrual basis sales were $200 000 the amount of cash received from customers during
the year must have been:
a. $165 000
b. $190 000
c. $210 000
d. $235 000

20. A business has a current ratio of 3:1. Which action will decrease this ratio?
a. Issue of long-term debentures
b. Sale of equipment for cash
c. Drawings by owner
d. Collection of an account receivable
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SECTION B (80 Marks)

Answer ALL questions.

Question 1

Yeouido Enterprise is a trading business. Its financial year end is 31 October each year.
Below is an extract of the Yeouido Enterprise’s trial balance as at 31 October 2013. (Ignore
Goods & Services Tax.)

No. Ledger Account DR $'000 CR $'000

1 Advertising & promotion expense 14
2 Accounts payable 510
3 Accounts receivable 357
4 Accumulated depreciation, motor vehicle, 1.11.2012 16
5 Accumulated depreciation, office equipment, 1.11.2012 32
6 Advisory & consultancy fee expense 36
7 Allowance for doubtful debts 12
8 Capital 357
9 Cash at bank 48
10 Discount allowed 21
11 Discount received 22
12 Drawings 27
13 Employees' benefits expenses 24
14 Freight outwards expense 42
15 Interest expense 9
16 Inventory at 1.11.2012 160
17 Long-term loan, due 03.03.2023 150
18 Miscellaneous income 6
19 Motor vehicle 180
20 Office equipment, at cost 150
21 Other sundry expense 8
22 Prepaid insurance 20
23 Purchases 1468
24 Repairs and maintenance expenses 19
25 Salaries and wages expenses 342
26 Sales return 28
27 Sales revenue 1937
28 Short-term Leasing expense 40
29 Transport inwards expense 16
30 Utilities expense 33
3042 3042

You are provided the other data:

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(i) Yeouido Enterprise used the “periodic inventory system”. It conducted an inventory
count on the last day of the financial year. It was valued at $168,000
(ii) The prepaid insurance in the above is valid from 01 November 2012 to 30 June 2014.
(iii) The depreciation charges for motor vehicle $36,000 and for office equipment $30,000
for the financial year had not yet been adjusted.
(iv) The Allowance for Doubtful Debts is required to increase to $17,000.
(v) Yeouido Enterprise advertised its products on 29 October 2013, and received an
invoice of $2,000. No entry has been made regarding this transaction.

REQUIRED:

(a) Prepare a detailed Income Statement for the year ended 31 October 2013; and

(b) A Statement of Owner’s Equity for the year and a detailed Balance Sheet as at 31
October 2013.

Question 2
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Myongdong is a trading business and has been in operation for many years. The following
relates to Myongdong.

Income Statement for the year ended 31 October 2013

$’000 $’000
Sales 6,500
Less: Cost of goods sold (3,500)
Gross profit 3,000
Add: Interest income 12
Profit on disposal of motor vehicle 3
3,015
Less: Expenses
Interest expense 11
Loss on disposal of office equipment 1
Depreciation expenses 65
Salary and wages expense 559
Rental expense 130
Miscellaneous operating expenses (including insurance) 15 781
Net Profit 2,234

Other data given:

(i) The interest expense was paid as it arose. The interest income was directly deposited
in the business bank account on an immediate basis.
(ii) During the financial year Myongdong sold a motor vehicle for $5,000 cash. Its
original cost was $80,000 and its accumulated depreciation prior to the disposal was
$78,000.
Myongdong bought two brand new motor vehicles for a total cost of $118,000 cash.
(iii) During the year, the business redeemed one batch of Notes Payable for $75,000 on 30
June 2013 and another batch $55,000 on 30 September 2013.
(iv) Myongdong had a cash balance of $69,000 as at 01 November 2012.

(v) During the financial year, the following changes were noted:

Ledger Accounts As at 31.10.2012 As at 31.10.2013 Change

$’000 $’000 $’000
Accounts receivable 100 110 10
Inventory 130 145 15
Prepaid insurance 5 3 2
Rental payable 20 10 10
Accounts payable 90 106 16
Salary payable 14 8 6
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(vi) In the year under review, the owner of Myongdong withdrew cash three times from
the business for personal use, as shown below:
Date Amount
$’000
12 January 2013 12
23 July 2013 13
30 August 2013 18

(vii) Myongdong sold office equipment for $1,000 cash. Its original cost was $30,000 and
its accumulated depreciation was $28,000.
Myongdong bought a new set of office equipment for $63,000 cash.

REQUIRED:

(a) Prepare a detailed Cash Flow Statement of Myongdong for the year ended 31 October
2013.

(b) The owner of Myongdong could not understand the cash flow statement you have
prepared. Explain the cash flow statement to the owner.
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Question 3 (a) GBK is a marketing consultancy firm. It updates its accounts daily.

Indicate the immediate effect of the following errors on each of the accounting elements
described in the column headings below, using the following code:

O = overstated
U = understated
NE = no effect

Copy the table below before answering:

Net Total Total Owner’s

Error Profit Assets Liabilities Equity

For Example: Received $500 cash for

advice given to a customer, but recorded U U NE U
the transaction as $50.

(i) GBK bought office equipment for

$2,000 cash. It was wrongly recorded as
$20,000.

(ii) GBK paid its office premises rental at

end of the month, $3,000 cash. It was
wrongly recorded as Dr. $8,000 Rental
Expense and Cr. $8,000 Cash.

(iii) The owner of GBK invested

$10,000,000 cash as an additional capital
into the business. No entry has been made.

(iv) GBK received an amount of $4,000 for

work to be done next year. It was
immediately recorded as Dr. $4,000 Cash
and Cr. $4,000 Consultancy Revenue.

(v) GBK bought an office photocopier

machine for $7,700. It was invoiced and
given 30 days credit period. No accounting
entry was made at the time of being
invoiced.
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Question 3 (b)

The financial statements of Hangang Ltd under review were from 01 October 2012 to 30
September 2013. The Allowance for Doubtful Debts of Hangang Ltd on 01 October 2012
was $8,000 credit balance. The company updates its accounts daily.

On 30 June 2013, the company CBG Ltd was wound up. It was a customer of Hangang Ltd.
On the day of winding up, it owed $3,000 to Hangang Ltd. There was no chance of Hangang
Ltd recovering anything from CBG Ltd.

An accounts officer of Hangang Ltd extracted and aged the Accounts Receivables as at 30
September 2013, as shown below:

Number of days overdue Amount

($)
Not yet due 100,000
1 – 30 40,000
31 – 60 50,000
More than 60 60,000

Based on past experience, the Board of Directors of Hangang Ltd was of the opinion that the
following percentages of its Accounts Receivables were not collectable.

Age category Percentage

(%)
Not yet due 1%
1 – 30 days overdue 5%
31 – 60 days overdue 8%
More than 60 days overdue 10%

Hangang uses the “Allowance Account” method for writing off the bad debts of its Accounts
Receivables.

REQUIRED:

(a) Write the journal entry for the 30 June 2013 transaction in the books of Hangang Ltd.

(b) Show the full ledger account (T-Account) of the Allowance for Doubtful Debts of
Hangang Ltd. (Show your workings clearly)

(c) Discuss the one advantage and one disadvantage of the “Allowance Account” method
against the “Direct Write Off” method.
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Question 4

Gangbuk Ltd is a retailer of a special heating pot. All sales are on cash basis. The
business uses the perpetual inventory system and the first-in first-out (FIFO) valuation
method.
The following is a summary of its purchases and sales for the month of October 2013.
On 1 October 2013, Gangbuk Ltd’s opening inventory was 200 units, costing $100 each.

Purchases of Inventory in October 2013

Date of Purchase Number of units Cost price per unit

Purchased $
10 October 180 100
20 October 100 110
30 October 100 120

Sales of Inventory in October 2013

Date of Sales Number of units Sales price per unit

Sold $
05 October 180 200
15 October 50 220
25 October 100 230
(Ignore Goods & Services Tax)

REQUIRED:

(a) Prepare the inventory record showing the purchase, the cost of goods sold and the balance
on hand columns for Gangbuk Ltd. for the month October 2013.

(b) Prepare the journal entries for the transaction on 5 October 2013.

(c) If Gangbuk Ltd’s Administrative and Marketing Expenses for the month were $9,000 and
$11,000 respectively, calculate the gross profit and net profit for the month of October 2013.

*** END OF EXAMINATION PAPER ***

THE SUGGESTED ANSWERS ARE BELOW

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Suggested Answers 313 code
SECTION A

1. D

2. A

3. C

4. B

5. A

6. C

7. D

8. C

9. B

10. A

11. A

12. C

13. C

14. D

15. B

16. D

17. A

18. B

19. A

20. C
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SECTION B

Question 1

1(a) YEOUIDO Enterprise: Income Statement for the year ended 31.10.2013
$’000 $’000
Sales 1,937
Less: Sales return 28
Net sales 1,909
Less: Cost of goods sold :
Beginning Inventory 160
Add: Purchases 1,468
Transport inwards 16
1,644
Less: Ending Inventory (168)
1,476
Gross Profit 433
Add: Other Income
Discount received 22
Miscellanous income 6
28
461
Less: Expenses
Advertising & promotion expense (14 + 2) 16
Advisory & consultancy fee expense 36
Bad debts expense 5
Depreciation expenses (36 +30) 66
Discount allowed 21
Employees’ benefit expenses 24
Freight outwards expense 42
Insurance expense (20 x 12/20) 12
Interest expense 9
Other sundry expenses 8
Repairs and maintenance expense 19
Salaries and wages expense 342
Short term leasing expense 40
Utilities expense 33
673
NET LOSS (212)
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YEOUIDO Enterprise: Statement of Owner’s Equity for the year ended 31.10. 2013
$’000
Beginning capital 357
Add: Net Loss (212)
145
Less: Drawings (27)
Ending capital 118

YEOUIDO Enterprise: Balance Sheet as at 31 October 2013

$’000 $’000
Current assets:
Cash at bank 48
Accounts receivable 357
Less: Allowance for Doubtful Debts (17) 340
Inventory 168
Prepaid Insurance 8
564
Non-current assets:
Motor vehicle (180 – 52) 128
Office equipment (150 – 62) 88 216
780
Current liabilities
Accounts payable 510
Advertising & promotion payable 2
512
Non-curent liabilities
Bank Loan, due in 2023 150 662
Net Assets 118

Owner’s Equity 118

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Question 2

(a) Myongdong : Cash Flows Statement for the year ended 31.10.2013
Cash Flows from Operating activities $’000 $’000
Receipts from customers (6,500 - 10) 6,490
Payments to suppliers (3,500 + 15 - 16) (3,499)
Interest received 12
Interest paid (11)
Payments to employees (559 + 6) (565)
Payment for rent (130 + 10) (140)
Payments for misc expenses (incl. insurance) (15 – 2) (13))
Net cash provided by Operating activities 2,274
Cash flows from Investing activities
Receipts from disposal of motor vehicle 5
Receipts from disposal of office equipment 1
Payments for purchase of motor vehicles (118)
Payments for purchase of office equipment (63)
Net cash used for Investing activities (175)
Cash flows from Financing activities
Payments for Redemption of Notes Payable (130)
Payments for Drawings (43)
Net cash used for Financing activities (173)
Net increase in cash 1,926
Beginning cash 69
Ending cash 1,995

Question 2(b)
Interpretation of the cash flow statement:

The business collected $6,490,000 cash from its customers and was used to pay the suppliers,
employees and other operating expenses. From the operating activites, Myongdong generated
a hugh positive net cash inflow of $2,274,000, which was very commendable.

It appeared that the business was undergoing expansion because of good profitability and also
good liquidity. Some of the cash was used for expansion in the investing activities and also
the financing activities. The business bought motor vehicles and office equipment for
$118,000 and $63,000 cash respectively.

Myongdong redeemed the Notes Payable for $130,000 cash during the year. The owner
withdrew a sum of $43,000 cash.

On the whole, the increase in cash retained in the business amounted to $1,926,000.This
caused the total cash to increase to $1,995,000.

(other reasonable interpretation is acceptable)

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Question 3
(A)

Net Total Total Owner’s

Error
Profit Assets Liabilities Equity
(i) NE NE NE NE
(ii) U U NE U
(iii) NE U NE U
(iv) O NE U O
(v) NE U U NE

(B)
Sub-part (a)
30 June 2013
Allowance for Doubtful Debts DR$3,000
Accounts Receivables CR$3,000
(Amount owed by CBG Ltd written off, due to winding up)

Sub-part (b)
Workings: Allowance for Doubtful Debts
$100,000 x 1% = $1,000
$40,000 x 5% = $2,000
$50,000 x 8% = $4,000
$60,000 x 10% = $6,000
$13,000

Allowance for Doubtful Debts A/C

30.6.13 A/C Receivable $3,000 1.10.12 Balance b/d $8,000
30.9.13 Balance c/d 13,000 30.9.13 P&L 8,000
$16,000 $16,000
1.10.13 Balance b/d 13,000

Sub-part (c)
Advantage of Allowance A/C Method:
More accurate matching of revenue against expense.

Disadvantage of Allowance A/C Method:

More cumbersome and often give the wrong estimate.
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Question 4 (a)
Date Purchase Cost of goods sold Balance
1/10 200@$100=$20,000

5/10 180@$100=$18,000 20@$100=$2,000

10/10 180@$100=$18,000 200@$100=$20,000

15/10 50@$100=$5,000 150@$100=$15,000

20/10 100@$110=$11,000 150@$100=$15,000

100@$110=$11,000

25/10 100@$100=$10,000 50@$100=$5,000

100@$110=$11,000

30/10 100@$120=$12,000 50@$100=$5,000

100@$110=$11,000
100@$120=$12,000
$33,000
b) Journal entry
Date Particulars DR’$ CR’$
5/10 Cash 36,000
Sales 36,000
Sold 180unit at $200 each for cash

Cost of goods sold A/C 18,000

Inventory A/C 18,000
Cost of inventory sold 180 units x $100 each

(c) October 2013 Income Statement

Sales 180 x $200 = $36,000
50 x $220 = $11,000
100 x $230 = $23,000
Total Sales $70,000
Less: Cost of Good sold 33,000
Gross Profit 37,000
Less: Admin expense 9,000
Marketing expense 11,000
Net Profit 17,000

THE END