AC3202 Corporate Accounting I, Semester A, 2022/2023

Week 2 Questions

For each of the following questions:

a. Prepare the necessary journal entries for year ended 31 December 2018.
b. Prepare the Income Statement (Statement of Profit or Loss and Other Comprehensive Income),
classifying expenses by function, for the year ended 31 December 2018.
c. Prepare the Statement of Changes in Equity for the year ended 31 December 2018.
d. Prepare the Balance Sheet (Statement of Financial Position) as at 31 December 2018.

Question 1
The following account balances are taken from the ledger of Bell Ltd. on 31 December 2018, the
end of its fiscal year:
Dr. ($) Cr. ($)
Cash 60,000
Accounts receivable 85,000
Inventories 87,000
Equipment 225,000
Accumulated depreciation – equipment 77,000
Accounts payable 38,000
Wages payable 5,000
Note payable 60,000
Unearned revenue 3,000
Share capital 100,000
Retained profits 132,300
Sales 256,000
Cost of goods sold 145,000
Wage expense 32,000
Rent expense 14,000
Interest expense 2,400
Other operating expenses 5,300
Other administrative expenses 15,600
$ 671,300 $ 671,300

Information necessary to prepare the year-end adjusting entries and 2018 financial statements:
1. Depreciation on the equipment for the year is $20,000.
2. Wages payable at 31 December 2018 should be $10,000.
3. On 1 February 2018, Bell Ltd. borrowed $60,000 from a bank and signed a note. The note is
due in 4 years’ time and requires interest to be paid semi-annually on 31 July and 31 January at
8% per annum.
4. In November 2018, a customer paid Bell Ltd. $3,000 for an order that was delivered in
December 2018. The cash received was credited to “Unearned revenue.” No other customer
advances were received during the year.
5. On 1 December 2018, Bell Ltd. paid $3,000 rent for the office building. The payment was
recorded as rent expense and represented rent for December 2018 through January 2019, at
$1,500 per month.
6. Tax payable estimated at $3,000
7. The wages expense should be allocated 40% to distribution costs and 60% to administrative
expenses. Depreciation for equipment should be allocated to other operating expenses.
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Question 2
The following account balances are taken from the General Ledger of Bond Ltd. on 31 December
2018, the end of its fiscal year.

Dr. ($) Cr. ($)

Cash 50,250
Prepaid insurance 7,000
Accounts Receivable 79,500
Inventories, 31 December 2018 94,700
Land (cost) 80,000
Buildings (cost) 247,600
Furniture and Fixtures (cost) 15,000
Allowance for Doubtful Accounts 650
Accumulated Depreciation – Buildings 18,000
Accumulated Depreciation – Furniture and Fixture 9,000
Loans Payable (due in 2020) 18,000
Accounts Payable 72,700
Share Capital (Ordinary share, no par value) 260,000
Retained earnings 120,125
Sales 770,000
Sales return and Allowances 27,000
Cost of Goods Sold 465,800
Utilities expenses 16,700
Other administrative expenses 10,200
Salaries Expenses 89,000
Sales commissions 71,325
Insurance Expenses 12,000
Interest Expenses 2,400
$1,268,475 $1,268,475

Information necessary to prepare the year-end adjusting entries and 2018 financial statements:
1. Depreciation (to nearest month for additions during the year):
Furniture and fixtures, 10%, Buildings, 5%
Included in Buildings were additions completed on 1 June 2018 costing $90,000
2. It was determined that the “Allowance for Doubtful Accounts” account at 31 December 2018
should be $4,575.
3. Prepaid insurance at 31 December 2018 should be $5,000
4. Bond Ltd. sold goods at a selling price of $12,000 (cost $8,000) to a customer on 30 December
2018. All sales are on credit. No entries for this sale have been recorded.
5. Accrued expenses at year-end include sales commissions of $900 and interest on loans payable
of $120.
6. Taxes payable estimated as $10,000.
7. On 30 December 2018, the board of directors declared dividends of $7,200 on ordinary shares,
payable 28 January 2019, to shareholders of record 15 January 2019.
8. The utilities expenses and bad debt expenses should be classified as administrative expenses.
The salaries expenses should be allocated 30% to selling and distribution expenses and 70% to
administrative expenses. The insurance expenses should be allocated 60% to administrative
expenses and 40% to selling and distribution expenses.

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Question 3
The following account balances are taken from the General Ledger of P&G Co. on 31 December
2018, the end of its fiscal year.

$
Accounts Payable 47,300
Accounts Receivable 91,000
Accumulated depreciation – furniture and fittings 21,300
Accumulated depreciations – plant and equipment 46,780
Allowance for Bad Debts (credit balance) 1,800
Cash 34,400
Furniture and fixtures 65,500
Inventories 84,000
Loans Payable 120,000
Plant and equipment 227,500
Share Capital, no par 100,000
Retained earnings, 31 December 2017 108,020
Dividends – interim 9,000
Sales 409,000
Sales Returns & Discounts 20,430
Purchases 184,000
Purchases Discounts 6,780
Selling Expenses 48,650
Administrative Expenses 39,900
Other operating Expenses 17,000
Office Rent Expenses 36,000
Interest Expense 3,600

Additional information:
1. The Administrative expenses incorrectly include $12,000 for office furniture purchases. The
purchases were made on 1 May 2018.
2. Depreciation of 10% (to the nearest month for additions during the year).
3. Inventories based on a physical count at 31 December 2018 were determined to be $60,000.
4. Tax payable estimated as $4,000.
5. The loans were obtained on 1 May 2018 and are repayable in four equal annual instalments
with the first payment due on 1 May 2019. The interest charged is 6% per annum payable on a
semi-annual basis.
6. The board of directors proposed final dividends of $9,000 for the year-ended 31 December
2018.

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Question 4
The following account balances are taken from the General Ledger of Golden Limited on 31
December 2018, the end of its fiscal year.

$
Accumulated Depreciation – Equipment 42,000
Advertising Expense 47,100
Allowance for Bad Debts (credit balance) 3,300
Cash 79,300
Cost of Goods Sold 432,300
Equipment 220,600
Inventories 110,000
Loans Payable (due in 2020) 100,000
Office Rent Expense 90,000
Other operating Expenses 32,300
Prepaid Insurance 8,000
Retained Earnings 66,500
Sales 795,200
Share Capital, no par value 200,000
Tax Expense 5,200
Tax payable 5,200
Trade Creditors 57,000
Trade Debtors 127,200
Unearned Rent 15,000
Utilities Expenses 11,600
Wages Expense 120,600

Additional Information:
1. The Prepaid Insurance is for equipment for the period October 2018 to February 2019.
2. Included in equipment was $16,200 for equipment repairs that were erroneously recorded as
equipment purchases. The repairs were made on 1 December 2018.
3. Depreciation for the equipment has not been provided. The equipment has an estimated useful
life of 8 years and $12,400 residual value and is depreciated on a straight-line basis.
4. Unearned Rent is for the period August 2018 to March 2019.
5. Wages payable on 31 December: $6,000.
6. Tax payable at 31 December should be $3,000.
7. The company has issued 10,000 shares (no par value) at $3 each in April 2018. The entries have
been properly recorded.
8. On 30 December 2018, the board of directors declared dividends of $8,000.
9. The utilities expenses should be classified as administrative expenses. The wages expenses
should be allocated 40% to selling and distribution expenses and 60% to administrative
expenses.

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Question 1a.
Information necessary to prepare the year-end adjusting entries and 2018 financial statements:
1. Depreciation on the equipment for the year is $20,000.
Depreciation expense 20,000
Accumulated depreciation – equipment 20,000

2. Wages payable at 31 December 2018 should be $10,000.

Wages expense (10,000 – 5,000) 5,000
Wages payable 5,000

3. On 1 February 2018, Bell Ltd. borrowed $60,000 from a bank and signed a note. The note is
due in 4 years’ time and requires interest to be paid semi-annually on 31 July and 31 January at
8% per annum.
Interest expense (60,000 × 8% × 5/12) 2,000
Interest payable 2,000

4. In November 2018, a customer paid Bell Ltd. $3,000 for an order that was delivered in
December 2018. The cash received was credited to “Unearned revenue.” No other customer
advances were received during the year.
Unearned revenue 3,000
Revenue 3,000

5. On 1 December 2018, Bell Ltd. paid $3,000 rent for the office building. The payment was
recorded as rent expense and represented rent for December 2018 through January 2019, at
$1,500 per month.
Prepaid rent 1,500
Rent expense 1,500

6. Tax payable estimated at $3,000

Tax expense 3,000
Tax payable 3,000

7. The wages expense should be allocated 40% to distribution costs and 60% to administrative
expenses. Depreciation for equipment should be allocated to other operating expenses.
Distribution expense (37,000 × 40%) 14,800
Administrative expense (37,000 × 60%) 22,200
Wages expense 37,000
Other operating expense 20,000
Depreciation expense 20,000

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Question 2a.
Information necessary to prepare the year-end adjusting entries and 2018 financial statements:
1. Depreciation (to nearest month for additions during the year):
Furniture and fixtures, 10%, Buildings, 5%
Included in Buildings were additions completed on 1 June 2018 costing $90,000
Depreciation expenses 11,630
Accumulated depreciation – Furniture and Fixture 1,500
(15,000 × 10%)
Accumulated depreciation – Buildings 10,130
(247,600 × 5% – 90,000 × 5% × 6/12)

2. It was determined that the “Allowance for Doubtful Accounts” account at 31 December 2018
should be $4,575.
Bad debt expenses (4,575 – 650) 3,925
Allowance for doubtful accounts 3,925

3. Prepaid insurance at 31 December 2018 should be $5,000

Insurance expenses (7,000 – 5,000) 2,000
Prepaid insurance 2,000

4. Bond Ltd. sold goods at a selling price of $12,000 (cost $8,000) to a customer on 30 December
2018. All sales are on credit. No entries for this sale have been recorded.
Cost of goods sold 8,000
Inventory 8,000
Accounts Receivable 12,000
Sales 12,000

5. Accrued expenses at year-end include sales commissions of $900 and interest on loans payable
of $120.
Sales commissions 900
Interest expenses 120
Accrued expenses 1,020

6. Taxes payable estimated as $10,000.

Tax expenses 10,000
Taxes payable 10,000

7. On 30 December 2018, the board of directors declared dividends of $7,200 on ordinary shares,
payable 28 January 2019, to shareholders of record 15 January 2019.
Dividends 7,200
Dividends payable 7,200

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8. The utilities expenses and bad debt expenses should be classified as administrative expenses.
The salaries expenses should be allocated 30% to selling and distribution expenses and 70% to
administrative expenses. The insurance expenses should be allocated 60% to administrative
expenses and 40% to selling and distribution expenses.
Administrative expense 20,625
Utilities expenses 16,700
Bad debt expense 3,925
Selling and distribution expense (89,000 × 30%) 26,700
Administrative expense (89,000 × 70%) 62,300
Salaries expenses 89,000
Selling and distribution expense (12,000 × 40%) 4,800
Administrative expense (12,000 × 60%) 7,200
Insurance expenses 12,000

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Question 3a.
Additional information:
1. The Administrative expenses incorrectly include $12,000 for office furniture purchases. The
purchases were made on 1 May 2018.
Furniture and fixtures 12,000
Administrative expenses 12,000

2. Depreciation of 10% (to the nearest month for additions during the year).
Depreciation expenses 12,028
Accumulated depreciation – furniture and fittings 7,350
(65,500 × 10% + 12,000 × 10% × 8/12)
Accumulated depreciation – plant and equipment 4,678
(46,780 × 10%)

3. Inventories based on a physical count at 31 December 2018 were determined to be $60,000.

Cost of goods sold 24,000
Inventory (84,000 – 60,000) 24,000

4. Tax payable estimated as $4,000.

Tax expenses 4,000
Tax payable 4,000

5. The loans were obtained on 1 May 2018 and are repayable in four equal annual instalments
with the first payment due on 1 May 2019. The interest charged is 6% per annum payable on a
semi-annual basis.
Interest expense (120,000 × 6% × 8/12 × 1/4) 1,200
Interest payable 1,200

6. The board of directors proposed final dividends of $9,000 for the year-ended 31 December
2018.
Dividends 9,000
Dividends payable 9,000

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Question 4a.
Additional Information:
1. The Prepaid Insurance is for equipment for the period October 2018 to February 2019.
Insurance expense (8,000 × 3/5) 4,800
Prepaid Insurance 4,800

2. Included in equipment was $16,200 for equipment repairs that were erroneously recorded as
equipment purchases. The repairs were made on 1 December 2018.
Repairs expense 16,200
Equipment 16,200

3. Depreciation for the equipment has not been provided. The equipment has an estimated useful
life of 8 years and $12,400 residual value and is depreciated on a straight-line basis.
Depreciation expense 24,000
Accumulated depreciation – Equipment 24,000
[(220,600 – 16,200 – 12,400) ÷ 8]

4. Unearned Rent is for the period August 2018 to March 2019.

Unearned rent (15,000 × 5/8) 9,375
Rent revenue 9,375

5. Wages payable on 31 December: $6,000.

Wages expense 6,000
Wages payable 6,000

6. Tax payable at 31 December should be $3,000.

Tax payable (5,200 – 3,000) 2,200
Tax expense 2,200

7. The company has issued 10,000 shares (no par value) at $3 each in April 2018. The entries have
been properly recorded.
No entry is required.

8. On 30 December 2018, the board of directors declared dividends of $8,000.

Dividends 8,000
Dividends payable 8,000

9. The utilities expenses should be classified as administrative expenses. The wages expenses
should be allocated 40% to selling and distribution expenses and 60% to administrative
expenses.
Administrative expense 11,600
Utilities expense 11,600
Selling and distribution expense (120,600 × 40%) 48,240
Administrative expense (120,600 × 60%) 72,360
Wages expense 120,600