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Tutorial Chapter 2

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10 views

Tutorial Chapter 2

Uploaded by

thanhthao020606
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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1

Exercise 2.1
Preparing a balance sheet
Financial items for George Karatsis IT Services on 31 May 2019 are presented below in
alphabetical order.

Required
(a) Prepare a balance sheet similar to the one in figure 2.2. (Note: a major item is missing in the
list.)
(b) Reformat the statement to present it in narrative form as in figure 2.3.

Exercise 2.2
Income statement and analysis
During the year ended 30 June 2019, Skilled Services, a provider of temporary secretary
personnel, had collected receipts from clients for a total value of $250 000. Wages of $136 000
had been paid to the temporary workers, rental of office space and electricity costs were $12 000
and $13 700 respectively for the year, and the owners withdrew $20 000 for their personal use.
Required
(a) Prepare an income statement for the year for Skilled Services.
(b) Skilled Services is a sole proprietor. Compare the liability or a sole proprietor with that of a
company shareholder.

Exercise 2.3
Analysis of equity
Sarah Hodge is a self-employed piano teacher operating her business from home. She keeps her
accounting records for business activities completely separate from her records for personal
activities. At 30 June 2018, Sarah had business assets and liabilities worth $62 500 and $41 000
respectively. At 30 June 2019, Sarah had business assets and liabilities worth $56 000 and
$38 000 respectively.
Required
(a) Assuming Sarah did not contribute to or withdraw from the business during the financial
year, determine the profit/loss for the year.
(b) Assuming Sarah had withdrawn $15 000 during the year, determine the profit/loss for the
year.
(c) Assuming Sarah had contributed $20 000 and withdrawn $12 000, prepare a statement of
changes in equity for the year.
2

Exercise 2.4

Determining profit from equity balances

Equity balances for Sen Widyaya appearing in the balance sheets of Widyaya’s Window
Washing Services as at 30 June 2019, 2018 and 2017 are set out below.

During 2017–18, Sen withdrew $25 000 for personal use and also contributed additional capital
of $8000. During 2018–19, he withdrew $10 000 capital from the business, and withdrew
$15 000 cash for his own use in anticipation of profits.

Required
(a) Determine the profit/loss earned by the business in each of the 2 years ended 30 June 2019
and 30 June 2018.

Exercise 2.7
Assumptions and characteristics of information
Identify by letter the assumption or characteristic of information which best represents the
situations given.
A. Accounting entity assumption
B. Accrual basis assumption
C. Going concern assumption
D. Period assumption
E. Relevance
F. Faithful representation
G. Materiality
H. Comparability
1. The reporting of accounting information should be free from personal bias.
2. In a single proprietorship, the owner’s house and car are not recorded in the records of
the business.
3. The cost of stationery is not shown separately in the income statement.
4. Services provided by a business entity are recorded before the receipt of cash.
5. Machinery held by the business under a long-term lease arrangement is recorded by the
business as its own asset.
6. An expense is recorded in the year in which an asset or benefit is consumed in the process
of carrying on the entity’s business.
7. Assets are not recorded at liquidation prices.
8. Consistent accounting policies and methods are used in the preparation of financial
statements from one year to another.
3

Exercise 2.10

Explaining accounting transactions

The following schedule shows the effect of several transactions on the accounting equation of
Preya Palit and the balance of each item in the equation after each transaction. Write a sentence
to explain the nature of each transaction.

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