RESTRICTED USE
La Trobe University
Final Examination
2005
Student Number:
Seat Number:
Subject Code: ACC12FNA
Subject Name: FINANCIAL ACCOUNTING 1
Paper No:
Paper Name: FINAL EXAMINATION
1
Reading Time: 15 MINUTES
Examination Date:
Writing Time: 3 HOURS
11/11/2005 Examination Start Time: 14:00
No. of pages (including cover sheet): 24
FOOTNOTES
AND
ADDITIONAL INSTRUCTIONS TO CANDIDATES
1) Non-programmable calculator permitted.
2) Unmarked non-electronic English dictionary.
3) This examination paper is marked out of 100, which represents 70% of the subject’s final mark.
4) Narrations are not required, unless you have to make an assumption in determining the required
entry, in which case that assumption should be stated.
5) Candidates should attempt all questions in the space provided. Additional space is provided at the
end of the paper if required. Use the back of pages for workings.
Question
Possible mark
Examiners Use
Only
1
30
2
15
3
10
4
10
5
15
6
10
7
10
This paper MUST NOT BE REMOVED from the examination venue
2005 ACC12FNA Final Examination 01
Question 1
[a]
[30 marks]
List three differences between management accounting and financial accounting.
[3 marks]
[b]
Briefly discuss the nature and purpose of closing the ledger.
[3 marks]
Page 2 of 24
2005 ACC12FNA Final Examination 01
Question 1 – continued
[c]
In relation to financial accounting briefly discuss the purpose of the following activities:
“adjusting entries”, “closing entries” and “reversing entries”.
[3 marks]
[d]
Briefly distinguish between the “direct write-off method” and the “allowance method” used in
accounting for accounts receivable, identifying why one is preferable to the other.
[3 marks]
Page 3 of 24
2005 ACC12FNA Final Examination 01
Question 1 – continued
[e]
Briefly discuss how a pending law suit against firm for wrongful dismissal of an employee may
appear in that firm’s annual report.
[3 marks]
[f]
Briefly discuss two reasons why an expense is not matched to specific revenue.
[3 marks]
Page 4 of 24
2005 ACC12FNA Final Examination 01
Question 1 – continued
[g]
List two advantages and one disadvantage of the perpetual inventory system.
[3 marks]
[h]
Briefly discuss the nature and purpose of the lower of cost and market rule.
[3 marks]
Page 5 of 24
2005 ACC12FNA Final Examination 01
Question 1 – continued
[i]
Briefly explain the nature and purpose of “share forfeiture”.
[3 marks]
[j]
Distinguish between “accrual based accounting” and “cash based accounting”.
[3 marks]
Page 6 of 24
2005 ACC12FNA Final Examination 01
Question 2
[15 marks]
You are required to show the general journal entry to record the required balance day adjustment for
each of the following situations. Assume that the accounting period ends on December 31, all
accounts have a normal balance unless otherwise stated and GST is not applicable. You need not
show any earlier recordings.
[a]
On the first day of this accounting period the ledger account “Stationery on Hand” had a
balance of $1,100. No reversing entry was made in regard to the account at the start of the
period. During the period purchases of stationery of $10,300 were recorded in the ledger
account “Stationery Expense”. At the end of the period a count of stationery showed $1,700
on hand.
General Journal
Date
Particulars
Debit
Credit
[3 marks]
[b]
The lease on the firm’s rented showrooms requires payment of $27,000 at the beginning of
every quarter starting on November 1. This payment is recorded as an asset at the time of
payment.
Date
Particulars
Debit
Credit
[3 marks]
Page 7 of 24
2005 ACC12FNA Final Examination 01
Question 2 – continued
[c]
Due to the large size of their showrooms the firm rents a small part of the building to a firm of
accountants for $500 per month. The accounting firm started using this space for their office
on December 1 and pays the rental owing at the end of each quarter.
General Journal
Date
Particulars
Debit
Credit
[3 marks]
[d]
The firm received $24,000 on August 1 for a service contact for the next six months. At the
time this money was received by firm it was recorded as revenue.
Date
Particulars
Debit
Credit
[3 marks]
[e]
Employees are paid $57,500 for salaries on each Friday which is the last day of their five day
working week. December 31, for this accounting period falls on a Tuesday.
Date
Particulars
Debit
Credit
[3 marks]
Page 8 of 24
2005 ACC12FNA Final Examination 01
Question 3
[a]
[10 marks]
The listing of accounts shown below was taken from an accounting system after balance day
adjustments had been recorded. Prior to closing the ledger, management resolved to:
•
•
•
•
Provide for a final dividend of $30,000.
Transfer $5,000 to the “General Reserve”.
Pay $100,000 off the mortgage within nine months.
Sell the government bonds next month to help finance the mortgage reduction.
You are required to show, on the following page, the general journal entries required to
account for closing the ledger and management resolutions.
Account
Balance
Sales
Sales Returns and Allowances
Commission Revenue
Cost of Goods Sold
Marketing Expenses
Administrative Expenses
Bad and Doubtful Expenses
Interest Expenses
Income tax
Retained earnings at start
Dividends Paid
Cash at Bank
Accounts Receivable
Allowance for Doubtful Debts
Inventory
Revenues Receivable
Prepaid Expenses
Land
Buildings
Accum Depn - Buildings
Furniture & Fittings
Accum Depn - Furniture & Fittings
Government Bonds
Goodwill
Accounts Payable
Bills Payable
Expenses Payable
Unearned Revenue
Taxes Payable
Mortgage
Paid up Shares
General Reserve
1,327,500
700
1,500
765,000
239,000
146,000
2,000
38,000
64,000
38,000
31,000
42,000
35,000
2,400
43,000
900
1,100
350,000
300,000
86,000
220,000
57,000
124,000
65,000
63,000
23,000
800
400
2,100
420,000
400,000
45,000
Note: all balances are normal unless indicated by ( ).
Page 9 of 24
2005 ACC12FNA Final Examination 01
Question 3 [a] – continued
General Journal
Date
Particulars
Debit
Credit
[7 marks]
Page 10 of 24
2005 ACC12FNA Final Examination 01
Question 3 – continued
[b]
Show how the ledger account for “Electricity Expense” would record the following
information:
•
•
•
•
•
•
Reversal of prepaid electricity of $2,300 reported on last period’s balance sheet.
Payment of electricity bill of $62,560.
Refund from the electricity company for overcharging on previous bill by $3,100
Payment of electricity bill of $58,340.
End of period assessment determined that $700 was owed.
Closed ledger.
Electricity Expense
Date
Particulars
Debit
Date
Particulars
Credit
[3 marks]
Spare Working Space for Your Calculations
(Your final answer should not appear here)
Page 11 of 24
2005 ACC12FNA Final Examination 01
Question 4
[10 marks]
Using the following information you are required to prepare a Statement of Cash Flows using the
direct method.
Income Statement for 2006
$
Sales Revenue
Less expenses
Cost of Goods Sold
Depreciation Expense
Bad debts
Salary and wages
Administrative expenses
Interest Expense
Income Tax
NET INCOME
275,000
23,000
15,000
145,000
85,000
20,000
28,000
Comparative Balance Sheets
$
591,000
163,000
2006
2005
Cash
Accounts Receivable
Allowance for Doubtful Debts
Inventory
Prepaid Administrative Expenses
Land
Buildings
Accumulated Depn - Buildings
Equipment
Accumulated Depn - Equipment
114,000
56,000
(2,300)
158,000
3,500
105,000
250,000
(20,000)
150,000
(23,000)
791,200
88,000
42,000
(2,100)
120,000
2,400
65,000
250,000
(10,000)
150,000
(10,000)
695,300
Accounts Payable
Income Tax Payable
Mortgage
Ordinary Shares
Retained Earnings
45,000
9,000
200,000
405,000
132,200
791,200
38,000
6,900
200,000
375,000
75,400
695,300
Additional information regarding the period:
•
•
•
$
754,000
A cash dividend was paid.
A fully paid share issue was made to the public.
Actual bad debts were written of during the period.
Page 12 of 24
2005 ACC12FNA Final Examination 01
Question 4 – continued
Statement of Cash Flows
For the year 2005
[10 marks]
Page 13 of 24
2005 ACC12FNA Final Examination 01
Question 5
[15 marks]
Ragon Ltd imports a single product from interstate and then distributes it to several outlets in Victoria.
Ragon’s supplier sells on credit to Ragon with the terms of 5/5 and n/20. Ragon sells the product to its
customers for $22 (excluding GST) per unit on credit with terms of 2/10 and n/30. All transactions are
subject to GST. Shown below is the partly completed stock card for the product for the current
accounting period; some transactions are still to be added.
Date
Particulars
Jan - 01
Opening Balance
Jan - 20
Sale - 600 units
Feb - 12
Purchase
Mar - 02
Apr - 01
Apr - 03
Units
IN
Unit
$
Total $
Units
OUT
Unit
$
BALANCE
Total $
Units
Unit $
Total $
500
1000
$4.50
$5.00
2,250
5,000
600
$5.00
3,000
500
400
700
$4.50
$5.00
$5.20
2,250
2,000
3,640
Sale - 800 units
700
100
$5.20
$5.00
3,640
500
500
300
$4.50
$5.00
2,250
1,500
Sale - 500 units
300
200
$5.00
$4.50
1,500
900
300
900
$4.50
$5.30
1,350
4,770
Purchase
700
900
$5.20
$5.30
3,640
4,770
Continues over page
Page 14 of 24
2005 ACC12FNA Final Examination 01
Question 5 – continued
[a]
What inventory costing system is being used on the stock card?
[0.5 marks]
[b]
Show the general journal entry to record the payment by debtor of the sale on 20th January if
they paid on 2nd February. Ragon had charged the customer $300 for cartage for the sale.
General Journal
Date
Particulars
Debit
Credit
[2 marks]
[c]
Show the general journal entry to record the payment of the account arising from the purchase
on 12th February, if Ragon Ltd had been charged $200 freight for the delivery and made the
payment on 14th February.
Date
Particulars
Debit
Credit
[3 marks]
Page 15 of 24
2005 ACC12FNA Final Examination 01
Question 5 – continued
[d]
Show the general journal entry to record the sale of 200 units on 3rd May to customer who was
charged $150 for freight.
General Journal
Date
Particulars
Debit
Credit
[3.5 marks]
[e]
Considering all the previous information, show the general journal entry to record the purchase
of 300 units at a cost of $5.10 per unit on 28th May. The supplier charged Ragon $280 for
cartage.
Date
Particulars
Debit
Credit
[2 marks]
Page 16 of 24
2005 ACC12FNA Final Examination 01
Question 5 – continued
[f]
Considering all the previous information, show the general journal entries to record the fact
that a stock count on 30th June revealed that there were only 1,290 units in storage at the end of
the period.
General Journal
Date
Particulars
Debit
Credit
[1 mark]
[g]
Considering all the previous information, show the general journal entry, if required, for the
fact that due to a forecasted downturn in the economy the sale manager considers that the
market for the product will become depressed and the company faces the prospect that the
product would sell for $4.00 each in the foreseeable future.
Date
Particulars
Debit
Credit
[1 mark]
[h]
Show the general journal entry to record the receipt of a credit note, in the next accounting
period, from Rogan’s supplier for an allowance for over charging Ragon by ten cents per unit
(original cartage charged not affected) on the purchase on 3rd April.
Date
Particulars
Debit
Credit
[2 marks]
Page 17 of 24
2005 ACC12FNA Final Examination 01
Question 6
[a]
[10 marks]
Neon Ltd. Purchased land, paying with $90,000 cash and signing a $150,000 note payable to
the vendor of the land. In addition Neon paid cash for outstanding council rates of $2,000,
stamp duty of $2,500, and a $5,400 charge for rubbish removal and leveling of the land. The
company paid $50,000 cash for removal of earth for foundations of the new company
headquarters which cost $1,070,000. The cost of the building was paid by arranging a
mortgage with their bank. The company also paid cash of $72,000 for a fence around the
property, $10,400 for the company sign at the entrance of the property, and $6,000 for special
lighting of the grounds.
You are required to show a single compound general journal entry for the acquisition of the
three assets.
General Journal
Date
Particulars
Debit
Credit
[3 marks]
Spare Working Space for Your Calculations
(Your final answer should not appear here)
Page 18 of 24
2005 ACC12FNA Final Examination 01
Question 6 – continued
[b]
On 1st July 1998, Ablle Company purchased land for $1,400,000. On 1st April 2002, the
government announced that it would use their land next to Ablle’s land for a toxic waste dump.
As a result of the government’s decision, on 30th June 2002, management had the land revalued at $1,100,000. Due to a public outcry the government changed their decision in 2003.
On 1st January 2004 the government announced that their land would be the site of a housing
development for the Commonwealth Games in 2006. The management decided to revalue
their land to $1,600,000 on 30th June 2005. You are required show the general journal to
account for the re-valuation on 30th June 2005.
General Journal
Date
Particulars
Debit
Credit
[3 marks]
Spare Working Space for Your Calculations
(Your final answer should not appear here)
Page 19 of 24
2005 ACC12FNA Final Examination 01
Question 6 – continued
[c]
Ontime Delivery Company purchased a delivery van on July 1, 2003 for $30,000. The
company replaces its vehicles every 3 years and expects a residual value of 10% of original
cost. On January 1 2005, due to an accident after a early morning delivery, management
decides to write-off the van as a complete loss. Ontime has to pay $500 to remove and dispose
of the wreck. Show the general journal entries to record the disposal of the vehicle, if Ontime
uses the straight-line method of depreciation and its financial period ends June 30.
General Journal
Date
Particulars
Debit
Credit
[4 marks]
Spare Working Space for Your Calculations
(Your final answer should not appear here)
Page 20 of 24
2005 ACC12FNA Final Examination 01
Question 7
[a]
[10 marks]
Byron Ltd has prepared the following aging schedule for its accounts receivable at the end of
its current accounting period:
Current
30 to 60 days
61 to 90 days
Over 90 days
$400,000
$120,000
$50,000
$20,000
The accountant has estimated that 1% of its current accounts; 5% of its 30 to 60 days accounts;
8% of its 61to 90 accounts; and, 10% of the over 90 days accounts will be uncollectible. In
addition, the following information was taken from the firm’s accounting system:
•
•
Opening balance of the ledger account “Allowance for Doubtful Debts” at the start of
the current period was $15,000
During the period actual bad debts amounted to $6,000.
You are required to:
[i]
Date
Show how the ledger account “Allowance for Doubtful Debts” would record the above
information after the general ledger was closed for the period.
Allowance for Doubtful Debts
Transaction
Particulars
Debit
Credit
Balance
Debit
Credit
[2.5 marks]
[ii]
Show how the Statement of Financial Position would report the above information at
the end of the period.
[2 marks]
Page 21 of 24
2005 ACC12FNA Final Examination 01
Question 7 – continued
[b]
On June 1st 2005 Great Tours Ltd. arranged a 12% interest-bearing note for $100,000 from
their bank to purchase a new bus. The note was for 120 days (based on a 360 day year). Great
Tours Ltd’s fiscal year ends on June 30th and the necessary adjustments were made on that
date. Great Tours Ltd. recognizes the related interest at the time of taking out the loan. For
Great Tours Ltd. you are required to:
[i]
Show the general journal entry to record the issue of the note by Great Tours Ltd.
General Journal
Date
Particulars
Debit
Credit
[3 marks]
[ii]
Date
Show the general journal entries to account for the maturity of the note (round
calculations to nearest dollar) by Great Tours Ltd.
Particulars
Debit
Credit
[2.5 marks]
End of questions
Page 22 of 24
2005 ACC12FNA Final Examination 01
Additional Working Space
Page 23 of 24
2005 ACC12FNA Final Examination 01
Additional Working Space
Page 24 of 24