AC1103 – ACCOUNTING I
SEMESTER 2, 2023/2024
Lesson 12 for week beginning 8 April 2024
Topics:
1 Debt Financing
2 Equity Financing
Learning objectives:
Refer to the course outline.
Readings:
1. STH Ch 8 Part A and Ch 10 Part A
2. SFRS(I) Conceptual Framework for Financial Reporting (Chapter 4)
Textbook:
STH: Spiceland J. D., Thomas W., Herrmann D. (2022), “Financial Accounting”, 6th edition, McGraw-Hill
Discussion Questions
Question 1
Part I Adapted from AC1103 21S2 Exam Question 1 PART I
Unicorn Pte Ltd (the company) is a travel agency that provides bespoke services for travellers who seek an immersive and authentic overseas travel experience. You are the intern who is tasked with assisting the accountant in preparing the financial statements for the financial year ended 31 March 2022 and getting the accounting records ready for the auditor’s review. Below is a partial list of account balances as at 31 March 2022. All accounts have normal balances unless otherwise stated.
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$
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Accounts Receivable (AR)
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175,000
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Allowance for Impairment of AR
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7,400
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Bank Service Charges
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4,705
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Cash
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315,300
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Impairment Loss of AR
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8,000
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Interest Income
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585
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Prepaid Rent
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15,400
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Rent Expense
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84,700
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Retained Earnings
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80,500
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After reviewing the documents and interviewing key employees, you obtained the following information:
(1) The company’s monthly rental begins from 1st of each month and the company usually pays its quarterly rental of $23,100 in advance on every 1 February, 1 May, 1 August, and 1 November to the landlord. The company uses an automated electronic payment service provided by the bank, Fast And Secure Transfer (FAST), to pay its rent. There was
no other rental paid during the financial year ended 31 March 2022.
(2) The AR aging as at 31 March 2022 is tabulated as follows:
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$
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Estimated percentage of uncollectible
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Current
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142,000
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-
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1 – 60 days past due
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25,000
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20%
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> 60 days past due
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8,000
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85%
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Total
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175,000
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As a customer remained uncontactable after getting lost in the South Siberian Mountains during a hike, the company wrote off $15,000 of his debt to the Impairment Loss of AR account on 11 November 2021.
Another customer, whose debt of $7,000 was written off in September 2021 due to personal bankruptcy, came back on 20 February 2022 to make a final settlement of $3,500. The following record was made:
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Dr Cash
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$3,500
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Dr Allowance for Impairment of AR
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$3,500
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Cr Impairment Loss of AR
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$7,000
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There was no other write-off of bad debts or recovery of bad debts during the financial year ended 31 March 2022.
(3) The company received a bank statement in early April which showed a balance of $329,210 as at 31 March 2022. The statement indicated bank service charges amounting to $355 being incurred for the month of March 2022. In addition, the statement also indicated that the interest income earned on the average cash balance was $55 for the month of March 2022. The company has not recorded both amounts.
(4) The company recorded $145,355 of deposits in the Cash account during the month of March 2022. The deposits recorded in the bank statement during the month of March 2022 were $139,265. The deposits-in-transit as at 28 February 2022 were $4,900.
(5) The company recorded a total of $128,180 cheque payments in the Cash account during the month of March 2022. The total amount of cheques cleared by the bank during the month of March 2022 was $108,765. Outstanding cheques as at 28 February 2022 amounted to $5,785 and they were cleared by the bank in March 2022.
Required
(a) Prepare the adjusting / correcting journal entries for the above notes (1) to (3), without dates and narrations, for the financial year ended 31 March 2022. If no adjusting / correcting journal entry is required for a particular note, state “no entry” and explain the reason.
(b) Prepare the bank reconciliation statement for Unicorn Pte Ltd as at 31 March 2022.
Part II STH P8-2A (adapted)
Precision Castparts, a manufacturer of processed engine parts in the automotive and airline industries, borrows $41 million cash on October 1, 20x4 to provide working capital for anticipated expansion. Precision signs a one-year, 9% promissory note to Midwest Bank under a prearranged short-term line of credit. Interest on the note is payable at maturity. Each company has a December 31 year-end.
Required:
(a) Prepare the journal entries on October 1, 20x4 to record the notes payable for Precision Castparts.
(b) Record the adjusting entry on December 31, 20x4 for the notes payable for Precision Castparts.
(c) Prepare the journal entries on September 30, 20x5, to record payment for the notes payable for Precision Castparts.
Part III Adapted from AC1103 22S1 Exam Question 1 Part I
On 1 October 2021, Fantastic Limited (Fantastic) had 476,000 outstanding shares and 8,000 treasury shares. The following transactions took place in its financial year ended 30 September 2022:
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January 2022
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Purchased 10,000 of its own shares at $2.20 each, holding 60% of the repurchased shares as treasury shares and cancelling the rest.
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May 2022
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Conducted a share split, where each existing share was split into 2 shares.
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August 2022
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Declared an interim dividend of $0.05 per share.
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Required
(a) Determine the following:
(i) the number of issued shares on 1 October 2021,
(ii) the number of issued shares at the end of January 2022 and May 2022, and
(iii) the number of outstanding shares at the end of January 2022 and May 2022.
(b) Prepare journal entries, without dates and narrations, to record:
(i) the share buyback in January 2022, and
(ii) the declaration of interim dividend in August 2022.
Question 2 Adapted from AC1103 20S1 Exam Question Part I
BYD Limited (“the company”) manufactures specialised machines and has a financial year-end of 30 September. The company adopts Singapore Financial Reporting Standards (International) (“SFRS(I)”) to prepare its financial statements.
The company has the following account balances as at 1 October 2019. All accounts have normal balances.
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$
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Ordinary Share Capital – 1,000,000 shares issued
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1,200,000
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Retained Earnings
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896,500
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During the financial year ended 30 September 2020, the following transactions relating to shares and dividends occurred:
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Date
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Transaction
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15 November 2019
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Issued one ordinary share to existing shareholders at $1 each for every four ordinary shares they held. All the shareholders paid up fully for this right issue.
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15 February 2020
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Conducted share split where each existing ordinary share was split into 2 shares.
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15 May 2020
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Purchased 100,000 ordinary shares at $0.60 each, holding 50% of the repurchased shares as treasury shares and cancelling the remaining 50%.
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15 August 2020
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Declared cash dividend of 5 cents per ordinary share, with record date at 5 pm on 15 September 2020 and dividend payment on 25 September 2020.
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15 September 2020
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Record date.
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25 September 2020
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Paid dividends.
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Required
Prepare the journal entries, with dates but without narrations, to record the transactions relating to shares and dividends. If no journal entry is required for a particular transaction, state “no entry” and explain the reason.
Question 3 Adapted from AC1103 21S1 Exam Question 1 Part B
On 1 July 2020, Delta Trading Pte Ltd has 565,000 outstanding shares and 8,000 treasury shares. The company has the following transactions during its financial year ended 30 June 2021:
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Date
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Transactions
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5 Oct 2020
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Purchased 12,000 of its own shares at $2.20 each, holding 5,000 shares as treasury shares and cancelling the remaining 7,000 shares.
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17 Jan 2021
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Conducted a share split, where each existing share was split into 2 shares.
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15 Mar 2021
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Declared an interim dividend of $0.05 per share.
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Required
(a) Determine the number of issued shares on 1 July 2020, and both the number of issued
shares and outstanding shares on 31 October 2020 and 31 January 2021.
(b) Prepare journal entries, without dates and narration, to record:
(i) the share buyback on 5 October 2020.
(ii) the declaration of interim dividend on 15 March 2021.
Self-Practice Questions
Question 4 Adapted from STH P8-6B
Logan’s Roadhouse opened a new restaurant in November 2023. During its first three months of operation, the restaurant sold gift cards in various amounts totaling $2,300. The cards are redeemable for meals within one year of the purchase date. Gift cards totaling $864 were presented for redemption during the first three months of operations prior to year end on December 31. The Goods and Service Tax (GST) on restaurant sales is 8%, assessed at the time meals (not gift cards) are purchased. Texas Roadhouse will remit GST to Inland Revenue Authority of Singapore (IRAS) in January.
Required:
(a) Record (in summary form) the $2,300 in gift cards sold (keeping in mind that, in actuality, the company would record sale of a gift card individually).
(Key Answer: Dr Cash $2,300 ; Cr Unearned Revenue $2,300)
(b) Record the $864 in gift cards redeemed, keeping in mind that the $864 includes a 8% GST of $64.
(Key Answer: Dr Unearned Revenue $864; Cr Sales Revenue $800; Cr GST Payable $64)
(c) Determine the balance in the Unearned Revenue account (remaining liability for gift cards) Logan’s Roadhouse will report on the December 31 Statement of Financial Position.
(Key Answer: Balance of Unearned Revenue Account = $1,436)