BUSMGT 713 Financial Accounting and Control
Practice Test
Practice Final Test
(Time Allowed: 120 minutes)
Section 1: Journal entries
Section 2: Financial statements
Section 3: The accounting cycle
SECTION ONE: JOURNAL ENTRIES
Sara launched a clothing and accessory store called Fashion Forward Limited on 1 January 20XY. Record the transactions that occurred in January 20XY using the accrual method of accounting and a perpetual inventory system.
a) 1 January: Sara contributed the following assets to the business:
• A delivery van. The van had a carrying value of $13,000, a residual value of $1,000, and a useful life of 5 years when contributed to the business.
• Inventory of clothing and accessories valued at $15,000 at cost.
b) 1 January: Fashion Forward Limited borrowed a loan from ANZ of $18,000 at 8% p.a., $4,500 of which was used to buy a computer for the business. The rest of the loan was kept as cash in the business.
c) 4 January: Completed a cash sale of designer dresses for $2,400, which cost $1,000.
d) 7 January: Purchased inventory of a new line of accessories for $1,200 on account.
e) 10 January: Paid $4,800 for rent covering four months. Record this as a prepayment.
f) 12 January: Received $5,000 cash for styling services to be done in February.
g) 15 January: Purchased office supplies on credit for $400. Record the supplies as an asset in the company accounts.
h) 18 January: Paid for the credit purchase on 15 January. A 2% discount was received for prompt payment.
i) 22 January: Sold 15 designer handbags to Elite Boutique for $300 each on credit. Each handbag costs $120 to make.
j) 24 January: Elite Boutique paid for the handbags purchased on 22 January.
k) 26 January: Elite Boutique returned 3 designer handbags purchased on 22 January. The returned handbags are undamaged, and Fashion Forward Limited plans to sell them to another customer at the full retail price. Sara refunded $900 to Elite Boutique.
l) 30 January: Salaries expenses of $900 need to be recorded, with $720 paid in cash and the remaining balance as PAYE, to be paid to the tax authorities next month.
Adjusting entries as at 31 January:
1. Adjust the depreciation expense for the van as at 31 January.
2. Correct any overstated rent expense as at 31 January.
3. Office supplies worth $100 are still on hand.
4. Interest on the bank loan is to be paid annually. Record the interest expense for January.
Required:
Prepare the journal entries and adjusting journal entries to record the transactions for the month of January 20XY.
SECTION TWO: FINANCIAL STATEMENTS
The adjusted trial balance for Choco-delight Limited for the 12 months to 31 December 20XY is as follows:
Choco-delight Limited
Adjusted Trial Balance as at 31 December 20XY
|
|
DR
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CR
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Cash
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49,848
|
|
|
Accounts Receivable
|
12,060
|
|
|
Inventory
|
3,330
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|
|
Prepaid Rent
|
10,800
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|
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Prepaid Insurance
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12,000
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|
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Equipment
|
78,600
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|
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Accumulated Depreciation - Equipment
|
|
11,520
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Land
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48,000
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|
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Accounts Payable
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|
3,660
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Salaries Payable
|
|
7,200
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Utilities Payable
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|
4,032
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Unearned Revenue
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|
6,984
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|
Income Tax Payable
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|
1,230
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Long-term Loan
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|
6,000
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Contributed Capital
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49,680
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Dividends
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6,000
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|
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Sales
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303,888
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Sales Returns
|
144
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|
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COGS
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114,090
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|
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Gain on Sale of Car
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|
123
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Depreciation Expense - Equipment
|
2,880
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|
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Depreciation Expense - Car
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1,440
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|
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Advertising Expense
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14,349
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|
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Utilities Expense
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21,312
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|
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Insurance Expense
|
6,000
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|
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Rent Expense
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21,600
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|
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Maintenance Expense
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4,380
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|
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Salaries Expense
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41,400
|
|
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Interest Expense
|
1,440
|
|
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Income Tax Expense
|
11,684
|
|
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Increase in the value of land
|
|
2,800
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|
Asset Revaluation Reserve
|
|
4,000
|
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Retained Earnings
|
|
60,240
|
461,357 . 461,357
Additional information which is already included in the adjusted trial balance:
• The owners contributed an additional $5,000 cash to the business during 20XY.
Required
Choco-delight Limited’s financial year is from 1 January 20XY to 31 December 20X3. Prepare the following financial statements:
a) Income statement for the year ended 31 December 20XY. Please show EBIT and NPBT.
b) Comprehensive Income Statement for the year ended 31 December 20XY.
c) Statement of Changes in Equity for the year ended 31 December 20XY.
d) Balance sheet as at 31 December 20XY.
SECTION THREE: THE ACCOUNTING CYCLE
Answer the following questions (Please keep your answers concise, to the point and under five sentences for each question):
a) At the beginning of the current fiscal year, the balance sheet of Kingston Enterprises Limited showed liabilities of $420,000. During the year, liabilities increased by $70,000, assets increased by $100,000, and paid-in capital increased by $40,000 to $190,000. Dividends declared and paid during the year were $28,000. At the end of the year, stockholders' equity totalled $452,000. Assuming that is all the information that is needed, calculate the profit for the year.
b) Mairangi Limited uses the accrual method of accounting. The company has separate insurance policies on its building and its motor vehicles. Policy P5984 on the building was purchased on 1 January 20X0 for $12,000. The policy has a term of 4 years. Policy H4152 on the vehicles was purchased on
1 July 20X0 for $7,200. This policy has a term of 3 years.
1) What is the prepaid insurance as at 30 June 20X2?
2) What is the insurance expense in the year ending at 31 December 20X2?
c) If a company received cash from a customer in the current financial year, but will only provide the service to the customer in the following financial year (i.e., the next accounting period), would we recognise the revenue in the current year? Why/why not? Discuss your answer from both cash-basis accounting and accrual-basis accounting assumptions.