MACQUARIE University This question paper must be returned. Candidates are not permitted to remove any part of it from the examination room. SEAT NUMBER:... FAMILY NAME:... OTHER NAMES:... STUDENT NUMBER: ROOM: FORMAL EXAMINATION PERIOD: SESSION 2, NOVEMBER 2015 EXAMINATION DETAILS: Unit Code: ACCG611 Unit Name: Duration of Exam (including reading time if applicable): Total No. of Questions: Fi\e (5) Total No. of Pages (including this cover sheet): Principle of Accounting Three hours plus 10 minutes reading time 26 GENERAL INSTRUCTIONS TO CANDIDATES: Candidates are required to obey all instructions provided by the Final Examination Supervisor and must refrain from communicating in any way with another student once they have entered the final examination venue. Candidates may not write or mark the exam materials in any way during reading time, e Candidates may only access authorised materials during this examination. A list of authorised material is available on this cover sheet. If it is alleged you have breached these rales at any time during the examination, the matter may be reported to the University Discipline Committee for determination. EXAMINATION INSTRUCTIONS: (i) (ii) (iii) (iv) All questions are compulsory and must be attempted. Answer all questions directly in the spaces provided within this examination paper. Answers can be written in pen or pencil but must be legible. The total marks for this paper are 100 which represents 60% of the overall assessment mark for the unit. Marks for each question are indicated. Question Marks 1 /20 2 /21 3 /24 4 /19 5 /16 Total /100 MATERIALS PERMITTED/NOT PERMITTED: Dictionaries: No dictionaries permitted. Calculators: Non-programmable calculators with no text retrieval capacity are permitted. Other: This is a closed book exam. Notes and textbooks are NOT permitted.
Question 1 - The Accounting Cycle [20 marks] (a) Define adjusting entries and explain the purpose of adjusting entries in the accounting cycle? (2 marks) (b) The Unadjusted trial balance of Bill Jones, Game Consultant (Sole Trader), contains the following account balances on 30 June 2015. Account Debit Credit Cash at Bank $165,200 Accounts receivable 132,500 Supplies 2,200 Prepaid insurance 2,700 Accounts payable 45,200 Interest payable 2,550 Mortgage payable (due 30 June 2019) 15,700 B.Jones. Capital (1/7/14) 79,900 B. Jones, Drawings 5,500 Games consulting fees revenue 208,400 Insurance expense 4,900 Wages expense 38,000 Interest expense - mortgage 750 $351,750 $351,750 Additional data for adjustment purposes: 1. The prepaid insurance account consists of the following, and they were originally recorded as an asset: Policy number Date of policy Life of policy Total premiums 547891 QL 1 January 2015 2 years $1,500 3215687 NJ 1 March 2015 1 year $1,200 2. Wages earned by employees but unpaid as at 30 June 2015 totalled $6,150. 3. Interest on the mortgage payable is $900 per annum, paid in half-yearly instalments on 1 May and 1 November. 4. Purchased $2,200 supplies on 1 July 2014. Supplies of $900 were remaining at 30 June 2015. Required: Prepare adjusting entries in the general journal template provided on page 3 of the exam paper. Narrations are not required. (10 marks) Pane 2 of26
(b) Adjusting entries (10 marks) Adj No. Month Date Accounts and Description Debit Credit Page 3 of 26
(c) The adjusted trial balance of the general ledger of Miley's Hairdressing Service on 30 June 2015 is presented below: MILEY'S HAIRDRESSING SERVICE Adjusted Trial Balance as at 30 June 2015 A A A/Ml 4~ nuu uni Debit r'vnau- V-l VUil Cash at bank $2,136 Accounts receivable 15,464 Prepaid insurance 12,136 Hairdressing equipment 169,847 Accumulated depreciation hair dressing equipment $13,200 Accounts payable 19,460 Salaries payable 16,820 Electricity payable 6,800 Unearned coupon revenue 10,300 Mortgage payable (due 30 June 2018) 96,620 M. Smith Capital (1 July 2014) 20,580 Drawings... 1,008... Hairdressing fees revenue 40,710 Interest revenue 3,586 Salaries expense 12,145 Rent expense 7,320 Depreciation expense_hairdressing equipment 8,020 Totals $228,076 $228,076 Required: Prepare the Statement-of Changes in Equity for the financial year ended 30 June 2015. (3 marks) Miley s Hairdressing Service (Sole Trader) Statement of Changes in Equity for the year ended 30 June 2015 Page 4 of 26
(d) The adjusted trial balance columns of the partial 10-column worksheet for Glenn Kleen s Cleaning Services are as shown below: Glenn Keen s Cleaning Services Work Sheet (Partial) for the month ended 30 June 2015 Adjusted Trial Balance Income Statement Balance Sheet Account titles Dr Cr Dr Cr Dr Cr Cash at Bank 41,300 Accounts Receivable 21,950 Prepaid Rent 6,380 Equipment 64,540 Accumulated Depreciation 13,280 Loan Payable 17,400 Accounts Payable 15,660 G. Kleen, Capital 1/6/15 94,230 G. Kleen, Drawings 10,200 Service Revenue 35,350 Salaries Expense 27,550 Rent Expense 2,120 Depreciation Expense 1,880 Interest Expense 160 Interest Payable 160 Profit (or loss) for the period 176,080 176,080 Required: Complete the partial worksheet (5 marks) Page 5 of 26
Question 2: Special purpose journals [21 marks] (a) What is the purpose of subsidiary ledgers? Use examples to explain your answer. (2 marks) (b) MJ Ltd uses sales journals, purchases journals, cash receipts journal, cash payments journal and a general journal. The business also maintains subsidiary ledgers for accounts receivable and accounts payable, in addition to the related control accounts in the general ledger. The accounts receivable subsidiary balance on 1 June 2015 was $990 consisting of the following debtors: H. Mandella $900 B. Lord 30 G. Garson 60 $990 However, the accounts payable subsidiary ledger balance on 1 June 2015 was $9,460 consisting of the following creditors: E. East $4,680 R. Ramsay 1,130 A. Smith 3,650 $9,460 The following transactions occurred during the month of June 2015. (GST is ignored.) June 1 Received a cheque from H. Mandella for partial payment of the amount owing, $700. 3 Sold inventory to Blossom Ltd on credit, invoice # 502, $900, terms 2/10, n/30. 4 Paid rent for June, $750, cheque no. 201 5 Purchased inventory on credit from E. East, $1050, invoice # 123, terms 2/10, n/30. 6 Paid R. Ramsey for inventory purchased previously, $1,130, cheque no. 202. 9 Received a credit note from E. East for inventory returned, $50. 11 Paid E. East in full for the amount outstanding from the previous month and invoice # 123 by issuing cheque no 203. 21 Sold inventory on credit to G. Garson, $450, invoice # 503, terms 2/10, n/30. 25 Cash sales, $625. 30 Received a cheque from G. Garson for payment of account. Page 6 of 26
Required: (i) (ii) (iii) Journalise the June transactions in either the general journal or the appropriate special journals. Templates are provided on pages 8, 9 and 10 of the exam paper. (15 marks) Prepare the Accounts Payable Control and Accounts Payable Subsidiary Ledger accounts for the month of June 2015. Templates are provided on page 11 of the exam paper. (3 marks) Reconcile the Accounts payable subsidiary ledger with the Accounts Payable Control account in the general ledger by preparing a Schedule of Accounts Payable. A template is provided on page 12 of the paper. (1 mark) Page 7 of 26
(i) Complete the appropriate special journals and general journal (15 marks) Cash Receipts Journal: MJ Ltd Date Account Post Other Sales Accounts Discount Cash at Ref Accounts Receivable A llnuf/ifl X V1IU >» vu Rank CR CR Control DR DR CR Cash Payments Journal: MJ Ltd Chq Post Other Accounts Discount Cash Date No Account Ref Accounts Payable Received at bank DR Control CR CR DR Page 8 of 26
Purchases Journal: MJ Ltd Date Inv Account Terms Post Purchases Accounts No. Ref DR Payable Control CR Sales Journal: MJ Ltd Date Inv Account Terms Post Accounts Sales No. Ref Receivable CR Control DR Page 9 of 26
General Journal: MJ Ltd Date Particulars Post Ref Debit Credit Page 10 of 26
(ii) Accounts Payable Control & Accounts Payable Subsidiary Ledger (3 marks) Accounts Payable Control Page 11 of 26
(iii) Reconciliation of Accounts Payable Control with the Accounts Payable Subsidiary Ledger (1 mark) Schedule of Accounts Payable as at 30 June 2015 Supplier/Creditor Name Amount Owed S Page 12 of 26
Question 3: Accounting for Retailing and Accounting for Inventory (a) What is the key limitation of the periodic inventory system? [24 marks] (2 marks) (b) Homer Ltd sells handheld video games for $60 each (GST exclusive) and buys the games for $35 each (GST exclusive) from S. Lenny, a leading video game supplier. Homer Ltd uses a periodic inventory system and is registered for GST. On 1 June 2015, a stocktake determined that 50 games are in inventory. On 30 June 2015 a stocktake determined that 99 games are in inventory. Homer Ltd completed the following transactions during June. June 1 Sold 10 games on credit to J. Moore. Terms: 2/10, n/30... 4... Purchased 25 games for cash from S. Lenny. 5 J. Moore returned 4 of the games sold on 1 June. The games were not defective in any way. 11 Received payment from J. Moore for the amount due on the 1 June sale. Required: Record the above transactions in the general journal template provided on page 14 of the paper. Apply a GST rate of 10%. Narrations are not required. (13 marks) Page 13 of 26
(b) General Journal Entries (13 marks) Month Date Accounts and Description Debit Credit............ Page 14 of 26
(c) PJ s Cameras Ltd records its inventory of digital cameras by using a perpetual inventory system on a First in First Out (FIFO) basis. The following details are supplied for one particular popular make and model for the month of December 2014. Ignore GST. Date in December 2014 Transaction Unit Quantity Unit Cost $ Total Cost $ 1 Beginning. Inventory 50 2 100 9 Purchase 100 3 300...13... Sale 50...17... Purchase 200 4 800 Required: 21 Sale 150 26 Purchase 100 5 500 30 Sale 200 Complete the inventory record showing the above transactions. The template is provided on page 16 of the exam paper. (9 marks)
(0 FIFO Perpetual Inventory Card (9 marks) Date Transaction Units Purchases Sales Balance Unit Cost Total Cost Units Unit Total Cost 1 Cost Units Unit Total Cost! Cost Paae 16 of 26
Question 4: Accounting for Cash management and Accounts receivable [19 marks] (a) What is the purpose of preparing a bank reconciliation? (1 mark) (b) The following information relates to the cash position of Andrew Smith, Accountant (Sole Trader): (i). Cash at Bank account balance as at 30 June 2015 is $12,722.40 debit. (ii) The Bank statement balance as at 30 June 2015 to be $12,367.16 credit. (iii). 30 June receipts amounting to $613.37 have not been recorded as a deposit by the bank. (ii) Cheques totalling $748.00 have not been presented to the bank. (iii) Cheque #841 was correctly processed by the bank as $981.27 but was incorrectly recorded as $781.27 in the cash payments journal. (iv) A $307.95 cheque was returned marked dishonoured. The cheque had been received from W. Yang, a new customer. No adjustment has been made in the cash receipts journal. (v) The bank statement shows that banks fees for the current month are $8 and interest credit to the account is $26.05. Adjustments have not yet been made in the cash payments and cash receipts journal respectively. Required: (i) Prepare the cash at bank ledger showing the final balance at 30 June 2015. Use the template provided on page 18 of the paper (3 marks). (ii) Prepare a bank reconciliation at 30 June 2015 based on the provided information. Use the template provided on page 18 of the paper. (3 marks). Page 17 of 26
0) General ledger extract (3 marks) Cash at bank account (ii) Bank Reconciliation Statement (3 marks) Andrew Smith Accountant Bank Reconciliation Statement as at 30 June 2015 Page 18 of 26
(c) What is the puipose of an accounts receivable aging report? Provide an example to explain your answer. (2 marks) (d) On May 1st 2015, Supreme Coffees Ltd (Supreme Coffees) had an Accounts Receivable Control Account balance of $375,800 debit. Supreme Coffees uses the allowance method of accounting for bad debts and has an existing balance in the allowance for doubtful debts account of $14,250 credit. The following transactions occurred during the month: 1. Sold $415,200 of inventory (that cost $249,000) to customers on credit. 2. Received $465,800 cash in payment of accounts receivable 3. Wrote off $15,800 of uncollectible debts. 4. In adjusting the accounts on May 31, the company used the ageing of accounts receivable and determined that an allowance for doubtful debts of $12,376 credit was needed in order to report accounts receivable at their collectible amount in the balance sheet. Required: (i) (ii) Assuming that Supreme Coffees uses the peipetual inventory system, prepare general journal entries to record the above May transactions. Narrations are not required. Ignore GST. Use the template provided on page 20 of the exam paper (6 marks) Prepare the Accounts Receivable Control account and the Allowance for Doubtful Debts account in the general ledger of Supreme Coffees as at May 31s1 2015. Use the templates provided on page 21 of the exam paper. (4 marks) Page 19 of 26
(i) Journal entries (6 marks) J/e. No. Month Date Accounts Debit Credit...... Page 20 of 26
(ii) General ledger accounts (4 marks) Accounts Receivable Control Allowance for Doubtful Debts
Question 5: Accounting for Partnerships and Non-Current Assets [16 marks] (a) Identify two characteristics of a partnership? (1 mark) (b) Cheech and Chong are in partnership. They agree to allow Richard to invest in the partnership. Richard offers to invest $100,000 cash on 1 December 2015 for a one-fifth interest in the partnership and profits. The original partners agree to the offer. The capital balances and the profit and loss sharing ratios of the original partners (just before the admission of Richard) are as follows: Required: Partners Capital balances Stated ratios Cheech $160,000 55% Chong 140.000 45% $300,000 100% Prepare the general journal entry to record the admission of Richard to the partnership. (4 marks) Accounts Debit $ Credit $ Page 22 of 26
(c) Why are property, plant and equipment assets (except for land) subject to depreciation? (1 mark) (d) Mahoney Company had the following transactions involving plant assets during Year 1 and Year 2. Unless otherwise indicated, all transactions were for cash. Assume balance date is 31 December. Year 1 Jan 2 Jan 3 Dec 31 Year 2 Jan 1 March 1 Dec 31 Purchased a truck for $50,000 plus solicitors fees of $3,000. The truck is expected to have a $4,000 residual value and a 4 year useful life. Paid $ 1,500 to have the company s logo painted on the truck. This did not change the residual value of the track. Recorded straight-line depreciation on the track. Paid $5,000 to put a bigger engine in the truck. This new engine is an overhaul which is expected to make the truck run more efficiently and will increase the trucks useful life by one year. The residual value remains at $4,000. The old engine valued at $2,500 needs to be scrapped. Paid $2,000 to replace a broken tailgate. The tailgate was damaged when a heavy carton was accidentally dropped on it. Recorded straight-line depreciation on the track. Required: Prepare the general journal entries to record the above transactions. Narrations are not required. Ignore GST. Use the template provided on page 24 of the exam paper. (10 marks). Page 23 of 26
(d) General Journal entries (10 Marks) Date Accounts Debit Credit............ - END OF EXAMINATION Page 24 of 26
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