2

Practice questions 115 modified

(The suggested answers are at the end of the questions)

1. AZA Enterprise had these assets and liabilities: Equity is:

$
Cash at bank 8 000
GST receivable 10 000
Accounts payable 3 000
Inventory 9 000
Accounts receivable 7 000
Property, plant and equipment 19 000
GST payable 6 000
Motor vehicles 15 000
a. $0
b. $59 000
c. $60 000
d. $77 000

2. ZKY Business reports the following balance sheet information for 2014:
01.01.2014 31.12. 2014
Assets $50 000 $90 000
Liabilities $20 000 $40 000
Assuming the capital contribution made by the owner during 2014 was $7000 and
withdrawals were $7 000, profit for 2014 must have been:
a. $0
b. $7 000
c. $14 000
d. $20 000

3. A chart of accounts is:

a. A planning device used by management to anticipate information flows
through the accounting system
b. A plan of the ledger listing account titles and their related numbers
c. A chart showing the organisational structure of the firm
d. A list of accounts receivable

4. A chronological (order by date) record of all the transactions of an entity is provided in

the:
a. Ledger
b. Balance sheet
c. Journal
d. Trial balance
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5. A photocopy machine is purchased on credit for $3 000 plus GST. Assume that the GST
is 10%. The general journal entry to record this transaction is:
$ $
DR CR
a. Equipment 3 000
Accounts Payable 3 000
b. Equipment 2 700
GST Receivable 300
Accounts Payable 3 000
c. Equipment 3 000
GST Receivable 300
Accounts Payable 3 300
d. Equipment 3 300
GST Payable 300
Accounts Payable 3 000

6. Prepaid expenses are

a. paid and recorded in an asset account before they are used or consumed
b. paid and recorded in an asset account after they are used or consumed
c. incurred but not yet paid or recorded
d. incurred and already paid or recorded

7. HZT Company uses office supplies on a daily basis. Under the accrual basis of
accounting these office supplies would be an expense of the period in which they are:
a. Ordered
b. Used
c. Paid for
d. Received

8. An accumulated depreciation account

a. is an contra-liability account
b. has a normal credit balance
c. increases on the debit side
d. It is classified as a liability in the balance sheet

9. Determine the cash payments made during the year for premise rental from the
following information:
$
Premise rental expense 120 000
Prepaid rental:
Beginning Balance 20 000
Ending Balance 20 000
4

Assume all premise rentals are paid in cash.

a. $20 000
b. $40 000
c. $120 000
d. $140 000

10. Closing the accounts refers to:

a. Establishing zero balances in the balance sheet accounts
b. Establishing a zero balance in the cash at bank account
c. Establishing zero balances in all ledger accounts
d. Transferring income and expense account balances to the profit and loss
summary account, which is then closed to the equity account

11. This is CZW’s year-end trial balance:

$’000,000
Cash 70
Drawings 20
Service Fee Revenue 110
Accounts Payable 40
Equity 60
Rent Expense 120
Interest Receivable 50
Interest Revenue 50
How many of the above are temporary accounts?
a. Two
b. Three
c. Four
d. Five

12. Before calculating the profit for the period, the totals of the income statement debit and
credit columns on the worksheet are $150 000 and $180 000 respectively. What is the
amount of the profit or loss?
a. $30 000 profit
b. $30 000 loss
c. $40 000 profit
d. $40 000 loss

13. The primary purpose of discount allowed is to:

a. Convince the customer to buy the goods on credit
b. Facilitate the quoting of prices to different customer groups
c. Reduce the invoice price of the goods
d. Encourage the customer to settle their account early
5

14. QZK Enterprise recorded sales of $370 000 during the year. Of these, $270 000 were on
credit. Bad debts have averaged 0.1% of credit sales. Ignore GST.
The entry to estimate bad debt expense for the year is:
$ $
a. Bad Debts Expense 100
Allowance for Doubtful Debts 100
b. Bad Debts Expense 600
Allowance for Doubtful Debts 600
c. Bad Debts Expense 100
Accounts Receivable 100
d. Bad Debts Expense 600
Accounts Receivable 600

15. In the closing process which accounts are closed?

a. All ledger accounts
b. All asset, liability and equity accounts
c. All income and expense accounts
d. All accounts that have been adjusted

16. Closing which of these accounts results in a credit to the Profit and Loss Summary
account?
a. Sales
b. Depreciation
c. Rent Expense
d. Drawings

17. The balance sheet of SZC at 31 December 2014 shows the follow
Machinery 140 000
Accumulated Depreciation-Machinery 110 000
30 000
On 1 January 2015, based on a valuer’s estimate of fair value, it was decided to revalue
the machinery to $45 000. The journal entry to record the revaluation is:
a. Accumulated Depreciation-Machinery 110 000
Machinery 95 000
Revaluation reserve 15 000
b. Machinery 5 000
Revaluation reserve 5 000
c. Expense on Revaluation of Machinery 15 000
Machinery 15 000
d. Machinery 15 000
Expense on Revaluation of Machinery 15 000
Accumulated Depreciation-Machinery 30 000
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18. The current ratio is to test:

a. the profitability of a business
b. the liquidity of a business
c. the management efficiency of a business
d. the suitability of the debt level of a business

19. Under the perpetual inventory system inventory purchased is debited to which account?
a. Prepaid expenses
b. Current assets
c. Purchases
d. Inventory

20. Calculate purchases for 2014:

 Inventory 31/12/2013 = $50 000
 Inventory 31/12/2014 = $60 000
 Cost of sales during 2014 = $170 000

a. $50 000
b. $60 000
c. $180 000
d. $280 000
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SECTION B (80 Marks)

Answer ALL questions.

Question 1
VTM Enterprise is a trading business. It buys in big quantity and retails in smaller quantity.
Its financial year end is 31 January each year. Below is an extract of the VTM Enterprise’s
trial balance as at 31 January 2015. (Ignore Goods & Services Tax.)

No Account Title DR $'000 CR $'000

1 Accounts payable   270
2 Accounts receivable 400  
3 Accumulated depreciation, motor vehicle, 1.2.2014   50
4 Accumulated depreciation, office equipment, 1.2.2014   50
5 Advisory services expense 33  
6 Allowance for doubtful debts   9
7 Bank loan, due 31.12.2050   100
8 Capital   100
9 Cash at bank 74  
10 Discount allowed 12  
11 Discount received   6
12 Drawings 26  
13 Interest expense 11  
14 Interest revenue   3
15 Inventory at 31.1.2015 (ending inventory) 128  
16 Motor vehicle 180  
17 Office equipment, at cost 160  
18 Other miscellaneous expense 4  
19 Prepaid insurance 20  
20 Cost of sales 1,011  
21 Rent expense 78  
22 Salaries and wages expenses 234  
23 Sales return 12  
24 Sales revenue   1,912
25 Staff training expense 10  
26 Superannuation contribution expense 29  
27 Telecommunication and Power expense 27  
28 Transport outwards expense 22  
29 Upkeep and repairs expense 29  
Total 2,500 2,500

You are provided the other data:

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(i) The business used the “Perpetual Inventory System” since inception.
(ii) The above prepaid insurance is valid for twenty months, from 01 February 2014 to 30
September 2015.
(iii) The depreciation charges for motor vehicle $28,000 and for office equipment $22,000
for the financial year had not yet been adjusted.
(iv) The Allowance for Doubtful Debts is required to increase to $15,000.
(v) VTM Enterprise sent its office computer for a minor repair on 12 January 2015. The
cost of the repair was $1,000. It has not received any invoice. No entry has been made
regarding this transaction.

REQUIRED:

(a) Prepare a detailed Income Statement for the year ended 31 January 2015; and

(b) A Statement of Owner’s Equity for the year and a detailed Balance Sheet as at 31
January 2015.
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Question 2

KQX Enterprise is a trading business and has been in operation for many years.

KQX Enterprise has prepared its final accounts as shown below:

Balance Sheet as at 31 January: 2 0 15 2 0 14

Current assets $’000 $’000 $’000 $’000
Cash at bank 50 50
Accounts receivables 1,300 1,100
Inventory 400 264
Prepaid rent 20 6
1770 1,420
Non-current assets
Motor vehicle 200 130
Less: Accumulated depreciation (80) 120 (70) 60
Office equipment 300 200
Less: Accumulated depreciation (90) 210 (80) 120
TOTAL ASSETS 2,100 1,600

Current liabilities
Salary payable 62 40
Accounts payable 438 360
500 400
Non-current liabilities
Notes payable 0 500
TOTAL LIABILITIES (500) (900)
NET ASSETS 1,600 700

Owner’s Equity
Beginning capital 700 450
Add: Net Profit 2,200 250
Less: Drawings (1,300) 0
Ending capital 1,600 700
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KQX Enterprise: Income Statement for the year ended 31 January 2015
$’000 $’000
Sales 16,000
Less: Cost of goods sold (13,000)
Gross profit 3,000
Add: Profit on disposal of motor vehicle 3
3003
Less: Expenses
Interest expenses 26
Loss on disposal of office equipment 1
Depreciation expenses 70
Salary expense 600
Rent expense 100
Miscellaneous operating expenses 6 803
Net Profit 2,200

Other data given:

(i) The interest expenses and miscellaneous operating expenses were paid as they arose.
(ii) During the financial year KQX Enterprise sold motor vehicle for $4,000 cash. The
original cost was $30,000 and its accumulated depreciation prior to the disposal was
$29,000.
(iii) KQX Enterprise bought four brand new motor vehicles for $25,000 cash each.
(iv) KQX Enterprise sold office equipment for $3,000 cash. Its original cost was $25,000
and its accumulated depreciation was $21,000.
(v) KQX Enterprise bought bigger capacity office equipment for $125,000 cash.

REQUIRED:

(a) Prepare a detailed Cash Flow Statement of KQX Enterprise for the year ended 31
January 2015.

(b) Interpret the Cash Flow Statement of KQX Enterprise that you have prepared.
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Question 3 (A)
Please refer to the Financial Statements of KQX Enterprise in Question 2.

Required:
(a)(i) Calculate the current ratios and the quick ratios for the two years: 2015 and 2014.

(ii) Comment on the ratios you have calculated for the two financial years.

Question 3 (B) TKZ is a management consultancy firm. It updates its accounts daily.
Indicate the immediate effect of the following errors on each of the accounting elements
described in the column headings below, using the following code:
O = overstated, U = understated, NE = no effect

Copy the table below before answering:

Net Total Total Owner’s

Error Profit Assets Liabilities Equity

For Example: Received $500 cash for

advice given to a customer, but recorded U U NE U
the transaction as $50.

(i) TKZ bought an office computer for

$6,000 cash. It was wrongly recorded as
$60,000.

(ii) TKZ paid its employees’ salary at end of

the month, $25,000 cash. It was wrongly
recorded as Dr. $55,000 Employees’
Training Expense and Cr. $55,000 Cash.
(iii) The owner of TKZ invested $230,000
cash, as an additional capital into the
business. No entry has been made.

(iv) TKZ did $830 worth of consultancy

work a month ago, term n/30 and was
recorded. Now TKZ received that amount,
and was recorded as Dr. $830 Cash and Cr.
$830 Consultancy Revenue.
(v) TKZ bought a photocopy machine for
$3,600 and was given a credit period of 30
days. No accounting entry was made.

Question 4
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(A)
HPQ Ltd is a retailer. All sales are on cash basis. The business uses the perpetual inventory
system. The following is a summary of its purchases and sales for the month of January 2015.
On 1 January 2015, HPQ Ltd’s opening inventory was 400 units, costing $30 each.

Purchases of Inventory in January 2015

Date of Purchase Number of units Cost price per unit

Purchased $
7 January 500 32
20 January 500 34
31 January 400 35

Sales of Inventory in January 2015

Date of Sales Number of units Sales price per unit

Sold $
4 January 300 120
12 January 400 130
26 January 400 140

(Ignore Goods & Services Tax)

REQUIRED:

(a) Use the First-in First-out valuation method (FIFO), prepare the inventory record showing
the purchase, the cost of goods sold and the balance on hand columns.

(b) Prepare the journal entries for the transaction on 4 January 2015.

Question 4 (B)
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The information is provided by Xin Jie Kou Enterprise at the beginning of January 2015:
On 01 January 2015, it was noted that the following cheques were still outstanding.
Cheque no. 9701 $4,000
Cheque no. 9702 $4,000
Cheque no. 9703 $8,000

The following information is extracted from the books of Xin Jie Kou Enterprise.

Cash at Bank Account

Date Particulars $ Date Particulars $
1/1 Balance b/d 20,000 3/1 Cheque no 9704 2,400
4/1 Deposit 16,700 8/1 Cheque no 9705 2,500
7/1 Deposit 900 13/1 Cheque no 9706 2,000
29/1 Deposit 9,100 13/1 Cheque no 9706 2,000
30/1 Deposit 6,300 22/1 Cheque no 9707 3,000
23/1 Cheque no 9708 6,000
30/1 Cheque no 9709 8,000
31/1 Balance c/d 27,100
53,000 53,000

The Bank Statement for January 2015 below was issued by Xin Jie Kou Enterprise’s banker.

Xin Jie Kou Enterprise: Bank Statement for January 2015

Date Particulars DR $ CR $ Balance $
1/1 Balance b/d 36,000 CR
2/1 Cheque no 9703 8,000 28,000 CR
4/1 Deposit 16,700 44,700 CR
7/1 Deposit 900 45,600 CR
9/1 Cheque no 9705 2,500 43,100 CR
10/1 Cheque no 9704 2,700 40,400 CR
12/1 Bank Commission 50 40,350 CR
13/1 Cheque no 9706 2,000 38,350 CR
25/1 Cheque no 9708 6,000 32,350 CR
28/1 Cheque no 1501 9,050 23,300 CR
29/1 Service charge 20 23,280 CR
29/1 Deposit 9,100 32,380 CR
31/1 Interest 23 32,403 CR
31/1 Cheque no 9702 4,000 28,403 CR
31/1 Cheque no 9707 3,000 25,403 CR

Notes:
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(i) The cheque no 9706 was recorded twice by Xin Jie Kou Enterprise.
(ii) The correct amount for cheque no 9704 was $2,400.
(iii) The cheque no 1501 was issued by Sin Jay Co, not Xin Jie Kou Enterprise.

REQUIRED:
(i) Update the Cash at Bank Account of Xin Jie Kou Enterprise.
(ii) Prepare a Bank Reconciliation of Xin Jie Kou Enterprise as of 31/1.

*** END OF EXAMINATION PAPER ***

THE SUGGESTED ANSWERS ARE BELOW

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ANSWER to 115 modified

SECTION A

1. B

2. D

3. B

4. C

5. C

6. A

7. B

8. B

9. C

10. D

11. C

12. A

13. D

14. A

15. C

16. A

17. A

18. B

19. D

20. C
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SECTION B

Question 1

1(a) VTM Enterprise: Income Statement for the year ended 31.1.2015
$’000 $’000
Sales 1,912
Less: Sales return 12
Net sales 1,900
Less: Cost of goods sold : 1,011
Gross Profit 889
Add: Other Income
Discount received 6
Interest revenue 3
9
898
Less: Expenses
Advisory services expense 33
Bad debts expense 6
Depreciation expenses (22 + 28) 50
Insurance expense 12
Interest expense 11
Other miscellaneous expenses 4
Rent expense 78
Salaries and wages expenses 234
Staff training expenses 10
Superannuation contribution expense 29
Telecommunication and Electricity expense 27
Transport outwards expense 22
Upkeep and repairs expense (29 + 1) 30
558
NET Profit 340
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1(b)
VTM Enterprise: Statement of Owner’s Equity for the year ended 31 January 2015
$’000
Beginning capital 100
Add: Net Profit 340
440
Less: Drawings (26)
Ending capital 414

VTM Enterprise: Balance Sheet as at 31 January 2015

$’000 $’000
Current assets:
Cash at bank 74
Accounts receivable 400
Less: Allowance for Doubtful Debts ( 15) 385
Inventory 128
Prepaid Insurance 8
595
Non-current assets:
Motor vehicle (180 – 78) 102
Office equipment (160 – 72) 88 190
785
Current liabilities
Accounts payable 270
Repair Fee payable 1
271
Non-curent liabilities
Bank Loan, due in 2020 100 371
Net Assets 414

Owner’s Equity 414

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Question 2

(a) KQX Enterprise : Cash Flows Statement for the year ended 31.1.2015
Cash Flows from Operating activities $’000 $’000
Receipts from customers (16,000 - 200) 15,800
Payments to suppliers (13,000 + 136 - 78) (13,058)
Interest paid (26)
Payments of employees (600 - 22) (578)
Payment for rent (100 + 14) (114)
Payments for sundry expenses (6)
Net cash provided by Operating activities 2,018
Cash flows from Investing activities
Receipts from disposal of motor vehicle 4
Receipts from disposal of office equipment 3
Payments for purchase of motor vehicles (100)
Payments for purchase of office equipment (125)
Net cash used for Investing activities (218)
Cash flows from Financing activities
Redemption of Notes Payable (500)
Drawings (1,300)
Net cash used for Financing activities (1,800)
Net increase in cash 00
Beginning cash 50
Ending cash 50

Question 2(b)
Interpretation of the cash flow statement:

KQX Enterprise collected 15.8 million dollars from its customers. It was used to pay the
suppliers slightly more than 13 million dollars, to its workers 578 thousand dollars, for rental
114 thousand dollars and other minor payments. This resulted in a net cash inflow 2.018
million dollars.

The bulk of the cash was used for expansion in the investing activities and also the financing
activities. The business bought motor vehicles and office equipment for $100,000 and
$125,000 cash respectively. It redeemed the Notes Payable early for $500,000 cash. The
owner withdrew a big sum of $1,300,000 cash.

These two categories of activities cost more than 2 million dollars. As such, the cash balance
did not increase. It remained at $50,000 at the closed of the year.
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Question 3
(A) (i)
Ratio Formula 2015 2014

Current Ratio 1,770 1,420

500 400
= 3.54 times = 3.55 times

Quick Ratio 50 + 1,300 50 + 1,100

500 400
= 2.70 times = 2.88 times

(ii) The current ratio and quick ratio are used to measure the liquidity of the business. In
comparison, the quick ratio is a stricter indicator.

In the year 2015, the current ratio was 3.54 times, deteriorated slightly from 3.55 in 2014, but
still healthy. This meant that for every $1 the business owed in the current liabilities, it was
supported by $3.54 of current assets. Similar pattern is shown in the quick ratio. In 2015, the
qucik ratio was 2.70 times, dropped marginally from 2.88, but could be considered still good.

Putting the two ratios together for both the years, KQX has been enjoying excellent liquidity.
It has no problem in paying its short-term obligations.
.

(b)

Net Total Total Owner’s

Error
Profit Assets Liabilities Equity
(i) NE NE NE NE
(ii) U U NE U
(iii) NE U NE U
(iv) O O NE O
(v) NE U U NE
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Question 4 A
(a)
Date Purchase Cost of goods sold Balance
1/1 Balance b/d 400@$30=$12,000

4/1 300@$30=$9,000 100@$30=$3,000

7/1 500@$32=$16,000 100@$30=$3,000

500@$32=$16,000
12/1 100@$30=$3,000
300@$32=$9,600 200@$32=$6,400
20/1 500@$34=$17,000 200@$32=$6,400
500@$34=$17,000
26/1 200@$32=$6,400
200@$34=$6,800 300@$34=$10,200
31/1 400@$35=$14,000 300@$34=$10,200
400@$35=$14,000

b) Journal entry
Date Particulars DR’$ CR’$
4/1 Cash 36,000
Sales 36,000
Sold 300unit at $120 each for cash

Cost of goods sold A/C 9,000

Inventory A/C 9,000
Cost of inventory sold 300 units x $30 each
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Question 4 B
Cash at Bank Account
31/1 Balance b/d 27,100 31/1 Commission Exp. 50
Interest income 23 Service Charge Exp. 20
Cheque no 9706 2,000 Balance c/d 29,053
(recorded twice)
$29,123 $29,123
Balance b/d $29,053

4(b) Bank Reconciliation Statement as at 31/1

Balance as per bank statement $25,403

Add: Error on cheque no 1501 $9,050
Error on cheque no 9704 300
Unrecorded deposit 31/1 6,300
15,650
41,053
Less: Unpresented cheques:
Cheque no 9701 4,000
Cheque no 9709 8,000
(12,000)
Balance as per Cash Book $29,053