THE UNIVERSITY OF NEW SOUTH WALES SCHOOL OF ACCOUNTING SEMESTER 2 2014 FINAL EXAMINATION ACCT 5930 FINANCIAL ACCOUNTING Time Allowed: 2 Hours Reading Time: 10 minutes This examination paper has 8 pages Total Number of Questions: 6 Total Marks Available: 100 Answer ALL questions The questions are NOT of equal value All answers are to be written in the examination booklet provided Candidates are to supply their own calculators All answers must be written in ink. Except where they are expressly required, pencils may be used only for drawing, sketching or graphical work. This paper may be retained by the candidate Suggested Solutions 2 Question 1 Recording Transactions (20 marks) 1 Revenues: (2 marks) Sales Revenue $450,000 (c) 2 Expenses: (8 marks) Cost of Goods Sold $130,000 (c) Interest (200,000 x 10%) $20,000 (e) Insurance (36,000 x 7/12) $21,000 (k) Wages (210,000 + 30,000) $240,000 (i) 3 Current Assets: (10 marks) Cash $645,000 (4 marks) Accounts Receivable $230,000 (2 marks) Inventory $30,000 (2 marks) Prepaid Insurance $15,000 (2 marks) Total $920,000 **** Cash Inflows Cash Outflows $500,000 (a) $90,000 (d) $200,000 (e) $9,000 (e) $70,000 (f) $36,000 (g) $220,000 (h) $210,000 (i) Cash inflows $990,000 – Cash outflows $345,000 = $645,000 increase in cash. Accounts Receivable: $450,000 (c) -$220,000 (h) =$230,000 Inventory: $160,000 (b)- $130,000 (c)=$30,000 Prepaid Insurance: $15,000 (g) 3 Question 2 Accounts Receivables (12 marks) 1. (a) Amya (opening balance) (1 mark) Amya Opening balance 26 500 Cash 29 000 Sales 35 500 Closing balance 33 000 62 000 62 000 Amya – opening balance: $26 500 (b) Coral (closing balance – before write-off) (1 mark) Coral Opening balance 20 400 Cash 19 900 Closing balance 500 20 400 20 400 Coral – closing balance (before write-off): $ 500 OR Coral –closing balance (before write-off)= 83 000 33 000 49 500 = 500 Coral – closing balance (before write-off): $ 500 (c) Biell (sales) (1 mark) Biell Opening balance 54 000 Cash 21 000 Sales 16 500 Closing balance 49 500 70 500 70 500 Biell – sales: $16 500 4 (d) Accounts Receivable Control (opening balance) (1 mark) Amya 26 500 (a) Biell 54 000 Coral 20 400 100 900 Accounts receivable – opening balance: $100 900 No penalty for the carry-forward error from (a). (e) Total credit sales for 2013 (1 mark) Amya 35 500 Biell 16 500 (c) 52 000 Total credit sales for 2013: $52 000 No penalty for the carry-forward error from (c). 2. Bad debts expense for 2013 (3 marks) Allowance for doubtful debts (b) Coral 500 OB 2 000 CB 2 600 Bad debts 1 100 3 100 3 100 Total bad debts expense 2013: $1,100 No penalty for the carry-forward error from (b). 3. (i) Write-off the remaining balance of Coral's account (2 marks) Debit Credit Allowance for Doubtful Debts (b) Account Receivable Coral 500 500 No penalty for the carry-forward error from (b). (ii) Recognise the bad debts expense for the year 2013 (2 marks) Debit Credit Bad Debt Expense (2) Allowance for Doubtful Debts 1,100 1,100 No penalty for the carry-forward error from (2). 5 Question 3 Bank Reconciliation (8 marks) 1. Balance in Clouds Limited's cash account before reconciliation: (3 marks) Indicated balance (per books) $8 440 Less: NSF cheque (750) Cheque recording error (90) Reconciled balance $7 600 Balance per Cash account before reconciliation = $7 600 + 90 + 750 = $8 440 2. Balance on the bank statement before reconciliation: (3 marks) Indicated balance (per bank) $ 3 730 Add: Deposits in transit 4 500 Less: Outstanding cheques (630) Reconciled balance $7 600 Balance per bank before reconciliation = $7 600 + 630 – 4 500 = $3 730 3. Adjusting journal entries. (2 marks) Debit Credit Accounts receivable Cash at Bank Inventory Cash at Bank 750 90 750 90 6 Question 4 Noncurrent Assets (10 marks) 1. Depreciation expenses for 2013 and 2014 (6 marks). Depreciation method Depreciation expense 2013 Depreciation expense 2014 Straight-line Depreciable amount: $300 000 – $50 000 = $250 000 $250 000/5 years = $50 000 $250 000/5 years = $50 000 Reducing balance $300 000 x 30% = $90 000 ($300 000 – $90 000) x 30% = $63 000 Units of production Depreciation per hour ($300 000 – $50 000)/50 000 = $5 12 000 hours x $5 = $60 000 14 000 hours x $5 = $70 000 2. (2 marks) If the asset is expected to benefit earlier periods more than later periods the reducing balance method is more appropriate than the straight-line method because it will result in better matching of revenues and expenses. If an asset is expected to benefit in each period evenly throughout its useful life, the reducing balance method would not be appropriate. 3. (2 marks) Debit Credit Cash Loss on Sale of Equipment Accumulated Depreciation Equipment 180,000 7,500 112,500 300,000 or Debit Credit Cash Proceeds from Sale of Equipment Carrying Amount of Equipment Sold Accumulated Depreciation Equipment 180,000 187,500 112,500 180,000 300,000 7 Question 5 Financial Statement Analysis (10 marks) Transaction Current Ratio Debt to Equity Ratio Basic Earnings Per Share a) Decrease Increase Decrease b) Increase No Change No Change c) No change No change Decrease d) No change Decrease Increase e) Decrease Increase Decrease 8 Question 6 Cash Flow Statements (40 marks) 1. Suns Limited Cash Flow Statement for the year ended 30 June 2014 Cash Flow from Operating Activities Cash received from customers 5,995 Cash paid to suppliers and employees (4,900 + 630) (5,530) Income taxes paid (100) Interest paid † (65) Net Cash flow from Operating Activities 300 Cash Flow from Investing Activities Proceeds from sale of equipment 10 Purchase of motor vehicle (15) Net Cash Flow from Investing Activities (5) Cash Flow from Financing Activities Decrease in bank loan (190) Proceeds from issue of shares 20 Dividends paid (50) Net Cash Flow from Financing Activities (220) Net increase (decrease) in cash held 75 Cash at beginning of year 20 Cash at end of year 95 † Interest received interest paid may be shown as a financing activity. 2. Suns Limited Reconciliation of Net Cash from Operating Activities to Operating Profit Operating Profit After Income Tax 40 Depreciation Expense – Buildings 20 Depreciation Expense – Motor Vehicles 25 Depreciation Expense – Equipment 10 Loss on Sale of Equipment 15 Changes in Assets and Liabilities Decrease in Accounts Receivable 210 Increase in Allowance for Doubtful Debts 15 Decrease in Inventory 75 Decrease in Prepaid Insurance 20 Decrease in Accounts Payable (45) Decrease in Interest Payable (25) Decrease in Accrued Expenses (15) Decrease in Income Tax Payable (45) Net Cash Flow from Operating Activities