PART A: THIRTY (30) QUESTIONS - EACH QUESTION IS WORTH 1 MARK.

Answer each of the following questions on the separate answer sheet provided. Ensure you fill your name and student number details on the answer sheet as it will be separated from your exam scrip for marking.

1. The majority of business in Australia is transacted by:

a. sole traders.

b. partnerships.

c. government units.

d. companies.

2.. Buying assets required to operate a business is an example of a/an:

a. advertising activity.

b. financing activity.

c. investing activity.

d. operating activity.

3. The financial statement that summarises the changes in retained earnings for a specific period of time is the:

a. statement of financial position.

b. income statement.

c. statement of cash flows.

d. statement of changes in equity.

4. Johnny's Car Repairs had total assets of $60,000 and total liabilities of $40,000 at the beginning of the year. During the year the business recorded $100,000 in revenues, $55,000 in expenses, and dividends of $10,000 were distributed. Profit reported by  Johnny's Car Repairs for the year was:

a. $35,000

b. $45,000

c. $20,000

d. $90,000

5. The cash payment of a liability:

a. decreases assets and equity.

b. increases assets and decreases liabilities.

c. decreases assets and increases liabilities.

d. decreases assets and liabilities.

6. A transaction to record earning revenue:

a. increases assets and liabilities.

b. increases assets and equity.

c. increases assets and decreases equity.

d. leaves total assets unchanged.

7. An account is a part of the accounting information system and has all of the following characteristics except:

a. an account has a debit and credit side.

b. an account has only one side.

c. an account consists of three parts.

d. an account has a title.

8. Which statement is false?

a. Accrual based accounting records transactions in the period in which the transaction occurs.

b. Applying accrual accounting results in a more accurate measure of profit for the period than cash based accounting.

c. GAAP requires financial reports be prepared using accrual accounting.

d. None, all statements are true.

9. Adjusting entries are:

a. not necessary if the accounting system is operating properly.

b. usually required before financial statements are prepared.

c. made whenever management desires to change an account balance.

d. made to Statement of Financial Position accounts only

10. Which one of the following is not a justification for adjusting entries?

a. Adjusting entries are necessary to ensure that revenue recognition principles are followed.

b. Adjusting entries are necessary to ensure that the matching principle is followed.

c. Adjusting entries are necessary to enable financial statements to conform with GAAP.

d. Adjusting entries are necessary to bring the general ledger accounts in line with the budget.

11. Merchandising businesses that sell to retailers are known as:

a. brokers.

b. wholesalers.

c. companies.

d. service firms.

12. After gross profit is calculated, operating expenses are deducted to determine:

a. gross margin.

b. gross profit on sales.

c. profit (loss).

d. sales margin.

13. Under a periodic inventory system, acquisition of inventory is debited to the:

a. Purchases account.

b. Cost of sales account.

c. Inventory account.

d. Accounts Payable account.

14. Which of the following items will increase inventory costs for the buyer of goods?

a. Purchase returns and allowances granted by the seller.

b. Discount received taken by the purchaser.

c. Freight charges paid by the purchaser.

d. Freight charges paid by the seller.

15. Which of the following statements is false?

a. the same basic principles of accounting apply whether the accounting information system is manual or computerised.

b. generally small entities require much more sophisticated accounting systems than large entities.

c. cost-effectiveness is a basic principle underpinning efficient and effective accounting information systems.

d. cost-effectiveness means that the costs of providing information are less than the benefits from use of that information.

16. The principles of effective accounting systems include:

a. conservatism.

b. flexibility.

c. accrual accounting.

d. solvency.

17. All of the following are examples of internal control procedures except:

a. using pre-numbered documents.

b. customer satisfaction surveys.

c. reconciling the bank statement.

d. insistence that employees take vacations.

18. Which of the following is not an internal control procedure for cash?

a. Payments should be made with cash.

b. There should be limited access to cash.

c. The amount of cash on hand should be kept to a minimum.

d. Cash should be deposited daily.

19. An employee authorised to sign cheques should not record:

a. owner cash contributions.

b. mail receipts.

c. cash disbursement transactions.

d. sales transactions.

20. A company maintains the asset account, Cash, on its books, while the bank maintains a reciprocal account that is:

a. a contra asset account.

b. a liability account.

c. also an asset account

d. an equity account

21. Ryan Co purchased a computer for $15,000 (excluding GST). Originally it had an estimated useful life of 4 years and a residual value of $3,000, but on the first day of the 4th year of life the estimated useful life was extended by a further two         years and the residual value was reduced to zero. Ryan Co uses the straight-line method to depreciate its computer equipment. At the end of year 4, how much     depreciation should be recorded for the computer?

a. $4,000

b. $3,000

c. $2,000

d. $5,000

22. Ariopolous Company incurred the following expenses in acquiring manufacturing equipment.

Gross invoice price (includes GST)

Transportation costs to get the equipment to the

factory (excluding GST)

$

99 000

1 000

Special permit to allow a wide load on freeway (excluding GST)

Twelve months insurance policy on the equipment (excluding GST) The equipment should be recorded in the company’s books at:

a.   $100 450.

b.   $91 450.

c.   $91 650.

d.   $101 650.

23. Land improvements should be depreciated over the useful life of the:

a. land.

b. land improvements.

c. land or land improvements, whichever is longer.

d. buildings on the land.

24. Most companies pay current liabilities:

a. by issuing shares.

b. by issuing interest-bearing notes payable.

c. out of current assets.

d. by creating long-term liabilities

25. Which of the following would not be classified as a current liability?

a. accrued taxes payable.

b. revenue received in advance.

c. mortgage.

d. notes payable.

26. Interest expense on an interest-bearing note is:

a. always equal to zero.

b. only recorded at the time the note is issued.

c. accrued over the life of the note.

d. only recorded at maturity when the note is paid.

27.  Bondi Bank agrees to lend Tawonga Construction Company Ltd $200,000 on 1 January. Tawonga Construction Company Ltd signs a $200,000, 4%, 9-month note. The entry      made by Tawonga Construction Company Ltd on 1 January to record the proceeds and issue of the note is:

a.    Interest Expense Cash

Notes Payable

b.    Cash

Notes Payable

c.    Cash

Interest Expense

Notes Payable

d.    Cash

Interest Expense

Notes Payable

Interest Payable

6,000

194,000

200,000

200,000

200,000

200,000

6,000

206,000

200,000

6,000

200,000

6,000

28. Under the company form of business organisation:

a. a shareholder is personally liable for the debts of the company.

b. shareholders can bind the company even though they have not been appointed as agents of the company.

c. the length of company’s life is continuous or perpetual.

d. shareholders wishing to sell their shares must first get the approval of all other shareholders.

29. The term residual claim refers to a shareholder’s right to:

a. receive dividends.

b. share in assets upon liquidation.

c. acquire additional shares when offered.

d. exercise a proxy vote.

30. The acquisition of land by issuing share capital is:

a. a non-cash transaction that is not reported in a statement of cash flows.

b. a cash transaction and is reported in the statement of cash flows.

c. a non-cash transaction and is reported in the statement of cash flows.

d. only reported if the statement of cash flows is prepared using the direct method.

PART B: 7 Questions – Answer all questions in the space provided.

QUESTION 1 (10 marks)

(a)  Briefly describe the information you would find in a company annual report in

addition to the financial statements.

(b)  What are the three mains forms of business organisation? List at least one

advantage and disadvantage of each and give an example of a business from each.

QUESTION 2 (10 marks)

(a)  Prepare the General Journal entries for the following transactions for Bob’s

Accounting Services. Narrations are not required. Ignore GST. Balance Date is 30th June.

1 Jan

3 Jan

5 Jan

Bob commences business by making a personal contribution to the

Bob paid $1,800 for a one year insurance policy.

Bob paid $450 for 2 weeks rent of the office premises

10 Jan  Bob performed services on credit for $2,500

13 Jan  Bob received payment for the services provided on the 10 Jan and gave the client a 2% discount because they paid in a timely manner.

(b)  If Bob was registered for GST and the above transactions excluded GST, identify

the transactions which would be affected by GST and prepare the General Journal for those transactions only.

QUESTION 3 (10 marks)

(a)  Bob’s Accounting Services has the following unadjusted trial balance at the end

of the financial year.

Unadjusted PARTIAL Trial Balance for Bob's Accounting Services

As at 30 June 2018 Dr Cr

Prepare the required adjusting entries in the General Journal to account for the following:

•   It was determined that there were $600 worth of Office Supplies on hand.

•   Depreciation on the Office Equipment was $2,400.

•   The rent was last paid on the 16 June to cover a four week period.

•   Revenue Received in Advance relates to a payment received on the 1st June to perform services over the next six (6) months. Bob performed services for the client during June.

•   The bank loan accrues interest at the rate of 6%p.a. and is paid and recorded on the 1 March each year.

(b)  With reference to the definition and recognition criteria in the Conceptual

Framework explain how the last entry above is classified.

“The bank loan accrues interest at the rate of 6%p.a. and is paid and recorded on the 1 March each year.

QUESTION 4 (10 marks)

(a)  On the 1 June Billy Bob’s Manufacturing Ltd. has 50 items of inventory at a cost

of $445 on hand. Throughout June the following purchases were made:

June 1

June 10

June 15

June 28

150 items

250 items

180 items

100 items

$ 1,335    (total cost)

2,250

1,629

906

A physical count of inventory on June 30 reveals that there are 255 items on hand. Billy Bob uses the periodic inventory system.

Calculate the cost of goods sold and ending Inventory using the following inventory costing methods:

(i)     FIFO

(ii) The average cost method

QUESTION 5 (10 marks)

On 1 October 2018, Bob’s Accounting Services purchased a new motor vehicle which cost $55,000 plus GST. The model he wanted wasn’t available in Adelaide so he       purchased it from Melbourne and got it transported over on the back of a truck. This  cost $880 including GST plus he had to pay insurance to cover it while in transit of    $150 plus GST. Government stamp duty costs were $500 and registration for the first year cost $900 (both are GST free). On arrival Bob got “Bob’s Accounting Services – Get your Numbers in Order” painted in the door and his phone number which cost     $450 cash (the sign-writer was not registered for GST).

Bob intends to drive the vehicle for 150,000 km at which time he estimates he will be able to sell it for $8,000. On the 30 June 2019 Bob had driven the vehicle 30,000      kms. Balance day is the 30 June.

(a)  Prepare all necessary General Journal entry to up until the 30 June 2019

including any appropriate balance day adjustments.

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QUESTION 6 (10 marks)

(a)  Billy Bob’s Manufacturing Ltd. Sells goods with a one year warranty. On the 30 June

2018 the existing balance in the Provision for Warranties account (after all claims for the year have been processed) is $5,000 credit. They make an estimate based on     past experience that the cost of providing outstanding warranties in the next year will be $250,000. In the 2018/19 financial year Billy Bob replaces faulty goods with          goods from their own inventory at a cost of 260,000. Prepare the necessary General Journal entries to account for the provision and subsequent warrenty claims.

(b)  Prepare the General Ledger Provision for Warranties account and balance it

correctly on the 30 June 2018 and again on the 30 June 2019.

(c)  Billy Bob’s Manufacturing takes out a bank loan on the 1 Jan 2019 payable monthly

over 2 years as shown in the mortgage schedule below.