Assignment: Prepare financial reports

Part One - Multiple Choice Questions             

1. When a second-hand building is purchased which of these should not be debited to the building account but charged to a separate asset account?

a. Expenditure on initial repairs to the building floor

b. Stamp duty paid on the property purchase

c. The cost of installing an air conditioning system

d. Legal fees for the purchase of the property

2. Sentosa has acquired manufacturing equipment and incurred these expenses in doing so.

                                                                                                  $

Gross invoice price, net of GST, subject to terms of 2/10, n/30)       9000

Transportation costs to get equipment to factory                            1000

Special permit to allow wide load on freeway                                    300

Speeding ticket incurred by company driver while
delivering equipment to the factory                                                100

Cost to repair wall damaged during installation                                500

The equipment should be recorded in Sentosa's records at:

a. $10 900

b. $10 300

c. $10 120

d. $10 000

3. The statement relating to depreciation that is true is:

a. Accumulated depreciation represents the amount of an asset's cost that has been transferred to depreciation expense to date

b. The cash account is affected by charging depreciation

c. Accumulated depreciation is a contra-expense account

d. Depreciation represents cash that can be used to replace assets when they wear out

4. A retailer purchased a delivery wagon for $21 000 on 1 July 2010. It was planned to keep the vehicle until it had done 60 000 kilometres and then to trade it in. The expected trade in value was $6 000.

Schedule of actual distance travelled was:

30/6/11           20 000 km
30/6/12           15 000 km
30/6/13           15 000 km
30/6/14           10 000 km

Using the units-of-production method the amount of depreciation charged for the year ended 30 June 2014 was:

a. $3750

b. $3500

c. $2500

d. $5000

5. When a non-current asset is sold the gain or loss on disposal is the difference between:

a. Fair market value and accumulated depreciation

b. Selling price and accumulated depreciation

c. Fair value and selling price

d. Selling price and carrying amount

6. Assume that a machine with a cost of $3000 has accumulated depreciation of $1400 on the date of its disposal. If it was traded-in for $2000 on a new machine and the balance of $1500 was paid in cash what is the profit or loss on disposal of the old machine? (Ignore GST).

a. $1000 loss

b. $600 gain

c. $400 gain

d. $1200 loss

7. The statement concerning the Allowance for Doubtful Debts account that is not true is:

a. Allowance for Doubtful Debts is used to adjust receivables for estimated bad debts because individual debtor's balances cannot be removed from the ledger unless there is indisputable evidence they are bad

b. Allowance for Doubtful Debts is a contra-asset account designed to reduce receivables to estimated realisable value

c. Allowance for Doubtful Debts represents cash set aside to cover losses incurred as a consequence of customers being declared bankrupt

d. Allowance for Doubtful normally has a credit balance

8. The general journal entry to provide for estimated bad debts under the allowance method is:

a. Debit allowance for doubtful debts; credit bad debts expense

b. Debit bad debts expense; credit allowance for doubtful debts

c. Debit accounts receivable; credit bad debts expense

d. Debit bad debts expense; credit accounts receivable

9. The Allowance for Doubtful Debts account has a balance at the start of the year of $1000. At the end of the year debts of $990, including $90 GST, are to be written off and the Allowance for Doubtful Debts is to be adjusted to 10% of the closing Accounts Receivable balance of $22 000 (including $2000 GST). The amount for Bad and Doubtful Debts appearing in the Income statement for the year will be:

a. $2000

b. $1900

c. $2100

d. $2200

10. The balance of the Salaries Expense account is $1200. Which is the correct closing general journal entry?

                                                                   Debit           Credit
                                                                   $                 $
a.             Cash                                            1200
                Salaries Expense                                              1200
b.             Salaries Expense                           1200
                Profit and Loss Summary                                  1200
c.             Salaries Expense                           1200
                Cash                                                               1200
d.             Profit and Loss Summary               1200
                Salaries Expense                                              1200

11. The balance in the Profit and Loss Summary account before it is closed represents:

a. Total income

b. Total expense

c. Profit (or loss)

d. Profit (or loss) less cash drawings

12. The statement relating to the Profit and Loss Summary Account that is incorrect is:

a. The balance in each income and expense account is transferred to the Profit and Loss Summary Account

b. The balance in the Profit and Loss Summary Account is transferred to the owner's Capital account

c. The Profit and Loss Summary Account is established to summarise the balances in the income and expense accounts

d. The Profit and loss Summary Account is a permanent account

13. The major purpose of a post-closing trial balance is to:

a. Verify the worksheet calculations

b. Determine if any adjusting entries have been omitted

c. Test for equality of debits and credits in the general ledger to ensure the opening position is correct for the next period

d. Make sure that all post-closing account balances are equal to the pre-closing account balances

14. The statement relating to reversing entries that is correct is:

a. Reversing entries are always necessary

b. There are alternative ways of dealing with the effect of accruals in subsequent periods without using reversing entries.

c. Reversing entries are never appropriate for deferral type entries

d. Depreciation is an adjustment that requires reversing in the subsequent period

15. The retained profits balance of Go Company was $50 000 on the first day of the year. Profit during the year was $20 000. Near year-end a $10 000 dividend was declared that is to be paid in the following year. Year-end retained profits are:

a. $70 000

b. $60 000

c. $50 000

d. $40 000

Part Two - Practical Questions 

Question One

Gazza Ltd acquires a machine for a cost of $29 000. It is expected that the machine will continue to be operational for seven years, during which time it is expected to run for 35 000 hours. The estimated residual value of the machine is $7000 at the end of its useful life.

REQUIRED

Calculate the depreciation charge for each of the first three years, using the following methods:

(a) the straight-line method

(b) the sum-of-digits method

(c) the declining-balance method, using a 33 per cent rate

(d) the units-of-production method, based on hours of operation, given that operating times are as follows:

Question Two                  

Average Art is a new business. During its first year of operations, credit sales were $40,000 and collections of credit sales were $36,000. One account, $650, was written off. Management uses the percent-of-sales method to account for bad debts expense and estimates 2% of credit sales to be uncollectible.

REQUIRED

Prepare the entry to record bad debts expense.