FINANCIAL ACCOUNTING GROUP ASSESSMENT

Question 1 - Elite Trading Company started its business last year 2015. Its unadjusted trial balance as at 31 July 2016 is given as follows:

The following additional information was extracted from the records towards the end of the financial period.

1. Sales of an office printer of $510 was credited to Sales Account in error.

2. Elite Trading Company owed a credit supplier $35,900 and settled the amount early and was given a 2% cash discount. The accounts clerk recorded the discount given but omitted the payment.

3. A cheque of $1,210 received from a trade debtor, Ernest, was recorded in the accounts as $1,120.

4. Payment of $10,800 for shipping goods to customers in July 2016 was recorded as payment for shipping goods from suppliers.

5. Rental income of $13,800 for period from April 2016 to August 2016 had been received but not recorded.

6. Advertising expense shown in the trial balance above was for the period from April 2016 to August 2016.

7. The 5% bank loan was taken on 1 February 2016. The interest expense has yet to be accounted for.

8. Annual depreciation on fixed assets were as follows:

i. Office equipment - $15,100

ii. Furniture & fittings - $17,900

9. A physical count on 31 July 2016 revealed stocks on hand to be $113,390.

Required:

(a) Prepare the necessary general journal entries to record transactions (1) to (8). Narrations are not required.

(Hint: For some transactions, you will need to create new accounts which are not shown on the trial balance.)  

(b) Prepare the following financial statements for Elite Trading Company:

(i) Income Statement for the year ended 31 July 2016

(ii) Statement of Financial Position as at 31 July 2016

Question 2 - The following were extracted from the accounting records of Kelly Enterprise as at 30 April 2016:

A number of errors and omissions have been made in the accounting records. They are given as follows:

1. Purchases discount of $19,500 were recorded twice in the accounts.

2. A payment of $12,500 made to trade creditors was wrongly recorded as $15,200.

3. Sales return of $5,370 was recorded in the correct accounts but on the opposite sides.

4. A photocopier bought for $3,800 to be used in the office was wrongly entered to the furniture account.

5. Total insurance expenses recorded in the accounts were $48,000. A review confirmed that this amount was for period 1 December 2015 to 31 May 2016. No adjustments have been made so far.

6. Kelly the owner paid other creditors with a personal cheque of $4,000.

7. A cheque for $20,000 to settle the bank loan was recorded as a loan from the bank.

8. An outstanding commission receivable of $21,000 for April 2016 has been omitted from the records.

Included in the Capital account balance is the draft net profit of $31,345 for the year ended 30 April 2016.

Note: The Inventory account based on the physical stock take on 30April 2016 has not been affected by all the errors and omissions relating to sales and purchases.

Required:

(a) Prepare a statement showing the following:

(i) Effects of each of the items (1) to (8), if any, on the draft profit and;

(ii) Corrected net profit for the year ended 30 April 2016.             

(b) Calculate the following values as at 30 April 2016, showing clearly the individual accounts and their corrected ending balances:

(i) Total Assets

(ii) Total Liabilities

(c) Calculate the closing Capital account balance, incorporating the corrected profit and all other transactions affecting equity. 

Question 3 - Sam Lee Co. adopts the periodic inventory system to account for its inventory, item 128A.

Opening inventory comprises 700 units purchased at $15 each and the following data shows the trading transactions for the quarter ended 30 June 2016.

Required:

a) Calculate the cost of goods sold, ending inventory value and gross profit for the year, under the following cost flow assumptions:

i) First-in, first-out (FIFO)

ii) Last-in, first-out (LIFO)

iii) Weighted average cost (AVCO)

You are to show all your workings clearly.

b) Any errors in merchandise inventory will affect the balance sheet and income statement. State THREE inventory errors that may occur.