PRACTICAL AND THEORATICAL QUESTIONS
Q 1. Prepare the following statements as on December 31, 2011;
A) Necessary adjusting MONTHLY entries as on December 31, 2011,
B) Adjusted Trail balance dated December 31, 2011,
C) Income Statement
ABC Company
Unadjusted Trail Balance
December 31, 2011
Items Debit (Rs) Credit (Rs)
Cash 22,380
Client fees receivable 71,250
Prepaid studio rent 2,500
Supplies 6,000
Studio equipment 96,000
Accumulated depreciation 52,000
Note payable 24,000
Interest payable 480
Unearned client fees 8,000
Salaries payable 2,000
Accounts payable 4,420
Income tax payable 5,000
Capital stock 50,000
Retained earnings 20,000
Client fees earned 82,310
Salaries expense 17,250
Supplies expense 4,000
Rent expense 11,250
Utilities expense 3,300
Depreciation expense equipments 8,800
Interest expense 480
Income taxes expense 5,000
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TOTAL 248,210 248,210
OTHER DATA
1. Supplies on hand at December 31, 2011 was Rs 1,000
2. They studio pays rent quarterly (every three months). The last payment was made on November 01, 2011. The next payment will be made early in February 2012.
3. Studio equipment is being depreciated over 120 months (10 years)
4. On October 1, 2011, the studio borrowed Rs 24,000 from a bank at 12% interest rate. The entire interest plus principal amount is due on September 30, 2012.
5. Accrued, but unearned and uncollected client fees earned total Rs 690 at December 31, 2011
6. Accrued, but unpaid and unrecorded salaries expense total Rs 750 at December 31, 2011
Q2. A. During the current year, XYZ Company earned a gross profit of Rs 350,000, whereas CDE Company earned a gross profit of only Rs 280,000. Both companies have net sales of Rs 900,000. Does this mean that XYZ Company is more profitable than CDE Company? Explain with reasons whether XYZ Company is more profitable than CDE Company.
Q2.B. Frisbee Hardware uses a perpetual inventory system. The company has a yearend inventory account balance of Rs 250,000, but a physical count shows that merchandise on hand has a cost of only Rs 246,000.
I. Explain the possible reason(s) for this discrepancy.
II. Prepare the journal entry required in this situation.
Q2.C. Sky Probe sells television sets to individuals and organizations. At December 31, last year, the company's inventory amounted to Rs 250,000. During the first week of this year, the company made only one sale and one purchase. These transactions were as followed;
Jan 02 sold one television costing Rs 90,000 for cash Rs 117,000
Jan 05 purchased merchandise on account, Rs 50,000. Terms net 30 days.
Requirements
1- Prepare journal entries to record these transactions assuming Sky Probe uses the perpetual inventory system. Use separate entries to record the sales revenue and cost of goods sold for the sale on January 02.
2- Compute the ending balance of inventory account on the January 07.
3- Prepare journal entries to record these transactions assuming Sky Probe uses the periodic inventory system.
Q3. A. List several principles to be observed by a business in establishing strong internal control over cash receipts.
Q3. B. Crowley Corporation reports annual sales of Rs 1,500,000. Its accounts receivables throughout the year average Rs 125,000.
i. Compute the company's accounts receivables turnover rate.
ii. Compute the average days outstanding of the company's accounts receivables.
Q3. C. Shown below is the information needed to prepare bank reconciliation for ABC Company at December 31, 2011
a) At December 31, 2011, cash per the bank statement was Rs 15,200; cash per company records was Rs 17,500.
b) Cash in transit Rs 10,000.
c) Two debit memorandum accompanied the bank statement; service charges for December were Rs 25, and a Rs 775 check drawn by Jones and Co marked "NSF"
d) The following checks were issued in December but not presented in the bank; no 620.for Rs 1,000, no 631 for Rs 3,000 and no 641. for Rs 4,500.
PREPARE
1- Bank reconciliation statement at December 31, 2011.
2- Prepare necessary journal entries to update the accounting records.
Q4.A. A large art gallery has in inventory more than 100 paintings. No two are alike. The least expensive is priced at more than Rs 1,000 and higher priced items carry prices of Rs 100,000 and more. Which is the following method would you consider to be more appropriate for this business? Give reasons for your answers. FIFO, LIFO, Average Cost Method, and Specific Identification Method.
Q4.B. The Warm-Up Shop sells heating oil, coal and kerosene oil to residential customers. Heating oil is kept in large storage tanks. Coal is kept in large bins that are loaded and emptied from the top by giant scooping machines. Kerosene is sold "off the shelf" in five gallons containers at the company's retail outlet. Separate inventory records are maintained for each fuel type.
1. Which of the cost flow assumptions (average cost, FIFO, LIFO) best describes the physical flow of:
a) Heating oil inventory. Explain
b) Cost inventory. Explain.
c) The kerosene oil inventory. Explain.
2. Which of these cost flow assumptions is likely to result in the lowest income tax liability for the company? Explain.
Q4.C. On May 10, Hudson Company sold 90 millennium laptop computers to Apex Company. At the sale of this sale Hudson perpetual inventory record the following cost layers for millennium laptops;
Purchase date Quantity Unit Cost Total Cost
April 9 70 1,500 Rs 105,000
May 01 30 1,600 Rs 48,000
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Total in hand 100 Rs 153,000
Calculate the cost of 90 millennium laptop computers sold on May 10, assuming that Hudson Computing uses the;
1. Specific identification method (62 of the units were purchased on April 9 and the remaining units were purchased on May 01).
2. Average Cost method.
3. FIFO method
4. LIFO method
Q5. A. Coca Cola distinctive trademark is more valuable to the company than its bottling plants. But the company's bottling plants are listed in the balance sheet and the famous trademark is not? Explain.
Q5.B. Criticize the following quotation. "We shall have no difficulty in paying for new plant assets needed during the coming year because our estimated outlays for new equipment amount to only Rs 80,000 and we have more than twice that amount in our accumulated depreciation account at present."
Q5.C. Mr. Zing purchased a truck for Rs 30,500 to be used in his business. He is considering depreciating his truck by two methods: units of output (assuming total miles driven of 80,000) and double declining balance method (assuming a five year useful life). The truck is expected to be sold for approximately Rs 6,500 at the end of its useful life. Prepare a comparison of first two years depreciation expenses that will be recognized under these methods, assuming the truck was actually driven 10,000 and 15,000 miles in the 1st and 2nd years respectively.