MBA Batch 3, Semester (1) Principles of Accounting Test March 2010

Time: 3 hours Section (A) (This question is compulsory)

Question One Choose the most appropriate answer Each MCQ carries two marks 1. A company receives rent from a large number of properties. The total received in the year ended 31 October 2009 was $481,200. The following were the amounts of rent in advance and in arrears at 31 October 2008 and 2009: 31 October 2008 31 October 2009 $ $ Rent received in advance 28,700 31,200 Rent in arrears (all subsequently received) 21,200 18,400 What amount of rental income should appear in the companys income statement for the year ended 31 October 2009? A. $486,500 B. $460,900 C. $501,500 D. $475,900 2. At 1 July 2008 the provision for doubtful debts of Queen was $18,000. During the year ended 30 June 2009 debts totaling $14,600 were written off. It was decided that the doubtful debt allowance should be $16,000 as at 30 June 2009. What amount should appear in Queens income statement for bad and doubtful debts for the year ended 30 June 2009? A. $12,600 B. $16,600 C. $48,600 D. $30,600. 3. A business compiling its financial statements for the year to 31 July each year pays rent quarterly in advance on 1 January, 1 April, 1 July and 1 October each year. The annual rent was increased from $60,000 per year to $72,000 per year as from 1 October 2009. What figure should appear for rent expense in the business income statement for the year ended 31 July 2010? A. $69,000 B. $62,000 C. $70,000 D. $63,000 (1)

4. A companys trial balance totals were: Debit $387,642 Credit $379,511 A suspense account was opened for the difference. Which ONE of the following errors would have the effect of reducing the difference when corrected? A. The petty cash balance of $500 has been omitted from the trial balance B. $4,000 received for rent of part of the office has been correctly recorded in the cash book and debited to rent account C. No entry has been made in the records for a cash sale of $2,500 D. $3,000 paid for repairs to plant has been debited to the plant asset account. 5. The bookkeeper of a company made the following mistakes: Discount allowed $3,840 was credited to discounts received account. Discount received $2,960 was debited to discounts allowed account. Discounts were otherwise correctly recorded. Which of the following journal entries will correct the errors? Dr $ A. Discount allowed 7,680 Discount received Suspense account B. Discount allowed Discount received Suspense account C. Discount allowed Discount received D. Discount allowed Discount received Suspense account 880 880 1,760 6,800 6,800 3,840 2,960 880

Cr $ 5,920 1,760

6. A trial balance extracted from a sole traders records failed to agree, and a suspense account was opened for the difference. Which of the following errors would require an entry in the suspense account in correcting them? (1) Discount allowed was mistakenly debited to discount received account. (2) Cash received from the sale of a non-current asset was correctly entered in the cash book but was debited to the non-current asset account. (3) The balance on the rent account was omitted from the trial balance. (4) Goods taken from inventory by the proprietor had been recorded by crediting drawings account and debiting purchases account. A. All four items B. 2 and 3 only C. 2 and 4 only D. 1 and 3 only (2)

7. At 1 July 2008 a limited liability company had a provision for doubtful debts of $83,000. During the year ended 30 June 2009 debts totaling $146,000 were written off. At 30 June 2009 it was decided that a doubtful debt allowance of $218,000 was required. What figure should appear in the companys income statement for the year ended 30 June 2009 for bad and doubtful debts? A. $155,000 B. $364,000 C. $281,000 D. $11,000 8. Which of the following most closely describes the meaning of prudence, as the framework for the preparation and presentation of financial statements? A. The use of a degree of caution in making estimates required under conditions of uncertainty. B. Ensuring that accounting records and financial statements are free from material error. C. Understating assets and gains and overstating liabilities and losses. D. Ensuring that financial statements comply with all accounting standards and legal requirements. 9. The following information is available for a sole trader who keeps no accounting records: $ Net business assets at 1 July 2008 186,000 Net business assets at 30 June 2009 274,000 During the year ended 30 June 2009: Cash drawings by proprietor 68,000 Additional capital introduced by proprietor 50,000 Business cash used to buy a private car for the proprietors wife 20,000 Using this information, what is the traders profit for the year ended 30 June 2009? A. $126,000 B. $50,000 C. $86,000 D. $90,000 10. At 1 July 2008 a company had prepaid insurance of $8,200. On 1 January 2009 the company paid $38,000 for insurance for the year to 30 September 2009. What figures should appear for insurance in the companys financial statements for the year ended 30 June 2009? Income statement Balance sheet A $27,200 Prepayment $19,000 B $39,300 Prepayment $9,500 C $36,700 Prepayment $9,500 D $55,700 Prepayment $9,500 (20 marks)

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Section (B) Answer two questions ONLY Question Two At the beginning of 1 January 2010, Amira Amir had $2,700 in the bank. During January 2010, Amira Amir had the following receipts and payments: a. Cash sale of $240. b. Payment from credit customer Tamir $1,200 less discount allowed $60. c. Cash received for sale of machine $600. d. Payment from credit customer Magid $2,160. e. Cheque received for cash to provide a short-term loan from Sky Bank $5,400. f. Second cash sale of $450. g. Payment of $4,500 to Aramco for new machinery. h. Payment to supplier Nahid $360. i. Payment from credit customer Peter $150 less discount allowed $30. j. Payment of telephone bill $1,200. k. Payment of electricity bill $840. l. $300 in cash withdrawn from bank for petty cash. m. Payment to supplier Malik $930.

Required: Prepare the Cash Book for 1 January 2010. (10 marks)

Question Three The following transactions were obtained from the records of Green Nile Company for the month of January 2010: Jan. 1 The Company started the business by investing $100,000 cash. Jan. 4 Bought furniture and fittings for $30,000 from Hilal Enterprises in cash. Jan. 6 Sold goods to Dalia for $6,800 in cash. Jan. 8 Purchased goods on credit for $3,400 from Hatim. Jan.11 Sold goods on credit to Hills Co. for $4,800. Jan, 12 Returns outwards amounted to $1,005. Jan. 13 Purchased a motor car from Giad Co. $12,800, but no payment was made. Jan. 16 Sold goods on credit for $3,640 to Rania Co. Jan. 18 Purchased goods on credit for $1,200 from Sudan Stores. Jan. 20 Sold goods on credit for $1,960 to Dina. Jan. 23 Purchased goods for cash from Sandy Co. for $3,120. Jan. 24 Received $600 as commission. Jan. 25 Paid $120 for electricity. Jan. 26 Returns inwards amounted to $2,100. Jan. 31 Paid wages $2,160. Required: Prepare the books of prime entry to record these transactions. (10 marks)

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Question Four As at 30 March 2010, your business has the following balances on its ledger accounts: Accounts Bank loan Motor vehicles Sales Trade accounts payable Prepayments Purchases Capital Accruals Trade accounts receivable Bank loan interest Other expenses Cash at bank Balance ($) 24,000 4,040 29,200 22,400 3,760 24,800 26,000 3,240 24,000 2,800 22,040 23,400

During the year, the business made the following transactions which were not taken into account: a. Bought goods for $2,000, half for cash and half on credit. b. Made $2,080 sales, $1,600 of which was for credit. c. Paid wages to business assistants of $520 in cash. Required: Draw up a trial balance showing the balances as at the end of 31 March 2010. (10 marks)

Good Luck

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