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Test 1 September 2017, answers

Accounting IB (Macquarie University)

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STUDENT’S NAME
STUDENT NUMBER
TUTORIAL DAY & TIME
TUTOR’S FULL NAME

Class Test 1
Session 2, 2017

Course Code: ACCG 101

Course Name: Accounting and Governance

Time allowed: 60 minutes (no extra reading time)

Instructions

1. You must answer ALL questions in the test paper. No separate booklet will be
provided to answer the questions.

2. This is a closed-book test. You are not allowed to refer to any course material for
the test.

3. Show all workings. Handwriting must be legible.

4. Non-programmable and non-text retrieval calculators may be used, but

dictionaries are not to be used.

5. Sharing calculators is not allowed.

Question No. Marks

1 /7

2 /21

Total /28

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Question 1 (7 marks)

Part a (2 marks)

Julia Ross Company has the following internal control procedures over cash payments. Identify the
internal control principle that is applicable to each procedure.
1. Company cheques are prenumbered.
2. The bank statement is reconciled monthly by an internal auditor.

Required
Identify the internal control principle that is applicable to each procedure.

1. Documentation procedures (1 mark)

2. Independent internal verification (1 mark)

Part b (5 marks)

‘Control over receivables is not quite as important as control over cash.’ (1) Evaluate this
statement and (2) discuss three methods to manage receivables.
Control over receivables is as important as control over cash (1 mark). Often in business
when we supply goods to our customers we have to wait up to 30 days before we receive a
cash payment. This may be after we have paid for the goods we have supplied. It is vital for
the survival of a business through adequate cash flow that we collect accounts receivable
within the deemed credit period and that we avoid bad debts at all costs (1 mark).
 Determine to whom to extend credit
 Establish a payment period
 Monitor collections
 Evaluate the receivables balance
 Accelerate cash receipts from receivables (3 marks for 3 methods from the list)

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Question 2 (21 marks)

Part a (6 marks):

The following information relates to the cash position of Cathy Fraser, loan broker:
1. Cash at Bank account balance as at 30 June 2016: $45 451 debit.
2. Bank statement balance as at 30 June 2016: $47 512 credit.
3. 30 June receipts amounting to $1820 have not been deposited.
4. Cheques issued but not presented total $3468.
5. A $312 cheque was returned marked ‘dishonoured’. The cheque had been received from J. Simms, a
new customer.
6. A $750 deposit made by L. Richards was incorrectly credited to the bank account of Cathy Fraser.
7. The bank statement shows that the bank has charged the business’s account with fees and charges
of $25.
8. Items 5, 6 and 7 have not yet been entered in the cash journals.
Required

 Prepare a bank reconciliation at 30 June 2016 based on the provided information.

 Journalize the entries required by the reconciliation.

CATHY FRASER, LOAN BROKER

Bank Reconciliation Statement
as at 30 June 2016

Balance as per bank statement Cr $47 512 (0.5)

Add: Deposit not credited 1 820 (0.5)
49 332
Less: Cheques not presented 3 468 (0.5)
45 864
Less: Deposit incorrectly credited 750 (1)
Balance as per cash at bank account $45 114

Cash at bank balance – 30 June 2016 $45 451 (0.5)

Less: Bank fees $25 (0.5)
Cheque not honoured by J. Simms 312 337 (0.5)
Adjusted cash at bank balance – 30 June 2016 $45 114

Bank fees 25 (0.5 mark)

Cash 25 (0.5 mark)

Account Receivables 312 (0.5 mark)

Cash 312 (0.5 mark)

(Both account name and the figure should be correct in order to award the marks.)

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Part 2 (8 marks):

Using the perpetual inventory system, record the following transactions in the general journal of
Fitzroy Ltd (assume GST does not apply):

1. Purchased 240 units for $220 each on credit.

2. Returned 12 units to the supplier.
3. Sold 48 units for $380 each on credit.
4. Purchased office supplies for $360 cash.
5. Customer returned 6 of the units sold in (3).
6. The physical inventory count at the end of the period consisted of 180 units of inventory (assume the
inventory balance at the beginning of the period is 10 units).

1. Inventory 52 800 (0.5)

Accounts Payable 52 800 (0.5)

2. Accounts Payable 2 640 (0.5)

Inventory 2 640 (0.5)

3. Accounts Receivable (48  $380) 18 240 (0.5)

Sales 18 240 (0.5)

Cost of Sales (48  $220) 10 560 (0.5)

Inventory 10 560 (0.5)

4. Office Supplies 360 (0.5)

Cash at Bank 360 (0.5)

5. Sales Returns and Allowances (6  $380) 2 280 (0.5)

Accounts Receivable 2 280 (0.5)

Inventory (6  $220) 1 320 (0.5)

Cost of Sales 1 320 (0.5)

6. Inventory Shortage Expense (16  $220) 3 520 (0.5)

Inventory 3 520 (0.5)
(Both account name and the figure should be correct in order to award the marks.)

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Part 3 (4 marks):

The following transactions relate to the business of Penrith Produce Ltd. The business uses allowance
method. Ignore GST.

June 30 Based on past experience, bad debts expense of $4 200 was estimated.

Oct 5 After a concerted effort to collect, an account receivable of $550 from M. McGrath
was written off as bad debt.

Nov 15 M. McGrath unexpectedly paid $242 of the amount of his debt written off on 5 Oct.

Required

Record the transactions in general journal form.

June 30 Bad Debts Expense $4 200 (0.5)

Allowance for Doubtful Debts $4 200 (0.5)
(Estimated bad debts expense)

Oct 5 Allowance for Doubtful Debts 550 (0.5)

Accounts Receivable – M. McGrath 550 (0.5)
(Wrote off M. McGrath as uncollectable)

Nov 15 Accounts Receivable – M. McGrath 242 (0.5)

Allowance for Doubtful Debts 242 (0.5)
(M. McGrath recovered debt in part)

Cash at Bank 242 (0.5)

Accounts Receivable – M. McGrath 242 (0.5)
(Collected part payment in cash)
(Both account name and the figure should be correct in order to award the marks.)

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Part 4 (3 marks):

Inventories and purchases for the month of June for Glow Light Ltd are as follows:

Date Detail Units Cost per unit

1-Jun Inventory 9 000 $18
3-Jun Purchase 8 500 $19
15-Jun Purchase 13 000 $20
20-Jun Purchase 15 500 $21
30-Jun Inventory 18 000 —

Required
Determine the cost of sales for the month under each of the following cost flow assumptions, based on
the periodic inventory system:
1. FIFO
2. LIFO
3. Weighted average

FIFO-533500 (1 mark)

(9000x18+8500x19+10500x20)=533500

LIFO-575500 (1 mark)

(15500x21+12500x20)=575500

Weighted average-553280 (1 mark)

(909000/46000=19.76; 19.76x28000=553280)

(no mark is awarded to the workings)

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