Questions and Answers of Financial Accounting 6th Edition

What sorts of organisations are likely to use the periodic inventory system?
On 1 July 2015, Morton Limited had accounts receivable of $53 000 and an allowance for doubtful debts of $3100. During the year ended 30 June 2016, credit sales amounted to $432 500 and cash
OJ Ltd has been having difficulty collecting its accounts receivable. For the year 2016, the company increased the allowance for doubtful accounts by $48 000, bringing the balance to $70 000. At the
Dragon Designs Ltd had the following general ledger accounts for last year, using the T-account format. All the company's sales are on credit to retail stores across the country. The first amount in
In some countries it is known that payments can be made to local public servants to speed up the approval of permits, licences and other processes. These have been called facilitation payments but
For many companies, their most valuable assets are not their cash and their inventory but their intangible assets. These intangible assets may include brand names, mastheads, patents and items that
A number of countries have introduced (or are considering the introduction of) regulatory reform over greenhouse gas emissions in an effort to curb the effects of climate change. These countries
Following is an excerpt from the 2014 annual report of BHP Billiton.1. Who is responsible for internal control?2. Why does BHP refer to the US Securities Exchange Act of 1934?3. Why can internal
Refer to the 2014 annual report of Woolworths Limited available at: www.woolworthslimited.com.au/annualreport/ 2014/index.html.1. Are there any references to internal control by Woolworths Limited?2.
On 30 June 2016, the bank account for Holmes Traders showed a debit balance of $13 418 and the bank statement showed a credit balance of $20208. A comparison of the two sets of records disclosed:1.
1. Why are bank reconciliation statements prepared? Under what circumstances would it be unnecessary to prepare a bank reconciliation statement?2. You have been supplied with the following
Reconcile Henry's month-end bank account balance and, based on your analysis, indicate what corrections you would make to Henry's records:1. Month-end bank balance according to the bank's statement,
A petty cash fund of $100 was established on 1 June 2016 by Green Ltd. Disbursements were made during June as follows:Reimbursement cheques were drawn on 16 June and 30 June.Prepare journal entries
The NSW Golf Society operates a museum for the benefit and enjoyment of present and potential golfers. During hours when the museum is open to the public, two clerks, who are positioned at the
Read the following description of a sports club. Which features of good internal control seem to be missing? Are any of those features offset by strengths in other areas?The club earns revenue from
Ekumbaba Ltd is a small wholesaler of model aeroplanes. It only has a few employees. The owner of the business, who is also the manager, makes daily deposits of customers' cheques into the firm's
1. There are a number of procedures that a firm may employ to safeguard cash. These procedures are known as cash control procedures. List five examples of cash control procedures and explain their
You have been appointed to the finance committee of your local church. The collections for Sunday services are taken up by a team of ushers. At the end of each service the head usher counts the cash,
Consider the following two cases of fraud.1. There have been recent reported incidents of attempted fraud on a variety of organisations. The fraud involves sending invoices for services or products
In each of the following cases, what component of good internal control is being violated (if any)? 1. Tough Ltd pays all its employees minimum wages and does not have pleasant working
The following incidents took place in the DG Company:1. Fred, the mail opener, converted a cheque payable to the DG Company for his personal use. When he was doing the bank reconciliation, Fred
The bank reconciliation made by Johnson Ltd on 31 August 2016 showed a deposit in transit of $570 and two outstanding cheques: no. 597 for $260 and no. 603 for $180. The adjusted balance per books on
A friend, Janet, has accepted a job as the general manager of a local company. During a meeting you attended, an accountant mentioned to Janet that she would be responsible for internal control
Why it is important to perform cost-benefit analysis when designing an internal control system?
How does a petty cash system act as an internal control?
What is segregation of duties? Provide three examples.
List the main components of internal control.
Find some newspaper or magazine articles about executive compensation. With capital market and agency (contract) theory as a background, discuss the compensation used by each company.1. What features
Isabelle Limited started business on 1 September 2016. During the first month in business the following transactions occurred.a. Issued share capital, $100 000. b. Paid one month's rent of
Treasury Wine faces class action over US disclosure Treasury Wine Estates, the world’s largest pure-play winemaker, shocked markets and investors in July when it admitted an oversupply of poor and
1) Refer to the extracts of the annual report of Woolworths Limited in this book's appendix. All questions relate to the consolidated accounts.1. Would you expect Woolworths Limited to use a
The following information is taken from the accounting records of Bragg Ltd for year ended 30 June 2016:1. Assuming all purchases and sales were in single transactions, prepare summary journal
The following information is taken from the accounting records of Frog Ltd for the year ended 30 June 2016:1. Assuming all purchases and sales were in single transactions, prepare summary journal
The following purchases of inventory were made by Anvil Ltd in April:Sales of inventory during April were:Anvil's inventory on 1 April consisted of 150 units valued at $4 each.1. Calculate COGS for
You are the senior accountant for a shoe wholesaler that uses the periodic inventory method. You have determined the following information from your company's records, which you assume is
The following is an extract from Telstra's 2014 financial statements (Note 10(a)).1. Calculate the percentages used by Telstra in 2013 and 2014.2. Comment on how the percentages have changed between
Refer to the extracts of the annual report of Woolworths Limited in this book's appendix. All questions relate to the consolidated accounts.1. How were trade debtors valued in the accounts?2. During
James Stewart owns a general store in a country town. He keeps two subsidiary ledgers (an accounts receivable ledger and an accounts payable ledger) and a general ledger.Balances in the subsidiary
Prepare debtors and creditors control accounts for the year commencing 1 July 2015 from the following information: Balances at 1 July 2015 Debtors control Creditors control Summary of transactions to
Jupiter Ltd uses multi-column cash receipts and cash payments journals, and maintains control accounts for accounts receivable and accounts payable, supported by subsidiary ledgers. Balances in the
Adrenaline Ltd provides tours for adventurers, such as mountain climbing, bungee jumping, whale watching and white-water rafting. Adventures-Un Ltd provides these tours to four tour providers: Anna,
Hardy Ltd provides cruise tours for seniors. Hardy Ltd provides these tours to four tour providers: A Ltd, F Ltd, N Ltd and Y Ltd.The following was extracted from the schedule of debtors:The
Smithers Ltd, a manufacturer, maintains subsidiary ledgers for creditors and debtors. At 30 June 2016, the total amount owing to the business by trade debtors amounted to $4850 and the total amount
Psyche Books Ltd is a bookshop specialising in psychology textbooks. Psyche Books has the following balance sheet as at 30 September 2016:Additional Information:1. Psyche Books uses perpetual
Sprintay Limited uses the balance sheet approach to account for its bad debts expense and provision for doubtful debts. Past experience indicates the following percentages of accounts receivable that
Smarkly Limited uses the income statement approach to account for bad debts and provision for doubtful debts. The following information is available:1. Past experience suggests that 1 percent of net
Peakhurst Limited had the following trial balance at 1 January 2016:You are given the following additional information for the year ended 31 December 2016:a. Bad debts of $8000 were written off.b. It
Pottery Galore Ltd has just finished its 2016 financial year. From the following data, calculate net profit.The loan was taken out a month before the end of 2016 at an interest rate of 8 percent. No
The trial balance shown below has been extracted from the general ledger of R. James Electronics Ltd at 30 June 2016. The following facts came to light after the trial balance was
Swan Ltd operates three motels in large country centres. The accounts for the year ended 30 June 2016 have been finalised, with the exception of any adjustments that may result from the
The following transactions occurred during the year ended 31 December 2016 for Adelaide Ltd:a. Issued share capital for $300 000 cash.b. Expiration of prepaid rent expense (i.e. prepaid rent expense
M. King Ltd, wholesaler, maintains subsidiary ledgers for debtors and creditors. The general ledger trial balance at 1 January 2016 is as set out below.1. Post from the journals to the general ledger
The CFO of Olaf Limited has prepared a schedule based on her past experience indicating the following percentages of accounts receivable that have been written off as bad.The present balance of the
Which special journal handles the following types of transactions?a. Cash salesb. Credit salesc. Receipts from debtorsd. Payments to creditorse. Cash purchasesf. Credit purchases
Cardshark Ltd supplies boxes of Big Bash cricket cards to various card swap shops around Australia. The company has more than 100 small clients purchasing boxes of cards on credit. Credit terms are
A university recently opened a parking station on its lower campus area for the benefit of the students. A guard has been engaged to patrol the car park and issue parking stickers to university
Following the embezzlement of $50 000 from Easy-Go Pinball Traders, you have been asked to appraise the information system of the business, with particular reference to the internal control
The following information comes from the records of Betty's Boutique.The NSF cheque was received from J. Pindar, a debtor. The direct credit represents an $800 bill collected by the bank, plus
The following information comes from the records of Anthea's Homewares.The NSF cheque was received from Bond Enterprises, a debtor. The direct credit represents a $650 bill collected by the bank,
The bookkeeper at Covington Ltd undertakes a bank reconciliation at the end of every month. On 31 August, the bank reconciliation showed a deposit in transit of $650 and two outstanding cheques (no.
AAA Limited received its bank statement for the month ending 30 June, and reconciled the statement balance to the 30 June balance in the Cash account. The reconciled balance was determined to be
Discuss the following statements:a. Internal control is the responsibility of the accountants in an organisation.b. A properly designed system of internal control over cash should prevent employee
With respect to the internal control over cash, provide an example of each of the following: a. Independent checks and reviewsb. Approval of transactions c. Matching documents d.
A school friend who has joined a new company tells you that the company has many controls over cash. He asks you to explain why the following controls exist.a. Mail opening is carried out by two
Outline the importance of each of the following in an internal control system for cash: a. That all cash should be banked daily, intactb. The bank reconciliation statementc. The segregation of
In 2016, Parent Company acquired 80 percent of the outstanding voting shares of Subsidiary Company, establishing control over the board of directors. Parent Company used the cost method of accounting
International Printers Ltd owns 45 percent of the voting shares of Nomad Printers Ltd. It acquired the shares several years ago for $10 million. Nomad lost money for some years after acquisition, but
On 1 July 2014, Kokos Ltd acquired a 25 percent interest in Pier Ltd for $220 000 in cash. Kokos Ltd has no other investments. Extracts from Pier Ltd's financial statements for the years ended 30
On 1 March 2016, Romeo Ltd acquired a 34 percent share (20 000 shares) in Juliet Ltd for $680 000. On 30 June 2016, Juliet announced earnings at $3.80 per share and also paid out dividends of $1.60
Hot Ltd buys a 30 percent share in Chilli Ltd for $64 million. Total profit for the year for Chilli Ltd is $44 million, and Hot Ltd receives $4 million in dividends from Mustard.1. Using the cost
What is consolidation?
What is the difference between a short-term investment and a long-term investment?
In an important legal case, the Australian Securities and Investments Commission successfully sued the directors and the Chief Financial Officer of Centro for failing to discharge their duties with
Tony Cheng recently opened a restaurant in Hobart serving Asian Creole food, as well as exporting its own brand of spice mixture. The business is registered for GST, and accounts for GST on an
Consider the following:a. John Ltd's mortgage of $842 500 requires payments of $11 200 each month. During the next year the interest component of the payments will equal $61 232.b. Frieda Ltd's
Notes 13 and 14 for the financial statements of Emm Limited are shown below.1. Provide examples of trade creditors and accruals.2. Assume that there are no new loans (unsecured) during the year. What
The hoarding of annual leave by staff can lead to large liabilities on the balance sheet and ineffective staff.1. Explain how staff not taking annual leave can lead to liabilities on the balance
An extract from an annual report is provided here.1. What do you think recreation leave and extended leave are likely to include?2. What was the opening balance of recreation leave as at 1 July
1. Tweedsmuir Land Ltd has a substantial mortgage debt. The debt was $13 499 276 at the beginning of this year. Mortgage payments of $3 888 541 were made during the year and the mortgage balance was
National Electric Lighting Ltd issues a 90-day note for $500 000 to Home Products Supply Ltd for merchandise inventory. Home Products discounts the note at 10 percent.1. Journalise National
The CEO of Redstone Ltd has just been discussing a planned new debenture issue with the financial advisers, and has come to you with some resulting accounting questions. Answer each of the
Merryland Company completed the following transactions during 2015-2016. The annual accounting period ends 30 June 2016.a. Purchased inventory on credit at cost of $13 800; perpetual inventory
Balmer Ltd started the year with a long service leave (LSL) liability of $42 000 for its long-term employees. During the year, employees accrued LSL entitlements with a present value of $147 600 and
The following events occurred during the year ended 30 June 2016 for Plumber Limited.1. Opening balance of accrued salaries was $10 000. Wages expense for the year was $630 000 and cash paid for
Barbarino Ltd undertakes consulting services for large food-processing enterprises. The company is registered for GST, and accounts for GST on the cash basis. At the end of March 2016, the GST
Balmer Ltd has a warranty plan. Estimated warranty liability was $50 000 at the beginning of the year. Based on the company's sales for the year, warranty service costing $78 500 in wages and other
What is the difference between a payable and a provision?
Explain the relationship between liabilities and expenses. Provide five examples where they both increase at the same time.
Define a liability.
If a lease is treated as a finance lease rather than an operating lease, what effects does that have on the balance sheet and the income statement?
Indicate the impact that each of the following errors or omissions would have on a company's 2016 net profit, assets and liabilities.Use the symbols U = understate, 0 = overstate or NE = no effect to
Bright Ltd is a retailer of electrical products. The CEO of the company had two concerns: the company's worsening cash position ($50 000 cash and no bank loan at the end of 2015, and no cash and a $
One of the largest financial statement frauds of this century involved a US telecommunications company called WorldCom. The frauds involved overstating profits by $74.4 billion (yes, billion!)
Analyse the effect of each of the following transactions on the current ratio, quick ratio, debt-to-equity ratio and earnings per share. Assume that the current ratio, quick ratio and debt-to-equity
Data for White Star Limited is as follows:Additional information:Net operating profit after tax is $25 million (2015: $38 million).1. Use the information above to calculate for 2016 and 2015:a.
Winslet Limited is consistently profitable. Winslet's normal financial statement relationships are as follows:Additional information:1. Winslet declared, but did not pay, a cash dividend.2. Customers
JRP Ltd is a mail-order business selling a variety of consumer products. At the end of 2015, its major shareholder instigated changes in management in order to improve performance. The financial
Comparative balance sheets and income statements for E-Worths Limited are given below.During the year ended 30 June 2016, E-Worths Limited declared and paid dividends of $26 000. On 30 June 2016, the
State whether the following transactions would affect ROA (using EBIT; presently 10 percent), ROE (presently 15 percent), both or neither:1. Asset revaluation upwards 2. Increase in interest
Fad Foods Ltd completed a series of transactions, which are listed below. Before the transactions, both the current and quick asset ratios were greater than 1. The cash account has a debit

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