2:0 12 67% 2.kunpace.hku.hk 3/9 SECTION B (85 marks) Answer ALL questions from this section. QUESTION 1 (10 marks) On July 31, 2021. Bruce Company had a cash balance per books of $21,480. The bank statement from Citi Bank on that date showed a balance of 533,050. A comparison of the bank statement with the Cash account revealed the following facts. Deposits in transit amounted to $8,250. The bank services charges for July were $150. (iii) A customer payment for a $2.250 receivable was collected by the bank but not yet recorded by Bruce Company (iv) On July 31, the bank statement listed S20 interest earned on Bruce Company's checking account for the month of July. Bruce had not yet recorded this revenue. Outstanding checks as of July 31 totaled $18,300. (vi) Bank debit memorandum for $600 NSF (not sufficient funds) check from Ken Chan, a customer Required: Prepare a bank reconciliation statement for Bruce Company at July 31, 2021 2:0 12 sout2.hspace.hu 4/9 QUESTION 2 (14 marks) Gordon Company uses a periodic inventory system and the following inventory related transactions for 2020 are available: Umir 10 Unit Cour S60 Total Cest S600 Jan 1 Beginning Inventory Purchases March 28 Purchase August 22 Purchase October 14 Purchase Goods Available for Sale 20 20 23 66 70 76 1,320 1.400 1.900 55.220 Sales May 1 October 28 Total Revenue Sales Sales 25 20 Limit Sales Price Rene S100 $2.500 S100 $2.000 $4.500 A physical count indicates 30 units in inventory at year-end. Required: (Show all calculations and round ALL answers to 2 decimal places) a. (5 marks) Using First-In-First-Out method, calculate the following: Cost of ending inventory (n) Cost of goods sold b. Using weighted average cost method, calculate the following (5 marks) Cost of ending inventory (i) Cost of goods sold If Gordon Company adopts a perpetual inventory system and uses weighted average cost method, calculate the following: O Cost of ending inventory (iCost of goods sold FF 2:40 12 19 BB 67% 2.kunpace.hku.hk 59 QUESTION 3 (25 marks) Lulu Limited is a merchandizing company of computer printers. Weighted average cost method and perpetual inventory system are adopted in the accounting for its inventory valuation Lulu prepares its financial statements, adjusting entries and closing entries on December 31 each year. Below was the adjusted trial balance on December 31, 2020 which was prepared by a inexperienced accountant of the company. Credit (5) Lulu Limited Adjusted Trial Balance As at December 31, 2020 Debit (5) Cash 700,000 Inventory 350.000 Accounts receivable 241,000 Land and building 10,000,000 Accumulative depreciation building Allowance for impairment (January 1, 2020) Accounts payable 5% Notes payable (due December 31, 2020) Ordinary shares (300,000 shares. Sio par value) Share premium: Ordinary shares Retained earnings (January 1, 2020) Treasury shares (5,000 ordinary shares at cost) 55.000 Dividends 60.000 Sales revenue Cost of goods sold 2.902.000 Operating expense 1,000,000 Salaries expense 120,000 Depreciation expense: building 50,000 15,478,000 200.000 48.000 160.000 60.000 3,000,000 1.500.000 $65.000 9.945,000 15.478.000 Other information: On October 1, 2020, Lulu Limited borrowed $60,000 from East Bank and signed a 5% three-month note payable, all due at December 31, 2020 5 FF 2:40 12 19 BB southkunpace.hku.hk 69 You were the auditor of Lulu Limited. After reviewing the financial statement prepared by the inexperienced accountant, you discovered that the following transactions were not recorded by the company for the financial year ended December 31, 2020 Item Date No. (D Nov. 1 Descriptions The company reissued 2,000 shares of treasury shares for cash of $40,000. (1) Nov 2 (ii) Nov 15 Dec 31 Sold 80 units of computer printers for $400 cach to Shen Limited on account. The cost of cach computer was $150. A check for $2,000 was received from the customer, Samson Chan, whose account receivable was written off as uncollectible on March 31, 2020 The 560,000 note payable to East Bank matured on December 31, 2020, Lulu paid all the accrued interest and $20,000 of the principal on this note. A new two-month, 6% note payable was issued to replace the balance of the principal that matured Lulu bank reconciliation at December 31, 2020 showed that check224 for the payment of an account payable (Susan Fong) was correctly written on the check for $3,657 but was mistakenly recorded in the accounting records as $3,675. Based on an aging schedule of accounts receivable prepared on December 31, 2020, $65,000 of accounts receivable were estimated to be uncollectible. Assume LuLu Limited uses the statement of financial position approach to estimate the credit losses (V) Dec 31 (vi) Dec 31 Required: Prepare the journal entries to capture the unrecorded transactions from items to (vi) and information listed above so as to bring the financial records of t.ut. Limited up-to-date If a transaction does not require any entry, state No entry is required". (Explanation for each journal entry is NOT required.) (19 marks) Prepare the Income Statement of Lulu Limited based on the up-to-date financial records for the year ended December 31, 2020. (6 marks) FF 2:40 12 1981 2.kundachku.hk 7/9 QUESTION 4 (15 marks) Stevens Corporation began its operations on January 1, 2020. In the Memorandum and Articles of Incorporation, Stevens Corporation was authorized to issue 1.500,000 shares of S2 par value ordinary share and 200,000 shares of 525 par value. 4% cumulative preference shares The following transactions occurred during the first year of operation in 2000 for Stevens Corporation: Jan 1 Issued 120,000 ordinary shares for cash of $1,080,000. Mar! Issued 65,000 4% cumulative preference shares for cash of 52,080,000 Oct 31 Repurchased 15,000 shares of its previously issued ordinary share at Sil per share Dec 31 Earned profit for the year of 5460,000 Dec 31 Declared dividends of $52,000 which would be paid on May 31, 2021 Required: (Show all calculations and round ALL answers to 2 decimal places.) Based on the above information which would be reported on the Shareholders' Equity section in Stevens Corporation statement of financial position as at December 31, 2020, compute answers to the following questions (2 marks) b. What is the amount of legal capital What is the balance in the Share premium: Ordinary shares account? What is the total amount of shareholders' equity? What is the Book Value per Share of Ordinary Share? c (6 marks) d FF 2:40 12 1981 2.kundachku.hk 7/9 QUESTION 4 (15 marks) Stevens Corporation began its operations on January 1, 2020. In the Memorandum and Articles of Incorporation, Stevens Corporation was authorized to issue 1.500,000 shares of S2 par value ordinary share and 200,000 shares of 525 par value. 4% cumulative preference shares The following transactions occurred during the first year of operation in 2000 for Stevens Corporation: Jan 1 Issued 120,000 ordinary shares for cash of $1,080,000. Mar! Issued 65,000 4% cumulative preference shares for cash of 52,080,000 Oct 31 Repurchased 15,000 shares of its previously issued ordinary share at Sil per share Dec 31 Earned profit for the year of 5460,000 Dec 31 Declared dividends of $52,000 which would be paid on May 31, 2021 Required: (Show all calculations and round ALL answers to 2 decimal places.) Based on the above information which would be reported on the Shareholders' Equity section in Stevens Corporation statement of financial position as at December 31, 2020, compute answers to the following questions (2 marks) b. What is the amount of legal capital What is the balance in the Share premium: Ordinary shares account? What is the total amount of shareholders' equity? What is the Book Value per Share of Ordinary Share? c (6 marks) d FF 2:40 12 1981 67% soul2.hspace hulk 8/9 QUESTION 5 (11 marks) Presented below are selected ratios for Super Company Current ratio Quick ratio Inventory Turnover Rate Accounts Receivable Turnover Rate Return on assets Profit as a percentage of sales revenue 2020 2.6 to 1 0.8 to 1 7.3 times 6.4 times 7.8% 2019 2.4 to 1 1.1 to 1 54 times 7.1 times 8.39. 4.596 2018 2.1 to 1 1.2 tot 9.5 times 5 times 11.5 499 Required: Is the company collecting its accounts receivable more rapidly? Explain. Discuss the company's liquidity from the viewpoints of short-term creditors. (4 marks) Comment on whether the trend of the company's profitability based on profits : percentage of sales revenue and retum on assets are improved or worsen. (4 marks) c 2:0 12 67 2.kundachkunk 9/9 QUESTION 6 (10 marks) You have just joined Queenie Limited, which is a small merchandising company, as an accountant. Queenie Limited was set up on January 1, 2020 You have recently asked the bookkeeper to prepare the draft of the financial statements for the first year of operations ended December 31, 2020 for your review, The bookkeeper said that she only knew how to prepare a trial balance and below was the trial balance submitted by the bookkeeper Queenie Limited Trial Balance December 31, 2020 DR Truck 280,950 102,000 30,750 240.000 577.080 Office equipment Cash Share capital Sales revenue received Salaries paid Utilities paid Rent paid Insurance paid 181,500 12.000 195.000 14,880 817,080 817.00 In discussing the trial balance with the bookkeeper, you asked whether adjusting entries have been prepared to get the accounts up to date for the trial balance. The bookkeeper said that there was no need to make adjusting entries as Queenie Limited was a small company Required: Explain why the accountant suspected that the accounts had not been adjusted prior to the preparation of the trial balance. marks) bExplain to the bookkeeper the importance of adjusting entries and the potential misstatements that can result from their exclusion. a End of Section B -End of Paper