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RESTRICTED USE LA TROBE UNIVERSITY SEMESTER ONE EXAMINATION PERIOD 2015 Student ID: Seat Number: Subject Code: ACC1AIS Paper No: 1 Subject Name: Accounting and Information Systems Paper Name: Final Exam Reading Time: 15 minutes Writing Time: 2 hours No. of Pages (including cover sheet): 20 pages OFFICE USE ONLY (FACULTY/SCHOOL STAFF): CAMPUS AW BE BU MI SH ALLOWABLE MATERIALS Number 02 16 18 Description NonProgrammable calculator permitted Unmarked, nonelectronic English dictionary. Students from nonEnglish speaking backgrounds can bring unmarked, nonelectronic translation dictionaries into the examination (nonsubject specific). INSTRUCTIONS TO CANDIDATES 1. There are FOUR questions. Answer ALL questions. Paper totals: 100 Marks 2. Candidates should attempt all questions in the space provided. Additional space is provided at the back of the examination paper. Use the back of the pages for working. Indicate in the answer space if you have used additional space. Do not remove any pages. Question Possible mark Examiner Use Only 1 24 2 26 3 25 4 25 Total 100 This paper MUST NOT BE REMOVED from the examination venue Section A: Multiple Choice Questions (Provide your answers on the answer sheet given on page 6) QUESTION 1 (24 marks) Each multiple choice question in this section carries 2 marks. Total marks = 24 Q1. A company with share capital comprising 5,000 $1 shares engages in a 5-for-1 share split. After the share split the share capital of the company is a. b. c. d. e. $1,000. $5,000. $25,000. $10,000. None of the above. Q2. The board of directors of Northern Ltd declared a cash dividend of $1.50 per share on 42,000 shares of ordinary shares on 15 July 2012. The dividend is to be paid on 15 August 2012, to shareholders of record on 31 July 2012. The effects of the journal entry to record the declaration of the dividend on 15 July 2012 are to a. b. c. d. e. decrease equity and increase liabilities. decrease equity and decrease assets. increase equity and increase liabilities. increase equity and decrease assets. None of the above. Q3.Which of the following is not part of the four main objectives of IT governance? a. Ensuring the organisation has appropriate management strategies and techniques in place for dealing with IT related risks. b. Ensuring that the IT being used or adopted within an organisation is consistent with the organisation's goals and meets expectations. c. Ensuring the organisation's IT resource are used responsibly. d. Using IT to make the most of future business opportunities and benefits. e. None of the above. Page: 2 Q4.The focus of the plan and organise stage in the COBIT framework include: (i) being aware of the current organisational use of IT (ii) being aware of opportunities that may exist for future IT developments (iii) planning for the future IT needs of the organisation (iv) how the new system is to be used by the users within the organisation. a. b. c. d. e. (i) (ii) (iii) only (i) (ii) (iv) only (i) (iii) only (i) (ii) (iii) (iv) None of the above. Q5. Trademarks are generally shown on the statement of financial position under a. Intangibles. b. Investments. c. Property, Plant, and Equipment. d. Current Assets. e. None of the above. Q6. On July 1, 2013, Waters Kennels sells equipment for $22,000. The equipment originally cost $60,000, had an estimated 5-year life and an expected residual value of $10,000. The Accumulated Depreciation account had a balance of $35,000 on 1 January, 2013, using the straight-line method. The gain or loss on disposal is a. $3,000 gain. b. $2,000 loss. c. $3,000 loss. d. $2,000 gain. e. None of the above. Q7. Additions and improvements a. b. c. occur frequently during the ownership of a plant asset. normally involve immaterial expenditures. should be capitalised and depreciated over the remaining useful life of the related PPE asset. d. typically only benefit the current accounting period. e. None of the above. Page: 3 Q8. Units-of-production method is an appropriate depreciation method to use when a. b. c. it is impossible to determine the productivity of the asset . the asset's use will be constant over its useful life. the productivity of the asset varies significantly from one period to another. d. the company is a manufacturing company. e. None of the above. Q9. Which of the following items on a bank reconciliation would require an adjusting entry on the company's books? a. An error by the bank. b. Outstanding cheques. c. A bank service charge. d. An outstanding deposit. e. None of the above. Q10.Z sold goods to X on credit at a price of $5,500 including GST. What is the correct accounting entry to record this transaction in Z's books? a. Debit Accounts Receivable $5,500; credit Sales $5,500. b. Debit Accounts Receivable $5,000; credit Sales $5,000. c. Debit Accounts Receivable $5,500; credit Sales $5,000; credit GST Collections $500. d. Debit Accounts Receivable $5,000; debit GST Collections $500; credit Sales $5,500. e. None of the above. Q11. The journal entry to record a return of inventory purchased on account under a periodic inventory system would be: a. b. c. d. e. Page: 4 Dr Accounts Payable Cr Purchase Returns and Allowances Dr Purchase Returns and Allowances Cr Accounts Payable Dr Accounts Payable Cr Inventory Dr Inventory Cr Accounts Payable None of the above Q12. Which of the following statements concerning ethics is correct? a. Ethics is concerned with how we act and how we make decisions. b. Electronic accounting information systems eliminate the need for ethical behaviour. c. Professional bodies, such as CPA and ICAA, are placing less reliance on ethics and more on legal compliance. d. Ethical issues and legal issues are the same e. None of the above. [12*2 marks = 24 marks] Page: 5 Section A: Answer Sheet Question 1. ______ Question 2. ______ Question 3. ______ Question 4. ______ Question 5. ______ Question 6. ______ Question 7. ______ Question 8. ______ Question 9. ______ Question 10. ______ Question 11. ______ Question 12. ______ Page: 6 Section B: Short Answers /Calculations Question 2. 26 Marks Queenstown Ltd began its operations on 1 May 2015. It uses a perpetual inventory system. During July the business had the following purchases and sales: Date May 1 May 12 May 24 May 29 Units 600 Purchases Unit cost $100 Sales units 500 400 $105 300 a. Calculate the ending inventory at the end of May using FIFO. [4 marks] b. Calculate the ending inventory at the end of May using LIFO. [4 marks] Page: 7 c. Calculate the ending inventory at the end of May using average cost. [4 marks] d. Peter Smith is the CFO of Queenstown Ltd. and his bonus is based on the company's net profit, which inventory cost flow method would he prefer based on the purchase information given in May? Explain. [4 marks] Page: 8 e. Provide the journal entries for the purchase made on 1 May 2015 and sales made on 12 May 2015. Sale price is $200 per unit (Assuming all purchases and sales were on credits and there is no GST) [6 marks] f. As a new accounting graduate hired by Queenstown Ltd., Peter Smith (CFO) told you that you should delay payments to suppliers. However, he instructs you to date all cheques the last day of the discount period in order to take advantage of all settlement discounts. He wants you to send all the cheques a few days after the discount period. What is your ethical dilemma and what actions can you take so that you will not compromise your ethics? [4 marks] Page: 9 Question 3. 25 Marks Part A: On 1 November 2014 Morelife Manufacturing arranged a $22,000 note receivable for a customer who was having issues paying an account receivable. The life of the note was 90 days, with an interest rate of 9%/annum. Assume the annual accounting period ends on December 31st and reversing entries are not performed. Assume a 365 day year. You are required to show all the necessary general journal entries to record the above information to ensure that the issue and maturity of the note are properly reported for Morelife Manufacturing (Show calculations in your answer). [10 marks] Page: 10 Part B: An analysis of the accounts of Laraniva Pty Ltd at 30 June 2014 shows these amounts outstanding on accounts receivable: Customer Smith Zhang Brown Singh Jones Number of Days Past Due Not 1-30 31-60 61-90 Due 10000 12000 70000 15000 5000 33000 Over 90 37000 92000 14000 12000 At 30 June 2014 there is a $1600 debit balance in Allowance for Doubtful Debts before adjustment. Credit terms are 3/7, n/30.The entity uses the ageing of accounts receivable basis for estimating uncollectable accounts. Age of accounts Not Due 1-30 31-60 61-90 Over 90 Estimated percentage % uncollectable 2 5 12 18 40 Required i. Determine the estimated uncollectables for each period, i.e. not due, 1-30 days, 31-60 days, 61-90 days, over 90 days and total estimated uncollectables. Page: 11 [7 marks] ii. Prepare the adjusting entry at 30 June 2014 to record bad debts expense. [4 marks] c. Zeph Enterprises Pty Ltd have been using the direct write-off method to account for bad debts. As the new accountant you have been asked to write a brief memo outlining the issues with using this method. [4 marks] Page: 12 Question 4. 25 Marks Part A: Stephanie Design purchased a piece of equipment for $105,000 on 1 September 2013. At this time it was estimated that its useful life was 8 years, with a residual value of $15,000. On the 1 January 2014 Stephanie Design decided to revalue the equipment to $92,000 with no residual value, due to its excessive use in the previous period and a revised useful life of 5 years. Stephanie Design's financial year ends on the 31 December and business uses straight-line deprecation for its equipment calculated to the nearest whole dollar and for whole months. You are required to show all the necessary general journal entries to record the above information to ensure that the equipment is properly reported in Stephanie Design's balance sheet as at 31 December 2014. Show transactions on the following dates: 1 Sept 2013, 31 Dec 2013, 1 Jan 2014 and 31 December 2014. [15 marks] Page: 13 Part B: Cool Cars of Tara sell used motor vehicles. To help promote sales they offer a warranty of 1 year or 100,000 kilometres whichever comes first. At 30 June 2014 management estimates from industry experience warranty costs to add up to 10% of sales. Assume that Cool Cars of Tara made sales of $600,000 during financial year 2014, its first year of operation. Payments to satisfy customer warranty claims currently total $25 000 cash and $15 000 for parts during 2014. a. In the general journal, set up the provision for warranty account for 2014. [3 marks] b. What was the journal entry for the warranty claim in 2014? [3 marks] Page: 14 c. Discuss how to identify the difference between allocating costs to expenses or capital expenditure during an assets useful life. 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