Question 1 (65) SHU Co. is a retail shop selling cameras. It commenced its operations in January 2008 and has the following transactions Trans Date Business transactions No. 2008 Jan. 1 The company issued 200,000 shares of S1 par common stock at S6 per share to its shareholders (2) 2 Paid three-year rental totaled $30,000 for the office 3 Purchased 4 pieces of office equipment for 560,000 cash ($15,000 cacho The office equipment has an expected useful life for 4 years with no estimated salvage value. The copy adopts straight-line depreciation method for office equipment (4) Jul. 3 Purchased 360 cameras for $2.000 cash cach. The company adopts perpetual rendorf (5) 15 Sold 150 cameras to customers (see details below) on credit for $3.500 cach (For simplicity, assume all sales for this year happened on this day.) 60 cameras to Mr. A. 70 cameras to Mr. B 20 cameras to MEC (6) Aug, 1 Collected S210,000 cash from Mr. A for the sales on July 15, (7) 15 Mr. C went bankruptcy Co. A decided to write of all the account receivable from MEC (8) Sept.1 Sold one piece of office equipment (purchased on 3 Jan.) at $12.000 cash. (9) 30 The company purchased hack 50,000 shares at S6 per share (10) Dec. 8 Received $60,000 from customers in advance for cameras to be delivered in January next year 15 The company med SO 3 per she cash dividend (12) 16 The company paid utility bills for the year totaled S5,000 Additional information 1. A year-end physical inventory count caled that only 200 cameras were left in the warchouse. (Hint: inventory loss is dcbited to Cost of Goods Sold) 2. The credit manager of the company prepares an aging schedule of accounts receivable and estimates that $7.750 allowance for doubtful coats should be made for accounts receivable 3. The company adjusts it accounts annually 4 Depreciation for a partial year is sounded to the nearest whole month Required: (a) Prepare the journal entries for the business transactions (1) ho (12) above. No explanation is necessary (b) Make the necessary year-end adjustments for the besiness transactions above. No explanation is necessary 2 (c) Prepare multi-step income statement for SIIU Co. for the year ended December 31, 2008. Ignore income taxes (d) Prepare balance sheet for SHU Co, as at December 31, 2008 Question 2 (35) Discuss the meaning of cash accounting and accrual accounting. Discuss how accruals are used in financial reporting with examples. Do you think using accrual accounting to prepare financial information provides better information for investors' decision making than using the cash basis of accounting? Why or why not? (b) 3
