Question 1

A. Cash is a monetary and financial asset. It is the most liquid finance asset; it is also the standard medium of exchange for most business transactions. Cash is usually classified as a current account, however there are circumstances in which cash is classified as a non-current asset.

Required:

With the aid of a suitable example, explain when can be classified as a non-current asset. (2 marks)

B. Study the following items related to transactions during the year to September 30, 2020 for Thompsons Tours Inc. All transactions are reported on the financial statements in $XCD.

I. A bank overdraft of $200,000 in a chequing account at St Kitts National Bank.

II. A saving account with a balance of $400,000 at Open Campus Bank and chequing account with an overdraft of $100,000 at the same bank repayable on demand.

III. The Operation Manager was given a salary advance of $2,000 on August 24, 2020 and this amount was deducted from his October salary.

IV. CAD$3,045 on hand from tips up to March 31, 2020, its pre-COVID operations when the exchange rate was CAD$1 = $2.01 XCD. On September 30, 2020, the exchange rate was CAD$1 = $1.95 XCD

V. Special Edition Independence postage stamps on hand valued at $200.

VI. Cash holdings of US$100,000, the exchange rate on September 30, 2020 is $2.70.

VII. Petty cash on hand valued at $1,500.

VIII. A cheque in the amount of $5,000 and dated October 23, 2020 was received from a customer on September 27, 2020.

IX. Short term 60 days treasury bill valued at $35,000.

X. Thompsons Tours Inc. invested $1,000,000 in a money market fund with Mona Campus Bank on July 10, 2020 which will mature on October 9, 2020.

Required:

a. List all items from above that would NOT be classified as cash or cash equivalents in the current asset section of Thompsons Tours Inc. Statement of Financial Position as at September 30, 2020? State how each of these items would then be classified in the financials. (4 marks)

b. Prepare the necessary journal entry at September 30, 2020 to account for Item IV. (3 marks)

C. Using the information in B above, calculate the cash and cash equivalent value that would appear in Thompsons Tours Inc. Statement of Financial Position on September 30,2020. (6 marks)

Total 15 marks

Question 2

A. List two (2) policies a company may adopt to lessen the risk of uncollectible accounts and improve its cashflows. (1 mark)

B. Joseph Corporation a mobile phone wholesaler sells mobile phones to PhoneTech Ltd, a mobile phone retailer on August 1, 2020 for $500 each, the value of the sale is $50,000, with credit terms of 3/10, n/30. Assume the company uses the net method to record accounts receivables.

Required:

a. Prepare the journal entry to record the sale. (3 marks)

b. On August 8, 2020, collection on $15,000 of the sales was received from PhoneTech. Record the necessary journal entry for the cash received. (3 marks)

c. The remaining $35,000 of the sales was collected on August 28, 2020 from Phone Tech. Record the necessary journal entry for the transaction on this date. (6 marks)

Total 13 marks

Question 3

A. J & B Company uses the percentage of sales approach to estimate its uncollectible accounts. The companys annual sales for its first financial year of operations ending July 31, 2020 was $500,000, cash sales contributed to 2% of the overall sales and the accounts receivable balance at year end was $75,000. Based on industry expectations, it estimated that 3% of its credit sales would be uncollectible.

Required:

a. Calculate the bad debt expense at July 31, 2020. (3 marks)

b. Calculate the net receivable balance that would be reported in the Statement of Financial Position as at July 31, 2020. (1 mark)

B. Tosh and Sons Inc. uses the percentage of receivables approach to estimate its uncollectible accounts. The company had sales of $100,000 at the end of its financial year on June 30, 2020. The allowance for doubtful debts account had a debit balance of $400, the accounts receivable balance was $30,000at year end and the company estimates the uncollectible percentages as follows:

Current (1 - 30 days) $15,000 0.5%

31 - 60 days $10,000 2.0%

61 - 90 days $3,000 10.0%

Over 90 days $2000 60.0%

Required:

a. Calculate the bad debt expense at June 30, 2020. (3 marks)

b. Prepare the necessary journal entry to record the bad debt expense for the year. (3 marks)

b. During the financial year ending May 31, 2020 the Board of Directors of Chung Sa Corporation authorised the write off of a $3,000 two-year debt belonging to a previous customer Jap Inc. On July 2, 2020 Chung Sa Corporation received an electronic funds transfer from Jap Inc. in the amount of $3,000.

Required:

Prepare all necessary journal entries to record this transaction. (6 marks)