Section A (12 marks) Multiple Choice Questions Answer ALL questions. Choose the best answer. 1. Star Corporation purchased a piece of land, paying $2,000,000 cash and financing $9,000,000 of the purchase price with a 10-year, 10% installment note. The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year. In this situation: A. the aggregate amount of the monthly payments is $9,000,000 B. each monthly payment is lower than the amount of interest accruing each month. c. the portion of each payment representing interest expense will decrease over the 10- year period, since principal is being paid off, yet the payment amount does not decrease D. the portion of each monthly payment representing repayment of principal remains the same throughout the 10-year period. 2. A company has 3,000 ordinary shares outstanding, with share capital of $30,000 and share premium of $150,000. A 3-for-1 share split will: A. decrease the number of ordinary shares outstanding to 1,000 only. B. increase the share premium to $90,000. C. not affect the number ordinary shares outstanding. D. decrease par value per ordinary share to $3.33. 3. Which of the following adjusting entries is/are correct? 1. Accumulated Depreciation Depreciation Expense II. Prepaid Rent Rent Expense III. Rent Revenge Uncamned Rent Revenue IV. Income Tax Expense Income Tax Payable A. IV only B. II and IV c. I, II and IV D. I, III and IV 4. ABC Service Company sold a truck for cash with a loss of $10,000 recognized. The truck has a cost of $220,000 and accumulated depreciation of $140,000. The cash received in this sale must have been: A. $70,000 B. $60,000 C. $80,000 D. $90,000 Page 3 of 9 5. An accountant of a company recorded the payment of rent for 5 months from 1 December 2019 to 30 April 2020 for $50,000 on 1 December 2019: Dr. Rent Expense $50,000 Cr. Cash $50,000 Suppose the accountant did not make any adjusting entries regarding rent at 31 December 2019, this will result in: A. no error in rent expense as the rent expense has been recorded. B. overstatement of net income for the year ended 31 December 2019. c. understatement of rent expense. D. understatement of asset. Use the following information to complete question 6-8. On 1 April 2020, Blueray Corporation issues $20,000,000 of 10%, 20-year bonds payable at 101. Interest on the bonds is payable semiannually cach 1 April and 1 October 6. The journal entry to record the issue of bond on April 2020 will include: La debit to Cash of $20,000,000. II. a credit to Bonds Payable of $20,000,000. III. a debit to Discount on Bond Payable of $200,000. IV. a credit to Premium on Bond Payable of $200,000. A. I only B. II and IV C. I, II and I D. L. II and IV 7. The journal entry to record the first cash payment to bondholders on 1 October 2020, will include: A. a credit to Cash of $2,000,000 B. a debit to Premium on Bonds Payable of $5,000. C. a debit to Interest Expense of $1,000,000. D. a debit to Bond Payable of $1,000,000 8. The adjusting entry required on 31 December 2020, related to this bond issue involves: A. recognition of Interest Expense of $500,000 B. recognition of Interest Expense of 5497,500. c. a credit to Interest Payable of $497,500. D. a credit to Cash of $500,000. Page 4 of 9 9. Which of the following is not the main information provided by financial staternents? A. Profitability B. Management Stewardship C. Cash flow D. Financial position 10. The principle/assumption that is violated when a company switches from FIFO Assumption to Average Cost Assumption in valuing inventory is: A. Monetary unit assumption. B. Conservatism principle. C. Consistency principle. D. Going concern assumption Answer Question 11-12 with the following information Presented below selected balances as at 31 December 2019 for a company which newly started in 2019, Debit Credit Accounts receivable $31,500 Prepaid rent $4,200 Inventory $10.500 Accounts payable $4,000 Accrued expenses payable $5,450 Sales $3,097,500 Cost of goods sold $1,627,500 Depreciation expenses $94,500 Other operating expense $273,000 11. Compute the amount of Cash receipts from customers during the current year. A. $3,097,500 B. $3,129,000 C. $3,066,000 D. $3,118,500 12. The company's net cash from operating activities for the current year is: A. $1,191,750 B. $1,192,800 C. $1,113,000 D. S1,160,250 -- End of Section A Page 5 of 9 Section B (88 marks) Answer ALL questions. All answers should be rounded to the nearest 2 decimal places whenever necessary. 3 17 18 20 Question 1. (30 marks) Uniform Distributor, Led, distributes school uniforms to retail stores. At the end of November 2019. Uniform Distributor's inventory consisted of school uniforms costing $1,200. During the month of December, the following merchandising transactions occurred. 1 Dec Purchased goods from Garment Manufacturers for $1,620 with the terms of 2/10, 1/30 Sold goods on account to Fashion Retail Shop at $2,200, terms 1/10, 1/30. The cost of goods sold was $1,400. Sold goods on account to Fashion Retail Shop at $1,800, terms 1/10, 1/30. The cost of goods sold was $1,230. Uniform Distributor, 1d. paid delivery fee of $125 in cash to the courier. Purchased goods from Garment Manufacturers for $1,900 with the terms of 1/10, n/30 Returned the defective goods costing $300 purchased on 18 December to Garment Manufacturers. 21 Fashion Retail Shop retumed goods to Uniform Distributor, Ltd. The goods were originally sold on 17 Dec at $400, with cost $200. 22 Received collections in full, from Fashion Retail Shop for all sales in December 26 Paid the outstanding amount owed to Garment Manufacturers for the December's purchase in full. Required a) Assume Uniform Distributor, Ltd. uses a perpetual inventory system. Sales and purchases are recorded using gross invoice price. 1) Prepare the journal entries to record the above transactions, (20 marks) ii) Compute the amount of ending inventory as at 31 December 2019. (2 marks) b) Assurne Uniform Distributor, Ltd. uses a periodic inventory system. Sales and purchases are recorded using gross invoice price. 1) Compute the amount of niet purchase that will be recorded in December (1 mark) 1) With the amount of ending inventory found in part (a), compute the cost of goods sold. Show the formula used. (2 marks) iii) Prepare the adjusting entries required on 31 December 2019 to adjust for inventory and cost of goods sold. (3 marks) c) Seeing that the company cannot meet the analysts' expectation on this year's profit, Uniform Distributor, Ltd. recorded some sales based on the orders they anticipated to receive in January 2020. The management believed that it can prevent a sharp decrease in the share price. As an accountant, comment on the actions of the company. (2 marks) Page 6 of 9 Cash Question 2 (18 marks) At 31 December 2019, Fred Company has the following account halances Debit Credit $10,836.50 Accounts Receivable $19,300.00 Allowance for doubtful accounts $300.00 Answer part (a) and (b) independently. a) The 31 December 2019 bank statement showed a balance of $14,051.50. You are to prepare the bank reconciliation of Fred Company at 31 December 2019, using the following supplementary information: 1 Deposit in transit at 31 December 2019 was $2,596.00. II. Outstanding checks: no. 320, 5588.00; no. 323, S1,060.00, no.325, $225,00 III. Service charge by bank, $60.00. IV. A note receivable for $4,000.00 left by Fred Company with bank for collection and the related interest of $284.00 had been collected and credited to company's account. No interest expense or payable is recorded before. V. A check for $205.00 drawn by a customer, Spot Lad, in settlement of an accounts receivable, but deducted from Fred's account by the bank and retumed with the notation "NSF." VI. Fred's check No. 318 was correctly written for $890.00 for a payment on account, but erroneously recorded in Fred's accounting records as $809.00 1) Prepare the bank reconciliation of Fred Company at 31 December 2019. (8 marks) ii) Prepare the adjusting entries required to correct the balance of cash in Fred's book. (5 marks) b) Fred Company uses the allowance method to estimate uncollectible accounts receivable. The company estimated the uncollectible accounts receivable using aging of the accounts receivable at year-end. The following is the partial aging analysis done: 10% Number of Days Outstanding Total 0-30 31-60 61-90 91-120 Over 120 Accounts receivable $19,300 $7,000 $4,600 $3.900 $2,300 $1,500 % uncollectible 1% 3% i) Compute the estimated amounts of uncollectible accounts receivable at 31 December 2019. (3 marks) ii) Prepare the year-end adjusting journal entry to record the bad debts. (2 marks) Page 7 of 9 Question 3 (40 marks) Happy Farm Limited started operation on 1 December 2019. The accountant prepared the following Adjusted Trial Balance at 31 December 2019. However, the accountant had not adjusted for the depreciation and income tax. Happy Farm Limited Adjusted Trial Balance 31 December 2019 Debit Credit Cash $40,000 Inventory $24,000 Accounts receivable $9.900 Prepaid rent $8,000 Unexpired insurance $9,600 Office supplies $600 Rental equipment $240,000 Notes payable $100,000 Accounts payable $700 Uneamed rental fees $3,200 Dividends payable $2,000 Interest payable $500 Share capital - ordinary $40,000 Share premium ordinary $160,000 Dividends $2,000 Sales $60,200 Cost of goods sold $21,000 Salaries expense $9,300 Maintenance expense $600 Utilities expense $700 Interest expense $500 Office supplies expense $400 $366,600 $366,600 Required a) Suppose Happy Farm Limited purchased all rental equipment by cash on the first day of business, with estimated useful life of 8 years and residual value of $3,000. It uses doubic declining balance method with partial year depreciation rounded to the nearest full month. Prepare the adjusting entry of depreciation as at 31 December 2019. (3 marks) b) Prepare the income statement and statement of retained camings for the year ended 31 December 2019. Assume an income tax rate of 40% (9 marks) c) Prepare the statement of financial position as at 31 December 2019. (12 marks) (Detailed information about the ordinary shares like authorized, issued and outstanding is not required in this part.) Page 8 of 9 d) Suppose that Happy Farm Limited started operation on 1 December 2019 with authorization of 50,000 shares of $10 par value ordinary shares and 1,000 1% cumulative preference shares of $100 par value. Happy Farm had following transactions in 2020. 10 Jan Issued 500 preference shares for $120,000 cash 31 Jan Repurchased 1,000 ordinary shares for a total of $50,000 26 Feb Reissued 400 treasury shares at $52. 5 Jun Reissued 200 treasury shares at $48. i) Record the above transactions in 2020. ii) Happy Farm Limited had net income of $84,000 in the year ended 31 December 2020. It declared a dividend $1.6 per outstanding ordinary share and the 1% preference shares' dividend on 30 November 2020, payable on 31 January 2021. Prepare the shareholders' equity section in Happy Farm Limited's statement of financial position at 31 December 2020, according to the format required in IFRS. (8 marks) - End of Section B - *** End of Paper Page 9 of 9