HA1020 Accounting Principles And Practices: Liabilities and Expenses

Q1.

Miss Nancy started a lawn moving business in Gold Coast, Queensland, Australia. For this purpose, she purchased a group of new lawn mowers for \$20 000. The accountant of Miss Nancy told her that she must have to decide the useful life and residual value of these new lawn mowers. After an initial consultation with the stakeholders, she decided that the mowers to last five years and have negligible resale value at that point. The business plan projects cutting 5000 lawns over five years. The yearly projection is as follows:

• 1stYear:   500 lawns,
• 2ndYear: 1 000 lawns,
• 3rdYear: 1 200 lawns,
• 4thYear: 1 800 lawns, and
• 5thYear:  500 lawns.

Required:

1. Calculate the accumulated depreciation balance at the end of the second year using each of the following depreciation bases: (a) straight-line; (b) reducing balance  and (c) units-of-production.

Based on your calculations, which depreciation basis would produce the highest retained profits at the end of the second year?

Q2.

We have discussed the accounting for liabilities in Week 10 and 11. Based on this discussion, please explain the relationship between liabilities and expenses. Provide five examples where they both increase at the same time. Why are some liabilities interest-bearing and others are not

Q3.

The accountant of ABC Limited has prepared the following unadjusted trial balance of ABC Limited on 30th June 2021.

Yellow Limited

TRIAL BALANCE

AS AT 30th JUNE 2021

 Accounts Debit (\$) Credit (\$) Cash at bank 13 985 Account receivables 26 200 Prepaid insurance 3 900 Office Supplies 4 680 Office equipment 14 100 Accumulated depreciation – equipment 2 850 Accounts payable 315 Salary payable Unearned service revenue 1 230 Loan payable 10 500 Capital 33 300 Drawings 60 000 Service revenue 159 270 Salary expenses 66 000 Depreciation expenses – equipment Miscellaneous expenses 18 600 TOTAL 207 465 207 465

The following additional information is available at the end of June for adjustments:

• Mr Emmanuel is working as the inventory clerk. He performs the physical count of the office supplies on 30thJune 2021. This physical count reveals that the unused office supplies of \$550 are on hand.
• The rate of depreciation for the office equipment is 15% per annum and ABC Limited used the straight-line method of depreciation.
• Of the \$1230 unearned service revenue, \$300 is still unearned
• 60% of prepaid insurance is expired during this period.
• Salaries owed but not yet paid \$1920.
• Provided consultancy service of \$2000 on credit. This was not recorded for the month.

Required:

1. Prepare adjusting entries at the end of 30 June, 2019.
2. Calculate the balance of the total revenue of the company after adjustment.
3. Explain why accrual accounting adjustments are required?

Q4.

HARDA Limited is a retailer of office stationery and art supplies. The internal auditor of the business is concerned about the inventory management of the speciality pen (a product with the highest level of sale). The following information is extracted from the records of HARDA Limited. The company uses the perpetual inventory system to record the inventory of its products. Its monthly reporting date is 30 October.

 Date Purchased Sold Balance 1/10 600 @ 5.00 6/10 400 @ 5.20 15/10 800 @ 10 20/10 [email protected] 25/10 [email protected] 30/10 100 (Sales Return from 25/10 Sales) Total 1000 1100

Required:

1. Complete the inventory stock record below for the speciality pen of HARDA Limited. All transactions occurred in the month of October. Ignore GST.
2. Calculate the Cost of Sales (COS) for 30 October, assuming the FIFO Method.
3. Calculate the Ending Inventory on 30 October, assuming the FIFO Method.
 Date Purchases Cost of Goods Sold Balance Units Unit cost Total \$ Units Unit cost Total \$ Units Unit cost Total \$

Q5.

The accountant of Paul Shop Fitter Private Limited has provided the following data on the Assets, Liabilities, Equity, Income and Expense amounts as at 30th June 2021.

 \$ \$ Equipment 221,800 Supplies 84,200 Prepaid Insurance 24,000 Cash in Bank 88,400 Accounts receivable 182,800 Accounts payable 101,100 Capital ? Bank loan 30,000 Service income 1,158,000 Salary expense 483,000 Advertising expense 15,000 Supplies expense 142,500

Required:

1. Prepare a Balance Sheet in the narrative (vertical) format as at 30thJune 2021.
2. Explain what key information the Balance Sheet provides to users of the financial statements.

Q6.

The bank statement balance and cash account balance do not agree. The owner of E-Bite Limited has requested to prepare a bank reconciliation to reconcile these balances. For this purpose, the following information is given.

1. Deposits in transit are \$9,800.
2. Outstanding cheques totalled are \$3200.
3. The bank service charge is \$24.
4. The collection of note by the bank is \$800.
5. The bank statement balance is \$9,000.
6. The cash account balance is \$14,824.