HA1020 Accounting Principles And Practices: Liabilities and Expenses

Questions:

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.

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