a. Why would the company prefer a shorter depreciation period for tax purpose than for financial reporting (book) purposes? [7]
b. Assume you own the retail business that offers credit sales. To estimate bad debts, your business uses the percentage of net credit sales approach. For the new fiscal year, how would you decide what percentage to use to estimate your bad debts? [8]
QN.2. a. Following table has been developed to assist you:
Assets
Acquisition cost
Accumulated depreciation
Book value
A
40,000
–––––
25,000
B
66,000
28,000
–––––
C
–––––
37,500
12,500
Required: 1. Calculate the amount of missing figures
2. Develop the property plant and equipment category of balance sheet, how the individual assets would appears in balance sheet.
3. Prepare the Journal entries to record the sale of assets assuming assets B was sold for Rs.25,000.
4. Show the effect of required 3 in the accounting equation [5×2=10]
b. B & R enterprise purchased a computer on Jan. 1 2002 for Rs.36,000. The double decline balance method was used for depreciation purposes, with a four years life and a residual value estimate of Rs.5,000.
Required:(a) Calculate the amount of depreciation expenses and book value of computer for 31st Dec. 2002
(b) Prepare Journal entry to record the depreciation expenses.
(c) Show how the computer would appear on the balance sheet on Dec. 31st 2002. [1+2+2]
QN.3. ‘Kid’s world’ is the retail store of Card; dolls & Gifts items had the following transactions during the year:
a.Kid’s world purchased inventory on account from a supplier for Rs 80,000. Assume that Kid’s world uses periodic inventory system.
b.On may 1 apartment was purchased for Rs 5,50,000. A 20% down payment was made & a 18 months 8% note was signed for the remainder.
c.Kid’s world returned Rs.4,500 worth of inventory purchased in item a, which was found broken when the inventory was received.
d.Paid the balance due on the purchase of inventory.
e.On June 1 Kid’s world signed a one year Rs.150,000 note to Union Bank and received Rs.145,000 only.
Requirecd: (a) Record all necessary journal entries relating to these transactions.
(b) Assume that Kid’s world’s accounting year ends Dec. 31st. Prepare any necessary adjusting entries. [10+5=15]
QN.4. Young heart Inc. plans to issue Rs.600,000 face value bonds with a stated interest rate of 8%. They will mature in 5 year. Interest will be paid annually. At the dated of issuance market rate is assumed to be 10%.
Required:(a) Calculate the issue price of bond.
(b) Calculate the premium or discount on issue of bonds.
(c) Prepare a 5 year amortization schedule for discount or premium as appropriate)
(d) Calculate the total cash interest payment & interest expenses.
(e) Prepare necessary journal entries for issuance amortization and payment of interest. [3+2+5+2+3=15]
QN.5. GhanaPlaza distributes fine stones. It sells on credit to retail Jewelry stores and extends terms of 2/10, net 30. For accounts that have probability of collecting the receivable as follows?
Not yet due 100%
One month past due 95%
One to two months 80%
More than two months 60%
On Dec. 31st 2002, the credit balance in allowance for doubtful account is Rs.15,300. The amount of gross receivables by age on this date is as follows:
Receivable category
Amount
Current (not yet due)
Past due:
Less than one month
One to two months
More than two months
Rs. 200,000
75,000
50,000
10,000
Required: (a) Prepare a schedule to estimate the amount of uncollectible accounts at Dec. 31st 2002
(b)On the basis of the schedule in part (a) prepare journal entry on Dec.31st 2002 to estimate bad debts.
(c)Show how account receivable would be presented on the Dec. 31st 2002 balance sheet. [5×3=15]
QN.6 The following information is available concerning Oshkosh Inc.;
units unit cost
Beginning inventory 200 $10
Purchases:
March 5 300 11
June 12 400 12
August 23 250 13
October 2 150 15
Oshkosh, which uses a perpetual system, sold 1,000 units for $22 each during the year. Sales occurred on the following dates:
Units
February 12 150
April 30 200
July 7 200
September 6 300
December 3 150
Required:
1. Calculate ending inventory and cost of goods sold for each of the following three methods:
a. Moving average.
b. FIFO.
c. LIFO.
2. For each of the three methods, compare which of the methods gives a different answer depending on whether a company uses a periodic or a perpetual inventory system? [15]
a. Why would the company prefer a shorter depreciation period for tax purpose than for financial reporting (book) purposes? [7]
b. What are the different methods for treatment of bad debts? How does the % of net credit sales and % of year end accounts recevable approaches differed in terms of their accounting treatment? [8]
QN.2. a. Following table has been developed to assist you:
Assets
Acquisition cost
Accumulated depreciation
Book value
A
40,000
–––––
25,000
B
66,000
28,000
–––––
C
–––––
37,500
12,500
Required: 1. Calculate the amount of missing figures
2. Develop the property plant and equipment category of balance sheet, how the individual assets would appears in balance sheet.
3. Prepare the Journal entries to record the sale of assets assuming assets B was sold for Rs.25,000.
4. Show the effect of required 3 in the accounting equation [5×2=10]
b. B & R enterprise purchased a computer on Jan. 1 2002 for Rs.36,000. The double decline balance method was used for depreciation purposes, with a four years life and a residual value estimate of Rs.5,000.
Required:(a) Calculate the amount of depreciation expenses and book value of computer for 31st Dec. 2002
(b) Prepare Journal entry to record the depreciation expenses.
(c) Show how the computer would appear on the balance sheet on Dec. 31st 2002. [1+2+2]
QN.3. ‘Kid’s world’ is the retail store of Card; dolls & Gifts items had the following transactions during the year:
a.Kid’s world purchased inventory on account from a supplier for Rs 80,000. Assume that Kid’s world uses periodic inventory system.
b.On may 1 apartment was purchased for Rs 5,50,000. A 20% down payment was made & a 18 months 8% note was signed for the remainder.
c.Kid’s world returned Rs.4,500 worth of inventory purchased in item a, which was found broken when the inventory was received.
d.Paid the balance due on the purchase of inventory.
e.On June 1 Kid’s world signed a one year Rs.150,000 note to Union Bank and received Rs.145,000 only.
Requirecd: (a) Record all necessary journal entries relating to these transactions.
(b) Assume that Kid’s world’s accounting year ends Dec. 31st. Prepare any necessary adjusting entries. [10+5=15]
QN.4. Young heart Inc. plans to issue Rs.600,000 face value bonds with a stated interest rate of 8%. They will mature in 5 year. Interest will be paid annually. At the dated of issuance market rate is assumed to be 10%.
Required:(a) Calculate the issue price of bond.
(b) Calculate the premium or discount on issue of bonds.
(c) Prepare a 5 year amortization schedule for discount or premium as appropriate)
(d) Calculate the total cash interest payment & interest expenses.
(e) Prepare necessary journal entries for issuance amortization and payment of interest. [3+2+5+2+3=15]
QN.5. Ghana Plaza distributes fine stones. It sells on credit to retail Jewelry stores and extends terms of 2/10, net 30. For accounts that have probability of collecting the receivable as follows?
Not yet due 100%
One month past due 95%
One to two months 80%
More than two months 60%
On Dec. 31st 2002, the credit balance in allowance for doubtful account is Rs.15,300. The amount of gross receivables by age on this date is as follows:
Receivable category
Amount
Current (not yet due)
Past due:
Less than one month
One to two months
More than two months
Rs. 200,000
75,000
50,000
10,000
Required: (a) Prepare a schedule to estimate the amount of uncollectible accounts at Dec. 31st 2002
(b)On the basis of the schedule in part (a) prepare journal entry on Dec.31st 2002 to estimate bad debts.
(c)Show how account receivable would be presented on the Dec. 31st 2002 balance sheet. [5×3=15]
QN.6 The following information is available concerning Oshkosh Inc.;
units unit cost
Beginning inventory 200 $10
Purchases:
March 5 300 11
June 12 400 12
August 23 250 13
October 2 150 15
Oshkosh, which uses a perpetual system, sold 1,000 units for $22 each during the year. Sales occurred on the following dates:
Units
February 12 150
April 30 200
July 7 200
September 6 300
December 3 150
Required:
1. Calculate ending inventory and cost of goods sold for each of the following three methods:
a. Weighted Average Cost Method.
b. FIFO.
c. LIFO.
2. For each of the three methods, compare which of the methods gives a different answer depending on whether a company uses a periodic or a perpetual inventory system? [15]
QN. 1. The following information is available to assist you in preparing a bank reconciliation statement for Rara Craft Co. on January 31, 2004:
a.Balance as per bank Rs. 12,700
b.Outstanding cheques Rs. 6,800
c.Dishonored cheques returned by bank Rs. 900
d.Cheque under collection Rs. 1,100
e.Bank service charge for January Rs. 120
f.Bills receivable collected by bank Rs. 2,000
g.Interest on preceding bill Rs. 100
Required: i. Bank reconciliation statement for the month of January 2004, showing the cash balance to be shown in Balance sheet as on 31, January 2004 [10]
ii. Prepare the necessary entries on the books of Rara Craft Co. [5]
QN. 2.
a. .Following informations are extracted from the inventory record of Chaudhary Bros. from October 1 to December 12, 2003:
Net sales from October 1 to December 12 Rs. 48,000
Beginning inventory – October 1 Rs. 9,600
Purchases from October 1 to December 12 Rs. 28,000
On December 12, 2003 a portion of Chaudhary Bros. inventory is destroyed by fire. The company determines by physical count, that the cost of the merchandise not destroyed is Rs. 1,600. & gross profit ratio as 30% of net sales. The company needs to estimate the cost of inventory lost for purposes of insurance reimbursement which is agreed to pay Rs. 2,000 as a full settlement for the inventory lost in the fire.
Required: Journal entries in the books of Chaudhary Bros. to record the Insurance settlement after necessary calculations for: Amount of gross profit, Cost of goods sold, & Value of ending inventory at the time of fire. [7]
b. Record the following transactions in the form of journal entries so as to highlight the difference between; Periodic & Perpetual inventory systems. [8]
Jan – 1, 2004 Purchased on account 4,000 units @ Rs. 1 each.
Jan – 5, 2004 Returned 800 defective units, which were damaged in transit.
Jan – 12, 2004 Sold on account 1,600 units @ Rs. 1.25 each.
QN. 3.
a. Bloomer Company purchased new machinery on 1st January 2000. for Rs. 10,000. The machinery has four years life and zero residual value at the end of the fourth year.
Required:
I.Calculate the depreciation expenses for each of the four years using straight-line method and the double declining balance method. (Show the depreciation expenses in columnar form for comparison purposes.)
II. Assuming that the Bloomer Company falls under the 40% tax bracket; calculate the amount of tax saved by the Company for the year 2000 using the double decline & straight-line methods of depreciation. [7]
b.Gahana Kunja distributes fine stones. It sells on credit to retail Jewelry stores and extends terms of 2/10, net 30. For accounts that have probability of collecting the receivables as follows:
Not yet due 95%
One month past due 80%
One to two months due 60%
More than two months due 40%
On December 31st 2003, the credit balance in allowance for doubtful account is Rs. 12,300. The amount of gross receivables by age on this date is as follows:
Current (not yet due) Rs. 200,000
Past due:
Less than one month Rs. 45,000
One to two months Rs. 25,000
More than two months Rs. 10,000
Required: Prepare a schedule to estimate the amount of uncollectible accounts at December 31st 2003 and prepare necessary entries to adjust the allowance for doubtful debt account. [8]
QN. 4. Write short notes on: ( any two) [2.5×2=5]
a. Credit memoranda b. Depletion expenses c. Non interest bearing notes