T6/FFA/F3 - Homework 4

1

Jessy owns two properties which it rents to tenants. In the year ended 31 December 20X6, it received $280,000 in respect of property 1 and $160,000 in respect of property 2. Balances on the rental accounts were as follows:

Property 1 Property 2

31 December 20x6          13,400 Dr          6,700 Cr

31 December 20x5              12,300 Cr              5,400 Dr

What amount should be credited to the income statement for the year ended 31 December 20X6 in respect of rental income?

A

$453,600

B

$440,200

C

$465,900

D

$475,600

2

Jessy, a property company, received cash totalling $838,600 from tenants during the year ended 31 December 20X6. Figures for rent in advance and in arrears at the beginning and end of the year were:

Rent received in advance Rent in arrears (all subsequently received)

31 December 20x5 $ 102,600 42,300

31 December 20x6 $ 88,700 48,400

What amount should appear in the company’s income statement for the year ended 31 December 20X6 for rental income?

A

$818,600

B

$738,000

C

$939,200

D

$858,600

3

Details of Jessy’s insurance policy are shown below:

Premium for year ended 31 March 20X6 paid April 20X5 Premium for year ending 31 March 20X7 paid April 20X6

$10,800 $12,000

What figures should be included in the company’s financial statements for the year ended 30 June 20X6?

Income statement $

Statement of financial position $

A

11,100

9,000 prepayment

B

11,700

9,000 prepayment

C

11,100

9,000 accrual

D

11,700

9,000 accrual

4

Jessy sublets part of its office accommodation. The rent is received quarterly in advance on 1 January, 1 April, 1 July and 1 October. The annual rent has been $24,000 for some years, but it was increased to $30,000 from 1 July 20X5. What amounts for rent should appear in the company’s financial statements for the year ended 31 January 20X6?

Income statement

Statement of financial position

A

$27,500

$5,000 in accrued income

B

$27,000

$2,500 in accrued income

C

$27,000

$2,500 in prepaid income

D

$27,500

$5,000 in prepaid income

5

At 1 September, the motor expenses account showed 4 months’ insurance prepaid of $80 and petrol accrued of $95. During September, the outstanding petrol bill is paid, plus further bills of $245. At 30 September there is a further outstanding petrol bill of $120. The amount to be shown in the income statement for motor expenses for September is:

A

$385

B

$415

C

$445

D

$460

6

On 1 May 20X0, Jessy pays a rent bill of $1,800 for the period to 30 April 20X1. What is the charge to the income statement and the entry in the statement of financial position for the year ended 30 November 20X0?

A

$1,050 charge to income statement and prepayment of $750 in the statement of financial position

B

$1,050 charge to income statement and accrual of $750 in the statement of financial position

C

$1,800 charge to income statement and no entry in the statement of financial position

D

$750 charge to income statement and prepayment of $1,050 in the statement of financial position

7

The electricity account for the year ended 30 June 20X3 was as follows:

Opening balance for electricity accrued at 1 July 20X2 Payments made during the year: 1 August 20X2 for three months to 31 July 20X2 1 November 20X2 for three months to 31 October 20X2 1 February 20X3 for three months to 31 January 20X3 30 June 20X3 for three months to 30 April 20X3

$ 300 600 720 900 840

Which of the following is the appropriate entry for electricity?

Accrued at June 20X3

Charged to income statement, year ended 30 June 20X3

A

$Nil

$3,060

B

$460

$3,320

C

$560

$3,320

D

$560

$3,420

8

The annual insurance premium for Jessy for the period 1 July 20X3 to 30 June 20X4 is $13,200, which is 10% more than the previous year. Insurance premiums are paid on 1 July. What is the income statement charge for insurance for the year ended 31 December 20X3?

A

$11,800

B

$12,540

C

$12,600

D

$13,200

9

Jessy’s year-end is 30 September. On 1 January 20X6 the organisation took out a loan of $100,000 with annual interest of 12%. The interest is payable in equal installments on the first day of April, July, October and January in arrears. How much should be charged to the income statement account for the year ended 30 September 20X6, and how much should be accrued on the statement of financial position?

Income statement

Statement of financial position

A

$12,000

$3,000

B

$9,000

$3,000

C

$9,000

Nil

D

$6,000

$3,000

10

On the first day of Month 1, a business had prepaid insurance of $10,000. On the first day of Month 8, it paid, in full, the annual insurance invoice of $36,000, to over the following year. The amount charged in the income statement and the amount shown in the statement of financial position at the year-end is:

Income statement $

Balance carried forward $

A

5,000

24,000

B

22,000

23,000

C

25,000

21,000

D

36,000

15,000

11

Which of the following statements is not true?

A

Accruals decrease profit

B

Accrued income decreases profit

C

A prepayment is an asset

12

The following balances relate to Jessy:

Receivables at 1.1.X8 Cash received from credit customers Contra with payables Discounts allowed Cash sales Irrecoverable debts Increase in allowance for receivables Discounts received Receivables at 31.12.X8

$                   34,500                   229,900                   1,200                   17,890                   24,000                   18,600                   12,500                   15,670                   45,000

What is the revenue figure reported by Jessy in the year ended 31 December 20X8?

A

$275,870

B

$278,090

C

$290,590

D

$302,090

13

The following account has been extracted from the nominal ledger of Jessy:

Receivables ledger control account

Balance b/f Contra with payables ledger control account Discounts received Credit sales Cash sales

$ 84,700 5,000 21,100 644,000 13,500

Irrecoverable debts Discounts allowed Cash received from credit Customers Increase in allowance for Receivables Balance c/f

$ 4,300 30,780 595,000 6,555 131,665

768,300

768,300

After corrections, what is the receivables balance?

A

$103,300

B

$93,620

C

$103,620

D

$87,065

14

Jessy’s receivables ledger control account shows a balance at the end of the year of $58,200 before making the following adjustments:

(i)

Jessy wishes to write off debts amounting to $8,900 as he believes they are irrecoverable.

(ii)

She also wishes to make specific allowance for Jojo’s debt of $1,350 and Momo’s debt of $750.

(iii)

She wishes to maintain a general allowance of 3% of the year end receivables balance.

Jessy’s allowance for receivables at the last year end was $5,650. What is the charge to the income statement in respect of the above?

A

$6,766

B

$11,034

C

$6,829

D

$10,971

15

In the statement of financial position at 31 December 20X5, Jessy reported net receivables of $12,000. During 20X6 she made sales on credit of $125,000 and received cash from credit customers amounting to $115,500. At 31 December 20X6, Jessy wished to write off debts of $7,100 and increase the allowance for receivables by $950 to $2,100. What is the net receivables figure at 31 December 20X6?

A

$12,300

B

$13,450

C

$14,400

D

$15,550

16

At 1 July 20X5, a company’s allowance for receivables was $48,000. At 30 June 20X6, trade receivables amounted to $838,000. It was decided to write off $72,000 of these debts and adjust the allowance for receivables to $60,000. What are the final amounts for inclusion in the company’s statement of financial position at 30 June 20X6?

Trade receivables $

Allowance for receivables $

Net balance $

A

838,000

60,000

778,000

B

766,000

60,000

706,000

C

766,000

108,000

658,000

D

838,000

108,000

730,000

17

In the year ended 30 September 20X8, Jessy had sales of $7,000,000. Year end receivables amounted to 5% of annual sales. Jessy wishes to maintain the allowance for receivables at 4% of receivables and as a result discovers that the allowance is 20% higher than at the previous year end. During the year irrecoverable debts amounting to $3,200 were written off and debts amounting to $450 and previously written off were recovered. What is the irrecoverable debt expense for the year?

A

$5,083

B

$5,550

C

$5,583

D

$16,750

18

On 1 January 20X3 Jessy’s trade receivables were $10,000. The following relates to the year ended 31 December 20X3:

Credit sales Cash receipts Discounts allowed Discounts received

$ 100,000 90,000 800 700

Cash receipts include $1,000 in respect of a receivable previously written off. On 31 December 20X3 receivables were:

A

$20,200

B

$19,300

C

$20,800

D

$20,700

19

A company has been notified that a customer has been declared bankrupt. The company had previously provided for this doubtful debt. Which of the following is the correct double entry?

Dr

Cr

A

Irrecoverable debts account

The customer

B

The customer

Irrecoverable debts account

C

Allowance for receivables

The customer

20

Jessy is owed $37,500 by its customers at the start, and $39,000 at the end, of its year ended 31 December 20X8. During the period, cash sales of $263,500 and credit sales of $357,500 were made, discounts allowed amounted to $15,750 and discounts received $21,400. Irrecoverable debts of $10,500 were written off and Jessy wishes to retain its allowance for receivables at 5% of total receivables. The cash received from receivables in the year totalled:

A

$329,750

B

$593,175

C

$593,250

D

$614,650

21

The sales revenue in a company was $2 million and its receivables were 5% of sales. The company wishes to have an allowance for receivables of 4% of receivables, which would make the allowance one-third higher than the current allowance. How will the profit for the period be affected by the change in allowance?

A

Profit will be reduced by $1,000

B

Profit will be increased by $1,000

C

Profit will be reduced by $1,333

D

Profit will be increased by $1,333

22

A company started the year with total receivables of $87,000 and an allowance for receivables of $2,500. During the year, two specific debts were written off, one for $800 and the other for $550. A debt of $350 that had been written off as irrecoverable in the previous year was paid during the year. At the year end, total receivables were $90,000 and the allowance for receivables was $2,300. What is the charge to the income statement for the year in respect of irrecoverable and doubtful debts?

A

$800

B

$1,000

C

$1,150

D

$1,550

23

An increase in the allowance for receivables results in:

A

An increase in net current assets

B

A decrease in net current assets

24

At the end of 20X7, Jessy’s receivable’s balance is $230,000. She wishes to make specific allowance for Jojo’s debt of $450 and Momo’s debt of $980. She also wishes to maintain a general allowance of 5% of receivables. What amount should be charged or credited to the income statement in respect of the allowance if the allowance at the start of the year was $11,700?

A

$1,159 Dr

B

$1,230 Dr

C

$200 Cr

D

$12,930 Dr

25

Which of the following is not a benefit of providing credit to customers?

A

May result in increased sales

B

Encourages customer loyalty

C

Attracts new customers

D

Improves the cash flow of the business

26

Which of the following best explains the purpose of an aged receivables analysis?

A

To ensure that credit is not extended to unapproved customers or those that in the past have not paid

B

To ensure that credit does not exceed agreed limits

C

To keep track of outstanding debts and follow up those that are overdue

27

The asset register shows a carrying value for non-current assets of $85,600; the ledger accounts include a cost balance of $185,000 and an accumulated depreciation balance of $55,000. Which of the following may explain the discrepancy?

A

The omission of an addition of land costing $30,000 from the ledger account and the omission of the disposal of an asset from the register (cost $25,600 and accumulated depreciation at disposal $11,200)

B

The omission of the revaluation of an asset upwards by $16,600 and the depreciation charge of $20,000 from the ledger account and the omission of the disposal of an asset with carrying value $41,000 from the register

C

The omission of the disposal of an asset from the ledger accounts (cost $25,600 and accumulated depreciation at disposal $11,200) and the omission of an addition of land costing $30,000 from the register.

D

The omission of an upwards revaluation by $16,400 from the register and the accidental debiting of the depreciation charge of $28,000 to the accumulated depreciation ledger account

28

Jessy bought an asset on the 1st January 20X4 for $235,000. She has depreciated it at 30% using the reducing balance method. On 1st January 20X7, Jessy revalued the asset to $300,000. What double entry should Jessy post to record the revaluation?

A

Dr Non-current assets cost                          $65,000 Dr Accumulated depreciation                     $154,395

Cr Revaluation reserve                                  $219,395

B

Dr Non-current assets cost                          $65,000 Dr Accumulated depreciation                     $211,500

Cr Revaluation reserve                                  $276,500

C

Dr Revaluation reserve                               $219,395

Cr Non-current assets cost                          $65,000 Cr Accumulated depreciation                     $154,395

D

Dr Revaluation reserve                               $276,500

Cr Non-current assets cost                          $65,000 Cr Accumulated depreciation                     $211,500

29

A non-current asset register is:

A

an alternative name for the non-current asset ledger account

B

a list of the physical non-current assets rather than their financial cost

C

a schedule of planned maintenance of non-current assets for use by the plant engineer

D

a schedule of the cost and other information about each individual non-current asset

30

IAS 16 Property, plant and equipment requires non-current assets to start being depreciated when

A

They are available for normal use

B

They are being used normally

C

They are purchased

31

The plant and equipment account in the records of a company for the year ended 31 December 20X6 is shown below:

Plant and equipment – cost

Balance b/f 1 July Cash

$ 960,000 48,000

30 Sept Disposals Balance c/f

$ 84,000 924,000

1,008,000

1,008,000

The company’s policy is to charge straight line depreciation at 20% per year on a pro rata basis. What should be the charge for depreciation in the company’s income statement for the year ended 31 December 20X6?

A

$184,800

B

$192,600

C

$191,400

D

$184,200

32

On 1 January 20X7, a company purchased some plant. The invoice showed:

Cost of plant Delivery to factory One year warranty covering breakdown

$ 48,000 400 800

49,200

Modifications to the factory building costing $2,200 were necessary to enable the plant to be installed. What amount should be capitalised for the plant in the company’s records?

A

$51,400

B

$48,000

C

$50,600

D

$48,400

33

A non-current asset was purchased at the beginning of Year 1 for $2,400 and depreciated by 20% per annum using the reducing balance method. At the beginning of Year 4 it was sold for $1,200. The result of this was:

A

a loss on disposal of $240.00

B

a loss on disposal of $28.80

C

a profit on disposal of $28.80

D

a profit on disposal of $240.00

34

A business’ non-current assets had a book value of $125,000. An asset which had cost $12,000 was sold for $9,000, at a profit of $2,000. What is the revised book value of non-current assets?

A

$113,000

B

$118,000

C

$125,000

D

$127,000

35

JC bought a new printing machine from abroad. The cost of the machine was $80,000. The installation costs were $5,000 and the employees received specific training on how to use this particular machine, at a cost of $2,000. Before using the machine to print customers' orders, a test was undertaken which used up paper and ink costing $1,000. What should be the cost of the machine in the company's statement of financial position?

A

$80,000

B

$85,000

C

$86,000

D

$88,000

36

A non-current asset was disposed of for $2,200 during the last accounting year. It had been purchased exactly three years earlier for $5,000, with an expected residual value of $500, and had been depreciated on the reducing balance basis, at 20% per annum. The gain or loss on disposal was:

A

$360 loss

B

$150 loss

C

$104 loss

D

$200 profit

37

At the end of its financial year, Jessy has the following non-current assets:                     Land and buildings at cost                                                                    $10.4 million                     Land and buildings: accumulated depreciation                                     $0.12 million The company has decided to revalue its land and buildings at the year end to $15 million. What will be the amount of the adjustment on revaluation?

A

$4.48m

B

$4.6m

C

$4.72m

D

$15.12m

38

Which one of the following should be accounted for as capital expenditure?

A

The cost of painting a building

B

The replacement of windows in a building

C

The purchase of a car by a garage for re-sale

D

Legal fees incurred on the purchase of a building

39

A car was purchased for $12,000 on 1 April 20X1 and has been depreciated at 20% each year straight line, assuming no residual value. The company policy is to charge a full year’s depreciation in the year of purchase and no depreciation in the year of sale. The car was traded in for a replacement vehicle on 1 August 20X4 for an agreed figure of $5,000. What was the profit or loss on the disposal of the vehicle for the year ended 31 December 20X4?

A

Loss $2,200

B

Loss $1,400

C

Loss $200

D

Profit $200

40

At 30 September 20X2, the following balances existed in the records of Jessy: Plant and equipment:                     Cost                                                                       $860,000                     Accumulated depreciation                                     $397,000 During the year ended 30 September 20X3, plant with a written down value of $37,000 was sold for $49,000. The plant had originally cost $80,000. Plant purchased during the year cost $180,000. It is the company's policy to charge a full year's depreciation in the year of acquisition of an asset and none in the year of sale, using a rate of 10% on the straight line basis. What net amount should appear in Jessy's statement of financial position at 30 September 20X3 for plant and equipment?

A

$563,000

B

$467,000

C

$510,000

D

$606,000

41

Depreciation is best described as:

A

a means of spreading the payment for non-current assets over a period of years

B

a decline in the market value of the assets

C

a means of spreading the net cost of non-current assets over their estimated useful life

D

a means of estimating the amount of money needed to replace the assets

42

On 1 January 20X8, Jessy has a building in its books at cost $380,000, net book value $260,000. On 1 July 20X8, the asset is revalued at $450,000 and Jessy wishes to include that valuation in its books. Jessy’s accounting policy is to depreciate buildings at 3% straight line. The depreciation charge to the income statement for the year ended 31 Dec is:

A

$8,300

B

$11,400

C

$12,450

D

$13,500

43

A car was purchased by a newsagent business in May 20X1 for:

Cost Road tax

$ 10,000 150

Total

10,150

The business adopts a date of 31 December as its year end. The car was traded in for a replacement vehicle in August 20X5 at an agreed value of $5,000. It has been depreciated at 25 per cent per annum on the reducing-balance method, charging a full year's depreciation in the year of purchase and none in the year of sale. What was the profit or loss on disposal of the vehicle during the year ended December 20X5?

A

Profit: $718

B

Profit: $781

C

Profit: $1,788

D

Profit: $1,836

44

The reducing balance method of depreciating non-current assets is more appropriate than the straight-line method when:

A

there is no expected residual value for the asset

B

the expected life of the asset is not capable of being estimated

C

the asset is expected to be replaced in a short period of time

D

the asset decreases in value less in later years than in the early years of use

45

Jessy bought a machine for $40,000 in January 20X1. The machine had an expected useful life of six years and an expected residual value of $10,000. The machine was depreciated on the straight-line basis. At the end of December 20X4, the machine was sold for $15,000. Jessy charges pro rata depreciation. The total amount charged to the income statement over the life of the machine was:

A

$15,000

B

$20,000

C

$25,000

D

$30,000

46

Jessy bought a guillotine for her framing business for $20,000 on 1 July 20X7. She expected the guillotine to have a useful life of ten years and a residual value of $500. On 1 July 20X8, Jessy revises these estimations and believes the guillotine to have a remaining useful life of 5 years and no residual value. What is the depreciation charge for the year ended 30 June 20X9?

A

$3,220

B

$3,610

C

$4,000

D

$3,600

47

Jessy has extracted the following balances from her accounts:

Plant and machinery Property Inventory Payables Receivables Bank overdraft Loan Capital Drawings Sales Purchases Sales returns Discounts allowed Discounts received Sundry expenses

$ 89,000 120,000 4,600 6,300 5,900 790 50,000 100,000 23,000 330,000 165,000 7,000 3,200 ? 73,890

She has forgotten to extract the balance from the discounts received account. What is the balance?

A

$1,900

B

$9,500

C

$4,500

D

$15,900

48

Which of the following statements are true?

(1)

The trial balance provides a check that no errors exist in the accounting records of a business.

(2)

The trial balance is a first step in the preparation of the financial statements.

A

1 only

B

2 only

C

Both 1 and 2

D

Neither 1 nor 2

49

Which of the following are limitations of the trial balance?

1

It does not include final figures to be included in the financial statements.

2

It does not identify errors of commission.

3

It does not identify in what accounts errors have been made.

A

1 and 2

B

2 and 3 only

C

All 3

50

The following is an extract from the trial balance of Jessy:

Dr $

Cr $

Non-current assets Inventory Capital Receivables Allowance for receivables Cash Payables Sales Purchases Rental expense Sundry expenses Bank interest

50,000 2,600 4,500 290 78,900 3,400 13,900

28,000 320 5,000 120,000 270

153,590

153,590

·        Rent of $200 has been prepaid. ·        Inventory at the end of the year was $1,900. ·        The allowance for receivables is to be $200. What is the profit for the year?

A

$23,690

B

$23,610

C

$23,100

D

$25,500