HKCEE(2008, 1) (Correction Errors)
Amanda is the sole owner of a business engaged in the trading of telephone sets. With her limited knowledge of accounting, she tries to do the accounting work herself. She remembers that all transactions should first be recorded in the books of original entry before posting to ledger accounts, and that the trial balance will help to locate accounting errors.
REQUIRED:
Advise Amanda on the following:
(a)What is the book of original entry for the recording of each of the transactions below?
Book of Original Entry(i) / Bought telephone sets for resale by cash / ?
(ii) / Sold telephone sets to customers on credit / ?
(iii) / Received a credit note from a supplier for telephone sets returned / ?
(iv) / Gave full allowance to a customer for telephone sets returned / ?
(v) / Acquired office premises by a mortgage loan / ?
(vi) / Paid wages and salaries by autopay / ?
(vii) / Accrued for outstanding electricity charges as at year end / ?
(b)Form the transactions in (a) above, identify two examples for each of the following:
(i)Real accounts
(ii)Nominal accounts
(iii)Personal accounts
(c)What are the types of accounting errors that will not be revealed by a trial balance? State four of them.
HKCEE (2008, 2)(Depreciation)
(A)Mr Chan started his trading business on 1 January 2007. On that date, the company bought a computer for office use, costing $12,000. The computer was expected to be used for 3 years before it would be replaced by more advanced model. As at 31 December 2007, Mr Chan decided that the computer be carried at its original cost of $12,000 on the balance sheet, without providing for depreciation.
REQUIRED:
State the accounting principle or concept that has been violated and provide an explanation.
(B)The financial year of Wingding Company ends on 31 December. In 2007, the company bought a machine at a cost $58,000 and paid a deposit of $8,000 on 1 April 2007. The machine was delivered and installed on 1 July 2007. An accident occurred on the same day and repair charges amounting to $2,000 were paid. The company settled the balance of the machine price on 1 October 2007.
The machine was estimated to have a useful life of 4 years and a scrap value of $4,000. It is the company’s policy to depreciate its fixed assets on a straight line basis.
The machine had a major breakdown in early 2008 and was disposed of on 30 April 2008 for $25,000.
REQUIRED:
Prepare the necessary journal entries to record the above. (Note: Narrations are not required.)
HKCEE(2008, 3) (Accounting Principles)
(A)Ming Limited specializes in the trading of antique furniture. In view of the increasing popularity of antique furniture, the suppliers increase their selling prices by 10%. Accordingly, Ming Limited values all its closing stock at 10% above its purchase cost, although 5% of its stock is damaged and has a saleable value which is lower than cost.
REQUIRED:
State the accounting principle or concept that has been violated and provide an explanation.
(B)Due to unexpected circumstances, the year-end physical stocktaking of Mr Wong’s business was delayed from 31 December 2007 to 6 January 2008. The cost of stock as at the close of business on 6 January 2008 was $38,420.
Additional information:
(i)After the physical count, an item costing $100 was found to be worthless. It was damaged by a warehouse worker on 30 December 2007.
(ii)The purchases and sales during the period 1 to 6 January 2008 amounted to $7,230 and $6,880 respectively. During this period, goods at the invoiced price of $5,900 were returned by customers and there were no returns outwards. It is the company’s policy to sell all goods at a 25% mark-up on cost.
(iii)Goods costing $350 was drawn by Mr Wong on 4 January 2008 for his personal use. In addition, goods were sold on 5 January 2008 to company staff for $2,000, being 50% of the normal selling price. Both events had not been recorded in the books.
(iv)Goods costing $720 were sent to a customer on 20 December 2007 for inspection. The customer confirmed his acceptance of the goods on 8 January 2008.
REQUIRED:
Prepare a statement to calculate the closing stock value of Mr Wong’s business as at 31 December 2007.
HKCEE(2008, 4) (Financial Reporting)
The Macho Club is a non-profit making organization which aims at promoting long distance running. Members are required to pay an annual membership fee of $500. The Club also sells T-shirts to members for cash.
The account balances relating to membership fees and T-shirt trading are as follows:
As at 1 January 2007 / As at 31 December 2007$ / $
Prepaid membership fee / 3,000 / 1,500
Accrued membership fee / 5,500 / 7,500
Amount owing to suppliers / 8,970 / 13,980
Stock of T-shirts / 6,320 / 5,730
The following are the related cash receipts and payments during the year ended 31 December 2007:
$Membership fee received / 84,000
Payment to suppliers / 22,890
Commission on T-shirt sales / 4,200
T-shirt sales / 48,200
Accrued membership fee of $2,500 brought down from 2006 was confirmed to be uncollectible and written off in 2007.
REQUIRED:
(a)Draw up the membership fee account for Macho Club, showing the amount of income derived from membership fee for the year ended 31 December 2007.
(b)Prepare the trading account for Macho Club for the year ended 31 December 2007, showing the profit or loss on the sales of T-shirts.
(c)Calculate (to two decimal places) the following ratios of Macho Club for the year ended 31 December 2007:
(i)Stock turnover rate (in months)
(ii)Average credit period received from trade creditors (in days)
HKCEE(2008, 5) (Financial Reporting)
The following trial balance was extracted from the books of Lulu Limited as at 31 December 2007:
Debit / Credit$ / $
Furniture and equipment, at cost / 4,900,000
Stock, 1 January 2007 / 152,400
Accumulated depreciation – furniture and equipment, / 643,000
1 January 2007
Purchases / 1,068,000
Bad debts / 49,800
Sales returns / 45,520
Selling and distribution expenses / 597,060
Administrative expenses / 106,000
Carriage inwards / 11,500
Wages and salaries / 545,000
Rent and rates / 230,000
Dividend paid / 85,500
Cash at bank / 303,720
Trade debtors and trade creditors / 1,225,000 / 708,000
Sales / 3,837,000
Share issue / 1,000,000
2,000,000 ordinary shares of $1 each, fully paid / 2,000,000
5% debentures / 600,000
Share premium / 166,700
General reserve / 140,000
Retained profits / 224,800
9,319,500 / 9,319,500
Additional information:
(i)Stock as at 31 December 2007 had a cost of $157,500. Minor defects were found in some goods that cost $8,000. These goods had an estimated saleable value of $7,900.
(ii)Trade debtors included an amount of $100,000 paid to a trade creditor as the deposit for future purchases of $500,000 of goods.
(iii)At 31 December 2007, prepaid rent and accrued salaries amounted to $2,900 and $10,000 respectively.
(iv)No entry had yet been made in respect of an interest charge of $5,000 receivable from a trade debtor for his overdue balance.
(v)Depreciation was to be provided for furniture and equipment at 20% of net book value.
(vi)On 28 December 2007, 400,000 ordinary shares were issued at $2 per share. Subscription had been received for 500,000 shares. All subscription money had been credited to the share issue account. Excess subscriptions were refunded to unsuccessful applicants on 3 January 2008.
(vii)The board of directors proposed a transfer of $150,000 to the general reserve.
(viii)On 1 October 2007, $600,000 5% debentures were issued, interest being payable half-yearly on 31 March and 30 September.
REQUIRED:
Prepare the following in vertical form for Lulu Limited:
(a)the trading, profit and loss and appropriation account for the year ended 31 December 2007; and
(b)the balance sheet as at 31 December 2007.
HKCEE(2008, 6) (Accounting for partnership)
Dave and Eva were in partnership sharing profits and losses in the ratio of 2 : 1 respectively. Their balance sheet as at 31 December 2006 was as follows:
$ / $ / $ / $Fixed Assets / Capital Accounts
Office equipment (net) / 202,000 / Dave / 300,000
Motor vehicles (net) / 156,000 / Eva / 63,000 / 363,000
358,000
Current Assets / Current Accounts
Stock / 41,600 / Dave / 26,600
Debtors / 40,000 / 81,600 / Eva / (48,000) / (21,400)
Current Liabilities
Bank Overdraft / 36,000
Creditors / 62,000 / 98,000
439,600 / 439,600
On 1 January 2007, Dave invited Fred, the manager, to join the partnership on the following terms:
(i)Fred’s initial capital was agreed at $100,000, although he would only bring in $25,000 cash as capital. The difference was settled by a personal loan from Dave to Fred, through a transfer between the capital accounts.
(ii)Goodwill was estimated at $60,000. No goodwill account was to remain in the books of the partnership. Fred would bring in additional cash for his share of goodwill.
(iii)Dave, Eva and Fred were to share profits and losses in the ratio of 2 : 1 : 1 respectively.
(iv)Fred was to receive a salary of $5000 per month.
No current accounts were to be maintained for the partners in the new partnership. The existing balances were to be transferred to the partners’ respective capital accounts.
REQUIRED:
(a)Prepare the capital account of Dave, Eva and Fred in columnar form to record Fred’s admission.
During the year ended 31 December 2007, the partnership made a net loss of $88,000 before appropriations. Depreciation of $20,200 and $21,000 had been provided on office equipment and motor vehicles respectively. At 31 December 2007, Fred’s salaries had not been paid for 8 months. The following balances were extracted from the books as at 31 December 2007:
$
Stock42,000
Debtors57,000
Bank overdraft124,200
Creditors18,000
On 31 December 2007, Eva was declared bankrupt and the partnership was dissolved as follows:
(i)The office equipment was sold for $200,000
(ii)Dave took over the motor vehicles at 90% of the net book value.
(iii)Fred was to take over the stock as a settlement of the salaries owed to him by the partnership.
(iv)All debtors settled their accounts and a cash discount of $200 was allowed.
(v)The creditors were settled by cash and a 5% discount was received.
(vi)Dave paid the realization expense of $2,600 on behalf of the partnership.
(vii)The deficiency in Eva’s account was to be shared by Dave and Fred in their profit and loss sharing ratio.
REQUIRED:
Prepare
(b)the realization account; and
(c)the capital accounts of Dave, Eva and Fred in columnar form for the year ended 31 December 2007, including the final distribution to partners upon dissolution.
HKCEE (2008, 7) (Control)
Wells Company maintains control accounts for memorandum purpose only. The balance of the debtors’ control account as at 31 December 2007 did not agree with the net balances total of $67,520 extracted from the sales ledger. In addition, the totals of the trial balance as at that date failed to agree and the difference was posted to a suspense account. The draft net profit for the year ended 31 December 2007 amounted to $254,988.
Subsequent checking of the records revealed the following:
(i)Sales for the year included an amount of $20,000 which had been received in cash in December 2007. These goods were scheduled to be delivered to the customer in February 2008.
(ii)Cash of $3,000 received from a debtor, J Morgan, in December 2007 was recorded as a cash sale.
(iii)The only credit balance $880 in the sales ledger arose from a casting error. The account should have a debit balance of $370.
(iv)Goods with a list price of $700 were returned by a customer, MC Lee, on 31 December 2007. A trade discount of 10% had been given to him upon the sale of the goods. No entry had been made in the books in respect of the return.
(v)A petty cash payment of $36 for sundry expenses had been omitted from the books.
(vi)A contra entry of $728 had been recorded correctly in the sales and purchases ledgers, but not the control accounts.
(vii)A payment of $335 for carriage outwards had been posted twice to the carriage inwards account.
(viii)The sales day book was undercast by $1,000.
(ix)A quarterly rental expense of $24,000, payable in advance for December 2007 to February 2008, was paid on 15 November 2007. The payment had been correctly recorded in the bank account but had been credited to the rental income account as $42,000.
(x)A payment to a creditor, Gregg Chan, of $795 was recorded as a cash purchase of stationery.
REQUIRED:
(a)Prepare the necessary journal entries to correct the above. Narrations are not required. If no journal entry is required, you should state so.
(b)Prepare a statement to update the balance total of the sales ledger as at 31 December 2007.
(c)Draw up the debtors’ control account.
(d)Prepare a statement to correct the draft net profit for the year ended 31 December 2007.