Professional Documents
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Q 1
Q 1
QUESTION 1
On 31 May 2013, the Cash at Bank account of Nicky Shop had a balance of $2,827.75. The bank
statement of May 2013 indicated a balance of $5,056.25. Comparison of cheque records and
bank advices revealed the following:
1. Deposit in transit 31 May totalled $1,750.00
2. Outstanding cheques 31 May totalled $2,725.50
3. The bank added to the account $20.00 interest income earned by Nicky Shop during May
4. The bank collected a $1,600 note receivable for Nicky Shop and charged a $15.00 collection
fee. Both transactions appear on the bank statement.
5. Bank service charges amounting to $18 appear on the bank statement but are not yet
recorded on the books.
6. The bank has returned a cheque indicating that Allin’s cheque for $245 had been returned
as a non‐sufficient fund cheque. Allin had sent the cheque to pay an account of $250 less a
2% discount.
7. Nicky Shop recorded the payment of an account payable as $233; the cheque was for $322.
Required:
a) Prepare bank reconciliation for Nicky Shop as of 31 May 2013.
b) Prepare the general journal entries necessary to bring the cash at bank account
into agreement with the adjusted balance on the bank reconciliation statement.
QUESTION 2
Chico Ltd is a retailer company in Kiama central business district. At financial year end 30 June
2013, Chico Ltd had reported on its financial statement the balance of Accounts Receivable
$850,000 (Debit) and the beginning balance of Provision for Doubtful Debts $5,350 (Debit). Net
credit sales for the year amounted to $1,200,000 and the Provision for Doubtful Debts has not
yet been adjusted for 2013.
Required:
(a) At the end of 2013, the following Accounts Receivable were deemed uncollectible:
KFC Coke $12,850
Red Rusty $ 5,100
Total $17,950
Prepare the 2013 journal entry necessary to write off the above accounts.
(b) Assume that Chico Ltd uses the percentage of sales method to estimate Doubtful
Debts Expense. After analysing industry averages and prior year’s activity,
management has determined that the Provision for Doubtful Debts for 2013 should
be 3% of net credit sales. Prepare the journal entry to adjust the Provision for
Doubtful Debts.
(c) Assume that Chico Ltd uses the ageing of accounts receivable method. The ageing
schedule prepared by the company’s credit manager indicated that after the write
off the above accounts, a Provision for Doubtful Debts of $30,650 is appropriate.
Prepare the journal entry to adjust the Provision for Doubtful Debts.
QUESTION 3
Fresno Ltd uses the periodic inventory method and provides the following information in
relation to its inventory transactions during August 2013:
July 1 Beginning inventory 10 units @ $200
5 Purchased 20 units @ $250
10 Sold 20 units
12 Purchased 20 units @ $300
15 Purchased 10 units @ $350
25 Sold 20 units
Required:
1. Calculate the cost of ending inventory at 31 August and the Cost of Goods
Sold for August using the following costing methods:
a. Weighted Average.
b. First In First Out.
2. Using a perpetual system and FIFO costing method, prepare journal
entries in general journal form to record July transactions above. Assume
selling price is $500 per unit.
SOLUTION 1 30%
a)
Nicky Shop
Bank Reconciliation
31 May 2013
Balance per bank statement 5,056.25 Balance per books 2,827.75
Add: Deposits in transit 1,750.00 Add:
6,806.25 Interest income 20.00
Less: Outstanding cheques (2,725.50) Collection of Note Rec 1,600.00 1,620.00
20%
4,447.75
Less:
Collection fee 15.00
Bank service charge 18.00
Dishonoured cheque 245.00
Error on Cheque 89.00 (367.00)
Total 4,080.75 Total 4,080.75
b) 10%
Dr Cr
Cash at bank 1,620
Interest Income 20
Accounts receivable 1,600
Collection fees expense 15
Bank service charge 18
Accounts receivable 250
Accounts payable 89
Cash at bank 367
Sales Discount 2% X 250 5
SOLUTION 2 20%
a)
5% Provision for Doubtful Debts 17,950
Accounts Receivable 17,950
b)
10% Bad Debts Expense 36,000
Provision for Doubtful Debts 36,000
( 3% X $1,200,000 =$36,000)
c)
15% Bad Debts Expense 53,950
Provision for Doubtful Debts 53,950
($30,650+$5,350+$17,950=$53,950)
SOLUTION 3 50%
Weighted Average 20%
July Description units @ Total
1 Beginning Bal 10 $ 200.00 $ 2,000.00
5 Purchased 20 $ 250.00 $ 5,000.00
12 Purchased 20 $ 300.00 $ 6,000.00
15 Purchased 10 $ 350.00 $ 3,500.00
Total 60 $ 16,500.00
Weighted Average 16,500/60 units = $ 275.00
Ending Inventory = 60 units ‐40 units sold =20 units @275 = $5,500
COGS=Beginning inventory + Total Purchases – Ending inventory
COGS= $2000+(5000+6000+3500)‐5500 = $11,000
OR 40 units X$275= $11,000
a) First In First Out 20%
Ending inventory unit 15 units:
10 units @ $350 =$ 3,500
10 units @300 =$ 3,000
Total 20 units =$ 6,500
COGS=Beginning inventory+ Total Purchases – Ending inventory =
Cogs= $2,000+(5000+6000+3500)‐6,500 = $10,000
Solution Part 2 : Journal entries: 10%
5 July Inventory 5,000
Accounts payable 5,000
10 July Accounts receivable 10,000
Sales 10,000
Cost of goods sold 4,500
Inventory 4,500
(10@$200 + 10@$250)
12 July Inventory 6,000
Accounts payable 6,000
15 July Inventory 3,500
Accounts payable 3,500
25 July Accounts receivable 10,000
Sales 10,000
Cost of goods sold 5,500
Inventory 5,500
(10@$250 + 10@$300)