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PAF – Karachi Institute of Economics and Technology City Campus

Course: Financial Accounting
Faculty: Humayun Fareed Uddin
Class ID:58330
Examination: Final Examination Date:16-12-2013
Total Marks: 40 Max. Time: 180 Minutes

Read the following instructions carefully before attempting any question:

? All questions are compulsory.
? This exam consists of 5 Multiple Choice Questions (MCQs) carrying 1 mark each,
1 descriptive questions carrying 5 marks each.
? For each MCQ, read the available choices carefully and select the most appropriate
Choice which you consider is the correct answer by clicking on the appropriate check
Box.
? To answer True False questions, click on the correct option.
? For fill in the blank questions, provide the appropriate word(s) in the given blank.
? Remember not to spend too much time on any one objective type question since all
Objective type questions carry equal marks; it is important to manage your time
According to the marks allocated to each question.
If you believe that some essential piece of information is missing, make an appropriate
Assumption and use it to solve the problem by providing foot note at the end of the
Solution box.
? Show proper working where necessary.
? Use of calculator is allowed.
? Use of mobile phone is strictly prohibited. Switch off your mobile phone during the
Exam.
? Failure to comply with the Supervisor’s directions will result in your test being
Cancelled. Please comply with supervisor’s directions to avoid any unpleasant event.

Question No: 1

Which of the following is TRUE?

► Unearned revenue is an asset shown in balance sheet

► Unearned revenue is a liability shown in balance sheet

► Unearned revenue is a liability shown in profit and loss account

► Unearned revenue is revenue shown in profit and loss account

Question No: 2
If, Retain earning at the beginning Rs. 897, Net income Rs. 140, and Retain earning at the end
Rs. 1,009. Then, which of the following figure represents the amount of dividend paid?

► Rs. 28

► Rs. 252

► Rs. 739

► Rs. 2,046

Question No: 3

Pass the journal entries if:

Ø Shares are issued against cash of Rs. 20,000.

Ø Shares are issued against transfer of asset amounting to Rs. 30,000.

Question No: 4

Rs.

Gross profit 50,000

Operating profit 42,000

Sales 250, 000

What is the amount of operating expenses ?

► Rs. 8,000

► Rs. 92,000

► Rs. 62,500

► Rs. 300,000

Question No 5
Indicate in which section of the Balance Sheet each of the following accounts is classified. Use
the symbols CA for current assets, NCA for non-current assets, CL for current liabilities, LTL for
long term liabilities, and SHE for stockholders’ equity.

ANS:

Accounts Section

Prepaid rent

Dividends payable

Salaries payable

Prepaid insurance

Retained earnings

Mortgage payable (due in 15 years)

Unearned service revenue

Accounts receivable

Land

Office supplies
Q 2. Explain the following questions. (Marks 5)

a. Define accounting and explain the purpose of an accounting system.

b. What is meant by the term “business transaction”?
c. Define assets, liabilities and owner equity.
d. State the accounting equation in two alternative forms.
e. What is the difference between account payable and note payable?
f. What is an accounting cycle; briefly explain each of the items.

Q 3. Trade Winds Airlines

Trial Balance
June 30, 201X
Cash…………………………………………………………………………………… RS 38,000
Prepaid rent………………………………………………………………………. 9,600
Unexpired insurance…………………………………………………………. 21,000
Prepaid maintenance service……………………………………………. 22,500
Spare parts………………………………………………………………………… 57,000
Airplanes…………………………………………………………………………… 864,000
Accumulated depreciation- airplanes……………………………….. Rs
108,000
Notes payable……………………………………………………………………
600,000
Unearned passenger revenue…………………………………………..
60,000
Jon Morgan, capital…………………………………………………………...
231,050
John Morgan, drawing……………………………………………………… 12,000
Passenger revenue earned……………………………………………….
110,950
Fuel expense…………………………………………………………………… 13,800
Salaries expenses Advertisement expense……………………. . 66,700
Advertisement expense………………………………………………….. 5,400
Rs 1,110,000 Rs. 1,110,000
Other data:
(a) Monthly rent amounted to Rs. 3,200, reducing the prepaid rent account to Rs. 6,400.
(b) Insurance expense for June was Rs. 2,400. Reduce the unexpired insurance account.
(c) All necessary maintenance work was provided by Ryan Air Services at a fixed charge
(Debit Maintenance Expense.)
(d) Spare parts used in connection with maintenance work amounted to Rs. 3,750 during
the month. (Debit Maintenance Expense. Use two lines on work sheet for the expense
account.)
 (e) Depreciation of the airplanes for the month of June was Rs. 7,200
(f) The Chamber of Commerce had purchased 2,000 special tickets for Rs. 60,000. Note
that the special price per ticket was Rs. 30. Each ticket allowed the holder on flight.
During the month 400 of these special price tickets had been used by the holders. (Debit
unearned passenger Revenue)
(g) Salaries earned by employees but not paid amounted to Rs. 3,300 at June 30.
(h) Interest accrued on notes payable at June 30 amounted to Rs. 7,000.

Instructions:
(a) Prepare a 10 column work sheet for the month ended June 30, 201X. (Marks 10)
(b) Prepare adjusting and closing entries. (Marks 5)

Q 4. Rolling Hills Golf Curse

Trial Balance
December 31, 201X

Amount in PKR
Dr Cr
9,
Cash 100
Unexpired insurance 2,100
Prepaid Advertising 1,000
Land 375,000
Equipment 48,000
Accumulated depreciation-
equipment 8,000
Note payable 110,000
Unearned revenue from
concessions 7,500
Howard Catts, capital 268,000
Howard Catts, drawing 15,000
Revenue from greens fees 174,500
Advertising expense 5,500
Water expense 10,400
Salaries expense 78,900
Repairs and maintenance expense 17,500
Miscellaneous expense 5,500
568, 568,
000 000
Adjustments:
 (a) Rs. 700 insurance expired during year.
(b) Rs. 300 prepaid advertising expired at end of year.
(c) Rs. 400 accrued interest expense on note payable.
(d) Rs. 5,000 concession revenue earned during year.
(e) Rs. 1,100 of salaries earned but unpaid at Dec. 31, 201X.
(f) Rs. 4,000 depreciation expense for year.

Instructions:
Prepare adjusting entries with a brief explanation keyed to each adjusting entry. (Marks 5)

Q5. Linda Shields and Mark Ryan own all the capital stock of Property Management
Corporation. Both stockholders also work full time in the business. The company performs
management services for apartment house owners, including finding tenants, collecting rents
and doing maintenance work.

When the business was organized early this year, Shields and Ryan invested a total of Rs.
50,000 to acquire the capital stock. At December 31, a partial list of the corporation’s balance
sheet items include cash Rs. 15,700, office equipment of Rs. 6,100, accounts payable of Rs.
16,100, and an income tax payable of Rs. 2,900. Additional information on financial position and
operations appears in the following six numbered paragraphs.

Some of this information should be included in the balance sheet; some should not.

(1) Earlier this year the corporation purchased an office building from Shields at a price of
Rs. 42,000 for the land and Rs. 67,000 for the building. The corporation owes Shields a
Rs. 49,000 note payable in connection with the purchase of the property.
(2) While working, Shields drives her own automobile, which cost Rs. 12,600. Ryan uses a
car owned by the corporation, which cost Rs. 10,200
(3) One of the apartment houses managed by the company is owned by Ryan. Ryan’s cost
was Rs. 100,000 for the land and Rs. 190,000 for the building.
(4) Company records show a Rs. 1,900 account receivable from Ryan and Rs. 23,400
accounts receivable from other clients.
(5) Shields have a Rs. 20,000 bank account in the same bank used by the corporation. She
explains that if the corporation should run out of cash, it may use that Rs. 20,000 and
repay her later.
(6) Company records have not been properly maintained, and the amount of retained
earnings is not known. (You can compute this amount as a final step in preparing the
balance sheet).

Required: (Marks 5)

a. Prepare a balance sheet for the business entity Property Management Corporation at
December 31, 201X.
Question 6.

Following are the account balances of Paragon Enterprises as on June 30, 201X.

Cash in hand Rs. 35,000/-, Furniture Rs. 140,000/-, Cash at Bank Rs. 45,000/-, Capital Rs.
428,000/-, Accumulated depreciation (Furniture) Rs. 23,000/-, Machinery Rs. 220,000/-
Accumulated depreciation (Machinery) Rs. 35,000, Purchases Rs. 135,000/-, Sales Rs.
280,000/-, Account Receivable Rs. 30,000/-, Account Payable Rs. 42,000/- Purchase return &
allowance Rs. 4,000/- Allowance for Bad Debt Rs. 6,000/-, Merchandise Inventory (beginning)
Rs. 25,000/-, Merchandise Inventory (Ending) Rs. 87,000/-, Salaries expense Rs. 45,000/-, Rent
expense Rs. 33,000/-, Advertising expense Rs. 22,000/-, Travelling expense Rs. 32,000/-Office
supplies expense Rs.12, 000/-, Utility charges Rs. 26,000, Bad Debt expense Rs. 2,000/-,
Depreciation expense Rs. 10,000/-, Sales return & allowance Rs. 6,000/- .

Required: (Marks 5)

(a) Income statement in report form

(b) Balance Sheet as at June 30, 201X.

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