THE UNIVERSITY OF

NEW SOUTH WALES

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School of Accounting
ACCT 1501: Accounting and Financial Management lA

FINAL EXAMINATION PAPER

SESSION 1, 2005
This is a three (3) hour paper.
You have ten (10) minutes reading time.
There are five (5) questions.
There are seven (7) pages, including this one.
You must answer all parts of all questions.
The questions are not of equal value.
All answers must be written in blue or black ink.
Show all relevant working.
This paper forms 50% of the assessment in this course.
This paper may be retained by the candidate.

Do not turn the page until instructed by the examination supervisor.

Question 1

Bank Reconciliation

20 Marks

The bank reconciliation statement for Cooma Pty Lld at March 31 is shown below.

Cooma Pty Ltd

Bank Reconciliation
as at March 31
$

Debit Balance as per bank statement

Plus unrepresented cheques:
6971
6982
6995

3,521
274
591
132

Less Outstanding deposit

Credit Balance as per company records

997
4,518
(894
3,624

The bank statement received at the end of April shows the following:

Bank Statement

I-Mar
l-Apr
-Apr
-Apr
5-Apr
7-Apr
8-Apr
11-Apr
12-Apr
13-Apr
15-Apr
16-Apr
l7-Apr
19-Apr
O-Apr
I-Apr
3-Apr
4-Apr
5-Apr
7-Apr
9-Apr
'O-Apr

Balance Brought forward

Cash! cheque
6971
Cash! cheque
Cash! cheque
7004
7003
Return - NSF
7007
Cash! cheque
7002
Dividend
Cash! cheque
6995
7008
Cash! cheque
7006
Cash! cheque
7009
Cash! cheque
7011
Cash! cheque
7010
7012
Interest on Overdraft

Statement Period
31/3/05 - 30/4/05
DR
$
CR
3,5210
894
2,627DR
2,9010
274
621
2,280D
1,756D
524
467
2,223D
512
2,735DR
77
2,812D
111
2,923D
470
2,453D
2,5510
98
2,3610
190
152
2,209D
132
2,3410
474
2,815D
423
2,392DR
661
3,053D
2,444D
609
392
2,836D
249
2,587DR
163
2,750DR
311
2,439DR
2,626DR
187
401
3,027DR
3,179DR
152

Cash receipts and cash payments for April are as follows:

Cash Receipts
Date
$
3-Apr 621
4-Apr 524
7-Apr 895
12-Apr 470
15-Apr 152
19-Apr 423
22-Apr 609
23-Apr 249
26-Apr 311
29-Apr 248

Cash Payments
Date Cheque No.
I-Apr
7002
4-Apr
7003
5-Apr
7004
7-Apr
7005
8-Apr
7006
II-Apr
7007
14-Apr
7008
18-Apr
7009
22-Apr
7010
24-Apr
7011
28-Apr
7012
30-Apr
7013

98
512
476
351
661
III
474
392
187
163
401
32

The "Return" item on April 11 was a dishonoured cheque from a customer.

Required:
a) Prepare Cooma's bank reconciliation for April 30th Show all workings. (15 marks)
b) Record the journal entries needed to update the cash ledger.

(2 marks)

c) Please identify (if any) the most important transaction to investigate and state your
reason for selecting this transaction.

(3 marks)

Question 2

Equity and Debt Financing

15 marks

Fly by Night Airlines needs to finance the purchase of two new airplanes during the
current financial year and is deciding between two choices:
I. Issue 30,000 ordinary shares, at $90 per share
2. Issue $2,700,000 notes payable, repayable in 10 years, interest rate of 10% per
annum
The company estimates that at the end of the current financial year, with the two new
planes added to their fleet, the total profit before interest and tax will be $3,000,000. The
company currently has 70,000 ordinary shares issued, and at the end of the year it will
declare, and shareholders will approve, a final cash dividend of 15c per ordinary share.
The retained profit at the start of this current financial year is $12,500,000. The company
has a tax rate of 30%.

Required:

a. Determine the effect of each of these two choices on net profit and retained profit for
the current financial year. Show all workings.
(10 marks)
b. It is often said that debt finance places a company at more financial risk than equity
(5 marks)
finance. Give reasons why this would be so.

Question 3

Receivables

15 Marks

Below is the ageing schedule for Sand Grit Company as at June 30th 2004

Customer

Chen
Bergman
Russell
Miller
Iguana
Others
Estimated
Percentage
Uncollectible
Total
Estimated
Bad Debts

Total

Not yet
due

Number of Days Past Due

Over
1-30
31-60
61-90
90
$10,000 $12,000

$22,000
40,000 $40,000
57,000
$35,000
16,000
6,000
$34,000
34,000
1,000
1,000
131,000
5,000
96,000 16,000 14,000
$285,000 $152,000 $32,000 $26,000 $35,000 $40,000
4%

7%

13%

25%

50%

At June 30,In, 2004, the unadJusted balance In Allowance for Doubtful Debts IS a credIt of
$12,000.
Required:
a) Calculate the total estimated bad debts as at June 30th 2004. Show all workings.
(3 marks)
b) Journalise and post the adjusting entry for bad debts at June 30th 2004. (I mark)
c) Journalise and post to the allowance account the following events and transactions
during the 2005 financial year.
(3 marks)
a. On 30 September 2004, a $1,000 customer balance originating from January
2004 is judged uncollectible.
b. On 30 November 2004, a cheque for $1,000 is received from the customer
whose account was written off on 30 September.
'
d) Journalise the adjusting entry for bad debts on June 30th 2005, assuming that the
unadjusted balance in Allowance for doubtful debts is a debit of $800 and the ageing
schedule indicates that total estimated bad debts will be $30,300.
(2 marks)
e) Now assume the company estimates that 3% of credit sales ($1,200,000) will be
uncollectible. Prepare the journal entry.
(2 marks)
f) How are bad debts accounted for under the direct write off method? Explain the
strength of this method and the disadvantages of this approach.
(4 marks)

Question 4

Non-Current Assets

30 Marks

At 31 December 31 2003, Kartsounis Company reported the following as property, plant

and equipment.
Land
Buildings
Less: Accumulated depreciation-buildings

3,000,000

$26,500,000
12,100,000

14,400,000

Equipment
$40,000,000
5,000,000
Less: Accumulated depreciation-equipment

35,000.000
$524000000

Total PP&E
During 2004, the following cash transactions occurred:
April I

Purchased land for $2,200,000. Other expenditures incurred in purchasing

the land included $2,000 in accrued land taxes paid at time of purchase of
the land and $15,000 paid to a land developer for the costs of constructing
parking lots and driveways on the land.

May I

Sold equipment that cost $540,000 when purchased on I January 1999.

The equipment was sold for $360,000.

June I

Sold land purchased on I June 1993 for $1,800,000. The land cost
$500,000.

July I

Purchased equipment for $1,400,000.

December 31

December 31

Retired equipment that cost $500,000 when purchased on 31

, December 1994. No salvage value was received.
Paid $3,000 in land taxes on land for the current year.

Required:
Please round all figures to the nearest dollar. Show all calculations.

(a) Prepare journal entries for the above transactions. Kartsounis Company uses
straight-line depreciation for all classes of property, plant and equipment. The
buildings are estimated to have a 50-year useful life and no salvage value. The
equipment is estimated to have a 10-year useful life and no salvage value. All other
classes of property, plant and equipment have a 20-year useful life and no salvage
value. Update depreciation on assets disposed of at the time of sale or retirement.
(10 marks)
(b) Record adjusting entries for depreciation for 2004.
(10 marks)
(c) Prepare the property, plant and equipment section of Kartsounis Company's balance
sheet at 31 December 2004.
(10 marks)

Question 5
Part A

Liabilities
Liabilities, Provisions and Contingent Liabilities

20 Marks
(lO Marks)

Identify whether each of the following would be a liability, a provision or a contingent

liability, or none of the above, in the financial statements of Company A as at its balance
date of30 June 2005. Assume that Company A's financial statements are authorised for
issue on 24 August 2005.
(a)
(b)

(c)

(d)

(e)

An amount of$50,000 owing to Company Z for services rendered during June

2005.
(2 marks)
Company A has a policy ofrefunding purchases by dissatisfied customers
even though it is under no legal obligation to do so. Its policy of making
refunds is generally known. The store has reliably estimated, based on past
experience, that approximately $I 5,000 of goods will be returned for refund.
(2 marks)
Costs of $5,000 estimated to be incurred for relocating employee D from
Company A's head office location to another city. The staff member will
physically relocate during October 2005.
(2 marks)
Provision of$50,000 for the overhaul of a machine. The overhaul is needed
every five years and the machine was five years old as at 30 June 2005.
(2 marks)
Damages awarded against Company A resulting from a court case decided on
26 June 2005. The judge has announced that the amount of damages will be
set at a future date, expected to be in September 2005. Company A has
received advice from its solicitors that the amount of the damages could be
anything between $20,000 and $7 million.
(2 marks)

Part B

Current Liabilities

(10 Marks)

On I January 2004, the ledger of Ciao Company contains the following liability accounts.
Accounts Payable
GST Payable
Unearned Service Revenue

$42,500
5,600
15,000

During January the following selected transactions occurred. Ciao Company uses a
periodic inventory system.
I Jan.

Borrowed $15,000 in cash from Italia Bank on a 4-month, 10%, $15,000

note.

5 Jan.

Sold merchandise for cash totalling $7,800 which includes 10% GST.

12 Jan.

Provided services for customers who had made advance payments of

$8,000.

14 Jan.

Paid $5,600 to the Australian Tax Office for GST collected in December
2003.

25 Jan

Sold 1,000 units of GST-free supplies on credit at $75 per unit.

Required:

Round all amounts to the nearest dollar.

(a)
(b)
(c)

Prepare journal entries for the January transactions. (6 marks)

Prepare the adjusting entry at 31 January for the outstanding note payable (l
mark)
Prepare the current liability section of Ciao Company's Balance Sheet as of 31
January 2004 (3 marks)