Questions and Answers of Financial Accounting 6th Edition

State whether or not each of the following events would result in a liability being recognised in the accounts at 30 June. If so, what will the liability be called? If not, explain the reasons why it
BRK Limited is being sued for $3.5 million by a client for defamation resulting from statements made in newspapers by one of its executives. In each of the situations below, state whether a liability
For each situation below, state whether an asset would be recognised in the balance sheet. If the answer is no, state which of the essential characteristics relating to assets has not been met.1.
What is the purpose of the notes to the financial statements?
What is the role of information in a capital market?
a. To an investor, what value has been added to the financial statements by the auditor's report? Why?b. Suggest some limitations regarding the value of the auditor's report that an investor should
What is the purpose of the notes to the financial statements?
Define an asset. What are the essential characteristics of an asset?
Refer to the extracts of the annual report of Woolworths Limited in the appendix at the back of the book. All questions relate to the consolidated accounts.1. Is there any indication of the following
The following information has been extracted from the accounts of PQR Ltd.Additional information: a. Balances as at 30 June 2016:b. Credit purchases of inventory totalled $176 000 for the year.c. The
The balance sheet of ABC Ltd as at 31 December 2015 and the cash receipts and payments for the year ended 31 December 2016 are shown below.Additional information:a. As at 31 December 2016, the
The following transactions occurred for Canberra Limited in 2015: a. Issued share capital for $200 000 cash, b. Purchased $35 000 of inventory on credit, c. Paid $28 000 to accounts
Wan Chai Limited is a small wholesaler of electronic components located near Hong Kong's central business district. The firm has provided a year-end balance sheet at 30 June 2016 and a summary of all
An adjusted trial balance at 31 December 2016 for a toy manufacturer is given below:1. In the balance sheet, prepared at 31 December 2016: a. What would be the balance of total current assets?b.
Jindabine Boat Ltd stores and cleans boats for customers. It is completing the account process for the year just ended 30 June 2016. The transactions during 2016 have been journalised and posted. The
MNO Ltd purchased a one-year insurance policy on 1 April. The entire premium of $6000 was recorded by debiting prepayments. Year-end is 30 June.1. Give the 30 June adjusting entry.2. What amount
The annual accounting period for DEF Ltd ends on 30 June. Prepare adjusting entries for each of the following:1. DEF was entitled to a commission of $2000 during June, but the commission will not be
Parkes Ltd's annual accounting year ends on 30 June. It is 30 June 2016 and all of the 2016 entries except the following adjusting entries have been made.a. On 1 April 2016 the company borrowed $40
1. Employees of Donovan Ltd are paid every Friday for the five-day working week from Monday to Friday. The weekly wages expense is $115 000. The accounting year-end is 31 December. Assume this falls
1. In a recent annual report the following information is provided:Assume this amount all related to insurance and that $70 million cash was paid during the year to the insurance company. What is the
The accountant for Super Office Supplies Ltd (SOS) is reviewing the year-end unadjusted trial balance and considering the following items of information. For each item, decide if an adjustment to the
Motels Ltd operates three motels in large country centres. The accounts for the year ended 30 June 2016 have been finalised, with the exception of any adjustments that may result from the
The financial year-end for Riverwood Ltd is 30 June.a. Prepaid insurance as at 1 July 2015 was $4000. This represents the cost of a one-year insurance policy that expires on 1 March 2016.b. Flamingo
Revesby Ltd started business on 1 July 2016 and had the following transactions on 1 July: a. Issued 500 000 shares of $1 for $500 000 cash.b. Bought equipment for $400 000, paying cash. The
Panama Ltd provides one-day training programs in accounting. It charges $7000 per day. The following events occurred for the company in the month of June 2016. a. Received $30 000 from accounts
Greenfingers Ltd opened a gardening consulting company on 1 August 2016 with each of the two owners contributing $10 000 cash. A one-year bank loan of $40 000 at 12 percent per annum was obtained
East Hills Ltd began business on 1 July 2015 with each of the two owners contributing $20000 cash. The company paid $2200 in advance for a two-year lease of its retail premises. Inventory worth $3500
The balance sheet and income statement of Reconstruction Limited are reproduced below.1. How much cash was paid for insurance during the year?2. How much cash was paid for electricity during the
A businessperson you know has just received the financial statements of a company in which that person owns shares. Answer the following questions asked by the person. Try to answer without jargon,
Now that you are a famous businessperson, you are frequently asked to make after-dinner speeches on business topics. Without thinking about it too much, you agreed to make a speech on accrual
Discuss the following:a. Speaking positively, it might be said that accrual accounting improves on the cash flow information. Speaking negatively, it might be said that accrual accounting messes up
Give examples of items that are expenses for a given period but not disbursements for that period, items that are disbursements but not expenses, and items that are both expenses and disbursements.
Give examples of items that are revenue for a given period but not receipts for that period, items that are receipts but not revenue, and items that are both revenue and receipts.
Refer to the extracts of the annual report of Woolworths Limited in this book's appendix. All questions relate to the consolidated accounts.1. What would be the most likely source document used by
Some other information related to the year ended 30 June 2016: a. Credit sales, $130 000. b. Purchase of inventory on credit, $70 000. c. No dividends were declared or paid.Required:1.
Go to the 11 transactions given in Newcombe Ltd (Practice problem C in Chapter 3) and complete the following tasks.1. Prepare a set of ledgers. Use the opening balances given in the balance sheet,
Courier Service Limited is engaged in the delivery of parcels in the city and suburbs. Ten light vans are used and, in addition to the manager and 10 drivers, two people are employed in the office.1.
The following events took place on 1 February 2016. For each event, give the journal entry (if any) that should be made to record the transaction in the accounts of Smith Ltd. Clearly indicate where
The events listed below all took place on 15 June 2016. Provide the journal entry necessary to record each event in the accounts of Company X for the year ended 30 June 2016. If no entry is required,
Cronulla Ltd experienced the following events. For each, say whether or not it is an accounting transaction and why, or why not.1. The CEO decided that the company's main factory would be reorganised
Take the transactions for Hoad Ltd (Problem 3.2 in Chapter 3) and:1. Prepare journal entries2. Post to the ledger accounts3. Prepare a trial balance4. Prepare closing entries5. Prepare an income
The following things happened to Bartlett Ltd last month. Decide if each is an accounting transaction and explain briefly why it is or it isn't.1. A customer ordered $6000 of products, to be shipped
1. Look at the list of accounts (in no particular order) of Geewhiz Productions at 30 November 2015 and decide which ones are income statement accounts.2. Calculate net profit based on your answer to
'I just don't understand it!' Barry had received his accountant's calculation of his business profit, showing an accrual profit for his first year in business of $45 290. 'If I made so much money,
Turku Services Company had a cash profit for its first year in business of $67 450 and an accrual profit of $49 860. Show how the two amounts reconcile, using the following information:1. Uncollected
Select Harvests Limited is an agricultural company, the core operations of which involve orchard development and, orchard management, as well as supply of almonds to the Australian and overseas
Below are some transactions for a retailer.1. The company orders 20 display stands for $300 each, to be delivered next month.2. The company repays $4000 principal on its loan (ignore interest).3. The
Below are some independent hypothetical situations.1. A company pays its shareholders a $90 000 cash dividend.2. A company borrows $25 000 from the local bank and signs a six-month note for the
The following transactions pertain to Rosewall Ltd for November 2015.1. The company was incorporated, with shareholders investing $250 000 in cash.2. Purchased $43 000 worth of inventory on credit.3.
North Shore Manufacturing Ltd had this balance sheet:During July 2016, North Shore Manufacturing experienced the following transactions: a. An amount of $8000 of accounts payable was
The following transactions occurred for Gilchrest Ltd (assume all beginning balances = 0) during the year ended 31 December 2016. a. Issued shares for $700 000 cash.b. Signed a contract on
Refer to the extracts of the 2014 annual report of Woolworths Limited in this book's appendix. All questions relate to the consolidated accounts.1. At what point in time is the balance sheet drawn
Copier Ltd manufactures and sells small home photocopiers to homes and small businesses; it also sells cartridges to go in the copiers and monthly magazines on running a small business.Consider the
LB Ltd had the following recent balance sheet as at 30 September 2016:1. Why is 'land' on the balance sheet, and what does it represent?2. On 5 October 2016, the company borrowed $2410 from the bank
On 1 January 2016, Y Ltd acquired 100 000 shares (30 percent of the voting interest) in P Ltd for $900 000 cash. On 30 June 2016, P Ltd announced its earnings per share for the first six months of
Respond to the question asked in each comment below.1. 'Warranties are honoured as part of good business practice: keep your customers happy. Whether to honour a claim, and how much cost to incur,
The following data is extracted from the accounting records of ABC Limited at 30 June 2016.What is the balance of current liabilities at 30 June 2016? $ Equipment Accounts receivable 400 000 90000
List four categories of liabilities.
Refer to the extracts of the annual report of Woolworths Limited in this book's appendix. All questions relate to the consolidated accounts.1. The company depreciates 'plant and equipment'. Provide
Big Ideas Ltd decided to buy parts of a competitor's business, which was cutting back operations.For a price of $4.2 million ($1 million down payment and the rest in four equal annual instalments,
Foofaraw Ltd paid $200 000 for the land, buildings, inventories and accounts payable of another business that will become a branch. The assets (after deducting the accounts payable of $50 000) had an
Kingfisher Ltd had the following noncurrent assets on its balance sheet at 30 June 2014:On 1 July 2014, the land was revalued to $300 000, and the plant and equipment was revalued to $140 000. One
Eaglehawk Ltd had the following noncurrent asset on its balance sheet on 30 June 2015. The company adopts a policy of depreciating all relevant items on a straight-line basis at an annual rate of 10
During the audit of the accounts of Hogarth Ltd for the year ended 31 December 2016, it was discovered that the following errors had been made during the year:1. Store fixtures that had cost $12 000
The following errors were discovered in the books of the Deep Appreciation Company during the current year, before the books were closed as at 31 December.1. Depreciation of $2140 relating to
Gibbs Ltd operates a manufacturing facility to produce its key products. On 1 July 2016, the balance of an equipment account was as follows:During the 2017 financial year, Gibbs Ltd incurred the
Quick Express, a leading courier company, sold a small delivery truck that had been used in the business for five years. The records of the company reflected the following:What is the journal entry
Alley Limited recently purchased certain manufacturing equipment for $810 000. The equipment is expected to have a useful life of four years and a salvage value of $10 000. The manager of Alley
On 1 January 2016, Yip Ltd acquired additional equipment at a cost of $120 000, less a trade discount of 25 percent. The terms of payment were 2/10, n/30. Payment was made on 20 January 2016. Freight
Below is a note from Eastwood Ltd's recent annual report:1. Summary of significant accounting policies on non-current assets Property and equipment - Property and equipment is recorded at cost and
The following information is taken from the accounts of Equipment Ltd.What was the depreciation expense for equipment for the year? $000 Equipment, 1 July 2015 2.500 Equipment, 30 June 2016 3900
Fred's Freighthauling Ltd has a small fleet of delivery trucks. Each one is depreciated on the reducing balance method (rate 20 percent; half of that in the year of acquisition and in the year of
At the beginning of 2015, SD Corporation acquired machinery that cost $100 000 and had an anticipated useful life of 10 years. SD Corporation depreciated this machinery for 2015 and 2016, using the
An item of equipment was purchased on 1 July 2008 at a cost of $625 000. It was estimated to have a useful life of four years and a salvage value at the end of that period of $25 000.1. Calculate the
Dombey & Son acquired a new machine on 1 January 2013 at a cost of $135 000. Freight and installation charges amounted to $25 000. The machine was expected to have a useful life of four years and a
The following events took place at Freddie Choo Painting during 2016:a. On 1 January, Freddie bought a van for $30 000. He had a tool chest and side racks for ladders installed for a total cost
Classify the following expenditures as an asset or an expense, and state your reasons why.1. A Ltd bought three new cars for its sales team, for a cost of $120 000. Two cars were air-conditioned at a
On 1 July 2016, Manly Ltd purchased some equipment for use in its operations. The useful life of the equipment is estimated to be 10 years. The company had made the following
Anne and Tony own a guesthouse and spent the following:1. Purchased a new air conditioning unit ($12000) and had it installed ($4000).2. Spent $300 000 constructing an extension to the guesthouse.3.
On 1 January 2016, Combo Ltd purchased a factory (and the land on which it stood), together with the machinery in it, for $700 000 in total. The independently determined appraisal values were:In
At the beginning of 2015, Garrison Ltd acquired machinery that cost $100 000, had a useful life of 10 years and zero scrap value. During 2015 and 2016, the company depreciated this machinery using
Explain clearly why, and how, capitalising the costs of a development project as a deferred costs asset affects the income statement and the balance sheet.
Briefly explain what is meant by the statement: 'Under historic cost accounting, depreciation is a process of allocation.' Include in your answer some reference to the key assumptions that support
Why record depreciation expense by debiting the expense and crediting accumulated depreciation? Why not just credit the asset cost so that the balance sheet shows just the remaining undepreciated
What is recoverable amount?
Winedark Sea Ltd sells prints of classic paintings. The prints are done on expensive paper and are quite costly. Pricing the prints to sell is hard because the popularity of a print is difficult to
The following transactions relate to a computer game sold by Wiley Louvres Ltd for the period 1 January to 31 December 2016:1 Determine the cost of ending inventory as at 31 December 2016 and the
The following information is taken from the accounting records of Golden Ltd for the year ended 31 December 2016. Golden Ltd uses a perpetual inventory system.Determine the cost of ending inventory
Hamish's Slot Cars Pty Limited is an importer of high-quality racing tracks and slot cars. The following are extracts from the company's financial statements for the year ended 31 March 2016.Note 1 -
The following data relates to Fay Ltd, a company that buys and sells only one product:1. Calculate the cost of ending inventory and the COGS, assuming:a. A perpetual system using the LIFO cost flow
The BabyStyle Company is a retail firm buying and selling a single product: prams for babies. A system of perpetual inventory is employed. During the six months ended 30 June 2016 the inventory
Dizzy Lizzy, an entrepreneurial fortune teller, also sells tarot cards as a profitable sideline to her highly successful telephone clairvoyant service. The following information relates to
XYZ commenced operations on 1 June 2016 selling one type of shirt. The company uses FIFO (first in, first out) and perpetual inventory control. The June inventory and sales records for the shirts
Suppose you were a shareholder in a company that switched its inventory costing method from FIFO to weighted average and, as a result, the company's reported net profit dropped by $2 million. What
What is the connection (if any) between a company's revenue recognition policy and its inventory cost determination policy?
Under which circumstances would each of the following inventory cost flow assumptions be appropriate? a. Specific identification (actual cost of items on hand)b. LIFO cost flow
Which cost flow assumption do you believe gives the most appropriate asset figure in times of rising prices?
Explain the impact on the financial statements of using FIFO, weighted average and LIFO. When would the three methods give similar profit figures? When would they give identical profit figures?
What is included in the cost of inventory? What is not included in the cost of inventory?
Linder what circumstances will the perpetual and periodic inventory systems give the same COGS figure? How can this occur if one method treats purchases as an asset and the other method treats

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