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business
intermediate accounting

Questions and Answers of Intermediate Accounting

A. Show the journal entries to record the following transactions for Murrurundi Ltd.1. Profit for the year was $1 750 000. Ignore income tax.2. Directors
During the year ended 30 June 2016, the directors of Jindabyne Ltd declared and paid an interim dividend of $18 000 out of retained earnings. At the end of the year the financial statements showed a
The following information relates to Nevertire Ltd. Profit before income tax for the year ended 30 June 2016 was $220 000. The following items were used in determining that profit:SalesCost of
Penshurst Ltd’s balance sheet, before a share dividend, is as follows:Peru ltdBalance Sheetas at 30 June 2016ASSETSCash at bankNon-current assets$ 20000150000EQUITYShare capitalGeneral
During the year ended 30 June 2016, the directors of Cooma Ltd paid a final dividend out of retained earnings of $60 000, which had been recommended at the end of the previous financial year. They
Bega Ltd was registered as a new company on 2 January 2017. On that day a prospectus was issued inviting applications for 300 000 ordinary shares at $10, payable $2.50 on application, $2.50 on
Maitland Ltd has issued 2 000 000 ordinary shares for $4 and 200 000 8% preference shares for $4, all shares being fully paid. On 30 September 2016 at the annual general meeting of the company, a
The following is an actual case:Fortescue raises $504mIron ore hopeful Fortescue Metals Group has raised $504 million to fund expansions to its emerging project in the Pilbara region of Western
The following events occurred in the newly formed company, Armidale Ltd, which was registered on 31 January 2016:2016Feb. 1Mar. 1Sept. 20Oct. 20Nov.
Scone Ltd was registered on 1 February 2016. The following events occurred in that year:Feb. 1Mar. 15Mar. 1825000 ordinary shares were allotted to the original members. The shares
On 1 July 2016, Denman Ltd issued a prospectus offering 160 000 of its ordinary shares, payable $1on application, $1 on allotment and $2 to be called as and when required. When applications closed on
On 30 April, Tamworth Ltd issued 40 000 shares for $6 each, payable $2 on application, $2 on allotment and the remainder due by two equal calls on 30 June and 31 August. Share issue costs of $3500
Warren Ltd was organised on 2 January 2016, and proceeded to issue 100000 9% cumulative preference shares and 200000 ordinary shares. The preference shares were issued privately at a value of $2 each
The directors of Dunedoo Ltd decided to issue 100 000 ordinary shares.RequiredA. Prepare journal entries (in general journal form) to record the issue of shares as a private placement to Good Times
‘A company must have made sufficient profits before it can pay dividends to its shareholders.’ Discuss.
A well-established company, which wanted to raise finance for expansion, decided to issue some preference shares. The terms of the issue were that the shareholders did not have the right to vote at
‘Preference shares can offer security of dividends and other advantages over ordinary shares, and are therefore the best equity to have in a company.’ Do you agree? Explain.
How should a company account for its start-up costs, and its share issue costs? How should a company account for the fees paid to an underwriter?
Distinguish between a private placement, a public share issue and a rights issue. Distinguish also between a renounceable rights issue and a non-renounceable rights issue.
Explain the purpose of each of the following accounts used in a public share issue: Share Capital, Application, Cash Trust, Allotment, Call, Calls in Advance.
‘It is better for a company to have a constitution rather than rely on the replaceable rules in the Act.’ Discuss.
What are the contents of an application form to register a company?
What is the difference between a small proprietary company, a large proprietary company and a public company?
Two partners in a business are discussing the possibility of incorporating their business as a proprietary company. Discuss the advantages and disadvantages that this move would potentially bring to
Refer to the latest financial report of Country Road Limited on its website, www.countryroad.com.au, and answer the following questions using the consolidated income statement and balance sheet/
Craig Fraser and Michelle Mason set up a partnership to run a small retail business. Craig contributed $60 000 to begin the business and Michelle’s contribution was $50 000. Craig is confident
Divide into groups of three or four according to students’ major areas of interest — for example, a group of commerce students, a group of management students, a group of marketing students.
A. Calculate the amount of profit distribution to each partner under each scenario. Which scenario is most favourable to O’Malley and to O’Reilly?B. Given the capital commitments and expertise of
Jones, Jackman and Johnson are partners in the consulting firm of Triple J Partners. The balance sheet of the partnership as at 30 June 2015 is set out below.It was agreed that all profits be divided
Miller, Morris and Mason are partners in the consulting firm of MMM Partners. The balance sheet of the partnership as at 30 June 2015 is set out below.It was agreed that all profits should be divided
Harris, Harmar and Higgins are partners in the consulting firm of Harris and Associates. The balance sheet of the partnership as at 31 March 2015 is shown below. It was agreed that all profits
At the end of the financial year ended 30 June 2015, the trial balance of Veronica, Valda and Victoria is as shown below.Victoria made her advance before 1 July 2014. Veronica and Valda each withdrew
Gregory and Simpson share profits in a proportion of 60:40. Gregory is entitled to a salary allow¬ance of $60 000 p.a., and Simpson is entitled to $50 000 p.a. Capitals are fixed at Gregory $72 000
On 1 July 2015, McGregor and Roberts decided to amalgamate their businesses and to share profits equally. Financial information at that date was:McGregorRobertsCapitalAccounts payableBank
Selected accounts from the trial balance as at 30 June 2016 of the partnership of Amber, Ruby and Gemma are as follows:DebitCreditAmber, CapitalAmber, Retained earningsRuby, CapitalRuby, Retained
Richards, David and Andrews decided to enter into a partnership agreement as from 1 July 2015, some of the provisions of which were as follows.1. Richards to contribute $20 000 cash, inventory the
Francine Steele and Shaun Dunn formed a partnership on 1 July 2015. Some of Steele’s business assets and liabilities were assumed by the partnership, and these are listed below at both carrying
On 1 October 2015, Dallas Lucas and Suzanne Foreman formed a partnership. Some business assets and the liabilities of Lucas were assumed by the partnership, and these are listed below at both
The partnership deed of Dustin, Daniel and Dylan, partners trading as Triple D Traders, includes the following provisions. 1. Salaries are to be allowed: Dustin, $35 000; Daniel, $30 000; Dylan,
A partnership is formed by Robert investing $150 000 and Linda investing $100 000. The partners are considering the following plans for dividing profits and losses:(a) According to the ratio of their
Philip and Lance have decided to form a partnership by investing $100000 and $80000 respectively. The following plans for dividing profits and losses are under consideration: (a) Sharing
Anthony Chu and Adrian Tan formed a partnership on 1 January 2015, agreeing to share profits and losses equally. Anthony contributed $80 000 in cash and plant and equipment with a fair value of $120
John Landis and Raymond Oliver formed a partnership on 1 July 2015, agreeing to share profits and losses in the ratio of 2:1. John contributed $30 000 in cash and land with a fair value of $180 000.
Bonnie and Clyde have a partnership to run their human resource management services firm. Account balances related to their equity for the year ended 30 June 2016 are as follows:Capital Balance 1
Paul and Justin began their partnership on 1 July 2015 by contributing $320000 and $280000 respectively. During the first year of business, Justin contributed another $40000 and Paul with¬drew
Wendy, William and Wanda are independent website developers who had been trading in active opposition to one another for some years. They decide to form a partnership, WWW Web Devel¬opers, as from 1
Greg, Graham and Gordon are partners. The partnership agreement provides that partners will receive interest of 8% of their average capital balance and a salary allowance as
Martin and Brett share profits on a 60:40 basis respectively. On 1 July 2016 the equity accounts were as follows:MartinBrettCapitalRetained
Terry and Craig share profits in the proportion of one-third and two-thirds respectively. On 1 July 2015, the equity accounts stood as follows:TerryCraigCapitalRetained
Meagan and Jenny are in partnership, sharing profits equally. Provision exists in the partner¬ship agreement for charging interest on capital at the rate of 8% p.a. and interest on drawings at 10%
Barrett and Pickering run a market stall together as a partnership. On 30 November 2016, Barrett withdrew $12 000 cash. Pickering withdrew $8000 on 20 December 2016. On 31 March 2017 Pickering
Thomson and Turner formed a partnership by investing $110 000 and $90 000 respectively. The partnership had a final profit of $72 000 in the first year.RequiredA. Prepare the journal
Warren and Winston’s partnership had a final profit for the year of $40 500. When the partnership was formed at the beginning of the year Warren invested $150 000 and Winston invested $100
Penny and Lane formed a partnership on 1 July 2015 with initial capital balances of $200 000 and $220 000 respectively. For the year ended 30 June 2016, the Profit or Loss Summary account dis¬closed
Godfrey and Taylor formed a partnership on 1 July 2015 with initial capital balances of $90 000 and $60 000 respectively. For the year ended 30 June 2016, the Profit or Loss Summary account disclosed
Refer to the data presented in exercise 15.2. Assume further that Pike and Smith agree that their opening capital balances in the new partnership should be the same and set the amount at $90
Tammie Pike and Gail Smith agree to combine their businesses and form a partnership. The fair value and the carrying amount of the assets contributed by each partner and the liabilities assumed by
Thomas and James, who were operating separate competing businesses, decided on 1 July 2015 to form a partnership by contributing cash, assets and liabilities of their respective businesses. At that
Ethan and Amy, who have been friends for a long time, decide to go into partnership selling a range of pet accessories. They seek advice from an accountant regarding the best system, the generally
Eduardo and Evanthia run a craft shop as a partnership. During the year Eduardo incurred an unusual amount of personal expenses in relation to his family and felt that his share of the partnership
Hannah and Jeremy set up a partnership to run a café. At the time of establishing the business, Hannah was in a better financial position than Jeremy and so contributed 60% of the capital required.
‘Partners’ advances and capital both represent money contributed to the partnership by the partners. Therefore the accounting treatment for interest paid on advances and capital should be the
A student of accounting was heard to remark: ‘You really do not need a Profit Distribution account when accounting for profit distribution in a partnership. Everything can be done through the
‘The accounting treatment of a partner’s drawings differs when separate Retained Earnings accounts are kept for each partner as opposed to not having Retained Earnings accounts. Choice of method
Liam sold his partnership interest to Jason even though his other partners were unaware that Liam intended to do so. Does Jason have the right to be a partner? Does Jason have the right to take over
Which is likely to last longer and why: a partnership or a company?
‘There is really no need for a partnership agreement since all issues likely to arise among partners are adequately covered in the appropriate Partnership Act.’ Discuss.
‘The big disadvantage of a sole trader business is that the personal liability of the owner is unlimited — the owner could lose everything. I think I will take on a partner and convert my
Refer to the latest financial report of JB Hi-Fi Limited on its website, www.jbhifi.com.au, and answer the following questions:A perusal of the report clearly indicates that JB Hi-Fi Ltd does make
Creekside Cement Ltd is considering purchasing a new cement-mixing truck. The supplier of trucks, Sea Meant Trucks Ltd, sells its trucks for $350000 cash or customers can purchase them by paying
The Hyupp Group runs five-star hotels in most major cities. The group is looking to build a six-star luxury resort in South-East Asia on a remote island. The chief financial officer prefers to use
A. Assuming that Fonus Ltd will continue to produce 300 000 phones each year, should the plastic casings be made by Fonus or bought?B. If Fonus Ltd produces 500 000
Ben’s Big BBQs Pty Ltd makes large barbecues and sells them through specialist barbecue stores and outdoor furniture stores. Ben’s Big BBQs Pty Ltd has been approached by a national department
Flasher Freight Ltd is considering three investments for the new year. The company has a cost of capital of 12%. Summary information concerning the net cash inflows of the investments and their
Evans Engineering is an engineering consulting firm specialising in the installation of electronic communications systems. The company is considering the purchase of testing equipment that will be
Medrano Ltd is a furniture manufacturer. The company is looking at three alternative specialised machines to replace its existing production line. Data for each of the machines are as
Wilde Marketing Partnership, marketing consultants, is considering a project requiring considerable expansion of its current operations. This will require the purchase of equipment at a cost of $600
Pierre Ltd is a catering business owned by well-known chef Pierre Boudin. It is organised as two divisions, each with its own manager. There is the Shop Division, managed by Louise Lane, that runs
Truong Trucking Co. Ltd operates a freight service and is planning the next year’s operation. The company’s assets are estimated to be $30 400 000 at the beginning of the financial year and $30
Green Gnome Ltd produces garden fertilisers. The fertilisers are made into pellets which are sold in 5-kilogram packets. The fertilisers are based on a basic mix of minerals and nutrients that make
Retelsdorf Ltd manufactures tablet screens. Recently, the company has been producing slightly below 75% of capacity and management is considering how to use currently unused plant capacity. One
SpeedBurn Ltd manufactures DVD burners and is considering expanding production. A distributor has asked the company to produce a special order of 3000 DVD burners. The burners will be sold using a
Abeer Kalaba is the owner of a Champion Chips Pty Ltd, which produces communication chips for mobile phones. The company has two production lines, one for a standard communication chip that is also
Kellaway Ltd is considering installing a computer controlled production line to significantly reduce its manufacturing costs. The annual after-tax cost savings are expected to be $460000, and the
Hentschke Ltd produces two products, X and Y, at a joint cost of $480 000. The company can sell 620 000 units of product X for $30 per unit, or the units can be processed further at a cost of $160
Butterworth Boats Ltd produces boats for water skiing. The motors for the boats are currently purchased from an outside supplier at a cost of $4000 each. Some factory space that Butterworth Boats Ltd
The screens for mobile phones are currently purchased from an outside supplier at a cost of $40 each by Futuristic Phones Ltd. The company is concerned about the quality of the screens it is buying
Bradshaw Bakeries Ltd is evaluating investment alternatives for three machines and has compiled the following relevant information:InvestmentMachine M1Machine M2Machine M3Initial
Fizulic Filters is considering the purchase of equipment that will produce net after-tax cash savings over the useful life of the equipment of 5 years as follows:YearAfter-tax
Home whitegoods manufacturer, Mozzi Ltd, is evaluating the purchase of a new machine that will cost $580 000 and be paid for in cash. The machine will be depreciated over 10 years with a resale value
Qin Ltd wants to determine its cost of capital to use in future capital budgeting decisions. The company’s capital structure is as follows:Source of capitalAmountAfter-tax
Chocolate Daydreams Ltd produces chocolates and is evaluating the purchase of a new machine that will cost $1060000 and have no residual value. Annual net cash inflows (including tax payments) for
Siciliano Ltd, from exercise 14.9, requires a minimum return on investment of 16%.RequiredCalculate the residual profit for the Phone Screen and the Computer Screen divisions of Siciliano Ltd using
Phone Screens and Computer Screens are two divisions operated as investment centres of Siciliano Ltd. Management wants to know which of the two earned the highest return on investment for the year
Violante Ltd operates four departments, and data relevant to each are:DepartmentSalesCost of salesOther expensesAssetsBeginningEndElectrical
Tscharke Ltd manufactures and sells four products — A, B, C and D. The selling prices, variable costs, and number of machine hours required to produce each product are as follows:ProductSelling
Gazzola Ltd produces four joint products — A, B, C and D — at a total cost of $325000. The company can sell the products immediately at the split-off point for $100000, $40000, $90000 and $85000
Fo University Ltd is a private provider of diplomas in human resource management and is trying to decide whether to employ a new full-time staff member or whether to use casual staff paid by the hour
Blagojevic Ltd manufactures hard disk recorders for television and makes all parts for the machines, including the outside casing. The cost per unit of the casings at a production level of 150000
McKenzie Music Ltd manufactures hand held game players at a per-unit cost of:Direct labourDirect materialsVariable factory overheadFixed factory overhead$ 6183630Total unit cost$90The company

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