Reference no: EM131172398

FINANCIAL ACCOUNTING GROUP ASSESSMENT

Question 1 - Elite Trading Company started its business last year 2015. Its unadjusted trial balance as at 31 July 2016 is given as follows:

Accounts Titles	Dr($)	Cr($)
Capital - Don		226,400
Drawings - Don	29,230
Inventory, 1 August 2015	73,600
Cash at Bank	58,630
Trade receivables	245,700
Trade payables		106,560
Sales		1,553,468
Returns	30,177	27,270
Purchases	770,568
Carriage inwards	19,640
Carriage outwards	31,680
Commission income		12,120
Utilities expense	67,400
Repairs expense	14,655
Advertising expense	33,950
Insurance expense	51,900
Salaries and wages expense	295,320
Sundry expense	9,158
Sales discount	4,800
Office equipment	385,360
Accumulated depreciation-Office equipment		113,000
Furniture & fittings	199,050
Accumulated depreciation-Furniture & fittings		79,000
5% Bank Loan, due in 2022		200,000
	2,320,818	2,320,818

The following additional information was extracted from the records towards the end of the financial period.

1. Sales of an office printer of $510 was credited to Sales Account in error.

2. Elite Trading Company owed a credit supplier $35,900 and settled the amount early and was given a 2% cash discount. The accounts clerk recorded the discount given but omitted the payment.

3. A cheque of $1,210 received from a trade debtor, Ernest, was recorded in the accounts as $1,120.

4. Payment of $10,800 for shipping goods to customers in July 2016 was recorded as payment for shipping goods from suppliers.

5. Rental income of $13,800 for period from April 2016 to August 2016 had been received but not recorded.

6. Advertising expense shown in the trial balance above was for the period from April 2016 to August 2016.

7. The 5% bank loan was taken on 1 February 2016. The interest expense has yet to be accounted for.

8. Annual depreciation on fixed assets were as follows:

i. Office equipment - $15,100

ii. Furniture & fittings - $17,900

9. A physical count on 31 July 2016 revealed stocks on hand to be $113,390.

Required:

(a) Prepare the necessary general journal entries to record transactions (1) to (8). Narrations are not required.

(Hint: For some transactions, you will need to create new accounts which are not shown on the trial balance.)  

(b) Prepare the following financial statements for Elite Trading Company:

(i) Income Statement for the year ended 31 July 2016

(ii) Statement of Financial Position as at 31 July 2016

Question 2 - The following were extracted from the accounting records of Kelly Enterprise as at 30 April 2016:

Assets	$	Liabilities	$
Inventory, 30 April 2016	27,430	Trade payables	41,600
Trade Receivables	45,900	Other payables	13,785
Cash at Bank	30,710	Bank Loan	80,000
Equipment, net book value	108,200	Capital, 30 April 2016	90,500
Furniture & fittings	13,645
Total	225,885	Total	225,885

A number of errors and omissions have been made in the accounting records. They are given as follows:

1. Purchases discount of $19,500 were recorded twice in the accounts.

2. A payment of $12,500 made to trade creditors was wrongly recorded as $15,200.

3. Sales return of $5,370 was recorded in the correct accounts but on the opposite sides.

4. A photocopier bought for $3,800 to be used in the office was wrongly entered to the furniture account.

5. Total insurance expenses recorded in the accounts were $48,000. A review confirmed that this amount was for period 1 December 2015 to 31 May 2016. No adjustments have been made so far.

6. Kelly the owner paid other creditors with a personal cheque of $4,000.

7. A cheque for $20,000 to settle the bank loan was recorded as a loan from the bank.

8. An outstanding commission receivable of $21,000 for April 2016 has been omitted from the records.

Included in the Capital account balance is the draft net profit of $31,345 for the year ended 30 April 2016.

Note: The Inventory account based on the physical stock take on 30April 2016 has not been affected by all the errors and omissions relating to sales and purchases.

Required:

(a) Prepare a statement showing the following:

(i) Effects of each of the items (1) to (8), if any, on the draft profit and;

(ii) Corrected net profit for the year ended 30 April 2016.             

(b) Calculate the following values as at 30 April 2016, showing clearly the individual accounts and their corrected ending balances:

(i) Total Assets

(ii) Total Liabilities

(c) Calculate the closing Capital account balance, incorporating the corrected profit and all other transactions affecting equity. 

Question 3 - Sam Lee Co. adopts the periodic inventory system to account for its inventory, item 128A.

Opening inventory comprises 700 units purchased at $15 each and the following data shows the trading transactions for the quarter ended 30 June 2016.

Date	Item 128A	Units	Unit Cost Price	Unit Selling Price
10-Apr	Purchase	1,000	$16
27-Apr	Sales	900		$22
3-May	Purchase	800	$17
12-May	Sales	480		$23
30-May	Sales	310		$23
8-Jun	Purchase	650	$18
28-Jun	Sales	590		$24

Required:

a) Calculate the cost of goods sold, ending inventory value and gross profit for the year, under the following cost flow assumptions:

i) First-in, first-out (FIFO)

ii) Last-in, first-out (LIFO)

iii) Weighted average cost (AVCO)

You are to show all your workings clearly.

b) Any errors in merchandise inventory will affect the balance sheet and income statement. State THREE inventory errors that may occur.