Part b 12 marks the following information is for

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PART B (12 marks) The following information is for Nicki Ltd., which sells concert season tickets on an installment basis: 2008 2009 2010 Sales (on installment plan) $1,080,000 $1,080,000 $900,000 Cost of Sales 765,000 791,400 576,000 Gross Profit $315,000 $288,600 $324,000 Collections from customers on: 2008 installment sales $525,000 $300,000 $255,000 2009 installment sales 600,000 360,000 2010 installment sales 330,000 Required: Prepare all journal entries that are required in 2010 under the cost recovery method accounting. No explanation is necessary. of Date Account Name Debit Credit ******END OF MIDTERM******
15 Question 1 (a) Dr Cr Inventory write-down expense (50,100 - 41,700) 8,400 Inventory 8,400 2 Bad debts expense (5,480 4,700) 780 Allowance for doubtful account 780 2 Prepaid rent (14,600 x 9/12) 10,950 Rental expense 10,950 2 Depreciation expenses (360,000/25) 14,400 Accumulated depreciation office building 14,400 2 Tax expenses 3,600 Tax payable 3,600 2
1 1 2 2 2 1 1 1 1 $ $
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17 ii) Rainbow Limited Statement of Changes in Equity For the year ended 31 December 2013 Share capital Retained Earnings Revaluation reserve (AOCI) Total $ $ $ $ Balance at 1 January 2013 200,000 163,430 2,000 Net income 1,370 Dividends - Interim (7,000) Revaluation 1,000 Issue of share capital 80,000 Balance at 31 December 2013 280,000 157,800 3,000 $440,800 1 2 1 1
18 iii) Rainbow Limited Statement of Financial Position as at 31 December 2013 $ $ Current assets Cash at bank 174,060 0.5 Accounts receivables, less AFDA (177,000 - 5,480) 171,520 1.5 Inventory (141,800 8,400) 133,400 1.5 Prepaid rent 10,950 1 Total current assets 489,930 Non-current assets Freehold land 148,000 0.5 Office building, less accumulated depreciation [360,000 - (86,400 + 14,400)] 259,200 2 Equipment 67,200 474,400 0.5 Total assets 964,330 0.5 Current liabilities Accounts payable 227,630 0.5 Short-term borrowings 52,300 0.5 Current portion of loan payable 48,000 1 Tax payable 3,600 0.5 Total current liabilities 331,530 Non-current liabilities Loan payable (240,000 - 48,000) 192,000 1 Total liabilities 523,530 0.5 Equity Share capital Ordinary shares 280,000 0.5 Retained earnings 157,800 1 Asset revaluation reserve (AOCI) 3,000 1 Total liabilities & equity 964,330 0.5
19 Question 2 PART A 1. RELEVANCE (MATERIALITY) - The concept refers to amounts that would be able to affect the decision of a financial statement user. In the case of the penalty, Mr. Kim is correct that it wouldn’t matter quantitatively to the financial statement users. But, for the case, it is arguable if there is any qualitative concern about the company’s internal control, depending on the argument. Hence, he can choose to disclose the item and present it linked with other items on the income statement if the justification is legit. (Agree or disagree) 2.

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