Accounting 101 Exam-style question

ACCOUNTING

CLOSED BOOK

Instructions

Answer ALL of Section A, B and Section C.

Marks are specified next to each question.

Section A is worth 30% of the total marks.

Section B is worth 40% of the total marks.

Section C is worth 15% of the total marks

Section D is worth 15% of the total marks

A Present Value Table is included on Page 8 of the exam paper.

SECTION A: Answer ALL of Question A.

QUESTION A (Total 30 marks)

The following information relates to Imperial Tech Ltd.

Trial Balance for the year ending 31 December 2015
	£
Land and Buildings	95,000
Trade receivables	75,000
Purchases of inventory	150,000
Retained Earnings at 31 December 2014	130,000
Inventories at 31 December 2014	15,000
Furniture and fixtures	30,000
Sales revenue	266,000
Distribution cost	40,000
Administrative expenses	50,000
Trade payable	54,000
Motor vehicles (net book value)	40,000
Cash and Bank	55,000
Equity share capital	80,000
Loan	20,000
Total	1,100,000

You are also given the following information, which is not reflected in the trial balance

Notes: 1. Inventories at 31 December were £25,000 2. Dividend proposed for 2015 was £7,000 and not yet paid 3. An accrual for distribution cost of £3,000 was required at 31 December 2015 4. A prepayment of £5,000 was wrongfully booked on administrative expenses 5. Tax was estimated at £19,000 to be payable on the profit of 2015 6. Annual depreciation charges on land & Buildings and Motor Vehicles are included in the administrative expenses and distribution costs, and in the accumulated depreciation used to calculate the net book values of £95,000 and £40,000 respectively, shown in the trial balance. 7. The furniture and fixtures balance of £30,000 relates to the purchases of assets during 2015. The depreciation cost are not included in the trial balance yet. They are require to be calculated on a straight line basis for the full year of 2015, based on a useful life of eight years and an estimated residual value of £6,000 8. Interest is 10% on the loan and not paid yet

Required:

(a) Prepare the Income Statement of 2015 and Statement of Financial Position (Balance Sheet) as at the date. (20 marks)

(b) Explain what adjusting entries are. (10 marks)

End of Section A

SECTION B: Answer ALL of Question B. (Total 40 marks)

1. The Balance sheet at 31/12/2015 of Orange Ltd contained the following information

· Retained Earnings: 1/1/2015: £123 million

· Retained Earnings at 31/12/2015: £197 million

· Revaluation reserve 1/1/2015: £69 million

· Revaluation reserve 31/12/2015: £69 million

Net income in 2015 was £134 million. How much dividend was paid?

a. £63 million

b. £60 million

c. £73 million

d. £134 million

e. £257 million

2. The furniture and fixtures balance of £30,000 relates to the purchases of assets during 2015. The depreciation costs are not included in the trial balance yet. They are required to be calculated on a straight line basis for the full year of 2015, based on a useful life of 8 years and an estimated residual value of £6,000 and to be included in the administrative expenses and accumulated depreciation. Depreciation expenses are:

a. £6,000

b. £5,000

c. £4,000

d. £3,750

e. £3,000

3. An entrepreneur purchases a machine to the amount of £40,000 on January 2006. The machine has an expected life span of four years. Each year the machine is depreciated by £8,000. What is the residual value of this machine?

a. £6,000

b. £4,000

c. £8,000

d. £2,000

e. £0

4. Flight Inc. is considering the purchase of a machine that would cost $200,000 and would last for 4 years. At the end of 4 years, the machine would have a salvage value of $18,000. By reducing labour and other operating costs, the machine would provide annual cost savings of $78,000. The company requires a minimum return of 6% on all investment projects. The net present value of the proposed project is closest to:  

a.  $69,420 b.  $65,490

c. $70,278

d. $84,526 e.  $112,000

5. Sarah’s accountant recorded cash flows for several transactions:

Payment of dividend £185,000 Payment for the purchase of equipment £180,000

Payment to repay loans £175,000

Payments from issuing new debentures £550,000

Payment of salary and wages £350,000

Based on these recordings, what are the cash flows from financing activities?

a. £10,000

b. £20,000

c. £100,000

d. £190,000

e. £350,000

6. Astra recorded the following cash flow transactions:

Purchases of patents £50,000

Purchases of inventory £75,000

Purchases of machinery £45,000

Taxes paid £25,000

Based on these recordings, what are the cash flows from investing activities?

a. -£20,000

b. -£30,000

c. -£95,000

d. -£150,000

e. +£75,000

7. Ebony Ltd has fixed assets worth £100,000, Current Assets worth £ 180,000 and Current Liabilities worth £ 80,000. The current ratio is?

a. 1.0

b. 1.8

c. 2.25

d. 3.5

e. 4.15

8. Imperial Surf manufactures and sells one type of surfboards. The following information is available: The fixed selling price per board is £625, the fixed costs are £450,000 and the variable cost per unit are £250. What is the break volume?

a. 800 units

b. 1,000 units

c. 1,200 units

d. 1,600 units

e. 1,800 units

9. For 2017 Imperial Surf has budgeted a turnover of 2,000 boards at £625 each ( = £1,250,000 turnover in total). The fixed costs are £450,000 a year and the variable costs are £250 per unit. What is the safety margin?

a. 20%

b. 40%

c. 45%

d. 50%

e. 55%

10. French Connection Company has a cash balance of $10,000 on 1 December. The company must maintain a minimum cash balance of $5,000. During December expected cash receipts are $37,000. Expected cash disbursements during the month total $52,000. During December the company will need to borrow

borrow: 

a. £5,000

b. £10,000

c. £15,000

d. £35,000

e. £0

a.

SECTION C Answer all questions Section C.

QUESTION C1 (Total 15 marks)

Hodgson Ltd produces two products, the Lewington and the Neville. As the management accountant, your role is to prepare the budgets for the forthcoming year to 31 December 2017. Budgeted production and sales information is provided below.

	Lewington	Neville
Sales year end 31/12/17 (units)	7,200	9,500
Sales year end 31/12/18 (units)	8,000	5,600
Selling price (£)	200	500
Closing stock (as a % of 2018 sales)	11%	15%
Actual opening stock (units) at 01/01/2017	500	600
Material X per unit (kg)	8	7
Material Y per unit (kg)	5	17
Labour hrs per unit	15	13

Materials	X	Y
Budgeted closing stock, 31/12/2017	11,800	20,200
Actual opening stock (kgs) 01/01/2017	10,300	22,300
Purchase price	7	4

Budgeted labour costs are £6/hr for labour.

You are required to:

Prepare the following budgets for the year ending 31 December 2017:

a) Production budget (in units produced). (5 marks)

b) Materials (in kg and £s). (5 marks)

c) Explain the benefits that these budgets provide in the planning and decision-making process. (5 marks)

SECTION D Answer all questions Section D.

QUESTION D1 (Total 15 marks)

Boom Ltd sells two products, the ‘Crash’ and the ‘Bang’. Budgeted sales by product and in total for the coming month are shown below:

	Crash	Bang	Total
Percentage of total unit sales	25%	75%	100%
Sales volume (units)	50,000	150,000	200,000
	£	£	£
Sales	1,000,000	1,800,000	2,800,000
Less variable expenses	(600,000)	(1,200,000)	(1,800,000)
Contribution	400,000	600,000	1,000,000
Less fixed expenses			(640,000)
Profit			360,000

You are required to:

a) Calculate the budgeted break-even point in units, and the margin of safety in %. (10 marks)

b) Calculate the unit sales required to achieve a profit of £500,000. (5 marks)

End of paper

Present Value Tables

Year1%2%3%4%5%6%7%8%9%10%

1

0.9900.9800.9710.9620.9520.9430.9350.9260.9170.909

2

0.9800.9610.9430.9250.9070.8900.8730.8570.8420.826

3

0.9710.9420.9150.8890.8640.8400.8160.7940.7720.751

4

0.9610.9240.8880.8550.8230.7920.7630.7350.7080.683

5

0.9510.9060.8630.8220.7840.7470.7130.6810.6500.621

6

0.9420.8880.8370.7900.7460.7050.6660.6300.5960.564

7

0.9330.8710.8130.7600.7110.6650.6230.5830.5470.513

8

0.9230.8530.7890.7310.6770.6270.5820.5400.5020.467

9

0.9140.8370.7660.7030.6450.5920.5440.5000.4600.424

10

0.9050.8200.7440.6760.6140.5580.5080.4630.4220.386

Discount Factor

Year11%12%13%14%15%16%17%18%19%20%

1

0.9010.8930.8850.8770.8700.8620.8550.8470.8400.833

2

0.8120.7970.7830.7690.7560.7430.7310.7180.7060.694

3

0.7310.7120.6930.6750.6580.6410.6240.6090.5930.579

4

0.6590.6360.6130.5920.5720.5520.5340.5160.4990.482

5

0.5930.5670.5430.5190.4970.4760.4560.4370.4190.402

6

0.5350.5070.4800.4560.4320.4100.3900.3700.3520.335

7

0.4820.4520.4250.4000.3760.3540.3330.3140.2960.279

8

0.4340.4040.3760.3510.3270.3050.2850.2660.2490.233

9

0.3910.3610.3330.3080.2840.2630.2430.2250.2090.194

10

0.3520.3220.2950.2700.2470.2270.2080.1910.1760.162

Discount Factor