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Unit 1: June 2012, Question #1

3/14/2018

4 Comments

 
No. 2(c): Below are the related explanations and the journal entries with narratives to record the transactions of Bernice Inc.
Note 1:
The par value of the share is $10, however the 15,000 shares were exchanged for assets worth $240,000 therefore this means that they were issued at a value of $16 per share, ($240,000/1500 shares). The excess of $6, ($16-$6), is the par value is the share’s premium.
Notes 2 and 3:
Bernice Inc purchased 35% of the outstanding shares of Fly Corporation and Fly Corporation paid out a total cash dividend of $120,000. Therefore Bernice Inc received 35% of $120,000 = $42,000.
Note 4:
The loan interest due is calculated at $80,000 x 10% x 3/12 since only three (3) months interest has been accrued.
Note 5:
The value of the stock dividend paid is $10 x 9,000 shares.

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UNIT  1: June 2012, QUESTION #3

3/11/2018

2 Comments

 
WORKINGS:
Note 2:
The invoices for the utilities NOT received for June $12,000 is to be treated as a prepayment.
Therefore $12,000 will be recorded under the Current Assets section of the Statement of Financial Position. The balance of $70,000 for utilities from the trial balance will be adjusted to $58,000 ($70,000-$12,000), to account for the prepayment.               
Note 3:
The $2,000 prepayment for July and August 2011 will be recorded under the Current Assets section of the Statement of Financial Position. The balance of $14,000 for insurance from the trial balance will be adjusted to $12,000 ($14,000-$2,000), to account for the prepayment. 
Note 4:
Depreciation on Fixtures and Fittings: 25% x [$226,000-$88,000] = $34,500 for year 2011. This is the depreciation charge for the Statement of Comprehensive Income.
Accumulated depreciation charged on Fixtures and Fittings as at June 30th, 2011 - [$88,000 + $34,500] = $122,500. This is the accumulated depreciation figure for the Statement of Financial Position.
Note 5:
Depreciation on Buildings: 5% x [$592,000] = $29,600 for year 2011. This is the depreciation charge for the Statement of Comprehensive Income.
Accumulated depreciation charged on Buildings as at June 30th, 2011 - [$48,000 + $29,600] = $77,600. This is the accumulated depreciation figure for the Statement of Financial Position.                                         
Note 6:
The land has been revalued upwards therefore the double entry to record the revaluation of land is:
Debit:    Land Account     $12,000
                          Credit:        Revaluation Reserve Account     $12,000
Note the Revaluation Reserve Account will appear in the Statement of Financial Position.
Note 7:
The long term loan will be recorded as follows:
$10,000 will be recorded under the Current Liabilities section of the Statement of Financial Position as this portion is due to be paid in less than 1 year.
The balance $30,000, ($40,000-$10,000) will be recorded under the Non-Current Liabilities section of the Statement of Financial Position as this portion is not due to be paid in less than 1 year. 
Note 8:
The income tax liability of $40,000 is an expense and will appear in the Statement of Comprehensive Income. This figure will also be recorded under the Current Liabilities section of the Statement of Financial Position as it is an accrual.

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2 Comments

Unit  1: June 2012, Question #2 (a) & (b)

3/11/2018

2 Comments

 
No. 2(a): Completed table showing which characteristics are applicable to each type of business structure:
Picture
No. 2(b) (i): Below are the necessary double entries related to the preparation of the Capital Adjustment Account for the partnership before the admittance of Janet:

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2 Comments

Unit 1: June 2012, Question #2 (c)

3/11/2018

4 Comments

 
No. 2(c): Below are the necessary journal entries to record the issue of ordinary shares by Fancy Beachwear Inc. over the period 2009-2011. Please note that the journal entries were not a requirement of this question, but they are listed purely for teaching purposes.
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Unit 1: May 2011, Question #3 (a), (B) & (C)

3/5/2018

0 Comments

 
Question #3(a)
In the table below shows the computed ratios of both Panorama Company and the Kaiso Fiesta Company.
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Unit 1: May 2011, Question #2(b)

3/5/2018

0 Comments

 
Only one (1) benefit for each type of business entity was required, however for the sake of expanding students' knowledge, three (3) benefits are listed for each below.
  1. Benefits of operating as a proprietorship:
  • Easy to set up.
  • Ownership is easily transferable. The sole trader can sell or transfer ownership at their discretion.
  • No bureaucracy in the decision making process as the business is owned and controlled by one individual.
 
     2. Benefits of operating as a partnership:
  • Partners can share the responsibility of managing the organization which can go a long way to ease the burden usually associated with a proprietorship where there is only one person responsible for managing the entity.
  • There is an opportunity to raise more capital when compared to a proprietorship.
  • The partnership will benefit from synergy as each partner will bring their own set skills, experience, knowledge and contacts to business, potentially giving it a better chance at success than a proprietorship.
 
     3.  Benefits of operating as a company/corporation:
  • It is fairly easy for a company to raise larger capital amounts through the sale of shares.
  • The shareholders, who are the owners of the company, enjoy limited liability as they only stand to lose what they have invested in the company.
  • Corporations enjoy continuity as most businesses continue to operate after the death of the owners as shares are very easily transferable.

     4.  Benefits of operating as a non-governmental organization (NGO):
  • NGOs can usually access government funding in the form of grants.
  • NGOs are no liable to pay taxes.
  • NGOs are not required to publish their financial statements. This significantly reduces the expenses of this type of entity when compared to a company/corporation that is required to publish financial statements.
I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to comment below. Best of luck!
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Unit 1: May 2011, Question #2(a)

3/5/2018

0 Comments

 
Note 1
A sinking bond fund refers to money that a company was required to set aside in order to repurchase some of the bonds payable it has in issue, at some point in the future. A sinking bond fund is therefore a non-current asset that should be presented under the heading "Investments". To correct the presentation of this item $12,000 needs to be deducted from the current cash balance and the Sinking Bond Fund should be displayed in the non-current asset section of the Balance Sheet.
Note 2
The allowance for doubtful debt balance should be shown separately on the Balance Sheet even though it is deducted from the accounts receivable balance to arrive at net accounts receivables.
Note 3
$5,000 of the mortgage balance should be shown under the current liabilities section of the Balance Sheet as this portion is due to be paid in one year's time. The balance of $70,000 will appear under the non-current liabilities section.
Note 4
The cost of the equipment $112,000  and the accumulated depreciation of $28,000, figure should both be shown on the face of the classified Balance Sheet, in the non-current assets section.

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Unit 1: May 2011, Question #2(C)

3/4/2018

0 Comments

 
Below is the Multi-Step Income Statement for Pamponette Company for the year ended 31st December, 2010.
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I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to comment below. Best of luck!
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unit 1: May 2011, Question #1(a)

3/2/2018

4 Comments

 
Workings:
Important note; the year end for James Sargeant Compnay is the 31st March, 2009
Note 1
One month's prepayment for rent was made for April 2009. The value of the prepayment is $5,550/6mths = $925.
Note 2
Electricity has been accrued up to March 2009, but has only been paid up to 31st December, 2008. Therefore the entire amount of $1,785 must be recorded as an accrual.
Note 3
Calculation of the depreciation expense for the year ended 31st December, 2009 - 
18% ($138,900-$45,500) = $16,812.
Note 4
Inventory should be valued at the lower of cost and net realizable value. The cost of the inventory is $2,645 and its net realizable value is $4,000-$2,250 = $1,750. Therefore the value of the stock needs to be reduced by $895, that is $2,645-$1,750.
Note 5 
The updated provision for doubtful debt balance is 8% of $20,000 = $1,600. Therefore the current provision of $1,000 needs to be increased by $600.

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Unit 1: may 2011, Question #3(d)

3/2/2018

1 Comment

 
Contingency Liabilities and Contingency Assets.
  1.  The lawsuit brought against Montego Company by the factory worker is a possible contingent liability and should be disclosed in the notes to the financial statements. A provision for the contingent liability should not be made as it is only possible not probable, the range of the possible settlement should also be disclosed in the notes.
  2. Montego Company should create a  provision for the suit filed by the supplier as it is probable that the company will have to make payments in this regard. Montego Company also has a reliable estimate of the probable loss and there is a present obligation in the form of a contract, therefore a provision of $600,000 ($350,000+$250,000) should be created. This is done by debiting the Income Statement and crediting the provision for the liability with $600,000. Additionally, Montego Company should disclose the nature of the liability, the amount of the suit and the range of the possible loss.
  3. The anticipated gain related to the case with Peete Company should not be recorded, as a contingent gain should only be recorded when it has been realized. The contingent gain may be disclosed in the notes to the financial statement if Montego Company has determined that the probability of it being realized, is extremely high.
I hope that you found this proposed solution helpful! If you did please share it! Also, feel free to ask any questions or to comment below. Best of luck!
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    Author

    The author holds a Bsc (Hons) Degree in Applied Accounting from Oxford Brookes University, England and enjoys a successful career as an Accounting Supervisor and a private tutor.

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