Maddox Smith Staff asked 5 years ago

Neswick

Q.1 (Marks: 5)  Arthur Chen, a newly qualified accountant, was on his second audit job in a country area with a new client called Parson Farm Products. He was looking through the last four years of financials and doing a few ratios, when he noticed something odd. The current ratio went from 1.9 in 2009 down to 0.3 in 2010, despite the fact that 2010 had record income. He decided to sample a few transactions from December 2010. He found that many of Parson’s customers had returned products to the firm because of substandard quality. Chen discovered that the business was clearing the receivables (that is, crediting accounts receivable) but hiding the debits in an obscure non-current asset account called ‘grain reserves’ to keep the firm’s income ‘in the black’ (that is, positive income).  Requirement:  1- How did the fraudulent accounting just described affect the current ratio? PRBA001 Summer Semester, 2015  Page 3   Q.1  (Marks: 18)  Neswick Ltd. purchased new machinery on 1st January 2014 for $154,000 on account. The machine has a useful life of 7 years, at the end of which it will be disposed off at nil value. As at 1 January 2017, the machine has a market price of $99,000.  Neswick record depreciation expense once a year.   The company sold the machine on 30.6.2018 & received an amount of $66,000.   (All amounts include GST)  Required:   Provide journal entries for the following (explanations are not required):  a) Purchase of the machine on 1.1.2014      (Mark: 0.75) b) Relevant journals entries for the years 2014, 2015 & 2016, both without & with revaluation (per AASB 116).      (Mark: 1.75) c) Relevant journals entries for the years 2017, both without & with revaluation. (per AASB 116).        (Mark: 4.5) d) Relevant journals entries for the years 2018, both without & with revaluation.                    (Marks: 11)  (Please show all calculations clearly)    PRBA001 Summer Semester, 2015  Page 4  Q.2 (Total Marks: 27) On January 1 2015, Bronson Lilly paid $6,500 into a business bank account as capital for his new business ‘Artists’ Corner’. The business bought & sold artwork from various artists. Bronson marked all merchandise up by 100% on cost.  During January, the transactions were as follows: Jan 1 Bought shop equipment for $2,300 on 30 day credit 2 Bought three paintings for $160 each, paying cash 3 Bought a set of vases for $120, paying cash 4 Allowed M Bararba to take one painting home to see if it fitted in with his lounge décor.  9 Bought, for cash, a statue of David, paying $300. 12 M Bararba returned the paining as being unsuitable. However, he was taken with the vases & bought these on a 30day credit arrangement. 16 Sold a painting for cash 17 Paid phone bill of $128 & electricity account of $84. 18 M Bararba returned the vases saying his wife did not like them & asked for a full refund. He was told that there was no refund policy but Bronson would buy them back for $150 cash. Bronson put the vases back in stock.  20 Sold a painting on 30 day credit arrangement. 23 Sold the statue for cash 24 Bought two wall hangings for $500 each, on 30 day credit 26 Sold one wall hanging for cash & the other on 2/3 net 10 credit terms. 27 Bought six paintings for $150 each paying cash 29 Buyer of wall hangings paid account & took discount 30 Paid assistant monthly salary of $600 31 Bronson presented his friend a painting bought on January 2 for his 50th birthday bash.  Required: a) Record all transactions in a general journal. (Ignore GST) (Marks: 13.75) PRBA001 Summer Semester, 2015  Page 5  b) Prepare T-accounts for cash, sales revenue & inventory. Please date each entry clearly.     (Marks: 8.75) c) Prepare an unadjusted trial balance as of 31.1.2015