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7/24/2019 Accounting assignment.pdf
1/18
Assignment
Prepared y
oham ed Safwat ostafa
7/24/2019 Accounting assignment.pdf
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Part 1:
1. Which of the following do not considered as a GAAP principles:
a) Conservatism.
b) Matching.
c) Segregation of duties.
d) Objective.
Correct answer is: c) Segregation of duties.
Justification:
GAAP are common set of accounting principles, rules, standards and procedure that used by
companies to prepare its financial statement
GAAP are:
The business entity concept: accounting is separate from personal affairs from its owner
The going concern concept: the business will continue to operate
Conservatism: accounting should be fair and reasonable
Objective: recorded according to objective evidence
Time line: accounting take place over known period of time
Matching: each revenue recognized should recognize the cost related
Consistency: apply same principle and accounting policies from period to period
Materiality: cost and benefit should take place in gathering information
So segregation of duties is not considered as GAAP principles
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2. One of the following is not a credit nature account:
a) Capital.
b) Accrued interest income.
c) Capital Gain.
d) Long term loans.
Correct answer is: b) Accrued interest income.
Justification:
Capital is considered as liability of the business to the owner so it is credit in nature
Capital gain is a profit come from disposition of asset and this profit considered as
revenue which is credit in nature so capital gain is credit nature
Long term loans is non-current liability so it is credit nature
Accrued interest income is interest which is not collected yet so it considered as asset
which is debit nature.
3. Assets should be classified as Current assets when it is expected to be realized within ..
a) One Month.
b) Operating business cycle.
c) Three months.
d) C or B.
Correct answer is: b) Operating business cycle.
Justification:
Current asset is asset that expected to convert into cash, sell, or consume in operation within a
single operating cycle which generally considered 12 month
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4. When company purchases an asset on credit, the accounts that will be affected on the journal
entry are:
a) Cash & Assets.
b) Assets & Capital.
c) Assets & Payables.
d) Investments & Payables.
Correct answer is: c) Assets & Payables.
Justification:
When buy asset on credit asset account will increase and also payable will increase and
it will reported as Debit asset credit payable
So answer a) Cash & Assets is not correct as company purchase asset on credit so cash
account will not be affected
b) Assets & Capital is not correct as capital account will not be affected as nature of
asset is not mentioned its nature
d) Investments & Payables is not correct as type of asset not mentioned for invest or
other thing .
5. Inventory opening balance + Purchases Inventory ending balance = .:
a) Operating expenses.
b) Other operating expenses.
c) Depreciation of inventory.
d) Cost of Goods sold.
Correct answer is: d) Cost of Goods sold.
Justification:
This is one of the fundamental equation in accounting
For example : if opening balance of inventory is 100,000 USD and we buy goods with
50,000 USD and the inventory ending balance is 90,000 USD
The cost of goods sold will be 60,000 USD
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6. Entity A purchased a machine with USD 100,000. The companys technician expects the
machine to be used for 5 years only. Five years depreciation period means . % each year.
a) 20%.
b) 5 %.
c) 15%.
d) 25%.
Correct answer is: a) 20%.
Justification:
When machine expected to be used over 5 years only, its value after 5 years should be zero so
it depreciation by year will equal 100%/5 years = 20% each year
7. Following the previous information, in year TWO the Fixed Assets Net line item in balance
sheet will equal to:
a) USD 80,000.
b) USD 20,000.
c) USD 60,000.
d) USD 40,000.
Correct answer is: c) USD 60,000.
Justification:
Depreciation is 20% per year so in 2 years machine will be depreciated by 40% so the remaining
will be 60% (fixed assets net)
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8. The depreciation expense journal entry will affects the two accounts:
a) Depreciation expenses and provision.
b) Depreciation expenses and accumulated depreciation.
c) Depreciation expenses and allowance for doubtful debts.
d) Depreciation expenses and accrued expenses.
Correct answer is: b) Depreciation expenses and accumulated depreciation.
Justification:
Accumulated depreciation is total depreciation of fixed assets and it will be charged as expense
since the asset was made available for use and this account is credit nature so it will appear in
balance sheet as reduction of asset amount
So Journal entry for depreciation expense will be:
Debit depreciation expense (income statement)Credit accumulated depreciation (balance sheet)
Provision is a liability of uncertain time or amount so answer A is not correct as depreciation
increase with fixed amount within certain period
Allowance for doubtful debts is reduction of amount of account receivables and it represent
amount of receivables that will not be paid by customer so answer C is not correct
Accrued expenses is expense which has been incurred but not yet paid so answer D is not
correct
9. Company A has the following balances at the yearend; Non-current assets equal 30,000,
current assets equal USD 15,000 and Equity with USD 25,000. The total liability balance will
be:
a) USD 70,000.
b) USD 20,000.
c) USD 40,000.
d) USD 45,000.
Correct answer is: b) USD 20,000.
Justification:
Equity= Total asset (non-current + current) liabilities (current +long term liabilities)
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25,000 = (30,000 + 15,000) liabilities
Liabilities = 45,000 25,000 = 20,000
10. Method of recording that recognizes Costs when deserved, rather than when paid is:
a) Conservatism.
b) Matching.
c) Materiality.
d) Accrual Base.
Correct answer is: d) Accrual Base.
Justification:
Accrual base is method of recording that recognize economic events regardless of when cash
transaction is paid so it give more accurate picture about company situation as it allow
combination of current cash inflow/ outflow with future expected cash inflow / outflow
Conservatism, Matching and Materiality are GAAP
Conservatism: accounting should be fair and reasonable
Matching: each revenue recognized should recognize the cost related
Materiality: cost and benefit should take place in gathering information
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Part 2
1. What do we mean by Accounting Cycle?
Accounting Cycle: is a series of steps which are repeated every reporting period. This
process starts with making accounting entries for each transaction and goes through closing
the book
It consist of 8 steps:
1. Collecting and analyzing data from transactions and events.
2. Putting transactions into the general journal.
3. Posting entries to the general ledger.
4. Preparing an unadjusted trial balance.
5. Adjusting entries appropriately.
6. Preparing an adjusted trial balance.
7. Organizing the accounts into the financial statements.
8. Closing the books.
Preparing a post-closing trial balance to check the accounts.
1. Transaction
2. Journal entries
5. Worksheet
6. Adjusting
journal entries
7. Financialstatement
8. Closing the
books
3. Posting
4. Trial balance
Accounting
Cycle
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2. Medical Company established on July 1, 2014 with USD 50 000 share capital. Also, it had
issued a bond for 5 years converted to share capital at par value any time with USD 15 000
at 8% interest per annum.
At the year end the company converted 50% of the bonds payable to shares and paid the
rest of the payable amount. You are required to prepare the journal entries on first of
July & at the end of December?
Journal entries
July 1, 2014
Dr Cash 65,000
Cr Capital 50,000
Cr Bonds payable 15,000
December 31, 2014
Dr Bond payables 15,000
Dr Interest expense 600
Cr Capital 7,500
Cr Cash 8,100
Calculations:
After 6 month from July 1, 2014 to December 31, 2014 50 % of the bond payable converted
to shares so capital increase by 7,500 USD (15,000 / 2)
Rest of the bonds paid (7,500)
Interest expense will be (6 months) =15,000 X (6/12) X 8%= 600
So cash will decrease by 7,500+600 = 8,100
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3. ABC Company has the following balances in USD and the end of its first financial year:
Net loss (400,000).
Depreciation Expenses 30,000.
Interest expenses 50,000.
Loan 270,000
Receivables 100,000.
Payables 90,000.
Tax paid 50,000
Cash & Cash equivalents 60,000.
Assets 160,000
How much is the Cash generated or used from/in operating activities?
ABC Company
Statement of cash flow for the year ended
(Amount in USD)
Cash flow from operating activities
Net loss before taxation (400,000)
Adjusted for;Depreciation expenses 30,000
Interest expenses 50,000
_____
Loss before changes in working capital (320,000)
Receivables (100,000)
Payables 90,000
_____
Cash used in operation (330,000)
Tax paid 50,000
____
Net cash flow used in operating activities (280,000)
So cash used in operating activities for ABC Company is 280,000 USD
4. What are the main differences between Current & Non-Current Assets?
Non-current assets Current assets
Realized after 12 months
Used for long term investment
Not related to operation except fixed
assets
Realized within 12 months
Used for short term trading
Related to operation
Cash and cash equivalents
(ex.: inventory)
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5. ABC Company made the following transactions during September 2015; you are required to
prepare the entry or entries for each transaction along with the description needed,
T accounts & the trail balance for September.
- The company sold goods on credit with USD 35 000, in which USD 19 000 were collected in cash.
- The company incurred expenses with USD 19 000 in which USD 11 000 were paid in cash.
- The companys total purchases from its sole supplier RED ROSE is 12,000 units with $ 0.8 per
unit. The company paid USD 5 000 to this supplier.- The overdraft opening balance were USD 5 000.
- The cash opening balance were USD 5 000.
Cost of goods purchased from RED ROSE = 12000 * 0.8 = 9600 USD
Journal entries
1-
Dr Receivables 35000
Cr Revenue 35000Goods sold on credit with 35000 USD
2-
Dr Cash 19000
Cr receivables 19000
19000 USD Cash collected from selling goods on credit
3-
Dr expenses 19000
Cr accrued expense 19000
Company incurred expenses with 19000 USD
4-
Dr accrued expense 11000
Cr Cash 11000
Expenses paid with 11000 USD
5-
Dr Inventory 9600
Cr RED ROSE payables 9600
Purchasing from RED ROSE by 9600 USD
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6-
Dr RED ROSE payables 5000
Cr cash 5000
RED ROSE payables paid with 5000 USD
T Account
RevenueDR CR DR CR
DR CR
Cash
Opening 5000
Receivables 19000 Expenses 11000
Payables 5000
Total 24000
BF 8000
Total 24000
CF 8000
Goods sold 35000BF 35000
35000 35000
CF 35000
Receivables
Receivables 35000 Collected 19000
Total 35000
BF 16000
Total 35000
CF 16000
DR CR
Expenses
TB Bal. 19000Paid cash 11000
Total 19000
BF 8000
Total 19000
CF 8000
Total 9600
DR CR
RED ROSE Payables
Purchasing
goods
9600Cash pay 5000
BF 4600
Total 9600
CF 4600
DR CR
Inventory
Purchasing
goods
9600 BF 9600
Total 9600 Total 9600
CF 9600
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ABC Company trial balance
As of September 30, 2015
(Amount in USD)
AM. Liabilities Assets AM.
35000
4600
5000
8000
Revenue
RED ROSE payables
Over draft
Accrued expenses
Cash
Inventory
Receivables
Expenses
8000
9600
16000
19000
52600 Total Total 52600
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Part 3
1
Dr Cash 25000
Cr Revenue 25000
Unrecorded goods sold with USD 25000
2Dr COGS 17000
Cr Inventory 17000
Unrecorded goods sold with cost 17000
3
Dr Payables 10000
Cr Cash 10000
Payables paid with USD 10000
4
Dr Accrued expenses 4000
Cr Admin expenses 4000
Corrections of extra recorded accrued expenses
5
Dr Cash 50000
Cr Capital 50000
Capital increased with USD 50000
6
Dr Inventory 22000
Cr Cost of goods sold 22000
Returned goods sold with cost USD 22000
7
Dr Revenue 28000
Cr Trade receivables 28000
Returned goods sold with USD 28000
8
Dr Provision expenses 5000
Cr provision liabilities 5000
Provisions required for legal courts
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ABC Company trial balance as of December 31, 2X06
(Amount in USD)
Account Balance
Fixed assets 130,000
Prepaid Expenses 82,000
Investments 93,000
Inventory 110,000Trade receivables 69,000
Cash & Cash equivalents 129,000
Provisions (37,000)
Provisions expense 5000
Trade payable (42,000)
Due to related parties (77,000)
Short term loans (86,000)
Accrued expenses (13,000)
Capital (200,000)
Reserves (70,000)
Retained earnings (102,000)
Revenue (317,000)
Cost of Goods sold 264,000
Interest income (46,000)
Capital gain (52,000)
Other operating expenses 83,000
Admin Expenses 97,000
Forex gain (64,000)
Tax expenses 44,000
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ABC Company income statement for the year ended December 31, 2X06
(Amount in USD)
Revenue 317,000
Cost of Goods sold 264,000
____
Gross profit 53,000
Admin Expenses (97,000)
Other operating expense (83,000)
Other operating revenue 116,000
____
Loss from operation (11,000)
Finance cost Net 46,000Provision expenses (5,000)
____
Net profit before tax 30,000
Tax expense 44,000
____
Net loss after tax (14,000)
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ABC Company balance sheet as of December 31, 2X06
(Amounts in thousands USD)
Non-current assets
Fixed assets 130
Investments 93
____
Total non-current assets 223
Current assets
Inventory 110
Receivables 69
Debtor and other debit balance 82
Cash and cash equivalent 129
___
Total current assets 390
Current liabilities
Provisions 37
Payables 42
Creditors 13
Due to related parties 77
Short term loans 86
___
Total current liabilities 255
___
Working capital 135___
Total investment 358
Equity
Capital 200
Reserves 70
Retained earnings 88
___
Total equity 358
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ABC Company
Notes of the Financial Statement for the year ended as of December 31, 2X06.
(Amounts in USD)
1- Debtors & Other debit balances
Prepaid Expense 82,000
Total Debtors 82,000
2- Creditors
Accrued Expenses 13,000
Total Creditors 13,000
3- Working capital
Total current assets 390,000
Less: Total current liabilities (255,000)
Working capital 135,000
4- Total Investment
Total non-current assets 223,000
Plus: Working capital 135,000
Total Investment 358,000
5- Retained Earnings
Retained Earnings from trial balance 102,000
Less: Net Losses from income statement (14,000)
Retained Earnings 88,000
6- Other operating Revenue
Capital gain 52,000
Plus: forex gain 64,000
Total other operating Revenue 116,0007- Finance cost net
Interest income 46,000
Finance cost net 46,000