SET 1

END-OF-SEMESTER EXAMINATION
SEMESTER 1, 2013/2014 SESSION

KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES


Programme : ENMS Level of study : 1

Time : 9.00 am 12.00 noon Date : 10/01/2014

Duration : 3 Hr(s) 0 Min(s)

Course Code : ACC 1001 /ACC 1001K Section(s) : 1 - 8

Course Title : Financial Accounting Fundamentals


(This Question Paper Consists of 12 printed pages with 2 Parts)

DO NOT OPEN UNTIL YOU ARE ASKED TO DO SO

INSTRUCTION(S) TO CANDIDATES

Answer ALL Questions

ANY FORM OF CHEATING OR ATTEMPT TO CHEAT IS A SERIOUS OFFENCE
WHICH MAY LEAD TO DISMISSAL

APPROVED BY:
SET 1

2

PART A
(Please answer in the MCQ answer sheet provided)

1. Mariam Muslim is the owner of M&M Accounting Services. Which accounting principle
requires Mariam to keep her personal financial information separate from the financial
information of M&M Accounting Services?
A. Monetary unit assumption.
B. Going-concern assumption.
C. Cost principle.
D. Business entity assumption.
E. Matching principle.

2. Distribution of assets to shareholders is called a(n)::
A. Liability.
B. Dividend.
C. Expense.
D. Contribution.
E. Investment.

3. Source documents include all of the following except:
A. Sales tickets.
B. Ledgers.
C. Cheques.
D. Purchase orders.
E. Bank statements.

4. Double-entry accounting is an accounting system:
A. That records each transaction twice.
B. That records the effects of transactions and other events in at least two accounts with
equal debits and credits.
C. In which each transaction affects and is recorded in two or more accounts but that could
include two debits and no credit.
D.That may only be used if T-accounts are used.
E. That ensures that errors never occur.

5. The accrual basis of accounting:
A. Is generally accepted for external reporting because it is more useful than cash basis for
most business decisions.
B. Is flawed because it gives complete information about cash flows.
C. Recognizes revenues when received in cash.
D. Recognizes expenses when paid in cash.
E. Eliminates the need for adjusting entries at the end of each period.

6. If a company mistakenly forgot to record depreciation on office equipment at the end of an
accounting period, the financial statements prepared at that time would show:
A. Assets overstated and equity understated.
B. Assets and equity both understated.
C. Assets overstated, net income understated, and equity overstated.
D. Assets, net income, and equity understated.
E. Assets, net income, and equity overstated.
SET 1

3

7. A company purchased property for a building site. The costs associated with the property
were:
Purchase price RM 175,000
Real estate commissions 15,000
Legal fees 800
Expenses of clearing the land 2,000
Expenses to remove old building 1,000

What portion of these costs should be allocated to the cost of the land and what portion
should be allocated to the cost of the new building?
A. RM175,800 to Land; RM18,800 to Building.
B. RM190,000 to Land; RM3,800 to Building.
C. RM190,800 to Land; RM1,000 to Building.
D. RM192,800 to Land; RM0 to Building.
E. RM193,800 to Land; RM0 to Building.

8. Which of the following statements is incorrect?
A. Permanent accounts is another name for nominal accounts.
B. Temporary accounts carry a zero balance at the beginning of each accounting period.
C. The Income Summary account is a temporary account.
D. Real accounts remain open as long as the asset, liability, or equity items recorded in the
accounts continue in existence.
E. The closing process applies only to temporary accounts.

9. A merchandising company:
A. Earns net income by buying and selling merchandise.
B. Receives fees only in exchange for services.
C. Earns profit from commissions only.
D. Earns profit from fares only.
E. Buys products from consumers.

10. The following statements regarding gross profit are true except:
A. Gross profit is also called gross margin.
B. Gross profit less other operating expenses equals income from operations.
C. Gross profit is not calculated on the income statement.
D. Gross profit must cover all operating expenses to yield a return for the owner of the
business.
E. Gross profit equals net sales less cost of goods sold.

11. Damaged and obsolete goods that can be sold:
A. Are never counted as inventory.
B. Are included in inventory at their full cost.
C. Are included in inventory at their net realizable value.
D. Should be disposed of immediately.
E. Are assigned a value of zero.




SET 1

4

12. Which of the following inventory costing methods will always result in the same values
for ending inventory and cost of goods sold regardless of whether a perpetual or periodic
inventory system is used?
A. FIFO and LIFO
B. LIFO and weighted-average cost
C. Specific identification and FIFO
D. FIFO and weighted-average cost
E. LIFO and specific identification

13. An internal control system consists of all of the following policies and procedures except
ones designed to:
A. Protect assets.
B. Ensure reliable accounting.
C. Guarantee a return to investors.
D. Urge adherence to company policies.
E. Promote efficient operations.

14. Internal control policies and procedures have limitations including:
A. Human error.
B. Human fraud.
C. Cost-benefit principle.
D. Collusion or conspiracy.
E. All of these.

15. Accounts receivable information for specific customers is important because it reveals:
A. How much each customer has purchased on credit.
B. How much each customer has paid.
C. How much each customer still owes.
D. The basis for sending bills to customers.
E. All of these.

16. All of the following are True regarding credit card expense except:
A. Credit card expense may be classified as a "discount" deducted from sales to get net
sales.
B. Credit card expense may be classified as a selling expense.
C. Credit card expense may be classified as an administrative expense.
D. Credit card expense is not recorded by the seller.
E. Credit card expense is a fee the seller pays for services provided by the card company

17. Obsolescence:
A. Occurs when an asset is at the end of its useful life.
B. Refers to an item of property, plant and equipment that is no longer useful in
producing goods and services with a competitive advantage.
C. Refers to the insufficient capacity of a company's property, plant and equipment to
meet the company's productive demands.
D. Occurs when an asset's residual value is less than its replacement cost.
E. Does not affect property, plant and equipment.


SET 1

5

18. A machine originally had an estimated useful life of 5 years, but after 3 complete years, it
was decided that the original estimate of useful life should have been 10 years. At that
point the remaining cost to be depreciated should be allocated over the remaining:
A. 2 years.
B. 5 years.
C. 7 years.
D. 8 years.
E. 10 years.

19. Known liabilities:
A. Include accounts payable, notes payable, and payroll.
B. Are obligations set by agreements, contracts, or laws.
C. Are measurable.
D. Are definitely determinable.
E. All of these.

20. Advance ticket sales totaling RM 6,000,000 cash would be recognized as follows:
A. Debit Sales, credit Unearned Revenue.
B. Debit Unearned Revenue, credit Sales.
C. Debit Cash, credit Unearned Revenue.
D. Debit Unearned Revenue, credit Cash.
E. Debit Cash, credit Revenue.

21.On September 1, a corporation had 50,000 RM5 par value ordinary shares, and
RM1,000,000 of retained earnings. On that date, when the market price of the share is
RM15 per share, the corporation issues a 2-for-1 share split. The general journal entry to
record this transaction is:
A. Debit Retained Earnings RM750,000; credit Share Capital-Ordinary Split
Distributable RM750,000.
B. Debit Retained Earnings RM 750,000; credit Share Capital-Ordinary RM 750,000.
C. Debit Retained Earnings RM 250,000; credit Share Capital-Ordinary RM 250,000.
D. Debit Retained Earnings RM 250,000; credit Share Split Payable RM 250,000.
E. No entry is made for this transaction.

22. All of the following statements regarding share dividends are true except:
A. Directors can use share dividends to keep the market price of the shares affordable.
B. Share dividends provide evidence of management's confidence that the company is
doing well.
C. Share dividends do not reduce assets or equity.
D. Share dividends decrease the number of shares outstanding.
E. Share dividends transfer a portion of equity from retained earnings to contributed
capital.







SET 1

6

23. The right of ordinary shareholders to protect their proportionate interest in a corporation
by having the first opportunity to buy additional proportionate share of ordinary shares
issued by the corporation is called a:
A. Preemptive right.
B. Proxy right.
C. Right to call.
D. Financial leverage.
E. Voting right.

24. Refer to the following selected financial information from Fahmi Enterprise. Compute the
company's acid-test ratio for Year 2.
Year 2 Year 1
Cash RM 37,500 RM 32,250
Short-term investments 90,000 60,000
Accounts receivable, net 85,500 79,500
Merchandise inventory 121,000 125,000
Prepaid expenses 12,100 9,700
Property, plant and equipment 388,000 338,000
Accounts payable 113,400 107,800
Net sales 711,000 676,000
Cost of goods sold 390,000 375,000

A. 2.26.
B. 1.98.
C. 2.95.
D. 3.05.
E. 1.88.


25. A company had a market price of RM 37.50 per share, earnings per share of RM1.25, and
dividends per share of RM0.40. Its price-earnings ratio equals:
A. 3.1.
B. 30.0.
C. 93.8.
D. 32.0.
E. 3.3.


[TOTAL: 25 MARKS]











SET 1

7

PART B
(Answer all questions. Show all your workings)

Question 1
Gravity Berhad provides the following trial balance for the year ended 31 December 2012.


RM

RM
Cash 122,000

Account receivable 87,100

Allowance for doubtful account

9,000
Merchandise inventory, December 31 100,000

Long-term investment 50,000

Land and building 1,750,000

Accumulated depreciation-building

750,000
Machinery and equipment 104,200

Accumulated depreciation-machinery and equipment

30,000
Accounts payable

130,000
Share capital

1,100,000
Retained earnings, January 1

90,200
Sales revenue

1,650,400
Sales return and allowances 1,700

Sales discount 12,000

Cost of goods sold 958,000

Salary expense 309,000

Selling and distribution expenses 216,740

Other general and administrative expenses 48,860


3,759,600

3,759,600

Unrecorded transactions and adjustment data included the following:

1. The company decided to write-off RM 8,700 of its account receivable balance. It is
estimated from past experience that 5% of outstanding account receivable is
uncollectible at year-end.
2. Land cost was RM 250,000. Land is not depreciated. The building cost was RM
1,500,000.
3. A number of structural repairs on the building were completed at the end of the year
at a cost of RM 50,000. The repair costs are expected to extend the life of the
building beyond the original estimate. The repair cost was unrecorded because it was
unpaid at year end December 31, 2012.
4. Sold an equipment purchased on January 1, 2010, at a cost of RM 10,000 and the
equipment was sold on October 10, 2012 for RM5,000.
SET 1

8

5. Traded-in an old machine (cost, RM10,000; accumulated depreciation, RM3,750) for
a new machine for RM25,000 receiving a trade-in allowance of RM7,300 and paying
the balance in cash.
6. The company adopts full year depreciation for all non-current assets held at year-end
and no depreciation is provided for assets disposed during the year. The depreciation
rates for non-current assets are as follows:
Building 5% on cost
Machinery and equipment 20% on book value

7. The company declared 4% dividends on its common shares which is to be paid on
January 15, 2013.

8. Corporation tax expense is charged at a rate of 25% of net income. The 2012 tax
expense is accrued.

Required:

Prepare Gravity Berhads statement of comprehensive income, and statement of changes in
equity for the year ended December 31, 2012 and the statement of financial position as at
December 31, 2012.
[SOCI 12 marks, SOCE 3 marks, SOFP 10 marks]
[TOTAL: 25 MARKS]





SET 1

9

Question 2

At the beginning of 1 January, 2013, Indah Berhad showed the following amounts in the
shareholders equity sections of its Statement of Financial Position:

Shareholders Equity RM
Ordinary share capital, RM1 par value, 1,000,000 shares authorised,
650,000 issued 650,000
Share premium 120,000
Retained earnings 740,000
Less: 50,000 treasury shares (150,000)
1,360,000

The following transactions occurred during the year ended December 31, 2013:
Jan 10 Declared a dividend of 40 sen per share to ordinary shareholders, payable
on February 25.

Feb 25 Paid the cash dividend declared on January 10.

May 5 Reissued 10,000 of its treasury shares at a price of RM5 per share.

Jul 1 Issued 5%, five-year bonds with a RM 400,000 par value, issued at the
price of RM 351,335. The bonds pay interest semi-annually on June 30 and
December 31 each year. Their market rate is 8% at the issue date.

Aug 30 Declared and distributed a one-for-ten bonus issue (share dividend) to
shareholders on record, utilising the retained earnings. The market value
per share is RM6.

Oct 1 Issued 15,000 4% preference shares of RM20 par value for RM28 each.

Dec 31 Paid and declared preference share dividend. Paid interest on bonds.
The Income Summary account, showing net income for the year of
RM800,000, was closed into the Retained Earnings account.

Required:
a. Journalise the above transactions. (note: narrations are not required).
(13 marks)
b. Prepare the liabilities and shareholders equity sections of the statement of financial
position as at December 31, 2013.
(5 marks)
c. Explain the effects on statement of comprehensive income and statement of financial
position if the five-year bonds issued on July 1, 2013 were issued at a contract rate of
10%.
(2 marks)
[TOTAL: 20 MARKS]
SET 1

10

Question 3A

The following information is available to reconcile Tariq Enterprise book balance of cash
with its bank statement cash balances as of September 30. The September 30 cash balance
according to the accounting records is RM 78,356 and the bank statement cash balance for
that date is RM 83,525.

a. The bank incorrectly cleared a RM 480 cheque against the account in September that
was not issued by Tariq. The cheque documentation included with the bank statement
indicates the cheque was actually issued by Tahir Co.
b. On September 30, the bank issued a credit memorandum for RM 53 interest earned on
Tariq's account.
c. When the September cheques are compared with entries in the accounting records, it
is found that Cheque No. 1828 had been correctly drawn for RM 1,530 to pay for
advertising but was incorrectly entered in the accounting records as RM 1,350.
d. A credit memorandum indicates that the bank collected RM 10,000 cash on a note
receivable for Tariq, deducted a RM 30 collection fee, and credited the balance to the
company's Cash account. Tariq did not record this transaction before receiving the
statement.
e. A debit memorandum of RM 895 is enclosed with the bank statement for a non-
sufficient fund (NSF) cheque for RM 870 received from a customer. The bank
charged a RM 25 fee for processing it.
f. Tariq's September 30 cheque of RM 5,102 was deposited in the bank on that date, but
do not appear on the September 30 bank statement.
g. Tariq's September 30 cash disbursements journal indicates that Cheque No. 1837 for
RM 584 and Cheque No. 1840 for RM 1,219 were both written and entered in the
accounting records as payments to suppliers, but do not appear on the September bank
statement.

Required:
a. Prepare a bank reconciliation statement for the month ended September 30, 2013.
(8 marks)
b. Prepare the related journal entries to adjust the cash account balance to the reconciled
adjusted balance.
(2 marks)

SET 1

11

Question 3B
Shown below are selected data from the financial statements of Hikmah Stores, a retail
clothing store.
From the statement of financial position: RM
Cash 30,000
Accounts receivable 150,000
Inventory 200,000
Plant assets (net of accumulated depreciation) 500,000
Current liabilities 150,000
Total stockholders equity 300,000
Total assets 1,000,000

From the statement of comprehensive income:

RM
Net sales 1,500,000
Cost of goods sold 1,080,000
Operating expenses 315,000
Interest expense 84,000
Income tax expense 6,000
Net income 15,000

From the statement of cash flows

RM

RM
Net cash provided by operating activities
(including interest paid of RM79,000)
40,000
Net cash used in investing activities (46,000)
Financing activities:
Amounts borrowed 50,000
Repayment of amounts borrowed (14,000)
Dividends paid (20,000)
Net cash provided by financing activities 16,000
Net increase in cash during the year 10,000

Required:
a. Compute the following (round the answer to one decimal place):
i. Current ratio
ii. Quick ratio
iii. Working capital
iv. Debt ratio
(6 marks)

b. Comment on the measurements in requirement (a) above and evaluate Hikmahs short
term debt paying ability.
(3 marks)

SET 1

12

c. Compute the following ratios (note: assume that the year-end amounts of total assets
and total stockholders equity also represent the average amounts throughout the
year):
i. Return on assets
ii. Return on equity
(3 marks)
d. Comment on the companys performance in requirement (c) above and explain why
the return on assets and return on equity are so different.
(3 marks)
[TOTAL: 25 MARKS]

END OF QUESTION PAPER