ACC 106 Accounting principles

ACC 106 Accounting principles | Emirates College Of Technology

Question 1:

 

Alpha company is a trading company that purchases and sales fruits and vegetables.  During the year 2020, the company shows the following transactions and events:

1)     The company uses the perpetual inventory system to account for its inventory at December 31, 2020 and its financial statements are disclosed without delay.

2)     The company records  sales  when  cash  is  received from  customers  and  delay  expenses  for  the next  year.

3)     For credit purchase transactions, the accountant debit (merchandise inventory) and credit (accounts receivable). 

4)     The company assumes the freight charges to its customers.  The accountant debit (freight in expenses) and credit (merchandise inventory).

5)     One customer returned fruits to Alpha that were damaged.  The accountant of the company debit (purchase returns) and credit (accounts payable).

6)     The cost of goods soldis determined after each sale as follow: beginning inventory – purchases + ending inventory.

7)     Net profit is computed by subtracting operating expenses from the cost ofgoods sold.

8)     The accountant records merchandise inventory (stock) in the expenses section of the income statement.

9)     The  company assumes  that  physical  inventory  is not  important as  it uses  the  perpetual  inventory  system  during  the year.

10)The  driver  of the  company has access  to  the  inventory,  he  delivers the merchandise,  receives the cash  and  has access  to  the  company  books. 

 

Required:

For each case, identify the anomaly and propose the correct accounting treatment/answer:

                                                                                                                    

 

Answer

 

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Question 2:

 

XYZ Co uses the periodic inventory system to account for inventories. Its beginning inventory  is 500 units  at 5 $  each. Information related to XYZ Company's inventory at October 31 is given below:

Alpha CO
Date	Explanation	Units	Units Cost	Total Cost
10/08	Purchase	800	$ 11
10/15	Purchase	600	$ 14
10/20	Purchase	300	$ 15
	Total goods available
During the year, 1400 units were sold.

 

Required:

1. Compute the cost of ending inventory and the cost of goods sold under:

a. FIFO method

b. LIFO method

c. The weighted average

Answer:

a. FIFO…..……………………………………………………………………….… (2 marks)

 

Step 1					Step 2
Ending Inventory					Cost of Goods Sold

 

b. LIFO…..………………………………………………………………… (2 marks)

 

Step 1					Step 2
Ending Inventory					Cost of Goods Sold

 

 

c. Weighted average………………………………………….……………….. (2 marks)

 

 

 

 

 

 

 

 

 

 

 

2. XYZ  wants  to  increase  its  capital  by  equity  offering  up  to 70 %  and the 30% by  bank loan. Which valuation method of inventory the company should use.  Explain:

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Question 3:

 

On December 31, 2020, TEJ Company had a cash balance per books of $8,664. The statement from DUABI Islamic Bank on that date showed a balance of $15,900. A comparison of the bank statement with the Cash account revealed the following facts.

 

1.      NSF check of customer returned by bank $4,200.

2.      Check No. 210 was correctly written and paid by the bank for $593. The cash payment journal reflects an entry for Check No. 210 as a debit to Accounts Payable and a credit to Cash in Bank for $539.

3.      Bank service charge for Decemberwas $100.

4.      A payment on account was incorrectly entered in the cash payments journal and posted to the accounts payable subsidiary ledger for $824 when Check No. 318 was correctly prepared for $284. The check cleared by the bank in December.

5.      The bank collected a note receivable for the company for $3,000 plus $100 interest revenue.

6.      Checks written in December but still outstanding $8,000.

7.      Checks written in November but still outstanding $5,150.

8.      Deposits of December 29 and 30 not yet recorded by bank $5,200.

 

Required:

a.      Prepare a bank reconciliation statement atSeptember 30for TEJCompany.

b.      Explain  the  need  and  importance of the  bank  reconciliation   

 

 

Answer:

a.bank  reconciliation statement:

 

 

 

 

 

b.      Explain  the  need  and  importance of the  bank  reconciliation    

 

 

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Question 4:

ALPHA Company purchased equipment on 1/1/N with an invoice price of $80,000. Purchase taxes $16,000. Other costs incurred were freight costs, $1,100; installation wiring and foundation, $2,200; material and labor costs in testing equipment, $700; fire insurance policy for  the factory is, $1,400. The equipment is estimated to have a $5,000 salvage value at the end of its 5-year useful service life.

Required:

 

(a)    Compute the acquisition cost of the equipment.

(b)   If the double-declining-balance method of depreciation was used for the machine, prepare the depreciation schedule for the full period. 

(c) Based on which criteria companies choose the depreciation methods for their depreciable assets?

 

Answer:

 

(a)                                                                                                                                      (2 marks)

 

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(b)   

 

 

 

 

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Depreciation schedule:                                                                                                (5 marks)

 

Year	Beginning book  value	Declining  balance rate	Annual  depreciation expenses	Accumulated  depreciation	Book  value

 

(c)

(3 marks)

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1.      Project Assessment Criteria

      The assessment of the project will be undertaken by the instructor.

       Marks distribution will be as follows:

 Report Body                              

2.      Project Submission Date:

This project is due on week 16; and it is an Individual project.  The report should be uploaded using the (Moodle) ONLYbefore the due date.

 

Ø  Project due date is January26^th 2021.

 

3.      Late Submission Instructions:

 

All students must comply with the submission deadlines.

Students are required to submit the report in soft copy also through the Turnitin system which is available online at https://lms.ectmoodle.ae

High “Similarity Index” will result in low marks for the project.

 

4.      Format:

ü  The cover page is important; please keep it in your submission.

ü  High similarity in the answers will affect your marks negatively.

ü  Follow the instructions that will be explained to you in class by the instructors