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Continous Assessment Test Question Paper
Continous Assessment Test
Course:Bachelor Of Commerce
Institution: University Of Nairobi question papers
Exam Year:2012
Attempt all the questions. Marks allocated are shown at end of each question.
Question One
Brothers Steve and Ben began operations of their tool and die shop (S & B Tool, limited.) on January 1, 2010. The annual reporting period ends December 31. The trial balance on January 1, 2011, follows (the amounts are rounded to thousands of shillings to simplify):
Account No Account Titles Debit Credit
01 Cash 3,000
02 Accounts receivable 5 000
03 Supplies 12,000
04 Land
05 Equipment 60,000
06 Accumulated depreciation (on equipment) 6, 000
07 Remaining assets (not detailed to simplify) 4,000
11 Accounts payable 5,000
12 Notes payable
13 Wages payable
14 Interest payable
15 Income taxes payable
21 Contributed capital (65,000 shares) 65,000
31 Retained earnings 8,000
35 Service revenue
40 Depreciation expense
41 Income tax expense
42 Interest expense
43 Remaining expenses (not detailed to simplify)
Totals 84,000 84,000
Transactions during 2011 (summarized in thousands of shillings) follow:
a. Borrowedsh.10, 000 cash on a five year, 12 percent note payable, dated March 1, 2015.
b. Purchased land for a future building site; paid cash, sh.9, 000.
c. Earned revenues for 2011, sh.160, 000, including sh.40, 000 on credit.
d. Sold 3,000 additional shares of capital stock for sh.1, 000 cash per share (show shillings in thousands; number of shares and price per share are as presented).
e. Recognized sh.85, 000 in remaining expenses for2011, including sh.15, 000 on credit.
f. Collected accounts receivable, sh.24, 000.
g. Purchased additional assets, sh.10, 000 cash (debit Remaining assets0.
h. Paid accounts payable, sh.13, 000.
i. Purchased supplies on account for future use, sh.18, 000.
j. Signed ash.25, 000 service contract to start February 1, 2012.
k. Declared and paid a cash dividend, sh.17, 000.
l. Supplies counted on December 31, 2011, sh.14, 000 (debit Remaining Expanses).
m. Depreciation for the year on the equipment,sh.6,000
n. Interest accrued on notes payable (to be computed)
o. Wages earned since the December 24 payroll not yet paid, sh.12, 000.
p. Income tax expense was sh.8, 000, payable in 2012.
Required:
1. Set up ledger accounts (T) for the accounts on the trial balance and enter beginning balances
2. Record transactions (a) through (k) and post them to the T-accounts.
3. Record and post the adjusting entries (l) through (p).
4. Prepare an income statement (including earnings per share), statement of stockholders’ equity, statement of financial position, and statement of cash flows.
5. Record and post the closing entries.
6. Prepare a post-closing trial balance. (30 MARKS)
Question Two
Monte Moving Company has been in operation since January 1, 2011. It is now December 31, 2011 the end of the annual accounting period. The company has not done well financially during the first year, although revenue has been fairly good. The three stockholders manage the company, but they have not given much attention to recordkeeping. In view of a serious cash shortage, they have applied to your bank for ash.20, 000,000, loan. You requested a complete set of financial statements. The following 20011 annual financial statements were prepared by a clerk and then were given to the bank.
MONTE MOVING COMPANY
Income Statement Balance Sheet
For the period ended December 31, 2011 At December 31, 2011
Sh’000 sh’000
Transportation revenue 85,000 Assets
Expenses: Cash 2,000
Salaries expense 17,000 Receivables 3,000
Supplies expense 12,000 Supplies 6,000
Other expenses 18,000 Equipment 40,000
Total expenses 47,000 Prepaid insurance 4,000
Net income $38,000 Remaining assets 27,000
Total assets 82,000
Liabilities
Accounts payable 9,000
Stockholders’ Equity
Contributed capital
(10,000 shares outstanding) 35,000
Retained earnings 38,000
Total liabilities and
Stockholders’ equity 82,000
After briefly reviewing the statements and “looking into the situation,” you requested that the statements be redone (with some expert help) to “incorporate depreciation, accruals, inventory counts, income taxes, and so on.” As a result of a review of the records and supporting documents, the following additional information was developed:
a. The supply of sh.6, 000,000 shown on the balance sheet has not been adjusted for supplies used during 2011. A count of the supplies on hand on December 31, 2011, showedsh.1, 800,000.
b. The insurance premium paid in 2011 was for years 2011 and 2012. The total insurance premium was debited in full to prepaid Insurance when paid in 2011 and no adjustment has been made.
c. The equipment cost sh.40, 000,000 when purchased January 1, 2011. It had an estimated annual depreciation ofsh.8, 000,000. No depreciation has been recorded for 2011.
d. Unpaid (and unrecorded) salaries at December 31, 2011, amounted to sh.2, 200,000.
e. At December 31, 2011, transportation revenue collected in advance amounted to
sh.7, 000,000. This amount was credited in full to Transportation Revenue when the cash was collected earlier during2011.
f. Income tax expense was sh.3, 650 (the tax rate is 30 percent).
Required:
1. Record the six adjusting entries required on December 31, 2011, based on the preceding additional information.
2. Recast the preceding statements after taking into account the adjusting entries. You do not need to use classifications on the statements. Suggested form for the solution:
3. Omission of the adjusting entries caused:
a. Net income to be overstated or understated (select one) by sh.______
b. Total assets on the balance sheet to be overstated or understated (select one) by _____
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