Accounting Practice Test with Solutions

Parts (a) and (b) are independent of each other. (a) Ace Company has the following transactions in the month of April.

1 April Peter invests $100,000 cash and an office equipment valued at $20,000 in the company.

2 April The company purchased $800 of office supplies on credit. 15 April The company completed $5,000 of services for a client, who must pay within 30 days.

28 April The company received a utility bill amounting $500.

30 April The company sold off an equipment costing $3,000 with a net book value of $2,000 for $1,600 cash.

Analyse the above information and prepare the journal entries for Ace Company for the month of April. Narrations are not required.

(b) You have just completed the adjusted trial balance of AH Pte Ltd. The adjusted trial balance of AH Pte Ltd follows.

Analyse the above information and prepare the Statement of Financial Position of AH Pte Ltd as at 31 December 2018.

(c) Describe the main differences between accrual method and the cash method of accounting. Explain which method provides a more accurate picture of the profitability of a business. 

This question consists of two parts: Part A and B. You are required to answer both parts.

Part A

Benson Company bought a machine costing $120,000 on 1 April 2015. Management estimated the useful life to be 10 years and the residual value to be $20,000. 

On 1 January 2018, management revised the useful life and residual value of the machine. The remaining useful life was revised to 5 years while the residual value was revised to $10,000.

The company’s financial year end is 31 December.

Compute the depreciation expense, accumulated depreciation and net book value of the machine for 2015, 2016, 2017 and 2018.

Part B

A fire broke out in the premises of Benny Company. After the fire was put out, the accountant attempted to reconstruct the income statement using the below information and partial income statement for the year ended 31 December 2018.

Profit margin ratio is 8.0%.

Accounts receivable turnover is 15.0.

Inventory turnover is 5.0.

Accounts receivables (net) at the start of 2018 and end of 2018 are

$15,000 and $16,100 respectively.

Inventories at the start of 2018 and end of 2018 are $27,000 and $28,720 respectively.

Use the above financial ratios to complete the income statement of Benny Company for the year ended 31 December 2018. You have to show clearly how you derive the missing information (1) to (6).

This question consists of two parts: Part A and B. You are required to answer both parts

Part A

Connex Bus Company has incurred the following maintenance costs in the last six months. 

(a) Using the high-low method, determine the variable cost per km travelled and the fixed cost per month. 

(b) Using the answer from Question 3 Part A (a), estimate the maintenance cost for a month in which the distance travelled is 16,000 km. 

(c) Describe any three (3) drawbacks of the high-low method of cost estimation.

Part B

Corex Company produced and sold 80,000 bags during the year 2018 at $65 per unit. Total fixed cost was $1,080,000 while variable production cost was $25 per unit and variable selling cost was $5 per unit.

(a) Use cost-volume profit analysis to prepare a contribution margin income statement for the year 2018. 

(b) After preparing the contribution margin income statement, management determined the variable production costs would increase by 20% and the variable selling costs would increase by $1 per unit. However, to keep the products competitively priced, management decided not to change the selling price of the bags. Use cost-volume-profit analysis to determine how many bags the company must sell to breakeven.

(a) Don Company, a merchandising company specialising in office tables, is preparing detailed budgets for the next few months.

The company buys the table for $80 each and sells them for $120 each. In September, the company sold 750 tables. Its inventory policy requires ending inventory in each month to equal to 25% of next month’s budgeted sales. On 30 September, 800 tables are on hand. All sales are on account. The company’s experience with cash collection is that 45% of each month’s sales is collected in the month of the sale. The remaining 55% of sales is collected in full in the month following the sale. 

Prepare the following budgets, showing details for each of the months from October to December:

(i) Sales budget. 

(ii) Merchandise purchases budget

(iii) Cash receipts budget. 

(b) Discuss three (3) benefits to be gained from budgeting