Questions and answers on Financial Accounting

QUESTION 1 (20 marks total)

Limbo Ltd is a retailer of dancewear and accessories. The following transactions occurred during August 2018.

2018

1 August

Purchased a new premises at a cost of $176,000. Limbo Ltd took out a mortgage for $60,000 and paid for the balance in cash.

5 August

Bought shop fittings at an auction for $3,000.

12 August

Attended a major dance competition and made cash sales of $23,000.

15 August

Purchased inventory for $12,000 on credit from Zandia Ltd.

16 August

Paid $7,000 for a small motor vehicle for the owner’s personal use.

20 August

Purchased office equipment for $1,200 on credit.

28 August

Borrowed $13,000 from Money Bank Ltd which is to be paid within the year.

30 August

Bought inventory for $16,000 cash.

Part A:

Show the effects of each of the following transactions on the accounts of Limbo Ltd. Provide your answer on the attached worksheet. Indicate the amount for all the transactions. Total all columns.

(16 marks)

Part B:

Calculate the owner’s equity and prepare the Balance Sheet as at 31 August 2018. Assume balances as at 31 July 2018 were cash $192,000, Inventory $8,000 and Capital $200,000

(4 marks)

QUESTION 2 (20 marks total)

Answer the following questions (show all calculations):

1. A firm has an opening balance of Accounts Receivable amounting to $10,000. During the year the firm has sales totalling $100,000. It writes off $3,000 in bad debts. At the end of the year it is owed $8,000 by customers. How much cash was received from Accounts Receivable during the year. (4 marks)
   
2. At the beginning of the year Accounts Payable is $6,000. During the year the company pays $59,000 and receives a discount of $2,000. The ending Accounts Payable balance is $59,000. What was the amount of purchases made on credit during the year? (4 marks)

1. Assume that last year’s Statement of Cash Flows for Eve’s Emporium showed a negative cash flow from operating activities. Identify two possible reasons for this and discuss the implications of each. (6 marks)

d) For each of the following items state what type of activity it is (Operating, Investing or Financing) and whether it is a cash inflow or outflow: (6 marks)

• Dividends Received
• Tax Paid
• Interest Paid
• Purchase of Property, Plant and Equipment
• Dividends Paid
• Profit on Sale of Equipment