Question 1 – LO1: (Bank Reconciliation)

On May 31, 2015, Gulf Company had a cash balance per books of AED 6,781.50. The bank
statement from Farmers State Bank on that date showed a balance of AED 6,404.60. A
comparison of the statement with the cash account revealed the following facts (reconciling
items)

a) The statement included a debit memo of AED 40 for the printing of additional
company checks.
b) Cash sales of AED 836.15 on May 12 were deposited in the bank. The cash receipts
journal entry and the deposit slip were incorrectly made for AED 886.15. The bank
credited Gulf Company for the correct amount.
836.15-886.15= -50
c) Outstanding checks at May 31 totaled AED 576.25
d) Deposits in transit were AED 1,916.15
e) On May 18, the company issued check No. 1181 for AED 685 to Barry Trest, on
account. The check, which cleared the bank and paid in May, was incorrectly
journalized and posted by Gulf Company for AED 658.
658-685= -27
f) AED 2,500 note receivable was collected by the bank for Gulf Company on May 31
plus AED 80 interest. The bank charged a collection fee of AED 20.
2500+80 – 20 = 2560
g) Included with the cancelled checks was a check issued by Bridgetown Company to
Hamad Ibrahim for AED 800 that was incorrectly subtracted from Gulf Company
account by the bank.

h) On May 31, the bank statement showed an NSF charge of AE D680 for a check issued
by Sandy Grifton, a customer, to Gulf Company on account.

Required:

A. Prepare a bank reconciliation statement for Gulf company as on May 31st , 2015.
B. Journalize the entries that should be made by Gulf Company.
 bank balance Book balance
Description Amount Description Amount
Cash balance per bank 6,404.60 Cash balance per book 6,781.50
Deduct: Outstanding (576.25) Deduct: Printing (40)
cheek additional cost
ADD: Deposit in transit 1,916.15 Deduct: Error (50)
ADD: Error 800 Deduct: Error (27)
ADD: Bank collected 2560
Deduct: NSF cheek (680)
Adjusted bank balance 8544.5 Adjusted book balance 8544.5

In recent years, Darnell Company purchased three machines. Because of heavy turnover in the
accounting department, a different accountant was in charge of selecting the depreciation method
for each machine, and each selected a different method. Information concerning the machines is
summarized below.

Machine Acquired Cost Salvage Value Useful Life Depreciation Method

1 1/1/12 $105,000 $ 5,000 10 (in Years) Straight-line
1/1/12 180,000 15,000 4 (in Years) Declining-balance
2 1/1/14 146,000 6,000 100,000 (in Units) Units of Activity

Compute the amount of accumulated depreciation on each machine at December 31, 2015. If
Machine 3 has actual production of 8000 units during 2014 and 11000 units during 2015.

Machine 1: straight line method

Cost -salvage /life

Annual dep: 105,000-5000/10= 10,000
 Year Beginning value Annual dep Accumulated dep Year end value
1 105,000 10,000 10,000 95,000
2 95,000 10,000 20,000 85,000
3 85,000 10,000 30,000 75,000
4 75,000 10,000 40,000 65,000
5 65,000 10,000 50,000 55,000
6 55,000 10,000 60,000 45,000
7 45,000 10,000 70,000 35,000
8 35,000 10,000 80,000 25,000
9 25,000 10,000 90,000 15,000
10 15,000 10,000 100,000 5,000

Machine 2: Declining-balance
200%/life
200%/4 =0.5 = 50%
Value – salvage = 22,500 – 15,000 = 7,500

Year Beginning value Dep rate Dep expense Accumulated dep Year end value

2012 180,000 50% 90,000 90,000 90,000

2013 90,000 50% 45,000 135,000 45,000
2014 45,000 50% 22,500 157,500 22,500
2015 22,500 Force 7,500 165,000 15,000

Machine 3: Units of Activity

Cost -salvage value / estimated unit
(146,000-6000)/100,000= 1.4

Year Unit produced Rate Deprecation Accumulated Year end value

expense dep
2014 8000 1.4 11,200 11,200 134,800
2015 11000 1.4 15,400 26,600 119,400

Question 3 – LO4: (Fixed Assets – Revised Depreciation)

Alpha Company bought a machine for AED 80,000 on Jan 1, 2010. It had a useful life of 6 years
and a salvage value of AED 8,000. Straight line depreciation is used. On January 1, 2013, a new
part was added to the machine at a cost of AED 12,000.
The new part extended the useful life of the machine by two years but the salvage value
decreased to AED 6,000.
Required:
Calculate the revised depreciation expense for 2013

Old dep: (80,000-8,000)/6= 12,000

From 2010 to 2013 = 3 years
12,000 x3 = 36,000 New
part :
Cost : 80,000-36,000+12,000= 56,000
Life: 6-3+2=5
(56,000-6000)/5 =10,000

Debit credit
Deprecation expenses 10,000
Accumulated deprecation 10,000

On July 1, 2009, Strawberry Co. bought a Van worth AED 80,000. The salvage value is AED 20,000, and
useful life is 8 years. Depreciation is calculated using the straight-line method. What journal entries
would be recorded for the disposal of the Van in the following independent situations?

a) On Jan 31, 2012: Van was destroyed in an accident. Insurance paid AED 45,000.
b) On March 31, 2012: Van was sold for AED 70,000.

(80,000-20,000)/8 = 7500
3 years and 6 months
7500 x 6/12= 3750
Accumulated dep from the date of purchase till the date of destroy
7500 x 2 +3750= 18,750

Deprecation expenses : jan 31 (one month)

7500 x(1/12)= 625
Accumulated dep: 18,750 +625 = 19,375

March 31
Dep exp = 7500 x (3/12)= 1875
Accumulated dep : 18750+1875 =20,625
 Date Journal Debit Credit
Jan 1 Deprecation expenses 625
Accumulated deprecation 625

Cash 45,000
Accumulated deprecation 19,375
Loss 15,625
Machine 80,000

March 30 Deprecation expenses 1875

Accumulated deprecation 1875

Cash 70,000
Accumulated deprecation 20,625
Machine 80,000
Gain 10,625

Following are some of ABC company transactions that occurred during 2017:
a) ABC Co. sold a copier costing AED 20,000 with a two-year parts warranty
to a customer on August for AED16, 2017, cash. Based on experience, ABC expects
to incur warranty costs 30,000 equal of dollar sales. It records warranty expense
with an adjusting entry to at the end of each year.
Prepare the journal entry to 4% record the adjustment on December 31, 2017, to
record the warranty expense.

b) ABC Company borrows AED322,000 cash on May 15, 2017, by signing a 30-day, 7%
note Assume the face value of the note equals AED 322,000, the principal of the loan.
Prepare the journal entry to record issuance of the note and Prepare the journal entry to
record payment of the note at maturity. (Use 360 days a year)
 c) ABC Company records a year-end entry for AED 40,000 of previously unrecorded cash
sales (costing AED 20,000) and its sales taxes at a rate of 4%.

d) ABC company earned AED 200,000 of AED 350,000 previously received in advance and
originally recorded as unearned services revenue.

Required:
Record journal entries and adjusting entries needed for the above transactions.

Date Journal entry Debit Credit

A December 31, Warranty expense 30,000x 4% 1200
2017
Estimated warranty liability 1200

B May 15, 2017 Cash 322,000

Note payable 322,000

Note payable 322,000

Interest 322,000x7%x30/360 1878.33
Cash 322,000+322,000x7%x30/360 323,878.33

C Cash 40,000x104% 41,600

Sales 40,000
Sales tax payable 40,000x4% 1600

D unearned services revenue 200,000

earned services revenue 200,000

Given below are the financial statements for Computer Services Company for the years 2014 & 2015
with additional information (000 omitted)

Balance Sheets as on December, 31

2014 2015
Assets
Cash 2,784 3,084
Accounts Receivable 1,775 1,574
Inventories 1,988 2,480
Prepaid Expenses 1,135 1,012
Equipment 13,000 16,400
Accumulated Depreciation – Equipment (3,520) (4,760)
TOTAL ASSETS 17,162 19,790

Liabilities & Shareholders’ Equity

Accounts Payable 718 1,228
Loan 2,976 3,172
Common Stock 11,600 12,392
Retained Earnings 1,868 2,998
TOTAL LIABILITIES & SH. EQUITY 17,162 19,790
 Income statement For the year ended 31 December 2015

Total Sales Revenue 10,268

Less: Cost of Goods Sold (5,502)
Gross Profit 4,766
Less: Administrative expenses (3,216)
Net Income 1,550

Additional Information:
During the year 2015,
1. Equipment with an original cost of $400 and accumulated depreciation of $124 were sold for
$168 giving a loss of $108. This loss is included in the administrative expenses. The company
also purchased some other equipment of $3,800 cash during the year.
2. The depreciation charge is also included in the administrative expenses amount in the Income
Statement of $1,364.
3. Dividends were paid during the year of $420.
4. The company borrowed bank loan of $ 196 and received it in cash.
5. Issued common stock for $792 cash.

Required
Using Indirect Method Prepare Cash Flow Statement for the year ended December 31, 2015

Cash flow statement

Description Amount
Add: non cash expenditure
Net income 1,550
Deprecation 1364
Loss on sale of asset 108
Adjustment to current assets and current
liabilities
Accounts Receivable decrease 201
Inventories increase (492)
Prepaid Expenses decrease 123
Accounts Payable increase 510
Cash flow from operating activities: 336
4
Purchase (3,800)
Sale 168
Cash flow from investing activities: (3632
)
Payment of loan 196
Payment of divi (420)
Issued common stock 792
Cash flow from financing activities: 56
 8
Cash flow from operating, investing and 30
financing: 0

Add: beginning balance 2,784

Ending balance: 308
4