1. 1
END-OF-SEMESTER EXAMINATION
SEMESTER 3, 2010/2011 SESSION
KULLIYYAH OF ECONOMICS AND MANAGEMENT SCIENCES
Programme : ENM Level of study : 1
Time : 2.30 pm – 5.30 pm Date : 30/06/2011
Duration : 3 hours
Course Code : ACC 1001 Section(s) : 1, 2 & 3
Course Title : Financial Accounting Fundamentals
(This Question Paper Consists of 9 printed pages with 2 parts)
DO NOT OPEN UNTIL YOU ARE ASKED TO DO SO
INSTRUCTION(S) TO CANDIDATES
1. Answer ALL Questions
ANY FORM OF CHEATING OR ATTEMPT TO CHEAT IS A SERIOUS OFFENCE WHICH
MAY LEAD TO DISMISSAL
APPROVED BY:

2. 2
PART A: MULTIPLE CHOICE QUESTIONS
1.All of the following are purposes of internal control except:
A) To safeguard assets.
B) To ensure accurate and reliable accounts records.
C) To discourage adherence to company policies.
D) To promote operational efficiency.
2.Khalil Company’s cash balance at the end of the month was RM5,500. After comparing the
company’s records with the monthly bank statement, the company’s accountant identified the
following reconciling items: outstanding cheques, RM900; deposits in transit, RM600; bank
service charge, RM20; non-sufficient fund cheque, RM200. What is the adjusted cash balance?
A) RM4,980.
B) RM5,280.
C) RM5,580.
D) The adjusted cash balance cannot be determined from this information.
3. If a bank reconciliation included deposit in transit amounting to RM1,500, the journal entry to
record this reconciling item should include:
A) Debit Deposit in Transit and credit Cash for RM1,500.
B) Debit Account Receivable and credit Cash for RM1,500.
C) Debit Cash and credit Deposit in Transit for RM1,500.
D) No entry is required.
4.The purpose of the accrual basis of accounting is to:
A) report revenue when received.
B) improve the matching of revenue and expense in the proper period.
C) report expenses when cash payments are made.
D) improve the company's earnings per share.
5. A journal entry contains a debit to a liability account and a credit to a revenue account. This is an
example of a (n):
A) prepaid expense.
B) prepaid revenue.
C) accrued expense.
D) accrued revenue.
6.Jati Teak Company paid RM54,000 for computers. These computers have an estimated economic
life of 3 years and a residual value of zero. After one year of use, the book value of furniture will
be?
A) RM18,000.
B) RM36,000.
C) RM54,000.
D) RM0.

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7.New Company began operations on December 1, 2010. The following transactions were recorded
in December:
i) Received RM3,000 cash from the issuance of common stock to its stockholders
ii) Provided services on account for RM2,500
iii) Paid RM1,500 cash for land
iv) Accrued RM1,000 of salaries expenses
v) Purchased RM300 of supplies on account
At December 31, 2010, the total debits in the company's trial balance would be:
A) RM 6,800.
B) RM 3,200.
C) RM 8,300.
D) RM 6,500.
8.The following data were extracted from the records of Welmark Company:
Sales revenue 450 units at RM35 per unit
Beginning inventory 100 units at RM16 per unit
Purchases 400 units at RM20 per unit
The company’s most recent statement of comprehensive income showed cost of goods sold of
RM8,640. The company was using which cost method for valuing inventory?
A) First in, First out.
B) Last in, First out.
C) Average cost.
D) Specific identification.
9.Given the following data, calculate the average cost per unit of inventory using the Average-cost
method.
August 1 Beginning inventory 20 units at RM20 per unit.
August 5 Purchases 15 units at RM22 per unit
August 30 Purchases 30 units at RM25 per unit
A) RM20
B) RM22.77
C) RM23.54
D) RM25.00
10. The following information for the year 2010 is taken from the accounts of Inglewood Company.
The company uses the periodic inventory method.
Inventory, January 1, 2010 RM 2,000
Purchases 10,000
Purchases Returns and Allowances 200
Purchases Discounts 100
Freight on goods purchased under terms FOB
shipping point 400

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Cost of Goods Sold 7,100
Based on this information, the inventory at December 31, 2010 is
A) RM 4,600
B) RM 5,000
C) RM 4,900
D) RM 12,100
11. When the board of directors declares a cash dividend, the owners of noncumulative preferred
stock must receive:
A) The current year’s dividend but not dividends in arrears.
B) All dividends in arrears plus the current year’s dividends.
C) Dividends in arrears but not the current year’s dividend.
D) Neither the current year’s dividend nor the dividends in arrears.
12. A company purchased 1,000 units at RM60 per unit. The company marked up the selling price by
RM30 and sold 600 units. What is the cost of goods sold and ending inventory?
Cost of goods sold Ending inventory
A) RM18,000 RM12,000
B) RM24,000 RM36,000
C) RM36,000 RM24,000
D) RM54,000 RM36,000
13. Using a perpetual inventory system, which of the following entries would record the cost of
goods sold on credit?
A) Sales
Account receivable
B) Cost of goods sold
Purchases
C) Cost of goods sold
Inventory
D) Inventory
Accounts payable
14. For a company using Last in, First out (LIFO), large purchases of inventory near the end
of the year will:
A) Decrease gross profit.
B) Increase ending inventory.
C) Average the value of ending inventory.
D) Reports the most up-to-date ending inventory values.
15. On December 31, 2010, Mercy Company had a current ratio of 1.46. The following transaction
occurred January 1, 2011. How would this transaction affect Mercy’s current ratio?
Accounts Payable 2,000
Cash 2,000

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A) The effect of this transaction cannot be determined.
B) The current ratio will remain unchanged.
C) The current ratio will decrease.
D) The current ratio will increase.
16. Standard Company purchased equipment for RM32,000. The company paid insurance in-transit
RM400 and sales tax amounted to RM240. Maintenance in the first year of use cost RM1,000.
How much should the company capitalize as the cost of equipment?
A) RM32,000.
B) RM32,400.
C) RM32,640.
D) RM31,640.
17. If liabilities increase RM120,000 during a given period and equity decreases RM25,000 during
the same period, assets must:
A) Decrease RM145,000.
B) Increase RM145,000.
C) Increase RM95,000.
D) Decrease RM95,000.
18. At December 31, Gill Company reported accounts receivable of RM 238,000 and an
allowance for uncollectible accounts of RM 600 (credit). An analysis of accounts
receivable suggests that the allowance for uncollectible accounts should be 3% of
accounts receivable. The amount of the adjusting entry for uncollectible accounts would
be:
A) RM 6,540.
B) RM 7,800.
C) RM 7,140.
D) RM 7,740.
19. A $3,000, 7.5% bond is quoted at 97.5. How much cash will be received when the bond is issued?
A) $3,225
B) $3,000
C) $2,925
D) $2,775
20. The entry to record the declaration of a cash dividend includes a debit to:
A) Dividends Payable and a credit to Cash.
B) Retained Earnings and a credit to Cash.
C) Retained earnings and a credit to Dividends Payable.
D) Cash and a credit to Dividends Payable.
[TOTAL: 20 MARKS]

6. 6
PART B: PROBLEM QUESTIONS
Question 1
Assume you have been employed by Mega Corporation. The company is in the process of
preparing its annual financial statement. The following unadjusted trial balance was created
from the general ledger accounts on May 31, 2010.
Debit Credit
RM RM
Cash 63,000
Account receivable 67,000
Allowance for doubtful account 0
Inventory 103,000
Property, plant and equipment 253,500
Accumulated depreciation 103,000
Accounts payable 75,000
Unearned rent revenue 6,000
Note payable 8,000
Common stock at par RM10 120,000
Additional paid-in capital (Share premium) 80,000
Retained earnings 65,900
Sales revenue 369,000
Sales return and allowances 9,500
Sales discount 14,000
Cost of goods sold 248,000
Selling expenses 27,000
Administrative expenses 24,500
General expenses 5,000
Income tax expense 15,400
829,900 829,900
Additional unrecorded and adjusting data at May 31, 2010 follows:
a. On May 2, employed a new manager at a monthly salary of RM3,000 to be paid on June
2, 2010. Salary expense is included in the administrative expense.
b. The company owes interest of RM400 on a bank loan signed on October 1 2009. The
interest will be paid when the loan is repaid on September 30 2010.
c. The bank statement includes charges for returned check from a customer, Harni Musa, in
the amount of RM1,000. The check was returned by Harni’s bank with the imprint
“Unauthorized Signature”.

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d. Assume the company uses a percentage of account receivable in estimating its bad debt
expense, and estimates that 10% of its year-end account receivable is uncollectible.
e. The company uses a perpetual inventory system. Transportation cost of RM 200 paid in
May 2010, was unrecorded.
f. The Board of Directors declared and issued a 10% common stock dividend when the
stock was selling at RM12 per share. The retained earnings balance was used in the stock
dividend.
g. On January 1, 2010, a piece of equipment was sold for RM33,500 cash. The equipment
was acquired at a cost of RM60,000 with a residual value of RM11,000 and has been
depreciated for 4 years using the straight line method.
h. Depreciation of 20% on cost is provided on the property, plant and equipment held at
May 31 2010. No depreciation is provided for assets disposed during the year.
Required:
Prepare a statement of comprehensive income, a statement of changes in equity for the year
ended May 31, 2010, and a statement of financial position as at May 31, 2010.
[TOTAL: 30 MARKS]
Question 2
Aminah works in a company that is equipped with up-to-date office equipment, example
scanners, printers and fax machine. She is frequently the only employee working in the office in
the evenings and often has spare time to do personal work. She has started to use the office
equipment for her children’s school reports and for her husband’s business.
Do you think Aminah’s use of the office equipment is harmless, or is she behaving unethically?
Under what conditions could such use of office resources be justified? If you believe her
behavior is unethical, what controls could be in place to prevent it?
[TOTAL: 5 MARKS]

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Question 2
Below are the account balances extracted from the ledger of Midas Berhad as at December 31,
2009:
Accounts RM
Common Stock (RM0.50 par) 300,000
Additional paid-in capital
(Share Premium) 1,500,000
Retained earnings 2,650,000
Taxes payable 16,600
The following transactions are yet to be recorded:
a) On January 1, 2010, issued 40,000 shares of RM25 par, 5% preferred stock at RM40 per
share.
b) On April 1, 2010, reacquired 10,000 shares of common stock for RM4 per share.
c) On June 30, 2010, paid taxes payable RM16,600.
d) On July 1, 2010 issued RM400,000 7% bonds payable at 96. The bond matures on June
30, 2020. Interest is payable semi-annually on June 30 and December 31 each year. The
interest for the 6 months ended December 31, 2010 has not been paid or recorded. Any
discount on bond is written-off in full, at December 31, 2010.
e) On December 1, declared a cash dividend of RM1.00 per share on the common stock
outstanding.
f) Declared and paid dividends to preferred shareholders on December 31, 2010.
g) Net income for the year ended December 31, 2010, was RM925,000.
Required:
(i) Prepare journal entries for the transactions listed above.
[12 marks]
(ii) Prepare the extract of the stockholders’ equity and liabilities sections for Midas Berhad as
at 31 December 2010.
[8 marks]
[TOTAL: 20 MARKS]

9. 9
Question 3
Assume you have decided to invest in a company in the computer technology business. You
have narrowed your choice to Apple Plus Corporation and have collected the following:
Selected data for 2009 and 2010
Accounts 2010 (RM) 2009 (RM)
Cash 1,203,488 676,413
Short-term investments 54,368 215,890
Average account receivables, net 1,481,647 1,234,566
Average inventory 1,297,536 1,043,368
Total current assets 4,476,452 4,338,355
Average total assets 5,237,079 4,697,553
Total current liabilities 1,944,305 2,508,085
Total liabilities 2,919,445 3,145,034
Total shareholders’ equity 2,383,301 2,026,378
Market price per share of common stock RM31 RM32
Accounts 2010 (RM) 2009 (RM)
Net sales 9,188,748 7,976,954
Cost of goods sold 6,844,915 5,248,834
Net income 310,178 86,589
Earnings per share RM2.61 RM0.73
Dividends per share RM0.48 RM0.48
Required:
1. Compute the following ratios for the company for the two years, 2010 and 2009:
a. Current ratio f. Profit margin
b. Quick ratio g. Gross profit margin
c. Inventory turnover h. Return on assets
d. Receivable turnover i. Dividend yield
e. Debt to equity ratio j. Price/earnings ratio
[18 marks]
2. Assume you have analyzed all other factors and that your decision depends on the result of the
ratio analysis. Should you invest in Apple Plus Corporation?
[7 marks]
[TOTAL: 25 MARKS]