CARIBBEAN EXAMINATIONS COUNCIL
SECONDARY EDUCATION CERTIFICATE
EXAMINATION
PRINCIPLE OF ACCOUNTS
Paper 02–General Proficiency
3 hours
16 May 2012
READ THE FOLLOWING QUESTIONS CAREFULLY.
- Answer ALL the questions in Section I and TWO questions from Section II.
- Begin EACH answer on a separate page.
- Keep ALL parts of EACH answer together.
- Silent, electronic calculators may be used but all necessary working should be clearly shown.
- EACH question is worth 20 marks.
DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO
SECTION I
Answer the THREE questions in this section.
1. An accounting student prepared the following trial balance for Heavy Metal Enterprises for the year ended 31 December 2011 and inserted the amount of $51,200 for capital.
(a) Prepare the corrected trial balance for Heavy Metal Enterprise showing clearly the correct amount for Capital.
(13 marks)
(b) You are presented with the following day books:
(i) Post the information from the day books in the personal account of U. Plumber and balance the account.
(3 marks)
(ii) Prepare the debtors Control Account and any other account in the General Ledger for the month of September.
(4 marks)
Total 20 marks
2. The Sales Ledger of JJ’s Paradise showed the following balances at December 3, 2010.
Mr. JJ has decided to write off these three receivables as bad debts.
(a) (i) Prepare the journal entry on page 5 of JJ’s journal to write off three receivables. (Narrative required).
(7 marks)
The remaining receivables totalled $28,320 at December 31 2010. Mr. JJ believes that 10% of these outstanding receivables are LIKELY to become bad debts. He wishes to make adequate provision for these doubtful debts.
(ii) Prepare the journal entry with a narrative, to create the Provision for Doubtful Debts Account.
(4 marks)
On December 31, 2011, Mr. JJ’s receivables AFTER bad debts totalled $25,000. He decided to use the same rate of 10% as the previous year in accounting for doubtful debts.
(iii) Draw up the provision for Doubtful Debts Accounts for the two years, 1 January 2010 to 31 December 2011, to show the change in the provision. Balance the account at the end of each year.
(5 marks)
(b) (i) State ONE reason why adjustments are made to financial statements.
(1 mark)
(ii) Identify ONE concept which guides adjustments to financial statements.
(1 mark)
(iii) Explain how the concept identified in (b) (ii) above guides adjustments made to financial statements.
(2 marks)
Total 20 marks
3. (a) V. Cheeseman is preparing his summary accounts for the month ended 31 August 2011. He finds the following errors which may or may not affect the summary of the bank account entries in his cash book.
- A purchase of $303, paid by cheque, was recorded in both accounts as purchase of goods valued at $330.
- A cheque for $467 sent to creditor R. Sant had been recorded in R. Sant’s account ONLY.
- A cheque received from C. Samnah for $290 was debited in Samnah’s account and credited in the Cash Book.
(i) Prepare the journal entries to correct the errors above. (Narratives not required).
(7 marks)
(ii) V. Cheeseman records the following figures in his summarised Cash Book BEFORE correcting the relevant errors:
Beginning with the incorrect balance of $2570, correct the summarised Cash Book for the relevant errors given above. Show all working.
(5 marks)
(b) The following information is recorded in EITHER the bank statement or on V. Cheeseman’s Cash Book but NOT in both.
The bank statement for the month ended 31 August 2011 shows a balance of $5680.
(i) Using the corrected summarised Cash Book balance from a(ii) above, draw up an updated Cash Book for the month ended 31 August 2011.
(5 marks)
(ii) Starting with the updated Cash Book balance, draw up a Bank Reconciliation Statement for V. Cheeseman for the month ended 31 August 2011.
(3 marks)
Total 20 marks
SECTION II
Answer any TWO questions in this section.
4. P and G are two sole traders who decided to trade under the partnership name of PG Enterprises. The following are lists of balances for EACH trader before the formation of the partnership.
(a) (i) Prepare individual opening entries as at 1 May 2012 to record EACH sole trader’s contribution to the partnership.
(7 marks)
(ii) Prepare a classified summarised Balance Sheet for PG Enterprises as at 1 May, 2012, using the order of performance.
(7 marks)
(b) The two partners anticipate a profit of $99,000 at the end of the first year’s trading, but have not yet decided what profit-sharing ratio to adopt.
Calculate EACH partner’s share of profit under the following schemes:
(i) In capital sharing ratio
(2 marks)
(ii) In the ratio 3:7
(2 marks)
Show all working.
(c) List TWO features, other than the profit sharing ratio, that should be included in P and G’s partnership agreement.
(2 marks)
Total 20 marks
5. Explain, in ONE sentence, the meaning of EACH of the following statements:
(i) The owners of a corporation benefit from limited liability.
(ii) Farris London, a shareholder, wants to know what the Board of Directors of Aries Limited does.
(iii) The Registrar of Companies has received the documents required to start up the new corporation.
(3 marks)
(b) Aries Limited has an authorised share capital of 200,000 one dollar ($1) Ordinary Shares and 100,000 one dollar ($1) 8% Preference Shares. On April 1, 2011, the following balances were listed in its books:
On April 1, 2011 Aries Limited
- issues the remaining Ordinary and Preference shares for cash and
- buy back $21,000 in debentures with the cash received.
Draft General Journal Entries to record
(i) the issue of the remaining ordinary shares at $1.50 EACH.
(5 marks)
(ii) the issue of the remaining preference shares at $1.00 EACH.
(2 marks)
(iii) the reduction in debentures.
(3 marks)
Narratives not required.
(c) Other balances found on the books include:
On May 31, 2011, the directors agreed to the following:
- Pay the interest due on the remaining debentures
- Transfer $51,500 to general reserve.
- Provide for the dividend to all holders of Preference Shares.
- Provide for a dividend of 12% to all holders of Ordinary Shares.
Prepare the Appropriation Account for Aries limited for the year ended 31 May 2011. Show all working.
(7 marks)
Total 20 marks
6. Simon Long makes decorative concrete ornaments. He recorded the following information about his manufacturing operations for the year ended 31 December 2011.
(a) Calculate the following costs for Simon Long:
(i) Direct materials consumed.
(4 marks)
(ii) Indirect materials used.
(3 marks)
(b) Prepare the Manufacturing Account for Simon Long for the year ended 31 December 2011.
Show clearly the:
- cost of direct materials consumed.
- prime costs
- factory overheads
- cost of production
(11 marks)
(c) Calculate the cost of goods sold.
(2 marks)
Total 20 marks
7. Liontown Co-operative was formed to produce souvenirs for the booming tourist market. The co-operative started with share capital of $55,000 in $1 shares. The co-operative is now two years old and records the following information for the first two years of operation.
The co-operative paid out dividends of 10c per share in its first year of operation and transferred the remainder to a Members’ Education Fund.
(a) Prepare the Income statement and the Appropriation Account for Liontown Co-operative for the first year ended 31 December 2011.
(6 marks)
(b) During the second year of operation, Liontown Co-operative began lending money to members who wished to start their own small business.
(i) Identify the type of co-operative under which Liontown was classified in the operation of its
(a) first year
(b) second year
(ii) Name ONE committee that Liontown is LIKELY to use to carry out its business.
(iii) State ONE purpose of the Member’s Education Fund.
(4 marks)
(c) For the year ended 31 December 2011, the Board of Directors records a surpluss $157,500. The board plans to:
- transfer $32,600 to the Member’s Education fund.
- Pay out $27,500 in dividends.
- leave the reminder as undistributed profits.
Prepare a classified Balance Sheet for Liontown Co-operative for the year ended 21 December 2011 (second year of operation) taking the appropriation
(10 marks)
Total 20 marks