Q1. Discuss the following accounting principles and assumption and give propernumerical example for each one of the:
1. Cost principle.
2. Revenue recognition principle.
3. Matching concept.
4. Business entity assumption.
5. On-going assumption.
(5 Mark)
ANSWER:
Q2. Give financial transactions details that would reflect the following cases (for
your convenience, an example is provided). Do not forget to give full information
(i.e. date, name of the business, amount of the transaction. etc.)
1. A transaction that would increase assets and increase equity.
2. A transaction that would decrease assets and decrease equity.
3. A transaction that would increase assets and decrease Liabilities.
4. A transaction that would decrease assets and increase Liabilities.
5. A transaction that would increase assets and decrease assets.
Example: A transaction that would decrease assets and decrease equity.
(possible solution: On May 6th Alfa company paid wages salaries for
$24,000 cash)
(5 Mark)
ANSWER:
Q3. Bello Co. is an event organizer business. Bello was established in 2018. You
are provided with the following financial statement with some missing values for
the years 2018, 2019 and 2020. You are requested to complete those statements. In
order to solve the question, you have to start with 2018 statements and work
forward to subsequent years. Remember that Bello was established in 2018, thus
the beginning balance for retained earnings in 2018 is zero.
Bello Co. Income statement for the year ended December 31 20XX
(5 Mark)
Bello Co.
Income statement
For the year ended December 31 20XX
Revenues
Expenses:
Rent
Salaries
2020
100,000
?
1,500
?
Net Income
2019
?
58,500
1,500
2018
50,000
?
2,500
?
?
?
20,000
?
Bello Co.
Retained Earnings statement
For the year ended December 31 20XX
2020
Beginning retained earnings
Plus: Net income
2019
2018
Less: Dividends
?
?
?
15,000
?
20,000
?
?
0
?
12,500
?
Ending retained earnings
30,000
?
?
Bello Co.
Balance Sheet
As of December 31 20XX
2020
Assets:
Cash
A/R
Building
Total Assets
2019
?
32,500
90,000
?
2018
?
25,000
90,000
144,500
25,000
?
90,000
?
Liabilities:
A/P
Notes payable
Total Liabilities
Equity:
Common stock
Retained earnings
Total Equity
Total Equity and
Liabilities
?
5,000
500
?
5,500
?
?
1,000
?
15,500
?
15,000
?
114,000
?
?
?
119,000
149,500
?
150,000
Q4. Flypeople a local air carrier and SEU an educational institution, both are Saudi
companies which exchange services with one another all the time. Both companies
prepare their financial reports on monthly basis and were engaged in the following
transactions during May 2024:
1. SEU purchased 2 flight tickets for SR2,400 paying cash. The flights are
scheduled for November 2024.
2. Flypeople has a fleet of vehicles worth SR11,900,000. The average useful
life for those vehicles is 11 years with salvage value of SR125,000.
Flypeople uses straight-line depreciation method.
3. SEU as a governmental institution, it credits employees salaries on the 27th
of each month. Due to some system failure in May, salaries payment was
postponed to June 3rd. Total salaries due is SR13,000,000.
4. During May Flypeople had a balance of SR9,500 for cargo services provided
to SEU but not yet billed to them.
Required: prepare adjusting entries for both Flypeople and SEU whenever
applicable for the month of May 2024.
(5 Mark)
ANSWER:
Q5. The Accounting Cycle constitute of 10 sequel steps. List those steps and
discuss the meaning and importance of each one of them.
(5 Mark)
ANSWER:
Q6. Differentiate between periodic inventory system and perpetual inventory
system.
(5 Mark)
ANSWER:
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