P. 1 Heep Yunn School Business, Accounting and Financial Studies Mid-year Examination 2010-2011 F.

4A, B, C, D & E Dec 2010 Time Allowed: 1.5 hours Total marks: 80 Answer ALL the questions. Write your answers for Sections A and B on the answer sheets and Section C on the single-line paper provided. Section A: MC Questions 21 marks. Q1 Which of the following double entries are CORRECT? Account to be debited Account to be credited T Wong

Transaction

(i) Bought a machine from Machine T Wong by cash. (ii) The owner spent his M Lee own cash to pay a creditor, M Lee. (iii) Made a loan in cash Loan to K Cheng to K Cheng. (iv) Sold a newly bought Bank machine by cheque A. (i) and (ii) B. (ii) and (iii) C. (iii) and (iv) D. None of the above

Cash

Cash

Machinery

Q2

Which of the following is INCORRECT? Assets A. $9460 B. $7390 C. $6120 D. $8970 Liabilities $2680 $1140 $3490 $3580 Capital $6780 $6250 $4630 $5390

P. 2 Q3 Which of the following entries are CORRECT? TO RECORD ENTRY IN ACCOUNT Debit Credit Debit Credit Debit Credit THE

TYPE OF ACCOUNT

(i) Assets

A Decrease An Increase

(ii) Capital

A Decrease An Increase

(iii) Liabilities

A Decrease An Increase

A. (i) and (ii) B. (i) and (iii) C. (ii) and (iii) D. All of the above Q4 The accounts balances in the accounts receivable ledger are usually ______. A. debit balances. B. credit balances C. zero D. negative Q5 Credit notes issued by us are the source documents for ______. A. the returns outwards journal B. the returns inwards journal C. the purchases journal D. the sales journal

P. 3 Q6 A trade discount is best described as ______. A. A discount given to suppliers who buy in large quantities B. A discount given to customers who buy in large quantities C. A discount given to customers who pay cash on purchase D. A discount given to customers who settle their outstanding balances on time Q7 Which of the following classifications of producers is CORRECT? Primary Production A. Carpenter B. Farmer C. Miner D. Fisherman Q8 Secondary Production tailor watch maker bookkeeper lorry driver Tertiary Production clerk waiter cook doctor

The following are the desirable impacts of globalization except ______. A. unemployment B. encouraging technology transfers C. expanding markets D. encouraging global sourcing and outsourcing

Q9 Which of the following are the advantages of obtaining a franchise from a well-known company? (i) (ii) (iii) Receiving training and advice from the franchisor Setting up a new business more quickly Gaining full control of the business upon the payment of royalties to the franchisor

A. (i) and (ii) B. (ii) and (iii) C. (i) and (iii) D. None of the above

P. 4 Q10 (i) (ii) (iii) Which of the following are the disadvantages of public enterprises? Lack of efficiency Increase the burden of taxpayers Not run on commercial principles

A. (i) and (ii) B. (ii) and (iii) C. (i) and (iii) D. All of the above Q11 The following is the information about two firms: Firm A Source of Capital Firm B

Provided by the owners Provided by the owner only only Not a legal entity 12 Not a legal entity 1

Legal identity Number of owners Financial statements

Not required to disclose to Not required to disclose to the public the public

The form of ownership of Firm A and Firm B are __________ and __________ respectively. A. partnership and private limited company B. partnership and sole proprietorship C. partnership and public limited company D. private limited company and sole proprietorship

P. 5 Q12 (i) (ii) (iii) (iv) Which of the following are the advantages of a joint venture? Different knowledge and expertise possessed by companies can be shared. Unilateral decision-making can be avoided. Financial resources of companies can be pooled together. Local markets can be protected

A. (i) and (iii) B. (ii) and (iv) C. (ii) and (iii) D. All of the above Q13 (i) (ii) (iii) (iv) Which of the following are the characteristics of a planned economy? Most of the resources are owned by private individuals. Allocation of resources is generally guided by market prices Distribution of output is determined by the government. Economic decisions are made by government.

A. (i) and (iii) B. (ii) and (iv) C. (ii) and (iii) D. (iii) and (iv) Q14 (i) (ii) (iii) (iv) Government spending on social services and infrastructure is intended to __________. Reduce income disparity Increase tax revenue Modernize Hong Kong Improve labour productivity and Hong Kongs competitiveness.

A. (i) and (ii) B. (i) and (iv) C. (ii) and (iii) D. (ii) and (iv)

P. 6 Section B: Case Study (27 marks) Question 1 Mr. Johnson Thomson is the one of the partners of a multinational law firm. He is considering setting up an Asian regional headquarter in Hong Kong and a branch in Mainland China. He wants to seek your advice. (a) What is a multinational corporation? (2 marks)

(b) Suggest the THREE major possible reasons for his choice to set up a headquarter in Hong Kong. (6 marks) (c) What are the factors that Mr. Johnson Thomson should consider before making his decision of setting up a branch in Mainland China? Give THREE. (6 Marks)

Question 2 Mrs. Liang and Mrs. Kwong want to set up a firm to sell childrens books on-line. Neither one of them are willing to spend their extra personal savings to repay the debts arising from the shops closure or failure. They also do not want to disclose their financial statements to the public. (a) As a business consultant, you have to advise them which form of ownership they should choose. State reasons to support your choice. (3 marks) (b) State TWO disadvantages of the above form of ownership. (4 marks)

P. 7 Question 3 The bookkeeper of Tin Tin Company had prepared the following cases based on the accounting principle/assumption. However, he was not sure whether the accounting treatment is correct or incorrect. You are required to indicate the correctness and state the accounting principle/assumption that is being applied or violated accordingly. (6 marks) Correct or Incorrect Accounting principle/assumption applied or violated

Example: The company provided commission to its staff. If the staff could sell its products for more $100 000 this month, he/she would get 2% as commission in the following month. On 31 December 2009, Incorrect total of $20 000 commission was incurred and this amount would be paid in 2010. The bookkeeper recorded this commission as the expenses of 2010. (a) The bookkeeper has not recorded the owners personal transaction from the companys book. (b) The bookkeeper used different valuation methods to record the same set of assets every year. (c) As the performance of the company was very poor, the bookkeeper decided to record all the assets at market value. However, there was no evidence to show that the company would wind up in the near future.

Accrual basis

P. 8 Section C: Long Questions (32 marks) Question 1 Jenny keeps a Three-column Cash Book and a Petty Cash Book for her business. The following information referred to the month of March 2006: Mar 1 Cash in hand $2 060 Bank Overdraft $4 214 Petty Cash in hand $220 1 Made reimbursement from the cash to maintain the imprest amount. 2 Drew a cheque for rent of $250. 3 Cash sales $1 050. 4 Paid traveling expenses of $20 5 Paid cleaning expenses of $35. 8 Sales banked $1 680. 8 Paid postage of $95. 9 Drew a cheque for purchases costing $1 200. 11 Drew a cheque for $150 to replenish cash in hand. 15 Paid sundries expenses of $100. 16 Paid postage of $50. 18 Drew a cheque for $168 to pay a Telephone bill. 19 Paid cleaning expenses of $84. 20 Paid Stationery of $188 from cash. 22 Banked $700 cash. 24 Paid traveling expenses of $120 in cash. 25 Received a cheque from Mavis for $2 100. 26 Paid sundries expenses of $70. 27 The banker noticed Jenny that the cheque received on 25 of March was found as unpaid. 28 Paid postage of $32, traveling of $56 and sundries of $71. 29 Cash sales $2 200. 30 Drew a cheque for $160 to pay an Electricity bill. 31 Drew a cheque for $855 payable to Connie in full settlement of a debt of $900. 31 Drew a cheque for $494 payable to Frankie in full settlement of a debt of $520. 31 Received cheque for $720 from Betty in full settlement of a debt of $750. 31 Received cheque for $1 160 from Peter in full settlement of a debt of $1 210. 31 Made reimbursement from the cash the same amount as the petty cash expenditure of the month. Notes: 1. Thelma adopted the imprest system with cash float $1 000 per month. 2. The petty cash book would be used for the expenditures which were $100 or smaller. 3. The analysis columns would be postage, travelling expenses, cleaning expenses and sundries expenses. You are required to prepare the following books and accounts, and bring down the balances at the end of the month: a) a Three-column Cash Book (15 Marks) b) a Petty Cash Book (14 Marks) c) Discounts accounts (3 Marks) End of Paper