BAC1 (BSM 1313)
2004/2005
Supplementary Continuous Assessment

Question 3

Kinko Co. is a photocopying shop. In preparing the annual accounts of the
company, the chief accountant had to deal with the following matters related
to the financial year ended 31 December 2003:

(1) The store had expanded rapidly and recently bought a new copying
machine. Kinko purchased this machine for $6,000 on credit terms from
its supplier. The machine was already in use but the supplier had not
sent the bill to Kinko.

(2) Kinko had been using straight-line depreciation method for years. The
new copying machine would provide benefits for 3 years. There would
be no residual value at the end of the period. However, no entry had
been made in the book.

(3) The owner of the store had spent $3,000 on travel expenses out of his
own pocket and for his own personal use. The accountant had not
recorded anything in the company record.

(4) One of Kinko customers had gone bankrupt. Kinko was unable to
collect the outstanding $5,OOQdebt. The chief accountant had decided
to write off the debt completely from the book.

(5) Early this year, Kinko bought a new shop premise in a public auction.
The company paid a total of $500,000 out of its bank account and
borrowed $100,000 from another bank. No entry had ever been made
for this purchase. Due to recent recovery in the real estate market,
several appraisers valued the shop premise to worth $700,000.

Required:

(a) Prepare the journal entries (if any) for the above transactions. Short
narrative is required.                                  (13 marks)

(b) Name and explain the accounting principles or concepts used in
preparing the journal entries for the transactions described in (a) above.

(17 marks)
(Total: 30 marks)

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