Question 1 Practical Questions                                                                    


The following transactions for ABC Constructions occurred during April and May 2014:

April 1   Owner contributes capital of $40 000, by an additional injection of cash.

April 3   Cash is received from a customer, F. Turnip, $14 000.

April 5   Supplies are requisitioned for use in the office, $500.

April 9   Installation services are provided on credit for $13 500 to Banana Ltd.

April 12   A $7 000 loan is taken out with AMP Loans Ltd. Interest is payable at 10% p.a.

April 18   A bill for electricity consumed is received, $400.

April 24   Office fixtures are purchased from Dots Ltd for $6 000. $2 000 is paid immediately by cheque, the remainder is due in July.

April 27   A cheque is issued in payment of the electricity account received on 18 April.

April 29   Prepaid insurance costs have been used to the extent of $800.

May 1   Payment on account is made by cheque to Apple Suppliers, $40 000.

May 2   Supplies are purchased on account from Deluxe Supplies Ltd, $2 900.

May 13   Rent for the month is paid by cheque, $7 000.

May 17   Insurance expired, $780.

May 23   Installation equipment is purchased on account from Apple Suppliers, $26 000.

May 29   A salary of $5 000 is paid by cheque.



Assuming that the accounting period is a calendar year, prepare general journal entries for ABC Constructions Ltd during April and May 2014. Ignore GST.


Question 2:    


Newcastle Retail Services ends its financial year on 30 June.


A. Using the following information, make the necessary adjusting entries.


  1. Rent of office premises of $1,216 for the 4-month period ending 30 August is due to be paid in July.
  1. The Supplies account had a $600 debit balance on 1 July of the preceding year. Supplies costing $1,400 were purchased during the year, and $400 of supplies are on hand as at 30 June.
  2. The telephone expense of $400 is unpaid and unrecorded at 30 June.
  3. Annual depreciation on equipment is estimated to be $14,000. The balance in Accumulated Depreciation at the beginning of the financial year was $18,000.
  4. Newcastle Retail Services borrowed $60 000 from ABC Bank on 15 April. The principal, plus 8% interest, is payable on 15 August. Accrued interest on 30 June has not been recorded.
  5. The office assistant earns $280 a day. He will be paid in July for the 5-day period ending 2 July.
  6. Newcastle Retail Services purchased a 6-month insurance policy for $1,134 on 1 December. A 24-month policy was purchased on 30 May for $2,544. Both purchases were recorded by debiting Prepaid Insurance.
  7. On 1 June, Newcastle Retail Services received 4 months’ rent in advance, totalling $1,792. This was recorded by a credit to Unearned Rental Revenue.

B. As you know, all adjusting entries affect one balance sheet account and one income statement account. Based on your adjusting entries prepared in requirement A:

  1. Calculate the increase or decrease in profit.
  2. Calculate the increase or decrease in total assets, total liabilities and total equity.

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