By failing to prepare, you are preparing to fail.
~ Benjamin Franklin
NANYANG TECHNOLOGICAL UNIVERSITY
NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022
Lesson 3 for week beginning 23 August 2021
Topics:
1. Adjusting entries
2. Closing entries
3. Preparation of statement of profit or loss and statement of financial position
4. Qualitative characteristics of useful financial information
Learning objectives:
Refer to the course outline
Readings:
1. STH Chapter 3 – in the customised textbook
2. SFRS(I) Conceptual Framework for Financial Reporting (Chapter 2)
Textbook:
STH: Spiceland J. D., Thomas W., Herrmann D. (2019), “Financial Accounting”, 5th edition,
McGraw-Hill.
Discussion Questions
Question 1 (Applying online lesson 1.6 on the nature of elements reported in the financial
statements)
Discuss if the following items are recognised as assets under the conceptual framework for
financial reporting.
a. The cost incurred by an entity to apply for a patent and the patent was granted to
the entity.
b. Internally generated goodwill of an entity.
c. The cost incurred by an entity to send its employees for training.
d. Research costs incurred by an entity to innovate its products.
Question 2 (Applying online lesson 3.4 on the qualitative characteristics of useful financial
information)
What are the qualitative characteristics of useful financial information stated in the
Conceptual Framework for Financial Reporting? Briefly discuss how these characteristics
enhance the quality of financial information provided.
21S1 AC1103 Lesson 3 Discussion Questions 1
By failing to prepare, you are preparing to fail. ~ Benjamin Franklin
NANYANG TECHNOLOGICAL UNIVERSITY
NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022
Question 3 (Applying online lessons 3.1 to 3.3 on preparing adjusting entries, closing
entries, and financial statements)
Spark Clean Pte Ltd is in the business of providing cleaning services to factories and offices.
The company’s financial year ends on 31 December. During the financial year ended 31
December 2014, the accountant was on maternity leave from 10 August to 31 December.
During the accountant’s absence, an inexperienced accounts clerk prepared the accounts.
Upon her return from her maternity leave, the accountant obtained the trial balance as at 31
December 2014 prepared by the accounts clerk.
Debit Credit
$ $
Accounts Payable 99,420
Accounts Receivable 244,400
Accumulated Depreciation 77,400
Borrowings 100,000
Cash 394,490
Cleaning Equipment 151,200
Cleaning Supplies 35,000
Cleaning Supplies Expense 243,000
Depreciation 12,600
Dividends 10,000
Insurance Expense 9,360
Interest Expense 4,500
Prepaid Insurance 11,520
Rent Expense 45,600
Retained Earnings 16,900
Revenue 2,080,000
Salary 1,456,000
Share Capital 200,000
Unearned Revenue 50,000
Utilities Expense 6,050
Total 2,623,720 2,623,720
Additional information:
21S1 AC1103 Lesson 3 Discussion Questions 2
By failing to prepare, you are preparing to fail. ~ Benjamin Franklin
NANYANG TECHNOLOGICAL UNIVERSITY
NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022
(1) The company obtained a 3-year loan of $100,000 from the bank on 1 April 2013. The
whole loan will be repaid on 31 March 2016. The loan carries an interest rate of 6% per
annum, with interest payable semi-annually in arrears on 31 March and 30 September.
The company has no other borrowings.
(2) The company pays its annual insurance premium in advance on every 1 April. The
insurance coverage is from 1 April till 31 March of the following year. Its annual
insurance premium was increased from $14,400 to $17,280 with effect from 1 April
2014. There is no other insurance premium paid.
(3) The depreciation for the financial year ended 31 December 2014 was $21,600.
(4) The accountant did a check on the cleaning supplies and found that $15,000 worth of
cleaning supplies was left in the storeroom as at 31 December 2014.
(5) On 1 October 2014, $50,000 cash was received in advance from a new customer. The
accounts clerk recorded the cash collection to unearned revenue account. The
accountant confirmed that cleaning services amounting to $30,000 was rendered by 31
December 2014.
(6) On 6 January 2015, the accountant received the utilities bill for December 2014,
amounting to $580. The invoice has not been recorded.
(7) On 30 September 2014, the accounts clerk correctly recorded the issuance of shares
capital of $30,000.
Required
(a) Prepare the adjusting or correcting journal entries (if any), without dates and
narrations, for the financial year ended 31 December 2014.
(b) Prepare the adjusted trial balance as at 31 December 2014.
(c) Prepare Statement of Profit or Loss for the year ended 31 December 2014.
(d) Prepare the Statement of Changes in Equity for the year ended 31 December 2014.
(e) Prepare the Statement of Financial Position as at 31 December 2014.
(f) Explain one (1) accounting principle that the accounts clerk has violated. Cite one (1)
transaction that the accounts clerk has recorded or not recorded to support the
violation that you have identified.
21S1 AC1103 Lesson 3 Discussion Questions 3
By failing to prepare, you are preparing to fail. ~ Benjamin Franklin
NANYANG TECHNOLOGICAL UNIVERSITY
NANYANG BUSINESS SCHOOL
AC1103 – ACCOUNTING I
SEMESTER 1, 2021/2022
Self-Practice Questions
Question 4 STH Problem 3-2A (Applying online lesson 2.5 on the cash vs accrual basis of
accounting)
(Key answer: Net profit under accrual basis of accounting: $17,000)
Question 5 STH Problem 3-3A (Applying online lesson 3.1 on preparing adjusting entries)
(Key answers: Item 1. Dr Deferred Revenue $3.600; Item 3. Cr Prepaid Insurance $1,600;
Item 5. Cr Supplies $1,700)
Question 6 STH Problem 3-4A (Applying online lesson 3.1 on preparing adjusting entries)
(Key answers: Item 2. Cr Salary Payable $25,000; Item 4. Dr Supplies Expense $16,000;
Item 5. Cr Prepaid Advertising $3,000)
Question 7 STH Problem 3-5A (Applying online lessons 3.3 on preparing financial
statements)
(Key answers: Net Income = $86,000; Total Stockholders’ Equity = $291,000; Total Assets =
$505,000; Total Liabilities = $214,000)
Question 8 STH Problem 3-6A (Applying online lesson 3.2 on preparing closing entries)
(Key answer: Total of post-closing trial balance = $126,900)
Question 9 STH Problem 3-8A (Applying online lessons 3.1 to 3.3 on preparing adjusting
entries, closing entries, and financial statements)
(Key answers: Item 8. Net Income = $19,600; Total Assets = $78,600; Total Liabilities = $19,600;
Total Stockholders’ Equity = $59,000)
21S1 AC1103 Lesson 3 Discussion Questions 4
