CHAPTER 1 – BALANCE DAY ADJUSTMENTS

1.1 Two of these items are current assets

1. Accrued revenue and accrued expenses
2. Accrued revenue and revenue in advance
3. Accrued revenue and prepaid expenses <-- right answer

(d)  Prepaid expenses and accrued expenses

1. Insurance valued at $500 is paid in advance and relates to the next financial year. Is this
1. An accrued expense
2. A prepaid expense<-- right answer
3. Accrued revenue
4. Revenue in advance

 

1. The closing stocktake showed a value of $21 000. What balance day entry is required?
1. Debit closing inventories credit opening inventories
2. Debit inventories credit profit and loss
3. Debit trading credit inventories
4. Debit inventories credit trading <-- right answer

1. Provide for long service leave (LSL). Is the general journal entry
1. Debit LSL credit provision for LSL <-- right answer
2. Debit LSL credit cash
3. Debit provision for LSL credit LSL
4. Debit cash credit provision for LSL

 

1. The balances for accounts receivable are $15 000, with a provision for doubtful debts of $300. Further bad debts totalled $500 and the provision is to be adjusted to 3% of the remaining debtors. Is the general journal entry
1. Debit bad debts $500 credit doubtful debts $500
2. Debit doubtful debts $500 credit provision for doubtful debts $500
3. Debit doubtful debts $435 credit provision for doubtful debts $435
4. Debit doubtful debts $135 credit provision for doubtful debts $135 <-- right answer

1.6 Commission was earned in June to be received in July in the next financial year. For the year ended 30 June, is the commission revenue ledger account

1. Increased <-- right answer
2. Decreased
3. Unchanged
4. Not affected until the next financial year

1. Inventories withdrawn by the owner are
1. Debited to both drawings and GST and credited to sales
2. Debited to drawings and credited to both GST and inventories
3. Debited to both drawings and GST and credited to purchases
4. Debited to drawings and credited to both GST and purchases<-- right answer

 

1. The insurance account includes $400 relating to next financial year but does not include $600 owing for the current year. What is the most appropriate adjustment
1. Make one entry to adjust for $200
2. Add $200 into the insurance account
3. Prepare balance day adjustments for both prepaid and accrued expenses <-- right answer
4. Prepare balance day adjustments for both prepaid and accrued revenue

1. Salary expenses to close of business Wednesday 27 June were $135 000. The next payday is on 4 July in the next financial year and the next gross pay for a five-day week, Monday to Friday, is $2800.

How much accrued expense is added to the salary account?

1. $   560
2. $ 1120 <-- right answer
3. $ 1680
4. $ 2240

1.10 Interest on a loan for $700 is owing at 30 June and has not yet been paid. To include this as balance day adjustment, is it

1. An accrued expense <-- right answer
2. A prepaid expense
3. An accrued revenue
4. Revenue in advance

CHAPTER 2  –  ANALYSIS AND INTERPRETATION OF FINANCIAL REPORTS

2.1 Working capital is

1. Current assets plus non-current assets
2. Non-current assets less non-current liabilities
3. Current assets less current liabilities <-- right answer
4. Opening owner’s equity less the closing balance

1. Total assets opening balance $200 000, closing balance $240 000.

Owner’s equity opening balance $300 000, closing balance $320 000 and net profit for the year was $82 000. The return on equity ratio is

1. 26.45% <-- right answer
2. 37.27 %
3. 31.53%
4. 32.39%

1. Using the information in 2.2, the return on assets ratio is
1. 26.45%
2. 37.27 % <-- right answer
3. 31.53%
4. 32.39%

 

1. Current assets total $38 000 and it includes inventories of $16 000 and prepayments of $500. The current liabilities of $13 000 include a bank overdraft of $2000. Calculate the working capital ratio
1. 1.69:1
2. 2.92:1 <-- right answer
3. 3.45:1
4. 1.95:1

1. Using the information in 2.4, the quick asset ratio is
1. 1.69:1
2. 2.92:1
3. 3.45:1
4. 1.95:1 <-- right answer

 

1. Credit sales are 22% of the total sales of $197 000. The accounts receivable opening balance is $5500 and the closing balance is $3800. Calculate the accounts receivable turnover in days (to the nearest day).
1. 38
2. 39 <-- right answer
3. 40
4. 41

1. Current assets total $38 000 and it includes inventories of $16 000 and prepayments of $500. The current liabilities of $13 000 include a bank overdraft of $2000. Calculate the working capital ratio
1. 1.69:1
2. 2.92:1 <-- right answer
3. 3.45:1
4. 2.00:1

 

1. Current assets total $38 000 and it includes inventories of $16 000 and prepayments of $500. The current liabilities of $13 000 include a bank overdraft of $2000. Calculate the working capital ratio
1. 1.69:1
2. 2.92:1 <-- right answer
3. 3.45:1
4. 2.00:1

1. Current assets total $38 000 and it includes inventories of $16 000 and prepayments of $500. The current liabilities of $13 000 include a bank overdraft of $2000. Calculate the working capital ratio
1. 1.69:1
2. 2.92:1 <-- right answer
3. 3.45:1
4. 2.00:1

 

2.10 Current assets total $38 000 and it includes inventories of $16 000 and prepayments of $500. The current liabilities of $13 000 include a bank overdraft of $2000. Calculate the working capital ratio

1. 1.69:1
2. 2.92:1 <-- right answer
3. 3.45:1
4. 2.00:1

CHAPTER 3 – INCOMPLETE RECORDS

3.1 Single entry accounting is

1. The opposite of double entry

(b) Transactions are entered in the first entry only <-- right answer
(c) A system where the owners can participate
(d) Double entry without credit entries

3.2 The comparison method involves

1. Calculating owner’s equity for the current year
2. Comparing owner’s equity for the current and previous year <-- right answer
3. Calculating profit using a Statement of Financial Performance
4. None of the above

3.3 The analysis method involves
(a)  Calculating owner’s equity for the current year

1. Comparing owner’s equity for the current  and previous year
2. Calculating profit using a Statement of Financial Performance <-- right answer
3. None of the above

1. An item of plant was purchased on 1 January 2004 for $20 000. The financial year ends on 30 June and it was depreciated each year (or part year) at 22% reducing balance. The asset was sold on 31 March 2006 for $11 000. How much was the profit or loss on disposal (to the nearest dollar)?

(a) Profit of $593

1. Loss of $593 <-- right answer
2. Profit of $1186
3. Loss of $1186

1. Accounts payable had an opening balance of $2200 and a closing balance of $2700.

     Discount was received for $300 and the creditors were paid $7200. Calculate the value
of the credit purchases

1. $7000
2. $7700
3. $8000 <-- right answer
4. $9000

1. A business produces a gross loss but a net profit. The Statement of Financial Performance must contain
1. Sales income exceeding the cost of goods sold
2. A large loss item or items
3. High expenses
4. An extraordinary income item or items <-- right answer

 

1. An accurate provision for doubtful debts is
1. To minimise bad debts
2. To provide an assessment of the amount of money owed to the business <-- right answer
3. Considered to be a good tax deduction for the business
4. A liability in the Statement of Financial Position

1. Reconstruction of credit sales is completed in which ledger account?
1. Accounts payable
2. Accounts receivable <-- right answer
3. Inventories
4. Sales

 

1. If the opening balance of Plant and equipment is $23 000 and $4400 was sold during the year for a profit of $200 and the closing balance was $28 500, what is the cost of new Plant during the year?
1. $   1 100
2. $   9 900 <-- right answer
3. $ 10 100
4. $ 11 100

3.10 At the start of the year owner’s equity was valued at $120 000. During the year extra capital of $13 300 was invested and drawings were $7000. The closing owner’s equity was $180 000. How much was the profit for the year?
(a) $ 41 700
(b) $ 53 700 <-- right answer
(c) $ 66 300
(d) $ 80 300

CHAPTER 4 – NOT-FOR-PROFIT ORGANISATIONS

4.1 Subscriptions received in the financial year to 31 December 2008 for the next year, 2009, are recorded in the accounts as

1. Prepaid expense
2. Accrued revenue
3. Revenue received in advance <-- right answer
4. Accrued expense

1. The subscriptions in Question 4.1 at 31 December 2008 are considered to be

(a)  In arrears at the start of the year

1. In advance at the start of the year
2. In arrears at the end of the year
3. In advance at the end of the year  <-- right answer

1. Why cannot the amount of cash received for the year be taken as the income figure for subscriptions?
1. Accounts are prepared under the accrual system
2. Arrears and advance at the start of the year must be considered
3. Arrears and advance at the end of the year must be accounted for
4. All of the above <-- right answer

 

1. Credit sales for the bar can be reconstructed using the account for
1. Accounts payable
2. Accounts receivable <-- right answer
3. Inventories
4. Bar sales

1. A receipts and payments account is similar to a
1. Profit and loss account
2. Cash at bank account <-- right answer
3. A listing of assets and liabilities
4. Bar trading account

 

1. Which item is not part of a bar trading account?
1. Credit sales
2. Replacing drinking glasses
3. Electricity for the whole club area <-- right answer
4. Depreciation of bar refrigerators

1. Which item is not part of a statement of income and expenditure?
1. Subscriptions receivable
2. Purchase of furniture <-- right answer
3. Bar trading loss
4. Club manager’s salary

 

4.8 Income from bar sales is $52 000 and the equivalent purchases are $21 000. The bar manager’s wage is $22 000 and $400 is accrued due not yet paid. Bar electricity is $3000, with opening stocks at $2000 and closing stocks at $2500. How much is the bar profit or loss?

1. $ 6900 profit
2. $ 6900 loss
3. $ 6100 profit <-- right answer
4. $ 6100 loss

1. Accumulated funds are
1. Members’ funds available to improve club amenities
2. Club assets less liabilities
3. Reserves for the benefit of members
4. All of the above <-- right answer

 

4.10 Incorporation for a club or society means that

1. All members can be sued and are liable
2. The club can be sued as an association, protecting the members’ rights <-- right answer
3. There is no separate legal entity for the club
4. The club cannot own property in its legal name

CHAPTER 5 – PRIMARY PRODUCERS

 

5.1 The reason why no value is given for natural increases and deaths in the livestock account is

1. Natural increases are balanced by natural decreases
2. Only the numbers of livestock are affected
3. The taxation laws require it
4. The closing balance of numbers and values will reflect the average stock on hand <-- right answer

1. The opening balance of sheep was $600 (300 head). One hundred sheep were purchased for $400 and natural increase is 100 head, valued at $200. The average closing balance of livestock on hand, per head, is

(a)  50 cents each

1. $1.00 each
2. $ 2.00 each
3. $ 2.40 each <-- right answer

1. Which item is not part of the Wool account?
1. Depreciation of shearing equipment
2. Rations for general farmhands <-- right answer
3. Wool bales on hand
4. Shearers’ wages

 

1. In a Sheep livestock account, the deaths of lambs due to a cold spell are
1. Not recorded at all
2. Included by number with no value, to balance the number of livestock on hand at the end of the period <-- right answer
3. Recorded with a value, similar to that approved by the Income Tax Act
4. Recorded with a value and the number of stock lost

5.5 The agistment expense to a farmer is

1. The cost of grazing livestock on a farmer’s own land
2. The cost of grazing livestock on a neighbour’s land <-- right answer
3. Hay and chaff bought in for stock feed
4. None of the above

5.6 Rations of livestock personally consumed by the farmer are costed to

1. The Livestock account
2. The Wheat account
3. The Wool account
4. The Drawings account <-- right answer

1. The opening balance of livestock is 600 head @ $5 each. Natural increase is 400 @ $2 each and purchases are 5000 @ $6 each. Sales were 5400 head @ $15 each and there were no deaths. Calculate the value of the closing stock at average cost.
1. $2300
2. $3380 <-- right answer
3. $3580
4. $3700

 

1. Calculate the value of closing stock, to the nearest dollar, if in addition to the information in Question 5.7, there were natural deaths of 200 head and rations of 40 head @ $6 each
1. $ 1915
2. $ 2028 <-- right answer
3. $ 2141
4. $ 2253

1. Which of these items is not part of the Wheat account
1. The Growing crop account from the previous year
2. Fertiliser

(c)  Wheat seed
(d)  Veterinary fees <-- right answer

5.10 Which of these items is not a current asset in the Statement of Financial Position?

1. Livestock on hand
2. Wheat sales <-- right answer
3. Stores on hand
4. Unsold wool bales

 

CHAPTER 6 – PARTNERSHIPS

6.1 The function of a profit and loss appropriation account is to

1. Allocate profit and losses to partners
2. Account for interest on drawings
3. Set amounts out of profits for particular purposes
4. All of the above <-- right answer

1. One of the following is not part of a profit and loss appropriation account

(a)  Interest on capital

1. Bonus to a partner
2. Salary of an employee <-- right answer
3. The net profit

1. The capital adjustment account is required
1. To adjust the books before the entry of a new partner <-- right answer
2. To include the new partner’s assets and liabilities
3. To determine allocation of the net profit to partners
4. To record the partner’s takeover of assets

 

1. Which item is not part of the capital adjustment account?
1. Devaluations of assets
2. Revaluations of assets
3. The creation of new provisions
4. Calculation of interest on capital prior to the new partner arriving <-- right answer

1. The realisation account is used
1. To wind up a partnership <-- right answer
2. To realise the assets of a business before a new partner is admitted
3. As a summary of the partnership’s financial activities
4. To calculate the profit sharing ratio

 

1. Which item is not part of a realisation account?
1. Partner’s takeover of assets
2. Legal expenses of winding up the partnership
3. Calculating goodwill <-- right answer
4. Listing of assets to be sold

1. The court case of Garner vs Murray means that financial losses of a partner are shared by the existing partners
1. Equally
2. In their profit sharing ratio
3. In proportion to their capital at the time of dissolution <-- right answer
4. As stated in the partnership agreement

 

1. Current capital accounts are used
1. As working accounts for each partner <-- right answer
2. To show the proportion of capital that is fixed
3. To determine the profit sharing ratio
4. None of these

6.9 The raising of a Goodwill account, for an existing partnership, is recorded in the
(a)  Profit and loss appropriation account
(b)  Capital adjustment account <-- right answer
(c)  Realisation account
(d)  None of these

6.10 A and B share profits and losses 3:2. They admit C for one-sixth share of profits. What is the new profit sharing ratio of A, B and C?
(a) A 15, B 10, C 6, or 15:10:6
(b) A 20, B 5, C 5, or 20:5:5
(c) A 15, B 10, C 5, or 15:10:5 <-- right answer
(d) A 10, B 10, C 10, or 10:10:10

CHAPTER 7 – ACCOUNTING FOR INVENTORIES

 

7.1 For the retail inventory method

1. Markups and markdowns are recorded <-- right answer
2. There is no relationship between cost and selling prices
3. A physical stocktake can support this method
4. The cost price of the sales is not needed

7.2 The purchases cost $10 000 and the only markup is 69%, to convert to the selling price. Sales amounted to $24 000. How much is the cost of goods sold?
(a) $14 000

1. $15 560
2. $16 560 <-- right answer
3. $18 560

1. Which method of stock recording results in a higher value of closing inventories when prices are rising?
1. First in, first out <-- right answer
2. Last in, first out
3. Standard costs
4. Average costs

 

1. Perpetual inventory store records are maintained for a number of reasons.  Which of the following is not one of the reasons?
1. Control over inventories
2. Control over store expenses <-- right answer
3. To determine the cost of goods sold
4. To ascertain gains or losses at the end of the period

1.  An item of stock is maintained at average cost. The opening balance is 180 units at a total of $540. There is one issue for 150 units and then one purchase of 200 units for $646. The closing average unit cost is
1. $ 3.00
2. $ 3.10
3. $ 3.20 <-- right answer
4. $ 3.30

 

1.  An item of stock is maintained using the FIFO method. The opening balance is 180 units at a total of $540. There is one purchase of 200 units for $646 and then one issue of 210 units. The total value of the closing stock is (to the nearest dollar)
1. $ 510
2. $ 549 <-- right answer

(c)  $ 581
(d)  $ 613

7.7 The LIFO method cannot be used for recording inventories. Is this because it is

1. Too complicated
2. Not acceptable to the Australian Tax Office <-- right answer
3. The opposite of FIFO
4.  None of the above

7.8 The perpetual inventory method of accounting for inventories allows for

1. Losses and surpluses to be identified
2. Profits or losses to be calculated regularly
3. Slow moving stocks to be highlighted
4. All of the above <-- right answer

1.  The selling price for inventories is recorded in the
1.  Inventories account
2.  Cost of goods sold account
3.  Sales account <-- right answer
4.  Stock losses account

 

7.10 Stock cards for each store item should contain:

1. Minimum and maximum number to be held
2. The point at which stock needs to be reordered
3. The location of the inventory line
4. All of the above <-- right answer

CHAPTER 8 – ACCOUNTING FOR LEASES

8.1 Amortisation is

1. The wear and tear on the leased asset
2. The allocation of costs to the periods benefiting from the lease <-- right answer
3. The amount that the asset could be exchanged for between two parties
4. Amounts owed under the lease agreement

8.2 A non-cancellable lease is one that can only be terminated by
(a)  Both parties

1. The lessor <-- right answer
2. The lessee
3. None of these

8.3 The residual value is the

1. Amount payable by the lessor to the lessee at the end of the lease
2. Scrap value at the end of the lease
3.  Lease commitments
4. The estimated fair value of the lease at the end of the lease term, based on price levels and market conditions <-- right answer

8.4  A lease is non-cancellable and the lessee will buy the asset at the end of the lease period. The present value divided by the fair value is 92% and the lease term divided by the useful life is 80%. Is this lease

1. An operating lease
2. A finance lease <-- right answer
3. A corporate lease
4. None of the above

8.5 Which item is not correct? Advantages of leasing equipment include

1. The freeing of funds for business expansion
2. The latest technology is available
3. The asset can be disposed of at the end of the lease term, possibly for a profit <-- right answer
4. Capital is conserved for future needs

8.6 The fair value of a leased asset is $120 000. The first payment made was $18 000 at the lease start on 1 July 2008 and interest is charged at 13% per annum on 30 June 2009. How much is the balance of the principal owing after the interest is charged?

1. $  88 740 <-- right answer
2. $  89 000
3. $104 400
4. $106 740

8.7 Accumulated amortisation is shown in the Statement of Financial Position as

1. A current liability
2. A current asset
3. As a deduction from the non-current asset under lease <-- right answer
4. None of the above

8.8 Which of the following is not part of an operating lease?

1. The risks and benefits are retained by the lessee <-- right answer
2.  Payments are considered to be rental rather than the recovery of asset costs
3.  The lease usually can be cancelled
4.  Normally, operating leases are for a shorter term than finance leases

8.9 A lease commences on 1 July 2007 for $40 000 with an initial payment on that day of $5000. The implicit interest rate is 12%. How much interest has been charged for the two years to 30 June 2009?

1. $7800
2. $7896 <-- right answer
3. $8400
4. $9024

8.10 An operating lease is running for a period of 7 months from 15 April 2008 to 15 November 2008 at a total cost of $5425. How much lease expenses, to the nearest dollar, will be included in the financial year ended 30 June 2008?

1. $1550
2. $1938 <-- right answer
3. $2325
4. $2713

CHAPTER 9 – STATEMENT OF CASH FLOWS

 

9.1 The net profit is reconciled with

1. Operating activities <-- right answer
2. Investing activities
3. Financing activities

(d) None of the above

9.2 Doubtful debts is part of

1. Operating activities
2. Investing activities
3. Financing activities
4. Reconciliation with the net profit <-- right answer

1. Cash inflows are not just for sales because

(a)  Some sales may be on credit

1. There are other revenue sources such as rent revenue
2. New liabilities such as a loan can be created
3. All of the above <-- right answer

1. Proceeds from the sale of assets are entered as
1. Operating activities
2. Investing activities <-- right answer
3. Financing activities
4. Reconciliation with the net profit

 

1. For the reconciliation of operating activities with net profit, are decreases in current assets
1. Added <-- right answer
2. Deleted
3. Ignored
4. Not part of the reconciliation

1. To calculate the amount paid to suppliers, reconstructions of which ledger accounts are required?
1. Accounts receivable
2. Accounts payable
3. Inventories
4. Both Inventories and Accounts payable <-- right answer

 

1. Are cash drawings by the owner part of
1. Operating activities
2. Investing activities
3. Financing activities <-- right answer
4. Reconciliation with the net profit

1. A statement of cash flows is required to be prepared because
1. The Statement of Financial Performance is prepared under the accrual system
2. The Statement of Financial Position does not show changes in cash flows
3. Other ledger accounts do not show the flow of funds
4. All of the above <-- right answer

 

1. By analysing cash flows, management can be assured that
1. Assets and liabilities are correct
2. The cost of goods sold is disclosed
3. Business liquidity is maintained <-- right answer
4. The net profit is accurate

9.10 Accounting standard AASB 1026 requires that

1. Cash flows are classified into operating, financing and investing activities
2. All flows be shown for an accounting period
3. Cash inflows and outflows be disclosed separately
4. All of the above <-- right answer