Question 1

What type of account is accumulated depreciation?

Accepted Answer

A) A liability account. 
B) An expense account. 
C) A contra asset account. 
D) An equity account. 
A) A liability account. 
B) An expense account. 
C) A contra asset account. 
D) An equity account. C

Question 2

The following information was prepared for Xi Services as at 30 June 2018.
 Additional information available at 30 June 2018:
1. Interest expense outstanding is $4,500.
2. An allowance for doubtful debts is to be created for $1,500.
3. Depreciation of equipment is at the rate of 15% p.a. using the reducing-balance method.
4. $2,500 of the prepaid insurance has been used-up during the year
REQUIRED:
Incorporating all the above information, prepare:
a)an Income Statement for the year ended 30 June 2018.

Accepted Answer

a)$\begin{array}{c}
\text {Xi Services}\
\text {Income Statement for the year ended 30 June 2018}\\
\begin{array}{lrc}
\text { Income } & \$ & \$ \
\text { Less Expenses: } & & 217,000 \
\text { Insurance expense } & 2,500 & \
\text { Doubtful debts expense } & 1,500 & \
\text { Interest } & 4,500 & \
\text { Depreciation of equipment } 1 & 9,900 & \
\text { Secretarial expenses } & 35,000 & \
\text { Salaries } & \underline{55,000} & \underline{108,400} \
\text { Profit } & & \underline{\$ 108,600}
\end{array}\end{array}$

${}^{1} \text { Depreciation }=15 \% \times \$(\$ 90,000-\$ 24,000)=\$ 9,900$

b)Statement of financial position at 30 June 2018

Question 3

Choose the statement which is correct. Assume that inventory prices are rising.

Accepted Answer

A) The LIFO method gives the highest closing inventory figure in the statement of financial position. 
B) The FIFO method gives the highest closing inventory figure in the statement of financial position. 
C) The FIFO method gives the lowest closing inventory figure in the statement of financial position. 
D) The LIFO method gives the lowest figure for cost of sales. 
A) The LIFO method gives the highest closing inventory figure in the statement of financial position. 
B) The FIFO method gives the highest closing inventory figure in the statement of financial position. 
C) The FIFO method gives the lowest closing inventory figure in the statement of financial position. 
D) The LIFO method gives the lowest figure for cost of sales. B

Question 4

Which of these is not an area where judgement must normally be applied in order to calculate depreciation expense?

Accepted Answer

A) Determining the residual or disposal value of the asset. 
B) Determining the expected useful life of the asset. 
C) Choosing a depreciation method. 
D) None of the above. 
A) Determining the residual or disposal value of the asset. 
B) Determining the expected useful life of the asset. 
C) Choosing a depreciation method. 
D) None of the above.

Question 5

The amount of interest paid in cash for the period May to August is $1,000. However, the financial reports show interest expense for the period as $750. The difference is recorded in the statement of financial position as:

Accepted Answer

A) prepaid interest (liability). 
B) accrued interest (liability). 
C) accrued interest (asset). 
D) prepaid interest (asset). 
A) prepaid interest (liability). 
B) accrued interest (liability). 
C) accrued interest (asset). 
D) prepaid interest (asset).

Question 6

An item of inventory costing $750 can now only be sold at auction for $200. Auction costs of $50 will be incurred to make the sale. The net realisable value of the inventory is:

Accepted Answer

A) $700. 
B) $150. 
C) $750. 
D) $200. 
A) $700. 
B) $150. 
C) $750. 
D) $200.

Question 7

The recognition criteria that must be satisfied under the Conceptual Framework for an expense to be included in the income statement is:

Accepted Answer

A) Probable that the outflow of resources has occurred. 
B) Outflow of resources able to be reliably measured. 
C) Outflow of resources virtually certain. 
D) Both A and B. 
A) Probable that the outflow of resources has occurred. 
B) Outflow of resources able to be reliably measured. 
C) Outflow of resources virtually certain. 
D) Both A and B.

Question 8

Bad debts:

Accepted Answer

A) are sales where the customer returns the goods. 
B) occur when debtors do not pay their accounts. 
C) is just another term for doubtful debts. 
D) are all of the above. 
A) are sales where the customer returns the goods. 
B) occur when debtors do not pay their accounts. 
C) is just another term for doubtful debts. 
D) are all of the above.

Question 9

Cost of sales is a major expense for a retailer. Cost of sales is:

Accepted Answer

A) the cost of the goods purchased during the period. 
B) the cost of the goods available for sale during the period. 
C) the cost of the goods sold during the period. 
D) none of the above. 
A) the cost of the goods purchased during the period. 
B) the cost of the goods available for sale during the period. 
C) the cost of the goods sold during the period. 
D) none of the above.

Question 10

Choose the statement about depreciation that is correct.

Accepted Answer

A) Yearly depreciation will always be higher using the straight-line method. 
B) At the end of the asset's useful life, total depreciation charged will be the same whichever depreciation method is used. 
C) Yearly depreciation will always be lower using the units of use method. 
D) Yearly depreciation will always be higher using the reducing-balance method. 
A) Yearly depreciation will always be higher using the straight-line method. 
B) At the end of the asset's useful life, total depreciation charged will be the same whichever depreciation method is used. 
C) Yearly depreciation will always be lower using the units of use method. 
D) Yearly depreciation will always be higher using the reducing-balance method.

Question 11

On 1 July 2017, LMZ Traders paid $12,000 in insurance premiums for coverage for the next three years. The insurance expense that will appear in the income statement and the amount of prepaid insurance in the statement of financial position for the year ended 30 June 2018, respectively, are:

Accepted Answer

A) $6,000 and $3,000. 
B) $9,000 and $0. 
C) $3,000 and $6,000. 
D) $4,000 and $8,000. 
A) $6,000 and $3,000. 
B) $9,000 and $0. 
C) $3,000 and $6,000. 
D) $4,000 and $8,000.

Question 12

Calculate cost of sales if stock at start is $2,450, purchases are $19,000 and stock at end is $1,000.

Accepted Answer

A) $21,450. 
B) $20,450. 
C) $22,550. 
D) $22,450. 
A) $21,450. 
B) $20,450. 
C) $22,550. 
D) $22,450.

Question 13

To allow for debts that might prove bad in the future, a business will recognise as an expense in the income statement:

Accepted Answer

A) bad debts. 
B) doubtful debts. 
C) allowance for doubtful debts. 
D) allowance for depreciation. 
A) bad debts. 
B) doubtful debts. 
C) allowance for doubtful debts. 
D) allowance for depreciation.

Question 14

Which accounting statement is specifically designed to measure and report on how much profit an entity has made?

Accepted Answer

A) the statement of cash flows. 
B) the statement of financial position. 
C) the statement of financial performance. 
D) all of the above. 
A) the statement of cash flows. 
B) the statement of financial position. 
C) the statement of financial performance. 
D) all of the above.

Question 15

Which of these are not alternative names for the same thing?

Accepted Answer

A) Gross profit; profit. 
B) Cost of sales; cost of goods sold. 
C) Statement of comprehensive income; profit and loss statement: statement of financial performance. 
D) None of the above, i.e., all are alternative names for the same thing. 
A) Gross profit; profit. 
B) Cost of sales; cost of goods sold. 
C) Statement of comprehensive income; profit and loss statement: statement of financial performance. 
D) None of the above, i.e., all are alternative names for the same thing.

Question 16

In relation to the recognition and realisation of income, which statement is correct?

Accepted Answer

A) Recognition of income means including it in the income statement as part of the profit calculation. 
B) Income from a credit sale is normally recognised in the statement of financial performance when the cash is received. 
C) The realisation convention has replaced the income recognition criteria contained in the Conceptual Framework. 
D) All of the statements are correct. 
A) Recognition of income means including it in the income statement as part of the profit calculation. 
B) Income from a credit sale is normally recognised in the statement of financial performance when the cash is received. 
C) The realisation convention has replaced the income recognition criteria contained in the Conceptual Framework. 
D) All of the statements are correct.

Question 17

If a business decided to classify its expenses under the headings 'Selling and Distribution,' 'General and Administrative' and 'Financial,' into which groupings would 1. depreciation of sales staff's motor vehicles and 2. bad debts written off, fall?

Accepted Answer

A) 1. general and administrative; 2. financial. 
B) 1. selling and distribution; 2. financial. 
C) 1. financial; 2. selling and distribution. 
D) 1. selling and distribution; 2. general and administrative. 
A) 1. general and administrative; 2. financial. 
B) 1. selling and distribution; 2. financial. 
C) 1. financial; 2. selling and distribution. 
D) 1. selling and distribution; 2. general and administrative.

Question 18

Which statement is not correct?

Accepted Answer

A) A loss is incurred when expenses > income. 
B) A profit is earned when income  expenses. 
A) A loss is incurred when expenses > income. 
B) A profit is earned when income  expenses.

Question 19

If equity at the beginning of the period is $45,000 and at the end of the period is $56,000 and $20,000 is withdrawn by the owner during the period, calculate profit. (Use the stock approach.)

Accepted Answer

A) $1,000. 
B) $41,000. 
C) $76,000. 
D) $31,000. 
A) $1,000. 
B) $41,000. 
C) $76,000. 
D) $31,000.

Question 20

LTT had stock on hand on the 1st January 2018 of 100 heaters valued at $50 each.
The following transactions occurred during January:
Jan 7 bought 110 heaters at $52 each
15 sold 60 heaters at $80 each (selling price)
30 sold 70 heaters at $80 each (selling price)
REQUIRED:
a)Calculate cost of sales and closing stock at the end of the month from the above information using:
i)the FIFO method of valuation,
ii)the LIFO method of valuation, and
iii)the average cost method of valuation.
b)Prepare a statement of comprehensive income for the month ended 31 January under each method assuming no stock loss (use a columnar approach).
c)i)Which method produces the most favourable profit result for LTT?
ii)Comment on why the differences in profit have occurred under the 3 methods.

Accepted Answer

\[\begin{array} { l } 
\text { Answer: a

What type of account is accumulated depreciation?

Choose the statement which is correct. Assume that inventory prices are rising.

Which of these is not an area where judgement must normally be applied in order to calculate depreciation expense?

The amount of interest paid in cash for the period May to August is $1,000. However, the financial reports show interest expense for the period as $750. The difference is recorded in the statement of financial position as:

An item of inventory costing $750 can now only be sold at auction for $200. Auction costs of $50 will be incurred to make the sale. The net realisable value of the inventory is:

The recognition criteria that must be satisfied under the Conceptual Framework for an expense to be included in the income statement is:

Bad debts:

Cost of sales is a major expense for a retailer. Cost of sales is:

Choose the statement about depreciation that is correct.

On 1 July 2017, LMZ Traders paid $12,000 in insurance premiums for coverage for the next three years. The insurance expense that will appear in the income statement and the amount of prepaid insurance in the statement of financial position for the year ended 30 June 2018, respectively, are:

Calculate cost of sales if stock at start is $2,450, purchases are $19,000 and stock at end is $1,000.

To allow for debts that might prove bad in the future, a business will recognise as an expense in the income statement:

Which accounting statement is specifically designed to measure and report on how much profit an entity has made?

Which of these are not alternative names for the same thing?

In relation to the recognition and realisation of income, which statement is correct?

If a business decided to classify its expenses under the headings 'Selling and Distribution,' 'General and Administrative' and 'Financial,' into which groupings would 1. depreciation of sales staff's motor vehicles and 2. bad debts written off, fall?

Which statement is not correct?

If equity at the beginning of the period is $45,000 and at the end of the period is $56,000 and $20,000 is withdrawn by the owner during the period, calculate profit. (Use the stock approach.)

Introduction to Accounting

Measuring and Reporting Financial Position

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

Filters

Exam 3: Measuring and Reporting Financial Performance

What type of account is accumulated depreciation?

Choose the statement which is correct. Assume that inventory prices are rising.

Which of these is not an area where judgement must normally be applied in order to calculate depreciation expense?

The amount of interest paid in cash for the period May to August is $1,000. However, the financial reports show interest expense for the period as $750. The difference is recorded in the statement of financial position as:

An item of inventory costing $750 can now only be sold at auction for $200. Auction costs of $50 will be incurred to make the sale. The net realisable value of the inventory is:

The recognition criteria that must be satisfied under the Conceptual Framework for an expense to be included in the income statement is:

Bad debts:

Cost of sales is a major expense for a retailer. Cost of sales is:

Choose the statement about depreciation that is correct.

On 1 July 2017, LMZ Traders paid $12,000 in insurance premiums for coverage for the next three years. The insurance expense that will appear in the income statement and the amount of prepaid insurance in the statement of financial position for the year ended 30 June 2018, respectively, are:

Calculate cost of sales if stock at start is $2,450, purchases are $19,000 and stock at end is $1,000.

To allow for debts that might prove bad in the future, a business will recognise as an expense in the income statement:

Which accounting statement is specifically designed to measure and report on how much profit an entity has made?

Which of these are not alternative names for the same thing?

In relation to the recognition and realisation of income, which statement is correct?

If a business decided to classify its expenses under the headings 'Selling and Distribution,' 'General and Administrative' and 'Financial,' into which groupings would 1. depreciation of sales staff's motor vehicles and 2. bad debts written off, fall?

Which statement is not correct?

If equity at the beginning of the period is $45,000 and at the end of the period is $56,000 and $20,000 is withdrawn by the owner during the period, calculate profit. (Use the stock approach.)

Introduction to Accounting

Measuring and Reporting Financial Position

Introduction to Limited Companies

Regulatory Framework for Companies

Measuring and Reporting Cash Flows

Corporate Social Responsibility and Sustainability Accounting

Analysis and Interpretation of Financial Statements

Cost-Volume-Profit Analysis and Relevant Costing

Full Costing

Budgeting

Capital Investment Decisions

The Management of Working Capital

Financing the Business

Filters