Question 1

The untrue statement concerning liabilities is:

Accepted Answer

A) Borrowing to finance assets provides the potential for greater returns for owners but also means greater risk 
B) The absolute value of liquidity ratios is usually more important than their trend over time. 
C) A difference between an accounts payable and a bills payable is that the liability created with a bills payable is evidenced by a bills payable or a promissory note. 
D) Leverage is the use of borrowed funds in an attempt to earn a return greater than the interest paid on the borrowings 
A) Borrowing to finance assets provides the potential for greater returns for owners but also means greater risk 
B) The absolute value of liquidity ratios is usually more important than their trend over time. 
C) A difference between an accounts payable and a bills payable is that the liability created with a bills payable is evidenced by a bills payable or a promissory note. 
D) Leverage is the use of borrowed funds in an attempt to earn a return greater than the interest paid on the borrowings B

Question 2

Which of these would not be defined as a liability under the Conceptual Framework?

Accepted Answer

A) A loan from a financial institution 
B) Money owing to a supplier for goods purchased 
C) Wages owing to employees 
D) An arrangement to pay a bonus commission to salespersons for achieving sales over a certain level 
A) A loan from a financial institution 
B) Money owing to a supplier for goods purchased 
C) Wages owing to employees 
D) An arrangement to pay a bonus commission to salespersons for achieving sales over a certain level D

Question 3

The statement concerning debentures that is incorrect is:

Accepted Answer

A) A trustee,such as a bank or an insurance company,must be appointed to protect the rights of the debenture holders 
B) An issue of debentures to the public must be accompanied by a prospectus 
C) The division of debenture borrowings into $100 or $50 units allows many small investors to participate in the issue 
D) The market value of debentures is always the same as their face value 
A) A trustee,such as a bank or an insurance company,must be appointed to protect the rights of the debenture holders 
B) An issue of debentures to the public must be accompanied by a prospectus 
C) The division of debenture borrowings into $100 or $50 units allows many small investors to participate in the issue 
D) The market value of debentures is always the same as their face value D

Question 4

A capitalisation ratio of 4:1 means:

Accepted Answer

A) Debt is 75% equity is 25% 
B) Debt is one fifth of equity 
C) Equity is one fifth of debt 
D) Debt is 25% equity is 75% 
A) Debt is 75% equity is 25% 
B) Debt is one fifth of equity 
C) Equity is one fifth of debt 
D) Debt is 25% equity is 75%

Question 5

This is Builders Ltd's balance sheet at year-end. $$\begin{array} { l r } 
\text { Current assets } & \$ 410000 \
\text { Long-term assets } & 345000 \
\text { Current liabilities } & 250000 \
\text { Long-term liabilities } & 100000 \
\text { Share cap ital } & 200000 \
\text { Retained earnings } & 205000
\end{array}$$ The debt ratio is:

Accepted Answer

A) 52% 
B) 73% 
C) 86% 
D) 46% 
A) 52% 
B) 73% 
C) 86% 
D) 46%

Question 6

On 1 October 2012 C purchased a building for $1 250 000,paying $250 000 as a deposit and giving the seller a 12% mortgage for the balance.The monthly repayment was $14 000.The entry to record the payment on 1 November 2012 is:

Accepted Answer

A) Dr Interest expense $10 000; Dr Mortgage payable $4,000; Cr Bank $14 000 
B) Dr Mortgage payable $14 000; Cr Bank $14 000 
C) Dr Interest expense $10 000; Dr Bank $4,000; Cr Mortgage payable $14 000 
D) Dr Interest expense $14 000; Cr Bank $14 000 
A) Dr Interest expense $10 000; Dr Mortgage payable $4,000; Cr Bank $14 000 
B) Dr Mortgage payable $14 000; Cr Bank $14 000 
C) Dr Interest expense $10 000; Dr Bank $4,000; Cr Mortgage payable $14 000 
D) Dr Interest expense $14 000; Cr Bank $14 000

Question 7

The statement relating to workers' compensation insurance that is not true is:

Accepted Answer

A) It relates to an insurance scheme,imposed by law,whereby the employer purchases insurance which may be used to compensate employees for job related injuries and loss of wages 
B) It is compulsory for all employers to obtain this cover 
C) The premium is deducted from employees' salaries and wages 
D) The premium is based on a percentage of the total wages and salaries bill for the coming year 
A) It relates to an insurance scheme,imposed by law,whereby the employer purchases insurance which may be used to compensate employees for job related injuries and loss of wages 
B) It is compulsory for all employers to obtain this cover 
C) The premium is deducted from employees' salaries and wages 
D) The premium is based on a percentage of the total wages and salaries bill for the coming year

Question 8

Which of these would be defined as contingent liabilities?
I.A loan from a financial institution
II.An unresolved lawsuit bought against the entity for breach of health and safety regulations
III.An agreement to act as guarantor for another firm's borrowings
IV.A bank overdraft

Accepted Answer

A) I,II,IV 
B) II,III 
C) I,II 
D) I,III 
A) I,II,IV 
B) II,III 
C) I,II 
D) I,III

Question 9

A contingent liability is reported:

Accepted Answer

A) On the balance sheet 
B) In a footnote to the financial reports 
C) In the income statement 
D) As a contra to an asset account 
A) On the balance sheet 
B) In a footnote to the financial reports 
C) In the income statement 
D) As a contra to an asset account

Question 10

The payment of employees requires a debit/credit)________ to wages and salaries payable and a debit/credit)_________ to bank.

Accepted Answer

The answer of The payment of employees requires a debit/credit)________...

Question 11

On 1 December 2012 Pritchett-Moore Management Company issued a three-month,$30 000 bills payable to Northport Savings & Loan in order to borrow $29 000.If the bills payable is still outstanding at 31 December 2012 which of the following will be reported on Pritchett-Moore's financial statements concerning the bill? $\quad$Interest Expense$\quad$ Unexpired Interest  $\quad$Bills Payable
$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$on Bills
a.$\quad$ Yes$\quad$$\quad$$\quad$$\quad$$\quad$ Yes $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Yes
b.$\quad$ Yes$\quad$$\quad$$\quad$$\quad$$\quad$ No $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Yes
c. $\quad$No $\quad$$\quad$$\quad$$\quad$$\quad$ Yes $\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Yes
d.$\quad$ No$\quad$$\quad$$\quad$$\quad$$\quad$ No$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$$\quad$ Yes

Accepted Answer

The answer of On 1 December 2012 Pritchett-Moore Management Company...

Question 12

BB had previously purchased inventory from L Wong for $15 000.On 1 October BB gave Wong a 60-day,bill of exchange to cover the amount of the account payable plus interest at 9% p.a.The correct accounting entry in BB's books to record the settlement of the bill at maturity is:

Accepted Answer

A) Debit bills payable $15 000,credit bank $15 000 
B) Debit bills payable $15 222,credit interest expense $222; credit bank $15 000. 
C) Debit bills payable $15 222,debit interest expense $222; credit bank $15 222,credit unexpired interest $222. 
D) Debit bills payable $14 778,debit interest expense $222; credit bank $15 000 
A) Debit bills payable $15 000,credit bank $15 000 
B) Debit bills payable $15 222,credit interest expense $222; credit bank $15 000. 
C) Debit bills payable $15 222,debit interest expense $222; credit bank $15 222,credit unexpired interest $222. 
D) Debit bills payable $14 778,debit interest expense $222; credit bank $15 000

Question 13

What types of accounts are: I.GST collections,II.GST outlays?

Accepted Answer

A) I.Liability,II Asset 
B) I.Negative Liability,II.Liability, 
C) I Asset,II.Liability 
D) I.Liability,II Negative Liability 
A) I.Liability,II Asset 
B) I.Negative Liability,II.Liability, 
C) I Asset,II.Liability 
D) I.Liability,II Negative Liability

Question 14

The requirement of IAS 37/AASB 137 that a provision must satisfy the definition of a liability means which of these is not regarded as a liability?

Accepted Answer

A) Provision for doubtful debts 
B) Provision for long-service leave 
C) Provision for warrantee expenses 
D) Provision for onerous contracts 
A) Provision for doubtful debts 
B) Provision for long-service leave 
C) Provision for warrantee expenses 
D) Provision for onerous contracts

Question 15

How many of these are a possible basis for classifying liabilities?
.Timing of settlement
.Whether secured or unsecured
.Source
.Liquidity

Accepted Answer

A) 1 
B) 2 
C) 3 
D) 4 
A) 1 
B) 2 
C) 3 
D) 4

Question 16

The key characteristic of contingent liabilities is:

Accepted Answer

A) A legal dispute must exist at balance date 
B) The liability does not exist beyond a reasonable doubt 
C) The liability will be confirmed only by the occurrence or non-occurrence of a future event not completely within the control of an entity 
D) The timing of the future sacrifice of economic benefits is uncertain 
A) A legal dispute must exist at balance date 
B) The liability does not exist beyond a reasonable doubt 
C) The liability will be confirmed only by the occurrence or non-occurrence of a future event not completely within the control of an entity 
D) The timing of the future sacrifice of economic benefits is uncertain

Question 17

Which of these is not typically a non-current liability?

Accepted Answer

A) Unsecured notes 
B) Mortgage payable 
C) Provision for long service leave 
D) Accounts payable 
A) Unsecured notes 
B) Mortgage payable 
C) Provision for long service leave 
D) Accounts payable

Question 18

'No Rust' car sales provides a one year labour and parts warranty with every car sold and at the start of 2012 had a provision of $16 000 to cover warranty claims.On 30 March 2012 $2 700 was paid out for repairs for vehicles under warranty.The correct accounting entry to record the payment of the claims is:

Accepted Answer

A) Debit warranty expense $2 700; credit provision for warranties $2 700 
B) Debit provision for warranties $2 700; credit bank $2 700 
C) Debit provision for warranties $2 700; credit warranty expense $2 700 
D) Debit warranty expense $2 700; credit bank $2 700 
A) Debit warranty expense $2 700; credit provision for warranties $2 700 
B) Debit provision for warranties $2 700; credit bank $2 700 
C) Debit provision for warranties $2 700; credit warranty expense $2 700 
D) Debit warranty expense $2 700; credit bank $2 700

Question 19

Possum Pty Ltd made this journal entry to accrue payroll for the week ended 28 February 2012: $\begin{array}{lr}&Dr. &Cr.\
&\$&\$\
\text { Office salaries expense } & 14500 \
\text { Sales salaries expense } & 5500\
\text { Taxation Office } && 3800 \
\text { Superannuation fund } && 1000 \
\text { Clerks union } && 200 \
\text { Salaries payable } && 15,000
\end{array}$ The cash payable to Possum Pty Ltd's employees for the week is:

Accepted Answer

A) $14 500 
B) $15 000 
C) $17 000 
D) $20 000 
A) $14 500 
B) $15 000 
C) $17 000 
D) $20 000

Question 20

A $100 debenture quoted at 104 is said to:

Accepted Answer

A) Sell at a discount 
B) Sell at a premium 
C) Sell at $4 above its market value 
D) Sell at par 
A) Sell at a discount 
B) Sell at a premium 
C) Sell at $4 above its market value 
D) Sell at par

Exam 22: Liabilities

The untrue statement concerning liabilities is:

Which of these would not be defined as a liability under the Conceptual Framework?

The statement concerning debentures that is incorrect is:

A capitalisation ratio of 4:1 means:

This is Builders Ltd's balance sheet at year-end. Current assets \ 410000 Long-term assets 345000 Current liabilities 250000 Long-term liabilities 100000 Share cap ital 200000 Retained earnings 205000 The debt ratio is:

On 1 October 2012 C purchased a building for $1 250 000,paying $250 000 as a deposit and giving the seller a 12% mortgage for the balance.The monthly repayment was $14 000.The entry to record the payment on 1 November 2012 is:

The statement relating to workers' compensation insurance that is not true is:

Which of these would be defined as contingent liabilities? I.A loan from a financial institution II.An unresolved lawsuit bought against the entity for breach of health and safety regulations III.An agreement to act as guarantor for another firm's borrowings IV.A bank overdraft

A contingent liability is reported:

The payment of employees requires a debit/credit)________ to wages and salaries payable and a debit/credit)_________ to bank.

BB had previously purchased inventory from L Wong for $15 000.On 1 October BB gave Wong a 60-day,bill of exchange to cover the amount of the account payable plus interest at 9% p.a.The correct accounting entry in BB's books to record the settlement of the bill at maturity is:

What types of accounts are: I.GST collections,II.GST outlays?

The requirement of IAS 37/AASB 137 that a provision must satisfy the definition of a liability means which of these is not regarded as a liability?

How many of these are a possible basis for classifying liabilities? .Timing of settlement .Whether secured or unsecured .Source .Liquidity

The key characteristic of contingent liabilities is:

Which of these is not typically a non-current liability?

A $100 debenture quoted at 104 is said to:

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Retailing

Accounting for Systems

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Internal Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis,profitability Analysis and Capital Budgeting

Partnerships: Formation,operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation,disposal and Other Aspects

Presentation of Financial Statements

Liabilities

Analysis and Interpretation of Financial Statements

Filters

The payment of employees requires a debit/credit) to wages and salaries payable and a debit/credit)_ to bank.