Question 1

Which statement relating to sick leave is correct?

Accepted Answer

A)  Upon termination of employment, employees are generally entitled to be paid pro-rata for sick leave not taken. 
B)  When sick leave is actually taken by employees an entry is made to debit sick leave expense and credit the Australian Tax Office. 
C)  Accounting for sick leave is determined by the conditions attached to the employment contract. 
D)  Sick leave is to be paid at the lowest award rate rather than the normal salary rate. 
A)  Upon termination of employment, employees are generally entitled to be paid pro-rata for sick leave not taken. 
B)  When sick leave is actually taken by employees an entry is made to debit sick leave expense and credit the Australian Tax Office. 
C)  Accounting for sick leave is determined by the conditions attached to the employment contract. 
D)  Sick leave is to be paid at the lowest award rate rather than the normal salary rate. C

Question 2

Hanson Co. had previously purchased inventory from Jones Ltd for $18 000. On 1 October, Hanson gave Jones a 120-day bill of exchange to cover the amount of the account payable plus interest at 8% p.a. The correct accounting entry in Hanson Co.'s books to record the issue of the bill is:

Accepted Answer

A)  DR Accounts payable $18 000; CR Bills payable $18 000 
B)  DR Bills payable $18 473; CR Accounts payable $18 473 
C)  DR Bills payable $18 000; DR Unexpired interest $473; CR Accounts payable $18 473 
D)  DR Accounts payable $18 000; DR Unexpired interest $473; CR Bills payable $18 473 
A)  DR Accounts payable $18 000; CR Bills payable $18 000 
B)  DR Bills payable $18 473; CR Accounts payable $18 473 
C)  DR Bills payable $18 000; DR Unexpired interest $473; CR Accounts payable $18 473 
D)  DR Accounts payable $18 000; DR Unexpired interest $473; CR Bills payable $18 473 D

Question 3

As specified in the Conceptual Framework, which two criteria must be met before a liability can be recognised in the accounting records?

Accepted Answer

A)  There must have been a past event and there must be a present obligation. 
B)  The liability must be beyond a reasonable doubt and the amount of the liability must be able to be recognised reliably. 
C)  It must be probable that any future sacrifices associated with the item will flow from the entity and the liability must have a cost or value that can be measured with reliability. 
D)  It must be probable that a future sacrifice of economic resources will be required and the liability must be beyond a reasonable doubt. 
A)  There must have been a past event and there must be a present obligation. 
B)  The liability must be beyond a reasonable doubt and the amount of the liability must be able to be recognised reliably. 
C)  It must be probable that any future sacrifices associated with the item will flow from the entity and the liability must have a cost or value that can be measured with reliability. 
D)  It must be probable that a future sacrifice of economic resources will be required and the liability must be beyond a reasonable doubt. C

Question 4

Total liabilities divided by total assets is the formula to calculate an entity's:

Accepted Answer

A)  Current ratio 
B)  Capitalisation ratio 
C)  Equity ratio 
D)  Debt ratio 
A)  Current ratio 
B)  Capitalisation ratio 
C)  Equity ratio 
D)  Debt ratio

Question 5

Which of the following is not normally regarded as a current liability?

Accepted Answer

A)  Accounts payable 
B)  Mortgage 
C)  GST collected 
D)  Bank overdraft 
A)  Accounts payable 
B)  Mortgage 
C)  GST collected 
D)  Bank overdraft

Question 6

The correct entry for the payment of net wages is:

Accepted Answer

A)  DR Gross pay; CR Net pay. 
B)  DR Bank; CR Wages and salaries payable. 
C)  DR Wages and salaries payable; CR Bank. 
D)  DR Wages and salaries; CR Provision for wages and salaries. 
A)  DR Gross pay; CR Net pay. 
B)  DR Bank; CR Wages and salaries payable. 
C)  DR Wages and salaries payable; CR Bank. 
D)  DR Wages and salaries; CR Provision for wages and salaries.

Question 7

Uncle Bob's Car Sales provides a one-year labour and parts warranty with every car sold. It is expected that 1500 cars will be sold during the year. Past records show that about 6% of cars require warranty repairs at an average cost of $300 per car. What is the accounting entry to record the expected warranty expense for the year?

Accepted Answer

A)  DR Provision for warranties $27 000; CR Bank $27 000 
B)  DR Warranty expense $27 000; CR Provision for warranties $27 000 
C)  DR Provision for warranties $27 000; CR Warranty expense $27 000 
D)  No entry is required 
A)  DR Provision for warranties $27 000; CR Bank $27 000 
B)  DR Warranty expense $27 000; CR Provision for warranties $27 000 
C)  DR Provision for warranties $27 000; CR Warranty expense $27 000 
D)  No entry is required

Question 8

Which of the following statements in relation to IAS 19/AASB 119 Employee Benefits is not true?

Accepted Answer

A)  Employee benefits include wages and salaries, non-monetary fringe benefits, annual leave and superannuation. 
B)  The controls that need to be provided when operating a payroll system are outlined. 
C)  The principles for recognition of employee benefits as expenses or liabilities are consistent with those in the Conceptual Framework. 
D)  Wages and salaries, annual leave and sick leave are to be reported at their nominal amounts. 
A)  Employee benefits include wages and salaries, non-monetary fringe benefits, annual leave and superannuation. 
B)  The controls that need to be provided when operating a payroll system are outlined. 
C)  The principles for recognition of employee benefits as expenses or liabilities are consistent with those in the Conceptual Framework. 
D)  Wages and salaries, annual leave and sick leave are to be reported at their nominal amounts.

Question 9

Which statement relating to workers' compensation insurance is incorrect?

Accepted Answer

A)  The percentage rate of premium is the same rate for all employers. 
B)  It is compulsory for all employers to take out workers' compensation insurance. 
C)  The premium is based on a percentage of the wages and salaries bill for the coming year. 
D)  When workers' compensation insurance is paid in advance, the journal entry is: DR Prepaid workers' compensation insurance; CR Bank . 
A)  The percentage rate of premium is the same rate for all employers. 
B)  It is compulsory for all employers to take out workers' compensation insurance. 
C)  The premium is based on a percentage of the wages and salaries bill for the coming year. 
D)  When workers' compensation insurance is paid in advance, the journal entry is: DR Prepaid workers' compensation insurance; CR Bank .

Question 10

Which statement relating to workers' compensation insurance is incorrect?

Accepted Answer

A)  The premium is deducted from employees' salaries and wages. 
B)  It is mandatory for all employers to obtain this cover. 
C)  The premium is based on a percentage of the total wages and salaries bill for the coming year., 
D)  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. 
A)  The premium is deducted from employees' salaries and wages. 
B)  It is mandatory for all employers to obtain this cover. 
C)  The premium is based on a percentage of the total wages and salaries bill for the coming year., 
D)  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.

Question 11

A current liability is:

Accepted Answer

A)  expected to be paid within one year of the reporting date. 
B)  expected to be paid within six months of the reporting date. 
C)  expected to be paid beyond one year of the reporting date. 
D)  arising from past events that will be confirmed by the occurrence of future events. 
A)  expected to be paid within one year of the reporting date. 
B)  expected to be paid within six months of the reporting date. 
C)  expected to be paid beyond one year of the reporting date. 
D)  arising from past events that will be confirmed by the occurrence of future events.

Question 12

The classification of liabilities into current and non-current, is useful as it helps decision-makers assess the firm's ability to meet all of the following except:

Accepted Answer

A)  commitments which are part of the operating cycle. 
B)  dividends. 
C)  profitability. 
D)  capital repayments. 
A)  commitments which are part of the operating cycle. 
B)  dividends. 
C)  profitability. 
D)  capital repayments.

Question 13

What types of accounts are:
I. GST payable; and
II. GST receivable.

Accepted Answer

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

Question 14

Which of the following is not part of the net pay calculation?

Accepted Answer

A)  Bonus 
B)  Uniform/clothing allowance 
C)  Overtime pay 
D)  Workers compensation insurance 
A)  Bonus 
B)  Uniform/clothing allowance 
C)  Overtime pay 
D)  Workers compensation insurance

Question 15

In relation to long-service leave, which of the following statements are correct?
I. The entry to accrue long-service leave is:
DR Long-service leave expense; CR Provision for long-service leave.
II. The leave is paid at the rate of pay applicable when the leave is taken.
III. Employees only starts to accrue long service leave after being employed for a predetermined length of time (often 10 years).

Accepted Answer

A)  II and III only 
B)  I and II only 
C)  I, II and III 
D)  None of the above 
A)  II and III only 
B)  I and II only 
C)  I, II and III 
D)  None of the above

Question 16

Which of the following are contingent liabilities?
I. Borrowings from a financial institution
II. An agreement to act as guarantor for borrowings
III. An unresolved lawsuit brought against a newspaper for defamation

Accepted Answer

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

Question 17

The key characteristic of contingent liabilities is:

Accepted Answer

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

Question 18

Which statement relating to annual leave under Australian awards is incorrect?

Accepted Answer

A)  Employees are normally entitled to four weeks paid annual leave per annum. 
B)  The entitlement to annual leave accrues to an employee on a day-to-day basis throughout the year. 
C)  Employees are entitled to be paid pro-rata for annual leave not taken on termination of employment. 
D)  The entry to recognise annual leave each month is a debit to annual leave expense and a credit to bank. 
A)  Employees are normally entitled to four weeks paid annual leave per annum. 
B)  The entitlement to annual leave accrues to an employee on a day-to-day basis throughout the year. 
C)  Employees are entitled to be paid pro-rata for annual leave not taken on termination of employment. 
D)  The entry to recognise annual leave each month is a debit to annual leave expense and a credit to bank.

Question 19

Which statement concerning liabilities is incorrect?

Accepted Answer

A)  The absolute value of liquidity ratios is usually more important than their trend over time. 
B)  Borrowing to finance assets provides the potential for greater returns for owners but also means greater risk. 
C)  A difference between accounts payable and bills payable is that the liability created with 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)  The absolute value of liquidity ratios is usually more important than their trend over time. 
B)  Borrowing to finance assets provides the potential for greater returns for owners but also means greater risk. 
C)  A difference between accounts payable and bills payable is that the liability created with 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.

Question 20

A capitalisation ratio of 4:1 means:

Accepted Answer

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

Exam 16: Liabilities

Which statement relating to sick leave is correct?

Hanson Co. had previously purchased inventory from Jones Ltd for $18 000. On 1 October, Hanson gave Jones a 120-day bill of exchange to cover the amount of the account payable plus interest at 8% p.a. The correct accounting entry in Hanson Co.'s books to record the issue of the bill is:

As specified in the Conceptual Framework, which two criteria must be met before a liability can be recognised in the accounting records?

Total liabilities divided by total assets is the formula to calculate an entity's:

Which of the following is not normally regarded as a current liability?

The correct entry for the payment of net wages is:

Which of the following statements in relation to IAS 19/AASB 119 Employee Benefits is not true?

Which statement relating to workers' compensation insurance is incorrect?

Which statement relating to workers' compensation insurance is incorrect?

A current liability is:

The classification of liabilities into current and non-current, is useful as it helps decision-makers assess the firm's ability to meet all of the following except:

What types of accounts are: I. GST payable; and II. GST receivable.

Which of the following is not part of the net pay calculation?

Which of the following are contingent liabilities? I. Borrowings from a financial institution II. An agreement to act as guarantor for borrowings III. An unresolved lawsuit brought against a newspaper for defamation

The key characteristic of contingent liabilities is:

Which statement relating to annual leave under Australian awards is incorrect?

Which statement concerning liabilities is incorrect?

A capitalisation ratio of 4:1 means:

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 Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Partnerships: Formation, Operation and Reporting

Companies: Formation and Operations

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation, Disposal and Other Aspects

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

Accounting for Manufacturing

Cost Accounting Systems

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

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