Question 1

Which statement is not true?

Accepted Answer

A)  The balance sheet can be presented in account form or narrative form. 
B)  The account form balance sheet lists all the elements in one column. 
C)  In Australia the narrative form balance sheet is the most common. 
D)  The basic layout for the account form balance sheet is assets = liabilities + equity. 
A)  The balance sheet can be presented in account form or narrative form. 
B)  The account form balance sheet lists all the elements in one column. 
C)  In Australia the narrative form balance sheet is the most common. 
D)  The basic layout for the account form balance sheet is assets = liabilities + equity. B

Question 2

From the point of view of a business entity, a person or business to whom a debt is owed is known as a:

Accepted Answer

A)  debtor. 
B)  creditor. 
C)  debitor. 
D)  bank. 
A)  debtor. 
B)  creditor. 
C)  debitor. 
D)  bank. B

Question 3

Which of these is the most important consideration in ensuring that information is relevant for decision making?

Accepted Answer

A)  A high degree of accuracy 
B)  Historical record 
C)  Monetary assumption 
D)  Timeliness 
A)  A high degree of accuracy 
B)  Historical record 
C)  Monetary assumption 
D)  Timeliness D

Question 4

Jane is an accountant operating as a sole proprietor. On 1 February she does some work for a client on credit who she invoices for $120. Which of the following represents the effect of this transaction on the accounting equation?

Accepted Answer

A)  Increase in cash at bank $120; decrease in liability accounts payable $120. 
B)  Increase in equity $120; increase in liability accounts payable $120. 
C)  Increase in asset accounts receivable $120; increase in equity $120. 
D)  Increase in cash at bank $120; increase in equity $120. 
A)  Increase in cash at bank $120; decrease in liability accounts payable $120. 
B)  Increase in equity $120; increase in liability accounts payable $120. 
C)  Increase in asset accounts receivable $120; increase in equity $120. 
D)  Increase in cash at bank $120; increase in equity $120.

Question 5

Which of the following statements concerning equity is true?

Accepted Answer

A)  It is the owner's claim to the assets of the entity after deducting liabilities. 
B)  It is fixed at the amount initially contributed when the business was established. 
C)  It is decreased by profit. 
D)  Assets + liabilities = equity. 
A)  It is the owner's claim to the assets of the entity after deducting liabilities. 
B)  It is fixed at the amount initially contributed when the business was established. 
C)  It is decreased by profit. 
D)  Assets + liabilities = equity.

Question 6

The cost assumption by accountants means that assets are valued at:

Accepted Answer

A)  acquisition cost. 
B)  market value. 
C)  resale value. 
D)  replacement cost. 
A)  acquisition cost. 
B)  market value. 
C)  resale value. 
D)  replacement cost.

Question 7

Jane is an accountant operating as a sole proprietor. On 1 February she does some work for a client who pays her $320 in cash. Which of the following represents the effect of this transaction on the accounting equation?

Accepted Answer

A)  Increase in cash at bank $320; decrease in liability accounts payable $320. 
B)  Increase in cash at bank $320; increase in equity $320. 
C)  Increase in cash at bank $320; increase in asset accounts receivable $320. 
D)  Increase in cash at bank $320; increase in liability accounts payable $320. 
A)  Increase in cash at bank $320; decrease in liability accounts payable $320. 
B)  Increase in cash at bank $320; increase in equity $320. 
C)  Increase in cash at bank $320; increase in asset accounts receivable $320. 
D)  Increase in cash at bank $320; increase in liability accounts payable $320.

Question 8

The extent to which items in accounting reports can be combined or presented separately is covered by the concept of:

Accepted Answer

A)  comparability. 
B)  faithful representation. 
C)  economic substance. 
D)  materiality. 
A)  comparability. 
B)  faithful representation. 
C)  economic substance. 
D)  materiality.

Question 9

In comparison to historical costs, estimated market values are usually considered by accountants to be____________________ for decision making.

Accepted Answer

A)  more reliable but less relevant 
B)  less reliable but more relevant 
C)  more material but less comparable 
D)  more comparable but less material 
A)  more reliable but less relevant 
B)  less reliable but more relevant 
C)  more material but less comparable 
D)  more comparable but less material

Question 10

Jane is an accountant operating as a sole proprietor. In January she purchases for $540 some new furniture for her office. The purchase is made on credit. Which of the following represents the effect of this transaction on the accounting equation?

Accepted Answer

A)  Increase in the asset furniture $540; increase in the liability accounts payable $540. 
B)  Increase in the asset furniture $540; decrease in the asset accounts receivable $540. 
C)  Increase in the asset furniture $540; increase in equity $540. 
D)  Increase in the asset furniture $540; increase in the asset accounts receivable $540. 
A)  Increase in the asset furniture $540; increase in the liability accounts payable $540. 
B)  Increase in the asset furniture $540; decrease in the asset accounts receivable $540. 
C)  Increase in the asset furniture $540; increase in equity $540. 
D)  Increase in the asset furniture $540; increase in the asset accounts receivable $540.

Question 11

The assets of Frank's business increased by $40 000 and the liabilities increased by $10 000 during the current year. If the profit for this period was $25 000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made.)

Accepted Answer

A)  Drawings $10 000 
B)  Contribution $10 000 
C)  Contribution $5000 
D)  Drawings $5000 
A)  Drawings $10 000 
B)  Contribution $10 000 
C)  Contribution $5000 
D)  Drawings $5000

Question 12

Which statement is not correct?

Accepted Answer

A)  Information in the cash flow statement is useful in assessing the ability of an entity to pay its debts as they fall due. 
B)  A comparison of the cash flow statement and the income statement can indicate to what extent the profit is represented by cash inflows. 
C)  The cash flow statement classifies cash flows into operating investing and financing groupings. 
D)  Operating activities are concerned with activities involving the sales and purchases of fixed assets. 
A)  Information in the cash flow statement is useful in assessing the ability of an entity to pay its debts as they fall due. 
B)  A comparison of the cash flow statement and the income statement can indicate to what extent the profit is represented by cash inflows. 
C)  The cash flow statement classifies cash flows into operating investing and financing groupings. 
D)  Operating activities are concerned with activities involving the sales and purchases of fixed assets.

Question 13

Liz, after qualifying at university and having several years' experience decides to set up her own dental practice. On 1 March she deposits $25 000 into a bank account she has opened for the practice. Which of the following represents the effect of this transaction on the accounting equation?

Accepted Answer

A)  Increase in assets of $25 000; increase in equity of $25 000. 
B)  Increase in assets of $25 000; decrease in equity of $25 000. 
C)  Increase in assets of $25 000; increase in liabilities of $25 000. 
D)  Decrease in assets of $25 000; increase in equity of $25 000. 
A)  Increase in assets of $25 000; increase in equity of $25 000. 
B)  Increase in assets of $25 000; decrease in equity of $25 000. 
C)  Increase in assets of $25 000; increase in liabilities of $25 000. 
D)  Decrease in assets of $25 000; increase in equity of $25 000.

Question 14

Which of these is not an alternative term for equity?

Accepted Answer

A)  Proprietorship 
B)  Owners' equity 
C)  Bank account balance 
D)  Capital 
A)  Proprietorship 
B)  Owners' equity 
C)  Bank account balance 
D)  Capital

Question 15

Speedy Window Cleaning received $600 for window cleaning services provided. Which of the following represents the effect on the accounting equation?

Accepted Answer

A)  Increase in assets of $600; increase in equity of $600. 
B)  Increase in assets of $600; decrease in assets of $600. 
C)  Increase in assets of $600; increase in liabilities of $600. 
D)  Decrease in assets of $600; decrease in equity of $600. 
A)  Increase in assets of $600; increase in equity of $600. 
B)  Increase in assets of $600; decrease in assets of $600. 
C)  Increase in assets of $600; increase in liabilities of $600. 
D)  Decrease in assets of $600; decrease in equity of $600.

Question 16

Drop Zone Parachuting has decided to prepare its financial statements every three months. Which accounting assumption is it implementing?

Accepted Answer

A)  Cost assumption 
B)  Accounting entity 
C)  Accounting period 
D)  Going concern assumption 
A)  Cost assumption 
B)  Accounting entity 
C)  Accounting period 
D)  Going concern assumption

Question 17

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For the local cricket club which of the following would be a financing activity?

Accepted Answer

A)  Paying for lawn mowing. 
B)  Renovating the clubhouse. 
C)  Paying the annual subscription to the cricket association. 
D)  Borrowing $40 000 from a bank. 
A)  Paying for lawn mowing. 
B)  Renovating the clubhouse. 
C)  Paying the annual subscription to the cricket association. 
D)  Borrowing $40 000 from a bank.

Question 18

A balance sheet:

Accepted Answer

A)  is classified into operating, investing and financing activities. 
B)  measures the entities financial performance. 
C)  lists assets, liabilities and equity at a specific point in time. 
D)  shows how profit was determined. 
A)  is classified into operating, investing and financing activities. 
B)  measures the entities financial performance. 
C)  lists assets, liabilities and equity at a specific point in time. 
D)  shows how profit was determined.

Question 19

Which of these is not an alternative name for the income statement?

Accepted Answer

A)  Operating statement 
B)  Profit and loss statement 
C)  Profit report 
D)  Statement of financial position 
A)  Operating statement 
B)  Profit and loss statement 
C)  Profit report 
D)  Statement of financial position

Question 20

If the loss for the period is $15 000 and total income is $115 000, total expenses for the period are:

Accepted Answer

A)  $100 000. 
B)  $130 000. 
C)  $115 000. 
D)  $145 000. 
A)  $100 000. 
B)  $130 000. 
C)  $115 000. 
D)  $145 000.

Exam 2: Financial Statements for Decision Making

Which statement is not true?

From the point of view of a business entity, a person or business to whom a debt is owed is known as a:

Which of these is the most important consideration in ensuring that information is relevant for decision making?

Jane is an accountant operating as a sole proprietor. On 1 February she does some work for a client on credit who she invoices for $120. Which of the following represents the effect of this transaction on the accounting equation?

Which of the following statements concerning equity is true?

The cost assumption by accountants means that assets are valued at:

Jane is an accountant operating as a sole proprietor. On 1 February she does some work for a client who pays her $320 in cash. Which of the following represents the effect of this transaction on the accounting equation?

The extent to which items in accounting reports can be combined or presented separately is covered by the concept of:

In comparison to historical costs, estimated market values are usually considered by accountants to be____________________ for decision making.

Jane is an accountant operating as a sole proprietor. In January she purchases for $540 some new furniture for her office. The purchase is made on credit. Which of the following represents the effect of this transaction on the accounting equation?

The assets of Frank's business increased by $40 000 and the liabilities increased by $10 000 during the current year. If the profit for this period was $25 000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made.)

Which statement is not correct?

Liz, after qualifying at university and having several years' experience decides to set up her own dental practice. On 1 March she deposits $25 000 into a bank account she has opened for the practice. Which of the following represents the effect of this transaction on the accounting equation?

Which of these is not an alternative term for equity?

Speedy Window Cleaning received $600 for window cleaning services provided. Which of the following represents the effect on the accounting equation?

Drop Zone Parachuting has decided to prepare its financial statements every three months. Which accounting assumption is it implementing?

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For the local cricket club which of the following would be a financing activity?

A balance sheet:

Which of these is not an alternative name for the income statement?

If the loss for the period is $15 000 and total income is $115 000, total expenses for the period are:

Decision Making and the Role of Accounting

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and 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

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

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