Deck 5: Presentation of Financial Position and the Worksheet

Question 1

If a worksheet does not balance and the imbalance is not caused by a transposition, single-entry or double-entry error, then it must be an addition or subtraction error.

Answer 1

True

Question 2

The balance sheet equation can be represented as: Assets - Liabilities = Equity

Answer 2

True

Question 3

Current assets are always classified according to their nature and not their function.

Answer 3

False

Question 4

The business entity assumption requires that an asset that is used for personal use and not for business use should not be recorded in the business balance sheet.

Question 5

The future benefits of a non-current asset are difficult to determine, due to the uncertainty of measuring the unexpired benefit.

Question 6

If assets increase, then, applying the principle of duality, we must increase liabilities, decrease another asset or increase owners' equity.

Question 7

The 'net assets' of a business is equal to current assets plus current liabilities.

Question 8

In the situation where an entity is insolvent, equity holders will be paid only whatever remains after all liabilities are paid.

Question 9

A double-entry error will cause an imbalance in the worksheet which is twice the amount recorded.

Question 10

The historical cost assumption requires that an asset that is used for personal use and not for business use should be recorded at cost in the business balance sheet.

Question 11

Liquidity refers to the ease with which assets can be converted to cash in the normal course of business.

Question 12

To be classified as a current liability, a debt must be expected to be paid within the current accounting period or within the entity's operating cycle, whichever is the longer.

Question 13

Whether an asset should be reported as current or non-current, depends on whether the asset is in the form of cash or will be realised or consumed within the ensuing operating cycle of the entity.

Question 14

A major difference between current and non-current assets is that the future benefits of current assets will expire in a short period of time, whereas the future benefits of all non-current assets will decline over a longer period.

Question 15

A mortgage payable that had only 12 months left before due for repayment would be reclassified from a non-current liability to a current liability.

Question 16

In relation to the format of a balance sheet, large and complex organisations will summarise assets under broad headings.

Question 17

The worksheet illustrates the basics underlying double-entry bookkeeping.

Question 18

An operating cycle may exceed 12 months and be longer than an accounting cycle.

Question 19

A balance sheet provides information on the liquidity of the entity.

Question 20

A piece of equipment purchased for resale within the entity's operating cycle would be classified as a current asset.

Question 21

Gibson, Inc. a retailer, reports the following information: What is the most likely amount for the firm's current assets?

A) $41 600
B) $24 000
C) $22 400
D) $13 800

Question 22

Amounts owed by a business enterprise to external parties are described as:

A) assets.
B) liabilities.
C) equities.
D) revenue.

Question 23

An entity's owners' equity is one-third of its total assets. Its liabilities total $100 000. What is the amount of its total assets?

A) $100 000
B) $150 000
C) $200 000
D) $300 000

Question 24

Which of the following best represents examples of liquid assets?

A) Cash and office equipment
B) Cash and accounts receivable
C) Cash and inventory
D) Cash and prepaid assets

Question 25

Which of the following statements is incorrect?

A) A balance sheet reports assets, liabilities and equity at a point in time.
B) The exclusion of an asset from the business balance sheet because it is for private use is due to the going concern assumption.
C) The average period between the purchase of merchandise and the conversion of this merchandise back into cash is the operating cycle.
D) In order for a resource to be classified as an asset of the entity, the benefits must accrue to the entity.

Question 26

The purchase of an asset for cash will:

A) not affect total assets, liabilities, and owners' equity.
B) increase total assets and increase total liabilities.
C) increase total assets and increase total owners' equity.
D) increase total assets.

Question 27

Which of the following is classified as a liability?

A) Wages expense
B) Accounts payable
C) Owners' drawings
D) Retained profits

Question 28

How many of the following would be found on the balance sheet: Unearned revenue, Non-current assets, Current liabilities, Equity, Accounts receivable, Owners' equity, Inventory, Wages expense, and Interest income.

A) Five
B) Six
C) Seven
D) Eight

Question 29

Non-current assets are best described as:

A) assets that extend benefits beyond the coming financial year or operating cycle.
B) tangible assets that extend benefits beyond the coming year or operating cycle, whichever is longer.
C) assets that are depreciated for a maximum of 40 years.
D) assets that provide economic benefits over the coming year.

Question 30

Which of the following best describes the purpose of the balance sheet?

A) To summarise assets and liabilities for the accounting period
B) To report the inflows and outflows of cash
C) To balance current period revenues with those of the previous period
D) To report assets, liabilities and owners' equity as of a specific date

Question 31

An addition or subtraction error will cause the worksheet to be out of balance by half the amount of the transaction.

Question 32

An entity's owners' equity is one-third of its total liabilities. Its assets total $200 000. What is the amount of its owners' equity?

A) $50 000
B) $66 667
C) $150 000
D) $300 000

Question 33

Which statement below is true about a company's operating cycle?

A) It may not exceed one year.
B) It must be one year.
C) It may be longer than a year.
D) It is always longer than a year.

Question 34

The most liquid type of asset is:

A) bills receivable.
B) cash.
C) investment in listed shares.
D) inventory.

Question 35

Which of the following is not a valid expression of the balance sheet equation?

A) Assets = Liabilities + Owners' Equity
B) Assets - Liabilities = Owners' Equity
C) Assets - Owners' Equity = Liabilities
D) Liabilities + Assets = Owners' Equity

Question 36

A balance sheet is a statement that shows the resources controlled and the obligations owed by an entity:

A) in the previous financial year.
B) for the financial year.
C) for the accounting period.
D) at a point in time.

Question 37

Owners' equity is:

A) the owners' interest in the total assets of the firm.
B) only profits retained in the business.
C) the contributions by the proprietor plus all profits retained by the business.
D) only contributions by the proprietor.

Question 38

The balance sheet shows the position of the entity:

A) at a point in time.
B) when it is insolvent only.
C) when it is making profits.
D) for a specified period of time.

Question 39

Which of the following would not explain the difference between current and non-current assets?

A) The future benefit of current assets will generally be used up within the entity's operating cycle.
B) An expenditure is classified as a non-current asset if it is considered to be material.
C) An asset is classified as non-current if it is intended to be used within the business for a considerable period of time.
D) The nature and intention of the business can help determine whether an expenditure should be classified as a non-current asset.

Question 40

Which of the following equations is correct?

A) Assets = Liabilities + Owners' Equity - (Income - Expenses)
B) Assets + (Income + Expenses) = Liabilities + Owners' Equity
C) Assets + Liabilities + Owners' Equity = Income - Expenses
D) Assets - Liabilities = Owners' Equity + (Income - Expenses)

Question 41

The Club of Winston Churchill has the following items disclosed on its balance sheet as at 30 June: What is the value of the club's current assets as at 30 June?

A) $25 000
B) $65 000
C) $68 500
D) $93 500

Question 42

George Corporation had the following transactions during the month of August: What are total assets for George Corporation at the end of August?

A) $1 060 000
B) $1 100 000
C) $1 140 000
D) $1 160 000

Question 43

What is the value of total assets if current assets equal $2200, current liabilities equal $1500, non-current liabilities equal $800 and shareholders' equity equals $2500?

A) $2200
B) $3700
C) $4800
D) $7000

Question 44

During an accounting period, total assets decreased by $5m while owners' equity increased by $8m. The change in total liabilities during this period must have been a:

A) $3m increase.
B) $3m decrease.
C) $13m increase.
D) $13m decrease.

Question 45

When a liability is paid, which of the following is true?

A) Total assets and total liabilities remain the same.
B) Total assets and total owners' equity decrease.
C) Total assets decrease by the same amount that total liabilities increase.
D) Total assets and total liabilities decrease.

Question 46

Which of the following errors will not cause an imbalance in the worksheet?

A) A single-entry or double-entry error.
B) Not recording a transaction or recording a transaction twice.
C) A subtraction or transposition error.
D) An addition or subtraction error.

Question 47

Which of the following is not a characteristic of a worksheet?

A) It is set out in the form of the balance sheet equation.
B) It provides a vehicle for recording accounting transactions.
C) It requires the use of a computerised system to ensure accuracy.
D) It applies the principles of double-entry bookkeeping.

Question 48

Chocolate Heaven, Inc. had a balance of $200 000 in shareholders' equity at the end of last year (i.e. 31 December). During this year, the company recorded a net profit of $50 000, distributed dividends of $30 000, and borrowed $10 000. What was the company's shareholders' equity at the end of this year as at 31 December?

A) $200 000
B) $210 000
C) $220 000
D) $230 000

Question 49

Double-entry bookkeeping is based on a rule known as:

A) accrual accounting.
B) going concern principle.
C) the principle of duality.
D) the business entity principle.

Question 50

When applying the principle of duality to the balance sheet equation, an increase in assets will not normally result in:

A) an increase in liabilities.
B) an increase in another asset.
C) an increase in owners' equity.
D) a decrease in another asset.

Question 51

On 31 May, after many months of planning, Macy opened a bike shop by investing $10 000 of his own money. On 31 May he spent 20% of it to pay the rent for three months from 1 June on a store location, and the balance on furnishings and fixtures that had been delivered and set up the night before. A friend had loaned Macy $6000, all of which he used to purchase inventory on 31 May, prior to opening. If Macy prepared a balance sheet as at 31 May, what would be the balances for total assets and total liabilities? Total Assets Total Liabilities

A) $10 000 $6000
B) $14 000 $6000
C) $16 000 $6000
D) $16 000 $10 000

Question 52

Bart Corporation reports these balances in its accounting system. Determine the balance of the Retained Profits account.

A) $360 000
B) $580 000
C) $620 000
D) $780 000

Question 53

When an organisation purchases a machine for cash, which of the following is true?

A) Total assets increase.
B) Total liabilities decrease.
C) Total expenses increase.
D) Total equity stays the same.

Question 54

Which one of the following statements is generally true regarding the relationship between the items mentioned?

A) An increase in assets will always cause an increase in owners' equity.
B) A decrease in assets will always cause a decrease in liabilities.
C) An increase in revenues normally increases owners' equity.
D) Expenses decrease revenues.

Question 55

The accounting records of Margo Catering show the following balances at 31 December: Total assets as of 31 December are:

A) $3000
B) $3400
C) $4400
D) $5300

Question 56

On a balance sheet, assets are usually classified as:

A) Current Assets, Fixed Assets, Plant and Equipment, and Intangible Assets.
B) Current Assets, Long Term Assets, Plant and Equipment, and Intangible Assets.
C) Current Assets, Fixed Assets and Long-term Investments.
D) Current Assets and Non-current Assets.

Question 57

Blanche started a business by contributing $24 000 cash and a truck valued at $40 000. The company then purchased equipment by paying the $24 000 cash as a down payment (which accounted for half its purchase price), and financed the other half by signing a note payable at the bank. After the above transactions, Blanche's company balance sheet is: Assets Liabilities Owners' Equity

A) $64 000 $0$64 000
B) $88 000 $0$88 000
C) $88 000 $24 000$64 000
D) $112 000$24 000$88 000

Question 58

The Davis Company purchases a new delivery truck by making a 10% cash down payment and signing a note payable for the balance. How will assets, liabilities and owners' equity be affected by this transaction? Assets Liabilities Owners' Equity

A) decrease increase no change
B) increase increase no change
C) increase decrease increase
D) no change increase decrease

Question 59

Two transactions are recorded incorrectly in a worksheet. The first error is a transaction of $1000 which is recorded twice on the assets side of the worksheet. The second error is a transaction of $500 recorded only on the assets side of the worksheet. What will be the difference between the assets side of the worksheet and the liabilities + owners' equity side of the worksheet?

A) $500
B) $1500
C) $2000
D) $2500

Question 60

The Club of Winston Churchill has the following items disclosed on its balance sheet. The only item missing is owners' equity: What are the values of the club's total assets and net assets?

A) Total assets $293 500 and net assets $113 500
B) Total assets $293 500 and net assets $110 000
C) Total assets $308 500 and net assets $98 500
D) Total assets $238 500 and net assets $110 000

Question 61

What is meant by the concept of duality? Illustrate your answer with respect to the following three transactions (events):
$\bullet$ Entity paid wages for services provided in the preceding fortnight.
$\bullet$ Entity issued shares for land.
$\bullet$ Entity paid $30 000 cash for equipment to be used in the business

Question 62

X Ltd sold 2000 computers in June. The terms of sale included a 12-month warranty. The warranty provides that X Ltd will meet the cost of repairs that are associated with faulty parts attributable to manufacture. Past experience indicates that 10% of computer sales lead to warranty claims at an average cost of $70 for parts and $100 for labour, per computer.
Discuss whether the warranty commitment would meet the definition and recognition criteria of a liability to the firm at 30 June.

Question 63

In June 2002 WorldCom, a US telecommunications firm, announced that it had misreported financial information in previous accounting periods - to the sum of USD $3.9 billion - by recording routine operating expenses as capital expenditure.
Discuss

Question 64

What is the operating cycle of a business? How does this impact the classification of assets into current and non-current categories?

Question 65

Briefly describe four sources of the common types of errors that may be made in recording transactions (events) in the worksheet.

Question 66

The worksheet is a form of:

A) journal.
B) financial statement.
C) working paper.
D) ledger.

Question 67

The balance sheet includes information on the resources, financial structure, solvency and adaptability of a reporting entity. Discuss.

Question 68

Identify the impact of the following events on the balance sheet equation.
a. The owner pays $3000 into the business bank account.
b. The business acquires equipment for $8000, paying a $3000 deposit, with the balance payable in 90 days.
c. The business provides services for $850 cash.
d. Paid salaries and wages $2300.
e. The business provides a potential customer with a quote of $900 for the provision of services.
f. The business purchases supplies for $385 cash.

Question 69

During an accounting period, a transaction occurred involving the purchase of equipment for $9000. On reviewing the worksheet, it was discovered that the transaction had not been recorded. The most likely reason that the omission was picked up is:

A) the worksheet did not balance by $9000.
B) the imbalance was divisible by 9.
C) the omission was picked up by a diligent bookkeeper.
D) the worksheet did not balance by $4500.

Question 70

Aria was trying to determine the amount of total equity in her music business. An exclusive list of accounts is listed below: Based on this information, the total owners' equity in Aria's business was:

A) $2000
B) $10 000
C) $14 000
D) $16 000

Question 71

A common error encountered when examining a worksheet that does not balance is the discovery that the error is mathematically divisible by nine. This type of error is commonly referred to as:

A) an addition or subtraction error.
B) a single-entry error.
C) a transposition error.
D) a double-entry error.

Question 72

What role does the business entity principle play in accounting for the transactions, assets and liabilities of an entity?

Question 73

Xavier Plata operates a small manufacturing business, trading under the name of Plata Products. The following list of financial data relates to the business as at 30 June.
Additional information
Required

Question 74

At 30 June 2014, the non-current asset section of the balance sheet of Qantas included leasehold aircraft and engines valued at cost, $17 131 million and after depreciation and impairment, a written-down value $11 075 million. [Source: Note 15. Property, Plant and Equipment, Qantas Annual Report 2014, p. 85).

Question 75

The accountant for Tiny Tots has compiled the following information about the company and its accounts:

Question 76

What are the three components of the balance sheet? Briefly discuss each.

Question 77

A Ltd sold a car for $75 000 which it had recorded in its accounts at $60 000. The effect on A Ltd's accounts is: AssetsLiabilities Equity

A) increase no change increase
B) decrease decrease increase
C) increase no change no change
D) no change decrease no change