Question 1

A test for distinguishing between an asset and an expense is

Accepted Answer

A) whether the item will be turned into cash by the end of the accounting period. 
B) whether the benefit extends into the next accounting period. 
C) whether the payment is made in cash. 
D) the amount of the transaction.

Question 2

The order in which the income statement and balance sheet are normally completed is:

Accepted Answer

A) irrelevant. 
B) income statement first. 
C) balance sheet first. 
D) both done simultaneously.

Question 3

If equity at the beginning of the accounting period was $120 000 and at the end of the period was $175 000,and drawings by the owner during the period were $30 000,how much profit was earned during the period?

Accepted Answer

A) $85 000 
B) $55 000 
C) $25 000 
D) $30 000

Question 4

The correct statement is:

Accepted Answer

A) The income statement prepared for internal use is similar to one prepared for external use 
B) The income statement prepared for internal use is more summarised than one prepared for external use 
C) The accounting standards govern the presentation of income statements prepared for both internal and external use 
D) While the two income statements have common elements the statement prepared for external use is more aggregated than the one prepared for internal users

Question 5

Which of the following expenses must be disclosed by a reporting entity?

Accepted Answer

A) depreciation and amortisation expense 
B) finance costs 
C) auditors' fees 
D) all of the options are expenses that must be disclosed by a reporting entity

Question 6

___________________ management refers to managers’ use of accounting discretion allowable under accounting policy choices and estimates to portray a desired level of profit in a particular reporting period.

Accepted Answer

The answer of ___________________ management refers to managers’ use of...

Question 7

Which of these is the best measure of an entity's profitability?

Accepted Answer

A) Profit before tax 
B) Profit after tax 
C) Earnings before interest and tax 
D) There is no one 'best' profit measure;it depends on the requirements of the user

Question 8

The statement of comprehensive income reports the profit or loss and other
Comprehensive income.Which of the following is an example of other comprehensive income?

Accepted Answer

A) dividends 
B) royalties 
C) non-current asset revaluations taken directly to a revaluation surplus 
D) sales

Question 9

Under the accounting standard governing the presentation of the income statement the item is $\bold{not}$ required to be presented on the face of the statement is

Accepted Answer

A) Revenue 
B) Depreciation 
C) Finance costs 
D) Tax expense

Question 10

Retained earnings,retained profits or accumulated profits are interchangeable terms used to describe ___________________ profits in the entity.

Accepted Answer

The answer of Retained earnings,retained profits or accumulated profits are...

Question 11

Which of these items,under the current accounting standards,is not included in the measurement of profit in the income statement?

Accepted Answer

A) Dividends received 
B) Gain on the disposal of non-current assets 
C) Gain on asset revaluation 
D) Cost of sales

Question 12

Which of the following is not disclosed in the statement of comprehensive income?

Accepted Answer

A) income and expenses recognised in the income statement 
B) income and expenses recognised directly in equity 
C) transactions with owners as owners 
D) all options are disclosed in the statement of comprehensive income

Question 13

If sales = $45 000,purchases = $25 000,beginning inventory = $10 000 and ending inventory = $8000 cost of sales is:

Accepted Answer

A) $18 000 
B) $27 000 
C) $7000 
D) $20 000

Question 14

Which of the following statements about gross profit is not true?

Accepted Answer

A) Gross profit is equal to sales less cost of sales 
B) An entity cannot be sustainable unless the gross profit is positive 
C) Gross profit is applicable to manufacturing and retail businesses 
D) Gross profit is equal to total income minus total expenses

Question 15

An entity's financial year ends on 30 June 2013.On 1 March 2013 it pays a 12 months insurance premium of $12 000.Under the accrual system of accounting how much of the premium will be recognised as an expense for the year ended 30 June 2013 and how much will be treated as an asset prepaid insurance?

Accepted Answer

A) $9000 expense and $3000 prepaid insurance 
B) $4000 expense and $8000 prepaid insurance 
C) $8000 expense and $4000 prepaid insurance 
D) $3000 expense and $9000 prepaid insurance

Question 16

Which of these is not an income type item?

Accepted Answer

A) sales revenue 
B) interest revenue 
C) dividends received 
D) unearned revenue

Question 17

The accounting standard that prescribes disclosure of specific income and expense items requires the disclosure to be on the face of the income statement or in the _________ attached to the report.

Accepted Answer

The answer of The accounting standard that prescribes disclosure of...

Question 18

Which of these will be recorded as income?

Accepted Answer

A) A loan is received from a bank 
B) Money is collected from a customer owing from goods sold last week 
C) A sale is made on credit 
D) Additional capital is contributed by the owner

Question 19

The accounting standards require all reporting entities to prepare a statement of changes in ______________.

Accepted Answer

The answer of The accounting standards require all reporting entities...

Question 20

The ___________ statement is prepared to calculate an entity's profit.

Accepted Answer

The answer of The ___________ statement is prepared to calculate...

Exam 6: Income Statement and Statement of Changes in Equity