Deck 6: Presentation of Financial Performance and the Worksheet

Question 1

The statement of comprehensive income reports revenues and expenses for the period but does not report income.

Answer 1

False

Question 2

Capitalising a cost for the period instead of recording it as an expense of the period will understate profit for the period.

Answer 2

False

Question 3

The net profit figure is often referred to as the 'bottom line' and is the residual of income after deducting expenses for the period.

Answer 3

True

Question 4

The statement of comprehensive income shows the results of operations over a period of time, and the balance sheet shows the financial condition of a business at a specific date.

Question 5

Gross profit is the sales revenue received, less the cost of the goods sold (i.e. cost of sales) from ordinary operating activities.

Question 6

An expense is a decrease in assets or an increase in liabilities, and will result in a decrease in owners' equity.

Question 7

What information does a statement of comprehensive income not show?

A) Net Profit
B) Revenues
C) Liabilities
D) Tax Expense

Question 8

The statement of comprehensive income shows financial information:

A) at a point in time.
B) over a period of time.
C) at the time of the originating transaction.
D) at the time of sale of an item.

Question 9

Drawings by owners are an expense.

Question 10

The statement of comprehensive income reflects the financial position of the business for the accounting period.

Question 11

Earnings management enhances the decision usefulness of financial reporting.

Question 12

The statement of changes in equity includes transactions with owners.

Question 13

Revenue is recognised under the historical cost accounting model when it has substantially been earned and the entity has the cash or a substantial claim to cash.

Question 14

Unexpired costs are found on the statement of comprehensive income.

Question 15

Which one of the following statements is true?

A) The statement of comprehensive income shows the financial position of an entity as of a specific date.
B) The statement of comprehensive income shows the financial position of an entity for a specific period of time.
C) The balance sheet shows the financial position of an entity at a specific date.
D) The balance sheet shows the financial position of an entity for a specific period of time.

Question 16

Income has the effect of increasing assets and increasing owners' equity.

Question 17

An essential characteristic of an expense is a decrease in economic benefits.

Question 18

Where the expenses of an entity exceed income for a period, a loss results.

Question 19

Profitability means having enough funds on hand to pay debts as they fall due.

Question 20

The essential difference between an asset and an expense revolves around whether the economic benefits involved lie in the future or the past.

Question 21

If the accounting period were the year ending 31 December, which of the following costs would not be reported as an expense for the year ending 31 December this year?

A) Wages paid on 1 January next year for the previous fortnight
B) Goods for resale bought and not sold on 31 December this year
C) Electricity bill paid on 2 January next year for the previous quarter
D) Creditor paid on 3 January next year for advertising in December this year

Question 22

Which of the following transactions is not an expense?

A) Replacing an asbestos roof with a new tiled roof
B) Replacing tyres of a motor vehicle
C) Regular maintenance of equipment
D) The installation of new light globes

Question 23

During the first month of operations, Kelly's Tax Service provided services and billed customers in the amount of $6000. By the end of the first month, $3600 had been collected and it was expected that the other $2400 would be collected during the following month. On Kelly's statement of comprehensive income for the first month, what amount of revenue should be reported?

A) $0
B) $2400
C) $3600
D) $6000

Question 24

A single statement of comprehensive income reports which of the following?

A) Assets and liabilities
B) Cash inflows and cash outflows
C) Income and expenses
D) Retained earnings and dividends

Question 25

Leslie started a computer software firm by investing $16 000 of her own money. She spent three-quarters of it on furniture, fixtures and operating supplies for the business. After borrowing $12 000 from First National Bank, she spent one-third of the funds on computer hardware. At that point in time what balances should be recorded in her accounting system for total assets and total expenses? Total Assets Total Expenses

A) $28 000$16 000
B) $12 000$16 000
C) $16 000 $0
D) $28 000 $0

Question 26

Income and expenses are reported on a(n):

A) statement of comprehensive income.
B) balance sheet.
C) liability statement.
D) asset statement.

Question 27

Which of the following is an essential characteristic of an expense?

A) Decreases in future economic benefits
B) Contribution to owners
C) Increases in assets or reduction in liabilities
D) Increase in future economic benefits

Question 28

Charging an interest cost as an expense when it should be capitalised as an asset will result in:

A) an overstatement of total assets.
B) the understatement of net profit for the next period.
C) an overstatement of interest expense for the next period.
D) the understatement of net profit for the current period.

Question 29

Revenues indicate:

A) the sales price of goods and services sold during a period.
B) how much cash was received from sales during a period.
C) the cost of resources consumed in producing and selling goods and services sold during a period.
D) the net profit earned during a period.

Question 30

Which of the following accounts would not be affected by a credit sale?

A) Inventory
B) Cost of Goods Sold
C) Cash
D) Sales Revenue

Question 31

Jeremy received $50 as a gift and $120 from his a job as a waiter. He then spent $15 on a silver ring. What is Jeremy's revenue?

A) $50
B) $120
C) $170
D) $155

Question 32

Which of the following pairs of items would normally be classified as expenses?

A) Ordinary dividends and salaries paid
B) Salaries paid and interest paid on loans
C) Discount received and interest paid on loans
D) Amortisation of goodwill and loan payable

Question 33

Which of the following transactions for July represents an expense for the month?

A) Paid $15 000 in advance as first payment for a new computing system.
B) Purchased inventory on account for resale in August.
C) Paid cash of $2000 to the bank for July interest on loan.
D) Borrowed $80 000 from the bank, repayable over four years.

Question 34

A single statement of comprehensive income:

A) measures comprehensive income.
B) reports net profit or loss for the period.
C) is used by external decision makers.
D) does all of the above.

Question 35

Which of the following transactions for July represents revenue for the month?

A) Collected $1000 in advance for architectural services to be provided in August.
B) Completed architectural services for $30 000, payable in seven days.
C) Borrowed $60 000 from the bank, repayable over two years.
D) Collected cash of $5000 from an account receivable outstanding since February.

Question 36

Jeremy received $50 as a gift and $120 from his a job as a waiter. He then spent $15 on a silver ring. What is Jeremy's income?

A) $50
B) $120
C) $170
D) $155

Question 37

Which of the following would not result in the recording of an expense?

A) Receipt of a bill from the telephone company
B) Recording of wages paid to managers
C) Drawings by the owner for personal expenses
D) Receipt of a bill for electricity used

Question 38

Which of the following can Tim not recognise as an expense assuming all relate to his business?

A) Payment of interest on a loan of $100
B) A suspicion that John will not return the $26 that he borrowed from Tim
C) Payment of electricity for the month of $50
D) Use of water to which Tim will be invoiced in two months

Question 39

Which of the following statements relating to expenses is not true?

A) Expenses result in an increase in owners' equity.
B) Expenses may arise through immediate cash payments or through promises to pay cash in the future for services received.
C) Expenses result from costs incurred normally to earn revenue.
D) Cash may be paid out before expenses are incurred.

Question 40

Revenue has the effect of:

A) increasing assets and decreasing liabilities.
B) increasing assets and owners' equity.
C) increasing assets and decreasing owners' equity.
D) leaving the entire balance sheet unchanged.

Question 41

Net profit is:

A) the excess of income over expenses that a business records during a period.
B) the excess of expenses over revenues that a business records during a period.
C) the amount of revenue that a business reports during a period.
D) the amount of resources created by a business during a period.

Question 42

At year end, Elliott counted the office supplies on hand, which amounted to $1500. The firm had $900 of supplies on hand at the start of the year, and had purchased $6000 of supplies during the year. What was the total office supplies expense for the year?

A) $6900
B) $3600
C) $5400
D) $4500

Question 43

Physicians, Inc. subscribes to three magazines and paid $140, $90 and $76 respectively, on 1 July. The subscriptions are for one year and are recorded in Prepaid Subscriptions when paid. Six months later on 31 December, what amount is recorded for 'magazine expense' and what is the balance of the Prepaid Subscription account? Magazine Expense Prepaid Subscriptions

A) $153 $153
B) $306 $306
C) $25.50 $153
D) $25.50 $306

Question 44

The Stealth Company reports the following information for the start of this year: Assume that owners invested $3000 during this year and that withdrawals were $12 000. Net profit for the year must have been:

A) $12 000
B) $14 000
C) $16 000
D) $17 000

Question 45

During May, the Friendly Resort had income of $10 000 and expenses of $4000. The owner withdrew $800 cash from the business during the month. If Owners' Equity on 31 May was $18 000, Owners' Equity on 1 May must have been:

A) $23 200
B) $12 000
C) $12 800
D) $24 000

Question 46

The Flying High Company recorded a net profit for the year but paid no dividends. Comparing the balance sheet at the end of the year with the one at the beginning of the year, which of the following must be true?

A) Current assets would be higher.
B) Non-current assets would be higher.
C) Liabilities would be higher.
D) Shareholders' equity would be higher.

Question 47

Ian bought some goods in May for $600 and sold them in the following August for $950. For the financial year ending on 30 June, which of the following statements is correct?

A) Ian has expenses amounting to $600.
B) Ian has revenues amounting to $950.
C) Ian has a profit of $350.
D) Ian has assets of $600.

Question 48

Merchandise inventory costing $10 000 was sold to customers on credit for $15 000. What amount of revenue and cash flow resulted from the sale of the inventory? RevenueCash Flow

A) $5000 $15 000
B) $10 000 $10 000
C) $15 000 $0
D) $5000$0

Question 49

You are inspecting the statement of comprehensive income of a company. It reports a profit of $75 800. From this information, you can conclude that:

A) the owners have a rather small investment in the firm.
B) the company is a merchandising firm.
C) there have been financing and investing activities during the period but no operating activities.
D) the value of resources received from sales exceeds the value of resources consumed.

Question 50

In relation to income, revenue and expenses, which of the following statements is incorrect?

A) Revenue is the inflows from ordinary activities while income is revenue plus all gains.
B) The difference between revenue and cost of goods sold (i.e. cost of sales) is referred to as gross profit (loss).
C) Income and expenses do not impact the equation Assets = Liabilities + Owners' Equity.
D) Income increases equity while expenses decrease it.

Question 51

On 1 January, Erin, a manufacturer of fine furniture, entered into an agreement with a customer to make a chair that was to be made to meet the unique specifications of the customer. The customer paid a $20 deposit on the chair at that date. Erin finished making the chair on 31 January. The customer took delivery on that day, and agreed to pay Erin the outstanding balance of $3860 in two instalments on 28 February and 31 March. When would Erin normally recognise the revenue as having been earned, from a historical cost accounting perspective?

A) 1 January
B) 31 January
C) 28 February
D) 31 March

Question 52

What effect do revenues and expenses eventually have on Owners' Investment? Revenues Expenses

A) Decrease Decrease
B) Decrease Increase
C) Increase Increase
D) Increase Decrease

Question 53

At the end of an accounting period, the amount of net profit earned by a company is transferred to the balance sheet and reported under which one of the following categories?

A) Assets
B) Liabilities
C) Shareholders' equity
D) The amount of net profit is not transferred to the balance sheet.

Question 54

A statement of changes in equity reports on:

A) all owner changes in equity that took place during a financial reporting period.
B) only contributions from owners.
C) only distributions to owners.
D) net profit and only contributions from owners.

Question 55

Using the equation Income - Expenses = Profit, what could cause an increase in profit?

A) An increase in income
B) An increase in income and decreases in expenses
C) A decrease in expenses
D) Any of the above

Question 56

Chamber's Tube & Rim Company reported Retained Profits of $20 000 at the end of the year. The accompanying statement of comprehensive income for the year ending 31 December reported $10 000 in income and $20 000 in expenses. The balance of Retained Profits at the beginning of the year must have been:

A) $50 000.
B) $40 000.
C) $30 000.
D) $20 000.

Question 57

Determine the profit earned by a business owner for the month ending 31 May who recorded the following transactions during May:

A) $1500
B) $1300
C) $1200
D) $5000

Question 58

Cisco Company has the following account balances in its accounting system at year end: The net profit (or loss) for the period is:

A) $52 000
B) ($28 000)
C) $12 000
D) $4000

Question 59

The Boaters News magazine sold five-year subscriptions during the year totalling $75 000. Assume that all subscriptions were effective from 1 January and that the calendar year is the accounting period. At 31 December, in addition to the cash which of the following should be reported on Boaters News' financial statements?

A) Revenue of $75 000 and an asset of $75 000
B) Revenue of $15 000 and equity of $60 000
C) Revenue of $15 000 and liabilities of $60 000
D) Revenue of $15 000 and an asset of $60 000

Question 60

A cost ought to be recognised as an asset when:

A) it is probable that it will provide future economic benefits.
B) it may provide future economic benefits.
C) it involves drawings by the owner.
D) the cash has been paid.

Question 61

The 'Get Out There' Tour Company had equity of $60 000 at the beginning of the year. After a successful tourist season, dividends of $50 000 were paid and equity at the end of the year was $185 000. The profit for the year was:

A) $125 000
B) $175 000
C) $185 000
D) $235 000

Question 62

Which of the following items do not appear in the statement of changes in equity?

A) Dividends paid to shareholders
B) Total comprehensive income
C) Fair value changes of cash flow hedges
D) Shares issued during the period

Question 63

Describe the nature and impact of factors that may play a role in influencing the format and content of the income statement/statement of comprehensive income?

Question 64

Distinguish between the concepts expense and asset. Support your answer by using an example to demonstrate the difference.

Question 65

A prepayment consumed during a period is:

A) an item that is an expense of a given period but not necessarily a cash payment for that period.
B) an item that may be a cash payment for that period and also an expense for that period.
C) an item that that may be expensed in the current period.
D) any of the above.

Question 66

Company XYZ recorded net profit after tax of $150m for the period. In addition it recognised the following changes in fair values for the period: Available-for-sale securities + $10 million
Cash flow hedges - $5 million
Land + $85 million
What would be the amount of total comprehensive income for the period?

A) $90 million
B) $95 million
C) $150 million
D) $240 million

Question 67

Distinguish between the concepts income and revenue. Support your answer by using an example to demonstrate the difference.

Question 68

The following balances were taken from the accounting records of Singapore Enterprises Ltd as at 31 December.

Question 69

The core business of Greenmango Ltd involves the sale of anti-virus software. The following took place during the financial year ended 30 June. The company earned $25 000 000 from the sale of software; $3 000 000 from update downloads; and $50 000 in interest from investing on the short-term money market. The company also received a $2000 discount arising out of the early settlement of a liability; and issued shares in exchange for $500 000 cash during the year.

Question 70

Colombo commenced business as a sole proprietor providing computer repair services on 1 June. Colombo contributed land and buildings at $120 000, equipment at $19 000 and cash of $13 000. Transactions during June were as follows:
(a) Complete a worksheet for the month of June, including any final adjustments. Record all property, plant and equipment in a single column of that name.
(b) Prepare the statement of comprehensive income for June and the balance sheet at 30 June.

Question 71

An item that is a cash payment in the current period and an expense of the next period is:

A) a prepayment.
B) not adjusted.
C) an accrued expense.
D) part expense, part accrued expense.

Question 72

A drawing by an owner has the effect of:

A) increasing assets and decreasing owners' equity.
B) decreasing assets and owners' equity.
C) decreasing assets and increasing owners' equity.
D) leaving the entire balance sheet unchanged.

Question 73

Greenmango Ltd recorded payments made for the following items during the year ended 30 June:
Would the expenditure on the foregoing items meet the definition of (i) expenses, (ii) assets, or (iii) none of the above? Give reasons for your answers.

Question 74

A company sells inventory on credit for $10 000 which originally cost $4000. Which of the following would not be a result of recording this transaction in the worksheet?

A) An increase in total assets and revenue
B) An increase in total assets, revenue and expenses
C) An increase in revenue and expenses, but no effect on total assets
D) An increase in profit