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QUIZ 1

1. The life of a business is divided into equal periods to determine profit or loss for that
period. What assumption/concept underlies this procedure?
Select one:
a. materiality
b. monetary concept
c. accounting period
d. accounting entity

2. Which of the following requirements is not necessary for an asset to be reported on the
balance sheet?
Select one:
a. Probable future economic benefits
b. Result of past transactions
c. Owned by the reporting entity
d. Able to be reliably measured

3. During 2016, a company makes credit sales of $500 000, of which $375 000 is collected at
year-end. It pays $200 000 in expenses and owes $25 000 electricity used during 2016.
Accrual Profit is:
Select one:
a. $300 000
b. $275 000
c. $175 000
d. $150 000

4. A user's main demand is for credible periodic reporting of an enterprise's financial


position and performance. Credible means:
Select one:
a. 100% Accurate
b. Easily understandable by users of financial statements
c. Sufficiently trustworthy and competently prepared for it to be used to make decisions
d. Relevant to the needs of decision makers

5. The balance of retained profits at the beginning of a period was $1000 and at the end of
the period $850. A dividend of $50 was declared and paid. What was the net profit/loss for
the period?
Select one:
a. net loss $100
b. net profit $100
c. net loss $200
d. none of the above

6. Which of the following items is normally classified as a current liability?


Select one:
a. inventories
b. accounts payable
c. intangibles
d. accounts receivable

7. Additional credit sales of $2 million (cost price $1.5 million) are made on credit. This
transaction will:
Select one:
a. increase net profit, increase cash, and increase total assets
b. increase net profit, increase total assets but not affect cash
c. increase net profit, and not affect cash or total assets
d. none of the above

8. Working capital is calculated as current assets less current liabilities. Consider the
following summarised balance sheet of Apcor Ltd at 30 June 2015:

What was Apcor Ltd's working capital at 30 June 2015?


Select one:
a. $2 000 000
b. $500 000
c. $400 000
d. $200 000

9. LPR is a company that commenced business on 1 January 2013. Below are the balances in
the 30 June 2013 financial statements.
$
Cash 1000
Share capital 6000
Accounts receivable 3000
Accounts payable 2000
Loan owed 7000
Land 10 000
Inventory 2000
Cost of goods sold 1500
Wages expense 2500
Sales 5000

What is the balance of liabilities?


Select one:
a. $7000
b. $9000
c. $15000
d. none of the above

10. LPR is a company that commenced business on 1 January 2013. Below are the balances
in the 30 June 2013 financial statements.

$
Cash 1000
Share capital 6000
Accounts receivable 3000
Accounts payable 2000
Loan owed 7000
Land 10 000
Inventory 2000
Cost of goods sold 1500
Wages expense 2500
Sales 5000

What is the net profit for the period ending 30 June 2013?
Select one:
a. $1000
b. $2500
c. $3500
d. none of the above

11. Which of the following accounts is not closed off at year-end?


Select one:
a. Cost of Goods Sold
b. Amortisation Expense
c. Interest Revenue
d. Accounts Receivable

12. Which type of information would be of most interest to shareholders?


Select one:
a. Profitability
b. long-term financial stability
c. pollution of waterways adjacent to the firm's factory
d. continuity of orders for the firm's products

13. Which of the following statements is true?


Select one:
a. if the liabilities owed by a business total $450 000, then the assets also total $450 000
b. if the assets owned by a business total $500 000, then shareholders' equity also totals
$500 000
c. if the assets owned by a business total $90 000 and liabilities total $50 000, then
shareholders' equity totals $40 000
d. if the assets owned by a business total $90 000 and liabilities total $50 000, then
shareholders' equity totals $140 000

14. Which of the following is an accounting transaction?


Select one:
a. Making a purchase order
b. Establishing a bank overdraft
c. Hiring a new staff member
d. None of the above

15. Given the information below:

Assume no dividends were declared during the year.


What is the balance of total assets at 30 June 2011?
Select one:
a. 200 000
b. $210 000
c. $290 000
d. none of the above

16. Shareholders invest $100 000 in a business. $80 000 worth of inventory was bought on
credit, and of that, $10 000 worth of damaged inventory was returned. Equipment costing
$200 000 was purchased, which was financed by a loan from the seller, repayable in 5 years.
The business paid $40 000 to accounts payable. Total assets increased by:
Select one:
a. $100 000
b. $170 000
c. $330 000
d. none of the above

17. A chart of accounts is:


Select one:
a. a means of ensuring that the debits equal the credits
b. a chronological record of all transactions
c. a list of the titles of all accounts in the ledger, together with an appropriate numbering
system for the accounts
d. none of the above

18. If a transaction causes an asset account to increase, which of the following related
effects may also occur?
Select one:
a. A decrease of equal amount in a liability account
b. An increase of equal amount in another asset account
c. A decrease of equal amount in an owner's equity account
d. An increase of equal amount in a liability account

19. Which of the following is revenue of a business?


Select one:
a. Sales of goods in cash
b. Dividends received on shares
c. Sales of goods on credit
d. All of the above are revenues of a business

20. Which of the following entries correctly records the receipt of an electricity bill from the
power company?
Select one:
a. Dr Electricity Expense Cr Electricity Payable
b. Dr Electricity Payable Cr Accounts Payable
c. Dr Accounts Payable Cr Electricity Expense
d. Dr Accounts Payable Cr Utilities Payable

21. If a transaction causes an asset account to increase, which of the following related
effects occur?
Select one:
a. A decrease of equal amount in a liability account
b. An increase of equal amount in another asset account
c. A decrease of equal amount in an owner's equity account
d. An increase of equal amount in a liability account

22. Which of the following statements is true?


Select one:
a. if the liabilities owed by a business total $450 000, then the assets also total $450 000
b. if the assets owned by a business total $500 000, then shareholders' equity also totals
$500 000
c. if the assets owned by a business total $90 000 and liabilities total $50 000, then
shareholders' equity totals $40 000
d. if the assets owned by a business total $90 000 and liabilities total $50 000, then
shareholders' equity totals $140 000
23. Which of the following are debits?
Select one:
a. contributions of capital
b. increases in revenues
c. increases in liabilities
d. decreases in owner's equity

24. Additional credit sales of $2 million (cost price $1.5 million) are made on credit. This
transaction will:
Select one:
a. Increase net profit, increase cash, and increase total assets
b. increase net profit, increase total assets but not affect cash
c. increase net profit, and not affect cash or total assets
d. none of the above

25. In profit measurement, private transaction of owners are not taken into account. What
assumption/concept underlies this procedure?
Select one:
a. materiality
b. monetary concept
c. accounting period
d. accounting entity

26. The purpose of dividing assets and liabilities into current and non-current classes is to
help the reader of the balance sheet to determine:
Select one:
a. the short-term financial position of the firm
b. the long-term financial position of the firm
c. the likely future financial performance by the firm
d. both A and B

27. Which of the following may be a liability of a business enterprise?


Select one:
a. share capital
b. wages payable
c. retained profits
d. none of the above
28. Retained profits of Livermore Pty Ltd at 1 July 2010 were $5500. The accounting record
for year ended 30 June 2011 showed the following information:

What were Livermore's retained profits at 30 June 2011?


Select one:
a. $3750
b. $7250
c. $8750
d. none of the above

29. Which of the following is an expense?


Select one:
a. prepaid insurance
d. dividends paid
c. purchase of inventory
d. none of the above

30. A $10 000 payment was made to accounts payable, as a result:


Select one:
a. an asset decreased and an expense decreased
b. an asset decreased and a liability decreased
c. an asset decreased and an expense increased
d. a liability decreased and an expense increased

31. Which type of information would be of most interest to a trade creditor?


a. Dividends declared
b. Ability to pay debts
c. Pollution of waterways adjacent to the firm's factory
d. Continuity of order for the firm's product

32. Which of the following is not a transaction?


a. The purchase of inventory from suppliers
b. The donation of a motor vehicle to the company
c. Payment of legal fees
d. The compensation sought by an individual taking legal proceedings against the company

33. To which balance sheet grouping does the item 'Bank Overdraft' belong?
Select one:
a. current asset
b. non-current asset
c. current liability
d. non-current liability

34. LPR is a company that commenced business on 1 January 2013. Below are the balances
in the 30 June 2013 financial statements.

$
Cash 1000
Share capital 6000
Accounts receivable 3000
Accounts payable 2000
Loan owed 7000
Land 10 000
Inventory 2000
Cost of goods sold 1500
Wages expense 2500
Sales 5000

What is the balance of assets?


Select one:
a. $80 000
b. $10 000
c. $16 000
d. none of the above

35. Using the Australian dollar to measure accounting transactions allows comparisons
across periods. What assumption/concept underlies this procedure?
a. accounting entity
b. monetary concept
c. historical cost
d. going concern

36. Which of the following accounts is not closed off at year-end?


a. Cost of Goods Sold
b. Amortisation Expense
c. Interest Revenue
d. Accounts Receivable
37. Given the information below for 2015:

What is the cash profit of the business for 2015?


Select one:
a. $9 000
b. $14 000
c. $24 000
d. none of the above

38. Which of the following statements about financial accounting is true?


Select one:
a. The only aspects of a business enterprise of concern to management are financial position
and financial performance
b. Financial accounting keeps a record of all events affecting an organisation
c. Managers are concerned with the reliability of financial reports, not with how they will be
interpreted
d. Financial statements are summaries of a large number of individual events

39. Which of the following relates to both the balance sheet and the income statement?
Select one:
a. dividends paid to shareholders
b. the opening balance of retained profits
c. total shareholder's equity
d. net profit3

40. Given the following information, how much revenue would be recognised in June?
(1) Sales on credit of $100,000 in June, 20% to be collected in June
(2) Collected $70,000 in June from customers for May sales
(3) Received a deposit in June from a customer for $30,000; the work is to be carried
out in August
Revenue is:
Select one:
a. $90 000
b. $100 000
c. $130 000
d. $170 000
41. The balance of retained profits at the beginning of a period was $1000 and at the end of
the period $850. A dividend of $50 was declared and paid. What was the net profit/loss for
the period?
Select one:
a. a net loss $100
b. net profit $100
c. net loss $200
d. none of the above

42. Which of the following requirements is not necessary for an asset to be reported on the
balance sheet?
Select one:
a. Probable future economic benefits
b. Result of past transactions
c. Owned by the reporting entity
d. Able to be reliably measured

43. A customer provides a deposit of $500 000 near year-end. The product will not be
delivered until next year. This transaction will:
Select one:
a. Increase net profit, increase cash, and increase total assets
b. increase net profit and cash but not total assets
c. increase total assets and cash but not net profit
d. none of the above

44. The holders of bonds (Interest bearing loan) maturing in 15 years' time would be most
interested in which type of information?
Select one:
a. proposed expansion of the business
b. long-term financial stability
c. liquidity
d. profitability

45. If a machine is acquired in exchange for $9,000 cash and a $21,000 loan, then:
Select one:
a. Total assets increase
b. Total liabilities decrease
c. Owner's equity increases
d. Expenses increase
46. Greening Ltd is a newly established business selling computer hardware. Shown below
are ledger accounts in T-account form, with entries made for the first month of operations.

Use the information given above to answer the following question: What does transaction
(2) represent?
Select one:
a. Purchase of inventory on credit
b. Purchase of inventory for cash
c. Sale of inventory on credit
d. Sale of inventory for cash

48. Consider the following information.


A Paid $20 000 of accounts payable
B Received $100 000 from accounts receivable
C Purchased inventory of $200 000 on credit
D Credit sales of $700 000 (cost of goods sold was $450 000)
E $10 000 of prepayments expired during the month

What is the profit for the period?


Select one:
a. $120 000
b. $240 000
c. $250 000
d. none of the above

49. Given the following information calculate the gross profit:


Select one:
a. $30,000
b. $60,000
c. $35,000
d. $20 000

QUIZ 2

1. At year-end Shifty Ltd had a balance of Accounts Receivable of $90 000 and an Allowance
for Doubtful Debts of $4000. It was decided to write off the debt of Wriggler totalling $2500
as irrecoverable. It was further decided that the Allowance for Doubtful Debts should stand
at 5% of Accounts Receivable.
What was the journal entry needed to write off the debt of Wriggler as irrecoverable?
Select one:
a. Dr Bad Debts Expense..........$2500 Cr Accounts Receivable..........$2500
b. Dr Bad Debts Expense..........$2500 Cr Allowance for Doubtful Debts..........$2500
c. Dr Allowance for Doubtful Debts..........$2500 Cr Accounts Receivable..........$2500
d. none of the above

2. The statement that compares the balance as shown in the bank's records with the
balance in the Cash at Bank account at a particular date is known as the:
Select one:
a. bank statement
b. bank reconciliation statement
c. bank control account
d. cash flow statement

3. Which of the following may NOT be a subsidiary ledger?


Select one:
a. creditors
b. property, plant and equipment
c. finished goods inventory
d. cost of goods sold.

4. Accompanying the bank statement was a debit memorandum for an NSF (not sufficient
funds) cheque received from a customer. What entry is required in the company's
accounts?
Select one:
a. Dr Other Revenue Cr Cash
b. Dr Cash Cr Other Revenue
c. Dr Cash Cr Accounts Receivable
d. Dr Accounts Receivable Cr Cash

5. At the end of the financial year, the usual adjusting entry for accrued salaries owed to
employees was omitted. Which of the following statements is true?
Select one:
a. Salary expense for the year was overstated.
b. The total of the liabilities at the end of the year was overstated.
c. Net profit for the year was understated.
d. Shareholders' equity at the end of the year was overstated.

6. Which of the following is NOT a way that management can establish proper control over
the enterprise's affairs?
Select one:
a. rotation of employees over a range of jobs
b. combining record-keeping with handling of assets
c. carrying insurance on assets
d. requiring staff to take annual leave
7. Based on the special journal for sales shown below what is posted to the subsidiary
ledger account/s?

Select one:
a. $40 000 and $60 000
b. $80 000 and $140 000
c. $100 000
d. $220 000

8. Which of the following is NOT true of a sound system of internal control?


Select one:
a. implementation of controls involves costs
b. a sound system of internal control is the responsibility of management
c. all errors and irregularities should be eliminated
d. a sound system of internal control is fundamental to the production of reliable financial
reports

9. Able Ltd operates on a five-day working week. Employees are paid on Thursday for work
completed to Wednesday. The weekly wages bill is $40 000. If 30 June 2011 fell on a
Tuesday, what was the accrued wages payable on 30 June 2011?
Select one:
a. $8000
b. $16 000
c. $32 000
d. none of the above

10. Gum Ltd maintains subsidiary ledgers for debtors and creditors. At 1 July 2008, debtors
owed $4000, and $7200 was owing to creditors. Transactions for year ended 30 June 2009
were as follows:
What was the balance of the Debtors control account at 30 June 2009?
Select one:
a. $3000
b. $7000
c. $10 000
d. none of the above

11. In preparing a bank reconciliation statement for a business with a substantial bank
balance, the appropriate treatment for a cheque outstanding at end of month, $450, is to:
Select one:
a. add it to the balance as per bank statement
b. deduct it from the balance as per bank statement
c. add it to the balance per company records
d. deduct it from the balance per company records

12. Gum Ltd maintains subsidiary ledgers for debtors and creditors. At 1 July 2008, debtors
owed $4000, and $7200 was owing to creditors. Transactions for year ended 30 June 2009
were as follows:

What was the balance of the Creditors control account at 30 June 2009?
Select one:
a. $5200
b. $5500
c. $6000
d. none of the above

13. In preparing a bank reconciliation statement for a business with a substantial bank
balance, the appropriate treatment for $650 that a customer paid directly into the
company's bank account is to:
Select one:
a. add it to the balance as per bank statement
b. deduct it from the balance as per bank statement
c. add it to the balance per company records
d. deduct it from the balance per company records

14. The trial balance of Allen Ltd at balance date showed a credit balance of $5000 in the
Allowance for Doubtful Debts account. Although the account of a customer outstanding at
$1400 had been determined to be uncollectable, this had not been written off. What was
the effect of this neglect on the year-end balance sheet?
Select one:
a. there was an understatement of total liabilities
b. there was an overstatement of total assets and shareholders' equity
c. there was an understatement of total assets and shareholders' equity
d. there was no effect on total liabilities, assets or shareholders' equity

15. Choo Ltd invested $200 000 with a bank for one year at 12% on 1 September 2010
(interest payable at end of loan). What is the adjusting journal entry at balance date, 30
June 2011?
Select one:
a. Dr Accrued Revenue $18 000 Cr Interest Revenue $18 000
b. Dr Accrued Interest $20 000 Cr Interest Revenue $20 000
c. Dr Accrued Revenue $24 000 Cr Interest Revenue $24 000
d. Dr Unearned Revenue $18 000 Cr Interest Revenue $18 000

16. A credit balance in a customer's account in the Debtors ledger could be due to:
Select one:
a. increased credit sales in the period
b. an overpayment by the customer
c. a bad debt
d. none of the above

17. Griffin Ltd made a sale of $800 to a customer on terms of 2.5/10, n/30 on 1 July. The
account was paid on 8 July. Griffin Ltd would make which of the following postings to the
ledger on 8 July?
Select one:
a. DR Discount expense $20
b. DR Accounts receivable $800
c. CR Discount revenue $20
d. CR Discount expense $20.

18. The entry to recognise the depreciation of plant for the period is:
Select one:
a. Dr. Accumulated depreciation; Cr. Plant
b. Dr. Depreciation expense; Cr Plant
c. Dr. Depreciation expense; Cr. Accumulated depreciation
d. Dr. Accumulated depreciation; Cr. Depreciation expense

19. In preparing a bank reconciliation statement for a business with a substantial bank
balance, the appropriate treatment for monthly service charge appearing on the bank
statement, $45, is to:
Select one:
a. add it to the balance as per bank statement
b. deduct it from the balance as per bank statement
c. add it to the balance per company records
d. deduct it from the balance per company records

20. Which of the following entries records the receipt of cash for 3 months' rent? The cash
was received in advance of providing the service.
Select one:
a. DR Cash CR Rent revenue
b. DR Cash CR Unearned revenue
c. DR Cash CR Prepaid rent
d. DR Cash CR Rent expense

21. What is the correct adjusting entry at June 30, the end of the financial year, based on a
Supplies account balance, before adjustment, of $5200, and after adjustment, on June 30,
of $1200?
Select one:
a. Dr Supplies $1200 Cr Supplies Expense $1200
b. Dr Supplies Expense $1200 Cr Supplies $1200
c. Dr Supplies Expense $4000 Cr Supplies $4000
d. Dr Supplies $4000 Cr Supplies Expense $4000
22. The special journal for cash receipts relates to the following transactions:
Select one:
a. Cash and Credit sales
d. Receipts from debtors and Credit sales
c. Cash sales and receipts from debtors
d. Cash sales & cash purchases

23. The general ledger account representing the subsidiary ledger is known as a control
account because:
Select one:
a. inclusion of both control accounts and subsidiary ledger accounts in the general ledger
improves control
b. the accuracy of the detailed accounts in the subsidiary ledger can be checked against the
aggregate data and the balance contained in it.
c. both of the above are correct
d. none of the above are correct

24. On 1 May 2012, A Ltd pays $9600 for a one-year fire insurance policy that expires on 30
April 2013. Which of the following will appear on A Ltd's balance sheet at 30 June 2012?
Select one:
a. prepaid insurance, $1600
b. prepaid insurance $8000
c. prepaid insurance $9600
d. prepaid insurance $8800

25. The allowance for doubtful debts account would appear in the balance sheet under:
Select one:
a. current assets
b. current liabilities
c. shareholder's equity
d. property, plant and equipment

26. Which of the following is an important internal control procedure for cash?
a. Bank reconciliation
b. Accountant has responsibility for operating the bank account
c. Cheques are negotiable
d. Cash of $1 million is locked away in a filing cabinet

27. At year-end Shifty Ltd had a balance of Accounts Receivable of $90 000 and an
Allowance for Doubtful Debts of $4000. It was decided to write off the debt of Wriggler
totalling $2500 as irrecoverable. It was further decided that the Allowance for Doubtful
Debts should stand at 5% of Accounts Receivable.
What was the journal entry needed to bring the Allowance for Doubtful Debts to the
required level after writing off the debt of Wriggler?
Select one:
a. Dr Bad Debts Expense..........$3000 Cr Allowance for Doubtful Debts..........$3000
b. Dr Allowance for Doubtful Debts..........$2500 Cr Accounts Receivable ..........$2500
c. Dr Bad Debts Expense ..........$4500 Cr Allowance for Doubtful Debts ..........$4500
d. Dr Bad Debts Expense ..........$2875 Cr Allowance for Doubtful Debts..........$2875

28. The balance in the Allowance for Doubtful Debts account represents:
Select one:
a. bad debts written off in the current accounting period
b. liquid funds available to meet losses arising from customers becoming insolvent
c. an amount that is deducted from the Accounts Receivable account to reduce it to the
estimated realisable value
d. bad debts written off as Accounts Receivable considered uncollectable

29. At 1 July 2010, Epsilon Pty Ltd had 100 items of inventory which had cost $50 each.
During the year ended 30 June 2011, it purchased 1500 items at a cost of $50 each. Of
these, 200 were returned to the supplier as they were damaged. During the year, 1200
items were sold for $80 each, but 50 were returned by customers. Overhead expenses
during the year amounted to $15 000.
What was Epsilon Pty Ltd's cost of goods sold for the year?
Select one:
a. $47 500
b. $57 500
c. $60 000
d. $62 500
30. Management uses the percentage-of-sales approach method to calculate the allowance
for doubtful debts. Management calculated the allowance for doubtful debts on the basis of
2% of sales. However, by year-end it was aware that the rate should have really been 3% of
sales. Management does not adjust the allowance for doubtful debts at year-end. As a
result:
Select one:
a. assets are overstated, and net profit is overstated
b. assets are overstated, and net profit is understated
c. assets are understated, and net profit is overstated
d. assets are understated, and net profit is understated
31. Which of the following statements about a subsidiary ledger is NOT true?
Select one:
a. the accounts in the subsidiary ledger represent components of the double-entry
equation
b. a subsidiary ledger is a set of ledger accounts that collectively represent a detailed
analysis of one general ledger account classification
c. At the end of an accounting period, the total of the accounts in the subsidiary ledger
should equal the balance in the control account
d. At the end of an accounting period, every entry made to an account in the subsidiary
ledger is also reflected in the control account

32. The adjusting entry for prepaid insurance that has expired by the end of the period is:
Select one:
a. Dr. Insurance expense; Cr. Prepaid insurance
b. Dr. Retained profits; Cr Prepaid insurance
c. Dr. Prepaid insurance; Cr. Insurance expense
d. Dr. Prepaid insurance; Cr. Cash

33. The trial balance of Anderson Ltd included the following balances:
Debit Credit
Accounts Receivable $35 000
Allowance for Doubtful Debts $4000

On 1 October 2009, an account for $1600 was determined to be uncollectable. The journal
entry to be made on that date would include a debit to:
Select one:
a. Bad Debts Expense
b. Accounts Receivable
c. Allowance for Doubtful Debts
d. none of the above

34. T Ltd paid $240 000 in wages during the year. The opening balance of Accrued Wages
was $8000 and the closing balance was $10 000. What was the wages expense for the year?
Select one:
a. $238 000
b. $240 000
c. $242 000
d. none of the above

35. Allowance for Doubtful Debts is which sort of account?


a. Expense
b. Liability
c. Contra account to trade receivables
d. Asset

36. ‘Accounts receivable' is a credit column in the:


Select one:
a. sales journal
b. purchase journal
c. cash receipts journal
d. cash payments journal

37. Red Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ. XYZ has accounts
receivable of $12 million and an allowance for doubtful debts of $500 000. XYZ does not
adjust the accounts for the $10 000 that will not be paid by Red Shoes Ltd. Which of the
following statements is true about the balance sheet of XYZ?
Select one:
a. total assets are overstated
b. total assets are understated
c. net accounts receivable is correctly stated
d. none of the above

38. The most common way of accommodating the need for detailed records in the
accounting system, without grossly expanding the number of separate accounts in the
general ledger, is to use the technique of:
Select one:
a. double-entry accounting
b. subsidiary ledgers and control accounts
c. accrual accounting adjustments
d. cash flow statements

39. The supplies account has a balance of $975 at the beginning of the year and was debited
during the year for $2800, representing the total of supplies purchased during the year. If
$750 of supplies is on hand at the end of the year, the supplies expense to be reported on
the profit and loss statement for the year is:
Select one:
a. $750
b. $975
c.$2800
d. $3025

40. Which of the following statements about subsidiary ledgers and control accounts is NOT
true?
Select one:
a. Every entry made to an account in the subsidiary ledger is also reflected in the control
account in the general ledger.
b. All credit entries will be the same in aggregate between the subsidiary ledger and the
control account.
c. The total of the balances appearing in the accounts in the subsidiary ledger should equal
the balance appearing in the control account.
d. If the total of the subsidiary ledger accounts fails to agree with the balance of the control
account, the subsidiary ledger must be in error.
41. In 2011, Zealous Ltd paid $1900 for 2010 expenses, $32 000 for 2011 expenses and
$4000 advance payment for 2012 expenses. In 2012, it paid $8000 for 2011 expenses.
Furniture depreciation for 2011 was $5000. What was the accrual accounting expense for
2011?
Select one:
a. $37 000
b. $40 000
c. $50 900
d. $45 000

42. In preparing a bank reconciliation statement for a business with a substantial bank
balance, the appropriate treatment for a deposit for $2300 not appearing on the bank
statement is to:
Select one:
a. add it to the balance as per bank statement
b. deduct it from the balance as per bank statement
c. add it to the balance per company records
d. deduct it from the balance per company records

43. Which of the following does NOT qualify a cash control procedure?
Select one:
a. Keeping unbanked cash in a locked safe
b. Regular bank reconciliations
c. Cheques countersigned
d. Managing director keeps the accounting records.

44. Which of the following is NOT a purpose served by special journals?


Select one:
a. reduction in the number of postings to the general ledger
b. elimination of the general ledger
c. reduction in the number of entries requiring narrations
d. making it easier to find errors

45. The entry to recognise the depreciation of plant for the period is:
Select one:
a. Dr Accumulated Depreciation; Cr Plant
b. Dr Depreciation expense; Cr Plant
c. Dr Depreciation expense; Cr Accumulated depreciation
d. Dr Accumulated depreciation; Cr Depreciation expense

46. Based on the special journal for sales show below what is posted to the subsidiary ledger
account/s?
Sales Journal
Date Inv No. Customer Post ref COGS Accounts
Receivable
July 5 0001 M Baxt √ $40 000 $80 000
July 31 0002 B Whitt √ $60 000 $140 000
$100 000 $220 000
Select one:
a. $40 000 and $60 000
b. $80 000 and $140 000
c. $100 000
d. $220 000

47. If we pay a 12month insurance premium of $600 on 1 February 2011, at 30 June 2011
the prepayment will be equal to:
Select one:
a. $600
b. $350
c. $300
d. $250

48. In posting the total of the cash column in a cash receipts journal, the entry that would be
made is:
Select one:
a. Dr Cash
b. Cr Cash
c. Dr each specific accounts that comprise the total
d. none of the above

QUIZ 3

1. U Ltd made purchases and sales of inventory in the last three months of operation as
follows:

Date Units purchased Cost Total


Oct 1 40 $1.80 $72
Nov 3 30 $2.00 $60
Dec 7 50 $2.10 $105

Units sold
Nov 6 20
Dec 3 45
Dec 20 30

U Ltd uses the FIFO assumption and a perpetual inventory system. There were no units of
inventory on hand at the beginning of October. Cost of Sales for the three months is
calculated as follows:
Select one:
a. 95 x ($720+$600+1 050)/120 = $187.63
b. 40 x $1.80 + 30 x $2.00 + 25 x $2.10 = $184.50
c. 30 x $2.00 + 35 x $1.80 + 30 x $2.10 = $186.00
d. 50 x $2.10 + 30 x $2.00 + 15 x $1.80 = $192.00

2. The fixed costs per unit are $10 when a company makes 10 000 units. What are the per
unit fixed costs when 12 500 units are produced?
Select one:
a. $6.00
b. $12.00
c. $10.00
d. $ 8.00

3. If the price Product A is $20, unit variable cost is $5 and unit fixed cost is $6, what is the
contribution margin per unit?
Select one:
a. $14
b. $9
c. $15
d. $21

4. Peach Ltd purchased a machine for $20,000 on 1 January 2010. Peach depreciated it using
straight-line depreciation, assuming that it would have a useful life of three years and
$5,000 salvage value. However, on 31 December 2011 the machine was sold for $8,000
cash. What was the gain or loss on sale?
Select one:
a. $8,000 gain
b. $3,000 gain
c. $10,000 loss
d. $2,000 loss

5. Which of the ratios listed helps to indicate whether a company has enough short-term
assets to cover its short-term liabilities?
Select one:
a. current ratio
b. profit margin
c. debt to equity
d. return on assets
6. In July 2012, Orange Pty Ltd had 100 items of inventory which had cost $50 each. During
the year ended 30 June 2013, it purchased 1500 items at a cost of $50 each. Of these, 200
were returned to the supplier as they were damaged. During the year, 1200 items were
sold for $80 each, but 50 were returned by customers. What was COGS for the year?
Select one:
a. $47,500
b. $57,500
c. $60,000
d. $62,500

7. The contribution margin ratio is the proportion of each sales dollar available to cover
fixed costs and provide for profit. The contribution margin ratio can be calculated as
follows:
Select one:
a. Fixed Costs/Sales
b. Variable Costs/Fixed Costs
c. (Sales - Variable Costs)/Sales
d. (Sales - Variable Costs)/Fixed Costs

8. The operating profit after tax of Calculus Ltd is $10 million and sales are $100 million.
Asset turnover is 1.25 times p.a. What is Calculus Ltd's ROA?
Select one:
a. 0.0125
b. 0.1
c. 0.125
d. none of the above

9. The firm's fixed costs are $60 000, variable cost per unit is $15 and selling price per unit is
$20.
The contribution margin per unit is:
Select one:
a. $5
b. $15
c. $20
d. $35

10. Marketing costs include:


Select one:
a. salaries and commissions of sales personnel.
b. storing and packaging costs.
c. promotion costs.
d. All of the given answers

11. Which of the following statements about the use of the weighted average assumption is
true?
Select one:
a. the balance sheet figure is between the LIFO and FIFO figures
b. when prices are rising, it shows lower balance sheet figures than the LIFO method
c. when prices are falling, it shows lower balance sheet figures than the FIFO method
d. none of the above

12. A cost that remains unchanged in total as the activity level changes is called a:
Select one:
a. Fixed cost
b. Variable cost
c. Semi-fixed cost
d. Mixed (semi-variable) cost

13. Steel Tables Ltd is a company specialising in the production of a range of steel tables for
outdoor use. Which of the following is an example of a manufacturing overhead cost?
Select one:
a. The wages of a person constructing the tables.
b. The steel that goes into a table
c. Paint used for a table
d. Electricity costs of the factory

14. Which of the following statements about a liability is true?


Select one:
a. a liability is restricted to being a legal debt
b. a liability must result from a past transaction or event
c. a liability arises when a business purchases inventory using cash
d. a liability results even if the entity can avoid the sacrifice of economic reasons

15. Which of the following items is NOT an asset?


Select one:
a. Contract with managing director
b. Taxi licence
c. Tax refund due
d. Building under construction

16. The following question relates to PQR Ltd, which has the following ratios: Return on
assets, (ROA) 12%; Return on equity (ROE) 14%; and current ratio (CR) of 2:1.

Additional credit sales of $2 million (cost price $1.5 million) are made. This transaction will:
Select one:
a. increase ROA, ROE and CR
b. increase ROA and ROE but not CR
c. increase ROA and CR but not ROE
d. do none of the above

17. The entry to record a credit purchase when the periodic inventory method is employed
will include a:
Select one:
a. debit to Inventory
b. credit to Purchases
c. debit to Purchases
d. debit to Cost of Goods Sold

18. Which of the following is not one of the enhancing qualitative characteristics of
information?
Select one:
a. Understandability
b. Verifiability
c. Timeliness
d. Relevance

19. On 1 January 20a new motor vehicle with a useful life14 Lloyd Ltd commenced a
business of manufacturing leather bags. Lloyd Ltd's accounting records show:
• $300 000 direct labour for the month to 31 January 2014
• $500 000 direct materials purchased for the month to 31 January 2014
• $250 000 total overhead incurred for the month to 31 January 2014
• $100 000 direct materials on hand at 31 January 2014
• $80 000 work in progress inventory at 31 January 2014

The cost of goods manufactured for the month of January 2014 is:
Select one:
a. $1 230 000
b. $1 050 000
c. $870 000
d. $800 000

20. The firm's fixed costs are $60 000, variable cost per unit is $15 and selling price per unit
is $20. The contribution margin percentage is:
Select one:
a. 2.5%
b. 25%
c. 33%
d. 400%

21. Ribco Company Ltd makes and sells only one product. The unit contribution margin is $6,
and the break-even point in unit sales is 24 000. What are the company's fixed expenses?
Select one:
a. $400 000
b. $14 400
c. $40 000
d. $144 000

22. One of the external auditor fundamental roles is to render a competent opinion on
financial statement. Which of the following is not an exception to unqualified opinion?
Select one:
a. Qualified opinion
b. Adverse opinion
c. Disclaimer
d. Grand opinion

23. Which piece of information is NOT necessary in order to compute straight-line


depreciation?
Select one:
a. estimated useful life
b. current market value
c. estimated salvage value
d. none of the above; all necessary

24. On 1 January 2008, a new motor vehicle with a useful life of 4 years and an estimated
residual value of $12 000 was purchased by a business for $54 000. The straight-line method
is employed and the financial year ends on 31 December.
What was the depreciation expense for the year ended 31 December 2009?
a. $5250
b. $10 500
c. $13 500
d. $21 000

25 The letters GAAP stand for:


Select one:
a. Government Approved Accounting Principles
b. Generally Accepted Audit Procedures
c. Generally Accepted Audit Principles
d. Generally Accepted Accounting Principles

26. Which of the following sections in a Company's annual report is NOT audited?
Select one:
a. Directors report
b. Financial statements
c. Notes to the financial statements
d. Directors declaration regarding accounting standards, true and fair view and solvency

27. The average inventory of Dyer Ltd for year ended 31 December 2008 was $70 000. The
number of days' inventory on hand was 91.25 days. What was the cost of goods sold for the
year?
Select one:
a. $259 000
b. $280 000
c. cannot be determined from the information provided
d. none of the above
28. Fairchild Pty Ltd began April with a finished goods inventory of $25 000. The cost of
goods manufactured during the month was $40 000 and the cost of goods sold during April
was $50 000. The inventory remaining in finished goods at the end of April was:
Select one:
a. $35 000
b. $25 000
c. $20 000
d. $15 000

29. Which of the following statements about the current ratio is NOT true?
Select one:
a. the current ratio indicates whether the company has enough short-term assets to cover
its short-term debts
b. an extremely high ratio is always a favourable sign
c. a ratio above 1 indicates that working capital is positive
d. none of the above

30. Using the periodic inventory method, entries are made in the inventory account when
stock is:
a. delivered
b. sold.
c. paid for
d. none of the above

31. On 1 January 2008, a new motor vehicle with a useful life of 4 years and an estimated
residual value of $12 000 was purchased by a business for $54 000. The straight-line method
is employed and the financial year ends on 31 December.
What was the accumulated depreciation at 31 December 2010?
Select one:
a. $42 000
b. $31 500
c. $21 000
d. none of the above

32. Which of the following is not one of the major categories of cost behaviour?
Select one:
a. Fixed
b. Mixed
c. Reasonable
d. Variable

33. Creep Ltd purchased a machine for $100 000 on 1 January 2008. It has an estimated
useful life of 5 years. Creep Ltd's financial period ends on 31 December. The machine was
depreciated using the reducing balance method at 60%. What was the balance of
accumulated depreciation at 31 December 2010?
Select one:
a. $84 000
b. $93 600
c. $97 440
d. none of the above

34. Which of the following statements about the last-in, first-out (LIFO) assumption is true?
Select one:
a. LIFO assumes that inventory on hand consists of the oldest units
b. LIFO assumes that ending inventory and cost of goods sold are composed of a mixture of
old and new units
c. LIFO results in newer costs appearing in the balance sheet
d. none of the above are true

35. The following data relates to a company's results for 30 June 2013
Sales $800 000
Less: Variable costs (420 000)
Contribution margin 380 000
Less: Fixed costs (120 000)
Profit before tax $260 000

Compute the revenue that must be earned to generate a before tax profit of $500 000.
Select one:
a. $620 000
b. $1 040 000
c. $ 1 180 952
d. $1 305263

36. The Framework states that an asset should be recognised when and only when:
i. The asset possesses a cost or other value that can be measured reliably
ii. It is legally owned by the entity
iii. It is probable that the future economic benefits embodied in the asset will eventuate

Select one:
a. i and ii only
b. i and iii only
c. ii and iii only
d. i, ii and iii

37. Peach Ltd purchased a machine for $32,000 on 1 January 2011. The machine is expected
to have a life of four years and no salvage value. The financial year ends on 31 December.
The straight-line method of depreciation is employed. What will be the balance of the
Accumulated Depreciation account at 31 December 2013?
Select one:
a. $24 000
b. $27 750
c. $31 500
d. $16 000

38. The Casual Furniture Company manufactures outdoor furniture, and incurred the
following costs during the month of January.

The product costs are:


Select one:
a. $ 89 500
b. $67 500
c. $64 500
d. $66 500

39. Which of the following is a product cost?


Select one:
a. Legal fees incurred in relation to a competitor's product
b. Advertising costs to promote a new product
c. Research costs that might lead to the development of a new product
d. Depreciation on the factory building

40. Hard-up Ltd has a current ratio of 0.75. Its current liabilities amount to $200 000. It
borrows $75 000 from a finance company, repayable in 5 years.
Select one:
a. 0.818
b. 1.125
c. cannot be determined from the above information
d. none of the above

41. Who is responsible for preparing a publicly listed company's financial statements?
Select one:
a. Management
b. Board of Directors
c. Internal Auditors
d. External Auditors

42. Depreciation of factory equipment would be classified as:


Select one:
a. indirect material
b. indirect labour
c. manufacturing overhead
d. a sundry expense

43. Which of the ratios listed helps to indicate whether current liabilities could be paid
without having to sell the inventory?
Select one:
a. current ratio
b. profit margin
c. quick ratio
d. return on assets

44. What is the main limitation of CVP analysis?


Select one:
a. The analysis assumes a linear revenue function and a linear cost function
b. The analysis assumes that what is produced is sold
c. The analysis assumes that fixed and variable costs can be accurately identified
d. The analysis assumes that selling prices and costs are known with certainty

45. Management accounting:


Select one:
a. must comply with Australia accounting standards
b. focuses primarily on the needs of managers internal to the organisation
c. provides information for parties external to the organisation
d. involves reports focusing on the enterprise in its entirety

46. The Casual Furniture Company manufactures outdoor furniture, and incurred the
following costs during the month of January.
The conversion costs are:
a. $34 500
b. $28 500
c. $25 500
d. $29 500

47. Lance Ltd manufactures raincoats. Lance Ltd's accounting records show:
• $600 000 Cost of goods manufactured for month of January 2014
• $200 000 Finished goods inventory at 1 January 2014
• $50 000 Finished goods inventory at 31 January 2014
The cost of goods sold for the month of January 2014 is
Select one:
a. $850 000
b. $750 000
c. $600 000
d. $150 000

48. The concept of cost volume profit analysis is based on classifying costs as:
Select one:
a. fixed and variable costs.
b. variable product and period costs.
c. product controllable and uncontrollable costs.
d. fixed and variable costs AND variable product and period costs.

49. Which of the following statements about going concern is correct?


Select one:
a. Liquidation value is used when the company will not continue in operation for the
foreseeable future, that is, it is no longer a going concern
b. The reader of financial statements that have been prepared on the historical cost basis
should be entitled to presume that the company in question is a going concern
c. The judgment that a company is a going concern, and should therefore use historical cost
accounting, will turn out to be wrong if the company fails
d. All of the above statements are correct.

50. Which of the following statements about external auditing are correct?
i. Professional ethics prohibit the external auditor from having a direct financial interest in
the companies being audited'
ii. Auditors should be an unbiased, professionally sceptical reviewer of the financial
statements
iii. Auditors guarantee the accuracy of financial statements
iv. Auditors are responsible to render a competent opinion on the fairness of the financial
statements
v. When financial statements are not presented fairly in accordance with GAAP, auditors will
issue a disclaimer

Select one:
a. i, ii, iii, iv and v
b. i, ii, iv and v
c. ii, iii and iv
d. i, ii and iv