Question 1

If an adjustment for accrued rent is omitted from the financial reports the effect is:

Accepted Answer

A)   liabilities are understated; profit is overstated.
B)   liabilities are overstated; profit is understated.
C)   assets are understated; profit is overstated.
D)   assets are overstated; profit is understated.

Question 2

Indicate the order that the following current assets should be listed in the balance sheet.
I Accounts receivable
II Cash at Bank
III Prepaid expenses
IV Inventory

Accepted Answer

A)   I, II, III, IV
B)   II, III, I, IV
C)   II, I, IV, III
D)   III, II, I, IV

Question 3

Newsome Company purchased equipment for $105 000 on 1 January 2018 with an estimated life of 8 years and a residual value of $5 000. The straight-line method of depreciation is used. What is the carrying amount of the equipment in the balance sheet of Newsome Company at 30 June 2019?

Accepted Answer

A)   $100 000
B)   $105 000
C)   $81 250
D)   $87 500

Question 4

Adjustments where income is earned or expenses incurred before the cash is received or paid are called:

Accepted Answer

A)   deferrals.
B)   prepayments.
C)   unrecorded adjustments.
D)   accruals.

Question 5

When preparing the financial statements using a manual accounting system, the worksheet will show profit:

Accepted Answer

A)   in the DR column of the income statement and in the CR column of the balance sheet.
B)   as zero.
C)   as a CR to the capital account and a DR to the bank account.
D)   in the DR column of the adjustments and in the CR column of the balance sheet.

Question 6

What type of account is Prepaid Rent?

Accepted Answer

A)   Liability
B)   Income
C)   Asset
D)   Expense

Question 7

Which of the following is an intangible asset?

Accepted Answer

A)   Patent
B)   Goodwill
C)   Brand name
D)   All of the options are intangible assets.

Question 8

Which of the following statements relating to balance day adjustments is correct?

Accepted Answer

A)   They affect either the income statement or the balance sheet.
B)   They only affect the income statement.
C)   They always affect the cash/bank account.
D)   They have at least one effect on the income statement and one effect on the balance sheet.

Question 9

Which of the following items is the current liability?

Accepted Answer

A)   long-term borrowings
B)   accounts receivable.
C)   accrued utilities expenses.
D)   rent expense.

Question 10

The balance sheet may list current assets in their order of liquidity. Liquidity refers to:

Accepted Answer

A)   the entity's operating cycle.
B)   how many buyers there are for the asset.
C)   whether the asset is held as security over a liability.
D)   the average length of time it takes to convert an asset into cash.

Question 11

What type of account is Unearned Income?

Accepted Answer

A)   Income
B)   Expense
C)   Liability
D)   Asset

Question 12

The supplies inventory account of Forever Flowers shows a balance of $1800 on 30 June 2018, the end of the financial year. Supplies of $1550 were used during the month of June 2018. Which of the following is correct after recording the adjustment on 30 June 2018?

Accepted Answer

A)   Supplies expense in the income statement is $1550 and Supplies inventory in the balance sheet is $250.
B)   Supplies expense in the income statement is $1800 and Supplies inventory in the balance sheet is $0.
C)   Supplies expense in the income statement is $0 and Supplies inventory in the balance sheet is $1800.
D)   Supplies expense in the income statement is $250 and Supplies inventory in the balance sheet is $1550.

Question 13

The capital account of Benjie Maintenance, a sole trader, was credited with $15 000. Which of the following would not give rise to such a CR?

Accepted Answer

A)   The business earned a profit of $15 000.
B)   The owner purchased a family holiday valued at $15 000 using funds from the business.
C)   The owner introduced $15 000 new capital.
D)   The owner brought in his personal ride-on lawn mower (valued at $15 000)  to be used by the business.

Question 14

Which statement relating to the accumulated depreciation account is correct?

Accepted Answer

A)   It normally has a DR balance.
B)   It provides information on the market value of the asset at a particular date.
C)   It is classified as a liability in the balance sheet.
D)   It reflects the portion of the cost of the asset that has been assigned as an expense since the date of purchase.

Question 15

The correct set of column headings used in a worksheet to assist in the preparation of accounting reports in a manual accounting system are:

Accepted Answer

A)   Opening balances for the period, adjustments and adjusted trial balance.
B)   Adjusted trial balance, income statement and balance sheet.
C)   Unadjusted trial balance, adjustments, income statement, balance sheet and statement of changes in equity.
D)   Unadjusted trial balance, adjustments, adjusted trial balance, income statement, balance sheet.

Question 16

The correct order of steps in the manual recording process is:
I Post transactions to the ledger
Ii Record transactions in the journal
Iii Prepare financial statements
Iv Record adjusting entries

Accepted Answer

A)   i, ii, iii, iv
B)   iv, ii, i, iii
C)   i, iv, iii, ii
D)   ii, i, iv, iii

Question 17

Accountants prefer to calculate profitability using the________ basis rather than the____________ basis:

Accepted Answer

A)   adjusted; unadjusted.
B)   permanent ; temporary.
C)   accrual; cash.
D)   current; non-current.

Question 18

Which of the following is not an advantage of preparing an adjusted trial balance?

Accepted Answer

A)   It verifies that the total DRs equal the total CRs in the ledger after the preparation of the adjusting entries.
B)   It is a shortcut which means that the adjusting entries do not have to be entered into the ledger.
C)   It assists in the preparation of the financial statements.
D)   It reduces the possibility of errors being carried forward from the ledger into the financial reports.

Question 19

To assist in evaluating an entity's liquidity, assets and liabilities are classified as:

Accepted Answer

A)   temporary and permanent.
B)   tangible and intangible.
C)   operating and non-operating.
D)   current and non-current.

Question 20

Which of the following statements relating to the cash basis of accounting is incorrect?

Accepted Answer

A)   Income is recorded in the period in which the cash is received.
B)   It is used by small business entities and professionals who conduct most of their business activities in cash.
C)   It is considered to be a suitable method of accounting for governments.
D)   The cost of goods and services consumed in the current period, but not paid for, are recognised as expenses in a later period when cash is paid.

Exam 4: Adjusting the Accounts and Preparing Financial Statements

Adjustments where income is earned or expenses incurred before the cash is received or paid are called:

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Which of the following statements relating to balance day adjustments is correct?

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To assist in evaluating an entity's liquidity, assets and liabilities are classified as:

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What type of account is Prepaid Rent?

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Which of the following is not an advantage of preparing an adjusted trial balance?

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What type of account is Unearned Income?

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The supplies inventory account of Forever Flowers shows a balance of $1800 on 30 June 2018, the end of the financial year. Supplies of $1550 were used during the month of June 2018. Which of the following is correct after recording the adjustment on 30 June 2018?

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The balance sheet may list current assets in their order of liquidity. Liquidity refers to:

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The capital account of Benjie Maintenance, a sole trader, was credited with $15 000. Which of the following would not give rise to such a CR?

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Which of the following items is the current liability?

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Indicate the order that the following current assets should be listed in the balance sheet. I Accounts receivable II Cash at Bank III Prepaid expenses IV Inventory

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Newsome Company purchased equipment for $105 000 on 1 January 2018 with an estimated life of 8 years and a residual value of $5 000. The straight-line method of depreciation is used. What is the carrying amount of the equipment in the balance sheet of Newsome Company at 30 June 2019?

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Which of the following is an intangible asset?

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The correct set of column headings used in a worksheet to assist in the preparation of accounting reports in a manual accounting system are:

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Which statement relating to the accumulated depreciation account is correct?

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Which of the following statements relating to the cash basis of accounting is incorrect?

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The correct order of steps in the manual recording process is: I Post transactions to the ledger Ii Record transactions in the journal Iii Prepare financial statements Iv Record adjusting entries

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When preparing the financial statements using a manual accounting system, the worksheet will show profit:

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If an adjustment for accrued rent is omitted from the financial reports the effect is:

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Accountants prefer to calculate profitability using the________ basis rather than the____________ basis:

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Accountants prefer to calculate profitability using the basis rather than the____ basis:

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