Chapter1—Introductiontofinancialaccounting

MULTIPLECHOICE

1.Afinancialstatement:

A. / summarisesthemeasurementsoffinancialperformanceandfinancialposition
B. / summarisesthecashpositionofabusinessentity
C. / analysesthefinancialperformanceofabusinessentity
D. / analysesthebusiness’sabilitytomeetitsfinancialobligations.

ANS:APTS:1DIF:EasyTOP:Financialaccounting

2.Financialstatementsprovideusefulinformationforshareholdersto:

A. / understandday-to-dayactivities
B. / decidewhethertobuy,sellorholdsharesofcompanies
C. / decidewhethertolendmoneytothebusinessentity
D. / createbusinessplanningstrategies.

ANS:BPTS:1DIF:ModerateTOP:Whousesfinancialaccountinginformation?

3.Whichofthefollowingorganisationsmaynotfindthefinancialstatementsuseful?

A. / AustralianTaxationOffice
B. / achurchcongregation
C. / auniversity
D. / alloftheabove.

ANS:DPTS:1DIF:ModerateTOP:Whousesfinancialaccountinginformation?

4.Financialperformancemeans:

A. / providinginformationaboutthecashpositionofanentity
B. / settingouttheenterprise’ssetoffinancialresourcesandobligationsatapointintime
C. / identifying,measuringandcommunicatingeconomicinformationtoallowinformeddecisions
D. / generatingnewresourcesforday-to-dayoperationsoveraperiodoftime.

ANS:DPTS:1DIF:ModerateTOP:Financialaccounting

5.WhichofthefollowingstatementsisNOTtrue?

A. / Judgementsneedtobemadeindeterminingprofit.
B. / Attemptsaremadetomeasureincompletetransactions.
C. / Theimpactoftransactionsisrecognisedwhencashisreceivedorpaid.
D. / Estimatesaremadeofcertainbalancesheetitems.

ANS:CPTS:1DIF:DifficultTOP:Accrualaccounting

6.WhichofthefollowingstatementsaboutfinancialaccountingisNOTtrue?

A. / Amarketingmanagerdoesnotneedtobeconcernedwithfinancialaccounting.
B. / Thefinancialaccountantfacesachallengeinfiguringoutwhichnumberstouse.
C. / Addingandsubtractingisoftentheeasypartoffinancialaccounting.
D. / Significantjudgementisrequiredinaccounting.

ANS:APTS:1DIF:ModerateTOP:Thepeopleinvolvedinfinancialaccounting

7.WhichofthefollowingstatementsaboutfinancialaccountingisNOTtrue?

A. / Financialaccountinghelpsbanksdecidewhetherornottolend.
B. / Financialaccountinghelpsstockmarketinvestorsdecidewhethertobuycompanyshares.
C. / Financialaccountingreportsontheperformanceofmanagersasdecision-makers.
D. / Employeesassesswhetherthecompanycanrepaylong-termdebt.

ANS:DPTS:1DIF:EasyTOP:Thepeopleinvolvedinfinancialaccounting

8.Auser’smaindemandisforcredibleperiodicreportingofanenterprise’sfinancialpositionandperformance.Crediblemeans:

A. / 100%accurate
B. / easilyunderstandablebyusersoffinancialstatements
C. / sufficientlytrustworthyandcompetentlypreparedforittobeusedtomakedecisions
D. / relevanttotheneedsofdecision-makers.

ANS:CPTS:1DIF:EasyThepeopleinvolvedinfinancialaccounting

9.Whichtypeofinformationwouldbeofmostinteresttotradecreditors?

A. / dividendsdeclared
B. / abilitytopaydebts
C. / pollutionofwaterwaysadjacenttothefirm’sfactory
D. / continuityofordersforthefirm’sproducts.

ANS:BPTS:1DIF:ModerateTOP:Thepeopleinvolvedinfinancialaccounting

10.Whichtypeofinformationwouldbeofmostinteresttoshareholders?

A. / profitability
B. / long-termfinancialstability
C. / pollutionofwaterwaysadjacenttothefirm’sfactory
D. / continuityofordersforthefirm’sproducts.

ANS:APTS:1DIF:ModerateTOP:Thepeopleinvolvedinfinancialaccounting

11.Whichtypeofinformationwouldbeofleastinteresttoemployees?

A. / proposedexpansionofthebusiness
B. / long-termfinancialstability
C. / dividendsdeclared
D. / profitability.

ANS:DPTS:1DIF:ModerateTOP:Thepeopleinvolvedinfinancialaccounting

12.Theholdersofbondsmaturingin15years’timewouldbemostinterestedinwhichtypeofinformation?

A. / proposedexpansionofthebusiness
B. / long-termfinancialstability
C. / liquidity
D. / profitability.

ANS:BPTS:1DIF:DifficultTOP:Thepeopleinvolvedinfinancialaccounting

13.WhichofthefollowingstatementsaboutexternalcompanyauditorsisNOTtrue?

A. / Externalcompanyauditorsprovideassurancethatthefinancialstatementsauditedbythemcontainnomistakes.
B. / Externalcompanyauditorscannotcrediblyauditstatementstheyhaveprepared.
C. / Externalcompanyauditorsmustbeindependent.
D. / Alloftheabovestatementsaretrue.

ANS:APTS:1DIF:ModerateTOP:Thepeopleinvolvedinfinancialaccounting

14.WhichofthefollowingstatementsaboutauditingisNOTtrue?

A. / Auditingarosebecauseusersdemandedsomeassurancethatmanagers’reportsontheirperformancewerereliable.
B. / Auditorsverifythattheaccountshavebeenpreparedaccurately.
C. / Theauditingfunctionisusuallyrestrictedtomembersofrecognisedprofessionalaccountingbodies.
D. / Whenprofessionalaccountantspreparefinancialstatements,theyareactingasauditors.

ANS:DPTS:1DIF:ModerateTOP:Thepeopleinvolvedinfinancialaccounting

15.WhichofthefollowingstatementsaboutaccrualaccountingisNOTtrue?

A. / Theimpactoftransactionsonthefinancialstatementsisrecognisedwhenthecashisreceivedorpaid.
B. / Thefinancialstatementsincludeestimates.
C. / Judgementsmadebyaccountantsaffectprofit.
D. / Transactionsarerecognisedatthetimewhenrevenueandexpensesoccur.

ANS:APTS:1DIF:ModerateTOP:Accrualaccounting

16.Doesmeasuringeconomicperformanceinvolve:(i)estimates;(ii)adjustments;and/or(iii)judgements?

A. / (i)and(ii)only
B. / (i)and(iii)only
C. / (ii)and(iii)only
D. / (i),(ii)and(iii).

ANS:DPTS:1DIF:DifficultTOP:Accrualaccounting

Usetheinformationgivenbelowtoanswerthefollowing2questions.

During2012,acompanymakescreditsalesof$600000,ofwhich$350000iscollectedatyear-end.Itpays$220000inexpensesandowes$20000forelectricityusedduring2012.

17.Profitaccordingtoaccrualaccountingis:

A. / $130000
B. / $380000
C. / $360000
D. / $710000.

ANS:CPTS:1DIF:ModerateTOP:Accrualaccounting

18.Whatwouldtheprofitbeifcashaccountingratherthanaccrualaccountingwereused?

A. / $130000
B. / $110000
C. / $380000
D. / $730000.

ANS:APTS:1DIF:ModerateTOP:Accrualaccounting

Usetheinformationgivenbelowtoanswerthefollowing2questions.

$
Cashsales / 20000
Creditsales / 60000
Cashreceivedfromaccountsreceivable / 42000
Wagespaid / 10000
Wagesowingatyear-end / 8000

19.Whatisthenetprofitfor2012?

A. / $70000
B. / $62000
C. / $104000
D. / $112000.

.

ANS:BPTS:1DIF:ModerateTOP:Thekeyfinancialstatements

20.Whatisthecashflowfromoperationsfor2012?

A. / $52000
B. / $62000
C. / $70000
D. / $104000.

ANS:APTS:1DIF:ModerateTOP:Thekeyfinancialstatements

21.Usetheinformationgivenbelowtoanswerthefollowing3questions.

LPRisacompanythatcommencedbusinesson1January2012.Belowarethebalancesinthe30June2012financialstatements.

$
Cash / 2000
Sharecapital / 12000
Accountsreceivable / 6000
Accountspayable / 4000
Loanpayable / 14 000
Land / 20000
Inventory / 4000
Costofgoodssold / 3000
Wagesexpense / 5000
Sales / 10000

Whatisthebalanceofassets?

A. / $44000
B. / $28000
C. / $34000
D. / $32000.

ANS:DPTS:1DIF:ModerateTOP:Thekeyfinancialstatements

22.Whatisthebalanceofliabilities?

A. / $18000
B. / $30000
C. / $20000
D. / $21000.

ANS:APTS:1DIF:ModerateTOP:Thekeyfinancialstatements

23.Whatisthenetprofitfortheperiodending30June2012?

A. / $7000
B. / $2000
C. / $4000
D. / $2000.

ANS:APTS:1DIF:ModerateTOP:Thekeyfinancialstatements

24. Which of the following is NOT shown in the heading of the balance sheet?

A. / the name of the enterprise
B. / the title of the report
C. / the period covered by the report
D. / all of the above are shown in the heading.

ANS:CPTS:1DIF:ModerateTOP:The key financial statements

25.WhichofthefollowingisNOTamainelementinthebalancesheet?

A. / assets
B. / profit
C. / shareholders’equity
D. / liabilities.

ANS:BPTS:1DIF:EasyTOP:Thekeyfinancialstatements

26.WhichofthefollowingisNOTanasset?

A. / marketablesecurities
B. / accountsreceivable
C. / provisionsforemployeeentitlements
D. / inventory.

ANS:CPTS:1DIF:EasyTOP:Thekeyfinancialstatements

27.Whichofthefollowingmaybeanassetofabusinessenterprise?

A. / retainedprofits
B. / inventory
C. / provisionforwarrantyrepairs
D. / shareholders’equity.

ANS:BPTS:1DIF:ModerateTOP:Thekeyfinancialstatements

28.WhichofthefollowingisNOTanexampleofaliability?

A. / provisionsforlongserviceleave
B. / sharecapital
C. / accountspayable
D. / loanpayable.

ANS:BPTS:1DIF:ModerateTOP:Thekeyfinancialstatements

29.Whichofthefollowingmaybealiabilityofabusinessenterprise?

A. / sharecapital
B. / wagespayable
C. / retainedprofits
D. / marketablesecurity.

ANS:BPTS:1DIF:ModerateTOP:Thekeyfinancialstatements

30.Whichofthefollowingstatementsaboutshareholders’equityisNOTtrue?

A. / Shareholders’equityistheexcessofassetsoverliabilities.
B. / Shareholders’equityconsistsoftwomainelements:sharecapitalandretainedprofits.
C. / Shareholders’equityisaresidualclaimoftheshareholdersontheassetsoftheorganisation.
D. / Shareholders’equityistheamountshareholderswillreceiveindividendsinthefuture.

ANS:DPTS:1DIF:DifficultTOP:Thekeyfinancialstatements

31.Whichofthefollowingstatementsaboutanincomestatementistrue?

A. / Anincomestatementprovidesinformationonanorganisation’sprofitabilityatacertainpointintime.
B. / Anincomestatementmatchesrevenuesearnedduringaperiod,againstexpensesincurredinearningtherevenues.
C. / Theexpensesmayincludedepreciation.
D. / Forrevenuetobeincluded,itisnotnecessaryforcashtohavebeenreceived.

ANS:APTS:1DIF:DifficultTOP:Thekeyfinancialstatements

32.WhichstatementaboutthefinancialstatementassumptionsisNOTtrue?

A. / Assetsareoriginallyrecordedatcost.
B. / Revenueisrecordedwhenreceivedandexpensesarerecordedwhentheyareincurred.
C. / Goingconcernmeansthatfinancialstatementsarepreparedonthebasisthatthebusinessentitywillcontinueoperationintheforeseeablefuture.
D. / Thelifeofabusinessisdividedintoequalperiods.

ANS:BPTS:1DIF:ModerateTOP:Financialstatementassumptions

33.Assetsareinitiallyrecordedatcost.Whatassumption/conceptunderliesthisprocedure?

A. / accountingentity
B. / monetary
C. / historicalcost
D. / goingconcern.

ANS:CPTS:1DIF:EasyTOP:Financialstatementassumptions

34.Acompany’sassetsaredifferentiatedfromtheseniormanager’s.Whatassumption/conceptunderliesthisprocedure?

A. / accountingentity
B. / monetary
C. / historicalcost
D. / goingconcern.

ANS:APTS:1DIF:ModerateTOP:Financialstatementassumptions

35.Financialstatementsarepreparedonthepremisethattheorganisationwillcontinueoperationsintheforeseeablefuture.Towhichfinancialstatementassumptiondoesthisrelate?

A. / accountingentity
B. / monetary
C. / historicalcost
D. / goingconcern.

ANS:DPTS:1DIF:ModerateTOP:Financialstatementassumptions

36.UsingtheAustraliandollartomeasureaccountingtransactionsallowscomparisonsacrossperiods.Towhichfinancialstatementassumptiondoesthisrelate?

A. / accountingentity
B. / monetary
C. / historicalcost
D. / goingconcern.

ANS:BPTS:1DIF:EasyTOP:Financialstatementassumptions

37.Thelifeofabusinessisdividedintoequalperiodstodetermineprofitorlossforthatperiod.Whatassumption/conceptunderliesthisprocedure?

A. / materiality
B. / monetary
C. / accountingperiod
D. / accountingentity.

ANS:CPTS:1DIF:EasyTOP:Financialstatementassumptions

38.Astaplingmachine,costing$25withausefullifeof5years,istreatedasastationeryexpenseratherthanasanasset.Towhatfinancialstatementassumptiondoesthisrelate?

A. / materiality
B. / monetary
C. / accountingperiod
D. / accountingentity.

ANS:APTS:1DIF:DifficultTOP:Financialstatementassumptions.

39.Theownerwithdrawsinventoryforhisownusefromthebusiness.Towhichfinancialstatementassumptiondoesthisrelate?

A. / materiality
B. / monetary
C. / accountingperiod
D. / accountingentity.

ANS:DPTS:1DIF:DifficultTOP:Financialstatementassumptions

40.Whichfinancialstatementassumptionrelatestotheprocedurewherea$200papershredderwitha5-yearusefullifeistreatedasanexpense?

A. / monetary
B. / accountingperiod
C. / materiality
D. / historicalcost.

ANS:CPTS:1DIF:DifficultTOP:Financialstatementassumption

41.Theownerofacornerstorekeepsseparateprivateandbusinesstransactions.Towhichfinancialstatementassumptiondoesthisrelate?

A. / materiality
B. / accountingentity
C. / accountingperiod
D. / goingconcern.

ANS:BPTS:1DIF:ModerateTOP:Financialstatementassumptions