Accounting midterm mock

The claim 'not to estimate profits but to estimate all losses' is based on which accounting concept or principle?

a.Accounting conservatism

b.Entity concept

c.Matching principle

d.Profit recognition principle

e.None of the above

a

he structure of the Balance Sheet follows a partition approach (i.e. the Matryoshka approach). When one partitions the Owners' Equity T-account (i.e. open up this account), the following T-account is a valid subaccount.

a. Dividends Payable

b.Equipment that belongs to the owners

c.Drawings

d.All of the above.

e.None of the above.

c.

Accountants depreciate non-current assets (e.g. equipment) because ... Pick the best option

a.Equipment typically looses value by wear and tear.

b.The resale value of equipment tends to go down over time.

c.This is required by the Fair Value approach to assigning costs to PP&E.

d.They are complying with the matching principle.

e.They aim to reduce profits by artificially increasing expenses.

d

This question requires understanding the difference between capital versus income (or revenue) expenditures. Pick the correct option.

a.Capital expenditure occurs when the owner (or shareholders) must increase the capital of the firm, say when the firm had losses and needs more capital.

b.One example of income expenditure is production labour hours.

c.One example of capital expenditure is inventory costs.

d.Income expenditures are just one portion of capital expenditures - just as income is a sub-account of the capital account (i.e., owners' equity).

e.None of the above - there is no difference.

c

According to NZ IAS 2, which method cannot be chosen to assign costs to inventories?

a.Combinations of FIFO, specific identification, and weighted average.

b.Specific identification.

c.Weighted average cost.

d.FIFO

e.LIFO

e

All of the following items add up to inventory costs, except ...

a.Maritime freight when purchasing goods from overseas

b.Airline freight when shipping goods overseas

c.Salaries of quality assurance technicians working in the factory

d.Labour hours required to inspect goods on receiving them

e.No exceptions, all of the above add up to inventory

b

Who, among the following categories, ultimately bears the cost of GST?

a.The Inland Revenue Department

b.The suppliers of goods

c.The manufacturers of goods

d.The sellers of goods

e.The consumers of goods

e

Indicate which of all the following accounts normally have DR balances.

a.Assets, owner's equity and sales.

b.Expenses, liabilities and assets.

c.Assets and expenses.

d.Liabilities and expenses.

e.None of the above.

c

Given $5,000 net loss, what is the journal entry that closes the Net Income account?

a.DR Net Income $5,000, CR Retained Earnings $5,000

b.DR Retained Earnings $5,000, CR Net Income $5,000

c.DR Retained Earnings $5,000, CR Revenue $5,000

d.DR Net Income $5,000, CR Revenue $5,000

e.None of the above

b

What is the counter entry when recording Bad Debt?

a.Doubtful Debt

b.Allowance for Doubtful Debt

c.Debtors

d.Creditors

e.None of the above

c

The following information was extracted from a company's statement. A clerical error caused some figure to become unavailable, as indicated by the question mark.

Sales (all credit) $ ?

COGS $ ?

Gross Profit $ 137,611

Average Inventory over the year $ 11,310

Average Trade Receivables $ 47,641

Inventory turnover (# of times per year) 17.4 times

Average days for debtors 52 days

What is the COGS amount?

a.Impossible to tell, because one cannot find COGS when given the Gross Profit; one needs the Sales figure as well.

b.$ 196,794

c.$334,405

d.$196,562

e.14.25% of the sales figure.

b

A student sells batteries for mobile phones for $20 each while purchasing them for $10 each. She starts her business with $100 in cash and no inventory. On her first day of activity, she buys 7 batteries in the morning. At noon, she eats a sandwich for $15 (note1: consider this as an operational expense; note 2: disregard GST since this is a small business). She ends the day with a profit of $25. What was her cash balance at the end of that day?

a.$15

b.$40

c.$75

d.$95

e.Not possible to answer with information provided

d

An owner's equity was $100,000 when the year started. During the year, the owner withdrew $15,000 in cash. The ending equity is $185,000. Assuming the owner did not invest any additional capital, what was the profit for that year?

a.$200,000

b.$185,000

c.$100,000

d.$85,000

e.$70,000

c

The summary cost information for widgets for the year ended 30 June 2012 is:

Item of expenditure

$000

Advertising

500

Depreciation—factory equipment

100

Depreciation—administrative building

21

Interest expense

16

Salaries—factory personnel

120

Salaries—administration and marketing

80

Rent—factory

110

Rent—offices

58

Raw materials

250

Bad Debt

12

Sales commissions

8

Rates for Headquarters' offices

5

Repairs & maintenance—administration

10

Repairs and maintenance—factory

30

Raw materials losses due to accident

30

The level of output for the period was the normal level of production of 286,000 units. What is the cost per widget (rounded to the nearest cent) in accordance with NZ IAS 2 requirements?

a.$4.50

b.$2.23

c.$2.13

d.$2.03

e.$0.93

c

Only one of the following statements correctly describes the effect of the given transaction on the financial statements of a New Zealand firm. Which one?

a.When trade payables for $500 are settled, this results in an inventory increase by $500 and a cash decrease by $500.

b.Selling equipment decrease assets by the value of the equipment and increase the owners' equity on the firm by that same value.

c.Goods sold for profit on a credit basis and for $2,300 will decrease inventory by $2,000, increase GST-collected by $300, and trade receivables by $2,300.

d.The payment of a $3,000 debt decreases liabilities by $3,000 but also decreases the owners' equity by that same amount.

e.Goods purchased for cash $1,150 increase inventory by $1,000, decrease the bank account by $1,150, and create another asset for $150.

e

In a certain country, the GST tax rate is 20%. By what factor has one to multiply the price of goods to find their GST content?

a.Price × 5/6

b.Price × 1/5

c.Price × 1/6

d.Price × 1/9

e.Price × 1/12

c

In New Zealand, $2,300 worth of goods were sold on credit on 2 August 20xx. To record this transaction the accountant must complete two steps: record revenues and costs. Concerning specifically the first step, the accountant ...

a.CR sales $2,300, DR GST-clearing $300, DR debtors for $2,000

b.DR sales $2,300, CR GST-clearing $300, CR debtors for $2,000

c.CR sales $2,000, CR GST-clearing $300, and DR debtors for $2,300

d.CR sales $2,000 and DR debtors $2,000 - the GST related entry will take place when COGS are calculated and the GST-clearing amount can be determined

e.CR sales $2,300 and DR debtors $2,300 - the GST related entry will take place when COGS are calculated and the GST-clearing amount can be determined

c

On 4 August 20xx, some of the above goods sold for $115 were faulty beyond repair and returned. To record this later transaction the accountant must ...

a.DR sales return $100, DR GST-clearing $15, CR debtors $115

b.CR sales return $100, CR GST-clearing $15, DR debtors $115

c.DR sales return $115, CR GST-clearing $15, CR debtors $100

d.DR sales return $100 and CR debtors for $100 - no GST related entry

e.DR sales return $115 and CR debtors for $115 - no GST related entry

a

On 20 September 20xx, the goods sold in question 17 were paid by the client. Given that goods worth $115 had been returned, the total amount paid was $2,185. To record this last transaction the accountant must ...

a.DR Bank $2,185, CR GST-clearing $285, and CR debtors for $1,900

b.DR Bank for $1,900, DR GST-clearing for $285, and CR debtors for $2,185

c.DR Bank for $2,185, DR GST-clearing for $285, and CR debtors for $2,470

d.DR Bank for $2,185, CR debtors $2,185 - no GST related entry required

e.DR Bank for $1,900, CR debtors $1,900 - no GST related entry required

d