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Section A Multiple Choice Questions 25 Marks (Answer in Multiple Choice Answer Sheet Provided) (Suggested Time: 36 Minutes)
Section A Multiple Choice Questions 25 Marks (Answer in Multiple Choice Answer Sheet Provided) (Suggested Time: 36 Minutes)
Section A Multiple Choice Questions 25 Marks (Answer in Multiple Choice Answer Sheet Provided) (Suggested Time: 36 Minutes)
a. verifying
b. interpreting
c. *measuring
d. processing
2. Financial reports prepared for a variety of external users who are unable to obtain the
accounting information for their own specific needs are known as:
3. Oakey & Associates had the following assets and liabilities. The total for equity equals:
$
Cash at bank 5 000
Mortgage 25 000
Creditors 9 000
Inventory 3 800
Debtors 12 200
Office equipment 8 600
Loan from Dalby Ltd 7 000
Motor vehicles 19 000
*a. $ 7 600.
b. $ 1 200.
c. $39 600.
d. $25 600.
4. Jacob’s opening capital at 1 July 2017 was $75 000, his profit for the year was
$22 000 and his drawings were $8 000. What is the final balance of his capital at the end
of the year?
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5. Which assumption requires transactions to be recognised in the accounting reports when
they occur and not when the cash is received or paid?
a. faithful representation.
b. accounting period.
*c. accrual basis.
d. accounting entity.
6. As identified by the IASB’s Conceptual Framework, which of the following groups are
the prime users of financial reports?
8. Changing from straight line to reducing balance depreciation in one year, then back to
straight line in the next, and then back again to reducing balance, is a violation of which
qualitative characteristic?
*a. comparability.
b. relevance.
c. reliability.
d. timeliness.
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10. A sole proprietor who owns a newsagency takes home stationery and exercise books for
his children to use at school. This would be considered to be:
c. an increase in equity and a decrease in assets because the sole proprietor purchased
the inventory.
d. an increase in assets and an increase in equity.
11. The payroll officer recorded wages for the month as a debit to the Sales account rather
than as a debit to wages expense. This error will result in:
12. On 1 October 2018 Tanya’s Pools paid $2400 for a 12 month insurance premium. The
$2400 was initially recorded in the insurance expense account. The adjusting entry required
to accurately represent the expired insurance at 31 December 2018, the close of the annual
accounting period, is:
13. If an adjustment for accrued rent is omitted from the financial reports the effect is:
14. On 1 May 2019, Dress in Style received a $2000 advance payment from a customer for the
design and making of a formal gown. The gown is expected to be completed by the end of
August 2019. The correct accounting entry to initially record the $2000 is:
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15. On 1 May 2019, Dress in Style received a $2000 advance payment from a customer for the
design and making of a formal gown. The gown is expected to be completed by the end of
August 2019. By 30 June 2019, approximately half of the dress is complete. The correct
adjusting entry to be recorded at 30 June 2019 is:
16. What is the correct order for the steps in the closing process?
I Close the drawings account to the owner’s capital account
II Balance the owner’s capital account
III Transfer the profit or loss to the owner’s capital account
IV Close the income and expense accounts to the profit or loss summary account
a. DR Salaries payable $2600; DR Salaries expense $30 500; CR Cash $33 100
b. DR Salaries expense $35 700; CR Salaries payable $2600; CR Cash $33 100
c. DR Salaries payable $2600; DR Salaries expense $33 100; CR Cash $35 700
*d. DR Salaries expense $33 100; CR Cash $33 100
18. When preparing the bank reconciliation James found that the bank had incorrectly debited
the business’ bank account with $200. The proper procedure is to:
a. deduct $200 from the bank balance in the general ledger and notify the bank.
b. do nothing as the bank will adjust the error when they balance.
c. deduct $200 from the bank balance in the general ledger.
*d. add $200 to the bank statement balance in the bank reconciliation and notify the
bank.
19. The petty cash fund should be reimbursed at the time the financial statements are prepared
so that:
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20. Darling Inc makes all of its purchases on credit; 50% are paid in the month of purchase,
30% during the month following the purchase and 20% in the second month following the
purchase.
April May June
Purchases $16 000 $20 000 $15 000
21. Sugar Industries makes all sales on credit with 60% of the payment received in the month of
sale, 20% in the month following the sale, 15% in the 2nd month following sale, and the
remaining 5% remains uncollected.
Budgeted sales are:
July $100 000
August $140 000
September $120 000
October $150 000
a. $120 000
b. $135 000
*c. $115 000
d. $100 000
($100 000 × 15%) + ($140 000 × 20%) + ($120 000 × 60%).
22. Which of the following is the correct closing entry for a profit of $78 400?
a. DR Owner’s capital account $78 400; CR Profit or loss summary account $78 400
b. DR Owner’s capital account $78 400; CR Bank $78 400
c. DR Profit or loss summary account $78 400; CR Owner’s capital account $78 400
d. No closing entry is required
a. working capital.
b. estimated financial position.
c. expected profitability.
*d. estimated future cash position.
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24. Just Cookware makes 75% of its sales on credit. Of those credit sales, 60% of the payment
is received in the month of sale, 30% in the month following sale and the remaining 10% in
the subsequent month. Budgeted sales are:
a. $10 500
*b. $46 500
c. $36 000
d. $37 500
25. ________________refers to the ability of a firm to pay its debts as they fall due.
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SECTION B SHORT ANSWERS 10 MARKS
“At the date of this declaration, in the opinion of the directors, there are
reasonable grounds to believe that the holding company and the group will be
able to pay its debts as and when they become due and payable.” (ATH Annual
Report 2018, page 33).
26. What ‘word’ best describes the aspect of the business 1 mark
highlighted in the extract above? Solvency
27. Identify 2 groups of users who would benefit most from 2 marks
the disclosure of this information.
Creditors/Lenders and Shareholders
28. Explain how it would affect the decision-making of each 2 marks
group.
Creditors – assess the ability of entity to pay its debts as
they fall due and also determine whether to increase the
interest rates according to the le vel of risk.
Investors – whether to sell or buy shares in the entity and
the ability of the entity to provide returns to its
shareholders in the form of dvidends.
29. Which accounting concept/assumption does the article best 1 mark
illustrate?
Going Concern concept
30. Explain how the concept above (Question 29) affects the 4 marks
valuation of Assets in Financial Statements.
Under the Going Concern Assumption the measurement of
assets is recorded at its historical cost or fair values and not
liquidation values which will only be taken if the entity is
liquidating in the near future and will not be operating
anymore.
[Suggested Time: 17 minutes]
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SECTION C PROBLEM SOLVING QUESTIONS 35 MARKS
Required:
Refer to the Bank Reconciliation Statements above and answer the following questions below:
a) According to the February Bank Statement, does Cairns Traders have a favourable bank
balance or an overdraft with the Bank? Give a reason for your answer.
(2 marks)
Dr Balance as per Bank Statement means that the entity owes money to the Bank, hence the
balance is Unfavorable.
b) Calculate the missing Cash at Bank balance in the General Ledger of Cairns Traders on 28th
February. State whether this is a favorable or unfavorable balance.
(3 marks)
Bank Reconciliation Statement of Cairns Traders
as at 28h February, 2019
$
Debit Balance as per Bank Statement 22 250
Outstanding Cheques:
No. 123 (dated 25th November 2018) + 125
No. 335 (dated 28th January 2019) + 249
th
No. 438 (dated 15 February 2019) +605
th
No. 447 (dated 28 February 2019) + 3 245
No. 448 (dated 25th May 2019) + 2 384
Outstanding Deposits -26 789
Credit Error on Bank Statements - 450
Balance as per Bank Account in the General Ledger 1619 Cr
c) Calculate the missing Cash at Bank balance in the General Ledger of Cairns Traders on 30th
March. State whether this is a favorable or unfavorable balance.
(3 marks)
Bank Reconciliation Statement of Cairns Traders
as at 30th March, 2019
$
Debit Balance as per Bank Statement 18 756
Outstanding Cheques:
No. 335 (dated 28th January 2019) + 249
th
No. 448 (dated 25 May 2019) + 2 384
No. 473 (dated 22nd March 2019) + 2 500
Outstanding Deposits - 25 750
Balance as per Bank Account in the General Ledger 1861 Dr
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d) Identify which cheques appear on both the February and March Bank Reconciliation
Statements and explain the possible reasons for this.
(2 marks)
th
No. 335 (dated 28 January 2019)
No. 448 (dated 25th May 2019)
As at March,Cheque #335 has not been presented for payment to the Bank and #448 is a
postdated cheque that will be paid on 25th May.
e) As internal auditor of Cairns Traders, you have noticed that both the February and March
2019 Bank Reconciliations reflect very large outstanding deposits. Your investigation into
this matter shows that most of these amounts were in fact received by the cashier before the
date on the Bank Statement.
i. Briefly explain which internal control principles are violated.
(2 marks)
Banking Cash intact daily
Separation of duties
ii. Identify and briefly discuss two (2) internal control measures that could be
implemented within the accounting department to avoid any further such problems
reoccurring.
(3 marks)
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QUESTION 24 COMPLETE ACCOUNTING CYCLE 20 MARKS
Required:
a) Prepare the journal entries to record all the necessary balance day adjustments.
(Provide workings. Narrations are not required)
(15 marks)
Dr Prepaid Rent ½ mark 2200 ½ mark
Cr Rent Expense ½ mark 2200
(1110 X 2 months) ½ mark 2 marks
Due & Subcriptions Expense ½ 710 ½
Dr mark mark
Prepaid Due & Subscriptions
Cr ½ mark 710 ½ mark
2 marks
1150 ½
Dr Supplies Expense ½ mark mark
Cr Supplies ½ mark 1150
(1600 – 450) ½ mark 2 marks
Dr Interest Expense 600
Cr Interest Payable 600
1.5 marks
Dr Prepaid Insurance 750
Cr Insurance Expense 750
(1800 X 5/12) 2 marks
Dr Unearned Consulting Fees 32550
Cr Consulting Fees Revenue 32550
1.5 marks
Dr Consulting Fees Receivable 3000
Cr Consulting Fees Revenue 3000
2 marks
Dr Salaries Expense 8400
Cr Salaries Payable 8400
(16800 / 2) 2 marks
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Dr Salaries Payable 8400
Cr Salaries Expense 8400
1 mark each for each correct reversing entry
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