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FORMTP2008139 MAY/TLINE2OOS

CARIBBBAN EXAMINATIONS COUNCIL

ADVANCED PROFICIENCY EXAMINATION
ACCOU1YTING

Unit I -Paper0l
90minutes

16 JULY 2008 (p.m.)

READ THE FOLLOWING INSTRUCTIONSCAREFULLY

1. This test consists of 54 items. You will have 90 minutes to answer them.

2. In addition to this test booklet, you should have an answer sheet.

3. Do not be concerned that the answer sheet provides spaces for more answers than there are items in
this test.

Samolelterr

Office equipment is classified in the balance sheet as

SampleAnswer
(A) a current asset
(B)
(C)
properfy, plant and equipment
an intangible asset
@o c@
(D) a long-term investment

The best answerto this item is "propert5r, plantand equipment", so ansrVer space (B) has been shaded.

4. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item you are
about to anslver and decide which choice is best.
5. Onyouranswersheet, findthe numberwhich corresponds toyour item andshadethe spacehavingthe
same letter as the answer you have chosen. Look at the sample item above.

6. Ifyouwant to change your answer, erase it completely before you fill in your new choice-

7. When you are told to begin, turn the page and work as quickly and as carefully as you can. Ifyou cannot
answeranitem, omitit andgoon tothenextone. Yourscorewill be thetotal numberofcorrect answers.

8. You may do anyroughwork inthis booklet.

L You may use silentnon-programmable calculators to answer questions.

DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO.

Copyright O 2008 Caribbean Examinations Council.@
All rights reserved.
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l. To be considered reliable, accounting data 3. The PRIMARY purpose of charging
must depreciation on non-current assets is to

(A) be supported by owner opinions (A) allocate the cost of the assets over
(B) be supported by objective evidence the periods benefiting from their
(C) confirm or correct prior expectations use
(D) becomeavailabletodecisionrnakers (B) set aside funds for repairing the
in a timely manner assets
(C) show the fair value of the assets in
the Balance Sheet
2. Which ofthe followingreserves is available (D) record a decline in the value of the
for distribution as cash dividends? assets

(A) General Reserve

(B) Sh'arePrerniurnAccount 4. ABC Corporation issued 2 000 ordinary
(C) SinkingFund shares of $ l0 par value at $12 per.share. ln
(D) Revaluation Resewe recording the transaction, credits are recorded
'as
(A) ordinary share capital $20 000 and
retained eamings $4 000
(B) ordinary share caPital $24 000
(C) ordinary share capital $20 000 and
profit and loss $4 000
(D) ordinary share capital $20 000 and
share premium $4 000

5. on January 1,2006, Marwick Ltd issued 3 000 six per cent bonds at
$10 par. what entry should Marwick make to record the sale of
bonds?

(A) Cash Dr' $ 30 000

paYable
Bonds Cr. $ 30 000

(B) Bonds paYable Dr. $ 300 000

Cash Cr' $ 300 000

(C) Caslr Dr. $3 000 000

Bonds paYable Cr' $3 000 000

(D) paYable
Bonds Dr' $3 000 000
Cash Cr. $3 000 000

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6. On January l,2OO7, Mary Smith purchased a $24 000 car, making a $4 000 down payment and
borrowing the rest on a 4-year note at 8 per cent. She agrees to make annual payments of $6 038.47
starting January 1, 2008. The joumal entry to record the payment on January l, 2008 is

(A) Note payable Dr. $6 038.07

Cash Cr. $6 038.07

(B) Interest expense Dr. $l 600.00

' Note payable Dr. $4 438.47
' Cash Cr. $6 038.07

(C) Interest expense Dr. $l 920.00

Note payable Dr. $4 118.4"7
Cash Cr. $6 038'07

(D) Interest expense Dr. $483.08

Note payable Dr. $5 555.39
Cash Cr. $6'038.07

7. 'Treasury stock' is the term used to describe 9. Entries in Accounts Receivable Contrt
accounts are posted from
(A) shares re-acquired bY issuing
corporations (A) the salesjoumal onlY
(B) shares sold above Par (B) the cash receiPts journal an
(C) tully paid up shares customer's ledger
(D) shares paid in excess of Par (C) the sales jou'mal and cash receip
joumal
(D) the cash receiPts journal onlY
8. Generally accepted accotutting principles may
be described as
10. John Smi*r carries a debit balance of $50 0(
(A) the guidelines that accountants use for merchandise from E and R Hardwa
to solve ethical dilemrnas Supplies- His debit balance would be foul
(B) truths derived fromthe laws ofnature in
. and statute
(C) policies established by the deparhnent (A) the Accounts Payable sub ledger or
of inland revenue of a countrY (B) the Accounts Receivable sub ledg
(D) a set of rules that are recognized as onlY
a guide for financial rePorting (C) bothAccountsPayableandAccout
Receivable sub ledgers
(D) the sales journal

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ll. A corporation re-acqttired 5 000 of its own shares at $4 per share.
Wlrich of the following would be the journal entry to record this
transaction?

(A) Share capital Dr. $20 000

Cash Cr. $20 000

(B) Treasury stock Dr. $20 000

Cash Cr. $20 000

(c) Cash Dr. $20 000

Treasury cash Cr. $20 000

(D) Treasury stock Dr. S20 000

Share capital Cr. $20 000

12. The MAIN duty ofthe external auditor, from 15. The cost of an asset consumed in the
the point ofview ofthe shareholders, is to generation of revenue is

(A) plan and perform the audit using (A) an expense

statistical techniques @) again
(B) exercise accuracy in conductingthe (C) an allowance
audit of fi nancial statemenB (D) aliability
(C) adheretogenerallyacceptedauditing
standards
(D) express an opinion on the fairness of r6. The historical cost principle states that
the financial statements
(A) assets should be recordedinitially at
cost and then adjusted as market
13. One clerk is responsible for keeping inventory value changes
records and another forreceiving and issuing (B) the private activities ofthe owner of
inventory items. This is an example of a business should not be
incorporated into the activities of
(A) divisionoflabour the business
(B) segregation ofduties
(C) monitoringinventorylevels (C) transactions involving assets are
(D) ' inventory valuation recorded at their acquisition cost

(D) only transactions that are capable of

being exPressed in monetary terms
t4. Which ofthe following would be used only
should be included in the accounting
in a comput erized accounting system?
records
(A) Revenuejoumal
(B) Cashreceiptsjoumal
(C) Electronicinvoiceform
(D) Cash disbursement journal

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17. The principle that underlies an accountant's 20. Donita Manufacnrring Company received net
decision to make a provision for doubtful debts proceeds of $84 000 on the sale of an
is investrnent thatcost $79 000. This transaction
will result in reporting in the income staternent
(A) conservatism 4

(B) revenue recognition

(C) money measurement (A) loss of 55 000 under 'OPerating
(D) matching expenses'
(B) lossof$5000under'Otherexpenses
and losses'
18. 'Two-thirds of an insurance policy has expired. (C) gain of $5 000 under 'OPerating
The policy was acquired at a cost of $5 700. revenues'
The adjusting entry to record the expired (D) gain of $5 000 under 'Other
portion would involve a revenues and gains'

(A) credit of $ I 900 to prepaid insurance

(B) debit of $3 800 to prepaid insurance 21.. Which ofthe following are disadvantages of
(C) debit of $l 900 to insurance expense the corporate form ofbusiness?
(D) debitof$3S00toinsuranceexpense
L Separation of ownershiP and
managernent
Item 19 refers to the following information II. Ease oftransferring ownership
which was extracted from the records of the III. Govemmentandindustryregulations
Belmopan Cricket Club on April 1,2001 . IV. CorPorateta(es

The Club has 75 members who pay an arurual (A) l,II and IItr onlY
subscription of $ 150 each' (B) I, II and IV onlY
(C) I,III andIV onlY
2006 2007 (D) II,III anit IV onlY
Subscriptions I
Subscriptions
paidfor2007 | 15 paid in 2007 70

Profits from $
social event 12 s00

19. What amount of net income from

subscriptions and social events should the
Belmopan Cricket CIub report in 2007 2

(A) $ll 2s0

(B) $23 000
(c) $237sO
(D) $25zso

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Items22 - 23 refer to the fbllowing information. '.'

The December 31. 2007 balance sheet of Phil's Services, a sole trader, was as follows:
q
s
Current assets 240 000 Liabilities 200 000
Equipment 760 000 Phil's capital 800 000
Total I 000000 Total I 000 000

Fairmarket Values at December 31,2007 were as follows:

Current a'ssets s2s0 000

Equipment s850 000
Liabilities $200 000

7) OnJanuary l,2008,Phil'sServiceswasincorporatedwithanissueof80000sharesatSl0parvalue.
The additional paid-in capital (share prernium) account should be credited with

(A)$0
(B) $100 000
(c) s200 000
(D) $800 000

23. Which ofthe followingentrieswouldbemade inthebooks ofPhil's Servicestorecordtheincorporation?

L Dr. CurrentAssets Sl0 000

Cr. Cash Sl0 000
II. Dr. CurrentAssets $10 000
Cr.AdditionalPaid-inCapital $10 000
III. Dr.Cash S90 000
Equipment
Cr. $90 000

IV. Dr.Equipment $90 000

Cr. Paid-in Capital S90 000

(A) .Ionly
(B) I and II only
(C) II and IV only
(D) I,II,III and IV

24. The closing stock valuation of Sims Co Ltd is $80 000. The stock valuation includes damaged goods
1' which cost S I 400. The damaged goods will be repaired at a cost of $ t 20 and sold for $500. What is
the correct valuation of closing stock in the Balance Sheet?

. ' (A) $1208

(B) $78 e80
(c) $79 s00
(D) $80 000

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' Items 22 - 23 refer to the followins information,

The December 3l,2OO7 balance sheet ofPhil's Services, a sole trader, was as follows:

$ $
Current assets 240 000 Liabilities 200 000
Equipmant 760 000 Phil's capital 800 000
Total I 000 000 Total l 000 000

Fair market values at December 3 1- 2007 were as follows:

Current assets $250000

Equipment $8s0000
Liabilities $200 000

7'' On January 1,2008, Phil's Services was incorporated with an issue of 80 000 shares at $10 par value.
The additional paid-in capital (share premium) account should be credited with

(A)$o
(B) $1oo ooo
(c) $200 ooo
(D) $800 ooo

23. Which ofthe following entries would be made in the books ofPhil's Services to record the incorporation?
t"3r.
t. CurrentAssets Sl0 000
Cr. Cash $10 000

II. Dr. CurrentAssets S10 000

Cr.AdditionalPaid-inCapital $10 000

III. Dr. Cash $90 000

Equipment
Cr. $90 000

IV. Dr. Equipment S90 000

Capital
Cr. Paid-in $90 000

(A) Ionly
(B) I andII only
(C) IIandIVonly
(D) I, il, ilI and IV

24. Theclosingstockva1uationofSimsCoLtdis$80000.Thestockvaluationincludesdamagedgoods
which cost $1 400. The damaged goods will be repaired at a cost of $120 and sold for $500. What is i
the correct valuation of closins stock in the Balance Sheet?

(A) $ I 208
(B) $78 e8o
(c) $7e 5oo
(D) $80 ooo

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25. Which of the following is TRUE about the 26. Property, Plant and Equipment are classified
corporate form ofbusiness organisations? in the Balance Sheet as

(A) Corporations are the most prevalent (A) Current assets

forms ofbusiness organisations. (B) Intangible assets
(B) Corporate businesses are usually (C) Owner'sequity
smaller in size than partnerships. (D) Non-Current assets
(C) Raising capital is more difficult for
corporations than for sole traders.
(D) Corporations are recognized as
separate legal entities under
company law.

Items 27 - 28 refer to the following information from the books of Orange Vale Inc for the year ending
June 30,2007.

Receipts from sales $286 120

Payments made to suppliers for goods $103 404
Paymentsmadeforoperatingexpenses $ 23615
expenses
Accrued operating $ 7 218
Depreciationexpense $ 1200

27 . The net income for the year using the accrual 28. The net income for the year using the cash
basis ofaccounting is basis of accounting is

(A) $r 50 683 (A) $150 683

(B) $lsl883 (B) $l5r 883
(c) $lse 10l (c) $lse l0l
(D) $254 087 (D) $2s4 087

29. Which ofthe following items is shown in the 30. Which of the following statements relating to
shareholder's equity section of the balance a co-operative is FALSE?
sheet?
(A) Members can transfer their shares on
I. Paid-upcapital thelocal stockexchange.
il. Non-currentliabilities (B) The surplus can be allocated in the
[[I. Reserves form ofpatronage refund.
IV. Retainedeamings (C) Itis controlledbymemberswhohave
equal voting rights.
(A) I,II and III only (D) It is based on values of self-help,
(B) I, II and IV only equality and equity.
(C) I,III andlVonly
(D) II,III and IV only

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Item 3l refers to the following information which was extracted from

the books of John D. Taylor on December 31,2007 .

Accounts Receivable balance at January 1,2007 $65220

Credit sales for 2007 $50 000

Cash received on accounts receivable during 2007 $44000

Accounts receivables written-off in 2007 $ 750

31 . The amount that should appear in the Balance Sheet for accounts receivable
at December 31. 2007 is

(A) $49220
(B) Sse 470
(c) s'70 470
(D) 57t220

- 33 refer to the following 34.

Items 32 AtthestartofthecurrentyearPersaud,a
information. sole proprietor, was owed $3 000 by
customers. During the current period he
the
Will Smith, a new partner, is admitted to collected $28 000 from customers. At the
Labell and Ross Partnership under the bonus end of the period Persaud was owed $2 600
method. He contributes cash of $20 000 and by two customers. All ofPersaud's sales are
equipment with a market value of $30 000 in on credit. What amount of sales revenue will
exchange for a2}%oownership interest in the be reported in Persaud's income statement
new partnership. The capital ofthe existing for the current period?
partnership is $130 000. Labell and Ross
share profits and losses at a ratio 80:20, (A) $27 4M
respectively. (B) $27600
(c) $28400
32. Whatisthenewpartnershipcapital? (D) S31400

(A) $140 000

(B) Sls0 000
(c) $160 000
(D) $180 000

33. WhatisSmith'scapitalbalance?

(A) S30 000

(B) $3s 000
(c) $36 ooo
(D) S50 000

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35. The following information was available for 38. Dominica Company reported net income 3f
Mayaro Corporation for 200'l : $45 000; net sales of$650 000; and average
assets of $400 000 for 2007. What is
Sales $200000 Dominica Company's percentage return on
Beginning inventory $ 72 000 assets for 2007?
Transportationout $ 18 000
Purchases $ 86 000 (A) 6.92%
Sales commissions $ l0 000 (B) rr.2s %
f
Endinginventory $ 30 000 (c) 6s.s4%
(D) t62.s0%
I What was Mayaro Corporation's cost of
a
goods sold for2007?
39. In accounting for property, plant and
(A) $128 000 equipment, which ofthe following should be
(B) $136 000 disclosed in the notes?
(c) $146 000
(D) $ls6 000 I. The financial effect ofa change in
useful economic life ofthe asset
II. Methods of depreciation used
36. The Rampaul Company estimated at III. The cost ofthe asset at both start
January 1,20O7 ,that its income before taxes and end ofperiod
for the year ended December 3 I , 2007, would IV. The total depreciation charged for the
be $5 500 000. The Rampaul Company's tax period
rate for the year is 42 per cent. The com-
pany made quarterly tax payments on (A) I and III only
April 30, June 30, September 30 and (B) II andlVonly
Decernber I 5. The actual income for the year (C) I,III and IV only
ended December 31,2007, was $5 700 000. (D) II,III and IV only
The amount of income tax payable at
December 3 l, 2007, is
40. Which of the follorving is NOT a duty of a
(A)$o receiver?
(B) $ 84 000
(c) $100 000 (A) Take control ofthe assets
(D) $144 000 (B) Openabankaccount
(C) Dispose ofassets immediately upon
appointnant
37. Regarding issued share capital in financial (D) Assess the claims ofcreditors
statements, a company is required to disclose
the
I

(A) parvalue
(B) names of the shareholders
i (c) market value
(D) numberofshares held by employees

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An accountant discovered that 60 per cent 45. Which of the following is the CORRECT
of the value ofthe firm's non-current (fixed) equation forthe acid-test (quick) ratio?
assets had been omitted from the Balance
Sheet. The discovery was made before the a\
/t1-1, Current assetq:jnysnlely_
accounts were approved by the directors. Total liablities
The accountant should
(B) Current assets - inventory
(A) record this in the notes to the financial Cunent liablities
statements
(B) adjust the net book value offixed (c) Current assets
aSSetS Total liablities
(c) ignore this discovery until the
followingyear (D) Current assets - stock
(D) record this as a liability Longterm liablities

A hurricane destroyed inventory of$20 000 46. A useful measure in evaluating the operating
after the Balance Sheet date, but before the success of a firm for a given period oftime is
financial statements were issued. The the
accountant should treat this as a

(A) post-balance sheet event with

(A) current ratio
adjusting entries
(B) interest cover
(B) post-balance sheet event with non_
(C) quick ratio
adjusting entries
(D) return on assets ratio
(c) contingent loss disclosed by a note
(D) contingent loss put in the financial
statements

43. Financial statements that are expressed,

assuming a stable monetary unit are

(A) curentvalue
(B) fairvalue
(C) historicaldollar
(D) general price level

44. Operating activities include

(A) acquisition of long-term assets

(B) a new issue ofordinary shares
(c) long-term borrowings ofan enterprise
(D) cash receipts from sale ofgoods

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Items 47 - 49 refer to the following information 51. In preparing statement of cash,flows which
a

extracted from the Annual Report of Woods of the following transactions would be
Lrd. considered an investing activity?
$
Total assets 975 000 (A) Sale ofequipment at book value
Interest 2 000 (B) Sale ofmerchandise on credit
Current liabilities 15 000 (C) Declaration ofa cash dividend
Net income 258 000 (D) IssuanceofanotePaYable
Tax expense 60 000
Long-term debt 60 000
Total Stockholders' equitY 900 000 52. Liquidity is determined by the use of the

(A) investrnent tumover ratio

41. What is the times interest-earned ratio? (B) acidtestratio
(C) debtto equitY ratio
(A) r2e (D) eamingsPershare
(B) 130
(c) 141.e0
(D) 14250 53. The International Accounting Standards
Board encourages companies operating in
economies with high inflation, to show the
effects of changingprices in srrpplementary
48. Debt to equitY ratio is
financial information. This is done to
(A) 0.ol
(A) promote more reliable financial
(B) o.o8
rePorting
(c) 0.10
(B) indicate the true value ofa company
(D) 0.83
duringrisingPrices
(C) show how the price for individual
assets increases or decreases
49. Debt to total assets ratio is
(D) replacethehistoricalcostbasis
(A) 0.077
(B) 0.061
54. Which of the following statements relating to
(c) 0.0e2
the liquidation of a firm is FALSE?
(D) 1.015

(A) In a liquidation the receiver

represents a secured creditor who
50. lndy Transport Company reported net income
has aPPointed him.
for the year 2007 of$45 000; net sales of
000' (B) The receiver recovers money owing
$650 0d0; and average assets of$400 to the creditor who aPPointed him.
What is Indy Transport's percentage return
on assets for2007?
(C) A liquidator is appointedto sell all the
assets and PaY the debts.

(A) 6.e2
(D) After the receiver recovers the
(B) rr.zs
money, he takes over management

(c) 6s.s4
of the firm.

(D) r62.s0

IFYoUFINISHBEFORETIMEISCALLED,CHEcKYoURwoRKoNTHISTEST.

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