rest cove 02101010 MAY/UNE 2015 CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION* ACCOUNTING Unit 1 Paper o1 T hour 30 minutes IL JUNE 2015 (a.m.) READ THE FOLLOWING INSTRUCTIONS CAREFULLY. ‘This test consists of 45 items, You will have | hour and 30 minutes to answer them. In addition to this test booklet, you should have an answer sheet. Do not be concerned that the answer sheet provides spaces for more answers than there are items in this test. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item you are about to answer and choose the correct answer. ‘On your answer sheet, find the number which corresponds to your item and shade the space having the same letter as the answer you have chosen. Look at the sample item below. Sample Hem ‘The cost of an asset consumed in the generation of revenue is treated in the books as ‘Sample Answer (A) again (B)—aliabilty ®O©@O (©) anexpense (OD) anallowance ‘The best answer to this item is “an expense”, so (C) has been shaded. If you want to change your answer, erase it completely before you fill in your new choice. When you are told to begin, turn the page and work as quickly and as carefully as you can. Ifyou cannot answer an item, go on to the next one. You may return to that item iater. this booklet. ‘You may do any rough wor ‘You may use a silent, non-programmable calculator to answer items. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO. . Copyright © 2013 Caribbean Examinations Council All rights reserved. 02101010/CAPE 20151 3 ‘Accounting information that provides users. 2. ‘From the pointof viewof the shareholders, offinancial statements withtheassurancethat the MAIN duty of the external auditor is to ‘the information is free ftom errors and bias demonstrates the characteristic of (A) adhere to generally accepted auditing standards (A) relevance (B) plan and perform the audit using (B) reliability statistical techniques (C) consistency (C)___expressan opinion onthe reliability (D) comparability of the finaneial statements (D) exercise accuracy in conducting the audit of financial statements ‘A.corporation reacquired 5 000 of its own shares at $4 per share, Which of the following is the joumal entry to record this transaction? (A) Treasury stock Dr. $20000 Cash Cr. $20 000 (B) Share capital Dr. $20.00 Cash Cr. $20000 (©) Cash Dr. $20 000 ‘Treasury stock Cr. $20 000 (D) Treasury stock Dr. $20 000 Share capital Cr. $20,000 On 15 January 2014, R. Sammy's advertising agency collected $6 000 from clients who were billed for jobs done in December 2013. Using the accrual basis of accounting, how should the accounts be affected by the transactions on 15 January 20147 (A) __ Increase: Cash Increase: Service revenue (B) Increase: Cash (C)__ Increase: Service revenue (D) _ Increase: Cash Increase: Accounts receivable GO ON TO THE NEXT PAGE O2101010/CAPE 20155. The historical cost principle states that (A) transactions involving assets are recorded at acquisition cost (B) assets should be recorded initially at cost and then adjusted as market value changes (C) the private activities of the owner of a business should not be incorporated into the activities of the business (D) _ only transactions that are capable of being expressed in monetary terms should be included in the accounting records 6. Intemal controls are used in a business 10 (A) produce correct financialstatements and deter employee dishonesty (8) enhancetheaccuracy and reliability of its accounting records, and to prevent fraud (©) establish responsibility and conduct independentchecks on employee performance (D) safeguard the business" assets and enhance the accuracy and reliability of accounting records 7 “Treasury Stock’ is the term used to describe shares that are (A) fully paid up (B) sold above par (©) paid in excess of par (D) reacquired by the issuing firm The newly formed Daryl Inc. was billed $8 000 by its attorneys for organizational costs, The attomeys agreed to accept 6 000 shares of $1 par value common stock in full settlement oftheir bil. Shares of Daryl Inc, being new, had no established market value. ‘The amount to be credited to common stock in the books is @ $ 0 (8) $2000 (C) $5000 (D) $8000 9. A firm issued 35 000 no par ordinary shares in exchange for a building which had a fair market value of $525 000, The entry to record this transaction is (A) Dr. Building $525 000 Cr. Ordinary share capital ‘3925 000 (B) Dr.Cash $525 000 Cr. Ordinary share capital $525 000 (C) Dr. Ordinary share capital $525 000 Cr. Building $525 000 (D) Dr Ordinary share capital $525 000 Cr. Cash $525 000 02101 010/CAPE 2015 GO ON TO THE NEXT PAGEnL. 2. Stephens Inc. issues 3 000 ordinary shares of $10 par value for $45 000. How should this bbe treated in the financial statements? (A) Cashshould be debited for$1 5.000. (B) Ordinary share capital should be credited for $45 000. (©) Paid-in capital in excess of par (share premium) should be debited for $10 000. (OD) Paid-in capital in excess of par (share premium) should be credited for $15 000. ‘Asummary of the procedures (principles) for controlling Accounts Receivable includes 1. segregation of duties Il, establishment of responsibilities III, proper documentation IV. physical safeguard of assets (A) Lonly (B) [and Monly (©) 1, Mand Ill only (D) 1 Iand IV only Which of the following relationships CANNOT be derived from the fundamental accounting equation? (A) Assets — Liabilities = Owners? Equity (B) Owners’ Equity + Liabilities = Assets (© Assets — Owners’ Equity = ilities (D) Liabilities + Assets = Owners” Equity 02101010/CAPE 2015 13. 14. 15, 16. ‘Two-thirds of an insurance policy has expired. The policy was acquired at e cost of $5 700. The adjusting entry to record the expired portion would involve a (A) _creditof$1 900toprepaidinsurance (B)__debitof$3 800t0 prepaidinsurance (C)__ debitof$1900tc insuranceespense (D) _ dobitof $3 800toinsuranceexpense Memo Inc., a company with annual sales of $25 000 000, has purchased a computer software for $550. This software is expected to be used for the next 10 years. ‘The accountant of Memo Inc. recorded the softwareas anexpense. Which concept can be used to justify this treatment? (A) Prudence (B) ali (C) Historical cost (D) Going concer ‘Thepreparationand presentation of financial statements of limited liability businesses are regulated by 1, the Companies Act Il, accounting standards TIL, concepts and conventions (A) Land tt only (B) Land Itt only (© Wand tifonly (D) I, and i ‘What type of asset is a franchise? (A) Liquid (B) Current (C) Intangible (D) Extraordinary GO ON TO THE NEXT PAGE17. 19. Ashley Manufacturing Co. received net proceeds of $82 000 on the sale of an investmentthat cost $69 500. Thistransaction should be reported in the income statement asa (A) gain of $12 500 under Other Revenues and Gains (B) gain of $12 500 under Operating Revenues (©) loss of $12 500 under Operating Expenses and Losses (D) loss of $12 500 under Operating Expenses Items 18-19 refer to the following information. Will Smith, a new partner, isbeing admitted to the Labell and Ross partnership under the bonus method. Smith contributes cash of $20 000 and equipment with a market value of $30 000 in exchange for a 20% ‘ownership interest. The capital of the old $130 000, Labell and Ross fits and losses in the ratio 80:20 respectively. What is the new partnership capital? (A) $140000 (B) _$150000 (©) $160.000 (D) —$180.000 What is Smith's capital balance? (A) $30.000 (B) $35.00 (©) $36000 (D) 330.000 02101010/CAPE 2015, 21. 2. 23. Which of the following reports is NOT 2 component of financial statements according to IAS | (Sec. 3 of IFRS for SMES)? (A) Financial ratios (B) Statement of financial posi (C)__ Statement of changes in equity (D) Notes tothe financial statements. Which of the following is/arecharacteristies of a privately owned corporation? 1. Shares are sold to the public. Il. Shares are not sold to the public. Ml, The company can be owned by family members only. (A) Tonly (B) Land Ill only (C) Mand Il! only (D) 1. Mand itt The ability to raise funds from the Stock Exchange Market isa distinguishing feature of which of the following types of business onganization? (A) Statutory corporation (B) Public corporation (C) Private corporation (D) Partnership ‘An extraordinary item in financial accounting is an income or an expense that arises from events that are distinct from ordinary activities of the entity and are (A) usual in nature (B) _notdistinet in nature (©) __ expected to recur frequently (D) not expected to recur frequently GO ON TO THE NEXT PAGEm4. 25. ee Which of the following statements is NOT trueregarding ordinary shares orpreference shares? (A) All companies issue ordinary shares. (B) Ordinary shares are the most basic and common type of shares. (©) Withpreference shares, the amount of dividend is generally specified and increases every year. (D) — Withpreference shares, the holders have priority over ordinary shareholders in dividend and assets distribution. {tem 25 refers to the following information. (On 31 December 2010, equipment which cost $60,000 had accumulated depreciation of $12 000. On31 December201 1 apieceofequipment with a net book value of $8 000 was sold for $6 000. ‘The company uses the reducing balance method for asset depreciation at a rate of 15%. The net book value of equipment on 31 December 2011 was (A) $40 800 @) 834.680 (©) $27880 (D) $26 680 02101010/CAPE 2015 26. 2. A social club held an annual dinner dance and afterwards presented the following incomplete Statement of Receipts and Payments. $ Sale of tickets 100 000 Catering 10 000 Hiring of band 2 ‘Net receipts 50.000 What was the cost of hiring the band? (A) $40.00 (B) —$30.000 (C) $60,000 (D) $7000 A statutory corporation is an entity that has been established by an Act of Parliament. Itis owned by the (A) employees (B) government (©) __ board of directors (D) co-operative society GO ON TO THE NEXT PAGE34. 35. 37. In preparing a statement of cash flows, which of the following transaetions would be considered an investing activity? (A) Sale of equipment at book value (B) Declaration of a cash dividend (©) Sale of merchandise on credit (D) Issuance of a note payable ‘The changein cash forthe year fora particular company is $4 500. If cash flow from investing activities is $46 200 and cash flow ‘from financing activities is $34 400, what is the cash flow from operating activities? (A) (870 100) (B) ($76 100) (©) ($80 100) (©) (S85 100) Which ofthe following statements relating to the liquidation of a firm is FALSE? (A) A liquidator is appointed to sell all the assets and pay the debis. (8) Theteceiver recovers money owing to the creditor who appointed him. (©) After the receiver recovers the money, the receiver takes over management of the firm. (D) Ina liquidation, the receiver represents a secured creditor who has appointed him. Dominica Company reported net incomeof $45 000, net sales of $650 000 and average assets of $400 000 in 2012. What is the company’s percentage return on assets for 20127 (A) 6.92 @) 1125 © 65.54 (©) 162.50 02101010/CAPE 2015 38, 39. ‘During periods of inflation or deflation, the historical cost model for financial reporting is deficient because the reports (A) use numerous estimates for revenue and expenses (B) recognize revenue and expenses before they are realized (C) are published three years prior to the report date (D) add and subtract dollars with different purchasing power without adjusting for those differences An example of a contingent liability is (A) outstanding laws (B) any interest bearing liability (©) __abond which can be converted into ordinary shares (D) the unrealized loss from the reduction in the market price of 2 long-term liability ‘A runaway truck crashed into a firm’s warehouseand destroyed inventory costing '$100000. The firm does nothaveinsurance, How should this event be recorded in the firm's Statement of Comprehensive Income? (A) Other loss $100 000 (B) Selling expense $100 000 (C)__ Increase cost of sale by $50 000 (D) Decrease cost of sale by $50 000 GO ON TO THE NEXT PAGE4. ‘TheMangoes-by-the-SeaCompanyhadnet 44. credit sales of $8 800 000 and cost of goods sold totalling $6 600 000 forthe year. The average inventory for the year amounted to $2 640 000. What was the inventory tumover ratio for the year? (A) 2times (B) 25 times (©) 3.3times ©) 10times ‘The MAJOR disadvantage of traditional financial statements is their emphasis on 45. (A) relevance (B) historical cost (©) long-term growth (D) short-term profitability Regarding issued share capital in financial statements, a company is required to disclose the (A) parvalue (B) market value (C) names of shareholders (D) number ofsharesheld by employees END OF TEST Which of the following should NOT be disclosed in a summary of significant accounting policies? |. Depreciation method I. Minority interest claims Ill. Valuation basis followed (A) Lonly (®) only (C)_ tand It only (©) Land Ml only Which of the following actions by a firm’s cost accountant is unethical? (A) Pricing a product below cost 10 fight competition (B) Using LIFO to value ending inventory (C) Using FIFO to value ending inventory (D) Applying historical cost IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST. 02101010/CAPE 2015