REVISION QUESTIONS

MULTIPLE CHOICE QUESTIONS

1. The Australian body responsible for overseeing the process of setting accounting
standards is:

a. Australian Securities and Investment Commission.

b. Financial Reporting Council.
c. Australian Accounting Standards Board.
d. Australian Securities Exchange.
e. International Accounting Standards Board.

2. General Accepted Accounting Principles:

a. The mandating of particular accounting methods or policies by an authoritative

body.
b. Are set by the AASB.
c. Are set by the ASX.
d. Are principles or methods that have the general support of standard-setting bodies,
general practice, texts and other sources.
e. Are accounting principles or methods that cover any possible situation that could
arise in assessing accounting transactions.

3. Robson Manufacturing uses accrual accounting. Each of the following events occurred
during June. Which event should be recorded as revenue or expense in June 2015?

a. Services totalling $4,500 were performed during June for customers who paid in
May for these services.
b. Office supplies for $800 were purchased and paid at the end of June. They will be
used during July 2015.
c. Purchased inventory for $2,000 cash at the end of June.
d. On 30 June a 12-month insurance policy for $1,200 was purchased and paid.
e. Collections of $5,000 were made at the beginning of June from sales that occurred
during May.

4. Which of the following statements is implied in the definition of expense?

a. Decrease of assets and decrease of liabilities for the same amount.

b. Increase of assets and increase of liabilities for the same amount.
c. Decrease of assets and no change in liabilities.
d. Decrease of liabilities and no change in assets.
e. Payment of dividends.

THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 5, 6 AND 7 BELOW

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Ryan & Wang Ltd is a company that commenced business on 1 April 2015. Below are the
balances of assets and liabilities accounts at 30 April 2015:
Supplies $560
Unearned revenue 300
Cash 70
Accounts payable 1,800
Inventory 3,500
Accounts receivable 2,400
Vehicles 12,000
Wages payable 960

During April Ryan & Wang Ltd made credit sales of $2,400 (cost of goods sold $1,000);
received $300 from a customer for services that will be provided in May 2015; purchased
inventory for $4,500, paid $2,700 and the rest will be paid in 30 days; purchased and paid
$560 supplies; and expensed $960 in wages.

5. What is the balance of equity at 30 April 2015?

a. $15,770
b. $14,950
c. $19,070
d. $15,470
e. $21,590

6. Profit according to accrual accounting is:

a. $440
b. $1,440
c. $1,740
d. $(960)
e. $(2,760)

7. What is the net cash flow from operations for April 2015?

a. $0
b. $(2,960)
c. $(3,360)
d. $1,740
e. $300

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8. Which statement of accounting policy choice is TRUE?

a. The choices should be made according to the company’s managers best interests.
b. Accounting policy choices can be made opportunistically by company’s
management.
c. The decision/choices should not consider the qualitative characteristics of financial
statements.
d. An accounting policy choice is, for example, to not recognise an expense if
adversely affects the image of the company.
e. Accounting policy choice is a decision made in advance to change what is
prescribed by accounting standards.

9. Which of the following is/are essential requirements for a liability to exist for
accounting purposes?
i) It must be a legal obligation.
ii) The outflow of resources can be measured reliably.
iii) It is probable that the event giving rise to the obligation will occur.

a. (i) only
b. (ii) only
c. (iii) only
d. (i) and (ii) only
e. (ii) and (iii) only

10. Which of the following statements about assets is TRUE?

a. It is probable that an outflow of resources associated with the item will result.
b. The item must be legally owned by the entity.
c. The item has a cost or value that can be measured reliably.
d. There is some possibility that future economic benefits associated with the item
will flow to the entity.
e. The item is valuable for the entity.

11. The application of the lower of cost or market rule in valuing inventory is an example
of : NOT RELEVANT

a. Materiality
b. Disclosure
c. Consistency
d. Comparability
e. Prudence

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12. The fundamental qualitative characteristics of useful financial information are:

a. Comparability and Timeliness.

b. Prudence and Materiality.
c. Understandability and Faithful Representation.
d. Faithful Representation and Relevance.
e. Relevance and Materiality.

13. How should “Proceeds from the disposal of the truck of the company” be classified
in the statement of cash flows?

a. Cash inflow from operating activities.

b. Cash outflow from operating activities.
c. Cash inflow from investing activities.
d. Cash outflow from investing activities.
e. Cash inflow from financing activities.

14. Identify the type of change that would have occurred in the expanded accounting
equation if a company pays rent for the next month in advance.

a. An asset decreased and a liability increased.

b. An asset decreased and expense increased.
c. An asset increased and another asset decreased.
d. A liability increased and expense increased.
e. An asset increased and expense increased.

15. During 2014 Corleone Ltd declared dividends for $500. Retained profits at 1 January
2014 were $4,000, and at 31 December 2014, $4,400. At 31 December 2014, total
assets were $10,000 and share capital $2,000. There were no transfers to reserves in
2014.
Calculate profit for 2014.

a. $(100)
b. $900
c. $400
d. $500
e. $0

16. Which of the following errors, each considered individually, would NOT cause the
trial balance totals to be unequal?

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 a. Cash received from customers on account was posted as a debit of $350 to cash
and a debit of $350 to accounts receivable.
b. A payment of $87 to a creditor was posted only as a credit of $87 to cash.
c. Supplies used during the month were posted as a debit of $320 to supplies
inventory and a debit of $320 to supplies expenses.
d. $535 cash received from customers on account was posted as a debit of $535 to
cash and a credit of $553 to accounts receivable.
e. Cash received from customers on account was posted as a debit of $350 to cash
and a credit of $350 to accounts payable.

17. Which of the following entries is an example of asset consumption recognised over
future time periods?

a. DR Rent expense CR Prepaid rent

b. DR Supplies inventory CR Supplies expense
c. DR Prepaid insurance CR Cash
d. DR Insurance expense CR Insurance payable
e. DR Rent expense CR Cash

18. Which of the statements about closing the accounts is TRUE?

a. Revenue and expense accounts are closed to retained profits account.

b. Closing entries is useful to balance permanent accounts.
c. The accounts of the general ledger should be closed before starting a new period.
d. Profit in the profit and loss summary account is closed as a debit in the retained
profits account.
e. Closing entries prepare the accounting records to begin the next period.

19. When a company orders goods for resale, what is the accounting entry?

a. DR Inventory CR Accounts payable

b. DR Purchases CR Accounts payable
c. DR Accounts receivable CR Accounts payable
d. DR Cost of goods sold CR Inventory
e. No accounting entry is required yet.

20. At the end of the financial year, the usual adjusting entry for accrued salaries owed to
employees was omitted. Which of the following statements is TRUE?

a. Salary expense for the year was overstated.

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 b. Net profit for the year was understated.
c. Shareholders’ equity at the end of the year was overstated.
d. The total of liabilities at the end of the year was overstated.
e. Shareholders’ equity at the end of the year was understated.

Question 1 – This question has 3 parts

Part One – Journal Entries

The following transactions occurred for Wella Ltd during April 2015. Wella Ltd is a
retailer of beauty products. For each transaction listed below (1-8), record the appropriate
general journal/s entries in the space provided.

Notes: i) Wella Ltd has adopted the perpetual inventory recording method
Date Account Name Dr Cr
2 Apr Wella Ltd issued 5,000 shares of $1 for $5,000 cash.

7 Apr Purchased inventory for $5,000; paid $1,000 cash and the rest will be paid
in 30 days.

10 Apr Purchased equipment for $12,000; paid $4,000 in cash and signed a long-
term note for the rest.

16 Apr Paid salaries of $2,400 for work done in April 2015.

18Apr Cash sales made for $6,000. The inventory sold had cost $3,500.

18 Apr Wella Ltd billed a customer $3,000 for consulting services provided.

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Date Account Name Dr Cr
23 Apr The company hires a new accountant. The contract includes salary of
$2,000 per month. The accountant starts work in two months’ time.
.

30 Apr Paid $1,200 in advance for 12 months insurance.

Part Two – Ledger Accounts

The opening balance (OB) of each ledger account is listed below. Post the opening
balance and each journal entry from Part One to the ledger accounts. Include the opening
balance of permanent accounts for the following period (1 May).

Opening Balance Ledger Accounts

Cash: $320
Accounts receivable: $4,000
Inventory: $480
Equipment: $16,000
Accounts payable $200
Share Capital $20,600

Part Three – Trial Balance

Prepare a Trial Balance for Wella Ltd as at 30 April 2015 using the information provided
in Part One and Part Two.

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Question 2

Biotek Ltd identified the following transactions (listed as 1 to 10) at the end of the
financial year 2014 that require and end of period adjustment. Record the appropriate
adjusting entries at 31 December 2014 in the space provided.

1. On November 1, Biotek issued a $10,000, 3 month, 9% note payable to a

supplier. The $225 total interest is to be paid when the note is paid.
Account name Dr Cr

2. At the end of 2014 the allowance for doubtful debts balance is $3,000. The
company decides to increase the allowance for doubtful debts to $4,000.
Account name Dr Cr

$1,000

3. On 1 October 2014 Biotek Ltd paid $9,000 for 6 months’ rent in advance. The
payment was recorded debiting prepaid rent.
Account name Dr Cr

4. On January 1 2014 Biotek had $200 of supplies on hand. During the year the
company purchased $1,300 of supplies and debited supplies inventory account.
A count on December 31 determined that $90 of supplies are still on hand.
Account name Dr Cr

5. Biotek received $900 on 12 December from Krauss Ltd for services expected to
be completed by 31 December. The payment was credited to Unearned
Revenue. Analysis reveals that only two thirds of those fees were earned in
December.
Account name Dr Cr

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6. $1,300 is owed to employees for work done in December 2014.
Account name Dr Cr

7. A return of $150 of defective products purchased on December 1 from TK Ltd

on credit was wrongly recorded debiting accounts receivable.
Account name Dr Cr

8. On 1 December Biotek received $1,500 for two months’ rent in advance for a
portion of its building rented to Biosoft Ltd. The payment was credited to
unearned rent.
Account name Dr Cr

9. Bank interest of $400 earned by Biotek Ltd at 31 December 2014 will be paid
on January 2015
Account name Dr Cr

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Question 3

For the following adjusted trial balance for Fready Furniture Ltd, complete a
statement of profit or loss, calculation of retained earnings and statement of
financial position.

Fready Furniture Ltd

Trial Balance at 31 December 2018

Cash $1,200
Accounts receivable $27,500
Inventories $34,000
Prepaid rent $2,000
Office equipment $14,200
Accumulated depreciation $6,800
Accounts payable $25,400
Unearned revenue $4,000
Wages payable $240
Bank Loan $14,410
Share capital $26,500
Retained earnings 1 January 2018 $3,870
Sales revenue $36,000
Rent revenue $60
Cost of goods sold $24,000
Wages expense $10,940
Dividends $3,200
Freight out expense $240
Total $117,280 $117,280

Question 4 – theory
(a) What are closing entries and what is the impact of closing entries on the post-closing
trial balance?
(b) What is the difference between the trial balance and the adjusted trial balance?
(c) What is the conceptual framework and how does it assist in standard setting?
(d) Define depreciation and explain the purpose of the journal entries.
(e) Who are the main bodies that constitute the Australian regulatory framework?

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