Deck 2: Measuring and Evaluating Financial Position and Financial Performance

Question 1

Which of the following is NOT true of liabilities?

A) Liabilities are future obligations of economic benefits.
B) Liabilities must be legally owed debts.
C) Liabilities must involve either the future sacrifice of assets,or the future performance of services.
D) Liabilities can be estimates of future payments based on past agreements.

Answer 1

B

Question 2

Which of the following items is normally classified as a current asset?

A) inventories
B) prepayments
C) intangibles
D) accounts receivable.

Answer 2

A

Question 3

To which balance sheet grouping does the item 'paid rent' belong?

A) current asset
B) noncurrent asset
C) current liability
D) noncurrent liability.

Answer 3

A

Question 4

Which of the following CANNOT be classified as a current liability?

A) accounts payable
B) provision for long service leave
C) loans
D) wages owing.

Question 5

The purpose of dividing assets and liabilities into current and noncurrent classes is to help the reader of the balance sheet to determine:

A) the short-term financial position of the firm
B) the long-term financial position of the firm
C) the likely future financial performance of the firm
D) none of the above.

Question 6

Which of the following questions CANNOT be answered from a balance sheet?

A) What has caused the changes in cash held during the period?
B) Is the company soundly financed?
C) Can the company pay its bills on time?
D) Should a dividend be declared?

Question 7

Which of the following statements is NOT true?

A) If total assets owned by a business total $110 000 and owners' equity totals $30 000,then liabilities total $80 000.
B) If total assets decreased by $30 000 during a specific period and owners' equity decreased by $35 000 during the same period,the period's change in total liabilities was a $65 000 increase.
C) If total assets decreased by $50 000 during a specific period and owners' equity decreased by $40 000 during the same period,the period's change in total liabilities was a $10 000 decrease.
D) If total assets increased by $75 000 during a specific period and liabilities decreased by $10 000 during the same period,the period's change in total owners' equity was an
$85 000 increase.

Question 8

Which of the following questions CANNOT be answered by reference to a single balance sheet?

A) Can the enterprise pay its bills on time?
B) Should a dividend be declared?
C) If a dividend is declared,how large should it be?
D) How profitable was the company during the year?

Question 9

Which of the following is NOT an asset?

A) accounts payable
B) inventory
C) land
D) work in progress.

Question 10

To which balance sheet grouping does the item 'bank overdraft' belong?

A) current asset
B) noncurrent asset
C) current liability
D) noncurrent liability.

Question 11

To which balance sheet grouping does the item 'accumulated depreciation on equipment' belong?

A) current asset
B) noncurrent asset
C) current liability
D) noncurrent liability.

Question 12

Which of the following is NOT a liability?

A) provision for long service leave
B) interest payable
C) share capital
D) creditors.

Question 13

Which of the following statements about assets is NOT true?

A) Assets provide future economic benefits.
B) Assets are economic resources controlled by an organisation.
C) Assets result from past transactions or other events.
D) Assets are items which can be physically identified.

Question 14

Which of the following is NOT an intangible asset?

A) prepayment
B) goodwill
C) copyright
D) brand name.

Question 15

Which of the following statements about a balance sheet is NOT true?

A) A balance sheet is included in the annual report of a company.
B) A balance sheet lists the set of resources and sources of the enterprise.
C) A balance sheet relates to a particular point in time.
D) A balance sheet indicates exactly which source produced which assets.

Question 16

Working capital equals:

A) noncurrent assets less noncurrent liabilities
B) cash on hand
C) current assets less current liabilities
D) shareholders' equity

Question 17

Which of the following statements about a balance sheet is true?

A) A balance sheet presents the financial performance of a company for a period of time.
B) A balance sheet presents the company's financial position at a point in time.
C) A balance sheet shows which source of finance produced each asset.
D) A balance sheet includes all the resources of a company.

Question 18

The balance sheet:

A) indicates financial performance over a period of time
B) shows the relationship between receipts and payments
C) reflects changes in the assets and liabilities over a period of time
D) presents the financial position at a point in time.

Question 19

Which of the following is a liability?

A) retained profits
B) prepaid advertising
C) accumulated depreciation
D) expenses payable.

Question 20

Which of the following statements about a balance sheet is NOT true?

A) A balance sheet directly states how management has performed in using assets to earn profits.
B) Good profit performance is reflected by increased assets and retained profits.
C) A balance sheet provides a useful picture of the state of the company.
D) Many outsiders use the balance sheet to evaluate the quality of management's decisions on obtaining,deploying and financing assets.

Question 21

Which of the following is NOT a revenue of a company?

A) sale of goods
B) dividends received on shares
C) obtaining a loan from the bank
D) rent from premises.

Question 22

If the last wages bill for the year is paid on 28 June and $6000 is owing at 30 June in unpaid wages,then:

A) the $6 000 would appear as accrued wages payable in the balance sheet but it would not be included in the expenses for the year
B) the $6 000 would appear as accrued wages payable in the balance sheet and would be included in the expenses for the year
C) the $6 000 would not be included in either the balance sheet or the profit and loss statement
D) the $6 000 would appear as an expense in the profit and loss statement.

Question 23

Which of the following statements about accumulated depreciation is true?

A) Accumulated depreciation is the amount of depreciation recognised at the date of disposal of the asset.
B) Cost less accumulated depreciation gives net book value.
C) Accumulated depreciation represents the depreciation charge for the current period.
D) Accumulated depreciation is ignored when an asset is sold.

Question 24

Shareholders invest $100 000 in a business.Inventory of $80 000 is bought on account and damaged inventory that was purchased on credit for $10 000 was returned.Equipment costing $200 000 was purchased,which was financed by a loan from the seller,repayable in 5 years.The business paid $40 000 to accounts payable.Total assets increased by:

A) $100 000
B) $170 000
C) $330 000
D) none of the above.

Question 25

Which of the following is NOT an expense of a company?

A) cost of goods sold
B) repayment of principal on a loan
C) repayment of interest on a loan
D) sales commission.

Question 26

Lalor Ltd has current assets of $90 000 and current liabilities of $40 000.Its current ratio is:

A) $50 000
B) 0.44:1
C) 2.25:1
D) $90 000.

Question 27

The balance sheet of Hemp Ltd at 30 June 2012 showed: noncurrent assets $500 000; noncurrent liabilities $320 000; total liabilities $400 000; and shareholders' equity $300 000.What was the working capital ratio of Hemp Ltd at 30 June 2012?

A) 2.5:1
B) 1.75:1
C) $120 000
D) 1.56:1.

Question 28

If a company pays a 12-month insurance premium for $2400 on 1 June 2012,then at 30 June 2012 the accounts will show:

A) a prepayment of $2200 in the balance sheet and an insurance expense of $200 in the profit and loss account
B) a prepayment of $200 in the balance sheet and an insurance expense of $2000 in the profit and loss account
C) a $2400 asset in the balance sheet
D) a $2400 expense in the profit and loss statement.

Question 29

Which of the following is NOT an expense of a company?

A) cost of goods sold
B) dividend paid to shareholders
C) interest paid to bank
D) depreciation on factory.

Question 30

The balance sheet of Hemp Ltd at 30 June 2012 showed: noncurrent assets $500 000; noncurrent liabilities $320 000; total liabilities $400 000; and shareholders' equity $300 000.What was the working capital of Hemp Ltd at 30 June 2012?

A) $300 000
B) $120 000
C) $200 000
D) $180 000.

Question 31

What is James's owners' equity?

A) $7810
B) $2810
C) $110
D) $2590.

Question 32

What is James's current ratio?

A) 6:1
B) 5:1
C) 4.2:1
D) 4.7:1.

Question 33

What is James's working capital?

A) $2810
B) $450
C) $380
D) $430.

Question 34

Which of the following statements is true?

A) If the liabilities owed by a business total $450 000,then the assets also total $450 000.
B) If the assets owned by a business total $500 000,then shareholders' equity also totals $500 000.
C) If the assets owned by a business total $90 000 and liabilities total $50 000,then shareholders' equity totals $40 000.
D) If the assets owned by a business total $90 000 and liabilities total $50 000,then shareholders' equity totals $140 000.

Question 35

Consider the following transactions: (i)repayment of a loan in June 2012
(ii)depreciation of equipment in June 2012
(iii)payment of accounts payable in June 2012
(iv)payment of an insurance bill in June 2012,which covers 1 July 2012 to 30 June 2013.
Which of the above transactions increase June 2012 expenses?

A) (ii)only
B) (i)and (ii)only
C) (i),(ii)and (iii)only
D) (i),(ii)and (iv)only
E) (ii),(iii)and (iv)only.

Question 36

If a business pays a 12-month insurance premium of $600 on 1 February 2012,at 30 June 2012 the prepayment will be equal to:

A) $600
B) $350
C) $300
D) $250.

Question 37

Which of the following is NOT an expense?

A) dividends declared
B) amount owed to electrician to be paid in the next period
C) cost of goods sold
D) wages.

Question 38

Which of the following is NOT a revenue of a company?

A) cash sales
B) credit sales
C) interest on investments
D) borrowing from a bank.

Question 39

Bruce operates a coffee stall at the university.On 30 June 2012,he has $400 in his business bank account,the stall and equipment are worth $5200,ingredients on hand cost $60 and paper cups cost $10.Students owe him $120 and he owes his suppliers $370.He also owes his mother $4100,which enabled him to get started.What is Bruce's owners' equity?

A) $5420
B) $1320
C) $400
D) $4000.

Question 40

Which of the following statements about the current ratio is NOT true?

A) The current ratio is also known as the working capital ratio.
B) The interpretation of the current ratio depends very much on the nature of the enterprise and its way of doing business.
C) A ratio greater than 2:1 is a guarantee of survival.
D) A positive working capital indicates that the business has sufficient funds to pay its commitments.

Question 41

Which of the following statements about retained profits is true?

A) Retained profits is the sum of past net profits/losses minus dividends declared.
B) Retained profits indicates the total profits earned by a company since its inception.
C) If a company does not pay a dividend,it cannot decrease.
D) Retained profits is the current years profit.

Question 42

What was the balance of Avion Ltd's retained profits at 31 December 2012?

A) $90
B) $150
C) $30
D) $50.

Question 43

The connecting link between the balance sheet and the income statement is:

A) dividends paid to shareholders
B) the opening balance of retained profits
C) total shareholders' equity
D) net profit after tax.

Question 44

Use the information given below (as at 30 June 2012) to answer the following questions:
$$\begin{array} { l r } &\$\\\text { Share capital } & 100000 \\\text { Equipment } & 150000 \\\text { Inventory } & 30000 \\\text { Accounts receivable } & 20000 \\\text { Accounts payable } & 30000 \\\text { Retained profits } & 80000 \\\text { Cash } & 10000\end{array}$$
Assume no dividends were declared during the year.

-If the balance of retained profits at the start of the year was $50 000,what was the profit for the year?

A) $30 000
B) $80 000
C) $50 000
D) $40 000.

Question 45

A company buys 100 televisions for $500 each.It sells 60 televisions for $900 each.What is the 'cost of goods sold' expense?

A) $50 000
B) $24 000
C) $54 000
D) $30 000.

Question 46

What is total revenue for the period in which credit sales are $20 000,cash sales are $16 000 and $14 000 cash is received from a customer as a deposit for work done in the next period?

A) $34 000
B) $36 000
C) $50 000
D) $16 000.

Question 47

Which of the following is an expense?

A) prepaid insurance
B) dividends paid
C) purchase of inventory
D) wages owing but not paid at the end of the accounting period.

Question 48

What are total expenses for June 2012? Wages of $30 000 were paid in June for work done in June; $5000 of wages were owed at end of June for work done in June; and an invoice for $8000 was received for June advertising to be paid in July.

A) $30 000
B) $35 000
C) $43 000
D) $30 000

Question 49

The balance of retained profits at the beginning of a period was $1000 and at the end of the period it was $850.A dividend of $50 was declared and paid.What was the net profit/loss for the period?

A) net loss $100
B) net profit $100
C) net loss $200
D) net profit $200.

Question 50

Sales less cost of goods sold equals:

A) gross profit
B) net profit
C) net assets
D) net sales.

Question 51

During 2009,Hillary Ltd earned revenue of $1000 and a net profit of $200.Retained profits at 31 December 2009 were $540 and dividends declared and paid totalled $160.At the same date,liabilities were $260 and assets $1800.There were no transfers to reserves during 2009.What was the balance of Hillary Ltd's retained profits at 1 January 2009?

A) $540
B) $580
C) $400
D) the balance cannot be determined from the above information.

Question 52

In which of the following circumstances is revenue NOT earned by a company?

A) In return for goods supplied,a customer paid $1000 in cash.
B) In return for goods supplied,a customer promised to pay $1000 later.
C) In return for goods supplied,a customer gave the company $1000 in equipment.
D) A customer paid $500 deposit for goods to be supplied in the next accounting period.

Question 53

What is total revenue for the period in which: (i)credit sales are $100 000 of which $30 000 was received at year-end; (ii)$10 000 cash was received from customers for work done in the previous year; (iii)$12 000 was received from customers for work to be done in the next accounting period?

A) $30 000
B) $100 000
C) $110 000
D) $112 000.

Question 54

Use the information given below (as at 30 June 2012) to answer the following questions:
$$\begin{array} { l r } &\$\\\text { Share capital } & 100000 \\\text { Equipment } & 150000 \\\text { Inventory } & 30000 \\\text { Accounts receivable } & 20000 \\\text { Accounts payable } & 30000 \\\text { Retained profits } & 80000 \\\text { Cash } & 10000\end{array}$$
Assume no dividends were declared during the year.

-What is the balance of total assets at 30 June 2012?

A) $200 000
B) $210 000
C) $290 000
D) $310 000.

Question 55

Gross profit is the difference between:

A) sales revenue and operating expenses
B) sales revenue and cost of goods sold
C) operating profit before tax and income tax expense
D) sales and sales returns.

Question 56

What was the dividend declared by Bull Ltd during the year?

A) $25
B) $175
C) $325
D) $50.

Question 57

What were the revenues of Avion Ltd during 2012?

A) $200
B) $250
C) $300
D) $330.

Question 58

Which of the following events does NOT give rise to an expense?

A) A building depreciated by $600.
B) A customer paid $600 on account.
C) The company promised to pay an employee $600 in wages at a later stage.
D) A customer returned goods valued at $200 previously purchased.

Question 59

What was the net profit or loss of Bull Ltd for the year?

A) net profit $150
B) net profit $500
C) net loss $150
D) net loss $500.

Question 60

What was the value of Avion Ltd's assets at 31 December 2012?

A) $200
B) $310
C) $360
D) none of the above.

Question 61

What was the operating profit before tax of Grasso Ltd for the year?

A) $53 000
B) $16 000
C) $9000
D) $5000.

Question 62

What was the dividend declared by Easter Ltd during the year?

A) $150
B) $250
C) $550
D) this cannot be determined from the above information.

Question 63

If this were the first year of Grasso Ltd's operations,what is the maximum amount that could be paid out in dividends to shareholders?

A) $5000
B) $16 000
C) $60 000
D) $9000

Question 64

What was the gross profit of Grasso Ltd for the year?

A) $60 000
B) $16 000
C) $11 000
D) $5000.

Question 65

What was the net profit or loss of Easter Ltd for the year?

A) net profit $2000
B) net profit $1200
C) net loss $400
D) net profit $0.