Question 1

Which of the following statements about the perpetual inventory control method is NOT true?

Accepted Answer

In perpetual inventory control, inventory is not treated as an expense when it is purchased. Instead, it is recorded as an asset on the balance sheet.

Question 2

On 14 April 2016, Dragoon Ltd sells on credit $8000 of merchandise that had cost $5000. Which of the following journal entries would Dragoon Ltd make on 14 April 2016?

Accepted Answer

Option D is correct because it combines the necessary journal entries to record both the cost of goods sold and the sales transaction on credit.

Question 3

The net profit reported on the profit and loss statement is $50 000. However, adjusting entries have not been made at the end of the period for electricity expense of $500 and accrued salaries of $1300. Net profit should be:

Accepted Answer

Adjusting entries need to be made to recognize the electricity expense incurred and the accrued salaries earned. These expenses reduce the net profit, so they need to be subtracted from the reported net profit of $50,000. Therefore, the corrected net profit is $50,000 - $500 - $1,300 = $48,200, option A.

Question 4

Delta Ltd purchased a motor vehicle for $45 000 on 1 January 2016. The vehicle was expected to have a life of three years and an estimated disposal value of $15 000. The straight-line method of depreciation is employed and the financial year ends on 30 June. What was the depreciation expense for year ended 30 June 2016?

Accepted Answer

Depreciation expense is determined as follows:

Cost of the asset - Estimated disposals value = Depreciable amount

$45,000 - $15,000 = $30,000

Depreciation per annum = Depreciable amount ÷ Useful life

$30,000 ÷ 3 = $10,000

Therefore, the depreciation expense for the year ended 30 June 2016 is $10,000.

Therefore, the correct answer is D.

Question 5

If equipment that cost $120 000 and has accumulated depreciation of $70 000 is sold for $20 000, the journal entry to record the sale would include:

Accepted Answer

The correct journal entry to record the sale of the equipment includes debiting (Dr) Accumulated Depreciation for $70,000 to remove the accumulated depreciation from the books. This reflects the total depreciation expense that has been recorded against the equipment up to the point of sale.

Question 6

The adjusting entry to record the earned but unpaid salaries of employees at the end of the accounting period is:

Accepted Answer

The adjusting entry to record the earned but unpaid salaries of employees at the end of the accounting period is to debit Salaries Expense (to increase the expense account) and credit Salaries Payable (to increase the liability account). Therefore, the best choice is D, which reflects these accounts. Choices A and B have the same accounts, but they are in the wrong order. Choice C is an incorrect entry, as it debits Salaries Expense and credits Cash, which does not reflect the unpaid salaries.

Question 7

Equipment with a cost of $15 000 and accumulated depreciation of $12 500 was sold for $1700. The journal entry to record the disposal would include:

Accepted Answer

The answer of Equipment with a cost of $15 000...

Question 8

The following details relate to a perpetual inventory system:

What was the value of opening inventory?

Accepted Answer

The answer of The following details relate to a perpetual...

Question 9

When the accumulated depreciation is deducted from the long-term asset account, the figure is known as the:

Accepted Answer

The figure obtained after deducting accumulated depreciation from the long-term asset account is the net book value. This represents the value of the asset that is yet to be depreciated and is the amount that the asset is worth on the company's financial statements. Option A, B, and D are also methods for determining the value of an asset, but they do not involve accumulated depreciation or the calculation of net book value.

Question 10

Which of the following is NOT an example of accrued revenue?

Accepted Answer

Customer deposits are not an example of accrued revenue because they represent prepayments or advances, not revenue earned but not yet received. Accrued revenue refers to revenue that has been earned but not yet paid or collected, such as unbilled revenue or interest receivable on loans. Therefore, choice B is the correct answer.

Question 11

O'Brien Pty Ltd pays salaries on Friday to cover the five working days prior to the Friday. The weekly wages bill is $100 000. 30 June 2016 falls on a Monday. The adjusting journal entry on 30 June 2016 will be:

Accepted Answer

The answer of O'Brien Pty Ltd pays salaries on Friday...

Question 12

Jog Ltd employs a perpetual inventory system. When a customer returns merchandise to Jog Ltd that he purchased on credit, which of these entries would Jog Ltd make?

Accepted Answer

Jog Ltd would make a journal entry to reduce the accounts receivable account by crediting it and increase the sales returns account by debiting it. Option A is incorrect because it would decrease the sales revenue account instead of increasing the sales returns account. Option B is incorrect because it implies that the customer is receiving a cash refund, which may not always be the case. Option D is incorrect because it implies that the customer is paying back cash, which is not the case for a credit sale return.

Question 13

Choo Ltd invested $200 000 with a bank for one year at 12 per cent on 1 September 2015 (interest payable at end of loan). What is the adjusting journal entry at balance date, 30 June 2016?

Accepted Answer

The answer of Choo Ltd invested $200 000 with a...

Question 14

On 30 June, the last day of its financial year, Fast Deliveries Ltd paid $1200 cash for a one-year insurance policy. What is the appropriate journal entry to record the payment, assuming the insurance policy becomes effective on 1 July?

Accepted Answer

The payment is for a future period, so it should be recorded as a prepaid expense, not an immediate expense.

Question 15

XYZ invested $1 million with a bank for 1 year on 1 May 2016 at 9 per cent (interest payable at end of loan). What is the debit side of the adjusting entry at 30 June 2016?

Accepted Answer

The adjusting entry at 30 June 2016 will be to recognize the accrued revenue for the two months (May and June) that the investment has earned interest but not yet been paid. The amount of interest earned for two months at 9 per cent on $1 million is $15,000. Therefore, the debit side of the adjusting entry should be Accrued revenue receivable for $15,000.

Question 16

Delta Ltd purchased a motor vehicle for $45 000 on 1 January 2016. The vehicle was expected to have a life of three years and an estimated disposal value of $15 000. The straight-line method of depreciation is employed and the financial year ends on 30 June. What was the balance of the Accumulated depreciation account at 30 June 2017?

Accepted Answer

The total depreciation over three years is $45,000 - $15,000 = $30,000. Annually, this is $30,000 / 3 = $10,000. By 30 June 2017, 1.5 years have passed, so the accumulated depreciation is $10,000 * 1.5 = $15,000.

Question 17

On 30 June 2016, Video Manufacturers Ltd, which uses accrual accounting, estimates that it will incur warranty costs of $24 000 in the next financial year on products sold during the year just ended. On 7 October 2016, the manufacturer pays $3500 under the warranty. What is the journal entry made by Video Manufacturers Ltd on 30 June 2016?

Accepted Answer

The answer of On 30 June 2016, Video Manufacturers Ltd,...

Question 18

RST paid $120 000 in wages during the year. The opening balance of Accrued Wages was $7860 and the closing balance was $8870. What was the wages expense for the year?

Accepted Answer

The wages expense for the year can be calculated by adding the opening balance of accrued wages to the total wages paid during the year and then subtracting the closing balance of accrued wages. This gives us $120,000 + $7,860 - $8,870 = $121,010.

Question 19

If a company has earned revenue for which no entry has been recorded by the end of the accounting period, an adjustment should be made which would:

Accepted Answer

When a company earns revenue that hasn't been recorded by the end of the accounting period, an adjustment is made to recognize the revenue earned. This involves debiting an asset account (to reflect the increase in assets, such as Accounts Receivable if the revenue is yet to be received in cash) and crediting a revenue account (to record the earned revenue). This adjustment ensures that the revenue is recognized in the period it was earned, adhering to the accrual basis of accounting.

Question 20

From the following information, determine the cash payments made during the year for insurance premiums:

Assume all insurance premiums are paid in cash.

Accepted Answer

The answer of From the following information, determine the cash...

Quiz 5: Accrual Accounting Adjustments