Question 1

How well an entity attains its goals is referred to as:
A) efficiency.
B) planning.
C) organising.
D) effectiveness.

Accepted Answer

Effectiveness measures the extent to which an entity achieves its goals, whereas efficiency measures how well it uses its resources to achieve its goals. Planning and organizing are steps taken to achieve goals, but do not measure how well they were attained.

Question 2

A) $17 000.
B) $14 000.
C) $16 000.
D) $12 000.

Accepted Answer

A

Question 3

The statement of changes in equity:
A) indicates the ability of the entity to generate cash flow.
B) shows the selling price of the entity's assets.
C) shows how profit was determined.
D) serves as a connecting link between the income statement and the balance sheet.

Accepted Answer

The statement of changes in equity is a bridge between the income statement and balance sheet as it explains the changes in equity that occurred during a specific period, including net income or loss, dividends paid, and any other equity transactions. It does not indicate the entity's ability to generate cash flow or the selling price of assets, nor does it show how profit was determined.

Question 4

Which of the following statements is incorrect?:
A) The liability of shareholders to contribute to the debts of an insolvent company is limited.
B) A sole proprietorship is an accounting entity.
C) Individual partners are personally liable for partnership debts.
D) Partnerships are regarded as separate legal entities.

Accepted Answer

Partnerships are not regarded as separate legal entities. They are not incorporated like companies, and each partner is personally liable for the partnership's debts.

Question 5

Assume you are examining a financial statement headed 'As at the 31 December 2014'. The heading indicates the statement is the:
A) trial balance.
B) income statement.
C) statement of changes in equity.
D) balance sheet.

Accepted Answer

The heading "As at the 31 December 2014" indicates that the financial statement is presenting the balances of assets, liabilities and equity accounts as at a particular date, which is the end of the financial year. This is consistent with the purpose of a balance sheet, which is to report the financial position of an entity at a specific date. Therefore, the correct choice is D, balance sheet.

Question 6

A balance sheet:
A) is classified into operating, investing and financing activities.
B) measures the entities financial performance.
C) lists assets, liabilities and equity at a specific point in time.
D) shows how profit was determined.

Accepted Answer

A balance sheet lists assets, liabilities, and equity at a specific point in time, and does not measure financial performance, nor does it classify activities or show how profit was determined.

Question 7

On 2 January 2014 Fife Corp buys goods from O'Brien and agrees to pay for them within 60 days. On the balance sheet for Fife Corp at 2 January 2014 the amount owing to O'Brien would be reported as:
A) an advance payment by a customer.
B) accounts receivable.
C) accounts payable.
D) an expense.

Accepted Answer

When Fife Corp buys goods from O'Brien but agrees to pay them at a later date, it is considered a liability for Fife Corp. Specifically, it is an account payable which would be reported on the balance sheet as a current liability.

Question 8

A) $8300.
B) $27 300.
C) $5300.
D) $13 300.

Accepted Answer

The answer of 
A) $8300.
B) $27 300.
C) $5300.
D) $13 300.
...

Question 9

Which of the following statements concerning the cash flow statement is correct?
A) It provides the connecting link between the income statement and the balance sheet.
B) It summarises the cash flows into and out of an entity.
C) An alternative name is the cash budget.
D) It includes cash and non-cash items.

Accepted Answer

The answer of Which of the following statements concerning the...

Question 10

A business transaction creating an inflow of net assets resulting from the sale of goods or services is a(n):
A) expense transaction.
B) income transaction.
C) cash disbursement.
D) capital transaction.

Accepted Answer

An income transaction is a business transaction that creates an inflow of net assets resulting from the sale of goods or services. Thus, option B is correct. Option A is incorrect because an expense transaction is a business transaction that results in an outflow of net assets. Option C is incorrect because cash disbursed is an outflow of cash, not an inflow. Option D is incorrect because a capital transaction is a business transaction that involves the purchase or sale of long-term assets or investment in the company, resulting in a change in the company's capital structure.

Question 11

A) $160 000.
B) $120 000.
C) $300 000.
D) $220 000.

Accepted Answer

The total revenue from sales is $500,000 and the cost of goods sold is $300,000, so the gross profit is $200,000. The operating expenses are given as $80,000, so subtracting this gives an operating profit of $120,000.

Question 12

Which statement is not true?
A) The balance sheet can be presented in account form or narrative form.
B) The account form balance sheet lists all the elements in one column.
C) In Australia the narrative form balance sheet is the most common.
D) The basic layout for the account form balance sheet is assets = liabilities + equity.

Accepted Answer

The account form balance sheet lists assets on one side and liabilities and equity on the other, not in one column.

Question 13

Which statement is not correct?
A) Information in the cash flow statement is useful in assessing the ability of an entity to pay its debts as they fall due.
B) A comparison of the cash flow statement and the income statement can indicate to what extent the profit is represented by cash inflows.
C) The cash flow statement classifies cash flows into operating investing and financing groupings.
D) Operating activities are concerned with activities involving the sales and purchases of fixed assets.

Accepted Answer

Operating activities in the cash flow statement are concerned with the day-to-day business operations of the entity. They include cash inflows and outflows from the sales and purchases of goods/services, taxes paid, and interest received/paid. They do not involve the sales and purchases of fixed assets which fall under investing activities. Therefore, statement D is not correct.

Question 14

Which of the following is the correct expression of the accounting equation?
A) Assets + liabilities = equity.
B) Assets = liabilities - equity.
C) Assets + equity = liabilities.
D) Assets = liabilities + equity.

Accepted Answer

The accounting equation is Assets = Liabilities + Equity, which means that the total value of assets must be equal to the sum of liabilities and equity. Option A is incorrect because it shows assets and liabilities adding up to equity, while option B reverses the equation and subtracts equity from liabilities. Option C also adds equity and assets together, which is not correct.

Question 15

Junction Plants had the following transactions during August. Which transaction represents an expense for August under the accrual basis of accounting?
A) Used $90 worth of office telephone calls. The account will be paid during September.
B) Paid $3300 in settlement of a loan obtained three months earlier.
C) Paid a plumber $500 for repair work performed in July.
D) Purchased a computer for $3000 cash.

Accepted Answer

The answer of Junction Plants had the following transactions during...

Question 16

The assets of Frank's business increased by $40 000 and the liabilities increased by $10 000 during the current year. If the profit for this period was $25 000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made.)
A) Drawings $10 000
B) Contribution $10 000
C) Contribution $5000
D) Drawings $5000

Accepted Answer

The increase in assets is $40,000 and the increase in liabilities is $10,000. The total increase in equity is $40,000 - $10,000 = $30,000. The profit for the period is $25,000. Therefore, the additional contribution or withdrawal is $30,000 - $25,000 = $5,000. Since the assets increased, the liabilities increased, and the profit is positive, the additional contribution must have been made by the owner.

Question 17

In order to avoid later disputes it is desirable that a partnership agreement:
A) is in writing.
B) should have the partners sharing profits and losses equally.
C) should set up the partnership as a separate legal entity.
D) should set out in detail how the how all likely transactions are to be recorded.

Accepted Answer

Having a written partnership agreement ensures that all partners are aware of their rights and obligations, which helps to avoid later disputes. While options B, C, and D may also be desirable, they are not as essential as having a written agreement.

Question 18

Which of the following statements concerning the income statement is not true?
A) The heading must indicate the length of time the report covers.
B) It shows the change in the entity's cash balance for the period.
C) If expenses exceed income than a loss has been incurred for the period.
D) An alternative name is the statement of financial performance.

Accepted Answer

The income statement does not directly show the change in cash balance for the period. It shows the entity's revenue, expenses, and net income or loss for the period. However, the income statement's information is used in preparing the statement of cash flows, which does show changes in the entity's cash balance.

Question 19

Maintaining a satisfactory relationship between an entity's resource inputs and its output of product or services is referred to as:
A) planning.
B) efficiency.
C) organising.
D) effectiveness.

Accepted Answer

Efficiency is the measure of how well an entity uses its resources to achieve a desired output. It is about achieving maximum output with minimum input. Therefore, maintaining a satisfactory relationship between an entity's resource inputs and its output of product or services is referred to as efficiency. Planning and organizing are related to the process of decision making, while effectiveness is concerned with achieving the desired outcomes.

Question 20

Which of the following statements concerning equity is true?
A) It is the owner's claim to the assets of the entity after deducting liabilities.
B) It is fixed at the amount initially contributed when the business was established.
C) It is decreased by profit.
D) Assets + liabilities = equity.

Accepted Answer

Equity represents the owner's claim to the assets of the entity after deducting liabilities. Option B is incorrect as equity can change based on various factors such as profit or loss, change in market value of assets, etc. Option C is also incorrect as profit adds to the equity, and not decreases it. Option D is incorrect as equity is calculated as Assets - Liabilities, and not Assets + Liabilities.

Quiz 2: Financial Statements for Decision Making

How well an entity attains its goals is referred to as:

The statement of changes in equity:

Which of the following statements is incorrect?:

Assume you are examining a financial statement headed 'As at the 31 December 2014'. The heading indicates the statement is the:

A balance sheet:

On 2 January 2014 Fife Corp buys goods from O'Brien and agrees to pay for them within 60 days. On the balance sheet for Fife Corp at 2 January 2014 the amount owing to O'Brien would be reported as:

Which of the following statements concerning the cash flow statement is correct?

A business transaction creating an inflow of net assets resulting from the sale of goods or services is a(n) :

Which statement is not true?

Which statement is not correct?

Which of the following is the correct expression of the accounting equation?

Junction Plants had the following transactions during August. Which transaction represents an expense for August under the accrual basis of accounting?

The assets of Frank's business increased by $40 000 and the liabilities increased by $10 000 during the current year. If the profit for this period was $25 000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made.)

In order to avoid later disputes it is desirable that a partnership agreement:

Which of the following statements concerning the income statement is not true?

Maintaining a satisfactory relationship between an entity's resource inputs and its output of product or services is referred to as:

Which of the following statements concerning equity is true?