Question 1

What types of accounts are (I)GST collections and (II)GST outlays?

Accepted Answer

The answer of What types of accounts are (I)GST collections...

Question 2

On 1 October 2015 Rugworld purchased a building for $800 000,paying $300 000 as a deposit and giving the seller a 12% mortgage for the balance.The monthly repayment was $6000.What is the entry to record the payment on 1 November 2015?

Accepted Answer

The monthly repayment is $6000, which is the total of the interest expense and the reduction of the mortgage payable. Since the mortgage has a 12% interest rate, the interest expense for the first month would be 1/12 of 12% of the remaining balance ($5000). Therefore, the entry would be to debit interest expense for $5000, debit mortgage payable for $1000 (the reduction of the principal), and credit bank for $6000 (the actual payment made).

Question 3

A capitalisation ratio of 4:1 means:

Accepted Answer

The answer of A capitalisation ratio of 4:1 means:
...

Question 4

An arrangement whereby the terms and conditions of a debt are avoided or defeated is known as:

Accepted Answer

Defeasance refers to the situation where the terms and conditions of a debt are avoided or defeated. This may occur through the use of a legal or financial strategy, such as the issuance of replacement securities or the establishment of a trust. Discounting refers to the practice of selling a financial instrument or security for less than its face value, while obligating and collateralizing relate more broadly to the creation of legal obligations or the provision of security for a debt.

Question 5

What is the formula for the debt ratio?

Accepted Answer

The debt ratio is calculated by dividing total liabilities by total assets. This formula gives the proportion of a company's assets that are financed with debt.

Question 6

Which statement concerning debentures is incorrect?

Accepted Answer

The market value of debentures may be higher or lower than their face value, depending on various factors such as the prevailing interest rates, credit rating of the issuer, and supply and demand for the debentures in the market.

Question 7

A liability where the borrowings are from many investors,representing a written promise to pay a principal amount at a specific time,as well as interest on the principal at a specific rate per period,is known as:

Accepted Answer

A debenture is a long-term bond issued by a company or government agency, which pays a fixed rate of interest until maturity. It represents a liability where the borrowings are from many investors, who have written promises to receive interest and principal payments at specific times.

Question 8

Which statement relating to workers' compensation insurance is not true?

Accepted Answer

The premium for workers' compensation insurance is not deducted from employees' salaries and wages. It is paid by the employer.

Question 9

In relation to long-service leave how many of these statements are untrue?
-The entry to accrue long-service leave is a debit to long-service leave expense and a credit to provision for long-service leave.
-The leave is paid at the rate of pay applicable when the leave is taken.
-Employees only starts to accrue long service leave after being employed for a predetermined length of time (often 10 years).

Accepted Answer

Only one statement is untrue, which is statement three. The length of time required to start accruing long service leave varies between countries, but it is not always 10 years.

Question 10

A capitalisation ratio of 2:1 compared to 2.5:1 means:

Accepted Answer

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Question 11

How many of these ratios are used to evaluate long-term financial stability?
-Debt ratio
-Current ratio
-Equity ratio
-Profit margin
-Quick ratio

Accepted Answer

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Question 12

Indigo had previously purchased inventory from Larry for $40 000.On 1 October Indigo gave Larry a 90-day,bill of exchange to cover the amount of the account payable plus interest at 10% p.a.The correct accounting entry in Indigo's books to record the settlement of the bill at maturity is:

Accepted Answer

The bill of exchange was issued with interest at 10% p.a., which means that the total amount to be paid at maturity will be higher than the initial account payable of $40 000. The interest expense incurred by Indigo is $986 ($40 000 x 10% x 90/365), and this amount needs to be recorded separately from the account payable. Therefore, the correct accounting entry is to debit bills payable for the total amount of $40 986 ($40 000 + $986), debit interest expense for $986, credit bank for $40 986, and credit unexpired interest for $986 (to record the portion of interest that has not yet been used up).

Question 13

Which statement concerning long-service leave is correct?

Accepted Answer

Long-service leave is typically granted to employees after they have completed a required period of continuous employment, and it does not have to be paid until this period is completed.

Question 14

Debentures may be:
i.secured by a specific charge over particular assets.
ii.secured by a floating charge over assets.
iii.unsecured.

Accepted Answer

Debentures may be secured by a specific charge over particular assets or by a floating charge over assets. They may also be unsecured. Therefore, options i and ii are correct, while iii is incorrect. Therefore, the best choice is B) i, ii.

Question 15

Under Australian awards,which statement relating to annual leave is true?

Accepted Answer

Under Australian awards, employees are entitled to be paid pro-rata for annual leave not taken if their employment terminates. This means that if an employee has accrued annual leave but has not taken it before their employment ends, they will be paid for that leave. Option A is incorrect because annual leave is generally accounted for on an accrual basis, not a cash basis. Option B is also incorrect because employees are entitled to annual leave after working for a period specified in their award or agreement, which can be less than a year. Option C is also incorrect because the amount of annual leave entitlement can vary depending on the award or agreement and the employee's length of service.

Question 16

If the debt ratio is 40% the equity ratio is:

Accepted Answer

The equity ratio is calculated as equity / total assets. Since the debt ratio is 40%, it means that debt / total assets = 40%. Therefore, equity / total assets must be 60% (100% - 40%). Thus, the equity ratio is 60%.

Question 17

'No Rust' car sales provides a one year labour and parts warranty with every car sold and at the start of 2012 had a provision of $16 000 to cover warranty claims.On 30 March 2012 $2700 was paid out for repairs for vehicles under warranty.What is the correct accounting entry to record the payment of the claims?

Accepted Answer

When a company pays out for repairs under warranty, it reduces the provision set aside for such expenses and also decreases its cash or bank balance. Therefore, the correct entry is to debit the provision for warranties (reducing the liability) and credit the bank (reducing the asset).

Question 18

A $100 debenture quoted at 104 is said to:

Accepted Answer

When a  debenture is quoted at a price higher than its face value, it is said to sell at a premium. In this case, the $100 debenture is quoted at 104, which means it is selling at a premium of $4 above its face value.

Question 19

From the point of view of the business,which of these is an advantage of using long-term debt rather than equity in financing?
I.It does not dilute the control of existing owners.
II.Creditors do not share in any excess profits of the entity.
III.Interest payments are a fixed commitment regardless of profits.
IV Interest is tax deductible.

Accepted Answer

Using long-term debt instead of equity has the advantage of not diluting the control of existing owners (I), as well as not sharing in any excess profits of the entity (II). Additionally, interest payments are a fixed commitment regardless of profits (III) and are tax-deductible (IV). Therefore, options C (I, II, IV) is the best choice, as it includes all four advantages.

Question 20

Which of these is a disadvantage to shareholders of using long-term debt rather than equity?

Accepted Answer

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Quiz 16: Liabilities

What types of accounts are (I) GST collections and (II) GST outlays?