Question 1

The capital account of a sole trader was credited with $5000.Which of these items would not give rise to such a credit?

Accepted Answer

The capital account of a sole trader represents the owner's investment in the business. Credits to the capital account can come from various sources such as profits, new capital introduced, or assets used for business purposes. However, paying a private gambling debt from the business bank account would not increase the owner's investment and therefore would not result in a credit to the capital account. Instead, it would be recorded as a withdrawal or a reduction in the owner's equity in the business.

Question 2

The publishers of 'Guide to the Stock Market',a magazine published monthly,received $121 in advance,including $11 GST on 1 March,for a 1 year's subscription 11 issues)beginning with the March issue.On receipt of the subscription which entry will the company make?

Accepted Answer

The company will debit Cash for the total amount received ($121), credit GST Collections for the GST portion ($11), and credit Unearned Subscriptions (a liability) for the remaining amount ($110) as it represents income that has not yet been earned.

Question 3

Under the ______________ basis of accounting,income is recognised when earned and expenses when incurred.

Accepted Answer

The answer of Under the ______________ basis of accounting,income is...

Question 4

The c____________ basis of accounting is not a generally accepted method of determining profit for businesses that have significant credit transactions.

Accepted Answer

The answer of The c____________ basis of accounting is not...

Question 5

Goodwill is classified in the balance sheet as an i_____________ asset.

Accepted Answer

The answer of Goodwill is classified in the balance sheet...

Question 6

Accumulated depreciation is referred to as a c ___________ asset account because it offsets a related asset account.

Accepted Answer

The answer of Accumulated depreciation is referred to as a...

Question 7

The current liability is:

Accepted Answer

Accrued Delivery Expenses represent a current liability, as they are expenses that have been incurred but not yet paid for. Accounts Receivable and Long-term Loans are not current liabilities, as the former represents money owed to the business and the latter is a long-term, not current, debt. Electricity Expense is a type of expense, but it is not necessarily a current liability - it depends on whether it has been paid or not.

Question 8

The excess of current assets over current liabilities is known as:

Accepted Answer

The excess of current assets over current liabilities is known as working capital. Working capital is a measure of a company's liquidity and its ability to meet short-term obligations. It can be calculated by subtracting current liabilities from current assets.

Question 9

If a company has earned income which has not been received in cash at the end of the accounting period an adjustment should be made which will:

Accepted Answer

When income is earned but not yet received, it is recorded as accrued income. This requires debiting an asset account (Accrued Income or Accounts Receivable) and crediting an income account to recognize the revenue earned.

Question 10

Which of these is not an advantage of using a worksheet to assist in preparing the financial statements?

Accepted Answer

The use of a worksheet does not eliminate the need for a ledger, as the ledger is still necessary to record and organize transactions.

Question 11

Unearned income is classified as a l______________ in the balance sheet as,if the income is not earned,it may need to be repaid.

Accepted Answer

The answer of Unearned income is classified as a l______________...

Question 12

The o_____________ cycle is the average time it takes for a firm to acquire and sell inventory and collect the cash from the sale.

Accepted Answer

The answer of The o_____________ cycle is the average time...

Question 13

The publishers of 'Guide to the Stock Market',a magazine published monthly,received $121 in advance,including $11 GST on 1 March,for a 1 year's subscription 11 issues)beginning with the March issue.At the end of the financial year on 30 June what entry will the company make?

Accepted Answer

The company will recognize the revenue for the issues delivered by June, which is 4 issues (March to June). The subscription income for these 4 issues is $40 (4/11 of $110, excluding GST).

Question 14

ABC collects rents from several properties.Prior to recording adjusting entries,assume the Rent Income account has a credit balance of $8000.Two adjustments are to be made at the end of the financial year 1)an accrual for accrued rent income of $600 2)the Unearned Rent Income account is to be decreased by $200.After processing these adjusting entries the amount of Rent Income to be shown in the income statement is:

Accepted Answer

The initial Rent Income is $8000. Adding the accrued rent income of $600 increases it to $8600. Decreasing the Unearned Rent Income by $200 further increases it to $8800.

Question 15

The primary basis for the classification of assets and liabilities in the balance sheet is:

Accepted Answer

The primary basis for the classification of assets and liabilities in the balance sheet is liquidity. Assets and liabilities are classified as current or long-term based on their ability to be converted into cash within a year (or the company's operating cycle) or after that period. This classification helps investors and analysts assess a company's ability to meet its short-term obligations and manage its cash flow. Profitability, tangibility, and degree of risk may also be considered in analyzing a company's financial position, but they are not the primary basis for classification in the balance sheet.

Question 16

The c_____________ v____________ of an asset is its original cost less accumulated depreciation.

Accepted Answer

The answer of The c_____________ v____________ of an asset is...

Question 17

Current assets may be listed in the balance sheet in the order of their liquidity.Liquidity is:

Accepted Answer

Liquidity refers to how quickly an asset can be converted into cash. Therefore, current assets are usually listed on the balance sheet in order of liquidity, with the most liquid assets listed first. This allows readers of the balance sheet to quickly assess the company's ability to meet its short-term financial obligations.

Question 18

Obligations of the entity that do not require payment within one year of the balance sheet date are classified as:

Accepted Answer

Obligations of the entity that do not require payment within one year of the balance sheet date are classified as non-current liabilities. Current liabilities require payment within one year, while non-current liabilities have longer payment schedules. Therefore, option D is the correct choice.

Question 19

In preparing its 2011 adjusting entries,the Philippoussis Company neglected to adjust the Office Supplies asset)account for the amount of supplies used up during the year.As a result of this error:

Accepted Answer

Since the Office Supplies account was not adjusted for the supplies used up during the year, the assets are overstated. This means that the net income or profit for the year is also overstated, leading to an overstatement of the equity balance. Therefore, the correct answer is C. Liabilities are not affected by this error.

Question 20

Which of the following is not an advantage of preparing an adjusted trial balance?

Accepted Answer

Preparing an adjusted trial balance requires the adjustment entries to be entered into the ledger, so it is not a shortcut. Therefore, option C is not an advantage of preparing an adjusted trial balance. Options A, B, and D are all advantages of preparing an adjusted trial balance.

Quiz 4: Adjusting the Accounts and Preparing Financial Statements