Question 1

In an income statement, the expenses may be classified either by:

Accepted Answer

Classifying expenses by nature refers to grouping them into categories such as salaries, utilities, rent, etc. Classifying expenses by function refers to categorizing them into groups such as production costs, selling and distribution costs, and administrative expenses. This classification method provides more detailed information about the different types of expenses a company incurs and helps management make more informed decisions about cost control, pricing strategies, and resource allocation.

Question 2

A company is a legal entity and, as such, has an additional expense it is required to recognise in its income statement that sole traders and partnerships do not have. This additional expense is for:

Accepted Answer

Companies are subject to income tax on their profits, which is an expense that sole traders and partnerships do not face in the same way, as the income from those business types is taxed as personal income of the owners.

Question 3

At 30 June 2019, Barry Ltd estimates it will be required to pay income tax expenses of $62 000 during the following financial year. The correct journal entry to provide for this income tax estimate at 30 June 2019 is:

Accepted Answer

The correct way to provide for estimated income tax expenses is to debit Income tax expense account and credit Current tax liability account. This is because the estimated income tax expense is a liability for the company and should be recorded as such in the balance sheet. Options A and B are not correct because income tax expenses should not be recorded in the bank or retained earnings accounts. Option D is also incorrect since it reverses the debit and credit accounts.

Question 4

The basic entry to provide for company income tax at the end of the financial year is :

Accepted Answer

The basic entry to provide for company income tax at the end of the financial year is to debit the Income tax expense account and credit the Current tax liability account. This is because income tax expense is recognized in the income statement as an expense, and the corresponding liability is recognized in the balance sheet as a current tax liability. Therefore, option D, DR Income tax expense; CR Current tax liability, is the correct basic entry to provide for company income tax at the end of the financial year.

Question 5

Which of the following financial statements is required to be completed by a company?
I. Statement of cash flows
II. Statement of profit or loss and other comprehensive income
III. Statement of changes in equity
IV. Statement of financial position

Accepted Answer

All four financial statements (statement of cash flows, statement of profit or loss and other comprehensive income, statement of changes in equity, and statement of financial position) are required to be completed by a company according to International Financial Reporting Standards (IFRS) and generally accepted accounting principles (GAAP).

Quiz 9: Companies: Formation and Operations

In an income statement, the expenses may be classified either by:

A company is a legal entity and, as such, has an additional expense it is required to recognise in its income statement that sole traders and partnerships do not have. This additional expense is for:

At 30 June 2019, Barry Ltd estimates it will be required to pay income tax expenses of $62 000 during the following financial year. The correct journal entry to provide for this income tax estimate at 30 June 2019 is:

The basic entry to provide for company income tax at the end of the financial year is :

Which of the following financial statements is required to be completed by a company? I. Statement of cash flows II. Statement of profit or loss and other comprehensive income III. Statement of changes in equity IV. Statement of financial position