Atrill, Accounting 8e Chapter 1: Introduction to accounting LO 1.1 Explain the nature and role of accounting Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 1. Which of the following is the most important function of an accounting system? A. provide information for decision-making, planning and control. B. keep employees from embezzling funds. C. prepare accounting reports D. collect and record data. Answer: A Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 8 – Application of knowledge 2. The best description of the primary purpose of providing accounting information is: A. to allow the preparation of a taxation return. B. to calculate the bank account balance. C. to assist users in making informed decisions D. to enable the financial statements to be prepared. Answer: C Difficulty: Basic Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 8 – Application of knowledge 3. The stages of an accounting system are: A. evaluation, processing, output. B. identification, recording, analysis, reporting. C. setting objectives, planning, analysis. D. none of the above. Answer: B Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Difficulty: Complex Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Analytical thinking 4. What are the four key qualities of accounting information? A. relevance, materiality, comparability, and understandability. B. identification, analysis, planning, and timeliness. C. planning, control, comparability and analysis D. understandability, identification, analysis, and relevance. Answer: A Difficulty: Complex Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 8 – Application of knowledge 5. The best explanation of relevance is: A. ensuring that information is useful for decision-making. B. ensuring that information is expressed as clearly as possible. C. ensuring the benefit of the information is greater than the cost of providing it. D. ensuring that information is free from bias. Answer: A Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 8 – Application of knowledge 6. The quality of accounting information that requires items that are basically the same to be treated in the same manner is: A. relevance. B. timeliness. C. understandability. D. comparability. Answer: D Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 8 – Application of knowledge 7. Which of these is a reason why achieving the maximum possible profit in a particular year may not be in the best interests of a business? A. Concentrating on the short-term may have detrimental effects in the long-term. B. It may be achieved by causing environmental problems, which give the business a bad reputation. C. If it is achieved with high-risk strategies, such as excessive reliance on borrowings, it could lead to disaster in the longer term. D. All of the above. Answer: D Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Analytical thinking 2 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
8. Which test determines if an item of accounting information is worthwhile collecting? A. cost test. B. cost/benefit test. C. worthwhile test. D. validation test. Answer: B Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Analytical thinking 9. The characteristic of accounting information that requires financial reports to be expressed as clearly as possible and to be capable of being understood by those they are addressed to, is known as: A. understandability. B. control. C. cost versus benefit test. D. relevance. Answer: A Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 1 – Written and oral communication 10. The statement concerning the key qualities of accounting information that is untrue is: A. the qualities are frequently in conflict. B. relevant information may help to predict future events or confirm past events. C. relevant information often contains a degree of subjectivity. D. None of the statements is untrue, i.e., all are true statements. Answer: D Difficulty: Complex Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Analytical thinking 11. Which of these is not one of the key qualities of accounting information? A. Timeliness. B. Comparability. C. Relevance . D. Control. Answer: D Difficulty: Complex Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Analytical thinking 12. Which statement concerned with establishing the costs and benefits of accounting information is true? A. It is usually easier to establish benefits than costs. B. It is normally easy to establish both the costs and the benefits. C. Both the costs and benefits are normally difficult to assess. 3 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
D. The costs and benefits should be ignored when deciding on what accounting information should be produced. Answer: C Difficulty: Basic Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Analytical thinking
True/False: Write 'T' if the statement is true and 'F' if the statement is false. 13. When accounting information has the potential to change decision-making it is said to be understandable. A. True B. False Answer: B Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Analytical thinking
Essay: Write your answer in the space provided or on a separate sheet of paper. 14. Briefly discuss how accounting information is relevant to managers of a business. Answer: Student answers may vary, but may include some/all of the following: ● Help managers make decisions with regards to development/termination of new products or services; changing pricing or quantity of products; whether borrowing money may be required to finance the business; scaling up or down of businesses ; methods of purchasing, production or distribution. Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 3 – Reflective Thinking 15. Briefly explain the meaning of each of the key qualitative characteristics of accounting information: relevance, comparability and understandability. Also explain how the cost/benefit test acts as a limit on the application of these characteristics. Answer: Relevance means that accounting information should have the ability to influence decision-making. Relevance may refer to helping to confirm past events or assisting in the prediction of future events. If information is not relevant to decisionmaking, it is not useful and should not be produced. Comparability means that valid comparisons can be made between accounting reports across a number of accounting periods. For comparisons to be valid, items which are basically the same must be consistently measured and presented in the same manner. Understandability means that to be most useful, accounting reports should be expressed as clearly as possible and should be capable of being understood by the user groups they are prepared for.
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The cost/benefit test provides a limit on the production of relevant, comparable, and understandable accounting information as, even if the information has all four qualities, it only makes economic sense to produce it if the benefit of its being available is greater than the cost of providing it. A problem of applying the cost/benefit test is that, in practice, both the costs and the benefits of accounting information are difficult to identify with accuracy. Difficulty: Moderate Learning Objective 1.1: Explain the nature and role of accounting A-Head: Nature and role of accounting AACSB: 1 – Written and oral communication
LO 1.2 List the main groups that use the accounting reports of a business entity, and summarise the different uses that can be made of accounting information Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 16. Which of these groups is a user of financial information? A. Managers. B. Lenders. C. Owners. D. All of the above Answer: D Difficulty: Basic Learning Objective 1.2: List the main groups that use the accounting reports of a business entity, and summarise the different uses that can be made of accounting information A-Head: Users of accounting information AACSB: 3 – Analytical thinking 17. Which group of users is most likely to require accounting information to assess the ability of a business to pay interest and repay a loan? A. employees. B. creditors. C. customers. D. taxation department. Answer: B Difficulty: Basic Learning Objective 1.2: List the main groups that use the accounting reports of a business entity, and summarise the different uses that can be made of accounting information A-Head: Users of accounting information AACSB: 3 – Analytical thinking 18. The main source of information for shareholders is: 5 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A. departmental reports. B. management reports. C. external reports. D. internal reports. Answer: C Difficulty: Basic Learning Objective 1.2: List the main groups that use the accounting reports of a business entity, and summarise the different uses that can be made of accounting information A-Head: Users of accounting information AACSB: 1 – Written and oral communication
LO 1.3 Compare and contrast financial and management accounting Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 19. What is the primary goal of management accounting? A. To provide information that can be quantified in monetary terms. B. To provide information to shareholders. C. To provide information that conforms to the accounting regulations. D. To provide information that improves the quality of managers' decisions. Answer: D Difficulty: Basic Learning Objective1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 8 – Application of knowledge 20. Which statement is correct? A. Financial reports are prepared for internal users whereas management reports are prepared for external users. B. Financial reports are produced at more frequent intervals than management reports. C. Financial reports reflect past performance whereas management reports are concerned with the future as well as the past. D. Financial reports provide more forecast data than management reports. Answer: C Difficulty: Complex Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 21. Standardised formats are most relevant to: A. departmental reports. B. management reports. C. external financial reports. D. internal reports. Answer: C 6 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Difficulty: Basic Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 22. Management reports, compared to financial reports, are: A. prepared less frequently. B. prepared more frequently. C. prepared with the same frequency. D. prepared infrequently. Answer: B Difficulty: Basic Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 23. Management reports, compared to financial reports, are: A. summarised. B. aggregated. C. standardised. D. detailed. Answer: D Difficulty: Basic Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 24. Which of t he statements concerning differences between financial and management accounting is false? A. management accounting is less constrained than financial accounting. B. managers have much more control over the form and content of their reports. C. the distinction between the two areas, to some extent, reflects differences in access to financial information. D. there is no overlap between management accounting and financial accounting. Answer: D Difficulty: Moderate Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 3 – Analytical thinking 25. Which of the following are differences between management and financial accounting? A. Nature of reports produced B. Frequency of reports C. Level of detail in reports D. All of the above Answer: D Difficulty: Moderate Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 26. Financial accounting reports, compared to management reports, tend to be: 7 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A. general purpose. B. qualitative. C. unstructured. D. detailed. Answer: A Difficulty: Complex Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 27. How frequently is the set of financial reports made available for external publication by an entity typically produced? A. fortnightly B. daily C. weekly D. yearly Answer: D Difficulty: Basic Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 28. Management accounting reports are principally used by managers to: A. report to shareholders. B. reconcile with the financial accounting reports. C. calculate the amount of taxation owed to the government. D. control the operations of an entity on a regular basis. Answer: D Difficulty: Basic Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 8 – Application of knowledge 29. Financial accounting reports concentrate on: A. current events. B. current and future events. C. past events. D. future events. Answer: C Difficulty: Moderate Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 1 – Written and oral communication 30. Management accounting reports tend to contain: A. both financial and non-financial information. B. financial information only. C. information that complies with the accounting standards. D. non-financial information only. Answer: A Difficulty: Moderate Learning Objective 1.3: Compare and contrast financial and management accounting 8 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A-Head: Financial and management accounting AACSB: 3 – Analytical thinking 31. Why do businesses tend to resist providing forecast data to those outside the organisation? A. because it is too costly B. because of the fear of the loss of competitive advantage C. because the data is inaccurate D. because it is too difficult Answer: B Difficulty: Complex Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 3 – Analytical thinking Essay: Write your answer in the space provided or on a separate sheet of paper. 32. Briefly discuss the main differences between financial accounting and management accounting. Answer: Student answers will vary but may include some/all of the following: ● The definitions of management accounting and financial accounting ● Reports that are produced and their respective detail ● Regulations ● Reporting interval ● Time that the reports reflect—performance to date versus expected performance ● Range of information provided Difficulty: Moderate Learning Objective 1.3: Compare and contrast financial and management accounting A-Head: Financial and management accounting AACSB: 3 – Analytical thinking
LO 1.4 Identify the main purpose of a business (while recognising a range of other influences), and explain the traditional risk-return relationship Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 33. Which of the following best represents a possible objective of a business ? A. financial survival. B. maximise profit. C. maximise sales. D. all of the above. Answer: D Difficulty: Basic Learning Objective 1.4: Identify the main purpose of a business (while recognising a range of other influences), and explain the traditional risk-return relationship A-Head: What is the financial objective of a business? 9 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
AACSB: 3 – Analytical thinking 34. The commonly accepted overall financial objective of business can best be summed up as: A. enhancing wealth. B. promoting good corporate relations. C. satisfying everyone within the organisation. D. stabilising profit. Answer: A Difficulty: Moderate Learning Objective 1.4: Identify the main purpose of a business (while recognising a range of other influences), and explain the traditional risk-return relationship A-Head: What is the financial objective of a business? AACSB: 3 – Analytical thinking
True/False: Write 'T' if the statement is true and 'F' if the statement is false. 35. The goal of business in relation to profit is generally taken as profit maximisation. A. True B. False Answer: A Difficulty: Basic Learning Objective 1.4: Identify the main purpose of a business (while recognising a range of other influences), and explain the traditional risk-return relationship A-Head: What is the financial objective of a business? AACSB: 8 – Application of knowledge
LO 1.5 Provide an overview of the main financial reports prepared by the business Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 36. What does a statement of financial position show? A. the details of how much profit was earned in the period B. the cash movements that took place over a particular period C. the financial position at the end of the period D. the change in financial position over a particular period Answer: C Difficulty: Moderate Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication 37. Another name for the statement of comprehensive income is: A. statement of financial position. 10 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
B. balance sheet. C. statement of change in owners' equity. D. statement of financial performance. Answer: D Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication 38. What is another name commonly used for the balance sheet? A. profit and loss statement B. statement of financial position C. statement of financial performance D. statement of change in owners' equity. Answer: B Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication 39. The accounting report that is specifically designed to answer the question, 'What cash movements took place over a particular period?' is: A. the statement of financial position. B. the statement of cash flows. C. the statement of comprehensive income. D. all of the above. Answer: B Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 3 – Analytical thinking 40. Which accounting report is specifically designed to answer the question, 'What profit was earned in a particular period?' A. Statement of comprehensive income. B. Statement of financial position. C. Statement of cash flows. D. All of the above. Answer: A Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 3 – Analytical thinking 41. Which accounting report is prepared at a particular point of time rather than over a period of time? A. Statement of comprehensive income. B. Statement of change in owners' equity. 11 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
C. Statement of financial position. D. Both B and C. Answer: C Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication 42. Calculate the cash available at the end of the day if cash at the beginning is $650, receipts from customers are $5 00 and payments to suppliers are $300. A. $(50). B. $ 850. C. $750. D. $1,45 0. Answer: B Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 3 – Analytical thinking 43. Paulo commenced business with $150 cash. He purchased goods for $75 that were later sold for $125. The statement of financial position, after the sale, would show a total business wealth of: A. $150. B. $200. C. $50. D. $100. Answer: B Difficulty: Complex Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 3 – Analytical thinking 44. Which financial reports comprise the ‘final accounts’? A. statement of cash flows and statement of comprehensive income. B. statement of comprehensive income and statement of financial position. C. statement of comprehensive income, statement of financial position, statement of cash flows and statement of change in owners' equity. D. statement of financial position, statement of cash flows and statement of comprehensive income. Answer: C Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication 45. Which statement is true? 12 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A. The statement of cash flows explains the changes between the statement of comprehensive income and the statement of financial position. B. The statement of financial position links two statements of comprehensive income. C. The statement of cash flows summarises the movements in the bank account over an accounting period. D. None of the statements is true. Answer: C Difficulty: Complex Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication 46. Which accounting reports are concerned with measuring flows over a period of time? A. statement of comprehensive income and statement of financial position. B. statement of comprehensive income and statement of cash flows. C. statement of cash flows and statement of financial position. D. statement of comprehensive income, statement of cash flows and statement of financial position. Answer: B Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 8 – Application of knowledge 47. The financial statement which shows all the changes in the owners' interest in the net assets of the business is: A. statement of changes in owners' equity. B. statement of cash flows. C. statement of comprehensive income. D. none of the above. Answer: A Difficulty: Basic Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication
Short answer: Write the word or phrase that best completes each statement or answers the question. 48. Calculate the cash available at the beginning of the day if cash at the end is $950, receipts from customers are $360 and payments to suppliers are $425. Answer: $885 Difficulty: Moderate Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 3 – Analytical thinking 13 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Essay: Write your answer in the space provided or on a separate sheet of paper. 49. Set out the main purpose of each of the three main financial reports — the statement of comprehensive income, the statement of financial position, and the statement of cash flows — and briefly explain how each achieves its purpose. Answer: The purpose of the statement of comprehensive income is to show how much profit was generated by the entity from its operating activities during a particular period. This is achieved by recording all the income earned in the period and deducting from it all the expenses incurred in earning that income. If income exceeds expenses, a profit is earned. If income is less than expenses, there is a loss. The purpose of the statement of financial position is to show the financial position of the entity at the end of an accounting period. This is achieved by listing the assets controlled by the entity on a particular date and deducting all amounts owed to parties other than the owner. Total assets held less liabilities owed is the amount of equity the owner has in the entity. Examples of assets owned are: cash at bank, inventory, land and buildings, equipment, motor vehicles. Examples of liabilities are amounts owing to creditors and lenders. The purpose of the statement of cash flows is to show the change in the cash position over a particular period and the movements in cash that caused that change. This is achieved by listing all inflows and outflows of cash for the period. If inflows exceed outflows, there has been a net increase in cash. If the opposite is true, then there has been a net outflow of cash. Difficulty: Complex Learning Objective 1.5: Provide an overview of the main financial reports prepared by the business A-Head: The main financial reports – an overview AACSB: 1 – Written and oral communication
LO 1.6 Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 50. The most complete description of the planning process for a business is: A. setting objectives and short-term plans. B. setting long-term objectives and long-term plans. C. setting objectives and detailed budgets. D. setting objectives, long-term plans, and short-term plans. Answer: D Difficulty: Basic Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting 14 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
AACSB: 3 – Analytical thinking 51. The planning role within a company is principally undertaken by: A. consultants. B. managers. C. shareholders. D. lenders. Answer: B Difficulty: Basic Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge 52. Knowledge of the objectives or mission of a business will be most useful in assisting users of financial reports in understanding: A. the liquidity position of the business. B. why it is taking longer than it should to collect money from accounts receivable. C. the financial reporting cycle. D. what the business is trying to achieve. Answer: D Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 3 – Analytical thinking 53. Budgets are typically set for: A. one year. B. a decade. C. one month. D. five years. Answer: A Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 1 – Written and oral communication 54. Control is best defined as: A. making events conform to plan. B. making the directors perform according to plan. C. making the employees work harder. D. giving orders. Answer: A Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context 15 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A-Head: Business and accounting AACSB: 8 – Application of knowledge 55. The planning and control process within an entity means that: A. business can respond to variances between plans and actual performance. B. business is only concerned with actual performance. C. plans are followed rigidly at all times. D. plans and actual performance do not vary. Answer: A Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge 56. The term that describes differences between actual and budgeted results is: A. divergence. B. discrepancy. C. mistake. D. variance. Answer: D Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge 57. Which statement is incorrect? A. A budget summarises past information. B. A budget is expressed in monetary terms. C. A budget is a short-term plan. D. A budget defines precise targets, e.g., level of sales, levels of inventory. Answer: A Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 1 – Written and oral communication 58. The three most common types of structures used by businesses in Australia are: A. partnership, limited company, association. B. sole proprietor, partnership, limited company. C. partnership, private company, trust. D. sole proprietor, limited company, co-operative. Answer: B Difficulty: Basic Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context 16 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A-Head: Business and accounting AACSB: 8 – Application of knowledge 59. A business that is not a legal entity, where there is one owner who is fully liable for all debts, is: A. a proprietary company. B. a partnership. C. a sole proprietorship. D. none of the above. Answer: C Difficulty: Basic Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 Application of knowledge 60. Which of these is an accounting entity? A. Sole proprietor. B. Partnership. C. Company. D. All of the above. Answer: D Difficulty: Basic Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context. A-Head: Business and accounting AACSB: 8 – Application of knowledge 61. The business most likely to operate as a sole proprietorship is: A. private hospital. B. airline. C. bank. D. medical specialist. Answer: D Difficulty: Basic Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge 62. The principle whereby each partner is responsible for the business actions of all other partners when the actions are carried out in the normal course of business, is known as: A. the rule in Garner versus Murray. B. mutual agency. C. unlimited liability. D. perpetual life. Answer: B Difficulty: Moderate 17 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge 63. An advantage of a partnership compared to a sole proprietorship is: A. mutual agency. B. sharing of profits. C. greater access to funds. D. Both B and C. Answer: C Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge 64. In comparison to a company, a disadvantage of operating as a partnership is: A. unlimited liability. B. limited life. C. mutual agency. D. all of the above. Answer: D Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge
Short answer: Write the word or phrase that best completes each statement or answers the question. 65. Explain the advantages of operating as a sole proprietor. Answer: Student answers may vary but could include the fact that a sole proprietor has total control over all decisions regarding the business that he or she owns and also has low start-up costs. Difficulty: Moderate Learning Objective 1.6: Outline the main types of business ownership, describe the way in which a business is typically organised and managed, and explain the importance of accounting in a business context A-Head: Business and accounting AACSB: 8 – Application of knowledge
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LO 1.7 Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 66. A common aspect of questionable figures in financial reports is: A. overstating figures for income and assets. B. overstating figures for income and understating figures for assets. C. understating figures for income and expenses. D. overstating figures for expenses and liabilities. Answer: A Difficulty: Complex Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business A-Head: The changing face of business and accounting AACSB: 2 – Ethical understanding and reasoning 67. Sustainability reporting focuses on: A. financial aspects. B. environmental and social factors. C. customer satisfaction. D. Both A and C. Answer: B Difficulty: Moderate Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business A-Head: The changing face of business and accounting AACSB: 2 – Ethical understanding and reasoning 68. Which of the following is not one of the reasons for the increasing turbulence in the business environment? A. the deregulation of domestic markets B. rapidly changing technology C. increasing volatility of financial markets D. the development of a more global economy Answer: C Difficulty: Basic Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business. A-Head: The changing face of business and accounting AACSB 3: Analytical thinking 69. As a result of the new, more complex business environment, the accounting field needed to respond with a conceptual framework that clarifies: 19 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A. types and content of financial accounting reports. B. accounting rules that measure profit differently depending on the size of a business. C. A and B. D. none of the above. Answer: A Difficulty: Moderate Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business. A-Head: The changing face of business and accounting AACSB: 3 - Analytical thinking 70. The causes of accounting scandals globally can often be attributed to failed: A. accounting rules and regulations. B. financial reports for general purpose. C. corporate governance. D. investment decisions. Answer: C Difficulty: Complex Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business. A-Head: The changing face of business and accounting AACSB: 3 – Analytical thinking 71. The relationship between management accounting and big data analytics builds on: A. using accounting data to build a competitive advantage. B. measuring and controlling costs by sophisticated methods. C. big data analytics has no relationship to management accounting. D. A and B. Answer: D Difficulty: Complex Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business. A-Head: The changing face of business and accounting AACSB: 3 – Analytical thinking 72. Which of the following is not a principle in the IFAC’s International Code of Conducts for Professional Accountants? A. objectivity. B. confidentiality. C. integrity. D. transparency. Answer: D Difficulty: Basic Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business. A-Head: The changing face of business and accounting 20 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
AACSB: 3 – Analytical thinking 73. In terms of business ethics, accounting plays an important role in: A. compliance. B. measurement. C. transparency. D. none of the above. Answer: A Difficulty: Complex Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business. A-Head: The changing face of business and accounting AACSB: 3 – Analytical thinking
Essay: Write your answer in the space provided or on a separate sheet of paper. 74. What issues have been highlighted by the global financial crisis and corporate scandals? Answer: Answers may vary but may include the following: financial reporting regulations have loopholes; financial reporting practices can be inadequate; corporate executives can act out of greed; investors demand unrealistic profits; managers can provide misleading financial information. Difficulty: Moderate Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business A-Head: The changing face of business and accounting AACSB: 1 – Communication 75. In the era of greater social awareness, the importance of ethical business practices is rising. Give an example of improvements that resulted from such ethical requirements. Answer: Answers may vary but may include the following: more rigorous corporate governance, ethically based investments, ethical trading. Difficulty: Moderate Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business A-Head: The changing face of business and accounting AACSB: 1 – Communication
True/False: Write 'T' if the statement is true and 'F' if the statement is false. 76. In this growing digital era there is a vast array of data available to aid in making business decisions and obtaining competitive advantage. Therefore, there will be no need for accounting information for those purposes. A. True 21 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
B. False Answer: B Difficulty: Moderate Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business A-Head: The changing face of business and accounting AACSB: 3 – Analytical thinking 77. Business ethics are influenced by both national and corporate cultures, businesses, the legal system, professional organisations and individuals. A. True B. False Answer: A Difficulty: Basic Learning Objective 1.7: Identify ways in which business and accounting have been changing, together with some current issues confronting businesses and their associated reporting including current thinking on ethics and business A-Head: The changing face of business and accounting AACSB: 1 – Communication
LO 1.8 Explain why accounting information is generally considered to be useful, and why you need to know the basics of accounting Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 78. Which of the following is not an aspect of accounting and finance potential managers need to understand? A. Reading and interpreting financial reports. B. The design of the accounting information system. C. How investment decisions are made. D. How businesses are financed. Answer: B Difficulty: Basic Learning Objective 1.8: Explain why accounting information is generally considered to be useful, and why you need to know the basics of accounting A-Head: How useful is accounting information? AACSB: 7 – Reflective thinking 79. Which of the following is not a use of accounting information? A. It can accurately predict future profits. B. It reduces uncertainty about the business’s financial position. C. It helps answer questions about availability of funds to meet the business’s obligations. D. It helps uses make decisions relating to the business. Answer: A 22 Copyright ©2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Difficulty: Moderate Learning Objective 1.8: Explain why accounting information is generally considered to be useful, and why you need to know the basics of accounting A-Head: How useful is accounting information? AACSB: 7 – Reflective thinking 80. Business managers, even if not accountants, need familiarity with basic accounting information to help with decisions about A. what products to sell. B. whether or not to invest in certain projects. C. whether to expand or cease operations. D. All of the above are correct. Answer: D Difficulty: Basic Learning Objective 1.8: Explain why accounting information is generally considered to be useful, and why you need to know the basics of accounting A-Head: How useful is accounting information? AACSB: 8 – Application of knowledge
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Atrill, Accounting 8e Chapter 2: Measuring and reporting financial position LO 2.1 Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 1. What is the purpose of the statement of financial position? A. to determine the cash inflows and outflows over a period of time. B. to determine the profit earned over a period of time. C. to list the assets of the business and the claims against the assets at a particular point of time. D. all of the above. Answer: C Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 1 – Written and oral communication 2. Which of these is not always a characteristic of an asset? A. Legal ownership by the entity. B. Exclusive control of the economic benefits. C. Ability of the benefit to be measured in money terms. D. Present economic resource that has potential future economic benefits. Answer: A Difficulty: Complex Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 3 – Analytical thinking 3. Identify the asset. Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
A. Bank overdraft. B. Plant and equipment. C. Loan from ABC Ltd. D. Accrued expenses. Answer: B Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 4. Which of these is not an asset? A. Accounts payable. B. Loan to J Troja. C. Accounts receivable. D. Both A and B. Answer: A Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 5. Intangible assets have no physical substance but still provide expected future benefits. Which of the following is not an intangible asset? A. Newspaper masthead. B. Goodwill. C. Patent. D. None of the above, i.e., all are intangible assets. Answer: D Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 6. Identify the intangible asset. A. Inventory. B. Loan. C. Accounts payable. D. Brand name. Answer: D Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 7. In the accounting equation, claims on the business are of two broad types: A. bills payable and bills receivable. B. liabilities and equity. 2 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
C. loans to and loans from outsiders. D. accounts receivable and accounts payable. Answer: B Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 3 – Analytical thinking 8. 'A present obligation of an entity arising from past events, the settlement of which is expected to result in an outflow from the entity of resources embodying economic benefits,' is the generally acceptable definition of: A. an asset. B. equity. C. a liability. D. an expense. Answer: C Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 9. Which of the following is a liability? A. Drawings. B. Accounts payable. C. Prepaid insurance. D. Cash at bank. Answer: B Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 10. The recognition criteria for liabilities includes: A. future obligation. B. probability of occurrence. C. reliability of measurement. D. Both B and C. Answer: D Difficulty: Complex Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 3 – Analytical thinking 11. Which of these does not belong with the others? A. Bank overdraft. B. Prepaid wages. C. Accounts payable. 3 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
D. Mortgage loan. Answer: B Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 12. Despite the uncertainty in relation to the exact amount to be paid and the actual timing of the payment, which of the following is still regarded as a liability? A. Deposit on services received in advance. B. Money borrowed from an associate company. C. Accounts payable. D. Provision for employee bonuses. Answer: D Difficulty: Moderate Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 13. Which of the following is not necessarily a liability? A. Provision for holiday pay. B. Bank overdraft. C. Loan to employee. D. None of the above, i.e., all are necessarily liabilities. Answer: C Difficulty: Complex Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge 14. Which statement concerning the reserves component of equity is not correct? A. Reserves represent cash. B. Retained profits and reserves are often classified under the general heading of reserves. C. The higher the dividend paid by the company, the lower the reserves. D. Many reserves arise as transfers from retained profits. Answer: A Difficulty: Moderate Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: The classification of assets and claims AACSB: 3 – Analytical thinking 15. What is another name for accounts receivable? A. debtors. B. receivables. C. accounts payable. D. Both A and B. 4 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Answer: D Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: The classification of assets and claims AACSB: 8 – Application of knowledge 16. Which of these assets, which could be listed on a statement of financial position, is likely not to translate into future economic benefits? A. Large inventories of spare parts. B. Accounts receivable that have been outstanding for several months. C. Inventory that has been on the shelves for over a year. D. All of the above. Answer: D Difficulty: Moderate Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: The classification of assets and claims AACSB: 8 – Application of knowledge
True/False: Write 'T' if the statement is true and 'F' if the statement is false. 17. A loan to a family member would appear in the equity section of the statement of financial position. A. True B. False Answer: B Difficulty: Basic Learning Objective 2.1: Explain the nature and purpose of the statement of financial position (balance sheet) and its component parts A-Head: Nature and purpose of the statement of financial position AACSB: 8 – Application of knowledge
LO 2.2 Explain the accounting equation, and use it to build up a statement of financial position at the end of a period Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 18. Which of the following is the correct version of the accounting equation? A. liabilities = assets + equity. B. assets = equity + liabilities. C. equity = assets + liabilities. D. none of the above. Answer: B Difficulty: Basic 5 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 3 – Analytical thinking 19. If liabilities are $56 ,000 and equity is $68,900, assets are: A. $ 124,900. B. $ 12,900. C. $113,900. D. There isn’t sufficient information to calculate the assets. Answer: A Difficulty: Basic Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 20. If liabilities are $55,000 and assets are $123,600, equity is: A. $178,400. B. $68,600. C. $178,600. D. $68,400. Answer: B Difficulty: Basic Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 21. If assets are $40 ,200 and equity is $13,600, liabilities are: A. $ 26,400. B. $ 53,800. C. $22,600. D. There isn’t sufficient information to calculate the liabilities. Answer: A Difficulty: Basic Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 22. Calculate the missing cash at bank account balance from these statement of financial position items. Equity $5,800; accounts receivable $890; accounts payable $450; inventory $360; loan to a business $1,400. A. $4,900. B. $5,400. C. $3,600. D. $6,300. Answer: C Difficulty: Complex Learning Objective 2.2: Explain the accounting equation, and use it to build up a 6 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 23. What is the effect on the statement of financial position of a business buying supplies for cash? A. increase asset supplies; increase asset bank. B. increase asset supplies; decrease asset bank. C. decrease asset supplies; increase asset bank. D. decrease asset supplies; decrease asset bank. Answer: B Difficulty: Basic Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 24. What is the effect on the statement of financial position when the business buys inventory on credit? A. Increase asset inventory; increase liability creditor. B. Increase asset inventory; increase equity. C. Decrease asset inventory; decrease liability creditor. D. Decrease asset inventory; increase liability creditor. Answer: A Difficulty: Moderate Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 25. What is the effect on the statement of financial position when the business buys a car for $35,000, paying a deposit of $10,000 and promising to pay the balance within 60 days? A. Increase asset vehicle by $5,000; decrease asset bank by $5,000. B. Increase asset vehicle by $35,000; decrease asset bank by $10,000; increase liability accounts payable by $25,000. C. Increase asset vehicle by $25,000; decrease asset bank by $5,000; increase liability accounts payable by $20,000. D. None of the above. Answer: B Difficulty: Complex Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 26. What is the effect on the statement of financial position when the business pays a creditor? A. decrease asset creditor; decrease liability bank. B. decrease asset bank; decrease equity. C. decrease asset bank; decrease liability creditor. 7 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
D. none of the above. Answer: B Difficulty: Basic Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 27. The effect on the statement of financial position when a debtor pays the amount that is owed is: A. increase asset bank; decrease asset debtor; increase equity. B. increase asset bank; increase equity. C. increase asset bank; decrease asset debtor. D. none of the above. Answer: C Difficulty: Moderate Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 28. The effect on the statement of financial position when the owner withdraws money from the business is: A. decrease asset bank; decrease equity. B. decrease drawings; decrease equity. C. increase drawings; increase equity. D. decrease asset bank; increase equity. Answer: A Difficulty: Moderate Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 29. The effect on the statement of financial position when the owner contributes her private vehicle for the exclusive use of the business is: A. increase asset vehicle; increase equity. B. increase asset vehicle; decrease equity. C. increase asset vehicle; increase owner's drawings. D. none of the above. Answer: A Difficulty: Moderate Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 30. Calculate the profit for the year if capital at the beginning is $45,000, capital at the end is $40,000 and during the year the owner withdrew $15,000. A. $5,000. B. $15,000. 8 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
C. $10,000. D. $20,000. Answer: C Difficulty: Complex Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 31. What is the overall effect on the statement of financial position when the business sells inventory for a profit of $5,000? A. Increase total assets $5,000; increase total equity $5,000. B. Increase total assets $3,000; decrease total equity $3,000. C. No change in total assets; no change in total equity. D. None of the above. Answer: A Difficulty: Moderate Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge 32. What is the effect on the statement of financial position when the business has cash sales of $15,000 of goods that were originally purchased for $10,000? A. Increase asset bank $12,000; increase equity $12,000. B. Increase asset bank $15,000; decrease asset inventory $10,000; increase equity $5,000. C. Increase asset bank $4,000; increase equity $4,000. D. None of the above. Answer: B Difficulty: Complex Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge
Short answer: Write the word or phrase that best completes each statement or answers the question. 33. Calculate equity. Cash at bank $3,500; inventory $1,600; accounts receivable $3,500; accounts payable $1,700; loan from ABC bank $3,500. Show your work. Answer: $3,500 cash + $1,600 inventory + $3,500 AR – $1,700 AP – $3,500 loan = $3,400 Difficulty: Moderate Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge
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Essay: Write your answer in the space provided or on a separate sheet of paper. 34. You are provided with the statement of financial position at the beginning of the period for a firm of accountants. You are also given four of the transactions that have occurred during the period. REQUIRED: a) Complete the table to show how each transaction affects the accounts shown. b) Calculate the figures in the final column of the table from which the statement of financial position at the end of the period can be prepared.
Blank Assets Cash accounts receivabl e Plant & Equip Liabilities accounts payable
Beginning Transaction Transaction Transaction Transaction Balance 1 2 3 4 Sheet $ $ $ $ $ 10,000 Blank Blank Blank Blank Blank Blank Blank Blank
Ending Balance Sheet $ Blank Blank
5,500 50,000 65,000
Blank
Blank
Blank
Blank
Blank
Blank Blank Blank
Blank Blank Blank
Blank Blank Blank
Blank Blank Blank
Blank Blank Blank
6,000
Equity 59,500 Blank Blank Blank Blank Blank Blank 65,500 Blank Blank Blank Blank Blank Transactions for the period: 1. Collected $3,000 from debtors 2. Paid accounts payable $6,000 3. Owner paid in additional capital contribution of $10,000 4. Purchased on credit $2,000 of additional plant. Answer: Beginning Transaction Transaction Transaction Transaction Ending Balance 1 2 3 4 Balance Blank Sheet Sheet Assets $ $ $ $ $ $ Cash 10,000 +3,000 -6,000 +10,000 Blank 17,000 accounts Blank Blank Blank receivabl e 5,500 -3,000 2,500 Plant & Blank Blank Equip 50,000 Blank +2,000 52,000 $65,500 Blank Blank Blank Blank $71,500 Liabilities Blank Blank Blank Blank Blank accounts Blank payable 6,000 -6,000 +2,000 2,000 Blank Equity 59,500 Blank Blank +10,000 Blank 69,500 10 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e
Blank 65,500 Blank Blank Blank Blank Difficulty: Complex Learning Objective 2.2: Explain the accounting equation, and use it to build up a statement of financial position at the end of a period A-Head: The accounting equation AACSB: 8 – Application of knowledge
$71,500
LO 2.3 Classify assets and claims Multiple choice: Choose the alternative(s) that best completes the statement or answers the question. 35. Identify the current asset. A. Fixtures and fittings. B. Delivery vehicle. C. Inventory. D. Loan to L Hardie repayable in 2 years. Answer: C Difficulty: Basic Learning Objective 2.3: Classify assets and claims A-Head: The classification of assets and claims AACSB: 8 – Application of knowledge 36. Assets are classified as either current or non-current. Current assets are: A. goodwill. B. expected to be turned into cash within 12 months. C. the infrastructure assets. D. all of the above. Answer: B Difficulty: Moderate Learning Objective 2.3: Classify assets and claims A-Head: The classification of assets and claims AACSB: 3 – Analytical thinking 37. Which of the following is a non-current asset? A. 5-year loan to Ti Finance. B. Machinery. C. Long-term investment. D. All of the above. Answer: D Difficulty: Basic Learning Objective 2.3: Classify assets and claims A-Head: The classification of assets and claims AACSB: 8 – Application of knowledge 38. What do non-current liabilities represent? A. amounts due to the owner of the business which are not payable within 12 months. B. amounts due to outsiders which are not payable within 12 months. 11 Copyright © 2021 Pearson Australia (a division of Pearson Australia Group Pty Ltd) – 9781488625695/Atrill/Accounting/8e