Accounting and Financial Reporting Exam Solutions
Course Introduction
Accounting and Financial Reporting provides students with a comprehensive understanding of the principles and practices involved in recording, classifying, and presenting financial transactions of organizations. The course covers key concepts such as the accounting cycle, recognition and measurement of assets and liabilities, revenue and expense reporting, and the preparation and analysis of financial statements in accordance with relevant accounting standards. Emphasis is placed on interpreting financial information for decision-making, ensuring transparency and compliance, and understanding the ethical considerations in financial reporting. This foundational course equips students with the analytical skills required to assess an organizations financial health and communicate financial information effectively to stakeholders.
Recommended Textbook
Financial Accounting An Integrated Approach 5th Australia Edition by Trotman
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Page 2
Chapter 1: Introduction to Financial Accounting
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Sample Questions
Q1) Which of the following may be an asset of a business enterprise?
A) retained profits
B) inventory
C) provision for warranty repairs
D) shareholders' equity.
Answer: B
Q2) Which of the following may be a liability of a business enterprise?
A) share capital
B) wages payable
C) retained profits
D) marketable security.
Answer: B
Q3) Which type of information would be of most interest to trade creditors?
A) dividends declared
B) ability to pay debts
C) pollution of waterways adjacent to the firm's factory
D) continuity of orders for the firm's products.
Answer: B
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3
Chapter 2: Measuring and Evaluating Financial Position and
Financial Performance
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Sample Questions
Q1) Which of the following items is normally classified as a current asset?
A) inventories
B) prepayments
C) intangibles
D) accounts receivable.
Answer: A
Q2) What is James's working capital?
A) $2810
B) $450
C) $380
D) $430.
Answer: B
Q3) If this were the first year of Grasso Ltd's operations,what is the maximum amount that could be paid out in dividends to shareholders?
A) $5000
B) $16 000
C) $60 000
D) $9000
Answer: A
Page 4
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Chapter 3: The Double-Entry System
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Sample Questions
Q1) If at the end of the financial year,2 months' interest is owing to the company from the bank,the effect on the accounting equation is that:
A) an asset increases and another asset decreases
B) a liability increases and another liability decreases
C) an asset decreases and a liability decreases
D) an asset increases and owners' equity increases
Answer: D
Q2) Consider the following transactions.
(i)Collect $100 000 from accounts receivable.
(ii)Receive $80 000 from a client for work to be done in the next accounting period.
(iii)Inventory (costing $50 000)sold on credit for $90 000.
(iv)Shares issued for $1 million.
Which of the above transactions do NOT increase revenue?
A) (i)and (ii)only
B) (ii)and (iii)only
C) (i)and (iii)only
D) (i),(ii)and (iv).
Answer: D
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Chapter 4: Record-Keeping
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Sample Questions
Q1) The bank notifies the company of fees for the month already taken out of the company's bank account.The transaction should be recorded as:
A. DR Bank charges \(\quad \) CR Accounts payable
B. DR Bank charges \(\quad \) CR Expenses payable
C. DR Bank charges \(\quad \) CR Cash
D. No entry is required.
Q2) Which of the statements about closing the accounts is NOT true?
A) Revenue accounts are debited.
B) A net profit is credited to the retained profits account.
C) Expense accounts are reset at zero.
D) Dividends received are credited.
Q3) Which of the following is NOT an accounting transaction?
A) A payment is made by cheque to Telstra.
B) A company is awarded a construction contract.
C) A creditor charges interest for late payment.
D) The bank informs you that a cheque has been dishonoured.
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Page 6
Chapter 5: Accrual Accounting Adjustments
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Sample Questions
Q1) Which of the following would be recorded as an asset?
A) prepayments
B) accrued expenses
C) revenue received in advance
D) net profit.
Q2) The trial balance of Allen Ltd at balance date showed a credit balance of $5000 in the allowance for doubtful debts account.Although the account of a customer standing at $1400 had been determined to be uncollectable,this had not been written off.What was the effect of this neglect on the year-end balance sheet?
A) There was an understatement of total liabilities.
B) There was an overstatement of total assets and shareholders' equity.
C) There was an understatement of total assets and shareholders' equity.
D) There was no effect on total liabilities,assets or shareholders' equity.
Q3) Which of the following will appear on Data Ltd's balance sheet at 30 June 2011?
A) prepaid insurance $480
B) prepaid insurance $400
C) prepaid insurance $80
D) insurance expense $80.
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Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Sample Questions
Q1) The practice by Woolworths Ltd of presenting their financial statements in millions of dollars is an application of the concept of:
A) relevance
B) materiality
C) understandability
D) prudence.
Q2) In reporting on its liability for long service leave to employees,a company is obliged to trade off:
A) understandability and consistency
B) relevance and reliability
C) materiality and disclosure
D) comparability and prudence.
Q3) Which of the following statements about consistency is true?
A) A company has to use the same accounting methods in all parts of a company.
B) The same depreciation method should be employed for all assets of a company.
C) The same accounting methods must be used as those used by other companies in the industry.
D) The same accounting methods must be used from year to year,except where a change is made and the impact on profit is disclosed.
Page 8
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Chapter 7: Sustainability Reporting
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Sample Questions
Q1) Which statement regarding climate change related information in sustainability reports is incorrect?
A) Climate change information is presented in narrative format.
B) Climate change information includes strategic analysis.
C) Climate change information includes the risks,opportunities and governance associated with impacts on climate change.
D) Climate change information is presented in quantitative format in addition to narrative format.
Q2) Which of the following does A Framework for Greenhouse Gas Reporting NOT recommend be required?
A) a statement of greenhouse gas emissions
B) stand-alone sustainability reports
C) management discussion and analysis
D) an independent assurance statement.
Q3) Triple bottom line reporting refers to:
A) environmental,social and economic performance
B) reporting on carbon emissions
C) maximising the net returns to shareholders
D) maximising the net profits of the organisation.
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Page 9
Chapter 8: Internal Control and Cash
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Sample Questions
Q1) In preparing a bank reconciliation statement for a business with a substantial bank balance,the appropriate treatment for dividend on shares,$1200,deposited directly into the bank account,appearing on the bank statement is to:
A) add it to the balance as per bank statement
B) deduct it from the balance as per bank statement
C) add it to the balance per company records
D) deduct it from the balance per company records.
Q2) The debit recorded in the journal to reimburse the petty cash fund is to:
A) petty cash
B) accounts receivable
C) cash
D) various accounts for which the petty cash was disbursed.
Q3) Which of the following is NOT a way that management can establish proper control over the enterprise's affairs?
A) There is a rotation of employees over a range of jobs.
B) Record-keeping is combined with handling of assets.
C) Insurance is carried on assets.
D) Staff are required to take annual leave.
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Chapter 9: Inventory
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Sample Questions
Q1) What was the balance of Pinkerton Ltd's accounts payable at the end of the period?
A) $20 000
B) $40 000
C) $90 000
D) $100 000
Q2) It is necessary to use a purchases account with:
A) only the periodic count method
B) only the perpetual accounting control method
C) both the periodic count and the perpetual accounting control methods
D) either method,if the system designer has included it in the chart of accounts.
Q3) Which of the following statements about the last-in,first-out (LIFO)assumption is true?
A) LIFO assumes that inventory on hand consists of the oldest units.
B) LIFO assumes that ending inventory and cost of goods sold are composed of a mixture of old and new units.
C) LIFO results in newer costs appearing in the balance sheet.
D) LIFO assumes the items sold are those purchased first.
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Chapter 10: Noncurrent Assets
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Sample Questions
Q1) When a company discards machinery that is fully depreciated,this transaction will be recorded with which of the following entries?
A) DR Accumulated depreciation\(\quad\)\(\quad\)\(\quad\)\(\quad\)CR Machinery
B) DR Machinery\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) \(\quad\)\(\quad\) CR Accumulated depreciation
C) DR Cash\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\q uad\)\(\quad\)\(\quad\)\(\quad\) CR Accumulated depreciation
D) DR Depreciation expense\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) CR Accumulated depreciation
Q2) What was the balance of accumulated depreciation at 31 December 2012?
A) $84 000
B) $93 600
C) $97 440
D) $60 000.
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Page 12
Chapter 11: Liabilities
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Sample Questions
Q1) A contingent liability should be shown by way of a note to the accounts when:
A) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required
B) the amount of the obligation cannot be measured reliably
C) estimation procedures were necessary to determine its amount
D) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required and the amount of the obligation cannot be measured reliably.
Q2) Contingent liabilities are:
A) reported as current liabilities
B) reported as noncurrent liabilities
C) reported as either current or noncurrent liabilities,depending on the expected date of payment
D) not reported as liabilities.
Q3) Which of the following items would NOT be recognised as a liability?
A) advances from customers for goods and services to be delivered later
B) warranty on products sold during the year
C) final dividend recommended by directors,prior to the annual meeting
D) a dispute with a customer where there is some possibility that the company could lose the dispute.
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Page 13
Chapter 12: Completing the Balance Sheet
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Sample Questions
Q1) Alby Ltd paid $1 800 000 for 80% of the voting shares of Bunter Ltd and evaluated Bunter's assets to be worth $2 700 000 and its liabilities $500 000.What was the goodwill on consolidation at date of acquisition?
A) $40 000
B) $400 000
C) $430 000
D) $360 000.
Q2) Which of the following statements about bonus issues is NOT true?
A) Bonus issues can be a useful takeover defence.
B) Bonus issues reduce shareholders' equity as well as assets.
C) Bonus issues do not affect cash.
D) Bonus issues are also referred to as share dividends.
Q3) Bonus share issues may increase:
A) total assets
B) total liabilities
C) total shareholders' equity
D) dividends.
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Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Sample Questions
Q1) At what point would you expect revenue from sales of software by a computer store to be recognised?
A) during production
B) on completion of production
C) at point of sale or delivery
D) when cash is received.
Q2) At what point would you expect the Red Cross to recognise revenue from donations? There are no special conditions attached to the donations.
A) during production
B) on completion of production
C) at point of sale or delivery
D) when cash is received.
Q3) Which of the following statements about the concept of revenue is true?
A) Estimates are not permitted in the measurement of revenue.
B) Contributions by owners may be considered revenues.
C) An inflow of future economic benefits may be considered revenues.
D) Revenue cannot be measured at fair value of the amount receivable.
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following is NOT a financing cash flow?
A) dividends received
B) issue of shares
C) borrowing $10 000 from the bank
D) share buybacks.
Q2) Which of the following is an operating cash flow?
A) issue of shares
B) purchase of equipment
C) repayment of a loan
D) taxes paid.
Q3) The income tax payable account showed an opening balance of $62 000 and a closing balance of $75 000.Income tax expense was $68 000.What was the income tax paid?
A) $55 000
B) $68 000
C) $81 000
D) $62 000.
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Which of the ratios listed helps to indicate the ability of a company to generate a return on its assets before considering the cost of financing those assets?
A) current ratio
B) profit margin
C) quick ratio
D) return on assets.
Q2) Which of the ratios listed helps to indicate pricing strategy or competition intensity?
A) current ratio
B) profit margin
C) quick ratio
D) return on assets.
Q3) If Del Ltd reduces the number of days' sales in receivables to 37.5,what will be the new accounts receivable turnover?
A) 6 times p.a.
B) 9.7 times p.a.
C) 12 times p.a.
D) 8 times.
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Chapter 16: Accounting Policy Choices
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Sample Questions
Q1) In which of the following areas has choice largely been made by a standard-setting body,legislators or by accepted practice,so that companies are NOT free to make their own decisions?
A) selection of depreciation method
B) how to determine allowance for doubtful debts
C) inventory valuation method
D) whether to include goodwill in the balance sheet.
Q2) Most accounting policy choices affect both the income statement and the balance sheet.Select the income statement account(s)that would be affected by a policy choice at the same time as the allowance for doubtful debts balance sheet account.
A) revenue,bad debts expense
B) cost of goods sold expense
C) depreciation or amortisation expense
D) various expense accounts.
Q3) What effect would such a policy change have on cash flow from operations?
A) There would be a $75 000 reduction.
B) There would be a $45 000 reduction.
C) There would be a $30 000 reduction.
D) There would be no effect.
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Page 18
Chapter 17: Appendix: Special Journals, subsidiary Ledgers and
Control Accounts
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Sample Questions
Q1) 'Accounts receivable' is a credit column in the:
A) sales journal
B) purchase journal
C) cash receipts journal
D) cash payments journal.
Q2) Which of the following statements about subsidiary ledgers and control accounts is NOT true?
A) Every entry made to an account in the subsidiary ledger is also reflected in the control account in the general ledger.
B) All credit entries will be the same in aggregate between the subsidiary ledger and the control account.
C) The total of the balances appearing in the accounts in the subsidiary ledger should equal the balance appearing in the control account.
D) If the total of the subsidiary ledger accounts fails to agree with the balance of the control account,the subsidiary ledger must be in error.
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