Accounting and Financial Reporting Test Questions
Course Introduction
Accounting and Financial Reporting introduces students to the fundamental concepts and techniques of financial accounting, emphasizing the preparation, analysis, and interpretation of financial statements. The course covers the accounting cycle, key accounting principles, and the regulatory framework governing financial reporting. Students learn how to record business transactions, prepare balance sheets, income statements, and cash flow statements, and understand their relevance to internal and external stakeholders. Emphasis is placed on the importance of ethical standards and the role of accounting information in decision-making for businesses, investors, and regulatory bodies.
Recommended Textbook
Financial Accounting An Integrated Approach 6th Australia Edition by Trotman
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Page 2
Chapter 1: Introduction to Financial Accounting
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Sample Questions
Q1) During 2016,a company makes credit sales of $600 000,of which $350 000 is collected at year-end.It pays $220 000 in expenses and owes $20 000 for electricity used during 2016.What would the profit be if cash accounting rather than accrual accounting were used?
A) $130 000.
B) $110 000.
C) $380 000.
D) $730 000.
Answer: A
Q2) The owner of a corner store keeps separate private and business transactions.To which financial statement assumption does this relate?
A) Materiality
B) Accounting entity
C) Accounting period
D) Going concern
Answer: B
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Chapter 2: Measuring and Evaluating Financial Position and
Financial Performance
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Sample Questions
Q1) Which of the following is NOT a liability?
A) Provision for long service leave
B) Interest payable
C) Share capital
D) Creditors
Answer: C
Q2) Which of the following statements about a balance sheet is true?
A) A balance sheet presents the financial performance of a company for a period of time.
B) A balance sheet presents the company's financial position at a point in time.
C) A balance sheet shows which source of finance produced each asset.
D) A balance sheet includes all the resources of a company.
Answer: B
Q3) What was the balance of Beta Ltd's retained profits at 31 December 2016?
A) $30
B) $50
C) $90
D) $150
Answer: C
Page 4
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Chapter 3: The Double-Entry System
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Sample Questions
Q1) If a company borrows money to purchase equipment:
A) one asset increases and another asset decreases.
B) an asset increases and a liability increases.
C) an asset decreases and a liability decreases.
D) an asset increases and shareholders' equity increases.
Answer: B
Q2) A business purchases inventory for $220,paying $50 cash and owing the rest.The journal entry will include:
A) a debit to accounts payable of $170.
B) a debit to inventory of $170.
C) a credit to accounts payable of $50.
D) a credit to accounts payable of $170.
Answer: D
Q3) An account was paid for stationery purchased in the previous accounting period.
A) A liability increased and another liability decreased.
B) An asset decreased and a liability decreased.
C) An asset increased and revenue increased.
D) An asset decreased and an expense increased.
Answer: B
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Page 5
Chapter 4: Record-Keeping
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Sample Questions
Q1) A trial balance would detect which of the following errors?
A) Failure to record depreciation for the year.
B) A credit purchase recorded in accounts payable account as $927 instead of $972.
C) A cash purchase of inventory recorded as a debit to plant and a credit to accounts payable.
D) A salesman failing to record a cash sale,and retaining the proceeds.
Q2) Which transaction represents the acquisition of a noncurrent asset?
A) (2)
B) (4)
C) (9)
D) (10)
Q3) What does transaction (2)represent?
A) Purchase of inventory on credit
B) Purchase of inventory for cash
C) Sale of inventory on credit
D) Sale of inventory for cash
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Chapter 5: Accrual Accounting Adjustments
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Sample Questions
Q1) Which of the following entries is NOT an example of asset consumption,recognised over future time periods?
A) Dr Salaries expense Cr Cash
B) Dr Depreciation expense Cr Accumulated depreciation
C) Dr Insurance expense Cr Prepaid insurance
D) Dr Cost of goods sold Cr Inventory
Q2) Which of the following statements about the perpetual inventory control method is NOT true?
A) When a sale is made,two journal entries are required.
B) When inventory is purchased,it is treated as an expense.
C) A separate record is kept for each item of inventory.
D) None of the above;all statements are true.
Q3) When the accumulated depreciation is deducted from the long-term asset account,the figure is known as the:
A) market value.
B) replacement value.
C) net book value.
D) realisable value.
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Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Sample Questions
Q1) Which of the following opinions is NOT included in the directors' statement accompanying the financial statements?
A) Whether the company can pay its debts when they fall due
B) Whether the financial statements give a true and fair view of the financial performance of the company
C) Whether the cash budget fairly indicates the anticipated cash flows from operations
D) Whether the financial statements comply with the requirements of the Corporations Act 2001
Q2) Which of the following is NOT a policy of stock exchanges?
A) To ensure that all persons investing in securities listed on the exchange have equal access to information that may affect investment decisions
B) To regulate the conduct of securities markets
C) To enable companies to maximise profits
D) To protect investors and retain their confidence
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Segregation of duties involves:
A) ensuring that only qualified accountants are employed in the accounting department.
B) separation of record-keeping from handling of assets.
C) providing each staff member with an individual password.
D) separating the tasks of employees.
Q2) Indicate which of the features of an effective internal control system are involved in the practices set out in the following question: Segregation of duties involve:
A) clearly establishing responsibility lines.
B) maintaining effective records.
C) separating record-keeping from handling of assets.
D) physically protecting sensitive assets.
Q3) In preparing the monthly bank reconciliation,Fur Ltd ascertains that there is a $750 cheque from Hunt Traders for merchandise that is marked NSF.The journal entry to record this in Fur Ltd's books is:
A) Dr Accounts receivable$750\(\quad \)\(\quad \)Cr Cash$750
B) Dr Accounts receivable$750\(\quad \)\(\quad \)Cr Inventory$750
C) Dr Accounts payable$750\(\quad \)\(\quad \)\(\quad \)Cr Cash$750
D) Cr Accounts receivable$750\(\quad \)\(\quad \)Dr Cash$750
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Page 9
Chapter 8: Accounts Receivable and Further
Record-Keeping
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Sample Questions
Q1) Blue Shoes Ltd has gone bankrupt and will not pay $10 000 to XYZ.XYZ has accounts receivable of $12 million and an allowance for doubtful debts of $500 000.XYZ does not adjust its accounts for the $10 000 that will not be paid by Blue Shoes Ltd.Which of the following remarks is true about the financial statements?
A) There is an understatement of net profit.
B) There is an overstatement of total assets and net profit.
C) There is an understatement of total assets and net profit.
D) There is no effect on total liabilities,assets or net profit.
Q2) What was the balance of the debtors control account at 30 June 2016?
A) $3000
B) $7000
C) $10 000
D) $14 000
Q3) The Allowance for doubtful debts account would appear in the balance sheet under:
A) current assets.
B) current liabilities.
C) shareholders' equity.
D) property,plant and equipment.
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Chapter 9: Inventory
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Sample Questions
Q1) During year ended 30 June 2016,Rugger Ltd had net sales of $256 000.Inventory at 1 July 2015 was $25 000,and at 30 June 2016 it was $18 000.Purchases were $115 000.What was the gross profit for year ended 30 June 2016?
A) $12 000
B) $134 000
C) $141 000
D) None of the answers provided
Q2) 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
Q3) If Pinkerton Ltd had employed the periodic inventory method,what would its gross profit have been?
A) $280 000
B) $300 000
C) $320 000
D) $440 000
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Chapter 10: Noncurrent Assets
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Sample Questions
Q1) The purpose of depreciation is to:
A) allocate cost in order to measure profit.
B) track value changes in the assets.
C) measure the current value of assets in the balance sheet.
D) record the fair value of the asset.
Q2) X buys Y for $1 million.The fair value of the following items is: property,plant and equipment $800 000;accounts receivable $160 000;loan from the bank $60 000;and provision for employee entitlements $80 000.The value of goodwill is:
A) $40 000.
B) $10 000.
C) $180 000.
D) $820 000.
Q3) A truck that cost $250 000 and had accumulated depreciation of $180 000 was sold for $50 000 cash in June 2017.This transaction will:
A) increase assets and decrease profits.
B) increase assets and increase profits.
C) decrease assets and decrease profits.
D) decrease assets and increase profits.
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Chapter 11: Liabilities
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Sample Questions
Q1) What is the interest expense for the year ended 30 June 2015?
A) $0
B) $10 000
C) $120 000
D) None of the answers provided
Q2) Which of the following is a liability?
A) Unearned revenue
B) Sales revenue
C) Accrued revenue
D) Prepayments
Q3) Which of the following is NOT a liability?
A) Provision for warranty
B) Prepayments
C) Accrued expenses
D) Revenue received in advance
Q4) When a business collects GST from customers,it records:
A) a contra asset.
B) a liability.
C) an expense.
D) an asset.
Page 13
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Chapter 12: Completing the Balance Sheet
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Q1) If Yu Ltd used the equity basis,what dividend revenue would it record for year ended 31 December 2016 in respect of its investment in Ping Ltd?
A) $120 000
B) $150 000
C) $350 000
D) None of the answers provided
Q2) XYZ Limited paid $2 million for 100 per cent of the voting shares of ABC Limited and determined the assets to be worth $3 million and the liabilities $800 000.What was the goodwill on consolidation at the date of acquisition?
A) $100 000
B) $200 000
C) $300 000
D) None of the answers provided
Q3) A debit balance in the retained profits account indicates that the company has:
A) made a loss in the current period.
B) made a loss in at least one period.
C) never made a profit.
D) paid a dividend.
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14
Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Q1) What difference would there be to the total profit for the two years if the completion of production method were used?
A) Profit would be $200 000 higher.
B) Profit would be $420 000 higher.
C) Profit would be $420 000 lower.
D) There would be no difference.
Q2) If salaries expense amounting to $3000 were eliminated,what would be the effect on net profit after tax?
A) It would decrease by $2100.
B) It would decrease by $3000.
C) It would increase by $2100.
D) It would increase by $3000.
Q3) Which of the following is NOT necessary in order to recognise revenue under the percentage of completion method?
A) Total costs for the project are reasonably determinable.
B) The contract price (total revenue)must be reasonably certain.
C) There must be a reasonable assurance of payment.
D) Engineering estimates of the percentage of completion have been made.
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) What were the payments to suppliers and employees of Staple Ltd?
A) $45 000
B) $55 000
C) $80 000
D) $30 000
Q2) Income tax expense was $200 000 for the year.Income tax payable was $20 000 at the beginning and $30 000 at the end of the year.Cash payment for income tax reported on the cash flow statement using the direct method is:
A) $200 000.
B) $190 000.
C) $220 000.
D) $230 000.
Q3) What was the cash flow from investing activities?
A) $570
B) $210
C) ($290)
D) ($330)
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) A company declares and pays a final dividend.The effect of this transaction is to:
A) decrease CR,but not affect ROA and ROE.
B) decrease CR,but increase ROA and ROE.
C) decrease CR,increase ROA,and not affect ROE.
D) have no effect.
Q2) Which of the ratios listed helps to indicate whether a company has enough short-term assets to cover its short-term liabilities?
A) Current ratio
B) Profit margin
C) Debt-to-equity
D) Return on assets
Q3) What was the inventory turnover?
A) 5.25 times p.a.
B) 5 times p.a.
C) It cannot be calculated from the information provided.
D) 1.25 times p.a.
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Chapter 16: Accounting Policy Choices
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Q1) What effect would such a policy change have on net profit before tax?
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.
Q2) Which of the following is NOT a reason that preparers of financial reports are obliged to make choices?
A) There is frequently a decision to be made as to whether to adjust the figures for something or to disclose it in the footnotes or other narrative material.
B) Directors have a responsibility to choose the accounting method that shows the highest profit.
C) Accrual accounting necessitates choices about accounting figures,notes and methods.
D) Governments and professional accounting standard setters have been reluctant to specify all solutions and require all enterprises to follow them.
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18
Chapter 17: Sustainability Reporting
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Q1) For which item is the Global Reporting Initiative not useful?
A) Demonstrating how the organisation is influenced by expectations about sustainable development
B) Sustaining the level of dividends to shareholders
C) Comparing performance within an organisation
D) Assessing sustainability performance
Q2) Which of the following statements regarding integrated reporting is NOT true?
A) Integrated reporting is an additional report included in the annual financial reports of an organisation.
B) An integrated report does not only report on the organisation's stewardship of its financial capital.
C) Integrated reports focus only on the most material information.
D) Integrated reporting includes short-term,medium-term and long-term considerations.
Q3) Sustainability 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 19