Foundations of Accounting Practice Exam
Course Introduction
Foundations of Accounting introduces students to the basic principles and practices of financial and managerial accounting. The course covers essential topics such as the accounting cycle, preparation and interpretation of financial statements, double-entry bookkeeping, and basic internal controls. Students will gain an understanding of the role accounting plays in business decision-making and develop the analytical skills needed to record, summarize, and communicate financial information effectively. Through practical exercises and real-world examples, this course provides a solid foundation for further study in accounting and related fields.
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) A balance sheet:
A) lists the assets and liabilities at present cash values.
B) shows how the resources of an entity change during a period of time.
C) shows all facts affecting the financial position of the entity.
D) lists the assets,liabilities and owners' equity at a specific point in time.
Answer: D
Q2) Which of the following is NOT an asset?
A) Marketable securities
B) Accounts receivable
C) Provisions for employee entitlements
D) Inventory
Answer: C
Q3) During 2016,a company makes credit sales of $500 000,of which $375 000 is collected at year-end.It pays $200 000 in expenses and owes $25 000 for electricity used during 2016.Accrual profit is:
A) $150 000.
B) $175 000.
C) $275 000.
D) $300 000.
Answer: C
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Chapter 2: Measuring and Evaluating Financial Position and
Financial Performance
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Q1) A company buys 100 televisions for $500 each.It sells 60 televisions for $900 each.What is the 'cost of goods sold' expense?
A) $50 000
B) $24 000
C) $54 000
D) $30 000
Answer: D
Q2) Which of the following statements about accumulated depreciation is true?
A) Accumulated depreciation is the amount of depreciation recognised at the date of disposal of the asset.
B) Cost less accumulated depreciation gives net book value.
C) Accumulated depreciation represents the depreciation charge for the current period.
D) Accumulated depreciation is ignored when an asset is sold.
Answer: B
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4
Chapter 3: The Double-Entry System
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Sample Questions
Q1) During the accounting period there were no share issues,liabilities increased by $45 000,assets increased by $90 000 and net profit was $115 000.Therefore,dividends declared must have been:
A) $15 000.
B) $45 000.
C) $60 000.
D) $70 000.
Answer: D
Q2) Identify the journal entry required to correctly record the following transaction.
Received cash from customer.
A) Dr Accounts receivable
Cr Cash
B) Dr Cash
Cr Accounts payable
C) Dr Cash
Cr Accounts receivable
D) Dr Cash
Cr Share capital
Answer: C
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Chapter 4: Record-Keeping
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Q1) A chart of accounts is:
A) a depiction of the significant and formal relationships and roles within a business organisation.
B) a list,in some logical form,of all relevant transactions in a business organisation.
C) a list,in chronological order,of journal accounts used in an accounting system.
D) a list of the complete set of account titles and their related reference numbers.
Q2) Which transaction represents payment for an expense item?
A) (4)
B) (5)
C) (10)
D) (8)
Q3) A chart of accounts is:
A) a means of ensuring that the debits equal the credits.
B) a chronological record of all transactions.
C) a list of the titles of all accounts in the ledger,together with an appropriate numbering system for the accounts.
D) a trial balance.
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6
Chapter 5: Accrual Accounting Adjustments
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Q1) Able Ltd operates on a five-day working week.Employees are paid on Thursday for work completed to Wednesday.The weekly wages bill is $40 000.If 30 June 2016 fell on a Tuesday,what was the accrued wages payable on 30 June 2016?
A) $8000
B) $16 000
C) $32 000
D) None of the answers provided
Q2) Equipment with a cost of $15 000 and accumulated depreciation of $12 500 was sold for $1700.The journal entry to record the disposal would include:
A) Cr Cash $1700.
B) Cr Loss on sale $800.
C) Dr Accumulated depreciation $12 500.
D) none of the answers provided.
Q3) Which of the following is NOT an example of accrued revenue?
A) Unbilled revenue
B) Customer deposits
C) Interest receivable on loans
D) All answers are examples of accrued revenue.
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Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Q1) Which of the following statements about accounting regulation is NOT true?
A) The Financial Reporting Council is responsible for providing broad oversight of the accounting standard-setting process in the private and public sectors.
B) One of the key functions of the Australian Accounting Standards Board is to oversee the operation of the Financial Reporting Council.
C) The Australian Securities and Investments Commission monitors compliance with accounting standards.
D) ASIC promotes honesty and fairness in financial markets.
Q2) Use of the same accounting methods over time facilitates:
A) disclosure.
B) relevance.
C) comparability.
D) faithful representation.
Q3) A security's price may NOT vary because:
A) the whole share market is going up.
B) of information specific to that security.
C) of information specific to the company issuing the security.
D) of consistent financial policies.
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Chapter 7: Internal Control and Cash
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Q1) Which of the following is NOT a significant feature of a system of internal control over cash?
A) More than one person opens mail.
B) The person who does bank reconciliations should not be the cashier.
C) The staff member responsible for approving invoices for payment should sign cheques.
D) Bank reconciliation statements are prepared at regular intervals.
Q2) In preparing the monthly bank reconciliation,Jon Ltd ascertains that there is a direct credit from a customer for $500 and an interest on overdraft charge of $760.Outstanding cheques total $9400 and there is a deposit in transit for $2900.It will be necessary to make journal entries for:
A) the outstanding cheques of $9400 and the deposit in transit of $2900.
B) the direct credit for $500 and the interest charge of $760.
C) only the interest on overdraft charge of $760.
D) the direct credit for $500,the interest charge of $760 and outstanding cheques of $9400.
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9
Chapter 8: Accounts Receivable and Further
Record-Keeping
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Q1) The general ledger account representing the subsidiary ledger is known as a control account because:
A) inclusion of both control accounts and subsidiary ledger accounts in the general ledger improves control.
B) the accuracy of the detailed accounts in the subsidiary ledger can be checked against the aggregate data and the balance contained in it.
C) subsidiary ledgers eliminate the need to record totals in the general ledger.
D) it includes all transactions in the subsidiary ledger.
Q2) Management uses the percentage-of-sales approach method to calculate the allowance for doubtful debts.Management calculated the allowance for doubtful debts on the basis of 2 per cent of sales.However,by year-end it was aware that the rate should have really been 3 per cent of sales.Management does not adjust the allowance for doubtful debts at year-end.As a result:
A) assets are overstated,and net profit is overstated.
B) assets are overstated,and net profit is understated.
C) assets are understated,and net profit is overstated.
D) assets are understated,and net profit is understated.
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Page 10
Chapter 9: Inventory
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Q1) Which of the following entries records a credit sale under the perpetual inventory system?
A) Dr Cost of goods sold
B) Dr Sales
C) Dr Inventory
D) Dr Accounts receivable
Q2) Which of the following statements about the use of the weighted average assumption is true?
A) The balance sheet figure is between the LIFO and FIFO figures.
B) When prices are rising,it shows lower balance sheet figures than the LIFO method.
C) When prices are falling,it shows lower balance sheet figures than the FIFO method.
D) None of the answers provided.
Q3) What was the value of ending inventory of Algo,using the LIFO assumption in a periodic inventory system?
A) $1580
B) $1480
C) $1460
D) $1590
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11
Chapter 10: Noncurrent Assets
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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\(\quad \) \(\quad \) \(\quad \) Cr Machinery
B) Dr Machinery\(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) Cr Accumulated depreciation
C) Dr Cash\(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\quad \) Cr Accumulated depreciation
D) Dr Depreciation expense\(\quad \) \(\quad \) \(\quad \) \(\quad \) Cr Accumulated depreciation
Q2) What was the balance of accumulated depreciation at 31 December 2015?
A) $300 000
B) $200 000
C) $80 000
D) $230 000
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Chapter 11: Liabilities
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Q1) Which of the following is a liability?
A) Unearned revenue
B) Sales revenue
C) Accrued revenue
D) Prepayments
Q2) Which of the following would NOT be shown as a contingent liability?
A) Estimated future cost of providing superannuation for work already carried out by employees
B) A dispute with the taxation department where legal advice suggests that the company will win the dispute
C) A company providing a guarantee to a lender for a loan taken out by a subsidiary company where a default on the loan is very unlikely
D) Company defending a claim for unspecified damages where the amount of the claim cannot be reliably measured
Q3) Which of the following is NOT true? When a liability increases:
A) cash may increase.
B) revenue may increase.
C) another liability may decrease.
D) expenses may increase.
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Page 13
Chapter 12: Completing the Balance Sheet
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Q1) The journal entry to record the cash received on application would include:
A) Dr Cash at bank,$110 000.
B) Cr Share capital,$110 000.
C) Cr Application,$110 000.
D) Dr Application,$110 000.
Q2) Which of the following is NOT true with respect to bonus shares? They:
A) increase net assets.
B) have no effect on cash balances.
C) give directors the opportunity to signal future dividend policy to current and future shareholders.
D) total shareholders' equity increases.
Q3) What was the balance of share capital at 11 October?
A) $25 000
B) $125 000
C) $150 000
D) $110 000
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Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Q1) What is the effect of the error on 2015 cash from operations?
A) There is no cash effect.
B) It is $1200 too high.
C) It is $1800 too high.
D) It is $3000 too high.
Q2) What difference would there be to profit for year 2 if the completion of production method were used?
A) Profit would be $1 160 000 higher.
B) Profit would be $690 000 higher.
C) Profit would be $470 000 lower.
D) Profit would be $470 000 higher.
Q3) 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.
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) The amount of cash paid to suppliers during the year was:
A) $10 000.
B) $501 000.
C) $510 000.
D) $519 000.
Q2) What effect does increasing depreciation expense have on cash flows?
A) It increases operating cash flows.
B) It decreases operating cash flows.
C) It decreases investing cash flows.
D) It has no effect.
Q3) The prepaid insurance account showed an opening balance of $22 000 and a closing balance of $25 000.Insurance expense was $67 000.What was the cash payment for insurance?
A) $64 000
B) $67 000
C) $70 000
D) $45 000
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Chapter 15: Financial Statement Analysis
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Q1) What is the immediate effect of the loan on current net profit?
A) There is a decrease of $75 000.
B) There is no immediate effect.
C) It cannot be determined from the information provided.
D) There is an increase of $75 000.
Q2) 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.
Q3) The company changed accounting methods by deciding to capitalise rather than expense a research and development outlay.This will:
A) increase ROE,but have no effect on ROA and CR.
B) increase ROA,ROE and CR.
C) increase ROA and ROE,but have no effect on CR.
D) have no effect on ROA,ROE or CR.
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Chapter 16: Accounting Policy Choices
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Sample Questions
Q1) what would be the effect on cash from operations?
A) $340 000 reduction
B) $217 600 increase
C) $217 600 reduction
D) no effect
Q2) Which of the following is NOT normally a significant accounting estimate involved in financial measurement?
A) The amount of product warranty claims to be included in the balance sheet.
B) The portion of credit sales will be uncollectable.
C) How many financial periods will benefit from advertising.
D) The period a fixed asset is depreciated over.
Q3) which of the following is NOT affected?
A) net profit.
B) cash flow from operations.
C) income tax liability.
D) amortisation expense.
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Chapter 17: Sustainability Reporting
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Q1) Which of the following are Environmental GRI performance indicators?
(i)Emissions: direct greenhouse gas emissions.
(ii)Compliance: monetary value of significant fines and total number of non-monetary sanctions for non-compliance with environmental laws and regulations.
(iii)Products and services: percentage of products sold and their packaging materials that are reclaimed,by category.
A) (i)and (ii)only
B) (i)and (iii)only
C) (ii)and (iii)only
D) (i), (ii)and (iii)
Q2) The Global Reporting Initiative sets out:
A) guidelines of how to reduce carbon emissions.
B) principles to measure and report measures used to reduce carbon emissions.
C) principles to measure and report economic,environmental and social performance.
D) how organisations should behave ethically in regards to carbon emissions.
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