College of Business & Economics

Year 13 Accounting Challenge 2007

Financial and Management Accounting

Time allowed: Number of pages: 50 minutes 10

INSTRUCTIONS: Answer all questions by writing your answer on the Answer sheet provided. If you need to change your answer, simply erase your original answer and replace with your new choice. You must choose the option that most accurately represents the correct answer. One mark will be allocated for each correct answer. One mark will be deducted for every incorrect answer. Any unanswered questions will receive Zero marks.

University of Canterbury Year 13 Accounting Challenge 2007

1.

The concept that a business has a reasonable expectation of remaining in business for the foreseeable future is called the 1. 2. 3. 4. economic entity assumption monetary unit assumption time period assumption going concern assumption

2.

Johnnys Car Repairs had total assets of $60,000 and total liabilities of $40,000 at the beginning of the year. During the year the business recorded $100,000 in revenues, $55,000 in expenses, and dividends of $10,000 were distributed. The net profit reported by Johnnys Car Repairs for the year was 1. 2. 3. 4. $35,000 $45,000 $20,000 $90,000

3.

If total liabilities decreased by $14,000 during a period of time and shareholders equity increased by $6,000 during the same period, then the change in total assets is 1. 2. 3. 4. an increase of $14,000 an increase of $20,000 a decrease of $8,000 an increase of $8,000

4.

If the sum of the debit column equals the sum of the credit column in a trial balance, it indicates 1. 2. 3. 4. no errors have been made no errors can be discovered that all accounts reflect correct balances the mathematical equality of the accounting equation

5.

After a business transaction has been analysed and entered in the journal, the next step in the recording process is to transfer the information to 1. 2. 3. 4. the company's bank the trial balance ledger accounts financial statements

6.

When a company distributes a dividend the 1. 2. 3. 4. Dividends Paid account will be increased with a debit Dividends Paid account will be increased with a credit Retained Earnings account will be directly increased with a credit Dividends Paid account will be decreased with a debit

University of Canterbury Year 13 Accounting Challenge 2007

7.

The balance in the prepaid rent account before adjustment at the end of the year is $12,000 and represents three months rent paid on 1 December. The adjusting entry required on 31 December is 1. 2. 3. 4. Debit Prepaid Rent, $4,000; Credit Rent Expense $4,000 Debit Prepaid Rent, $8,000; Credit Rent Expense, $8,000 Debit Rent Expense, $12,000; Credit Prepaid Rent, $12,000 Debit Rent Expense, $4,000; Credit Prepaid Rent, $4,000

8.

McCloud Realty Company Ltd received a cheque for $21,000 on 1 July, which represents 6-months rent received in advance. Unearned Rental Revenue was credited with $21,000. Financial statements will be prepared on 31 July. McCloud Realty Company Ltd should make the following adjusting entry on 31 July 1. 2. 3. 4. Debit Unearned Rental Revenue, $3,500; Credit Rental Revenue, $3,500 Debit Rental Revenue, $3,500; Credit Unearned Rental Revenue, $3,500 Debit Unearned Rental Revenue, $21,000; Credit Rental Revenue, $21,000 Debit Cash, $21,000; Credit Rental Revenue, $21,000

9.

A company usually determines the amount of inventory used during a period by 1. 2. 3. 4. adding the inventory on hand to the balance of the inventory account totalling the amount of inventory purchased during the period taking the difference between the inventory purchased and the inventory paid for taking the difference between the balance of the inventory account and the cost of inventory on hand

10.

A company shows a balance in Salaries Payable of $40,000 at the end of the month. The next payroll of $50,000 is to be paid in the following month. What will be the journal entry to record the payment of salaries? 1. 2. 3. 4. Salaries Expense Salaries Payable Salaries Expense Cash Salaries Expense Cash Salaries Expense Salaries Payable Cash 50,000 50,000 50,000 50,000 10,000 10,000 10,000 40,000 50,000

11.

Under the perpetual inventory system what is the correct entry for the credit purchase of 10 electric guitars at $250 per guitar plus GST of $25 each. 1. 2. 3. 4. Debit Inventory $2,750; credit Accounts Payable $2,500, credit GST $250 Debit Inventory $2,500, debit GST $250; credit Accounts Payable $2,750 Debit Inventory $2,750; credit Accounts Payable $2,750 Debit Accounts Payable $2,750; credit Inventory $2,500, credit GST $250

University of Canterbury Year 13 Accounting Challenge 2007

12.

Use the following information for the next TWO questions: Financial information is presented below: Operating expenses Sales returns and allowances Cash discount Sales Costs of goods sold 1. 2. 3. 4. $131,000 $137,000 $144,000 $150,000 $ 45,000 13,000 6,000 150,000 77,000

The amount of net sales on the Profit and Loss/Income Statement would be:

13.

Gross profit would be: 1. 2. 3. 4. $60,000 $54,000 $76,000 $73,000

14.

The factor which determines whether or not goods should be included in a physical count of inventory is 1. 2. 3. 4. physical possession legal title management's judgement whether or not the purchase price has been paid

15.

Weber Company Ltd has the following account balances: Purchases Sales Returns and Allowances Discount on sales Freight-in Freight-out The cost of goods purchased for the period is 1. 2. 3. 4. $30,500 $27,375 $29,875 $25,875 $28,000 4,000 2,500 1,875 2,500

16.

For the current year, the following data were taken from the accounting records: Sales, $900,000; Sales Returns and Allowances, $30,000; Purchases, $500,000; Purchase Returns and Allowances, $8,000; Discount Received, $4,000; Freight-in, $2,000; Beginning Inventory, $90,000; Ending Inventory, $130,000. What was the cost of goods available for sale? 1. 2. 3. 4. $620,000 $530,000 $580,000 $584,000 4

University of Canterbury Year 13 Accounting Challenge 2007

17.

Credit sales of assets other than inventory are recorded in which of the following journals? 1. 2. 3. 4. general journal cash receipts journal sales journal purchases journal

18.

The amounts recorded in the accounts payable column in a cash payments journal are posted 1. 2. 3. 4. individually on a daily basis to the subsidiary ledger individually on a daily basis to the purchases journal only in total at the end of the reporting period to the income statement only in total at the end of the reporting period to the balance sheet

19.

A truck that cost $12,000 and on which $9,000 of accumulated depreciation has been recorded was disposed of for $2,000 cash. The entry to record this event would include a 1. 2. 3. 4. gain of $1,000 loss of $1,000 credit to Truck account for $3,000 credit to Accumulated Depreciation for $9,000

20. On July 1, 2007, Waters Kennels sells equipment for $22,000. The equipment originally cost $60,000, had an estimated 5-year life and an expected salvage value of $10,000. The Accumulated Depreciation account had a balance of $35,000 on 1 January, 2007, using the straight-line method. The gain or loss on disposal is 1. 2. 3. 4. 21. $3,000 gain $2,000 loss $3,000 loss $2,000 gain

In recording the acquisition cost of an entire business 1. 2. 3. 4. goodwill is recorded as the excess of cost over the fair value of identifiable net assets assets are recorded at the seller's book values goodwill, if it exists, is never recorded goodwill is recorded as the excess of cost over the book value of identifiable net assets

22.

Shareholders of a company may be reluctant to finance expansion through issuing more equity because 1. 2. 3. 4. leveraging with liabilities is always a better idea their earnings per share may decrease the price of the shares will automatically decrease dividends must be paid on a periodic basis

23.

Under the direct write-off method, when a particular account is considered to be uncollectible, the loss is charged to 1. 2. 3. 4. revenue accounts receivable allowance for doubtful debts bad debts expense

University of Canterbury Year 13 Accounting Challenge 2007

24.

Receivables that mature within the entitys operating cycle are classified in the balance sheet as 1. 2. 3. 4. equity liabilities non-current assets current assets

25.

The quick ratio calculated by a business is also referred to as the 1. 2. 3. 4. solvency ratio acid test marketable test current asset ratio

26.

An appropriate journal entry to record a cash dividend on declaration date is 1. 2. 3. 4. Dr Dr Dr Dr Retained earnings Cr Cash at Bank Cash at Bank Cr Dividend payable Retained earnings Cr Dividends payable Cash at Bank Cr Retained earnings

27. When preparing the financial statements of Alpha Company, the accountant found the following information: Opening balance of Retained Earnings $5,000; Interim Dividends paid $1,000; Profit Earned $16,000; Dividends Declared $2,000. The closing balance of Retained Earnings for the Alpha Company is 1. 2. 3. 4. $24,000 $20,000 $18,000 $16,000

28. On the cash flow statement, the cash flows from operating activities would include 1. 2. 3. 4. 29. receipts from the issue of share capital receipts from the sale of investments payments for the acquisition of investments cash receipts from sales activities

Accounts receivable arising from sales to customers amounted to $35,000 and $40,000 at the beginning and end of the year respectively. Income reported on the income statement for the year was $120,000. Exclusive of the effect of other adjustments, the cash flows from operating activities to be reported on the cash flow statement is 1. 2. 3. 4. $120,000 $125,000 $155,000 $115,000

University of Canterbury Year 13 Accounting Challenge 2007

30.

Foster Ltd reported a net loss of $10,000 for the year ended December 31. During the year, accounts receivable decreased $5,000, merchandise inventory increased $8,000, accounts payable increased by $10,000, and depreciation expense of $5,000 was recorded. During the year, operating activities 1. 2. 3. 4. used net cash of $2,000 used net cash of $8,000 provided net cash of $2,000 provided net cash of $8,000

31.

Johnson Ltd had the following information available: Prepaid Insurance, December 31, 2006 Prepaid Insurance, December 31, 2007 Insurance expense for 2007 1. 2. 3. 4. $485,000 $515,000 $600,000 $615,000 $100,000 115,000 500,000

The amount of cash paid for insurance premiums by Johnson Ltd during 2007 was

32.

If year one equals $800, year two equals $840, and year three equals $896, the percentage to be assigned for year three in a trend analysis, assuming that year one is the base year, is 1. 2. 3. 4. 100% 89.28% 105% 112%

33.

The best way to study the relationship of the components within financial statements is to prepare a. a trend analysis b. profitability analysis c. ratio analysis 1. 2. 3. 4. a and b b and c a and c only a only

34.

Management accountants would not 1. 2. 3. 4. assist in budget planning prepare reports primarily for external users determine cost behaviour be concerned with the impact of cost and volume on profits

35.

Which one of the following is not a cost element in manufacturing a product? 1. 2. 3. 4. Manufacturing overhead Direct materials Office salaries Direct labour 7

University of Canterbury Year 13 Accounting Challenge 2007

36.

For inventory costs to become expenses under the matching principle 1. 2. 3. 4. the product must be finished and included in inventory the product must be expensed based on percentage-of-completion the product to which they attach must be sold all accounts payable for inventory acquisition costs must be settled

37.

Cost of goods manufactured is calculated as follows: 1. 2. 3. 4. Beginning WIP + direct materials used + direct labour + manufacturing overhead ending WIP Direct materials used + direct labour + manufacturing overhead beginning WIP ending WIP Beginning WIP + direct materials used + direct labour + manufacturing overhead ending WIP Direct materials used + direct labour + manufacturing overhead ending WIP beginning WIP + +

38.

Craft Manufacturing Company's accounting records reflect the following inventories: Raw materials inventory Work in process inventory Finished goods inventory Dec. 31, 2007 $310,000 300,000 190,000 Dec. 31, 2006 $260,000 160,000 150,000

During 2007, $500,000 of raw materials were purchased, direct labour costs amounted to $600,000, and manufacturing overhead incurred was $480,000. The total raw materials available for use during 2007 for Craft Manufacturing Company is 1. 2. 3. 4. $810,000 $260,000 $450,000 $760,000

39. A materials requisition slip showed that direct materials requested were $30,000 and indirect materials requested were $6,000. The entry to record the transfer of materials from the storeroom is 1. 2. Work in Process Inventory Raw Materials Inventory Direct Materials Indirect Materials Work in Process Inventory Manufacturing Overhead Raw Materials Inventory Work in Process Inventory Manufacturing Overhead Raw Materials Inventory 30,000 30,000 30,000 6,000 36,000 36,000 36,000 30,000 6,000 36,000

3. 4.

University of Canterbury Year 13 Accounting Challenge 2007

40.

After all postings have been completed, the sum of the balances in the Raw Materials subsidiary ledger should equal the 1. 2. 3. 4. balance in the Raw Materials Inventory control account cost of materials charged to Work in Process Inventory cost of materials purchased cost of the materials placed into production

41.

The predetermined overhead rate is 1. 2. 3. 4. determined on a moving average basis throughout the year not calculated until actual overhead costs are incurred determined at the beginning of the year determined at the end of the current year

42.

Which of the following costs are variable? Cost a. b. c. d. 1. 2. 3. 4. a and b a and d only a only b 5,000 Units $100,000 $ 40,000 $ 90,000 $ 50,000 15,000 Units $300,000 240,000 90,000 150,000

43.

To which function of management is CVP analysis most applicable? 1. 2. 3. 4. Planning Organising Directing Controlling

44.

A company sells a product which has a unit sales price of $5, unit variable cost of $3 and total fixed costs of $100,000. The number of units the company must sell to break even is 1. 2. 3. 4. 50,000 units 20,000 units 200,000 units 33,333 units

45.

Reese Company requires sales of $2,000,000 to cover its fixed costs of $900,000 and to earn net profit of $400,000. What percent are variable costs of sales? 1. 2. 3. 4. 20% 35% 45% 65%

University of Canterbury Year 13 Accounting Challenge 2007

46.

Which one of the following is not a benefit of budgeting? 1. 2. 3. 4. It facilitates the coordination of activities It provides definite objectives for evaluating performance It provides assurance that the company will achieve its objectives It requires all levels of management to plan ahead on a recurring basis

47.

Opportunity cost is usually 1. 2. 3. 4. a standard cost a potential benefit a sunk cost included as part of cost of goods sold

48.

Minor Company had the following department data: Physical Units Work in process, 1 July Completed and transferred out Work in process, 31 July 6,000 27,000 9,000

Materials are added at the beginning of the process. What is the total number of equivalent units for materials in July? 1. 2. 3. 4. 49. 27,000 30,000 42,000 36,000

A product requires processing in two departments, Department A and then Department B, before it is completed. Costs transferred out of Department A will be transferred to 1. 2. 3. 4. Finished Goods Inventory Cost of Goods Sold Work in Process Department B Manufacturing Overhead

50.

Overhead application is recorded with a 1. 2. 3. 4. credit to Work in Process Inventory credit to Manufacturing Overhead debit to Manufacturing Overhead credit to job cost sheets

10