Questions and Answers of Fundamentals Of Financial Accounting 7th Edition

A company includes in inventories goods received before the year end, but for which invoices are not received until after the year end. This is in accordance with: (A) the historical cost convention
Which one of the following statements most closely expresses the meaning of fair presentation? (A) There is only one ‘fair presentation’ view of a company’s financial statements. (B) Fair
The fundamental objective of an external audit of a limited company is to: (A) give advice to shareholders. (B) detect fraud and errors. (C) measure the performance and financial position of a
Which of the following statements is not correct. (A) Internal auditors review value for money. (B) Internal auditors should not liaise with external auditors. (C) Internal audit is part of internal
Internal control includes ‘detect’ controls and ‘prevent’ controls. Which of the following is a detect control? (A) Signing overtime claim forms. (B) Matching purchase invoices with goods
The concept of capital maintenance is important for: (A) the sources of finance. (B) the measurement of profit. (C) the relationship of debt to equity. (D) the purchase of non-current assets.
What is an audit trail in a computerised accounting system? (A) A list of all the transactions in a period. (B) A list of all the transactions in a ledger account in a period. (C) A list of all the
Which of the following statements is correct? (A) External auditors report to the directors. (B) External auditors are appointed by the directors. (C) External auditors are required to give a report
When preparing financial statements in periods of inflation, directors: (A) must reduce asset values. (B) must increase asset values. (C) must reduce dividends. (D) need make no adjustments.
Which of the following is not an accounting convention? (A) Prudence (B) Consistency (C) Depreciation (D) Accruals
Who issues International Financial Reporting Standards: (A) The International Auditing and Assurance Standards Board (IAASB). (B) The Stock Exchange. (C) The International Accounting Standards Board
Which one of the following is not a necessary part of the stewardship function? (A) To maximise profits. (B) To safeguard assets. (C) To ensure adequate controls exist to prevent or detect fraud. (D)
A major aim of the internal auditors is to: (A) reduce the costs of the external auditors by carrying out some of their duties. (B) support the work of the external auditors. (C) prepare the
Goodwill is most appropriately classed as: (A) a current asset (B) an intangible asset (C) a fictitious liability (D) owner’s capital.
Net profit was calculated as being $10,200. It was later discovered that capital expenditure of $3,000 had been treated as revenue expenditure, and revenue receipts of $1,400 had been treated as
The accounting convention that dictates that non-current assets should be valued at cost, less accumulated depreciation, rather than their enforced saleable value, is: (A) net realisable value (B)
In times of rising prices, the historical cost convention: (A) understates asset values and profits. (B) understates asset values and overstates profits. (C) overstates asset values and profits. (D)
The capital maintenance convention implies that (A) the capital of a business should be kept intact by not paying out dividends. (B) a business should invest its profits in the purchase of capital
Sales revenue should be recognised when goods and services have been supplied; costs are incurred when goods and services have been received. The accounting convention that governs the above is (A)
If the owner of a business takes goods from inventories for his or her own personal use, the accounting convention to be considered is: (A) prudence (B) capitalisation (C) money measurement (D)
In times of rising prices, the historical cost convention has the effect of: (A) valuing all assets at their cost to the business. (B) recording goods sold at their cost price, even if they are worth
Your company sells goods on 29 December 20X3 on sale or return; the final date for return or payment in full is 10 January 20X4. The costs of manufacturing the product are all incurred and paid for
The historical cost convention: (A) fails to take account of changing price levels over time. (B) records only past transactions. (C) values all assets at their cost to the business, without any
A fair presentation is one that: (A) presents the financial statements in such a way as to exclude errors that would affect the actions of those reading them. (B) occurs when the financial statements
You are the accountant of ABC Ltd and have extracted a trial balance at 31 October 20X4. The sum of the debit column of the trial balance exceeds the sum of the credit column by $829. A suspense
If, at the end of the financial year, a company makes a charge against the profits for stationery consumed but not yet invoiced, this adjustment is in accordance with the convention of: (A)
I Ltd operates the imprest system for petty cash. At 1 July there was a float of $150, but it was decided to increase this to $200 from 1 August onwards. During July, the petty cashier received $25
Z‘s bank statement shows a balance of $825 overdrawn. The bank statement includes bank charges of $50, which have not been entered in the cash book. There are unpresented cheques totalling $475 and
Your cash book at 31 December 20X3 shows a bank balance of $565 overdrawn. On comparing this with your bank statement at the same date, you discover that: • a cheque for $57 drawn by you on 29
A non-current-asset register is: (A) an alternative name for the non-current asset ledger account. (B) a list of the physical non-current assets rather than their financial cost. (C) a schedule of
W Ltd bought a new printing machine from abroad. The cost of the machine was $80,000. The installation costs were $5,000 and the employees received specific training on how to use this particular
Which of the following statements regarding goodwill is not correct? (A) Goodwill is classed as an intangible non-current asset. (B) Goodwill is the excess of the value of a business as a whole over
The phrase ‘carrying amount’ when applied to non-current assets means that: (A) the assets are shown in the balance sheet at their original cost. (B) the assets are valued at their likely selling
The purpose of charging depreciation on non-current assets is: (A) to put money aside to replace the assets when required. (B) to show the assets in the balance sheet at their fair value. (C) to
Amachine cost $9,000. It has an expected usefullife of six years, and an expected residual value of $1,000. It is to be depreciated at 30 per cent per annum on the reducing-balance basis. A full
An organisation’s non-current asset register shows a carrying amount of $125,600. The non-current asset account in the nominal ledger shows a carrying amount of $135,600. The difference could be
Your firm bought a machine for $5,000 on 1 January 20X1, which had an expected useful life of four years and an expected residual value of $1,000; the asset was to be depreciated on the straight-line
A non-current asset register showed a carrying amount of $67,460. A non-current asset costing $15,000 had been sold for $4,000, making a loss on disposal of $1,250. No entries had been made in the
M Ltd exchanged inventories for equipment with Z Ltd. The inventories had cost M Ltd $10,000 and the normal selling price was $16,000; the equipment had cost Z Ltd $12,000 and the normal selling
X exchanged inventories for a machine with Y. The inventories had cost X $15,000 and the normal selling price was $17,000; the machine had cost Y $14,000 and the normal selling price was $18,000. How
S Ltd exchanged inventories for a delivery vehicle with T Ltd. The inventories had cost S Ltd $10,000 and the normal selling price was $12,000; the delivery vehicle had cost T Ltd $9,000 and the
On 1 May 20X0, A Ltd pays a rent bill of $1,800 for the period to 30 April 20X1. What is the charge to the income statement and the entry in the balance sheet for the year ended 30 November 20X0?
The electricity account for the year ended 30 June 20X0 was as follows: $ Opening balance for electricity accrued at 1 July 19X9 300 Payments made during the year: 1 August 19X9 for three months to
An organisation’s year end is 30 September. On 1 January 19X6 the organisation took out a loan of $100,000 with annual interest of 12 per cent. The interest is payable in equal instalments on the
per cent. He is registered for sales tax and therefore has charged only the net amount to his income statement. His capital at 1 April 19X7 was $6,500. His capital at 31 March 19X8 was:
A sole trader’s business made a profit of $32,500 during the year ended 31 March 19X8. This figure was after deducting $100 per week wages for himself. In addition, he put his home telephone bill
Recording the purchase of computer stationery by debiting the computer equipment at cost account would result in: (A) an overstatement of profit and an overstatement of non-current assets. (B) an
Which one of the following is an error of principle? (A) A gas bill credited to the gas account and debited to the bank account. (B) The purchase of a non-current asset credited to the asset at cost
The double-entry system of bookkeeping normally results in which of the following balances on the ledger accounts? Debit balances Credit balances A Assets and revenues Liabilities, capital and
An invoice from a supplier of office equipment has been debited to the stationery account. This error is known as: (A) an error of commission. (B) an error of original entry. (C) a compensating
The debit side of a trial balance totals $50 more than the credit side. This could be due to: (A) a purchase of goods for $50 being omitted from the payables account. (B) a sale of goods for $50
If a purchase return of $48 has been wrongly posted to the debit side of the sales returns account, but has been correctly entered in the supplier’s account, the total of the trial balance would
Where a transaction is credited to the correct ledger account, but debited incorrectly to the repairs and renewals account instead of to the plant and machinery account, the error is known as an
Work out the balances on the accounts from Exercise 3.3.
Work out the balances on the other accounts in Example 3.B.
A Thompson commenced business on 1 February 20X1, paying $500 into a business bank account. During the next month the following transactions took place. All payments are made by cheque and all
Tick the correct box for each of the following: Debit Credit 1. Increases in assets 2. Increases in liabilities 3. Increases in income 4. Decreases in liabilities 5.
Explain what is meant by the term ‘double-entry bookkeeping’.
The 2010 financial statements for Thor and Gunnar Companies are summarized here:These two companies are in the same business and state but different cities. One-half of Thor's sales and one-quarter
Lumber Liquidators, Inc., competes with Lowe's in product lines such as hardwood flooring, moldings, and noise-reducing underlay. The two companies reported the following financial results in fiscal
Which of the following is a ratio used to assess the extent to which operating cash flows are sufficient to cover replacement of property, plant, and equipment?a. Free cash flow.c. Current ratio.b.
Capital Corporation reported the following information in its statement of cash flows:Calculate, to one decimal place, the average capital acquisitions ratio for the period covering 2008-2010 and the
Dan's Products, Inc., reported net income of $\$ 80,000$, depreciation expense of $\$ 2,000$, and cash flow from operations of $\$ 60,000$. Compute the quality of income ratio. What does the
Suppose your company sells services of $\$ 150$ in exchange for $\$ 100$ cash and $\$ 50$ on account.Required:1. Show the journal entry to record this transaction.2. Identify the amount that
Suppose your company sells services for $\$ 300$ cash this month. Your company also pays $\$ 100$ in wages, which includes $\$ 20$ that was payable at the end of the previous month and \(\$
Colgate-Palmolive was founded in 1806. Its statement of cash flows reported the following information (in millions) for the year ended December 31, 2008:Required:Based on the information reported in
The statement of cash flows for Apple Inc. contained the following information (in millions) for the year ended September 27, 2008:Required:For each of the four current asset and liability accounts
Consultex, Inc., was founded in 2007 as a small financial consulting business. The company had done reasonably well in 2007-2009, but started noticing its cash dwindle early in 2010. In January 2010
PepsiCo The 2008 annual report for PepsiCo contained the following information for the period (in millions):Required:1. Compute cash flows from operating activities for PepsiCo using the indirect
Gibraltar Industries, Inc., is a manufacturer of steel products for customers such as Home Depot, Lowe's, Chrysler, Ford, and General Motors. In the year ended December 31, 2008, it reported the
Sportsnet Corporation reported the following data for the three most recent years:Required:1. Assuming that all investing activities involved acquisition of new plant and equipment, compute the
The Walt Disney Company reported the following in its 2008 annual report (in millions).Required:1. Calculate, to two decimal places, the average capital acquisitions ratio for the period covering
AMC Entertainment operates 307 movie theaters in the United States, Canada, and Europe. During fiscal 2008, the company sold its Fandango assets for $\$ 20,360,000$ cash and recorded a gain on
The income statement and selected balance sheet information for Hamburger Heaven for the year ended December 31, 2010, are presented below.TIP: Prepaid Rent decreased in 2010 because the amount taken
During a recent year (ended December 31, 2011), Nicole's Getaway Spa (NGS) reported net income of $\$ 2,300$. The company reported the following activities:a. Increase in inventories of \(\$
From 2009 to 2010, Colossal Company's current ratio increased and its quick ratio decreased. What does this imply about the level of inventory and prepaids?
From 2009 to 2010, Shamwow reported that its Net Sales increased from $\$ 300,000$ to $\$ 400,000$, and its Gross Profit increased from $\$ 90,000$ to $\$ 130,000$. Was the Gross Profit
Given the following data, compute the 2010 return on equity ratio (expressed as a percentage with one decimal place). Net income Stockholders' equity Total assets Interest expense 2010 $ 1,850,000
In 2009, Big W Company reported earnings per share of $\$ 2.50$ when its stock was selling for $\$ 50.00$. If its 2010 earnings increase by 10 percent and the $\mathrm{P} / \mathrm{E}$ ratio
The average price of a gallon of gas in 2008 jumped $\$ 0.45$ (16 percent) from $\$ 2.81$ in 2007 (to $\$ 3.26$ in 2008). Let's see whether these changes are reflected in the income statement
Cintas Corporation is the largest uniform supplier in North America, providing products and services to approximately 800,000 businesses of all types. Selected information from its 2008 annual report
Procter & Gamble is a multinational corporation that manufactures and markets many products that you use every day. In 2008, sales for the company were $\$ 83,503$ (all amounts in millions).
Dollar General Corporation operates approximately 8,400 general merchandise stores that feature quality merchandise at low prices to meet the needs of middle-, low-, and fixed-income families in
Kohl's Corporation is a national retail department store. The company's total revenues for the year ended January 31,2009 , were $\$ 16$ billion. J.C. Penney is a similar size department store
At December 31, 2010, the records of Nortech Corporation provided the following selected and incomplete data:Required: Common stock (par $10; no changes during 2010). Shares authorized, 200,000.
Activision became a public company with an initial public offering of stock on June 9, 1983, at $\$ 12$ per share. In June 2002, Activision issued 7.5 million additional shares to the public at
As of February 1, 2009, Krispy Kreme Doughnuts had $\$ 100,000$ of Notes Receivable due before January 31 , $2010, \$ 1,268,000$ of Accounts Receivable, and $\$ 249,000$ in its Allowance for
If a 10 percent note receivable for $\$ 10,000$ is created on January 1, 2009, and it has a maturity date of December 31, 2013,a. No interest revenue will be recorded in 2009.b. The note receivable
In 2008, Coca-Cola Enterprises had a receivables turnover ratio of 8. 5. Which of the following could Coca-Cola do to cause the ratio to increase?a. Pursue collections more aggressively.b. Increase
JCPenney currently allows customers to purchase merchandise using national credit cards like Visa and Mastercard, yet it had discontinued its own private credit card program in 1999. What pros and
Scotia Corporation hired a new product manager and agreed to provide her a $20,000 relocation loan on a six-month, 7 percent note. Prepare journal entries to record the following transactions for
On January 1, 2009, Loop Raceway issued 600 bonds, each with a face value of $\$ 1,000$, a stated interest rate of 5% paid annually on December 31, and a maturity date of December 31, 2011. On the
In 2009, Rec Room Sports reported earnings per share of $\$ 8.50$ when its stock price was $\$ 212.50$. In 2010, its earnings increased by 20 percent. If the $\mathrm{P} / \mathrm{E}$ ratio
Incentive Corporation was organized in 2009 to operate a financial consulting business. The charter authorized the following capital stock: common stock, par value $\$ 4$ per share, 12,000 shares.
North Wind Aviation received its charter during January 2010. The charter authorized the following capital stock:During 2010, the following transactions occurred in the order given:a. Issued a total
Superior Corporation has the following capital stock outstanding:On October 1, 2010, the board of directors declared dividends as follows:On December 20, 2010, the market prices were preferred stock,
Winnebago is a familiar name on vehicles traveling U.S. highways. The company manufactures and sells large motor homes for vacation travel. These motor homes can be quickly recognized because of the
Swimtech Pools Inc. (SPI) reported the following in its financial statements for the quarter ended March 31, 2010.During the quarter ended March 31, 2010, SPI reported Net Income of \$5,000 and
Assume for each of the following independent cases that the annual accounting period ends on December 31,2010 , and that the total of all revenue accounts was $\$ 150,000$ and the total of all
A company that purchases inventory costing $\$ 10,000$ on terms $2 / 10, n / 30$, but first returns one-half of those goods, will receive a discount of what amount if it pays on the last day of

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