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business
principles of financial accounting

Questions and Answers of Principles Of Financial Accounting

A business starts its year with £800 in the provision for doubtful debts account. At the end of the year, debtors total £12,000 of which £600 are considered doubtful. What is the effect on the
A business had a suspense account balance of £580 (debit) before the following errors were detected and corrected:a £140 worth of credit sales had been entered on the sales account but not on the
Referring back to the information in the previous question, what would the revised balance on the suspense account be?Data From Previous Question:A business had a suspense account balance of £580
A business has an accounting year ending on 31 December. At 31 December 2007 the records contained the following accounts:The trade debtors at 31 December 2008 were £18,900. The business decided at
This is a continuation of the above question.During the year ended 31 December 2009, business C was declared bankrupt and a first payment of £150 was received by the administrator (this payment was
A business’s provision for doubtful debts was £900 on 31 December 2005. During the year ended 31 December 2006, the business received £200 from a trade debtor towards the settlement of a debt of
At the end of the calendar year 2007, the provision for doubtful debts account is 2.5 percent of the trade debtors of £40,000 on that date. During the year 2008, bad debts of £2,500 were written
The trade debtors account as at 31 December 2004 was £39,800. The provision for doubtful debts at the same date was 3.5 percent of the balance outstanding from debtors.During 2005, the company’s
Your local newsagent has an accounting year ending on 31 December. The following amounts have been paid for gas heating:Required You are required to show the double entries in the light and heat
Your local fish ‘n’ chips has an accounting year ending on 31 December. The following amounts have been paid as electricity:Required You are required to show the double-entries in the light and
Your local internet café has an accounting year ending on 31 December. The following amounts have been paid in respect of telephone and internet:Required You are required to show the double-entries
A supermarket’s financial year runs from 1 January to 31 December and the business maintains a combined rent and rates account. Rent is payable quarterly in advance.Rent was £4,200 for the
You are given the balances of the following accounts as at 1 July 2007:Required You are required to show the double entries for all the accounts above for the year ended 30 June 2008. Vehicles (at
The following information is available in respect of a sole trader:No new capital was introduced by the owner during the year.What is the business’s opening capital? Drawings 9,500 Net profit for
Madge does not keep full accounting records, but the following information is available in respect of her accounting year ended 31 March 2009:In her profit and loss account for the year ended 31
The following information is available:Calculate: (a) the mark-up (cost), and (b) the gross profit margin. Sales 300,000 Opening stock 25,000 Purchases 250,000 Closing stock 30,000
If sales are £20,000 and the gross profit margin is 20 percent, what is the cost of goods sold?
Fergie is a sole trader. The following information is available in respect of her accounting year ended 31 March 2009:Fergie’s bank statements for the year show receipts from trade debtors of
Dixie’s business achieves a gross profit margin of 40 percent and her cost of goods sold in 2009 was £480,000. All sales are for cash, and her cash account balance at the start and end of the
Your local newsagent makes sales of £52,000 and purchases of £31,000 over the last accounting year. The owner took goods costing £455 without paying for them. Closing stock was valued at its cost
Harrison Ford has opening stock of €30,000 and makes purchases during the year of €340,000. He removes goods costing €1,500 for his own use, and the business achieves a constant mark-up of 20
Ilias starts a business and introduces capital of £10,000. He also obtains a loan of £6,000 to purchase fixed assets. What is the amount of his opening net assets?
A company has the following assets and liabilities at 31 December: premises £30,000; trade creditors £4,000; stock £9,000; amounts owed for rent at 31 December £900; cash in hand £2,500; balance
The owner of a business introduced new capital of £8,000 during the year and withdrew £2,500 cash for his private use. The profit earned by a business in 2008 was £68,500. If the net assets at the
The owner of a business introduced new capital of €15,000 during the year and withdrew a monthly salary of €2,000. If the net assets at 1 January 2008 and 31 December 2008 were €85,000 and
The balance sheets of a business at 1 July 2008 and 30 June 2009 show net assets of £85,000 and £105,000 respectively. The profit for the year for this business is £15,000. The owner made regular
Alan sets up a business. Before he actually sells anything he buys the following:He did not pay in full for the goods for resale and still owes €400 for them. He borrowed €3,000 from a friend for
The following table shows the cumulative effects of a succession of separate transactions on the assets and liabilities of a business.Identify clearly and as fully as you can what transaction has
Dun Horse and Associates, a firm of real estate agents, had the following transactions represented during September:1 Arranged a sale of an apartment building owned by a client. The commission for
A business had the following transactions, among others during May:1 Paid \($2,000\) salary to a sales representative for time worked during May.2 Paid \($500\) for petrol purchased for the delivery
Indicate the effect of each of the following transactions upon the total assets of a business by using one of the appropriate phrases as below:a. Owner contributed a computer to the business.b.
1 The owner’s equity of Sean Connery is \($150,000\) and is equal to one-quarter the amount of total assets. What is the amount of liabilities?2 The assets of Pierce Brosnan amount to \($60,000\)
Study carefully the following balance sheet and state the transactions that resulted in each change. LondonCarRental Ltd Balance sheet as at as at 03.03.20x9 as at 04.03.20x9 05.03.20x9 as at
You are given the following information for a retailer, George Michael, as at 30/6/20x8:During the past year George Michael has withdrawn \($2,000\) cash for his own use, while the net profit,
On 31 October 20x8, Mobile Centre Ltd, owned by Alex Ferguson, had the following assets and liabilities:Required Prepare a balance sheet as at 31 October 20x8. Use the blank balance sheet provided
Twelve months ago Linda Evangelista decided that she wanted to grow grapes and eventually produce wine. The business is called The Model’s Vineyard Ltd and the transactions below are for the year
Harrison Ford is the owner of Fine Artist Ltd and during November the following transactions occurred:Required Prepare a balance sheet for Harrison Ford as at 30 November. Use the blank balance
David Bowie, a sole trader, has extracted the following trial balance as at 31 January 20x7.Required 1 Prepare the profit and loss accounts for the year ended 31 January 20x7.2 Prepare the balance
The following transactions are for Drew Barrymore who began a business called Hollywood's Acting Training Ltd. The business began on 1 July 20x4 and has been operating for one month.Required Prepare
The following transactions relate to the Aston Products Ltd, owned by Al Pacino:Required Present the balance sheet at the completion of the above transactions. 20x6 June 1 Commenced business with:
Enrique Inglesias, a sole trader, extracted the following trial balance from his books at the close of business on 31 July 2009:Required 1 Prepare the profit and loss accounts for the year ended 31
The transactions below are for the business ‘Consulting Services Ltd’ owned by Jere Duckin. The business began on 1 September 20x8 and has been operating for one month. The following transactions
Interflow Plumbing Services Ltd began operating from its head office in Birmingham three months ago. Transactions relating to these three months have been as follows:Required 1 For each transaction
You employ a very inexperienced book-keeper who, since you started in business a few days ago, has recorded the following in your accounts:Required 1 Re-write the accounts as they should have been
1 Show the accounts involved in the transactions below under the main five headings of the financial statements (i.e. assets, liabilities, equity, revenue and expenses):2 Advise what accounts would
Show the general journal entries that are needed to record the following transactions of Johnson's Cleaning Services Ltd:a. The owner transferred \($2,000\) cash and a computer worth \($5,000\) to
Even though a business’s trial balance balanced, the following errors have been detected. You are required to prepare the correcting journal entries.a. A payment of \($550\) for rent was
The trial balance of Copying Specialist Service Ltd as at 31 July 20x8 was as follows:Transactions for the month of August were:Required 1 Record the above transactions in the general journal.2
Five general ledger accounts are shown below in T-account format. Describe the transactions that took place following the recording of double entries. Cash at bank $ $ (c) 760 (a) Trade creditors $ $
Below is a list of transactions for July 20x6 for Painting Jobs Done Ltd in its first month of operations:Required 1 Record all transactions in the general journal.2 Prepare a trial balance as at 31
Dixens Ltd, a wholesaler of electrical equipment, starts business on 1 January with £100,000 in cash.Required 1 Record all transactions in T-accounts.2 Prepare a profit and loss statement for the
A university graduate student has extracted the following trial balance.The amounts are correct per the ledger accounts, but entered under their incorrect headings of debit balances or credit
David Beckam, a sole trader, does not have any accounting background, but he has managed to extract the following trial balance from the books of his business as at 30 November 2009:Clearly, David is
Aston Ltd’s stock valuation excludes a number of free samples from potential customers. They would normally cost £100 and could probably be sold to Aston Ltd’s customers for £150. What is the
Madonna’s stock valuation includes certain damaged goods (clothes) at her original cost of £11,655. These could be repaired at a cost of £1,570 and sold for £12,150. What is the effect on
The following details are taken from the books of Harrison Ford Ltd:Calculate the business’s cost of goods sold Y Y Purchases 35,610 Opening stock 2,100 Returns inwards 990 Carriage outwards 2,990
Suppose a division of a computer manufacturing company has these stock records for January 20x6:Company accounting records reveal that operating expenses for January were £2,900, and sales of 310
ABC Hardware Company began 20x4 with 60,000 units of stock that cost £36,000.During 20x4, ABC purchased goods on credit for £352,500 as follows:Cash payments to suppliers totalled £330,000 during
Calculate the missing income statement amounts for each of the following companies (amounts adapted and in millions):Prepare the income statement for Asca, showing the computation of cost of goods
X Ltd, maker of DVDs and computer consumables, reported the following comparative income statement for the years ended 30 September 20x5 and 20x4:X Ltd’s directors and shareholders are pleased by
Babycare accounting year ends each 31 January. Assume you are dealing with a single Babycare store in Leamington Spa, Warwickshire and that the following transactions need to be recorded: opening
Silect Ltd, a fabric manufacturer, began March with 73 yards of fabric that cost £23 per yard. During the month, Silect made the following purchases:At 31 March the closing stock consists of 60
Pizza Place’s records include the following accounts with regards to purchases of plastic glasses as at 31 December of the current year:By 31 December the company sold 10,100 units for
Dixens Ltd reported the following data (adapted in billions):Assume that in early 2009, an error was discovered which involved the closing stock for 2006 being overstated by €1 billion and the
Fraser Department Stores Ltd operates a number of department stores in the United Kingdom. Assume that the company’s accounting year ends each 31 January.The store in London had an opening stock in
Assume the H.A. Rod store in London began July with 50 (thousand) goods that cost £19.00 each. The sale price of each of these goods was £36.00. During July, H.A. Rod completed the following
Trade Cars Ltd had opening stock in February of 150 car wheels that cost £77.00 each.During February, the garage made the following purchases:Trade Cars Ltd’s closing balance consists of 214
The records of Fordie Car Manufacturer Ltd include the following for a line of car exhausts at 31 March of the current year:The sales revenue generated during the year is £11,200.Required 1 Prepare
The extract profit and loss account of Air Control Specialists Ltd is as follows (in millions):Assume that in early 2009 it was discovered that the closing stock for 2006 was understated by £50
UK Airways Ltd is nearing the end of its first year of operations. The company made stock purchases of £745,000 during the year, as follows:Sales for the year are 5,500 units for £1,500,000 of
Assume a Parda factory outlet store began August 20x9 with 65 units of goods that cost £140 each. The sale price of these units was £270. During August, the store completed the following inventory
Accounting records for The Best Pie Ltd include the following information for the year ended 31. December 20x8 (amounts in thousands):Required 1 Journalise The Best Pie Ltd’s stock transactions
You have found a source which can supply you with popular movies on DVDs at £2.50 each (normal retail price £7.99 and upwards). As a student, and being inexperienced, you see an opportunity of
Established less than 50 years ago, Honda Motor Co. Ltd. of Japan is a leading international manufacturer of automobiles and the largest manufacturer of motorcycles in the world. As a Japanese
Each contributed \($50,000\) cash to start the business and received 4,000 shares of capital. The store completed its first year of operations on December 31, 2011. On that date, the following
On January 1, 2013, three individuals organized West Company as a corporation. Each individual invested \(\$ 10,000\) cash in the business. On December 31, 2013, they prepared a list of resources
A company has total assets of \(\$ 500,000\) and noncurrent assets of \(\$ 400,000\). Current liabilities are \(\$ 40,000\). What is the current ratio?a. 12.5b. 10.0c. 2.5d. Cannot be determined
Positive financial leverage indicatesa. Positive cash flow from financing activities.b. A debt-to-equity ratio higher than 1 .c. A rate of return on assets exceeding the interest rate on debt.d. A
If a potential investor is analyzing three companies in the same industry and wishes to invest in only one, which ratio is least likely to affect the investor's decision?a. Quick ratio.b. Earnings
A company has quick assets of \(\$ 300,000\) and current liabilities of \(\$ 150,000\). The company purchased \(\$ 50,000\) in inventory on credit. After the purchase, the quick ratio would bea.
Annual interest expense for a single bond issue continues to increase over the life of the bonds. Which of the following explains this?a. The market rate of interest has increased since the bonds
When using the effective-interest method of amortization, interest expense reported in the income statement is impacted by thea. Par value of the bonds.b. Coupon rate of interest stated in the bond
Katz Corporation has issued 400,000 shares of common stock and holds 20,000 shares in treasury. The charter authorized the issuance of 500,000 shares. The company has declared and paid a dividend of
A company issued 100,000 shares of common stock with a par value of \(\$ 1\) per share. The stock sold for \(\$ 20\) per share. By what amount does stockholders' equity increase?a. \(\$ 100,000\)c.
What is goodwill?
Which of the following is true regarding the economic return from investing ratio?a. This ratio is used to evaluate how efficiently a company manages its total assets.b. This ratio is used to
Lamichael Company purchased 100 percent of the outstanding voting shares of Darrell Corporation in the open market for \(\$ 200,000\) cash and Darrell was merged into Lamichael Company. On the date
Which of the following is not a component of the cost of inventory?a. Administrative overheadc. Raw materialsb. Direct labord. Factory overhead
Miga Company and Porter Company both bought a new delivery truck on January 1, 2008. Both companies paid exactly the same cost, \(\$ 30,000\), for their respective vehicles. As of December 31 , 2011
Barber, Inc., followed the practice of depreciating its building on a straight-line basis. A building was purchased in 2011 and had an estimated useful life of 25 years and a residual value of \(\$
Ryan, Inc., uses straight-line depreciation for all of its depreciable assets. Ryan sold a used piece of machinery on December 31, 2012, that it purchased on January 1, 2011, for \(\$ 10,000\). The
Under what method(s) of depreciation is an asset's net book value the depreciable base (the amount to be depreciated)?a. Straight-line methodb. Declining-balance methodc. Units-of-production
Thornton Industries purchased a machine for \(\$ 45,000\) and is depreciating it with the straight-line method over a life of 10 years, using a residual value of \(\$ 3,000\). At the beginning of the
Company \(X\) has borrowed \(\$ 100,000\) from the bank to be repaid over the next five years, with payments beginning next month. Which of the following best describes the presentation of this debt
How is working capital calculated?a. Current assets multiplied by current liabilities.b. Current assets plus current liabilities.c. Current assets minus current liabilities.d. Current assets divided
Jacobs Company borrowed 100,000 at 8 percent interest for three months. How much interest does the company owe at the end of three months?a. \(\$ 8,000\)b. \(\$ 2,000\)c. \(\$ 800\)d. \(\$ 200\)
Fred wants to save enough money each year so that he can purchase a sports car in January 2013. Fred receives a large bonus from his employer every December 31.He anticipates that the car will cost
A company has been successful in reducing the costs of its manufacturing process by relocating the factory to another locale. What effect will this factor have on the company's gross profit
You have determined that Company \(X\) estimates bad debt expense with an aging of accounts receivable schedule. Company X's estimate of uncollectible receivables resulting from the aging analysis
What is a contra-asset? Give an example of one.

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