Question 1

George, a sole trader, sells goods on credit, and uses the direct write-off method for recording bad debts. The balance for accounts receivable at the end of the last financial year ended 31 December was $12 000. There was $1000 of bad debts that were written off this year. From an accrual perspective, for last year, which of the following is incorrect?

Accepted Answer

A)  Profit and equity were overstated. 
B)  Profit and assets were overstated. 
C)  Accounts receivable and assets were overstated. 
D)  Profit and liabilities were overstated.

Question 2

Grey Egret Ltd purchased an item of equipment at a total cost of $85 000 nine months ago on 1 October. The equipment was expected to have residual value of $20 000 at the end of its five-year useful life to the firm. The company's financial year ends on 30 June.

Accepted Answer

The answer of Grey Egret Ltd purchased an item of...

Question 3

Accumulated depreciation, as used in accounting, primarily represents:

Accepted Answer

A)  funds (or cash) set aside to replace the asset being depreciated. 
B)  earnings retained in the business that will be used to purchase another plant asset when the present asset becomes fully depreciated. 
C)  an expense that is shown in the statement of comprehensive income. 
D)  the portion of the cost of a plant asset written off as an expense since the asset was acquired.

Question 4

An asset has a cost of $80 000, estimated residual value of $20 000 and estimated useful life of five years. What is the amount of the depreciation expense for the first year, assuming the reducing-balance method is used and the annual rate is 30%?

Accepted Answer

A)  $12 000 
B)  $16 000 
C)  $18 000 
D)  $24 000

Question 5

The inventory valuation method that results in the recognition of the oldest inventory costs on the balance sheet and statement of comprehensive income, respectively, is: Balance Sheet Statement of Comprehensive Income

Accepted Answer

A)  FIFO LIFO 
B)  FIFO FIFO 
C)  LIFO LIFO 
D)  LIFO FIFO

Question 6

Owens Office Supplies collected $300 that had previously been recorded in Accounts Receivable. Recording this event in the accounting system caused:

Accepted Answer

A)  assets to increase. 
B)  assets to decrease. 
C)  total assets to remain the same. 
D)  revenues to increase.

Question 7

An advocate of the LIFO inventory method would maintain that:

Accepted Answer

A)  current costs are matched with current selling prices. 
B)  the lowest possible costs are always shown in the ending inventory. 
C)  the oldest inventory is relieved of its cost before the newer purchases. 
D)  the highest possible costs are always shown in the ending inventory.

Question 8

Firms should ideally recognise the expense related to uncollectable accounts:

Accepted Answer

A)  during the period of sale. 
B)  when accounts are written off. 
C)  when customers declare bankruptcy. 
D)  never; there is no expense related to uncollectable accounts.

Question 9

Consider the following information and answer the question(s) below.  If Machine HRB-09 was purchased 21 months ago, what is the total accumulated depreciation as at 30 June for this machine?

Accepted Answer

A)  $1786 
B)  $1492 
C)  $682 
D)  $1827

Question 10

Depreciation expense has the effect of reducing profit, equity and assets.

Accepted Answer

A) True 
 B)False

Question 11

The bookkeeper at Kupertino Company is recording information into the accounting system to recognise the estimated amount of bad debt expense for the fiscal period. This entry into the accounting system will affect which of the account balances below? Allowance
For Doubtful Debts Bad Debts Expense

Accepted Answer

A)  Yes Yes 
B)  Yes No 
C)  No Yes 
D)  No No

Question 12

A credit sale results in increases in which of the following pairs of items on the financial statements? Statement of comprehensive income Balance Sheet

Accepted Answer

A)  Sales Revenue Cash 
B)  Accounts Receivable Cash 
C)  Sales Revenue Accounts Receivable 
D)  Accounts Receivable Sales Revenue

Question 13

Different valuation rules affect inventory values and therefore cost of sales and profits.

Accepted Answer

A) True 
 B)False

Question 14

Which of the following is not an intangible asset?

Accepted Answer

A)  Goodwill 
B)  Patent 
C)  Copyright 
D)  Land

Question 15

During the year ended 30 June Excelsior Soccer sold 1800 soccer balls at $12.50 each. The entity uses the periodic method of recording inventory. Beginning inventory from 1 July last year amounted to 200 balls at a cost of $1200. Purchases during the year were made in the following order:
580 units @ $6.20
1100 units @ $6.80
300 units @ $7.00
100 units @ $7.10

Accepted Answer

The answer of During the year ended 30 June Excelsior...

Question 16

The accumulated depreciation account, unlike the allowance for doubtful debts, is not a contra account.

Accepted Answer

A) True 
 B)False

Question 17

The key to the effective management of accounts receivable relies on maximising the benefits from selling goods on credit, not minimising the losses from bad debts.

Accepted Answer

A) True 
 B)False

Question 18

The reducing-balance method is an alternative method to the units-of-output method, and may be a better reflection of the actual usage of most assets, such as plant and equipment.

Accepted Answer

A) True 
 B)False

Question 19

LIFO is a method of inventory valuation based on the assumption that cost price attached to the goods sold is the cost of the most recently purchased inventory. Closing inventory is therefore assumed to consist of the cost of the earliest units purchased.

Accepted Answer

A) True 
 B)False

Question 20

The collection of an account receivable will:

Accepted Answer

A)  increase total assets and increase total owners' equity. 
B)  not affect total assets and increase total owners' equity. 
C)  decrease total assets and decrease total liabilities. 
D)  not affect total assets liabilities and owners' equity.

Exam 8: Accounting for Selected Assets

Grey Egret Ltd purchased an item of equipment at a total cost of $85 000 nine months ago on 1 October. The equipment was expected to have residual value of $20 000 at the end of its five-year useful life to the firm. The company's financial year ends on 30 June.

Accumulated depreciation, as used in accounting, primarily represents:

An asset has a cost of $80 000, estimated residual value of $20 000 and estimated useful life of five years. What is the amount of the depreciation expense for the first year, assuming the reducing-balance method is used and the annual rate is 30%?

The inventory valuation method that results in the recognition of the oldest inventory costs on the balance sheet and statement of comprehensive income, respectively, is: Balance Sheet Statement of Comprehensive Income

Owens Office Supplies collected $300 that had previously been recorded in Accounts Receivable. Recording this event in the accounting system caused:

An advocate of the LIFO inventory method would maintain that:

Firms should ideally recognise the expense related to uncollectable accounts:

Consider the following information and answer the question(s) below. If Machine HRB-09 was purchased 21 months ago, what is the total accumulated depreciation as at 30 June for this machine?

Depreciation expense has the effect of reducing profit, equity and assets.

The bookkeeper at Kupertino Company is recording information into the accounting system to recognise the estimated amount of bad debt expense for the fiscal period. This entry into the accounting system will affect which of the account balances below? Allowance For Doubtful Debts Bad Debts Expense

A credit sale results in increases in which of the following pairs of items on the financial statements? Statement of comprehensive income Balance Sheet

Different valuation rules affect inventory values and therefore cost of sales and profits.

Which of the following is not an intangible asset?

The accumulated depreciation account, unlike the allowance for doubtful debts, is not a contra account.

The key to the effective management of accounts receivable relies on maximising the benefits from selling goods on credit, not minimising the losses from bad debts.

The reducing-balance method is an alternative method to the units-of-output method, and may be a better reflection of the actual usage of most assets, such as plant and equipment.

LIFO is a method of inventory valuation based on the assumption that cost price attached to the goods sold is the cost of the most recently purchased inventory. Closing inventory is therefore assumed to consist of the cost of the earliest units purchased.

The collection of an account receivable will: