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Tutorial_MOD007166 Introduction to financial reporting

The document contains a series of accounting-related multiple choice questions covering topics such as accrual accounting, asset classification, financial statements, and depreciation methods. It includes a trial balance for a jewelry business and additional information for preparing financial statements. The questions and scenario aim to test knowledge of accounting principles and financial reporting.

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Alex Sammy
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29 views

Tutorial_MOD007166 Introduction to financial reporting

The document contains a series of accounting-related multiple choice questions covering topics such as accrual accounting, asset classification, financial statements, and depreciation methods. It includes a trial balance for a jewelry business and additional information for preparing financial statements. The questions and scenario aim to test knowledge of accounting principles and financial reporting.

Uploaded by

Alex Sammy
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOC, PDF, TXT or read online on Scribd
You are on page 1/ 6

Section A: 25 Multiple choice questions, 2 marks each

Use the following information for questions 1 through 4:


A company using the accrual method of accounting rendered services to a
client in August. The services were for 2,000 and the company gave the
customer credit terms that state the amount is to be paid to the company
in September.

1. If the company prepares monthly income statements, what will be the


account debited for 2,000 in August?
(a) Cash
(b) Trade receivables
(c) Service revenue

2. Which account should the company credit for 2,000 in August?


(a) Cash
(b) Trade receivables
(c) Service revenue

3. In September when the company receives the 2,000 from the


customer, which account should the company debit?
(a) Cash
(b) Trade receivables
(c) Service revenue

4. In September when the company receives the 2,000 from the


customer, which account should the company credit?
(a) Cash
(b) Trade receivables
(c) Service revenue

5. A contra asset account has what type of balance?


(a) Debit
(b) Credit
(c) Contra
(d) None of above

6. Patents, copyrights, and licenses are:


(a) Tangible assets
(b) Intangible assets
(c) Inventories
(d) Investments

7. What is the primary purpose of financial accounting?


(a) To track daily business transactions
(b) To help with tax planning
(c) To provide information for external users
(d) To provide information for internal users
8. Which of the following is considered as a current asset in the
Statement of financial position:
(a) Building
(b) Provision
(c) Inventory
(d) Trade payable

9. Which of these is not included as a separate item in the basic


accounting equation?
(a) Assets
(b)Revenues
(c) Liabilities
(d)Equity

10. Which account is not a liability account?


(a) Trade payables
(b)Bank Loan
(c) Bank account (cash)
(d)Accruals

11. Which account increases equity?


(a) Expenses
(b)Drawings
(c) Revenues
(d)None of above

. 12. When a company decides to write off a bad debt, what impact will it
have on its financial statements?
(a) Assets increase and liabilities increase
(b) Assets decrease and expenses increase
(c) Liabilities increase and expenses decrease
(d) Liabilities decrease and expenses increase

Use the following information for questions 13 and 14:


A company purchased merchandise to be resold during the year 20X1.
The purchases were made at the following costs.
Delivery Unit Cost per
s unit
January 1, 20X1 (carried over from 20 10
20X0)
1. 40 11
2. 40 12
3. 50 13

The company sold 120 units during the period.


13. Assuming the LIFO formula, what will be the company's cost of goods
sold for the 120 items sold in 20X1?
(a) 1,380
(b) 1,386
(c) 1,416
(d) 1,460

14. Assuming the FIFO formula, what will be the company's cost of goods
sold for the 120 items sold in 20X1?
(a) 1,380
(b) 1,386
(c) 1,416
(d) 1,460

15. A company purchased a machine on credit. How would this transaction


affect its Statement of financial position?
(a) Increase in assets and increase in liabilities
(b)Increase in assets and decrease in liabilities
(c) This transaction will not affect the Statement of financial position
as the payment has not been made yet
(d)Increase in assets and increase in equity

16. A company purchased a machine for 50,000 with an estimated useful


life of 5 year. Estimated residual value is 10,000. Using straight-line
depreciation method, what will be the annual depreciation expense:
(a) 10,000
(b)8,000
(c) 12,500
(d)5,000

17. Which part of Cash flow statement reports cash flows from day-to-day
operations?
(a) Financing activities
(b)Operating activities
(c) Investing activities
(d)Indirect activities

18. Financial statements report the fair market value of a company.


(a) True
(b)False

19. Prepaid insurance is reported on a company's balance sheet as an:


(a) Asset
(b) Liability
(c) Equity
(d) Expense
20. The statement of cash flows explains the changes in cash and
cash __________during the specified time interval.
(a) Savings
(b)Drawings
(c) Equivalents

21. Are the notes to the financial statements considered to be an integral


part of the financial statements?
(a) Yes
(b) No

22. The inventory cost flow assumption (cost formula) where the cost of
the most recent purchase is matched first against sales revenues is
(a) FIFO
(b)LIFO
(c) Average

23. When a company recognises revenue before it receives cash (or


another form of a payment), it follows which accounting principle?
(a) Accrual principle
(b) Cash basis accounting
(c) Revenue recognition principle
(d) Expense recognition principle
24. Depreciation is a method used to:
(a) Increase the market value of assets
(b) Allocate the cost of tangible long-term assets over their useful
life
(c) Record the sale of an asset
(d) Calculate the total revenue of a business
25. Which financial statement shows company’s revenues and expenses
over a specific period?
(a) Statement of financial position
(b) Income statement
(c) Cash flow statement
(d) Statement of changes in equity

END OF SECTION A
SECTION B Example 50 Marks
Ella operates a jewellery business in Brussels. She sells her goods at fairs,
markets and from stalls set up in office foyers and shopping malls. Her
trial balance as of 30 June 20X2 is as follows:

Debit Credit
Capital introduced 17,000
Motor van at cost 18,000
Display equipment at cost 4,000
Trade payables 4,460
Motor van – accumulated depreciation 4,500
Display equipment – accumulated depreciation 800
Bank overdraft 1,100
Trade receivables 3,000
Sales 105,300
Inventory at 1st July 20X1 5,300
Purchases 54,140
Rent 18,900
Insurance 4,040
Electricity 5,000
Motor expenses 3,150
Other expenses 2,750
Drawings 14,000
Retained earnings 880
133,160 133,160

Additional information:
1. Inventory on 30 June 20X2 was valued at 7,120.
2. The van is to be depreciated at the rate of 25% per annum on the
straight-line basis (i.e., its useful life is four years) with zero residual
value.
3. The display equipment is to be depreciated at the rate of 20% per
annum on reducing-balance basis (zero residual value).
4. Insurance includes a payment of 1,110 made on 1 June 20X2 for the
three months to 31 August 20X2.
5. Monica, a customer who owes Ella 500 on 30 th June 20X2 has gone
into liquidation and will not be making any payment to Ella in the
future.
6. Electricity used in June, however unpaid as of 30 th June 20X2
amounted 200.
7. For simplicity, ignore the tax effect.

Required:
Prepare Ella’s Statement of financial position on 30 June 20X2
Prepare Ella’s Income statement for the year ended 30 June 20X2
Show your workings for:
a) Cost of goods sold
b) Depreciation
c) Insurance
The format of financial statements is at your discretion.
--END--

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