Question 1

Which qualitative characteristic improves the usefulness of financial reporting information by enabling the users to identify similarities in and differences between two sets of economic data?

Accepted Answer

A)   relevance.
B)   timeliness.
C)   economic substance.
D)   comparability.E) B) and D)
F) A) and B)

Question 2

On 28 February Harold's Speedy Dry Cleaning received $100 for dry cleaning services provided on the same day. The effect on the accounting equation is:

Accepted Answer

A)   Assets increase by $100; Equity increases by $100.
B)   Assets increase by $100; Assets decrease by $100.
C)   Assets increase by $100; Liabilities decrease by $100.
D)   Assets decrease by $100; Equity decreases by $100.E) A) and B)
F) A) and C)

Question 3

Helen decides to open her own ice-cream store and deposits $25 000 into her new business bank account on 1 October. The effect of this transaction on the accounting equation is:

Accepted Answer

A)   Assets increase by$25 000; Equity increases by $25 000.
B)   Assets increase by $25 000; Equity decreases by $25 000.
C)   Assets increase by $25 000; Liabilities increase by $25 000.
D)   Assets decrease by $25 000; Equity decreases by $25 000.E) A) and B)
F) A) and C)

Question 4

The two fundamental qualitative characteristics of accounting information are:

Accepted Answer

A)   relevance and reliability.
B)   relevance and faithful representation.
C)   reliability and consistency.
D)   faithful representation and comparability.E) B) and D)
F) B) and C)

Question 5

In order to avoid disputes it is preferable for partners to:

Accepted Answer

A)   confirm their agreement with a handshake.
B)   share profits and losses equally.
C)   have a written agreement.
D)   work as 'silent' partners.E) C) and D)
F) None of the above

Question 6

Which of the following statements about the narrative form of a balance sheet is true?

Accepted Answer

A)   It resembles a T-shaped ledger account.
B)   All elements of the balance sheet are listed in one column.
C)   In Australia, the narrative form of balance sheet is less common than the account form.
D)   It shows the accounting equation as Assets = Liabilities + Equity.E) A) and C)
F) A) and B)

Question 7

Which of the following statements concerning the statement of cash flows is not correct?

Accepted Answer

A)   It classifies cash flows into operating, investing and financing activities.
B)   It reports on the entity's cash flow position at a specific point in time.
C)   It reports on the entity's cash flow performance over a period of time.
D)   When compared with the income statement, the statement of cash flows shows how well the entity's profits are represented by cash inflows from operating activities.E) A) and B)
F) A) and C)

Question 8

The assumption which assumes that the entity is able to pay its debts when they fall due for the near future is the:

Accepted Answer

A)   reliability.
B)   going concern.
C)   accounting entity.
D)   accrual basis.E) C) and D)
F) A) and B)

Question 9

Which of these does not fit the accounting definition of an asset?

Accepted Answer

A)   Goodwill
B)   Employee skills and experience
C)   Land
D)   Accounts receivableE) B) and C)
F) A) and D)

Question 10

The statement of changes in equity serves as a connecting link between which other financial statements?

Accepted Answer

A)   balance sheet and statement of cash flows.
B)   income statement and expenses statement.
C)   income statement and balance sheet.
D)   statement of cash flows and income statement.E) All of the above
F) None of the above

Question 11

Which of the following is not a possible effect on the accounting equation from a single transaction of $1000?

Accepted Answer

A)   Assets increase by $1000; Equity increases by $1000.
B)   Assets decrease by $1000; Liabilities decrease by $1000.
C)   Liabilities increase by $1000; Liabilities decrease by $1000.
D)   Liabilities decrease by $1000; Equity decreases by $1000.E) C) and D)
F) A) and B)

Question 12

If total sales is $90 000, office expenses is $30 000 and rent expense is $15 000, profit or loss is which of the following?

Accepted Answer

A)   $45 000 profit
B)   $45 000 loss
C)   $75 000 loss
D)   $75 000 profitE) C) and D)
F) A) and B)

Question 13

The income statement reports the financial:

Accepted Answer

A)   position of an entity at a specific period of time.
B)   position of an entity over a specified period of time .
C)   performance of an entity at a specific period of time.
D)   performance of an entity over a specified period of time.E) B) and C)
F) All of the above

Question 14

When management plans the sale or liquidation of an entity, the going concern assumption is set aside and the financial statements are prepared on the:

Accepted Answer

A)   accrual basis
B)   cash basis
C)   basis of estimated sales or liquidation values
D)   basis of estimated expensesE) A) and C)
F) A) and B)

Question 15

The three main types of business entities are:

Accepted Answer

A)   Trust, sole proprietorship and not-for-profit.
B)   Not-for-profit, partnership and company.
C)   Sole proprietorship, company and trust.
D)   Company, partnership and sole proprietorship.E) A) and B)
F) All of the above

Question 16

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For a local soccer club, which of the following would be an operating activity?

Accepted Answer

A)   Receipt of membership fees from players.
B)   Purchasing new soccer goals for all fields and age groups.
C)   Repaying a loan for the clubhouse.
D)   Purchasing a new coffee machine for the clubhouse.E) B) and C)
F) All of the above

Question 17

A business transaction creating an outflow of net assets resulting from the purchase of supplies is a(n) :

Accepted Answer

A)   cash disbursement.
B)   equity transaction.
C)   expense transaction.
D)   income transaction.E) B) and C)
F) A) and B)

Question 18

Which of these is not a liability?

Accepted Answer

A)   Wages payable
B)   Bank overdraft
C)   Accounts payable
D)   Rent paidE) None of the above
F) C) and D)

Question 19

Which of the following statements is not correct?

Accepted Answer

A)   Income decreases equity.
B)   Expenses represent decreases in economic benefits.
C)   Equity represents the owners' claims on the assets after deducting all liabilities.
D)   Assets are resources controlled by the entity.E) A) and B)
F) A) and D)

Question 20

If an entity has liabilities of $170 000 and equity of $300 000 its assets are:

Accepted Answer

A)   $370 000.
B)   $230 000.
C)   $130 000.
D)   $470 000.E) A) and B)
F) A) and C)

Exam 2: Financial Statements for Decision Making

The assumption which assumes that the entity is able to pay its debts when they fall due for the near future is the:

Correct AnswerverifiedShow Answer

Helen decides to open her own ice-cream store and deposits $25 000 into her new business bank account on 1 October. The effect of this transaction on the accounting equation is:

Correct AnswerverifiedShow Answer

The income statement reports the financial:

Correct AnswerverifiedShow Answer

When management plans the sale or liquidation of an entity, the going concern assumption is set aside and the financial statements are prepared on the:

Correct AnswerverifiedShow Answer

The three main types of business entities are:

Correct AnswerverifiedShow Answer

A business transaction creating an outflow of net assets resulting from the purchase of supplies is a(n) :

Correct AnswerverifiedShow Answer

Which of these is not a liability?

Correct AnswerverifiedShow Answer

In order to assess an entity's cash performance it is common to classify its activities into operating, investing and financing. For a local soccer club, which of the following would be an operating activity?

Correct AnswerverifiedShow Answer

In order to avoid disputes it is preferable for partners to:

Correct AnswerverifiedShow Answer

Which of the following is not a possible effect on the accounting equation from a single transaction of $1000?

Correct AnswerverifiedShow Answer

If total sales is $90 000, office expenses is $30 000 and rent expense is $15 000, profit or loss is which of the following?

Correct AnswerverifiedShow Answer

Which of these does not fit the accounting definition of an asset?

Correct AnswerverifiedShow Answer

The two fundamental qualitative characteristics of accounting information are:

Correct AnswerverifiedShow Answer

Which of the following statements about the narrative form of a balance sheet is true?

Correct AnswerverifiedShow Answer

On 28 February Harold's Speedy Dry Cleaning received $100 for dry cleaning services provided on the same day. The effect on the accounting equation is:

Correct AnswerverifiedShow Answer

Which of the following statements concerning the statement of cash flows is not correct?

Correct AnswerverifiedShow Answer

If an entity has liabilities of $170 000 and equity of $300 000 its assets are:

Correct AnswerverifiedShow Answer

The statement of changes in equity serves as a connecting link between which other financial statements?

Correct AnswerverifiedShow Answer

Which qualitative characteristic improves the usefulness of financial reporting information by enabling the users to identify similarities in and differences between two sets of economic data?

Correct AnswerverifiedShow Answer

Which of the following statements is not correct?

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified