110.109 Week 1

Z Company reports the following balance sheet information for 2014: 1 Jan 2014 31 Dec 2014 Assets $60,000 $70,000 Liabilities $12,000 $14,000 Assuming the capital contribution made by the owners during 2014 was $3,000 and withdrawals were $12,000, profit for 2014 must have been: Select one: a. $12,000 b. $17,000 c. $16,000 d. $14,000

Assets = Liabilities + (Capital contribution - Withdrawals + Profit), therefore $10,000 = $2,000 + $3,000 - $12,000 + $17,000 (Profit).

A withdrawal of cash for private use by the owner is shown in the income statement as an expense. Select one: True False

False

The income statement reports the financial performance of an entity as at a specific time period. Select one: True False

False

Bookkeeping and accounting are one and the same because the bookkeeping function includes the accounting process. Select one: True False

False Accounting is the process of identifying, measuring, recording and communicating the economic transactions and events of a business operation to users of financial information. The first three activities of identifying, measuring and recording the business information are referred to as bookkeeping.

The profit of an entity is always represented by an increase in cash by the same amount. Select one: True False

False Cash and profit are two different concepts. Profit (or loss) is determined by deducting expenses from income.

For accounting purposes the life of an entity is divided into arbitrary time intervals of equal length, which are called accounting periods. Select one: True False

True

The accounting entity assumption requires that the activities of an entity be kept separate and distinct from the activities of its owner and all other entities. Select one: True False

True The accounting entity concept states that every entity can be separately identified and accounted for.

The total assets and the total liabilities of Ty Williams Decorations Ltd are as follows. Beginning of the year: Assets: $395,000 Liabilities: $290,000 End of year Assets: $455,000 Liabilities: $320,000 During the year, the corporation paid dividends of $15,000. Assuming there were no contributions of capital, what was the amount of net income for the year? Select one: a. $45,000 b. $40,000 c. $30,000 d. $85,000

a Net income for the year = $60,000 (changes in assets) - $30,000 (changes in liabilities) + $15,000 (dividends) = $45,000

The information needed to determine whether a company is using accounting methods similar to those of its competitors would be found in the Select one: a. directors' report b. notes to the financial statements c. auditor's report d. statement of financial position

b

Assume a customer of Air New Zealand prepays $600 for a package holiday involving six trips. The company collects the $600 in advance and will provide the travel later. After two trips have been used up, what should Air New Zealand report on its income statement? Select one: a. Unearned service revenue of $400 b. Service revenue of $200 c. Cash at bank of $600 d. Service revenue of $600

b Financial statements of a public company are prepared using accural based accounting concept. Under accrual based accounting, revenue recognised when goods and services are provided.

Stever Heating acquired equipment costing $3,000 on account. The effect of this transaction on Stever Heating would be to: Select one: a. increase equipment by $3,000 and decrease capital by $3,000. b. increase equipment by $3,000 and increase accounts payable by $3,000. c. increase equipment by $3,000 and increase capital by $3,000. d. No transaction is recorded since no cash has been paid

b Assets = Liabilities + Equity, therefore, $3,000 (Assets) = $3,000 (Liabilities) + 0 (Equity).

If an entity buys a motor vehicle for $45,000 and pays cash of $15,000 and takes out a loan for the remainder Select one: a. total assets will increase overall by $25,000 b. total assets will increase by $30,000 c. liabilities will increase by $10,000 d. equity will increase by $30,000

b total assets will increase by $30,000 ($45,000 - $15,000)

The statement of changes in equity does not show Select one: a. the beginning balance of retained earnings b. the amount of dividends paid c. total revenue d. the ending balance of retained earnings

c

Assets can best defined as: a. resource owned by the entity as a result of a current event, from which future economic benefits are expected to flow. b. resource owned by the entity as a result of a past event, from which future economic benefits are expected to flow. c. resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow. d. resource controlled by the entity as a result of a current event, from which future economic benefits are expected to flow.

c Assets are the resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow.

If an entity purchases a new delivery vehicle it doesn't make sense to expense the full cost of the vehicle at the time it is purchased because Select one: a. profit will be too low b. it will eventually be sold c. it will be used for many subsequent periods d. vehicles will be worth more each period

c If an entity purchases a new delivery vehicle it doesn't make sense to expense the full cost of the vehicle at the time it is purchased because it will be used for many subsequent periods.

Which of the following is an internal user of accounting data for the XYZ Company Ltd? Select one: a. customer of XYZ Company Ltd b. creditor of XYZ Company Ltd c. management of XYZ Company Ltd d. internal auditor from the Inland Revenue

c Management is an internal user of accounting information. They do not need to rely on general purpose financial reports as they obtain the financial information they need internally.

Johnny's Car Repairs had total assets of $60,000 and total liabilities of $40,000 at the beginning of the year. During the year the business recorded $100,000 in revenues, $55,000 in expenses, and dividends of $10,000 were distributed. The net profit reported by Johnny's Car Repairs for the year was Select one: a. $20,000 b. $35,000 c. $45,000 d. $90,000

c Profit is $45,000 ($100,000 - $55,000).

The assets of Lee's business increased by $40,000 and the liabilities increased by $5,000 during the current year. If the profit for this period was $25,000, what additional contribution or withdrawal was made by the owner? (Assume only a withdrawal or a contribution was made). Select one: a. Drawings $5,000 b. Drawings $10,000 c. Contribution $10,000 d. Contribution $5,000

c Assets ($40,000) = Liabilities ($5,000) + Profit ($25,000) + Contribution ($10,000)

If equity at the beginning of the period is $177,000, profit for the period is $87,000 and $25,000 is withdrawn by the owner during the period, equity at the end of the period is: Select one: a. $115,000 b. $289,000 c. $239,000 d. Cannot be calculated from the information provided.

c Profit for the period = $177,000 + $87,000 - $25,000 = $239,000

When going into business it is important to think about minimising risk. In this regard, a major advantage of a company structure over a sole trader or a partnership is: Select one: a. the right to receive dividends. b. a partnership agreement. c. the entity principle. d. limited liability.

d