Question

UTS: Accounting for Business Decisions A

20 MC questions:

1. The primary purpose of the closing entries is to:
   1. assure that adjusting entries balance
   2. b. calculate the net balance of non-current assets
   3. ensure that all assets and liabilities are recognised in the appropriate period
   4. to measure revenue, expense, and dividend accounts in the next period
   5. prove the equality of the debit and credit entries in the general journal

2. If a company uses the direct write off method of accounting for bad debts
   1. It will record bad debt expense only when an account is determined to be uncollected
   2. It will establish an estimate for the allowance for doubtful debts
   3. It will reduce the accounts receivable account at the end of the accounting period for uncollected accounts
   4. When an account is written off, total assets will stay the same.
   5. None of the above

3. Cost behaviour refers to:
   1. Manufacturing overheads
   2. Costs in a business that remain fixed when production volume increases
   3. How costs react to changes in production volume or other levels of activity
   4. Costs that stay the same per unit.
   5. Only costs that fall into the relevant range for a business.

4. What should a company do to improve its accounts receivable turnover ratio
   1. Give customers credit terms of 2/10, n/30 rather then 1/10, n/30
   2. Reduce the number of employees working in the credit department
   3. Increase its sales force
   4. Lower its selling prices
   5. None of the above

5. Which of the following effects on the accounting equation is not correct as a result of a journal entry?

1. 1. Decrease shareholders' equity and decrease an asset.
   2. Increase an asset and decrease an asset.
   3. Increase shareholders' equity and increase an asset.
   4. Increase an asset and decrease a liability.
   5. All of the above are not possible

6. Assume that in one accounting period liabilities increased by $8,000, assets increased by $55,000, and net profit was $29,000. The owner must therefore have:
   1. Contributed $18,000
   2. Received dividend $18,000
   3. Contributed $12,000
   4. Received dividend $12,000
   5. Cannot be calculated from the above limited information.

7. The Allowance for Bad Debts represents:

1. 1. Bad debt losses incurred in the current period
   2. The amount of uncollected accounts written off to date
   3. The difference between total sales made on credit and the amount collected from those credit sales
   4. The difference between the recorded value of accounts receivable and the net realisable value of accounts receivable****
   5. Fees paid to debt collection agencies

8. Two basic accounting principles determine when revenues and expenses are to be recorded under accrual basis accounting. They are:
   1. Cost and matching principles.
   2. Prudence principle.
   3. Relevance and reliability principles.
   4. Revenue recognition and matching principles.
   5. Revenue recognition and measurement principles.

9. On the last day of its financial year, Nelson Pty Ltd paid $2,150 cash for a one-year insurance policy. What is the appropriate journal entry ignoring GST, assuming the insurance policy becomes effective (starts) on the first day of the next financial year (i.e. the next day)?
   1. Unearned Insurance Revenue                 2,150

Cash 2,150

1. 2. Cash                                                     2,150

Prepaid Insurance    2,150

1. 3. Prepaid Insurance                                  2,150

Cash                                                          2,150

1. 4. Prepaid Insurance                                  2,150

Insurance Expense                                      2,150

1. 5. Cash                                                     2,150

Unearned Insurance Revenue                      2,150

10. Carin’s Corporation purchased inventory for $4,000. Due to an error in recording the journal entry for this transaction, the inventory account was debited for only $400 while accounts payable was credited for $4,000. During which phase of the accounting cycle would this error be discovered?
    1. Recording the transaction in the journal.
    2. Preparation of the financial statements.
    3. Analysis of each transaction.
    4. Preparation of the trial balance.
    5. Preparation of the consolidated analysis.

11. Carin’s Corporation purchased inventory for $4,000. Due to an error in recording the journal entry for this transaction, the inventory account was debited for only $400 while accounts payable was credited for $4,000. During which phase of the accounting cycle would this error be discovered?
    1. Recording the transaction in the journal.
    2. Preparation of the financial statements.
    3. Analysis of each transaction.
    4. Preparation of the trial balance.
    5. Preparation of the consolidated analysis.

12. Failure to make an adjusting entry to recognise accrued salaries payable would cause an:
    1. Understatement of expenses, liabilities and shareholders’ equity.
    2. Overstatement of expenses and liabilities.
    3. Understatement of expenses and liabilities and an overstatement of shareholders’ equity.
    4. Understatement of assets and shareholders’ equity.
    5. Overstatement of expenses and shareholders’ equity.

13. The primary basis for the classification of assets in the (balance sheet) statement of financial position) is:
    1. Alphabetical
    2. Profitability
    3. Risk
    4. Size
    5. Liquidity

14. The books of Fiona Corporation provided the following information:

Beginning balances: Accounts receivable	$    50 000
Allowances for doubtful accounts (a credit)	3 000
Transactions during the year: Sales revenue (of which 1/2 were on credit)	3 000 000
Collections on accounts receivable	980 000
Accounts written off as uncollectible	4 000

Past collection experience has indicated that 1% of credit sales normally are not collected. Therefore, an adjusting entry for bad debt expense should be made in the amount of:

a. $47,000

b. $20,000

c $15 000

d. $7,000

e. $1500

15. Which of the following statements is CORRECT?
    1. Accounting data produced in different accounting periods is still comparable if indiscriminate changes in accounting method are permitted.
    2. Consistency becomes an important consideration when alternative accounting methods are considered acceptable in a given situation.
    3. Consistency completely rules out switching to an alternative acceptable method.
    4. Once an inventory costing method has been selected, managements can indiscriminately switch to another.
    5. All of the abov

16. Which principle may conflict with the guidance provided by the relevance principle in the preparation of the financial statements?
    1. Matching principle
    2. Entity principle
    3. Valuation principle
    4. Reliability principle
    5. None of the above

17. The purpose of an independent external audit of financial statements is to:
    1. Predict future financial performance and expected returns.
    2. Decide on the final numbers to report in financial statements.
    3. Ensure a business is compliant with tax obligations.
    4. Verify financial statements are compliant
    5. Analyse current worth of business
18. When you receive payment for goods you previously sold on credit:
    1. assets increase
    2. revenues increase
    3. liabilities decrease
    4. expenses increase
    5. none of the above

19. Raechels’s books purchased supplies at a cost of $23,000 during 2012. At January 1, 2012, supplies on hand were $2,200. At December 31, 2012, supplies on hand are $3,100. Calculate supplies expense for 2012

1.     $25,200
2.     $22,100
3.     $23,900
4.     $28,100
5.     There is insufficient information to calculate expenses.

20. An events coordinator purchases $76,000 of supplies, paying 50% cash and putting 50% on credit. The correct jornal entry for this transaction would be:
    1. Debit Cash at Bank, Debit Supplies Payable, Credit Supplies.
    2. Debit Supplies, Credit Cash at Bank, Credit Supplies Payable.
    3. Debit Supplies, Credit Cash at Bank.
    4. Debit Supplies, Credit Supplies Payable.
    5. Debit Cash at Bank, Debit Supplies Payable

Please answer the following MC's. Thank you!

Answer 1

1. Answer- option (d)

• Closing entries are made to reset temporary account balance to zero on general ledger. All revenue, expenses and dividend account must end with zero because they are reported in particular period of time.
• So that it can be measured properly in the next period. These balances are eventually transfer to retained earnings.
• As inclusion in net income these values are moved as a part of retained earnings in the balance sheet of corporations.

Hence option (d) is the most suitable one.

Note- Request you to post your other questions either separately or in sub parts. We can do one question at a time or four sub parts. We will assist you immediately.

All the best for your exam! Thank you!