15 mins test

XYZ Inc. had the following figures in its income statement:

Sales: 800,000

Cost of goods sold: 350,000

Salaries: 100,000

Rent received: 200,000

Other expenses: 50,000

What is the amount of net profit?

• 100,000

• 450,000

• 500,000

• 300,000

Which statement is correct?

• Accrued expenses are transferred to profit and loss account at the end of accounting period to calculate profit

• Accrued expenses and prepaid expenses are items in balance sheet

• Prepaid expenses are items in balance sheet, accrued expenses are items in statement of profit or loss

• Accrued expenses are prepayments

During Jan 20X2, Blake has the following transaction:

Started in business with $10,000 cash and $5,000 at bank

Bough a car of $5,000. Paid immediately $2000 by bank transfer. The remaining paid in the next month.

Bought a machine of $1,000. Paid immediately $500 by cash and $500 by bank transfer.

The balance b/d of cash account is :

•   $9,000 debit

• $8,500 credit

• $9,500 debit

• $15,000 credit

If a business rent out a van for a day at the price of $40 cash. What happens to capital?

• Does not change

• Increase by $40

• Decrease by $80

• Decrease by $40

Which of the following statement is not true?

• Expenses increase owner's equity

• Expenses have normal debit balances

• Expenses decrease owner's equity

• Expenses are a negative factor in the computation of net income

Recording of all transactions at cost and not market value is known as

• Materiality concept

• Conservatism concept

• Time interval concept

• Historical cost concept

The liabilities of a firm are $3000, the capital of the proprietor is $7000. The total assets are:

• $7000

• $10,000

• $4,000

• $21,000

Insurance for a business is a rate of $360 a year, starting from 1 July 20X5. On 31 July 20X5, insurance is paid $200 in cash. Which of the following entries is correct on 31 July 20X5?

• Dr Cash 200; Cr Expense 200

• Dr expense 200; Cr Cash 200

• Dr expense 30; Dr prepayment 170; Cr Cash 200

• Dr expense 180; Dr prepayment 20; Cr Cash 200

T. Young, controller for Retail Industries, was reviewing production cost reports for the year. One amount in these reports continued to bother him - advertising. During the year, the company had instituted an expensive advertising campaign to sell some of its slower-moving products. It was still too early to tell whether the advertising campaign was successful. There had been much internal debate as how to report advertising cost. The vice president of finance argued that advertising costs should be reported as a cost of production, just like direct materials and direct labor. He therefore recommended that this cost be identified as manufacturing overhead and reported as part of inventory costs until sold. Others disagreed. T. Young believed that this cost should be reported as an expense of the current period, so as not to overstate net income. Others argued that it should be reported as prepaid advertising and reported as a current asset. The president finally had to decide the issue. He argued that these costs should be reported as inventory. His arguments were practical ones. He noted that the company was experiencing financial difficulty and expensing this amount in the current period might jeopardize a planned bond offering. Also, by reporting the advertising costs as inventory rather than as prepaid advertising, less attention would be directed to it by the financial community. What would you do if you were T. Young?