Chapter 3.4 Final Accounts

1. Which of the following is not a principle or ethical value of the accounting profession?

• 1.  Integrity

• 1. Punctuality

• 2. Professional competence and due care

• 1. Objectivity

1. What is a financial statement illustrating a firm's results from its trading activities over a period of time called?

   1.  

• 1. Balance sheet

• 1.  Trade exchanges sheet

• 1.  Cash flow statement

• 1. Income statement

Answer explanation

An income statement is a financial statement that shows the revenues, expenses, and profits or losses of a company over a period of time. It is one of the three main financial statements, along with the balance sheet and the cash flow statement.

The income statement is divided into two main sections:

• Revenue: This section shows the amount of money that the company has earned from its sales of goods or services.

• Expenses: This section shows the amount of money that the company has spent on its operating activities, such as salaries, rent, and utilities.

The difference between revenue and expenses is the company's profit or loss. A profit means that the company has earned more money than it has spent, while a loss means that the company has spent more money than it has earned.

The income statement is a useful tool for investors and creditors to assess the financial performance of a company. It can be used to compare the company's performance over time, and to compare it to the performance of other companies in the same industry.

The other options are incorrect.

1. Which of the following is not a component of an income statement?

• 1. profit and loss account

• 1. expenditure account

• 1. appropriation account

• 1.  trading account

Answer explanation

The following are the components of an income statement:

• Profit and loss account: This is the main section of the income statement, and it shows the company's profit or loss for the period.

• Trading account: This section shows the company's revenue from sales, and its expenses related to those sales.

• Appropriation account: This section shows how the company's profit is allocated, such as to dividends or retained earnings.

The expenditure account is not a component of an income statement. It is a term used in government accounting to track the spending of government funds.

1.  in which of the following ways can net profit after interest and tax be appropriated?

1. retained earnings

2. Dividends

3. interest expenses 

4. rental expenses

• 1. 1

• 1. 1 + 2

• 1. 1 + 2 + 3 

• 1. 1 + 2 + 3 + 4

Answer explanation

The correct answers are 1 and 2. Net profit after interest and tax can be appropriated in the following ways:

• Retained earnings: This is the portion of the net profit that is not paid out to shareholders as dividends. It is kept in the company's reserves and can be used for future investments or to pay for unexpected expenses.

• Dividends: This is the portion of the net profit that is paid out to shareholders as a share of the company's profits. Dividends are usually paid out on a quarterly or annual basis.

The other options, interest expenses and rental expenses, are not ways to appropriate net profit. Interest expenses are the costs of borrowing money, and rental expenses are the costs of renting property. These expenses are deducted from the net profit before it is appropriated.

With reference to the table below, what is the gross profit being earned?

Sales Revenue: $ 183.250

Rental Expenses: $ 36.000

Cost of Sales: $ 47.125

Interest Expenses: $ 3.777

Salaries: $ 82.571

Dividends: $ 2.000

• 1. $ 10.000

• 1. $ 13.777

• 1. $ 96.348

• 1. $ 136.125

Answer explanation

Gross profit = Sales revenue - Cost of sales = $183,250 - $47,125 = $136,125

 With reference to the information below, what is the net profit being earned? 

Sales Revenue: $ 183.250

Rental Expenses: $ 36.000

Cost of Sales: $ 47.125

Interest Expenses: $ 3.777

Salaries: $ 82.571

Dividends: $ 2.000

• 1. ($ 3.575) loss

• 1. $ 11.777

• 1. $ 14.700

• 1. $ 96.348

Answer explanation

Net profit = Gross profit - Expenses = $136,125 - $124,348 = $11,777

With reference to the table below, what is the amount of retained earnings for the year?

Sales Revenue: $ 183.250

Rental Expenses: $ 36.000

Cost of Sales: $ 47.125

Interest Expenses: $ 3.777

Taxes: $ 2.127

Salaries: $ 82.571

Dividends: $ 2.000

• 1. $ 9.300

• 1. $ 11.427

• 1. $ 12.500

• 1. $ 13.777

  
  

Answer explanation

Retained earnings = Net profit - Dividends = $14,700 - $2,000 = $12,700

On 2 January, A firm reopens with $375, 770 in worth of stock. Throughout the year, the farm makes stock purchases of $ 452,000, and ends the year with $ five to one, one to five in ending inventory.  What is the cost of goods sold?

• 1. $ 306.645

• 1. $ 444.895

• 1. $ 1.348.895

• 1.  cannot be determined

Answer explanation

Cost of goods sold = Beginning inventory + Stock purchases - Ending inventory = $375,770 + $452,000 - $5,150 = $444,895

Which of the following is not an irrelevant method to boosting gross profit?

• 1. Reduce expenses

• 1.  raise the products price

• 1.  shift to cheaper suppliers and intermediaries

• 1. improved marketing strategy

Answer explanation

The answer is improved marketing strategy.

The other three options are all relevant methods to boosting gross profit.

• Reduce expenses can boost gross profit by reducing the costs of goods sold or operating expenses.

• Raise the product's price can boost gross profit by increasing the revenue from sales.

• Shift to cheaper suppliers and intermediaries can boost gross profit by reducing the costs of goods sold.

However, an improved marketing strategy is not directly related to gross profit. Gross profit is the difference between revenue and cost of goods sold. An improved marketing strategy can increase revenue, but it can also increase costs. The net effect on gross profit will depend on the specific changes made to the marketing strategy.

Therefore, the only irrelevant method to boosting gross profit is improved marketing strategy.

With reference to the information below, what is the gross profit being earned? 

Sales Revenue: $ 1.525.018

Rental Expenses: $ 325.000

Opening Stock: $ 289.455

Stock Purchases: $ 82.011

Closing Stock: $ 133.087

Interest Expenses: $ 37.050

Salaries: $ 415.111

Retained Earnings : $ 612.815

• 1. $ 834.478

• 1. $ 1.024.500

• 1. $ 1.184.487

• 1. $ 1.286.639

Answer explanation

The gross profit being earned is $1,184,487.

To calculate the gross profit, we need to subtract the cost of goods sold from the sales revenue. The cost of goods sold is the cost of the goods or services that the company sold. In this case, the cost of goods sold is:

Cost of goods sold = Opening stock + Stock purchases - Closing stock
= $289,455 + $82,011 - $133,087
= $654,477

The sales revenue is $1,525,018. So, the gross profit is:

Gross profit = Sales revenue - Cost of goods sold
= $1,525,018 - $654,477
= $1,184,487