Accounting 2017 (CXC CAPE) 1-20

One of the MAIN purposes of financial accounting is to

• Ensure that current assets can cover all expenses

• Account for all non-monetary items

• Monitor the functions of the board of directors of a company

• Provide useful information for

  planning and decision-making

The idea that a business will continue to operate for the indefinite future or until the benefits of its noncurrent assets can be realized in the normal course of operations is known as the

• Objectivity principle

• Business entity principle

• Going concern principle

• Revenue recognition principle

What would be the advantage (benefit) of having all countries adopt and follow the same accounting standards?

• Consistency

• Comparability

• Absorbed preparation costs

• Eliminating the need for external

  auditing

On 15 January 2017, R. Sammy's advertising agency collected $6,000 from clients who were

billed for jobs done in December 2016. Using the accrual basis of accounting, how should the

accounts be affected by the transactions on 15 January 2017?

• Increase: Cash;

  Increase: Service revenue

• Increase: Cash;

  Decrease: Accounts receivable

• Increase: Service revenue;

  Decrease: Fees earned

• Increase: Cash;

  Increase: Accounts receivable

The historical cost principle states that

• Transactions involving assets are recorded at acquisition cost

• Assets should be recorded initially at cost and then adjusted as market value changes

• The private activities of the owner of a business should not be

  incorporated into the activities of the business

• Only transactions that are capable of being expressed in monetary

  terms should be included in the accounting records

Internal controls are used in business to

• Produce correct financial statements

  and deter employee dishonesty

• Enhance the accuracy and reliability of accounting records and

  prevent fraud

• Establish responsibility and conduct independent checks on employee performance

• Safeguard business assets and enhance the accuracy and reliability of accounting records

Which of the following reserves is available for distribution as cash dividends?

• Sinking fund

• Share premium

• General reserve

• Revaluation reserve

The newly formed Daryl Inc. was billed $8 000 by its attorneys for organizational

costs. The attorneys agreed to accept 6 000 shares of $1 par value common stock

in full settlement of their bill. Shares of Daryl Inc., being new, had no established

market value. The amount to be credited to common stock in the books is

• $ 0

• $2 000

• $6 000

• $8 000

This item refers to the following statement. "One limitation of financial information

is the use of estimates in the financial statements."

Which of the following shows evidence of such estimates?

I. Machinery to be depreciated by 20% on its cost.

II. Corporation tax is to be 30% of net income.

III. Allowance for doubtful debt to be 5% of net sales.

• I and II only

• I and III only

• II and III only

• I, II and III

A trial balance shows Supplies $3,500 and Supplies expense $0. If $500 of supplies is on hand at the end of the period the adjusting entry is

• Dr Supplies $500

  Cr Services revenue $500

• Dr Supplies expense $500

  Cr Supplies $500

• Dr Supplies expense $3,000

  Cr Supplies $3,000

• Dr Supplies $3,000

  Cr Supplies expense $3,000