Practice questions 1

Which groups of people are most likely to be interested in the financial statements of a sole trader?
(1) Shareholders of the entity (2) The business's bank manager (3) The tax authorities (4) Financial analysts

• 1 and 2 only

• 2 and 3 only

• 3 and 4 only

• 1, 2 and 3 only

Which of the following are advantages of trading as a limited liability company?
(1) Operating as a limited liability company makes raising finance easier because additional shares can be issued to raise additional cash.
(2) Operating as a limited liability company is more risky than operating as a sole trader because the shareholders of a business are liable for all the debts of the business whereas the sole trader is only liable for the debts up to the amount he has invested.

• 1 only

• 2 only

• Both 1 and 2

• Neither 1 or 2

Which of the following are true of partnerships?
(1) The partners' individual exposure to debt is limited.
(2) Financial statements for the partnership by law must be produced and made public.
(3) A partnership is not a separate legal entity from the partners themselves.

• 1 and 2 only

• 2 only

• 3 only

• 1 and 3 only

Information that can be independently verified is generally more useful for decision making than information that cannot. Which qualitative characteristic is being described here?
The qualitative characteristic being described here is ............................

• Going concern

• Prudence

• Relevance

• Verifiability

A trader's profit for the year may be computed by using which of the following formulas?

• Opening capital drawings-capital introduced - closing capital

• Closing capital opening capital drawings-capital introduced

• Opening capital-drawings capital introduced - closing capital

• Opening capital-drawings-capital introduced - closing capital

The profit earned by a business in 20X7 was $72,500. The proprietor injected new capital of $8,000 during the year and withdrew goods for their private use which had cost $2,200. If net assets at the beginning of 20X7 were $101,700, what were the closing net assets?

• $35,000

• $39,400

• $168,400

• $180,000

The net asset of Altese, a trader, at 1 January 20X2 amounted to $128,000. During the year to 31 December 20X2 Altesse introduced a further $50,000 of capital and made drawings of $48,000. At 31 December 20X2 Altese's net assets totalled $184,000. What is Altese's total profit or loss for the year ended 31 December 20X2?

• $54,000 profit

• $54,000 loss

• $42,000 loss

• $58,000 profit

Jones Co has the following transactions: (1) Payment of $400 to J Bloggs for a cash purchase (2) Payment of $250 to J Doe in respect of an invoice for goods purchased last month. What are the correct ledger entries to record these transactions?

• Debit bank 650
  Credit purchases 650

• Debit purchases 650
  Credit bank 650

• Debit purchases 400
  Debit trade payables 250
  Credit bank 650

• Debit bank 650
  Credit trade payables 250
  Credit purchases 400

Bing Co's trade payables account at de Pamber 20X1 is as follow:
What was the balance for trade payables in the trial balance at 1 October 20X0?

• $14,000 DEBIT

• $14,000 CREDIT

• $11,900 DEBIT

• $11,900 CREDIT

Information from which of the following documents can be found in the receivables ledger?

• Quotation

• Sales invoices

• Credit notes received

• Trade discounts