Section a multiple choice questions (60 marks=20*3 marks)

Westminster International University in Tashkent
4ACCN008C-n-Financial Accounting
Final exam
Semester 2
Section A Multiple choice questions (60 marks=20*3 marks)

1. Items that are deducted from net income in determining cash provided by operating activities under the indirect method include:

A depreciation expense.
B a decrease in inventory.
C a decrease in accounts payable
D loss on sale of equipment.
Answer: C
2. Which accounting principle states that business should maintain the same accounting methods throughout the accounting periods?
A. Materiality
B. Prudence

3. 
   Historical cost
   
4. 
   Consistency
   

Answer: D
3. Green Ville Inc computes depreciation on machinery at $2,000 for the month of August. The adjusting entry to record this depreciation is as follows.
A Dr Machinery Expense 2,000, Cr Accumulated Depreciation— Machinery 2,000
B Dr Depreciation Expense 2,000, Cr Accumulated Depreciation— Machinery 2,000
C Dr Depreciation Expense 2,000, Cr Machinery 2,000
D Dr Accumulated Depreciation- Machinery 2,000, Cr Depreciation Expense 2,000
Answer: B
4. Elizabeth White earned a salary of $5,000 for May month. She will be paid on June 7. The adjusting entry for Elizabeth’s employer at May 31 is:
A Dr Salaries and Wages Payable 5,000, Cr Salaries and Wages Expense
B Dr Salaries and Wages Payable 5,000, Cr Cash 5,000
C Dr Salaries and Wages Expense 5,000, Cr Cash 5,000
D Dr Salaries and Wages Expense 5,000, Cr Salaries and Wages Payable 5,000
Answer: D

5. Trial balance shows Office Supplies $500 and Office Expenses $0. If $100 of supplies is on hand at the end of the period, the adjusting entry is:

A Dr Office Supplies 500, Cr Office Expenses 500
B Dr Office Expenses 400, Cr Office Supplies 400
C Dr Office Supplies 400, Cr Office Expenses 400
D Dr Office Expenses 500, Cr Office Supplies 500
Answer: B

6. Which of the following would an increase in the allowance for receivables result in?

A decrease in net profit
B decrease in liabilities
C increase in net profit
D increase in liabilities
Answer: A
7. What are the functions of the IASB?
A giving a practical advice on the implementation of particular standards
B clarification of the issues where unsatisfactory or conflicting interpretations have developed
C developing and publishing international financial reporting standards
D overseeing the standard setting and regulatory process
Answer: C

8. The difference in the Trial Balance has been placed in a Suspense account. The accountant made an advanced payment for insurance. Prepaid insurance of 4,000 was mistakenly brought down as a credit balance in the Insurance account. The correcting entry should require:

A Dr Suspense account 4,000, Cr Insurance account 8,000
B Dr Insurance account 4,000, Cr Suspense account 4,000
C Dr Suspense account 8,000, Cr Insurance account 8,000
D Dr Insurance account 8,000, Cr Suspense account 8,000
Answer: D

9. Lazart Company has the following inventory, purchases, and sales data for the month of January.

Inventory: January 1 300 units * $2.20 = $660
Purchases: January 8 500 units * $2.30 =$1,150
January 15 600 units * $2.50 =$1,500
January 27 400 units * $2.60 =$1,040
Sales: January 22 1,000 units
January 30 400 units
Under a periodic inventory system, determine the cost of goods sold for January under FIFO method.
A $3,310
B $ 3,460
C $ 1,040
D $3,383
Answer: A
Sales (units) =1000+400=1400
COGS ($) =300*2,2+500*2.3+600*2.5=$3,310

10. Centrepoint Company has the following inventory, purchases, and sales data for the month of August.

Inventory: August 3 200 units * $4.10 = $ 820
Purchases: August 9 500 units * $4.20 =$2,100
August 15 800 units * $4.30 =$3,440
August 28 600 units * $4.45 =$2,670
Sales: August 12 400 units
August 29 1,500 units
Under a periodic inventory system, determine the cost of inventory on hand at August 31under average cost (AVCO) method.
A $890
B $852.5
C $820
D $860
Answer: D
Average cost per unit = ($820+$2,100+$3,440+$2,670)/2,100=$4.3
Ending inventory (units) =200+500+800+600-400-1900=200;
Ending inventory ($) =200*4.3=$860

11. At 31 December 2022 Lumber Room Company had a credit balance of $12,300 in its allowance for receivables. At 31 December 2022 accounts receivable totaled $345,000. Based on review the allowance for receivables was to be adjusted to an amount equivalent to 5% of the accounts receivable.

What amount of change in allowance for receivables should be shown in Profit and loss statement at 31 December 2022?
A 4,335
B 29,550
C 17,250
D 4,950
Answer: D
New allowance= 345,000*5%=$17,250
Change in allowance for receivables=$17,250-12,300=$4,950

12. Data Logic Company purchased machinery on January 1, 2016, for $100,000. The equipment has an estimated residual value of $8,000 and an estimated useful life of 10 years. The amount of accumulated depreciation at December 31, 2022, if the straight-line method of depreciation is used is:

A$55,200
B$60,000
C$64,400
D $70,000
Answer: C
Annual depreciation charge= (100,000-8,000)/10=$9,200;
Accumulated depreciation at December 31, 2022=9,200*7(years) = $64,400

13. Misty Melon Company sold one of its old machines on August 31, 2017. The machine was purchased for $240,000 on June 30, 2012, and was depreciated on a straight-line basis, estimated useful life of 10 years. The machine was sold for $120,000, what was the amount of the gain or loss recorded at the time of the sale?

A loss of $4,000
B loss of $2,000
C gain of $4,000
D gain of $2,000
Answer: C

Annual depreciation charge: $240,000/10=$24,000; $24,000/12=$2,000

2012:6 months; 2013-2016:4*12 months=48 months; 2017:8 months. Total: 62 months
$2,000*62 months=$124,000
Net book value=$240,000-$124,000=$116,000
Gain=$120,000-$116,000=$4,000

14. Venture Electrics Company acquired Pine Plains Company. The purchase consideration is of $70 million in order to obtain 65% stake in Pine Plains Company. The fair value of the non-controlling interest is $ 40 million. It is also estimated that the fair value of net assets is $69 million. Calculate the goodwill based on the given information.

A $30 million
B $41 million
C $1 million
D $99 million
Answer: B
Goodwill=$70+$40-$69=$41

15. Which of the following companies are subsidiaries of Adventure Holdings?

Sunny Planet Co: Adventure Holdings Co has six representatives on the board of directors of Sunny Planet Co. Each director can cast 10 votes each out of the total of 70 votes at board meetings.

Aqua-Ventures Co: Adventure Holdings Co owns 58 % of the ordinary share capital of Aqua-Ventures Co.
Premier Co: Adventure Holdings owns 82% of the non-voting preference shares of Premier Co.

A Premier Co

B Sunny Planet Co
C Sunny Planet Co, Aqua-Ventures Co
D Sunny Planet Co, Premier Co
Answer: C
16. Use the following financial statement information to compute the current ratio for 2022:
2022
$
Current assets 240,000
Fixed Assets 500,000