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21.Charging an interest cost as an expense when it should be capitalised as an asset will result in: A. an overstatement of total assets. B. the understatement of net profit for the next period. C. an overstatement of interest expense for the next period. D. the understatement of net profit for the current period. 22.Which of the following statements.
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PROBLEM 1.On 1 January, the Harglo Construction Company leased a bulldozer from ASIS Sales Corporation. The lease meets the criteria for classification as a finance (capital) lease and requires Harglo to make annual payments of $30 000 at the end of each of the next 10 years with the first payment.
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11.Trade credit is the finance provided by suppliers from selling goods on credit. 12.Financing through accounts payable can result in opportunity costs where discounts are not taken up by the entity. 13.Trade credit is widely used as a source of finance but the importance and use of trade credit varies from industry.
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21.Asset turnover, return on assets, and debt to total assets are all examples of long-term solvency ratios. 22.If a company has a debt to equity ratio of 1:48, it means that for every $1 of equity, the company has $1.48 in liabilities. 23.When measuring short-term solvency, the current ratio compares current assets.
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11.A example of a source of medium-term finance is: A. hire purchase. B. debentures. C. factoring. D. equity finance. 12.Which of the following is not a characteristic of a finance lease? A. It is generally non-cancellable. B. The lessee guarantees that the lessor will receive a specific residual value from the sale of the asset at the end of the lease term. C. It is.
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SHORT ANSWER 1.Distinguish between the concepts income and revenue. Support your answer by using an example to demonstrate the difference. 2.Distinguish between the concepts expense and asset. Support your answer by using an example to demonstrate the difference. 3.Describe the nature and impact of factors that may play a role in influencing the.
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11.Although the financial statements are important sources of information for financial analysis, it is true to say that they lose some relevance in assessing the entity’s current position, due to the historical nature of the information involved. 12.Financial analysis is only useful if it is measured relative to something else, such.
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SHORT ANSWER   1.What is accrual accounting? 2.Briefly describe what information is contained in the Statement of Cash Flows. 3.Why is the statement of cash flows important? 4.How is the statement of cash flows structured? 5.Which duties associated with handling and accounting for cash should ideally be separated in order to promote the internal control of.
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3.The following balances were taken from the accounting records of Singapore Enterprises Ltd as at 31 December. Cash Accounts receivable Supplies inventory Plant & equipment Accounts payable Capital 1 January Drawings Fees revenue Supplies expense Selling expenses Borrowing expenses General & administrative expenses Income tax expense $6000 11 000 4500 71 000 2000 49 250 6000 189 000 98 000 8000 1750 12 000 22 000 (a) Prepare a statement of comprehensive income for the business.
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21.A major discriminator between an operating lease and a finance lease is whether the risks and rewards of ownership have been substantially transferred to the lessee. 22.Debentures are essentially the same as a long-term loan except that debentures are particular to limited companies and have a fixed interest rate. 23.An entity that.
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MULTIPLE CHOICE   1.Which of the following terms best describes a firm-specific risk that an entity faces, as opposed to an industry-specific risk? A. Investment risk B. Financial risk C. Market risk D. Business risk   2.Which of the following statements regarding tax-effect accounting is incorrect? A. The tax-effect method of accounting for income tax determines that temporary differences may arise, resulting in the.
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21.In the financial year ending 31 December, Price Pty Ltd collected $80 000 from customers, paid wages to employees of $10 000, and received dividends of $12 000. What was the net cash flow from operating activities for the financial year ending 31 December? A. $58 000 B. $70 000 C. $80 000 D. -$12 000 22.The following information.
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SHORT ANSWER 1.What is the nature of the allowance for doubtful debts account and how does it arise? 2.Describe the lower of cost or market (LCM) rule as it applies to the valuation of closing inventory, and name three different methods of calculating the cost of inventory. 3.How would the composition of the.
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CASE   1.The operating net profit before income tax of Fraxinus Ltd for the year ended 30 June – the entity’s first year of operation – was $8 000 000. The figure was derived using the accrual approach to measuring profit. The company determines tax based on a cash basis. Additional information 1. Prepaid.
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MULTIPLE CHOICE 1.Which of the following statements is incorrect? A. An accounts receivable arises when a business sells goods or services to a third party on credit terms. B. The absence of bad debts is an indicator that the credit policy may be too strict and can result in the loss of profits. C. The higher the.
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31.Using the first-in, first-out periodic method, the value of closing inventory is: A. $4192. B. $3450. C. $2510. D. $4400. 32.Using the weighted-average-cost method, the value of closing inventory is (to the nearest whole $): A. $4400. B. $4192. C. $4245. D. $5040. 33.Which of the following methods results in the higher value for cost of goods sold in times of rising inventory prices? A. First-in, first-out B. Weighted average cost C. Last-in, first-out D. None.
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              SHORT ANSWER 1.Describe the nature and importance of working capital to a business entity. 2.Describe the nature of trade credit, factoring and bank overdrafts as sources of short-term finance. 3.Describe the nature and major sources of equity finance. 4.Distinguish between an operating lease and a finance lease and describe how the separate classes.
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2.The following is an excerpt from a 2002 press release by the US corporation, Pacific Gas and Electric (PG&E). Accounting for PG&E NEG Synthetic Leases   The Corporation announced on Feb. 21 that it was initiating a thorough review of the accounting treatment of several synthetic leases used to finance power plant development.
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31.Residual value can be defined as the estimated disposal (sale) value of an asset when it is no longer useful to the entity. 32.When technology is changing rapidly, depreciation of an asset will help maintain an entity’s operating capacity. 33.Depreciation refers to the systematic allocation of the depreciable amount of a depreciable.
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61.Consider the following information and answer the question(s) below. Estimated Residual Depreciation Machine Cost life value method HRB-09 $8500 12 years $0 Reducing-balance (Assume rate = 0.105) If Machine HRB-09 was purchased 21 months ago, what is the total accumulated depreciation as at 30 June for this machine? A. $1786 B. $1492 C. $682 D. $1827 62.Mendips Ltd net profit would be understated if in the first year, the residual value were excluded when.
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TRUE/FALSE 1.The owners of an entity are regarded as equity investors whether they are sole traders, partnerships or shareholders in a multinational corporation, whereas preference shareholders may be classified as equity or debt investors depending on the characteristics of the shares. 2.The owners of a small entity, such as a sole trader,.
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TRUE/FALSE 1.As the effect that the collapse of an airline has on the tourist industry is seen to be industry-specific, it is a business risk. 2.Business risk is industry-specific, whereas financial risk is more firm-specific. 3.A company’s taxable income is the amount of profit determined by the tax commissioner on which the current.
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MULTIPLE CHOICE 1.Which of the following is a technique for analysing financial statement data? A. Trend analysis B. Financial ratio analysis C. Vertical analysis D. All of the above 2.Lenders can be classified as short, medium or long-term lenders. In regard to financial statement analysis for lenders, which of the following statements is incorrect? A. All lender groups are interested in the.
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MULTIPLE CHOICE 1.The statement of comprehensive income shows financial information: A. at a point in time. B. over a period of time. C. at the time of the originating transaction. D. at the time of sale of an item. 2.What information does a statement of comprehensive income not show? A. Net Profit B. Revenues C. Liabilities D. Tax Expense 3.Which one of the following statements is true? A. The statement of.
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PROBLEM 1.The core business of Greenmango Ltd involves the sale of anti-virus software. The following took place during the financial year ended 30 June. The company earned $25 000 000 from the sale of software; $3 000 000 from update downloads; and $50 000 in interest from investing on the short-term.
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31.Retained profits can best be described as: A. cash receipts minus expenses after adjustments. B. net profit minus expenses after adjustments. C. undistributed profits. D. net profit minus cash disbursements after adjustments. 32.The term ‘retained profits’: A. is representative of the cash that the corporation has available to pay dividends as of the balance sheet date. B. is found among the assets on.
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TRUE/FALSE 1.Accounts receivable arise when a business sells goods or services to a third party on credit terms. 2.A credit sale of a business where the revenue is not collected due to the customer not paying is a bad debt. 3.The absence of bad debts is an indicator that the credit policy may.
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51.The cost of non-current assets recognised as being consumed during a fiscal period is: A. plant expense. B. depreciation expense. C. interest expense. D. cost of goods sold. 52.When a company reports depreciation expense on the statement of comprehensive income: A. it is based on allocations of cost rather than on the current value of the asset. B. the firm is reporting that.
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4.Colombo commenced business as a sole proprietor providing computer repair services on 1 June. Colombo contributed land and buildings at $120 000, equipment at $19 000 and cash of $13 000. Transactions during June were as follows: June    4          4          6          8         11             17         19         21         23         30 Leased vehicle for.
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21.Which of the following statements is incorrect? A. Preference shares usually have a fixed dividend and rate higher than ordinary shares in a situation where a company goes into liquidation. B. A redeemable preference share with a fixed redemption date is classified as equity. C. A non-redeemable cumulative preference share gives the right to be paid.
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71.An example of an intangible asset classification on a balance sheet is: A. rights held for a radio licence to the Himalayas. B. shares in BHP Limited. C. improvements to electric cables. D. interest on debentures due to be paid in 2010. 72.Which of the following is not an identifiable intangible asset? A. A patent B. Copyright C. Goodwill D. A brand name 73.A pair of identifiable and.
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TRUE/FALSE 1.Investing all cash to maximise returns to the business is a more effective management of cash than ensuring cash is available to pay debts as they fall due. 2.The most common classification for interest paid and received on a cash flow statement is under operating activities. 3.When calculating the net cash flows.
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11.The Allowance for Doubtful Debts is classified on the: A. statement of comprehensive income as an expense. B. statement of comprehensive income as revenue. C. balance sheet as a liability. D. balance sheet as a deduction to an asset. 12.On 15 July Sammy Corporation’s Gross Accounts Receivable had a balance of $2300 and the Allowance for Doubtful Debts had.
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11.The failure to allow for uncollectable accounts will cause the owners’ equity to be overstated. 12.The key to the effective management of accounts receivable relies on maximising the benefits from selling goods on credit, not minimising the losses from bad debts. 13.Accounting for bad debts under the direct write-off method involves a.
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31.Which of the following events is properly classified as an investing activity? A. Purchase of equipment B. Borrowing money from creditors C. Selling goods to customers D. Running the factory 32.Which of the following is a cash flow from an investing activity? A. Payment for advertising B. Cash receipt from a customer for a previous credit sale C. Cash received from sale of equipment D. Payment of.
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CASE 1.The following financial statements have been prepared for Clearview for the month of June. The financial statements have been prepared using accrual accounting, except to the extent evident in the information provided. The business is a sole proprietorship. Trading commenced on 1 June. The business offers a window cleaning service.
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31.What effect do revenues and expenses eventually have on Owners’ Investment?     Revenues                   Expenses A. Decrease                    Decrease B. Decrease                    Increase C. Increase                     Increase D. Increase                     Decrease 32.The Flying High Company recorded a net profit for the year but paid no dividends. Comparing the balance sheet at the end of the year with the one at the beginning of the year,.
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11.Which of the following is a fundamental purpose of the cash flow statement?      To report the            To report the      inflows of cash          outflows of cash A. Yes                        Yes B. Yes                        No C. No                         Yes D. No                         No 12.The cash flow statement is designed to report: A. how the previous period’s statement of comprehensive income relates to the current period’s statement. B. only the.
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PROBLEM 1. (a) Classify the following transactions according to whether they relate to operating, investing or financing activities or none of those categories for the purposes of preparing a statement of cash flows. 1. Received cash of $14 000 from the sale of equipment previously used in carrying out the entity’s operations. 2. Paid cash of $11.
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21.The net figure for accounts receivable after deducting the allowance for doubtful debts account: A. represents the expected cash to be collected. B. is a contra account. C. understates the realisable value of accounts receivable. D. overstates the realisable value of accounts receivable. 22.George, a sole trader, sells goods on credit, and uses the direct write-off method for recording.
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21.The nature of the business will determine if the purchase of 500 litres of paint constitutes inventory or not. 22.It is most likely that a manufacturing firm will have inventory that constitutes raw materials, work in progress and finished goods. 23.Under AASB 102, where the purchase price (cost) of an item of.
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2.The following information about Thompson Corp. applies to the entity for the year ended 30 June. Payment to suppliers $150 000 Receipts from owners 405 000 Receipts from long-term borrowing 250 000 Payment of rates 130 000 Payment of wages 125 000 Purchase of other companies’ shares 80 000 Retirement of long-term borrowing 165 000 Receipts from customers 500 000 Payment for equipment 190 000 Depreciation on equipment 90 000 Average.
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41.A cost ought to be recognised as an asset when: A. it is probable that it will provide future economic benefits. B. it may provide future economic benefits. C. it involves drawings by the owner. D. the cash has been paid. 42.On 1 January, Erin, a manufacturer of fine furniture, entered into an agreement with a customer to make.
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MULTIPLE CHOICE 1.Which of the following would be considered the least effective management of cash? A. Protect cash and ensure cash is available to pay debts as they fall due. B. Protect cash and enable accurate reporting of cash. C. Enable accurate reporting of cash D. Ensure cash is available to pay debts as they fall due and allow.
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PROBLEM   1.The inventory of Lusitania Ltd contains the following items at 30 June. Total Cost Market Item Type Quantity Cost A 60 $3 $180 $4 B 25 8 200 5 C 10 25 250 21 D 40 6 240 6 E 30 7 210 5 (a) Determine the ending inventory value at 30 June, applying the lower cost and market (LCM) rule to the individual items. (b) What would the application of the LCM rule rather than cost have on the financial statements of the company? .
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41.An advocate of the LIFO inventory method would maintain that: A. current costs are matched with current selling prices. B. the lowest possible costs are always shown in the ending inventory. C. the oldest inventory is relieved of its cost before the newer purchases. D. the highest possible costs are always shown in the ending inventory. 42.Davenport Merchandising Company.
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