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Fundamentals of Financial Accounting CIMA Certificate Level 1 st Mock Exam Conducted By MIIT INSTRUCTIONS TO CANDIDATES Read the instructions before you look at the questions 1. Financial statements are prepared: A ) Only for publicly owned business organizations. B ) For corporations, but not for sole proprietorships or partnerships. C ) Primarily for the benefit of persons outside of the business organization. D ) In either monetary or nonmonetary terms, depending upon the need of the decision maker. 2. The basic purpose of an accounting system is to: A ) Develop financial statements in conformity with generally accepted accounting principles. B ) Provide as much useful information to decision makers as possible, regardless of cost. THIS QUESTION PAPER BOOKLET IS ALSO YOUR ANSWER BOOKLET. Sufficient space has been provided for you to write your answers You are allowed Two hours to answer this question paper. All questions are compulsory. Hand this entire booklet to the invigilators at the end of the examination.

Fundementals of FA - 1st Mock Exam

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Fundamentals of Financial Accounting CIMA Certificate Level 1st Mock Exam Conducted By MIIT INSTRUCTIONS TO CANDIDATES Read the instructions before you look at the questions

1. Financial statements are prepared: Only for publicly owned business organizations. A) B) C) D) For corporations, but not for sole proprietorships or partnerships. Primarily for the benefit of persons outside of the business organization. In either monetary or nonmonetary terms, depending upon the need of the decision maker.

2. The basic purpose of an accounting system is to: A) B) Develop financial statements in conformity with generally accepted accounting principles. Provide as much useful information to decision makers as possible, regardless of cost.

Record changes in the financial position of an organization by applying the concepts of doubleC) entry accounting. D)3

Meet an organization's need for accounting information as efficiently as possible.4

3. Information is cost effective when: A) B) C) D)4

The information aids management in controlling costs. The information is based upon historical costs, rather than upon estimated market values. The value of the information exceeds the cost of producing it. The information is generated by a computerbased accounting system.4

4. Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the information needs of: Investors and creditors.. A) B) C) Trade associations and labor unions. D)5 4

Government agencies such as the Internal Revenue Service. Customers.

5. A complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, except: ABalance sheet as of December 31, 1999. ) Income statement for the year ended December 31, 1999. B)

CStatement of projected cash flows for 2000. )

Notes containing additional information that is Duseful in interpreting the financial statements. )

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6. All of the following are characteristics of managerial accounting, except: a. Reports are used primarily by insiders rather than by persons outside of the business entity b. Its purpose is to assist managers in planning and controlling business operations c. Information must be developed in conformity with generally accepted accounting principles or with income tax regulations. d. Information may be tailored to assist in specific managerial decisions. 7. In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is more likely to: a. Be used by decision makers outside of the business

organization b. Focus upon the operation results of the most recently completed accounting period. c. View the entire organization as the reporting entity. d. Be tailored to the specific needs of an individual decision maker.

8. The nature of an asset is best described as: a. Something with physical form that is valued at cost in the accounting records. b. An economic resource owned by a business and expected to benefit future operations c. An economic resource representing cash or the right to receive cash in the near future. d. Something owned by a business that has a ready market value.

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9. The balance sheet item that represents the resources invested by the owner is:

a. Accounts receivable. b. Cash c. Note payable. d. Owner's equity3 4

The balance sheet of Bock Designs includes the following items: Accounts Receivable Cach Diane Bock, Capital Accounts Payable Equipment Supplies Notes Payable Notes Receivable

10. This list includes: A. Accounts Receivable Cash B. Diane Bock, Capital Accounts Payable C. Equipment Supplies D. Notes Payable Notes Receivable

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11. Arguments that the cost principle is not a satisfactory basis for the valuation of assets in financial statements are usually based on: A. The lack of objective evidence to permit verification of cost data. B. Increased availability and capacity of computers C. Stronger internal control structures. D. Continued inflation. .5 4

12. The amount of owner's equity in a business is not affected by: A.The percentage of total assets held in cash. B.Investments made in the business by the owner. C.The profitability of the business. D.The amount of dividends paid to stockholders.6 4

13. An income statement communicates information regarding revenues and expenses: A.For a period of time. B.At a given point in time. C.For some point of time in the future. D.At the beginning of the fiscal year. 14. Which one of the following users of accounting information is not considered to be an external user of

accounting information rather than an internal user of accounting information? Sales A)staff. Comp any B)mana gers. Comp any C)custo mers. Offic ers D)and direct ors. Budg et E)office rs.

15. A CPA owns a large home and she has divided the second floor into two separate units: one used as her personal residence and the other rented out to local college students as an apartment. On the first floor, she has her own CPA firm where she meets with and provides accounting services to clients. If she wishes to keep separate records for each of these three activities, the accounting principle to which she is adhering is? A) B) C) D) E) Going-concern principle. Monetary unit principle. Cost principle. Business entity principle. Conservatism principle.

16. The basic accounting equation is Assets = Liabilities + Equity. The Equity term of the equation can be further broken down into several other terms. Assume that the entity is a sole proprietorship. Which of the following statements is correct?

A) B) C) D) E)5

Additional investments by the business owner will increase equity; and revenues will decrease equity. Additional investments by the business owner will decrease equity; and revenues will increase equity. Increases in expenses will decrease equity; and owner withdrawals will decrease equity. Revenues will increase equity; and owner withdrawals will increase equity. Revenues will decrease equity; and owner withdrawals will increase equity.5

17. If at the end of the accounting period the company's liabilities total $19,000 and its equity totals $40,000, then what must be the total of assets? A) B) C) D) E) $14,000 $40,000 $21,000 $59,000 None of the above

18. Company assets total $150,000 and its liabilities total $30,000. What is the equity of this company? A) B) C) D) E) $120,000 $100,000 $150,000 $180,000 None of the above

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19. If during the current accounting period the company's assets increased by $24,000 and equity increased by $5,000, then how did liabilities change? A) B) C) D) E)8

Increased by $29,000 Increased by $24,000 Decreased by $5,000 Decreased by $19,000 Increased by $19,0005

20. Assume that a company's beginning owner's capital was $20,000. During the period, withdrawals were $24,000, and the owner made additional investments during the period of $50,000. The ending capital balance was $90,000. What was the net income or net loss for the period? A) B) C) D) E)9

Net income, $56,000 Net loss, $44,000 Net income, $44,000 Net income, $30,000 None of the above5

21.

Company assets total $150,000 and its liabilities total $30,000. What is the equity of this company? A) $120,000

B) C) D) E)

$100,000 $150,000 $180,000 None of the above

22. If during the current accounting period the company's assets increased by $24,000 and equity increased by $5,000, then how did liabilities change? A) B) C) D) E)8

Increased by $29,000 Increased by $24,000 Decreased by $5,000 Decreased by $19,000 Increased by $19,0005

22. Assume that a company's beginning owner's capital was $20,000. During the period, withdrawals were $24,000, and the owner made additional investments during the period of $50,000. The ending capital balance was $90,000. What was the net income or net loss for the period? A) B) C) D) E) Net income, $56,000 Net loss, $44,000 Net income, $44,000 Net income, $30,000 None of the above

23. If during the accounting period the company's assets decreased by $15,000, and equity increased by $4,000, then by how much did liabilities change? A) B) C) D) E) Increased by $12,000 Increased by $8,000 Decreased by $12,000 Decreased by $19,000 Decreased by $6,00010 5

24. Which of the following financial statements refers to a specific date (point in time)? A) Income statement

Statement of owner's B) equity Statement of cash C) flows D) Balance Sheet

Answers A, B & C are E) all correct11 5

25. Total assets and total liabilities of a company are reported on which of the following? A) Income statement

B)

Balance sheet

Statement of cash C) flows Statement of owner's D) equity E) None of the above12 5

26. A statement of cash flows will report cash flows from which of the following activities? A) B) C) D) E)13

Operating activities Financing activities Investing activities All of the above Only A and C are correct5

27. When cash is received from a customer in payment of an account receivable, how are the elements of the accounting equation affected? Decrease assets (cash) and increase assets (accounts A) receivable) Increase assets (cash) and decrease assets (accounts B) receivable) C) D) E)14

Increase assets and increase liabilities Increase assets and increase equity None of the above5

28. The owner's investment of cash in the company will result in which of the following? A) B) C) D) E) An increase in cash and a decrease in equity An increase in cash and an increase in equity A decrease in cash and a decrease in liabilities An increase in fees earned and an increase in equity An increase in cash and an increase in liabilities

29. Purchasing equipment on account (payment to be made in the future) will have what effect on the components of the accounting equation? Increase in equipment (assets) and a decrease in equity A)

Increase in equipment (assets) and an increase in equity B)

Increase in equipment (assets) and an increase in liabilities C)

Increase in equipment (assets) and a decrease in liabilities D)

None of the above E)

30. A proprietorship employs one full-time accountant. This person is considered an employee. On the desk in front of her are five different business documents. Which one of the following would not be considered an original source document from the proprietorship's point of view? A bank receipt for $10,000 evidencing yesterday's cash receipts A) deposited in the bank.

B)

C) D) E)

The original copy of the insurance policy taken out by the proprietorship to insure the vehicle it purchased during its first month of operations. The annual insurance premium of $500 was printed within the contract. The invoice received by the proprietorship from Samsung Electronics when the proprietorship purchased its first lot of inventory to be sold to its customers. A cancelled check for $500 representing payment in full for the annual insurance premium mentioned in item B above. A copy of the Balance Sheet at the end of the company's first year of existence.

31. At any given point in time, it is possible to describe general ledger accounts as having an expected or "normal" balance: either a debit balance or a credit balance. This normal balance is on the side of the account, that is, the debit side or credit side, that represents the "increase" side of the account. In order, what is the normal balance for the Equipment account, the Owner's Equity account, and the Sales Revenue account? debit, credit, credit A) B)debit, debit, debit credit, debit, credit C) credit, credit, debit D) E)debit, debit, credit 32. The Baker sole proprietorship started operations on January 1, 2009 and uses a calendar-year accounting period. On February 7, 2009, the company purchases an automobile with an invoice cost of $10,000. To settle this transaction, the company immediately pays $3,000 cash to the automobile dealership and signs a three-month note payable for the $7,000 purchase price balance. A partial general journal entry is given below. Which item accurately describes the partial entry from Baker's viewpoint

A)

Cash is debited for $3,000 and Notes Payable is credited for $7,000

The asset account Vehicles is debited for $7,000 and Cash is credited for B) $3,000. The asset account Vehicles is credited for $10,000 and Cash is credited for C) $3,000 D) Cash is credited for $3,000 and Notes Payable is credited for $7,000

Notes Payable is credited for $7,000 and the asset Vehicles is credited for E) $3,000

33. A company buys a one-year insurance policy on February 1, 2009, and immediately pays in cash the $720 insurance premium. The company's bookkeeper records the transaction by crediting the Cash account for $720 but debits Insurance Expense for $720, instead of debiting Prepaid Insurance, which would be the correct entry. Based on this information, which statement concerning the trial balance is correct if the company fails to correct this bookkeeping error? A) The trial balance is correct as it is.

The total debits of the trial balance do not equal the total credits of the trial B) balance. C) D) The total debits on the trial balance are higher than the total credits. The total credits on the trial balance are lower than the total debits.

The total trial balance debits equal the trial balance credits but one or more E) account balances are incorrect. 34. A company buys a new car on February 15, 2009, and immediately pays in cash the $25,000 purchase price. The company's bookkeeper fails to record the transaction at all. Based on this information, which statement concerning the trial balance is correct if the company fails to correct this bookkeeping error? The trial balance is correct as it is. A) The total debits of the trial balance do not equal the total credits of the trial balance. B)

The total debits on the trial balance are higher than the total credits. C) D) E) The total debits on the trial balance are equal to the total credits on the trial balance, but one or more accounts have incorrect balances. The total trial balance debits equal the trial balance credits, but only one account balance is incorrect.

35. Amelia Company received its telephone bill on February 15, 2009 in the amount of $325. This bill covered the period from January 1, 2009 through January 31, 2009. Amelia paid this bill immediately. The company uses a calendar year accounting period and prepares its financial statements only once a year at the end of the year. The general journal entry to record this transaction includes: A debit to the Cash account for $325. A) A credit to the Telephone Expense account for $325. B) A debit to the Telephone Expense account for $325. C) A credit to Accounts Payable for $325. D) A debit to Accounts Payable for $325. E)

36. On March 1, 2009, a company collects a $500 deposit from a customer for the installation of a home-theater system. The installation is scheduled for May 5, 2009. How should the company record this entry on March 1, 2009?

The Cash account is credited for $500. A) The Sales Revenue account is credited for $500. B)

The Unearned Sales Revenue account is credited for $500. C) The Unearned Sales Revenue account is debited for $500. D) None of the above are correct. E) 37. A company which sells and services medical insurance policies received one payment of $14,000 cash from a customer for insurance coverage for the next two years. Recording the receipt of this cash when it is received will require which of the following? Withdrawals to be debited, an asset to be credited A) A liability to be debited, an asset to be credited B) An asset to be debited, capital to be credited C) An asset to be debited, a liability to be credited D) One asset to be debited, another asset to be credited E) 38. Olivia, the proprietor, deposited $40,000 in the company's bank account. She received the money as the result of a settlement of a class action lawsuit and decided to invest it in her business to help with expansion. Recording the transaction on the company books will require which of the following? A) B) C) D) An asset to be debited, a liability to be credited A liability to be debited, an asset to be credited An asset to be debited, capital to be credited Withdrawals to be debited, an asset to be credited

E)11 5

One asset to be debited, another asset to be credited

39. Which of the following statements is true? Revenue accounts are increased by debit entries. A) Journalizing entries occurs after posting entries. B) Debit entries are entries involving the right-hand side on an account. C) An account shows increases and decreases and an account balance. D) Journalizing errors should be erased and a correct entry made. E) 40. The personal residence of Samuel Leonard was landscaped with all new trees, shrubs and flowers. This improvement was paid for with a check written against Samuel's business checking account. The landscaping provides no benefit to Samuel's business. What account should be debited for this transaction? Samuel Leonard, Capital A) B) C) D) E) Samuel Leonard, Withdrawals Landscaping Improvements Landscaping Expense None of the above

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41. One of your company's business checks clears the bank at its correct amount of $500. The transaction that underlies this check was the cash purchase of office supplies. The entry was recorded as a debit to Insurance Expense for $50 and a credit to Cash for $50. The correcting entry should include which of the following? A) B) C) D) E)15 5

A debit to Accounts Receivable for $450 A credit to Supplies Expense for $500 A credit to Cash for $50 A credit to Cash for $450 A credit to Cash for $540

42. Which of the following best describes accounting?

a. Can be thought of as the "language of business." b. Is of limited or little use to individuals outside of the business. c. Records economic data but does not communicate the data to users. Relies upon concepts and principles that are independent of d. specific user needs.

43. Which of the following errors will cause the trial balance totals to be UNEQUAL? a. Failure to record a transaction or post a transaction. b. Recording the same erroneous amount for both the debit and the credit parts of a transaction.

c. Posting a part of a transaction correctly as a debit or credit but to the wrong account. Posting the debit amount of the transaction correctly and posting the credit amount of the d. transaction incorrectly.

44. The ________ is prepared to determine if debits are equal to credits and can ultimately be used to discover some errors.

a. balance sheet b. trial balance c. income statement d. statement of cash flows 45. A credit may represent a(n):

a. increase in asset accounts. b. increase in liability accounts. c. decrease in the capital account. d. increase in expense accounts. 46. Decreases in owner's equity from using up assets or consuming services attributable to business activities are called:

a. drawings. b. revenues. c. expenses. d. liabilities.

47. Every transaction affects at least two accounts. The purchase of land in exchange for cash is recorded with which of the following entries?

a. Debit to Cash, and a credit to Land. b. Debit to Owner's Equity, and a credit to Cash. c. Debit to Land, and a credit to Cash. d. Debit to Land, and a credit to Accounts Payable.

48. Websavvy paid the electric and gas bill for the month in the amount of $325.00. What is the entry to record this transaction? a. Debit Cash for $325.00, credit Utilities Expense for $325.00. b. Debit Utilities Expense for $325.00, credit Cash for $325.00. c. Debit Accounts Receivable for $325.00, credit Utilities Expense for $325.00. d. Debit Utilities Expense for $325.00, debit Accounts Receivable for $325.00.

49. If Websavvy (an imaginary web design organization) purchased an insurance policy for the automobile that is used in the business, and the policy was for 24 months and the cost was $4,800, the entry to record this purchase is:

a. b. c.

d.

50. The rules of debit and credit and the normal balances of the various types of accounts are summarized correctly in which of these charts?

a.

b.

c.

d.