Questions in addition to your weekly workshop questionsMCQ EXAMPLES
Question . Which of the following equations is correct?a. Assets = Liabilities + Owners’ Equity – (Revenues – Expenses)b. Assets + (Revenues + Expenses) = Liabilities + Owners’ Equityc. Assets + Liabilities + Owners’ Equity = Revenues – ExpensesD*. Assets – Liabilities = Owners’ Equity + (Revenues – Expenses)
Question . An entity’s owners’ equity is one-third of its total assets. Its liabilities total $100,000. What is the amount of its total assets?a. $100,000B*. $150,000c. $200,000d. $300,000
.33x +100,000= X .6666X=100,000
X=150,000
Question . The purchase of an asset for cash will:A* not affect total assets, liabilities, and owners’ equity.b. increase total assets and increase total liabilities.c. increase total assets and increase total owners’ equity.d. increase total assets.
Question . What is the value of total assets if current assets equal $2200, current liabilities equal $1500, non-current liabilities equal $800 and owners equity equals $2500?a. $2600b. $3200C*. $4800d. $1100
Question . Accounting information:a. is helpful for financing decisions but not for marketing decisions.
b. is useful for profit-making entities but is not needed for not-for-profit entities.c. must follow generally accepted accounting principles if provided to management.D* .
is useful for all economic organisations.
Question . In a firm that offers a bonus scheme based on accounting profit, managers can, in most cases, be expected to adopt a:a. profit-decreasing accounting policy.B*. profit-increasing accounting policy.c. dividend-increasing accounting policy.d. liability-increasing accounting policy.
Question . In a utilitarian ethical framework, moral correctness is based on the premise that:a. the underlying nature of an action determines its correctness.B*. the consequences of an action determine its correctness.c. the nature of an action and its consequences determines its correctness.d. All of the above are correct.
Question . Which of the following statements is true of the straight-line and/or reducing-balance methods of depreciation?a. The two methods yield different amounts of total depreciation expense over the useful life
of the asset.B*. The two methods yield the same amount of total depreciation expense over the useful life
of the asset.c. The straight-line method is applied to assets that wear and tear faster in the earlier years.d. The reducing-balance method is applied to assets that generate more revenue in later
years.
Question . Slow Trucking owned a truck that cost $30,000 when it was purchased on 1 January 20X1. It had accumulated depreciation of $18,000 at 31 December 20X2. Slow originally estimated that the truck would have a residual value after using it for 4 years of $3,000. It sold the truck for $22,500 cash on 1 January 20X3. The amount of gain (loss) on the sale of the truck was:a. $4500 gain
b. $19,500 gainc. $1500 lossD*. $10,500 gain
Question . The So-Big Company sells hot-dogs. Inventory information for a recent week is shown below:
Units Unit Cost Total CostBeginning inventory 2 $ 6 $12Purchase 4 8 32Purchase 6 10 60
If 5 units were sold during the week, what is the cost of goods sold if the LIFO periodic method is used?a. $68b. $54C*. $50d. $36
Question. Which of the following would not explain the difference between current and non-current assets?a. The future benefit of current assets will generally be used up within the entity’s operating
cycle.B*. An expenditure is classified as a non-current asset if it is considered to be material.c. An asset is classified as non-current if it is intended to be used within the business for a
considerable period of time.d. The nature and intention of the business can help determine whether an expenditure
should be classified as a non-current asset.
Question 10. The following costs were incurred in the purchase of new office equipment.
Cash price $22,000Sales tax 3,300Insurance during transit 200Installation 500
What amount should be recorded as the cost of the office equipment?
a. $22,000b. $25,300c. $25,500D*. $26,000
Question . The major accounting difference between a finance lease and an operating lease is that:a. finance leases involve larger amounts of funds.b. finance leases are for longer periods of time.C*. finance leases involve the recognition of assets and liabilities.d. finance leases are cancellable.
Question . When calculating cost of goods sold, an error was made which understated closing inventory. What effect will this have on assets in the statement of financial position and on profits in the statement of financial performance?A* Assets will be understated and profit for the period will be understated.b. Assets will be overstated and profit for the period will be overstated.c. Assets will be understated and profit for the period will be overstated.d. Assets will be overstated and profit for the period will be understated.
Question Able Company sells a product for $50 per unit, its variable costs are $35 per unit and its total fixed costs are $45,000. What is Able’s break-even point?A*. 3000 units.b. 150,000 units.c. 1286 units.d. 64,286 units.
Question Which of the following shows a combination of fixed and variable cost for a production plant?a. Costs of building and costs of equipmentb. Land purchase costs and costs of equipmentC*. Cost of building and costs of materialsd. Land purchase costs and general manager’s salary
Question Arches Manufacturing Company provides the following information:
CostsDirect labour $16,000Direct materials 20,000Direct labour hours 4,000Manufacturing overhead 36,000Variable selling expenses 12,000Number of units produced 800
What is the total unit cost of one unit of finished product?a. $90.00b. $95.00C*. $105.00d. $87.00
Question . Jany Ltd produces 20,000 golf balls. Each golf ball sells for $8, and it costs $2000 to produce the golf balls. The cost of the fixed plant and equipment needed to produce the golf balls is $1500 per period. The break-even point for Jany Ltd is (to the nearest integer):A*. 190 golf balls.b. 200 golf balls.c. 210 golf balls.d. 220 golf balls.
Question. A company has net profit of $10,000, sales price per unit of $25 and fixed costs of $40,000. The company would like to increase profits by 50%. What percentage increase in sales volume would be needed to achieve this goal?a. 20%b. 10%c. 12.5%D*. Answer cannot be determined from the information given.
Ques tion . Winter Sales, Inc. sells many kinds of winter sports equipment, primarily through telemarketing. Its sales staff is paid 15% of all sales dollars generated. In order to decrease the uncertainty of this arrangement for its staff and increase loyalty, the company is considering a change in the method of payment. The company would like to pay its 100 employees $1000 per month plus 10% of sales. Using cost-volume-profit analysis, what volume of sales dollars does the company need to exceed per month to make this new method more profitable for the company than the old method?
a. $360,000B*. $2,000,000c. $1,000,000d. Answer cannot be determined from the information given.
Question . Bowden Company forecasts sales for the third quarter at 10,000 units. The desired ending inventory for the second quarter is 2000 units and for the third quarter 3000 units. How many units must be produced in the third quarter?a. 9000 unitsB*. 11,000 unitsc. 12,000 unitsd. 13,000 units
Question . Hamilton has budgeted total manufacturing overhead costs for the year as $125,000, based on 20,000 direct labour hours. The ratio of variable manufacturing overhead costs to fixed manufacturing overhead costs is 2:1. In a given month, 2000 direct labour hours are budgeted for production. How much overhead is budgeted?A*. $12,500.00b. $11,805.55c. $11,110.42d. $10,416.67
Theory question:Best Guide: Weekly WS Review Questions from your Text Book
Numerical QuestionsChapter 19 WS questionsChapter 20 WS questions
Chapter 14Text Book: Question: 13 (Chapter 14)
Profitability:20X6 20X5 20X4
ROR on ordinary shareholders funds = 14% = 8.8% = 8.6%
Indicates an increasing profitability almost on a par with the industry.
20X6 20X5 20X4
Net profit marginGross profit margin
13.2%38%
15%41%
17%39%
A fairly constant gross profit margin with a falling net profit margin indicates a rising level of expenses such as depreciation, wages, interest, etc.. These should be analysed further. In this case a large part of the trend is due to increased interest charges on long-term debt.
20X6 20X5 20X4
Times interest covered 5 10 11
This is a potentially dangerous situation since profitability is not quite good enough to offset the higher charges incurred to obtain funds.
Short-term solvency:20X6 20X5 20X4
Current ratioQuick ratio
1.490.65
1.840.75
2.250.90
Short-term solvency is contracting. This may be serious depending on how efficiently funds can be generated.
20X6 20X5 20X4
Accounts receivable turnoverInventory turnoverOperating cycle
75 days152 days227 days
72 days268 days340 days
68 days304 days372 days
Cash generation has improved greatly but still lags behind the norm for the industry (150 day operating cycle). Increases here can make allowances for the lower levels of liquid funds held.
Receivables turnover has deteriorated particularly given that credit terms are net 45 days. A review of credit procedures may be warranted and perhaps action on long-outstanding receivables.
Leverage:20X6 20X5 20X4
Debt/Tangible net assets 1.42 0.76 0.64
Increases in long-term debt have gone into long-term investment – this is an essentially health situation. However, the returns from this investment are not yet great enough to offset the interest burden.
20X6 20X5 20X4Debt / Total assets 49% 32% 29%
The firm has increased debt levels beyond those for the industry. This is a cause for concern.
SummaryWhile Jayco’s profitability is still consistent with that of the industry, its increased debt levels and deteriorating liquidity are a cause for
concern. Jayco needs to examine the collection of debtors. However, the increase in share price is evidence of market confidence in Jayco and its ability to service the higher levels of debt.
IMPORTANT RATIOsAsset TurnoverSales TurnoverReturn on SalesLiquidity Ratios (CR and QR)Earning Per ShareEfficiency Ratios (Debtor and Inventory Turnover ratios)
Question 9 (Chapter 14)a Declining profitability as measured by:
20X4 20X5 20X6Net profit margin 10% 8.3% 6.25%
Increase in sales is offset by increase in materials costs:Material costs/sales 37.5% 38.9% 47.75%Return on shareholders funds 10% 7.5% 6.25%Pre-tax return on total assets(assume 30% tax)
7050 90 000
5550 90 000
5737 105 000
= 7.8% = 6.1% = 5.5%
This trend may be levelling out.b Debt retired for equity in 20X6 has improved the ability to cover fixed charges in 20X6.
Times interest earnedDebt/equity ratio
550%
450%
4.1240%
All the additional investment has gone into work in progress. This indicates that the equity increase was made to acquire working capital since short-term sources had been exhausted. Notice that there is no long-term finance.
c • Perhaps attempt to retire short-term debt in favour of long-term debt which is generally less expensive and provides more flexibility
• Attempt to speed up work in progress to release funds for further investment• Need to examine costs of materials: can these be reduced? If not, can the company increase its prices? Lower profit on increased
sales is not a good sign. However, there may be problems in the economy (e.g., a recession) or competitive pressures which prevent price rises
Chapter 4Question 14 & 15( chapter 4)14
Mickey LtdBalance sheet as at 30 June 20X1
$ $ $
Current assetsBankAccounts receivableInventoryLoan receivable(1/7/20X1)Other current assets
Total current assetsNon-current assetsLoan receivable(30/6/20X3)Fixtures and fittingsPlant and equipmentLand and buildings
Total non-current assetsTotal assets
Current liabilitiesAccounts payableSalaries payableTax payableOther current liabilities
Total current liabilitiesNon-current liabilitiesDebentures payableLoan payable(31/12/20X3)Total non-current liabilitiesTotal liabilitiesNet assets
Total owners’ equity
10 00015 70027 20010 000
700
100 00072003600
120 000
10 3006200
12 3001200
137 000100 000
63 600
230 800
30 000
237 000
294 400
267 00027 40027 400
15ABC Co. Ltd Balance sheet
Assets $ $ Liabilities and owners’ equity
$ $
Current assetsDebtorsInventoryPrepaid rent
10 00020 000
2000 32 000
Current liabilitiesBank overdraftCreditors
12 00090 000 102 000
Non-current assetsMotor vehiclesPlant & equipmentLandBuildings
20 00015 00050 000
100 000 185 000
Owner’s equityCapitalRetained earnings
80 00035 000 115 000
Total assets 217 000
Total liabilities and owners’ equity
217 000
Chapter 6
Question 6 Chapter 6
6 a
Mandy Plover worksheet
ASSETS = LIABILITIES + OWNERS EQUITYDate Bank Prepaid
RentFixtures & Fittings
Computer Supplies Accounts Receivable
Prepaid Lease Rent
=Accounts Payable Capital Profit & Loss
July 1 30 000–3000
–275–50
–475
300030 000
–275–50
–4752 –1000 10003 17 500 17 5004 –1380 1380
15 2750 275015 No entry15 –750 –75016 225 –22516 –2000 200018 –17 500 –17 50022 300 300
23 –780 –78029 –750 –75029 300 30031 340 3110 3450
Balance 3985 3000 1000 17 500 1380 4855 2000 = 0 30 000 3720AdjustmentRentLeaseSupplies*
–1000
-115–1000
–1000–1000
–115Adjusted Balance
3985 2000 1000 17 500 1265 4855 1000 = 0 30 000 1605
*Assumed to last for one year, therefore 1380 x 1/12 = 11
bMandy Plover
Income statement for month ending 31 July
$ $RevenueLess Expenses
WagesRentMotor Vehicle LeaseTelephoneElectricity FeeOffice Equipment RentBad DebtsSupplies
Net Profit
15001000100027550
475780115
6800
5195
1605
Mandy PloverBalance sheet as at 31 July
Assets $ $ Liabilities and owners’ equity
$
Current assetsBankAccounts receivableSuppliesPrepaid rentPrepaid lease rent
39854855126520001000 13 105
Owners’ equityCapitalRetained earnings
30 0001605
Non-current assetsFixtures and fittingsComputer
1 00017 500 18 500
Total assets 31 605 31 605
c For the month of July, Mandy has made a profit of $1605. However, this figure is overstated for the following reasons:
• No expense recorded for electricity or telephone as no account has been received as at 31 July
• No depreciation recorded for the computer or the signs• No allowance made for any further bad debts• Based on the investment of $30 000, Mandy is receiving the following return:
= 64.2 per cent per annum
The other issue Mandy must consider is whether her wages of $750 per fortnight represent what she could earn elsewhere. If in fact her wages are understated at $750 per fortnight or $20 000 per annum, then her return on investment is overstated.
Finally the effect of the lease of the BMW must be considered. For July the impact on profit has only been $1000 but in future months the impact will be $2000 per month. If Mandy continues to earn the same profit each month then the following figures show the impact of the BMW:
Net profit for July $1605Add back BMW lease cost 1000
$2605
x 12 for full year x 1231 260
Less full year cost of BMW –24 0007260
Return on investment:
= 24.2 per centIn summary then, Mandy’s business looks very promising. However, further analysis is required after a few more months of business to enable a more accurate assessment of the financials. Perhaps Mandy could earn a higher return by investing her money in shares and working for someone else but then she loses her independence and perhaps the BMW car. Even if she continues in her own business she could improve the return on her investment by choosing to lease a less expensive motor vehicle.
Chapter 7Question 20 (Chapter 7)20 a i FIFO:
20X0 Cost of goods sold
2300750475
3525
@@@
$24.0624.3825.00
$55 33818 28511 87585 498
Inventory525500250
1275
@@@
25.0025.3125.62
13 12512 655
640532 185
20X1 Cost of goods sold
1275875875825
3850
@@@
25.6225.6226.26
32 18522 41822 41821 66598 686
Inventory50
12501300
@@
26.2626.56
131333 20034 513
20X2 Cost of goods sold
13001250875263
3688
@@@
26.5626.8826.88
34 51333 20023 520
706998 302
Inventory612875
1487
@@
26.8826.88
16 45123 52039 971
ii LIFO:20X0 Cost of goods
sold250500
1000750
10253525
@@@@@
25.6225.3125.0024.3824.06
640512 65525 00018 28524 66287 007
Inventory1275 @ 24.06 30 676
20X1 Cost of goods sold
1250875875850
3850
@@@@
26.5626.2625.6225.62
33 20022 97822 41821 777
100 373Inventory
127525
1300
@@
24.0625.62
30 676641
31 31720X2 Cost of goods
sold875875875
10633688
@@@@
26.8826.8826.8826.56
23 52023 52023 52028 23398 793
Inventory1275
25187
1487
@@@
24.0625.6226.56
30 676641
496736 284
iii Average:20X0 Cost of goods sold
Inventory35251275
@@
24.51724.517
86 42231 259
20X1 Cost of goods soldInventory
38501300
@@
25.68425.684
98 88333 389
20X2 Cost of goods soldInventory
36881487
@@
26.50226.502
97 73939 408
Note: It should be pointed out to students that a lot of effort can be saved by simply applying the equation beginning inventory + purchases = COGS + closing inventory.
b FIFO:20X2 Cost of goods sold
Inventory
148718883375
500
@@
@
26.8827.19
27.19
39 97151 33591 306
_____13 595
LIFO:20X2 Cost of goods sold
Inventory
238818725
775
500
@@@@
@
27.1926.5625.6224.06
24.06
64 9304967641
18 647_____89 185
12 030
Tutors should discuss the lowering of cost of goods sold and hence the increase in profit in 20X2 for LIFO compared to FIFO. This is contrary to the other three years and is despite the fact that costs still increased in 20X2. This is due to the lowering of the ending stock levels and as a result the lower unit cost flowing through cost of goods sold under LIFO.
Chapter 17 5 a The predetermined overhead rate:
Cost Centre X based on direct labour cost basis:$140 000/$100 000 = $1.40 per $ of direct labour costCost Centre Y based on machine hour basis:$150 000/20 000 hrs = $7.50 per machine hour
b The total production cost for BNH:X$
Y$
Direct materialDirect labourOverheadsX $1.40 x $32 000Y $7.50 x 13 000 hrs
20 00032 000
44 800
96 800
40 00021 000
97 500158 500
Total cost of production $XY
96 800158 500255 300
c Unit cost of product BNH:Total cost of production/No. of units$255 300/20 000 units = $12.77 per unit
d The over-absorbed or under-absorbed overhead for 20X1:X $
Actual costAbsorbed overheads:X $144 200 x $1.40Over-absorbed overhead
160 000
201 88041 880
Y $Actual costAbsorbed overheads:Y 18 000 hrs x $7.50Under-absorbed overhead
138 000
135 0003000
X over-absorbedY under-absorbedTotal over-absorbed
41 880(3000)38 880
9 a Cost drivers:Construction 3 000 000 = $30 per DLH
100 000Inspection 1 000 000 = $50 per TTI
20 000Testing 500 000 = $62.50 per TTT
8 000Mustang
$Jaguar
$Direct materials 160 000 120 000Construction (4000 x $30) 120 000 (6 000 x $30) 180 000Inspection (800 x $50) 40 000 (1 200 x $50) 60 000Testing (200 x $62.50) 12 500 (300 x $62.50) 18 750Total cost 332 500 378 750
b Overhead applied was 120 000 + 180 000 + 40 000 + 60 000 + 12 500 + 18 750 or $431 250.Actual overhead was $440 000.Overhead under-applied by $8750.
Chapter 1811 a The amount of trousers Cords sell each month.
Using the break-even equation where x is the number of pairs of trousers to earn a profit of $22 080 each month:S(x) = VC(x) + FC + P36(x) = 20(x) + 52 800 + 22 08016(x) = 74 880x = 4680 pairs of trousers
b Fixed costs have now increased to ($52 800 + $6 000) $58 800.The break-even point, using the break-even equation:
34(x) = 20(x) + 58 80014(x) = 58 800
x = 4200 pairs of trousersThe break-even point before the changes in price and advertising expenditure was:
36(x) = 20(x) + 52 800x = 3300 pairs
Profit on sales of 5800 pairs of trousers:34(5,800) = 20(5 800) + 58 800 + PP = $22 400
Comments regarding the sales director’s proposals:– small increase in profits of $320 (1.4 per cent)– much higher break-even point and therefore the proposal is riskier than previous
operating level– what is the likelihood that sales will, indeed, increase to 5800 units (24 per cent
increase)Assumptions:– all variable costs remain unchanged and are proportional to volume within this
range of activity– fixed costs do not change– capacity is available– efficiency does not change, e.g., no economies of scale– business environment not changing (e.g., government policy, competitors)
c i Required profit 15 per cent increase on $22 080 x 1.15 = $25 39234(x) = 20(x) + 58 800 + 25 39214(x) = 84 192x = 6014 pairs of trousers (to the nearest whole number)
ii Assuming that the Sales Director’s policies were not adopted:36(x) = 20(x) + 52 800 + 25 392x = 4887 pairs of trousers