Financial Accounting Examples MCQ
These are sample financial accounting examples to help you understand what is financial accounting
- The accounts of A Ltd as at 30 June 2000 show the followings:
Overdraft balance of $3,000 Notes payable of $2,500
Notes receivable of $3,500 Accounts payable of $4,300
Service revenue of $7,000 Prepaid rent of $1,500
Unearned revenue $4,000 Warranty liability $900
Allowance for bad debts 800 Rent Expense of $1,800.
Based on the above data, how much are its total liabilities?
- a) $6,800
- b) $9,800
- c) $10,800
- d) $14,700
2. Cash-basis accounting
a) results in a higher income being reported than accrual-basis accounting
b) results in a lower income being reported than accrual-basis accounting
c) leads to the reporting of more complete information than does accrual basis accounting
d) is not acceptable under generally accepted accounting principles
3. A firm received $6,000 in advance for services to be rendered later. The accountant debited Cash and credited Unearned Revenue for $6,000. At the end of the accounting period, $1,100 remains unearned. The end of period adjusting entry will be
a) debit unearned revenue and credit revenue for $4,900
b) debit unearned revenue and credit revenue for $1,100
c) debit revenue and credit unearned revenue for $4,900
d) debit revenue and credit unearned revenue for $1,100
4. The classification of assets and liabilities as current or long-term depends on
a) whether they appear on the balance sheet or the income statement
b) the relative liquidity of the items
c) the T-format or report format of the balance sheet
d) whether they are permanent or temporary accounts
5. Sales total $880,000, cost of goods sold is $420,000, selling expenses are $100,000, operating expenses are $220,000 and non-operating expenses are $30,000 and non-operating revenue $50,000. How much is net income?
a) $380,000
b) $280,000
c) $160,000
d) $30,0000
6. The closing entry for Purchase Discounts under the periodic inventory system is
a) Dr. Purchase Discounts & Cr. Retained Earnings (Income Summary)
b) Dr. Purchase Discounts & Cr. Inventory
c) Dr. Retained Earnings (Income Summary) & Cr. Purchase Discounts
d) Dr. Inventory & Cr. Purchase Discounts.
7) Which of the following bank reconciling items requires adjusting journal entries to the accounts of the company?
a) error in the books of the company
b) outstanding cheques
c) outstanding deposits
d) error in the bank statement
8. At 1 January 1999 the balance in the Allowance for Bad Debts account was $14,300. On 31 July 1999, $24,000 of accounts receivable was written off. On 28 August 1999, the company recovered $42,500 of accounts receivable previously written off. The aging of the accounts indicates that an allowance of $78,900 is needed for 1999. The bad debt expense for 1999 is
a) $18,500
b) $64,600
c) $74,700
d) $46,100
9. XYZ Ltd is a defendant in a lawsuit for damages of $55,000. On the balance sheet date, it appears highly likely that the Court will render a judgment against the company. How would XYZ report this event in its financial statements?
a) omits this item as no judgment has been rendered
b) discloses the item as a contingent liability in a note to the balance sheet
c) omits the item, as the amount is less than $100,000.
d) reports the loss in the income statement and a liability in the balance sheet
10. SCL Ltd sold an investment at a profit of $44,000. The investment account reports a beginning balance of $208,000 and an ending balance of $182,000. During the year, the company purchased new investments costing $62,000. What were the proceeds from the sale of investments?
a) $44,000
b) $88,000
c) $114,000
d) $132,000
11. Which of the following is not a contra account?
- a) Provision for warranty
- b) Provision for depreciation (Accumulated depreciation)
- c) Provision (Allowance) for bad debts
- d) None of the above
12. The aging of accounts receivable to determine the amount of doubtful debts
a) follows the matching principle closely
b) assumes that the likelihood of collection from a current debt is not as good as from a non-current debt
c) tends to give a better estimate of uncollectible accounts than other methods, as consideration is give to the collectibility of all accounts receivable
d) all of the above
13. The inventory costing method that closely matches current cost of goods sold with current revenue is
a) LIFO method
b) FIFO method
c) Weighted-average cost
d) All the above
14) Travel Ltd with a financial year-end of 31 December, purchased a motorcar on 1 July 1994 that costs $100,000. The estimated useful life of the motorcar at the time of acquisition was 10 years with an estimated residual value of $10,000. Travel Ltd sold the car on 30 June 2000 for $34,000. Determine the loss arising from the disposal assuming that depreciation is on a straight-line basis.
- a) Loss on disposal of $12,000
- b) Loss on disposal of $ 6,000
- c) Loss on disposal of $66,000
- d) Loss on disposal of $20,000
15. Under the revenue recognition principle, revenue is recognised
- a) at the earliest acceptable time
- b) at the latest acceptable time
- c) after it has been earned and collectibility is assured
- d) when there is no doubt at all with the collection of cash
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