Question

2. If a company uses the direct write off method of accounting for bad debts
   1. It will record bad debt expense only when an account is determined to be uncollected
   2. It will establish an estimate for the allowance for doubtful debts
   3. It will reduce the accounts receivable account at the end of the accounting period for uncollected accounts
   4. When an account is written off, total assets will stay the same.
   5. None of the above

3. Cost behaviour refers to:
   1. Manufacturing overheads
   2. Costs in a business that remain fixed when production volume increases
   3. How costs react to changes in production volume or other levels of activity
   4. Costs that stay the same per unit.
   5. Only costs that fall into the relevant range for a business.

4. What should a company do to improve its accounts receivable turnover ratio
   1. Give customers credit terms of 2/10, n/30 rather then 1/10, n/30
   2. Reduce the number of employees working in the credit department
   3. Increase its sales force
   4. Lower its selling prices
   5. None of the above

5. Which of the following effects on the accounting equation is not correct as a result of a journal entry?
   1. Decrease shareholders' equity and decrease an asset.
   2. Increase an asset and decrease an asset.
   3. Increase shareholders' equity and increase an asset.
   4. Increase an asset and decrease a liability.
   5. All of the above are not possible

6. Assume that in one accounting period liabilities increased by $8,000, assets increased by $55,000, and net profit was $29,000. The owner must therefore have:
   1. Contributed $18,000
   2. Received dividend $18,000
   3. Contributed $12,000
   4. Received dividend $12,000
   5. Cannot be calculated from the above limited information.

7. The Allowance for Bad Debts represents:
   1. Bad debt losses incurred in the current period
   2. The amount of uncollected accounts written off to date
   3. The difference between total sales made on credit and the amount collected from those credit sales
   4. The difference between the recorded value of accounts receivable and the net realisable value of accounts receivable****
   5. Fees paid to debt collection agencies

8. Two basic accounting principles determine when revenues and expenses are to be recorded under accrual basis accounting. They are:
   1. Cost and matching principles.
   2. Prudence principle.
   3. Relevance and reliability principles.
   4. Revenue recognition and matching principles.
   5. Revenue recognition and measurement principles.

9. On the last day of its financial year, Nelson Pty Ltd paid $2,150 cash for a one-year insurance policy. What is the appropriate journal entry ignoring GST, assuming the insurance policy becomes effective (starts) on the first day of the next financial year (i.e. the next day)?
   1. Unearned Insurance Revenue                 2,150

Cash 2,150

1. 2. Cash                                                     2,150

Prepaid Insurance    2,150

1. 3. Prepaid Insurance                                  2,150

Cash                                                          2,150

1. 4. Prepaid Insurance                                  2,150

Insurance Expense                                      2,150

1. 5. Cash                                                     2,150

Unearned Insurance Revenue                      2,150

10. Carin’s Corporation purchased inventory for $4,000. Due to an error in recording the journal entry for this transaction, the inventory account was debited for only $400 while accounts payable was credited for $4,000. During which phase of the accounting cycle would this error be discovered?
    1. Recording the transaction in the journal.
    2. Preparation of the financial statements.
    3. Analysis of each transaction.
    4. Preparation of the trial balance.
    5. Preparation of the consolidated analysis.

Answer 1

2)
Answer - a.
Under direct write off method of accounting for bad debts, there is no provision for uncollectible debts. Instead, write-off accounts receivables as and when the account is determined to be uncollectible.
3)
Answer - c - How costs react to changes in production volume or other levels of activity.
	It is relationship between total costs and activity levels.Cost are both fixed and variable.
	Fixed costs do not change with volume whereas variable costs change proportionately with volume.
4)
Answer - a -Give customers credit terms of 2/10, n/30 rather then 1/10, n/30
	Receivables turnover ratio= Credit sales/Average receivables
	When a company given more discount, receivables colletion will be more and the receivable balance will be less.
	By this accounts receivable turnover ratio will increase.
5)
Answer - d - Increase an asset and decrease a liability.
	When an asset increases, liability also increase
	Example: purchase of inventory on account
	Inventory	10,000
	Accounts payable		10,000
6)
Answer - a - Contributed $18,000
	Liabilities	$          8,000	Assets	$ 55,000
	Profit	$        29,000
	Capital contribute (Balancing figure)	$        18,000
		$        55,000		$ 55,000
7)
Answer - b - The amount of uncollected accounts written off to date
	This is a liability account where doubtful debts are recorded
8)
Answer - d - Revenue recognition and matching principles.
	Revenue should be recorded as and when it is earned, not when it is actually received.
	As per the matching principle, expenses should be recorded when the related revenue is recognized.
9)
Answer - c
	Prepaid insurance	2150
	Cash		2150
10)
Answer - d - Preparation of the trial balance
	While preparing a trial balance, total debits will not match with credits.