TEST 2
Q1- MCQs: (1 mark
each)
1. Which financial statement summarizes a company's revenues and expenses over a period of time?
A) Balance Sheet C) Income Statement
B) Cash Flow Statement D) Statement of Owner's Equity
2. A business purchased equipment worth $15,000 on credit. How should this transaction be recorded?
A) Debit Equipment, Credit Cash C) Debit Cash, Credit Equipment
B) Debit Equipment, Credit Accounts D) Debit Accounts Payable, Credit Equipment
Payable
3. Which of the following accounts is increased with a debit?
A) Liabilities B) Revenues C) Assets D) Owner’s Equity
4. A company has a debt of $50,000 and total assets of $200,000. What is the company's equity?
A) $150,000 B) $50,000 C) $200,000 D) $250,000
5. What is the purpose of a trial balance?
A) To prepare financial statements C) To calculate net income
B) To ensure that total debits equal total D) To track cash flow
credits
6. A company provided consulting services worth $2,500 on credit. Which of the following entries would
be made at the time of service?
A) Debit Cash $2,500, Credit Service C) Debit Service Revenue $2,500, Credit Cash $2,500
Revenue $2,500 D) Debit Service Revenue $2,500, Credit Accounts
B) Debit Accounts Receivable $2,500, Receivable $2
Credit Service Revenue $2,500
7. The principle that states that financial statements should reflect the economic reality of a business
rather than its legal form is known as:
A) Materiality Principle C) Going Concern Principle
B) Substance Over Form Principle D) Consistency Principle
8. Which accounting principle emphasizes that financial statements should be prepared under the same
methods from one period to another?
A) Revenue Recognition Principle C) Cost Principle
B) Matching Principle D) Consistency Principle
9. Jessica runs a small bakery. She sold cakes worth $1,200 on credit to a local café. Which book of prime
entry should she record this transaction in?
A) Cash Book B) Sales Journal C) Purchases Journal D) General Journal
10. A company received a payment of $2,000 from a customer who had previously purchased goods on
credit. Which book of prime entry would be appropriate for recording this transaction?
A) Cash Book B) Sales Journal C) General Journal D) Receipts Journal
11. Which of the following is NOT included in the current assets section of the SOFP?
A) Accounts Receivable B) Cash and Cash Equivalents C) Inventory D) Equipment
12. Which of the following actions could cause the trial balance to not balance?
A) Omitting a journal entry C) Double posting an entry
B) Recording a transaction in the wrong D) All of the above
account
13. A customer returned goods worth $200 that were purchased on credit. What entry should the seller
make to record this transaction?
A) Debit Sales Revenue $200, Credit C) Debit Inventory $200, Credit Sales Revenue $200
Accounts Receivable $200 D) Debit Sales Returns $200, Credit Accounts Receivable
B) Debit Accounts Payable $200, Credit $200
Inventory $200
14. If a company expects to receive a payment from a customer but is uncertain about the amount, what
does the prudence principle recommend?
A) Recognize the full amount as revenue. C) Do not record any revenue until the payment received.
B) Recognize the estimated amount only if D) Record the entire expected amount as an asset.
certain.
15. Which of the following is an example of a violation of the economic entity principle?
A) A corporation paying its employees' C) A business recording sales revenue from transactions.
salaries. D) A business maintaining separate bank accounts for
B) An owner using company funds to pay business and personal finances.
for personal expenses.
Q2- You are the bookkeeper for a small retail business. Post these transactions to the appropriate ledger accounts for
the month of January: (10 marks)
1. January 1: Owner invested $20,000 cash into the business.
2. January 3: Purchased office supplies for $500 on credit from Office Supplies Inc.
3. January 4: Paid $200 cash for office cleaning services.
4. January 5: Purchased a computer for $1,500 using cash.
5. January 6: Made a cash sale of $2,000.
6. January 7: Purchased $3,000 worth of inventory on credit from ABC Wholesalers.
7. January 9: Sold merchandise to a customer for $1,800 on credit.
8. January 10: Paid $500 cash for advertising services.
9. January 12: Collected $1,000 from a customer for a sale made on January 9.
10. January 13: Paid $2,500 cash to ABC Wholesalers for the inventory purchased on January 7.
11. January 15: The owner withdrew $1,000 cash for personal use.
12. January 17: Paid $300 cash for utilities.
13. January 18: Received a bill for $600 for internet services, to be paid later.
14. January 20: Sold merchandise for $1,500 cash.
15. January 22: Returned $200 worth of office supplies to Office Supplies Inc.
16. January 23: Paid $600 cash for the internet bill received on January 18.
17. January 25: Paid wages of $800 to employees in cash.
18. January 27: Sold merchandise for $900 on credit.
19. January 28: Collected $900 from the customer for the credit sale made on January 27.
20. January 30: Paid rent of $1,000 in cash for the month of January.
Q3- The following trial balance was extracted from the books of V Limited at 31 December 2023.
$ $
8% debentures (2029) 240,000
Administrative expenses 17,200
Bank loan 32,000
Bank loan interest 2,600
Carriage inwards 4,500
Carriage outwards 8,700
Cash and cash equivalents 8,200
Distribution costs 30,700
Dividends paid 37,500
Furniture and equipment at carrying value, 1 January 2023 956,000
Inventory at 1 January 2023 47,800
Property at valuation 980,000
Purchases 522,000
Rental income 13,300
Retained earnings 174,000
Returns 5,100
Revenue 997,100
Share capital: 4 000000 ordinary shares of $0.25 each 1,000,000
Share premium 215,000
Trade payables 57,800
Trade receivables 47,900
Wages: office staff 49,300
Wages: sales staff 38,300
2,742,500 2,742,500
The following information is also available:
1. At 31 December 2023 inventory was valued at $49500.
2. Distribution costs include a prepayment of $6000.
3. At 31 December 2023, rental income of $3000 had been received in advance.
4. Provision should be made for depreciation of furniture and equipment at 20% per annum
using the reducing balance method.
Depreciation charges should be allocated: 60% administrative expenses; 40% distribution
costs.
5. At 31 December 2023, office wages of $5800 were due but unpaid.
6. The debentures had been issued on 1 October 2023. The first interest payment is due on
31 March 2024.
7. Tax for the year ended 31 December 2023 is estimated to be $27900
Prepare a statement of profit or loss for the year ended 31-dec-2023. Show your workings.
(14 marks)
Q4- Nadiya maintains control accounts as part of the double-entry system of her business. The
purchases ledger and sales ledger contain memorandum accounts only.
(a) State three benefits of maintaining control accounts. (3 marks)
Additional information:
On 31 March 2024 Nadiya found that the closing balance of the control accounts did not agree
with the totals of the individual account balances in the purchases and sales ledgers.
$
Purchases ledger control account balance 28540
Total of trade payables in purchases ledger 31790
Sales ledger control account balance 35790
Total of trade receivables in sales ledger 36410
Nadiya discovered the following errors which accounted for the differences:
1. A credit note issued by Nadiya for $490 had been entirely overlooked.
2. The total of the purchases journal had been understated by $3250.
3. A cheque for $380 received from a credit customer had been dishonoured by the bank.
This had been incorrectly recorded on the debit side of the cash book but had been posted
correctly to the ledger account.
4. An error of original entry had occurred when a purchases invoice for $4650 had been recorded
as $5640.
5. Interest of $70 charged on an overdue customer’s account had been credited to the
customer’s account.
(b) complete the following statements to correct the accounting records of trade payables: (4 marks)
(c) complete the following statements to correct the accounting records of trade receivables: (6 marks)
(d) Explain why contra entries may be made in control accounts. (2 marks)
Q5- Laila, a retailer, did not maintain a full set of accounting records for her business. She has provided the following
information for the year ended 30 September 2023.
Balances at 1 October 2022: $
Inventory 12 030
Non-current assets at carrying value 22 180
Other payables: light and heat 210
Other receivables: insurance 480
Trade payables 3 840
Trade receivables 4 540
The following information is also available at 30 September 2023:
1 Laila has started to prepare her financial statements for the year ended 30 September 2023.
The following figures are available to transfer to the statement of profit or loss with no
adjustment.
$
Insurance 2720
Light and heat 3880
Loss on disposal of non-current asset 120
2 All sales are made at a mark-up of 25%.
3 All sales and purchases are made on credit.
4 The balance of trade receivables at 30 September 2023 was $3650.
5 There were no additions to non-current assets during the year.
6 All non-current assets are to be depreciated at 10% per annum using the reducing balance
method.
7 Laila was unable to physically count the inventory at 30 September 2023. The inventory was
valued at $14400 on 4 October 2023.
8 Between 1 October 2023 and 4 October 2023, Sales were $3400 and Purchases were $1850.
(a) Calculate the value of closing inventory at 30 September 2023. (3
marks)
(b) Prepare the statement of profit or loss for the year ended 30 September 2023. show your workings. (8 marks)
(c) Prepare the statement of financial position at 30 September 2023. Show your workings. (12 marks)
Q6- K Limited provided the following extract from the company’s draft statement of profit or loss for the
year ended 31 December 2023.
$
Revenue 870
500
Cost of sales (493
000)
Gross profit 377
500
It has now been discovered that adjustments are required for the following:
1 Opening inventory at 1 January 2023 had been understated by $14000.
2 Sales returns, $8600, had been deducted from purchases.
3 Closing inventory at 31 December 2023 included 40 damaged items costing $30 each. It is
estimated that after repairs, costing a total of $420, the items could be sold for $38 each.
(a) Explain the accounting concept which is applied to the valuation of damaged inventory. (2 marks)
(b) Calculate the revised gross profit for the year ended 31 December 2023. (5
marks)
Q7-Prepare a trial balance as at 31 December 2024 from the following balances extracted from the books of XYZ
Traders: (16 marks)
1. Cash at Bank: £5,000
2. Cash in Hand: £1,200
3. Purchases: £20,000
4. Sales Revenue: £40,000
5. Inventory: £10,000
6. Trade Receivables: £8,500
7. Trade Payables: £4,000
8. Motor Vehicles: £12,000
9. Accumulated Depreciation - Motor Vehicles: £2,000
10. Furniture and Fixtures: £6,000
11. Accumulated Depreciation - Furniture and Fixtures: £500
12. Wages and Salaries: £9,000
13. Rent and Rates: £3,000
14. Insurance Expense: £1,500
15. Capital: £32,000
16. Drawings: £2,300
