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level: Level 1 of Exam 3

Questions and Answers List

level questions: Level 1 of Exam 3

Question	Answer
Which of the following statements gives the best definition of the objective of accounting? Select one alternative: A To calculate the dividend to pay the shareholders B To provide useful information for stakeholders C To calculate how much cash flows into an organization D To calculate the tax due to the government	B To provide useful information for stakeholders
Which of the following would be classified as internal users of financial statements? Select one alternative: A The creditors and the shareholders of the company B Shareholders and management of the company C The company's marketing managers D The accountant of the company and the company's shareholders	B Shareholders and management of the company
Which of the following may be classified as an intangible non-current asset? Select one alternative: A Goodwill B Prepaid rent C Trade receivables D Land	A Goodwill
Which of the following is not an asset? Select one alternative: A Accrued wages B Trade receivables C Inventory D Prepaid rent	D Prepaid rent*
Owner's capital is: Select one alternative: A Current assets plus current liabilities. B Total assets minus total liabilities. C Opening capital plus net profit plus trade payables. D Opening capital plus drawings minus net profit.	D Opening capital plus drawings minus net profit.
When a business pays its electricity bill by direct debit, the journal entry is: Select one alternative: A Debit: Bank account; Credit: Heat and Light account. B Debit: Cash account; Credit: Heat and Light account C Debit: Heat and Light account; Credit: Cash account. D Debit: Heat and Light account; Credit: Bank account	C Debit: Heat and Light account; Credit: Cash account.
When a business purchases goods on credit, the journal entry is: Select one alternative: A Debit: Purchases account; Credit: Trade receivables account B Debit: Purchases account; Credit: Trade payables account C Debit: Trade payables account; Credit: Purchases account D Debit: Purchases account; Credit: Bank account	C Debit: Trade payables account; Credit: Purchases account
What is "carriage outwards" ? Select one alternative: A Cost of transporting goods into a business B Goods returned by a business to its suppliers C Goods returned to a business by its customers D Cost of transporting goods to the customers of a business	D Cost of transporting goods to the customers of a business
What is "Return Inwards" ? Select one alternative: A Goods returned to a business by its customers B Cost of transporting goods to the customers of a business C Cost of transporting goods into a business D Goods returned by a business to its suppliers	A Goods returned to a business by its customers
Which of the following are correct? Transaction: Debit: / Credit: (1) Paid for advertising by cheque- Advertising / Bank (2) Sold van for cash (the company's normal operations does not involve selling of vans)- Cash / Sales (3) Owner withdrew cash for personal use- Cash / Drawings (4) Paid for rent by direct debit- Rent / Bank Select one alternative: A (1) and (3) only B (2) and (3) only C (1) and (2) only D (1) and (4) only	B (2) and (3) only
The main purpose of a Trial Balance is to: Select one alternative: A Help balance the bank account B Help check the accuracy of the double entry C Check the accuracy of the books of original entry D Help check the bank account with the bank statement	B Help check the accuracy of the double entry
Which of the following is NOT true about Gross Profit? Select one alternative: A Gross Profit is Sales minus Cost of Goods Sold B Gross Profit is found in the Balance Sheet C Gross profit is Net profit plus Expenses D Gross profit is part of the Trading account	B Gross Profit is found in the Balance Sheet
In accounting, the term "purchases" means : Select one alternative: A Only goods bought and paid for B Only goods bought for resale C All items bought D Only goods bought on credit	C All items bought
Which of the following statements is correct in relation to limited liability companies? Select one alternative: A Companies are owned by their shareholders but managed by their directors B Companies are owned by their shareholders but managed by their auditors C Companies are owned by their directors and managed by their shareholders D Companies are owned by their auditors but managed by their directors	A Companies are owned by their shareholders but managed by their directors
Which of the following is an advantage of a limited liability company over that of a sole trader business? Select one alternative: A A sole-trader has limited liability for the business’ debts B Dividends can be paid from sole-trader businesses but not from limited liability companies. C Shareholders liabilities for the company’s debts are limited to the amount invested in the shares D A sole-trader business has an unlimited life while a limited liability company does not	C Shareholders liabilities for the company’s debts are limited to the amount invested in the shares
A characteristic of ordinary shares is that: Select one alternative: A The ordinary shareholders are the last to be paid if the company goes bankrupt B The dividend rate is usually fixed C They do not carry voting rights D They have a right to receive a dividend before any preference dividend	A The ordinary shareholders are the last to be paid if the company goes bankrupt
reference shareholders will generally be entitled to: Select one alternative: A vote at the annual general meeting B A fixed dividend that is paid before dividends to ordinary shareholders C whatever is left in a company going through bankruptcy after the ordinary shareholders have been paid D A share of any ordinary dividends declared by the company	B A fixed dividend that is paid before dividends to ordinary shareholders
What are authorised shares? Select one alternative: A The number of shares in the hands of the shareholders. B the total par value of shares that has actually been sold to shareholders C the total par value of shares that has actually been paid by the shareholders D The number of shares a company is allowed to sell.	D The number of shares a company is allowed to sell.
What is "Share premium" ? Select one alternative: A Profits shared with shareholders B the excess of the issue price of a share above its par value C the actual number of shares in the hands of shareholders D Interest paid to debenture holders	B the excess of the issue price of a share above its par value
Which of the following is true about "interim dividend" ? Select one alternative: A it is paid after the end of the accounting year when the profit for the year is known. B it is paid halfway through the accounting year when the profit for the first six months is known. C it is always paid after a final dividend is paid. D it is a flexible payment to be made to only preference shareholders	B it is paid halfway through the accounting year when the profit for the first six months is
A Statement of Cash Flows gives users an indication of: Select one alternative: A the financial performance of the company. B the strategic management of the company. C the financial position of the company. D the financial adaptability of the company.	D) the financial adaptability of the company.
Which of the following is not a source of funds for a company? Select one alternative: A A decrease in current liabilities B A decrease in trade receivables C Increase in loan balances D The sale of a motor vehicle	B A decrease in trade receivables
Which of the following would be classified as an operating activity on a Statement of Cash Flows? Select one alternative: A Purchase of inventory B Purchase of a building C Issue of shares D Repayment of loan	A Purchase of inventory
Using the following information, calculate the cash flow from investing activities: Sold off a non-current asset for cash £9 000 Purchased a machine for cash £11 000 Paid off loan for £3 000 Paid dividends to shareholders for £20 000 Select one alternative: A (2 000) B (25 000) C (5 000) D 2 000	A (2 000)