Examination 1 A/Answers Chapters 1–8 1. (a) Accounting standards

advertisement
Examination 1 A/Answers
Chapters 1–8
1. (a) Accounting standards are the principles, rules, and guidelines followed when preparing and
presenting accounting information.
(b) Cost principle is the accounting principle which states that assets are shown on the balance
sheet using the cost of their acquisition or construction.
(c) Accounting period is the period of time covered by the financial statements.
(d) Double-entry accounting means that for every debit amount entered in the journal there must
be an equal credit amount.
(e) Matching principle is the accounting principle that states that the costs recorded in the
expense accounts should be matched with the revenue of the same accounting period to
determine net income.
(f) Source document is any business form that is the original source of information.
(g) Chart of accounts is a list of the names and numbers of all the accounts in the ledger.
(h) Transposition error is an error that results from reversing the order of digits in a number.
(i) Depreciation is the allocation of the cost of an asset to the fiscal periods in which it
is used.
(j) Perpetual inventory is a continuous record of all merchandise on hand.
2. (a) A business transaction is an exchange of items of value.
(b) Asset accounts increase on the left (debit) side and decrease on the right (credit) side.
(c) Expense accounts increase on the left (debit) side.
(d) The owner’s Capital account normally has a credit balance.
(e) The source document for a sale on account is the sales invoice.
(f) A customer buys $120 worth of merchandise for cash and, in addition, is charged
13 percent HST. The amount of the HST is $15.60, and the total cash paid by the customer is
$135.60.
(g) The Cash account is debited for $135.60, the HST Payable account is credited for $15.60, and
the Sales account is credited for $120.00 by the seller.
(h) Your company received an invoice dated December 2 for $699 plus $90.87 HST. The terms
were 2/10, n/30. To receive the discount, your company must pay the invoice so that the
vendor receives payment by December 12. If payment is received by
December 11, the discount will be $15.80 and the payment amount will be $774.07.
(i) In the periodic inventory system, the Purchases account is debited when merchandise
is purchased.
(j) In the perpetual inventory system, the Merchandise Inventory account is debited when
merchandise is purchased.
(k) The Accumulated Depreciation account is credited when recording depreciation
on equipment.
Copyright © 2013 Pearson Canada Inc.
This page may have been modified from its original.
1
Examination 1 A/Answers
Chapters 1–8
3.
Copyright © 2013 Pearson Canada Inc.
This page may have been modified from its original.
2
Examination 1 A/Answers
Copyright © 2013 Pearson Canada Inc.
Chapters 1–8
This page may have been modified from its original.
3
Examination 1 A/Answers
Chapters 1–8
4.
Hayward Sales
Schedule of Cost of Goods Sold
For the month ended August 31, 20-Merchandise Inventory August 1
Add: Purchases
Less: Purchases Returns & Allowances
Purchases Discounts
Net Purchases
Add: Transportation-in
Cost of Merchandise Purchased
Cost of Merchandise Available for Sale
Less: Merchandise Inventory August 31
Cost of Goods Sold
$157 000
$268 000
$7 000
9 000
16 000
252 000
7 500
259 500
416 500
315 395
$101 105
5.
Copyright © 2013 Pearson Canada Inc.
This page may have been modified from its original.
4
1.
Description
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Principle/Standard
The definition and consistent use of the same time period for
each accounting period is required.
Each business is considered to be a separate unit or entity,
and, for the purpose of accounting, the financial data for a
business must be kept separate from the owner’s personal
data. Each business owned by a person must have its own
accounting records.
Accounting records should be based on the objective
evidence provided by source documents to support the
values used in recording transactions.
Assets are listed on the balance sheet at their cost of
acquisition.
Assets are listed on the balance sheet at their fair value.
Revenue is recognized and recorded when it is earned.
Where there are acceptable alternatives, the accountant must
select the one that will result in lower net income and net
assets.
The same methods and accounting procedures should be
used each accounting period.
Expenses for an accounting period should be matched with
the revenue generated during the same period.
All information that could affect the decisions of users of
financial statements must be included when financial
statements are prepared.
3. (a) current ratio:
2:1
(b) quick ratio:
1:1
(c) equity ratio:
40%
(d) working capital:
(e) debt ratio:
Time-period principle
Business entity principle
Principle of objectivity
Cost principle
Fair value principle
Revenue recognition
principle
Principle of conservatism
Consistency principle
Matching principle
Principle of materiality
$125 000
60%
(f) Answer will vary, but should include information such as the following. Based on this
information, I would grant the loan. Reasons: The current ratio and the quick ratio are
favourable and indicate that the company can pay its debts. It has substantial working capital.
The debt and equity ratios are reasonable.
However, I would like to see the balance sheets for several other years to see if any trends are
developing and I would like to see income statements to see the trends in revenue, expenses,
and profit.
Copyright © 2013 Pearson Canada Inc.
This page may have been modified from its original.
5
Copyright © 2013 Pearson Canada Inc.
This page may have been modified from its original.
6
Download