Question

13. The primary basis for the classification of assets in the (balance sheet) statement of financial position) is:
    1. Alphabetical
    2. Profitability
    3. Risk
    4. Size
    5. Liquidity

14. The books of Fiona Corporation provided the following information:

Beginning balances: Accounts receivable	$    50 000
Allowances for doubtful accounts (a credit)	3 000
Transactions during the year: Sales revenue (of which 1/2 were on credit)	3 000 000
Collections on accounts receivable	980 000
Accounts written off as uncollectible	4 000

Past collection experience has indicated that 1% of credit sales normally are not collected. Therefore, an adjusting entry for bad debt expense should be made in the amount of:

a. $47,000

b. $20,000

c $15 000

d. $7,000

e. $1500

15. Which of the following statements is CORRECT?
    1. Accounting data produced in different accounting periods is still comparable if indiscriminate changes in accounting method are permitted.
    2. Consistency becomes an important consideration when alternative accounting methods are considered acceptable in a given situation.
    3. Consistency completely rules out switching to an alternative acceptable method.
    4. Once an inventory costing method has been selected, managements can indiscriminately switch to another.
    5. All of the abov

16. Which principle may conflict with the guidance provided by the relevance principle in the preparation of the financial statements?
    1. Matching principle
    2. Entity principle
    3. Valuation principle
    4. Reliability principle
    5. None of the above

17. The purpose of an independent external audit of financial statements is to:
    1. Predict future financial performance and expected returns.
    2. Decide on the final numbers to report in financial statements.
    3. Ensure a business is compliant with tax obligations.
    4. Verify financial statements are compliant
    5. Analyse current worth of business

Answer 1

13) Option E (On the basis of liquidity)

14) Option C (15000. Out of 3,000,000, only half of sales are on credit. Thus bad debt allowance should be 1,500,000*0.01)

15) Option B (Consistency becomes an important consideration when alternative accounting methods are considered acceptable in a given situation.)

16) Option D (Reliability principle may conflict with relevance principle)

17) Option D (Verify financial statements are compliant)