4: Measuring and reporting financial performance

Question 1

Within accrual accounting, how is profit measured?

Answer 1

Income minus expenses

Question 2

Which statement is not correct?
A A loss is incurred when expenses > income
B A profit is earned when income > expenses
C A loss is incurred when income < expenses
D A profit is earned when income < expenses

Answer 2

D A profit is earned when income < expenses

Question 3

If equity at the beginning of the period is $170,000, profit for the period is $80,000 and $35,000 is withdrawn by the owner during the period, equity at the end of the period is:
A $135,000
B $215,000
C $250,000

Answer 3

B $215,000

Question 4

Which of the following would be a suitable format for the statement of financial performance for a medium size furniture store operation as a partnership?
A income - expenses = profit
B sales - cost of sales = gross profit - operating expenses = EBITDA
C income + expenses = profit
D sales - cost of sales = gross profit

Answer 4

B sales - cost of sales = gross profit - operating expenses = EBITDA

Question 5

Which of thsese are not alternative names for the same thing?
A Gross profit; profit
B Cost of sales; cost of goods sold
C Statement of comprehensive income; profit and loss statement; statement of financial performance
D None of the above, i.e., all are alternative names for the same thing

Answer 5

A Gross profit; profit

Question 6

Which statement about net profit is NOT true?
A Net profit increases owners equity
B Net profit is a maesure of achievement or productive effort
C Net profit normally represents the amount of cash generated from operations for the period
D none of the statmenets, i.e., all are true

Answer 6

C Net profit normally represents the amount of cash generated from operations for the period

Question 7

Under the accrual accounting approach, at which stage of the operating cycle would income be recognised by a timber yard from the sale of timber on credit?
A Money received from customer
B Goods delivered to customer
C Money banked by business
D Order received from customer

Answer 7

B Goods delivered to customer

Question 8

What are accrued expenses classified as in the statement of financial position?

Answer 8

Current liability

Question 9

Prepaid expenses are classified as what in the statement of financial position?

Answer 9

Current asset

Question 10

A forklift had a purchase price of $18,000, delivery costs of $2,000, a physical life of 6 years and a useful life of 4 years. Estimated residual value is zero. The annual depreciation charge using the straight-line method is:
A $1,667
B $5,000
C $2,500
D $3,000

Answer 10

B $5,000