Saturday, 11 May 2019

Financial Accounting MCQs /page 5

35.    When Fixed Assets are sold
(a)  The Total Assets will increase
(b)  The Total Liabilities will increase
(c)  The Total Assets will decrease
(d)  There is no change in the Total Assets
[Hints: (d) When fixed assets are sold for book value, there will be no change in the total assets.]

36.    Withdrawal of goods from stock by the owner of the business for personal use should be recorded by
(a Debiting Stock Account and crediting Capital Account
(b Debiting Capital Account and crediting Drawings Account (c Debiting Drawings Account and Crediting Stock Account (d Debiting Stock Account and Crediting Drawings Account
[Hints:  (c)  Withdrawal  of  goods  from  stock  by  the  owner  of  the  business  for personal use should be recorded by debiting Drawings Account and crediting Stock Account]
37.    Which of the following transactions would cause a change in “owners' equity”?
(a Repayment of a Bank Loan
(b Payment of Dividends and Unprofitable Operations
(c)  Sale of Land on Credit
(d Purchase of Assets and incurrence of Liabilities [Hints: (b) Accounting Equation is
Assets = Liabilities+ Owners' equity.
Repayment of bank loan results in reduction in both assets and a liability with the same amount and hence does not affect owners' equity.
Owners equity is directly increased by introduction of further capital or incurrence of profits, similarly a dividend payment and an operating loss reduces the owners' equity. Hence option (b) results in change in the owners' equity.
Sale of land on credit results in decrease in fixed assets (on the left side of the equation) and increase in current assets (i.e., debtors), as a result the owners' equity is not affected. Hence option (c ) results in no change in owners' equity.
Purchase of assets and incurrence of liabilities results in increase in assets and increase in liabilities, hence does not result in change in owners' equity.
So option (b) is the right option.]

38.    Withdrawals by proprietor would
(a Reduce both Assets and Owner's Equity
(b Reduce Assets and increase Liabilities
(c Reduce Owner's Equity and increase Liabilities
(d Have no affect on the Balance Sheet
[Hints:  (a)  Withdrawals  by  proprietor  would  reduce  both  assets  and  owner's


39.    Which of the following is true?
(a)  The payment of a Liability causes an increase in Owner's Equity
(b)  The collection of an Account Receivable will cause Total Assets to increase
(c)  The accounting equation may be stated as: Assets+Liabilities = Owners' equity
(d)  The purchase of an asset such as office equipment, either for cash or on credit, does not change the Owners' Equity
[Hints: (d) The purchase of an asset such as office equipment, either for cash or on
credit does not result in any change in the owner's equity as decrease in one asset is compensated by increase in the other asset.]

40.    Which of the following statements is/are true?
(i)    Cash Book records all cash receipts and cash payments
(ii)   Cash Book records all sale and purchase transactions of goods both in cash and on credit
(iii)  Cash Book records discount on Cash Payments
(a)  Only (i) above (b)  Only (ii) above (c Only (iii) above
(d Both (i) and (iii) above
[Hints: (d) A cash book records only cash transactions and a three-columnar cash book also records bank and discount transactions. A cash book does not record the credit transactions]

41.    Trade discount allowed at the time of Sale of goods.
(a Is recorded in Sales Book
(b Is recorded in Cash Book
(c Is recorded in Journal
(d Is not recorded in Books of Accounts
[Hints: (d) Trade discount is offered to customers at fixed percentage of list price to promote sales, it is generally based on the quantity of goods purchased. No entry is made for trade discount in accounting records. Only it is recorded in the invoice and sale and purchase transactions are recorded at net invoice price (list price less trade discount).]

42.    The Periodical total of the Sales Return Book is posted to the
(a Debit of Sales Account
(b Debit of Sales Return Account (c Credit of Sales Return Account (d Debit of Debtors Account
[Hints: (b) Sales Account is a credit balance and therefore Sales Returns Account is a debit balance and the total of Sales Returns Book will be posted to the debit side of the Sales Return Account.]

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