Question 1

Knickerbocker Corp. issued $20 million of long-term debt in the current year. What is a major advantage to Knickerbocker with the debt issuance?

Options :

A : The reduced earnings per share possible through financial leverage.

B : The relatively low after-tax cost due to the interest deduction.

C : The increased financial risk resulting from the use of the debt.

D : The reduction of the shareholders' control over the company.

Answer: B

Question 2

Gareth, a sales tax registered trader purchased a computer for use in his business. The invoice for the computer showed the following costs related to the purchase: $ Computer 890 Additional memory 95 Delivery 10 Installation 20 Maintenance (1 year) 25 –––––– 1,040 Sales tax (17·5%) 182 –––––– Total 1,222 –––––– How much should Gareth capitalise as a non-current asset in relation to the purchase?

Options :

A : $1,193

B : $1,040

C : $1,222

D : $1,015

Answer: D

Question 3

At 30 June 20X5 a company’s allowance for receivables was $39,000. At 30 June 20X6 trade receivables totalled $517,000. It was decided to write off debts totalling $37,000 and to adjust the allowance for receivables to the equivalent of 5% of the trade receivables based on past events. What figure should appear in the statement of profit or loss for the year ended 30 June 20X6 for receivables expense?

Options :

A : $61,000

B : $52,000

C : $22,000

D : $37,000

Answer: C

Question 4

Prior to the financial year end of 31 July 20X9, Cannon Co has received a claim of $100,000 from a supplier for providing poor quality goods which have damaged the supplier’s plant and equipment. Cannon Co’s lawyers have stated that there is a 20% chance that Cannon will successfully defend the claim. Which of the following is the correct accounting treatment for the claim in the financial statements for the year ended 31 July 20X9?

Options :

A : Cannon should neither provide for nor disclose the claim

B : Cannon should disclose a contingent liability of $100,000

C : Cannon should provide for the expected cost of the claim of $100,000

D : Cannon should provide for an expected cost of $20,000

Answer: C

Question 5

Drillfast is a drilling corporation with operations at oil rigs around the world. For the 2014 annual report, which business segment should be reported as an operating segment?

Options :

A : South American segment, which contributes 8% of total revenues, 5% of profits and accounts for 9% of assets. South American operating manager reports to the chief operating officer.

B : African segment, which contributes 9% of the company’s assets, 16% of total revenues, and 18% of profits. The African operating manager reports to the British operating manager.

C : Australian segment, which contributes 10% of total revenues, 2% of assets, and 4% of profits. The Australian manager reports to the chief operating officer.

D : Texas based corporate headquarters

Answer: C

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