Test Bank Docx Chapter 18

Chapter 18

Test Bank

Type: true-false

Title: Chapter 18 Question 01

1) Skip buys equipment second hand for £20,000 when it would have cost him £28,000 if he had bought new equipment.

Skip should record the equipment in the financial statements at the amount of £20,000.

a. True

b. False

Type: true-false

Title: Chapter 18 Question 02

2) Skip bought a fridge for the amount of £300 for his business use. Skip should include the fridge at a cost of £300 in the financial statements.

a. True

b. False

Type: true-false

Title: Chapter 18 Question 03

3) Skip has a year-end of 30 June 2021. He has paid telephone line rental of £60 for the period from 1 July 2021 to 31 August 2021. Skip should record a prepayment of £60 in his financial statements.

a. True

b. False

Type: true-false

Title: Chapter 18 Question 04

4) Skip has been informed that one of the trade receivables, Chelsea Freight, has ceased trading and is unlikely to pay any of its business debts. Chelsea Freight owes the business £2,000 and this amount should not be written off as a bad debt in line with the prudence concept.

a. True

b. False

Type: true-false

Title: Chapter 18 Question 05

5) Skip employs a member of staff who has experience of debt collection. Skip should record the member of staff as a liability in the business’s financial statements.

a. True

b. False

Type: true-false

Title: Chapter 18 Question 06

6) Included in the telephone rentals account at 31 December 2021, Rick had included business telephone rental of £150 paid in advance for 2022.

The double entry for this should be

Increase an asset a/c= DEBIT EXPENSE A/C £150

Decrease an expense a/c CREDIT PREPAYMENT A/C £150

Increase an asset a/c= DEBIT PREPAYMENT A/C £150

Decrease an expense a/c CREDIT EXPENSE A/C £150

a. True

b. False

Type: true-false

Title: Chapter 18 Question 07

7) Rick rented an office for the business for £6,000 per annum from 1 January 2021 and pays the rental quarterly in arrears. One quarter’s rent was owing at the year end.

The double entry for this should be

decrease liability a/c = DEBIT OFFICE RENTAL A/C £1,500

decrease expense a/c = CREDIT ACCRUALs A/C £1,500

Increase expense a/c = DEBIT OFFICE RENTAL A/C £1,500

Increase liability a/c = CREDIT ACCRUALS A/C £1,500

a. True

b. False

Type: true-false

Title: Chapter 18 Question 08

8) Rick bought a kettle for his own personal use costing £80 on 31 December 2021 using his own bank account.

For this transaction, the kettle would not be recorded as it is not a business transaction.

a. True

b. False

Type: true-false

Title: Chapter 18 Question 09

9) Rick bought a car for use in the company costing £5,000 on 31 December 2021. He took out a business loan for this on 31 December 2021.

The double entry for the purchase of van is:

Increase the expense a/c = DEBIT LOAN ACCOUNT A/C £5,000

Increase liability a/c = CREDIT MOTOR VEHICLES A/C £5,000

Increase the asset a/c = DEBIT MOTOR VEHICLES A/C £10,000

Increase liability a/c = CREDIT LOAN A/C £10,000

a. True

b. False

Type: true-false

Title: Chapter 18 Question 10

10) Rick took out a business loan on 30 October 2022. The loan attracts interest at the rate of 10% per annum, payable 6 monthly in arrears. If the business year end is 31 December 2022, then 2 months interest should be recorded as income in the statement of profit or loss.

a. True

b. False