FORM TP 2018127 test cove 02101010 MAY/UNE 2018 CARIBBEAN EXAMINATIONS COUNCIL CARIBBEAN ADVANCED PROFICIENCY EXAMINATION® ACCOUNTING Unit 1 - Paper 01 I hour 30 minutes 13 JUNE 2018 ( READ THE FOLLOWING INSTRUCTIONS CAREFULLY. This test consists of 45 items. You will have | hour and 30 minutes to answer them. In addition to this test booklet, you should have an answer sheet. Do not be concerned that the answer sheet provides spaces for more answers than there are items in this test. Each item in this test has four suggested answers lettered (A), (B), (C), (D). Read each item you are about to answer and choose the correct answer. On your answer sheet, find the number which corresponds to your item and shade the space having the same letter as the answer you have chosen. Look at the sample item below. ‘Sample Item ‘The cost of an asset consumed in the generation of revenue is treated in the books as ‘Sample Answer (A) again (B) a liability ®©®®@Oe@0 © anexpease (DB) anallowsnce “The best answer to this item is “an expense”, so (C) has been shaded. If you want to change your answer, erase it completely before you fill in your new choice. When you are told to begin, turn the page and work as quickly and as carefully as you can. If you cannot answer an item, go on to the next one. You may return to that item later. You may do any rough work in this booklet. You may use a silent, non-programmable calculator to answer items. DO NOT TURN THIS PAGE UNTIL YOU ARE TOLD TO DO SO. Copyright © 2017 Caribbean Examinations Counci1. On15 January 2017, R. Sammy’s advertising agency collected $6000 from cltents who were billed for jobs done in December 2016. Using the accrual basis of accounting, how should the accounts reflect the transactions on 15 January 2017? (A) Increase: Cash Decrease: Accounts receivables (B) Increase: Cash Incresse: Accounts receivables (©) __ Increase: Cash Increase: Service revenue (D) Increase: Service revenue Decrease: Fees earned 2. What would be the advantage (benefit) of Which of the following activities relate to having all countries adopt and follow the same accounting standards? (A) __ Elimination of theneed forexternal auditing (B) Absorbed preparation costs (©) Comparability (@) — Consistency 3. One of the major objectives of the International Financial Reporting Standards isto (A) ensure that all companies prepare financial statements (B) harmonize financial reporting among different countries (©) ___ insist that all accountants are registered with an international board (D) _ highlight the dysfunction between financial and management 02101010/CAPE 2018 the external auditor? 1 . ML. (A) (B) © @) Expresses an opinion to the shareholders Works independently of enspfoyees: but is dependent on management Conduets audits independentiy of company and management Land II only Land [1] only Mand III only 1, Mand 111 Internal controls are used in a business to A) () © ©) safeguard the business’ assets and enhance the accuracy and reliability of accounting records enhance the accuracy and reliability of the business’ accounting records, and prevent fraud ‘establish responsibility and conduct independent checks on employee performance produce correct financial statements and deter employee dishonesty GO ON TO THE NEXT PAGE6. 8 3. On 22 June 2015, DBG Ltd acquired the business of Singer Ine. for cash ata pri¢e of $14 500 000. The book value of the net assets at the tne of the transaction was $11-000 000, Independent appraisers valued Singer’s net assets at a fair market value of $13 000 000. What amount should DBG debit in the goodwill account? @ s 0 (B) S$ 200000 (©) $1500 000 (D) $3 500 000 Item 7 refers to the following informatien from the books of Orange Vale Inc. for the year ending 30 June 2015. Receipts from sales $286 120 Payments made to suppliers for goods $103 404 Payments made for operating expenses $ 23.615 Accrued operating expenses $ 7218 Depreciation expense $ 1200 ‘The net income for the year, using the cash basis of accounting, is (A) $150683 (B) $151 883 (©) $159107 (D) $254087 A corporation reacquited 5900 of its own shares at $4 per share. Which of the following entries would be included in the journal to record this transaction? Dr cr s s (A) Treasury Stock 20 000 Cash’ 20.000 (B) Share Capital 20.000 Cash 20.000 (©) Cash 20.000 Treasury Stock 20000 (D) Treasury Stock 20 000 Share Capital 20.000 GO ON TO THE NEXT PAGE,9. 10. Item 9 refers to the following information. The Belmopan Company began operations on 01 January 2015. The company has the following items included in the owners’ equity section of its balance sheet. Eight per cent preference shares at $100 par value, 25 000 shares issued and outstanding Ordinary shares at $3 par value, 50 000 shares issued and outstanding Share premium Total dividends declared and paid: During 2015 During 2016 $2500 000 $ 450.000 $2250 000 $ 170000 $ 210000 Assuming that the preference shares were non-cumulative, how much of the 2016 dividends would be distributed to the preference shareholders? (A) $ 2000 (B) $100 962 (©) $110 526 (D) 3200880, The newiy' formed comspany,gDaryl Inc, was bilied $8000 by by ft neys for organizational epstsT afigrneys agreed to accept 6000 = tsi par value common stock in full settlement of their bill. As a new company, shares of Daryl Inc. had no established market value. The amount to be credited to common stock in the books would be @ $0 (B) $2000 (©) $6000 @) $8000 02101G10/CAPE 2018 4. Wallace Auto Repairs follows the revenue recognition principle. The company services a car and prepares the invoice ‘on 31 March. The customer collects the car on 01 April and mails the payment to Wallace's Auto Repairs on 05 April. The business receives the cheque on 06 April. ‘On what date should Wallace Auto Repairs recognize the revenue? (A) 31 March (B) OL April (C) 05 April (@) 06 April GO ON TO THE NEXT PAGE12. 13. 14, 15. OPIN OIO/CAPR 2018. Bartlett and Co., a law firm, has accepted a fee of $30 000 to represent a client ina legal suit in the future. The transaction ‘would he recorded in the books of Bartlett and Co. as (A) accrued expense (B) accrued revenue (©) deferred expense (D) deferred revenue ‘The MAJOR impact of computerization ‘on financial accounting is increased (A) speed (B) access (©) security (D) employment Memo Inc.,a company with annual sales of $25 000000, purchased computer software for $550. This software was expected to be used for the nextten years. The accountant ‘of Memo Inc. recorded the software as an expense. Which of the following accounting concepts can be used to justify this treatment? (A) Prudence B) — Materiality «© Historical cost (D) Going concern The conceptual framework of accounting starts with a set of (A) principles for guiding accountants (B) assumptions about the accounting profession (C) objectives of financial reporting (D) conventions for recording financial information 16. 17. 18. Which of the following accounts would be entered in the liabilities section of the Balance Sheet (Statement of Financial Position)? 1. Accounts payable II. Notes payable II. Loans payable (A) Tand Il only (B) Land Itt only (© Mand ttt only () Mandir Item 17 refersto the following information, On 31 December 2014, a company’s equipment which cost $60 000 had accumulated depreciation of $12 000. On 31 December 2015, a piece of the ‘equipment with a net book value of $8000 was sold for $6000. ‘The company depreciates its assets using a 15% reducing balance method. On31 December after the sale, thenet book value of the company’s equipment was (A) $34.00 (B) $35.70 (©) $40 800 (D) $51 000 A partner who assumes unlimited liability for the debts of the partnership is referred toas (A) limited (B) mutual (©) active (D) general GO ON TO THE NEXT PAGE,19. 20. Item 19 refers to the following information. Share Capital Share Premium —_Retained Earnings s 8 $ Balance at 01 January 2015 25 000 0 188 697 By the end of 2015, $25 000 worth of shares were issued at a premium of $50 000; profits for the year were $61 800 and dividends paid $30 000, What would be the balances on the accounts at 31 December 2015? Share Capital Share Premium Retained Earnings s s s (A) 25.000 0 188 697, @) 50.000 50000 220.497 © — 50000 80 000 20.497 () 50.000 80000 250497 Which of the following is a feature ofa 21. Which of the following features are co-operative? disadvantages associated with a public ‘company? (A) Separation of ownership and control (B) Free transfer of shares 1. Itis externally regulated. (C) Unlimited liability Il. Ownership cannot be transferred. (D) Democratic control III. Investments are not refunded. (A) Land I only (B) Land Ilfonly (©) Mand it only (D) 1, Mand iit GO ON TO THE NEXT PAGE 02101010/CAPE 20187+ sms 22~23 refer tothe following informa- 25. tion. See-off Golf Club has a restaurant for its members. For the year just ended, the following data were reported. s ining balance of inventory 2.080 Ending balance of inventory 2345 Paid to creditors for inventory 38 620 ‘Owing to creditors 928 22. Cost of goods sold for the year was (A) $38355 (B) $38 620 (©) 839.280 (D) 839.545 26. 23, Therestauranthasamark-upof 20%. Sales, for the year amounted to (A) $46.026 (B) $46344 (©) $47 136 (D) $47484 27. 24. At the end of December 2015, Emily and Emile are partners I balances of capi $200 000 and $120 000 respectively. They share profit and losses in the ratio of 2:1. In January 2016, Kakum invests $100 000 for one-fifth interest in the new partnership. ‘The partners agree that goodwill will be recorded onthe date ofadmissionofKakum. The total goodwill after the admission of Kakum is (A) $ 80000 (B) — $ 90000 (Cc) $120.00 (D) $200 000 Apatner'sability tobindthe partnershipand ail the other partners into a contract when acting within the scope of the business is an example of (A) mutual ageney (B) limited liability (C) unlimited tiabitity (D) transfer of partnership interest Item 26 refers to the following data extracted from the books of XYZ Lid. s Operating income 21 850 Finance cost 7475 ‘Taxation expenses 5.750 Other comprehensive income Gains on property revaluation 20 000 What would be the total comprehensive income of XYZ Ltd? (A) $ 8625 (®) $ 28625 (©) $36 100 (@) = $ 41850 ‘The following steps are usually taken when ‘partnership is being liquidated. Distribution of remaining cash to partners I. Sale of non-cash assets for cash II, Payments to creditors IV. Allocation of gain or oss liquidation to partners’ capital In which of the following sequences of steps should the liquidation process take place? (1,1, MLIv @®) ILIV © IIVULI @) LIV GO ON TO THE NEXT PAGE,28, 29. Realto Co. Ltd issued 1500 ordinary shares with a par value of $1.50 for $4.00 each. The journal entry to record the transaction is Dr cr s $s (A) Cash 6 000 Ordinary Share Capital 2250 Share Premium 3.750 (B) Cash 2250 Share Premium 3750 ‘Ordinary Share Capital 6.000 (© Cash 6.000 Ordinary Share Capital 6.000 (D) Ordinary Share Capital ) Cash 6.000 On 01 January 2015, the Rampaul Item36) refers tothe following information. Company estimated that its income before taxes for the year ending 31 December The accounts of Jym Boys Sports 2015 would be $5 500000. The company’s Club showed the following balances on tax rate for the year is 42 per cent. The 31 December 2015. company made quarterly tax payments ‘on 30 April, 30 June, 30 September and Cashincband $3 600 15 December. The actual income for Bas perdraft $1 600 the year ended 31 December 2015 was Subgpeistion prepaid $ 900 $5 700 000. ‘The amount of income tax Bar stocks $4200 payable at 31 December 2015 was Subscription owing, $1 100 Sports equipment $9000 @ $ 0 (B) $84.00 (©) $100 000 30, Theclub’saccumulated fundon 01 January (D) $144.00 2016 will be 02101010/CAPE 2018 (A) $20 400 (B) $16 400 (©) $15 400 (D) $9200 GO ON TO THE NEXT PAGE,31. 32. 33. Which of ¢he Sallowing actions by a firm’s cost accouriat is unethical? (A) Applying historicai cost (B) Using FIFO to value ending inventory (© Using LIFO to value ending inventory (D) Pricing a product below cost to fight competition During periods of inflation or deflation, the historical cost model for financial reporting is deficient because the reports (A)... useriimerous estimates for revenue and expenses (B) ase published three years prior to the report date (©) recognize revenue and expenses before they are realized (D) add and subtract dollars with different purchasing power without adjusting for those differesoes ‘The Mangoes-by-tie ‘Sed pmpany hadnet credit sales of $8800 860.' Cost of goods sold totalled $6 600 000 for the year and theaverage inventory forthe yearamounted ‘to $2 640 000. What was the inventory turnover ratio for the year? (A) 2 times (B) 2.5 times (C) 3.3 times (D) 10 times 34, 35. 36, Which of the following items of informa- tion on issued share captial is a company required todiselose in financial statements? (A) Par valve’ (B) Market value (©) Names of shareholders (D) Number of shares held by employees ‘The change in cash for the year for a particular company is $4500. If cash flow from investing activities is $46 200 and cash flow from financing activities $34 400, what is the cash flow from operating activities? (A) (870 100) (B) ($76 100) (©) ($80 100) () ($85 100) Which of the following statements relating to the liquidation of a firm is FALSE? (A) A liquidator is appointed to sell all the assets and pay the debts. (B) The receiver recovers money ow- ing to the creditor who appointed him. (C)__ Ina liquidation the receiver repre- sents a secured creditor who has appointed him. (D) After the receiver recovers the money, he takes over manage- ment of the firm. GO ON TO THE NEXT PAGE,-10- 37. Which of the following statemesis sie true 40, Projeety and equijzment are classified in regarding information provided by financial the Balance Sheet as reporting? ages (A) current assets 1. It inagaases the value of the (B) owners’ equity cortipany. (C)__ intangible assets II, It is useful for making investment (D) _non-current assets and credit decisions. II. Itidentifies what is owned, what is ‘owed andthe ownership interest 41. Liquidity is determined by the use of the in the company. (A) acid-test ratio (A) Land I only (B) _camings per share ratio (B) Land Ill only (C)_ debt-to-equity ratio (C) Mand 111 only (D) _ investment turnover ratio (D) 1, Mand 1M 42, Which element of published financial Dominica ¢oiripany reported net income statements attempts o provide information of $45 006, riet sales of $650 000 and on a company’s social responsibility? average assets of $400 000, for2%:35,-What is Dominica Company's percesingy return (A) The auditor's report ‘on assets for 2015? (B) The director's report (C)__ The stock market report (A) 692 (D) Notes to the financial statements (B) 12s © 65.54 (D) 162.50 43. In the preparation of financial statements, accountants in practice must ensure that 39. ~ Which of the following item(s) of informa- (A)__ only timely information on the tion should NGF be disclosed in a summary reporting company is presented of significant aecounting policies? (B) the interest of management of the reporting company is preserved 1. Depreciation method (C) true and fair information on the Il. Minority interest claims reporting firm, is provided to IIL, Valuation basis followed decision-makers (D) the interest of the shareholders (A) Lonly of the reporting company is (B) — Monly preserved (©) Tand I only (D) Land Ill only GO ON TO THE NEXT PAGE. O2101010/CAPE 2018 ha“Me Item 44referstothe following information. 45. One MAJOR disadvantage of traditional financial statements is their emphasis on Dividend per share $0.50 Market price per share $ 15.00 (A) short-term profitability Net income $80 000 (B) —_fong-term growth Number of ordinary shares 30.000 (©) historical cost (D) relevance ‘What is the earnings per share (EPS)? (A) $0.03 (B) $0.50 (© $2.14 (D) $2.67 END OF TEST IF YOU FINISH BEFORE TIME IS CALLED, CHECK YOUR WORK ON THIS TEST. 02101010/CAPE 2018