Financial Statements 2 Test 8

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Financial Statements 2 Test 8

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Weekly Quiz Competition

Question 1
1 / -0

'Interest earned but not received' should be classified as _____________.

A
Accrued asset

B
Accrued liability

C
Prepaid expense

D
Unearned revenue

Solution

Interest that is due to the company at the end of the accounting period but not yet received is classified as accrued interest receivable.
To make the adjusting journal entry, debit the current assets account and credit income received on the income statement with the accrued amount due.
Question 2
1 / -0

Outstanding and prepaid expenses and incomes are taken into account in determining profit or loss under _________________.

A
Cash system of accounting.

B
Mercantile system of accounting.

C
Both (A) and (B).

D
None of the above.

Solution

Accrual system of Accounting is also known as the mercantile system of accounting wherein the transactions are recognized and recorded as and when they take place.
Under the accrual accounting method, the revenue is recorded when it is actually earned, and the expenses are reported when they are incurred.
Hence,Outstanding and prepaid expenses and incomes are taken into account in determining profit or loss under mercantile /Accrual system of accounting.
Question 3
1 / -0

Accounting entry for Manager's Commission (outstanding) on net profits will be made as _______________.

A
Outstanding Manager's Commission A/c To Commission A/c

B
Outstanding Manager's Commission A/c To Profit and Loss A/c

C
Profit and Loss A/c To Outstanding Manager's Commission A/c

D
None of the above

Solution

Outstanding expenses are those expenses which are due but not paid. At the end of the financial year, an adjustment entry need to be passed in books of account by debiting the respective expenses account and crediting the outstanding expenses account.

In case of outstanding Manager's commission, the accounting entry will be as under:

Profit & Loss A/c Dr. (To be shown in debit of P&L)
To Outstanding Manager's Commission (To be shown as liability)
Question 4
1 / -0

The works manager gets commission of 10% on the profit after charging such commission. If the profit is Rs.2,200 what is the amount of his commission ?

A
Rs.220

B
Rs.200

C
Rs.240

D
Rs.244.44

Solution

Commission payable = 10% on Net Profit (after charging the commission)
If Net Profit is Rs. 100, Commission payable = Rs. 10
Thus profit before charging the commission = 100 + 10 = 110
Of Rs. 110, Rs. 10 is commission payable and the balance Rs. 110- Rs. 10 = Rs. 100 is the profit, left after charging the commission.
Here Rs. 2.200 is equal to 110%
Therefore 10% = 2,200/110 x 10 =Rs. 200
Question 5
1 / -0

'Subscriptions collected in advance by a publisher' should be classified as _________________.

A
Accrued asset

B
Accrues liability

C
Unearned revenue

D
Prepaid expense

Solution

Deferred revenue is common with subscription-based products or services that require prepayments. Examples of unearned revenue are rent payments received in advance, prepayment received for newspaper subscriptions, annual prepayment received for the use of software, and prepaid insurance.
Question 6
1 / -0

Net Profit of business before charging commission is Rs 110,000 and manager is entitled to get commission of net profit before charging commission 10% p.a. , the commission will be calculated as Rs. _________.

A
11,000

B
12,000

C
13,000

D
10,500

Solution

Commission on net profit before charging such commission
= 1,10,000 X 10 / 100
= 11,000.
Question 7
1 / -0

Opening capital Rs. 100000 and additional capital on 1st Oct was Rs. 20000
Interest on capital @ 10% on 31st march closing will be ?

A
5,000

B
8,000

C
11,000

D
None of these.

Solution

Interest on capital = 100000 * 10 / 100
= 10000
Additional Capital Introduced on 1st Oct = 20000 * 10 / 100 * 6 / 12
= 1000
Total = 10000 + 1000
= 11000
Question 8
1 / -0

Interest on capital is ______ for a business concern.

A
Expense

B
Income

C
Asset

D
Liability

Solution

Interest on capital is a charge on the profits of a firm and it is debited to the P&L account to recognise as an expense (and a charge on the profits).
Question 9
1 / -0

Net Profit of business before charging commission is Rs 8,00,000 and manager are entitled to get a commission of net profit after charging commission 20 %, the commission will be calculated as Rs _________.

A
Rs 2,00,000

B
Rs 1,90,000

C
Rs 1,95,000

D
None of these.
Question 10
1 / -0

When interest on capital is allowed _________ is credited.

A
Capital A/c

B
Profit and loss A/c

C
Cash A/c

D
None

Solution

Journal entries for Interest on Capital:
Interest on capital is an appropriation (setting apart) of profit. If a firm has earned profit, it will have a credit balance in the P & L Appropriation A/c.

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Financial Statements 2 Test 8

Result

Financial Statements 2 Test 8

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SHARING IS CARING

Question 1

Accrued asset

Accrued liability

Prepaid expense

Unearned revenue

Solution

Question 2

Cash system of accounting.

Mercantile system of accounting.

Both (A) and (B).

None of the above.

Solution

Question 3

Outstanding Manager's Commission A/c To Commission A/c

Outstanding Manager's Commission A/c To Profit and Loss A/c

Profit and Loss A/c To Outstanding Manager's Commission A/c

None of the above

Solution

Question 4

Rs.220

Rs.200

Rs.240

Rs.244.44

Solution

Question 5

Accrued asset

Accrues liability

Unearned revenue

Prepaid expense

Solution

Question 6

11,000

12,000

13,000

10,500

Solution

Question 7

5,000

8,000

11,000

None of these.

Solution

Question 8

Expense

Income

Asset

Liability

Solution

Question 9

Rs 2,00,000

Rs 1,90,000

Rs 1,95,000

None of these.

Question 10

Capital A/c

Profit and loss A/c

Cash A/c

None

Solution

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