UNIVERSITY OF CAMBRIDGE INTERNATIONAL EXAMINATIONS

General Certificate of Education Ordinary Level

PRINCIPLES OF ACCOUNTS
7110/01

Paper 1 Multiple Choice

May/June 2005

1 hour 15 minutes

Additional Materials: Multiple Choice Answer Sheet

Soft clean eraser

Soft pencil (type B or HB is recommended)

READ THESE INSTRUCTIONS FIRST

Write in soft pencil.

Do not use staples, paper clips, highlighters, glue or correction fluid.

Write your name, Centre number and candidate number on the answer sheet in the spaces provided unless

this has been done for you.

There are forty questions on this paper. Answer all questions.

For each question there are four possible answers A, B, C and D. Choose the one you consider correct and

record your choice in soft pencil on the separate answer sheet.

Read the instructions on the answer sheet very carefully.

Each correct answer will score one mark. A mark will not be deducted for a wrong answer.

Any rough working should be done in this booklet.

Calculators may be used.

This document consists of 12 printed pages.

IB05 06_7110_01/RP

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1 What is the correct entry for office furniture bought on credit from X?

account to account to

be debited be credited

A bank office furniture

B office furniture bank

C office furniture X

D X office furniture

2 What is the purpose of a credit note?

A to allow for cash discount

B to ask for payment in advance

C to increase the amount due on an invoice

D to reduce the amount payable on an invoice

3 Which is part of the double entry system?

A cash book

B general journal

C sales journal

D trial balance

4 A business maintains a full set of books of prime entry.

Which book is written up from credit notes received?

A purchases journal

B purchases returns journal

C sales journal

D sales returns journal

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5 Shah disposes of a motor vehicle. It is bought by Khan with a cheque for $8000.

How will this be recorded in the books of Shah?

account to be debited account to be credited

A bank disposal of motor vehicle

B disposal of motor vehicle bank

C bank Khan

D Khan bank

6 A business keeps a three column cash book.

How is the total of the discount column on the debit side posted?

A credit discount allowed account

B credit discount received account

C debit discount allowed account

D debit discount received account

7 A trader draws up a bank reconciliation statement and starts with the debit balance shown in his

cash book.

How are unpresented cheques and uncredited deposits shown in the bank reconciliation

statement?

unpresented cheques uncredited deposits

A added deducted

B deducted added

C added added

D deducted deducted

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8 A business discovers that cash received from X, a credit customer, has been recorded as a cash

sale.

How can this be corrected?

account to account to

be debited be credited

A cash X

B sales X

C X cash

D X sales

9 The following balances were extracted from Majid’s purchases and sales ledgers.

Walid account – $1500 debit

Xian account – $1700 debit

Yu account – $2300 credit

Zaid account – $2700 credit

How much does Majid owe?

A $1800 B $3200 C $5000 D $8200

10 Which is a personal account?

A debtor

B office computers

C plant and machinery

D wages

11 What is a statement of ledger balances on a particular date?

A Balance Sheet

B Profit and Loss Account

C Trading Account

D Trial Balance

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12 After which error will a trial balance still balance?

A an error in adding up a debtor’s account

B an error in entering an item on a sales invoice

C an error in extracting the balance of a fixed asset account

D an error in recording cash received in the cash book

13 The purchase of a motor vehicle has been wrongly recorded as motor expenses in a business’s

books.

What is the effect of this error?

A gross profit is understated

B net profit is overstated

C total assets are overstated

D total assets are understated

14 Which item is capital income?

A cash received from the sale of office equipment

B cheque received from the sale of stock

C discounts received from trade creditors

D rent received from tenants

15 X’s financial year ends on 31 December.

On 31 December 2003 the following accounts appeared in her ledger.

debit credit

$ $

Equipment at cost 18 000

Provision for depreciation of equipment 7 000

On 1 January 2004 she purchased equipment for $12 000. Equipment is depreciated at 25 % per

annum using the straight line method.

What will be the total provision for depreciation of equipment on 31 December 2004?

A $3000 B $7500 C $14 500 D $18 500

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16 How is the balance on the provision for depreciation of motors account shown in the final

accounts?

A It is added to the current liabilities in the Balance Sheet.

B It is deducted from the fixed assets in the Balance Sheet.

C It is credited in the Profit and Loss Account.

D It is debited in the Profit and Loss Account.

17 A business has a provision for doubtful debts of $30 and debtors of $360. The provision is to be

made equal to 5 % of debtors.

What is the entry in the Profit and Loss Account?

A credit $12 B credit $18 C debit $12 D debit $18

18 A trader provides the following information relating to insurance.

prepayment brought forward at 1 January 2004 600

cheques paid for insurance in the year 2004 7 200

insurance prepaid at 31 December 2004 950

Which amount should be shown in the trader’s Profit and Loss Account for insurance for 2004?

A $6250 B $6850 C $7550 D $7800

19 A debt of $500 owed by K Graham is written off as a bad debt.

What is the journal entry to record this transaction?

debit credit
detail
$ $

A bad debt 500

K Graham 500

B K Graham 500

bad debt 500

C provision for doubtful debts 500

K Graham 500

D K Graham 500

provision for doubtful debts 500

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20 Which error will affect the profit calculation?

A a payment to a creditor for $260 entered as $200

B a payment of $260 for a fixed asset entered as $200

C a payment of rent for $260 entered as $200

D a loan repayment of $260 entered as $200

21 Discount received was credited to the Trading Account.

What is the effect of this error on the gross and net profits?

gross profit net profit

A overstated understated

B overstated no effect

C understated no effect

D understated overstated

22 Yip prepares a purchases ledger control account and a sales ledger control account at the end of

each month. He wrote off a debt as bad in May 2005.

How will this bad debt be recorded in the control accounts prepared on 31 May 2005?

purchases ledger sales ledger

control account control account

A credit no effect

B debit no effect

C no effect credit

D no effect debit

23 X provides the following information at the end of the first year of trading.

credit sales 200 000

sales returns 10 600

receipts from debtors 160 000

discounts allowed 1 400

provision for doubtful debts 1 000

What is the debit balance on X’s sales ledger control account?

A $27 000 B $28 000 C $29 000 D $30 000

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24 Raymond purchased the business of Susan on 1 March 2005, taking over the assets, except the

bank balance, and the liabilities. He agreed to pay $8000 for Goodwill.

On 1 March 2005 Susan’s assets and liabilities were as follows.

fixed assets 70 000

current assets (including bank $5000) 35 000

current liabilities 15 000

How much did Raymond pay for the business?

A $93 000 B $98 000 C $108 000 D $123 000

25 A Bryan provides the following information for the year ended 31 December.

sales 14 000

purchases 6 000

closing stock 900

opening stock 1 400

What is the gross profit?

A $5700 B $7500 C $8500 D $10 300

26 The balance on the bank account in a cash book is $1200 credit.

How is this shown in the Balance Sheet?

A as a current asset

B as a current liability

C as a long-term liability

D as owner’s drawings

27 A trader has a capital of $24 400. His fixed assets are $16 100 and his current liabilities are

$4500. There are no long-term liabilities.

What is the amount of his current assets?

A $8300 B $11 600 C $12 800 D $28 900

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28 A trader provides the following information.

fixed assets 30 000

cash 500

bank overdraft 2 000

debtors 4 000

creditors 3 500

stock 5 000

What is the working capital?

A $4000 B $8000 C $34 000 D $39 500

29 Laura and Mary are partners sharing profits and losses in the ratio 1 : 2.

Prior to admitting a new partner their goodwill was valued at $60 000 and their capitals were

Laura $20 000 and Mary $30 000.

Which entries would be made in their capital accounts to record goodwill?

Laura Mary

$ $

A 20 000 credit 40 000 credit

B 24 000 credit 36 000 credit

C 20 000 debit 40 000 debit

D 24 000 debit 36 000 debit

30 X takes from the business goods costing $100 for her own use.

Which double entry is made in the books of the business?

account to account to

be debited be credited

A drawings purchases

B drawings sales

C stock drawings

D purchases drawings

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31 A sole trader’s rent account showed a debit balance of $2000 on 1 January 2004.

Rent paid during the year ended 31 December 2004 was $12 000.

Rent prepaid at 31 December 2004 amounted to $3000.

What was the charge for rent in the Profit and Loss Account for the year ended 31 December

2004?

A $11 000 B $12 000 C $14 000 D $15 000

32 Which item appears in the Profit and Loss Account of a partnership?

A interest on capital

B interest on drawings

C interest on partner’s loan

D partner’s salary

33 When the final accounts for a tennis club are being prepared it is found that some members’

subscriptions have been received for the following year.

Where will these subscriptions appear in the Balance Sheet?

A current asset

B current liability

C added to the accumulated fund

D deducted from the accumulated fund

34 A club provides the following information relating to members’ subscriptions.

accrued at 1 January 2004 200

prepaid at 1 January 2004 300

received during 2004 10 000

outstanding at 31 December 2004 500

What amount for subscriptions will be entered in the Income and Expenditure Account for the

year ended 31 December 2004?

A $9400 B $9600 C $10 400 D $10 600

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35 The following information relates to a business.

Capital at 1 January 20 000

Capital at 31 December 32 000

Drawings during the year 10 000

Additional capital brought in during the year 7 000

What is the net profit for the year?

A $9000 B $12 000 C $15 000 D $22 000

36 What are included in the Capital and Reserves section of a company’s Balance Sheet?

A authorised share capital, debentures

B authorised share capital, preference share capital

C reserves, debentures

D reserves, preference share capital

37 Which is an indirect cost?

A carriage inward

B factory rent

C production materials

D production wages

38 A business provides the following information.

sales $20 000

gross profit 25 % of sales

net profit 10 % of sales

How much were expenses?

A $2000 B $2250 C $3000 D $5000

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39 A business provides the following information.

stock: 1 January 10 000

31 December 30 000

purchases 140 000

sales 250 000

What is the rate of stock turnover for the year?

A 5.5 times B 6 times C 7 times D 12.5 times

40 A business values its stock at the lower of cost or net realisable value.

Which accounting principle is being applied?

A going concern

B materiality

C money measurement

D prudence

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