Cambridge A Level Accounting 9706 — 2003 May/June Paper 1 · Variant 1

CAMBRIDGE INTERNATIONAL EXAMINATIONS General Certificate of Education Advanced Subsidiary Level and Advanced Level ACCOUNTING 9706/01 Paper 1 Multiple Choice May/June 2003 1 hour 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 thirty 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 10 printed pages and 2 blank pages.
CIE 2003 [Turn over

2 9706/1 Jun03 1 The following information relates to a business for a period. $ selling price per unit 100 variable costs per unit 60 total fixed costs 90 000 net profit 15 000 How many units were sold in the period? A 1500 B 1750 C 2250 D 2625 2 A customer paid a deposit in advance for goods to be supplied at a later date. How should this be recorded in the seller’s books? debit credit A cash customer B cash sales C customer prepayment D customer sales 3 A trial balance at 30 April 2003, before making end of year adjustments, showed: debit $ credit $ Trade debtors 17 800 - Provision for doubtful debts - 580 At 30 April 2003 it was decided to write off a bad debt of $800 and to make a provision for doubtful debts of 2 % of trade debtors. During the year an amount of $200 was received from a customer relating to a debt that was written off in the year ended 30 April 2002. What was the total bad and doubtful debts expense for the year ended 30 April 2003? A $360 B $560 C $940 D $1140

3 9706/1 Jun03 [Turn over 4 The table shows information relating to a company’s fixed assets. $ cost at 1 January 2002 10 500 accumulated depreciation at 1 January 2002 4 900 purchases for the year ended 31 December 2002 2 500 disposals for the year ended 31 December 2002 700 Depreciation is 25 % per annum on the reducing balance basis. What is the depreciation charge for the year? A $1850 B $2025 C $2200 D $3250 5 A business that purchases a shop incurs the following costs. $ purchase price of the shop 680 000 legal fees incurred in the purchase of the shop 7 200 cost of initial stock 12 500 cost of installing air conditioning 47 300 Which amount will be capitalised as the cost of the shop? A $680 000 B $687 200 C $734 500 D $747 000 6 Which of the following is the definition of a business as a going concern? A The assets owned by the business exceed its liabilities. B The business has accumulated revenue reserves. C The business is currently liquid and able to pay its creditors. D The business will continue in operational existence for the foreseeable future. 7 A sole trader pays private expenses from the business bank account and records them as drawings. Which accounting principle is applied? A business entity B going concern C matching D prudence

4 9706/1 Jun03 8 Which of the following would prevent a trial balance from balancing? A a credit note from a supplier entered in the sales journal B a discount allowed posted to the Discounts Received account C an invoice entered twice in the sales journal D a refund to a customer wrongly posted to Discounts Allowed account 9 At 31 March 2003, a customer’s bank statement shows that his bank account is overdrawn by $10 136. Further information is as follows. $ cheques drawn, not presented 4998 cheques paid in, not credited 5896 bank interest charged, not in Cash Book 181 What is the correct bank balance to be shown in the customer's Balance Sheet at 31 March 2003? A $9057 overdrawn B $9238 overdrawn C $10 853 overdrawn D $11 034 overdrawn 10 The balance on the Sales Ledger Control account amounting to $43 000 has been entered in the trial balance as $34 000. The difference on the trial balance has been entered in a Suspense account. Which journal entry is required to correct the error? account to be debited account to be credited A Sales Ledger Control account $9000 Suspense account $9000 B - Suspense account $9000 C Suspense account $9000 - D Suspense account $9000 Sales Ledger Control account $9000

5 9706/1 Jun03 [Turn over 11 A company uses the straight line method of depreciation for all its fixed assets. On 1 January, the company bought machinery on hire purchase. The cash price was $115 000 and the interest for the year is $19 550. The estimated useful life of the machinery is five years with no residual value. What is the charge for depreciation for the year ended 31 December? A $19 090 B $23 000 C $26 910 D $42 550 12 A business sells some of its stock for $80 on credit to a customer. The stock originally cost $50. Which statement actually reflects the effect of this transaction on the Balance Sheet? current assets owner’s capital A decrease by $30 decreases by $30 B decrease by $30 increases by $30 C increase by $30 increases by $30 D increase by $30 decreases by $30 13 The following items appear in the accounts of a manufacturing business. 1 purchase of raw materials 2 purchase of finished goods 3 carriage inwards 4 carriage outwards Which items will be included in the Manufacturing account? A 1 and 2 B 1 and 3 C 1, 2 and 3 D 1, 3 and 4

6 9706/1 Jun03 14 X and Y are in partnership sharing the profits equally. No Goodwill account is maintained in the accounts. Z joins the partnership and pays $30 000 cash for his share of the Goodwill. Profits are to be shared equally between X, Y and Z. Which of the following correctly shows the increases in the accounts on the admission of Z into the partnership? capital accounts cash $ X $ Y $ Z $ A 30 000 10 000 10 000 10 000 B 30 000 - - 30 000 C 30 000 15 000 15 000 - D 30 000 - - - 15 A business was started on 1 January. The purchases and sales of stock for January were: date Purchases Sales 4 January 3 @ $200 - 13 January - 2 @ $400 26 January 3 @ $250 - 28 January - 2 @ $400 The business used the first in first out (FIFO) method of stock valuation. What was the gross profit for January? A $650 B $700 C $750 D $1150 16 A company has an authorised share capital of 2 million $0.25 ordinary shares of which 1.6 million are in issue. It is proposed to pay a dividend totalling $40 000. Which correctly describes the amount of dividend? A an ordinary dividend of 8 % B an ordinary dividend of 10 % C an ordinary dividend of $0.08 per share D an ordinary dividend of $0.10 per share

7 9706/1 Jun03 [Turn over 17 The treasurer of a tennis club has provided the following information for a year. number of members 75 $ annual subscription 95 subscriptions received 7305 overheads: tennis balls - purchased - opening stock - closing stock 850 110 95 other overheads 4700 What will the club’s Income and Expenditure account show? A $1560 surplus B $1670 surplus C $1740 surplus D $1850 surplus 18 A company is financed by: 10 000 $1 ordinary shares $5000 10 % loan Net profit before interest and taxation is $2500. Tax payable is $400. What is the maximum dividend per share payable from this year’s profits? A $0.16 B $0.20 C $0.21 D $0.25 19 When a shareholder sells some shares for less than he paid for them, what will happen to the share capital of the company? A It will fall by the nominal value of the shares sold. B It will fall by the sales proceeds of the shares sold. C It will increase by the amount received from the sale of the shares. D It will remain the same as before.

8 9706/1 Jun03 20 A business sells stock to a credit customer at a selling price greater than cost. What effect will this transaction have on the current and quick (acid test) ratios? A Both ratios will be unchanged. B Both ratios will increase. C The current ratio will increase while the quick ratio will not change. D The current ratio will not change while the quick ratio will increase. 21 The following items are included in the Balance Sheet of a business. $000 Stock 64 Debtors 126 Creditors 87 Bank (debit balance) 21 Bank loan (repayable in 2 years) 50 What is the quick (acid test) ratio? A 1.1 : 1 B 1.2 : 1 C 1.7 : 1 D 2.4 : 1 22 The following information is available for a business. $ opening stock 29 000 credit purchases 186 000 closing stock 8 000 creditors at year end 24 000 What is the creditors’ payment period? A 40 days B 43 days C 48 days D 54 days 23 The opening stock of a business is $10 000 and the cost of goods sold is $200 000. Using the average figure of opening and closing stock, what value of closing stock is needed to give a stock turnover of 10? A $10 000 B $20 000 C $30 000 D $40 000

9 9706/1 Jun03 [Turn over 24 A company wishes to improve its current ratio and its acid test ratio. How can this be done? A increasing discounts to debtors B increasing the provision for doubtful debts C purchasing additional stock on credit D selling fixed assets 25 A business uses job costing to calculate the cost of vehicle repair jobs. Overheads are allocated on an absorption costing basis. What is the effect of this method of allocation? A overheads will include both fixed and variable overhead costs B overheads will include direct costs only C overheads will include fixed overhead costs only D overheads will include variable overhead costs only 26 The table shows costs at three activity levels. activity levels 65 units 90 units 100 units $ $ $ fixed cost ? ? ? variable cost ? ? ? total cost 15 600 19 600 21 200 What is the fixed cost? A $1600 B $4000 C $5200 D $5600 27 What will result in under-absorption of fixed production overhead? A absorption based on actual expenditure and actual activity B actual expenditure below budget expenditure C actual activity above budget activity D actual activity below budget and expenditure as budgeted

10 9706/1 Jun03 28 What does the diagram show? 0 number of units produced cost per unit $ A Fixed costs per unit are less as production increases. B Total fixed costs are less as production increases. C Total variable costs are less as production increases. D Variable costs per unit are less as production increases. 29 The information relates to a product. $ break even sales revenue 15 000 unit sales price 10 fixed costs 6 000 What are the variable unit costs? A $2.00 B $2.50 C $4.00 D $6.00 30 The table shows opening and closing balances for the Rent Receivable account. start of year end of year $ $ rent received in advance 4200 1600 rent due in arrears 2000 2400 During the year, $111 000 rental income was received. What is the total rent receivable for the year? A $110 600 B $111 000 C $112 800 D $114 000