Question 1

Which statement relating to workers' compensation insurance is not true?
A) It relates to an insurance scheme, imposed by law, whereby the employer purchases insurance which may be used to compensate employees for job related injuries and loss of wages.
B) It is compulsory for all employers to obtain this cover.
C) The premium is deducted from employees' salaries and wages.
D) The premium is based on a percentage of the total wages and salaries bill for the coming year.

Accepted Answer

The statement that the premium is deducted from employees' salaries and wages is not true. The premium is paid solely by the employer and is not deducted from employees' wages.

Question 2

Which of these is a disadvantage to shareholders of using long-term debt rather than equity?
A) Interest is tax deductible
B) Interest payments must be made on time regardless of a reduction in profitability
C) Lenders do not share in excess profits
D) Lenders do not have voting rights

Accepted Answer

The answer of Which of these is a disadvantage to...

Question 3

Which statement concerning long-service leave is correct?
A) Long-service leave does not have to be paid to an employee until the required period of employment has been completed,e.g. 10 years, 15 years.
B) Long-service leave is paid at the employees' average rate of pay over the period for which the leave has accrued.
C) Long-service leave relates to an insurance scheme whereby employees are compensated for injuries, loss of limbs and loss of life while at work.
D) Long-service leave entitlements were recently abolished by the government.

Accepted Answer

Long-service leave is typically granted after a long period of employment, such as 10 or 15 years, and is not required to be paid until the employee has completed the required period.

Question 4

If the debt ratio is 40% the equity ratio is:
A) 40%.
B) 2:1.
C) 60%.
D) unable to be calculated.

Accepted Answer

The equity ratio is calculated as equity divided by assets. If the debt ratio is 40%, then the remaining portion of assets is 60%. Therefore, the equity ratio is 60%.

Question 5

A capitalisation ratio of 4:1 means:
A) debt is 75% equity is 25%.
B) debt is one fifth of equity.
C) equity is one fifth of debt.
D) debt is 25% equity is 75%.

Accepted Answer

A capitalisation ratio of 4:1 means that for every 4 parts of debt, there is 1 part of equity, indicating that debt is 75% and equity is 25%.

Question 6

An arrangement whereby the terms and conditions of a debt are avoided or defeated is known as:
A) defeasance.
B) discounting.
C) obligating.
D) collateralising.

Accepted Answer

Defeasance refers to the act of avoiding or defeating the terms and conditions of a debt. It is often done by setting aside funds or securities that will be used to satisfy the debt in case of default. Discounting refers to the process of calculating the present value of a future payment or income stream. Obligating refers to the act of creating a legal duty or responsibility. Collateralising refers to the act of providing collateral or security for a loan or debt.

Question 7

In relation to long-service leave how many of these statements are untrue?
$\bullet$The entry to accrue long-service leave is a debit to long-service leave expense and a credit to provision for long-service leave.
$\bullet$The leave is paid at the rate of pay applicable when the leave is taken.
$\bullet$Employees only starts to accrue long service leave after being employed for a predetermined length of time (often 10 years).
A) 0
B) 1
C) 2
D) 3

Accepted Answer

The first statement is true as it correctly describes the entry to accrue long-service leave. The second statement is also true as employees are paid at the rate of pay applicable when the leave is taken. However, the third statement is untrue as the predetermined length of time for an employee to start accruing long-service leave varies by country and is not always 10 years. Therefore, only statement 3 is untrue.

Question 8

A $100 debenture quoted at 104 is said to:
A) sell at a discount.
B) sell at a premium.
C) sell at $4 above its market value.
D) sell at par.

Accepted Answer

A debenture quoted at 104 means that it is being sold for $104 for every $100 face value of the debenture. This indicates a premium, as the investor is paying more than the face value to obtain the debenture.

Question 9

Under Australian awards, which statement relating to annual leave is true?
A) Annual leave is generally accounted for on a cash rather than an accrual basis.
B) An employee is not entitled to annual leave until he/she has worked for a year with the same employer.
C) Employees are generally entitled to two weeks paid annual leave a year.
D) Employees are entitled to be paid pro-rata for annual leave not taken if their employment terminates.

Accepted Answer

According to Australian awards, employees are entitled to be paid pro-rata for annual leave not taken if their employment terminates. Option A is incorrect as annual leave is accounted on an accrual basis. Option B is incorrect as an employee is entitled to annual leave after a certain period of time as per the award or agreement. Option C is incorrect as the entitlement to paid annual leave varies depending on the award, agreement, or legislation.

Question 10

From the point of view of the business, which of these is an advantage of using long-term debt rather than equity in financing?
I. It does not dilute the control of existing owners.
II. Creditors do not share in any excess profits of the entity.
III. Interest payments are a fixed commitment regardless of profits.
IV Interest is tax deductible.
A) I, II, III, IV
B) I, IV
C) I, II, IV
D) I

Accepted Answer

Long-term debt has the advantage of not diluting control of existing owners (I), since the lenders do not have ownership or voting rights. Creditors do not share in any excess profits of the entity (II), as profits are only distributed among shareholders. Interest payments are a fixed commitment regardless of profits (III), but this can be an advantage for the business in terms of budgeting and planning. Finally, interest payments on long-term debt are tax-deductible (IV), which reduces the overall cost of financing for the business.

Question 11

A capitalisation ratio of 2:1 compared to 2.5:1 means:
A) a lesser dependency on debt.
B) a lower level of gearing.
C) a greater dependency on debt.
D) a higher level of equity.

Accepted Answer

The answer of A capitalisation ratio of 2:1 compared to...

Question 12

Debentures may be:
i. secured by a specific charge over particular assets.
ii. secured by a floating charge over assets.
iii. unsecured.
A) i
B) i, ii
C) i, ii, iii
D) ii, iii

Accepted Answer

Debentures can be secured either by a specific charge over particular assets or by a floating charge over assets. They can also be unsecured. Therefore, option i and ii are correct, while option iii is included in the other two options.

Question 13

A liability where the borrowings are from many investors, representing a written promise to pay a principal amount at a specific time, as well as interest on the principal at a specific rate per period, is known as:
A) a debenture.
B) a lease.
C) defeasance.
D) collateral.

Accepted Answer

A debenture is a type of bond that represents a long-term debt issued by a company or government entity. The borrowings are from many investors, and there is a written promise to pay a principal amount at a specific time, as well as interest on the principal at a specific rate per period. A lease is not the correct answer as it typically involves renting an asset or property, not borrowing money. Defeasance refers to the process of setting aside funds to pay off a bond or other debt obligation, but it is not the name of a liability. Collateral refers to an asset pledged as security for a loan, but it is not the name of a liability either.

Question 14

How many of these ratios are used to evaluate long-term financial stability?
$\bullet$Debt ratio
$\bullet$Current ratio
$\bullet$Equity ratio
$\bullet$Profit margin
$\bullet$Quick ratio
A) 2
B) 3
C) 4
D) 5

Accepted Answer

Debt ratio and equity ratio are used to evaluate long-term financial stability.

Question 15

On 1 October 2015 Rugworld purchased a building for $800 000, paying $300 000 as a deposit and giving the seller a 12% mortgage for the balance. The monthly repayment was $6000. What is the entry to record the payment on 1 November 2015?
A) Dr interest expense $5000; Dr mortgage payable $1000; Cr bank $6000
B) Dr mortgage payable $6000; Cr bank $6000
C) Dr interest expense $5000; Dr bank $1000; Cr mortgage payable $6000
D) Dr interest expense $6000; Cr bank $6000

Accepted Answer

The monthly repayment is $6000, which is the total of the interest expense and the reduction of the mortgage payable. Since the mortgage has a 12% interest rate, the interest expense for the first month would be 1/12 of 12% of the remaining balance ($5000). Therefore, the entry would be to debit interest expense for $5000, debit mortgage payable for $1000 (the reduction of the principal), and credit bank for $6000 (the actual payment made).

Question 16

'No Rust' car sales provides a one year labour and parts warranty with every car sold and at the start of 2012 had a provision of $16 000 to cover warranty claims. On 30 March 2012 $2700 was paid out for repairs for vehicles under warranty. What is the correct accounting entry to record the payment of the claims?
A) Debit warranty expense $2700; credit provision for warranties $2700
B) Debit provision for warranties $2700; credit bank $2700
C) Debit provision for warranties $2700; credit warranty expense $2700
D) Debit warranty expense $2700; credit bank $2700

Accepted Answer

When a company pays out for repairs under warranty, it reduces the provision set aside for such expenses and also decreases its cash or bank balance. Therefore, the correct entry is to debit the provision for warranties (reducing the liability) and credit the bank (reducing the asset).

Question 17

Which statement concerning debentures is incorrect?
A) A trustee, such as a bank or an insurance company, must be appointed to protect the rights of the debenture holders.
B) An issue of debentures to the public must be accompanied by a prospectus.
C) The division of debenture borrowings into $100 or $50 units allows many small investors to participate in the issue.
D) The market value of debentures is always the same as their face value.

Accepted Answer

The market value of debentures is not always the same as their face value. It can be affected by various factors such as interest rates, creditworthiness of the issuer, and market demand.

Question 18

Indigo had previously purchased inventory from Larry for $40 000. On 1 October Indigo gave Larry a 90-day, bill of exchange to cover the amount of the account payable plus interest at 10% p.a. The correct accounting entry in Indigo's books to record the settlement of the bill at maturity is:
A) Debit bills payable $40 986; debit interest expense $986; credit bank $40 986; credit unexpired interest $986
B) Debit bills payable $40 986; credit interest expense $986; credit bank $40 000.
C) Debit bills payable $40 000; credit bank $40 000
D) Debit bills payable $39 014; debit interest expense $986; credit bank $40 000

Accepted Answer

The correct accounting entry is to debit bills payable for $40,986, debit interest expense for $986, credit bank for $40,986, and credit unexpired interest for $986. This is because the bill of exchange is a liability that Indigo has to pay to Larry, and the interest expense is the cost of borrowing the money from Larry. The bank account is credited for the amount of the bill of exchange, and the unexpired interest account is credited for the amount of interest that has not yet been earned.

Question 19

What is the formula for the debt ratio?
A) Total equity divided by total assets
B) Non-current liabilities divided by current liabilities
C) Total liabilities divided by net assets
D) Total liabilities divided by total assets

Accepted Answer

The formula for the debt ratio is total liabilities divided by total assets. This ratio measures the proportion of a company's assets that are financed through debt, with a higher ratio indicating a greater reliance on borrowing to fund operations. A ratio above 1 indicates that a company has more liabilities than assets, which can be a cause for concern for investors and creditors.

Question 20

What types of accounts are (I) GST collections and (II) GST outlays?
A) (I) Liability, (II) asset
B) (I) Negative liability, (II) liability,
C) (I) Asset, (II) liability
D) (I) Liability, (II) negative liability

Accepted Answer

The answer of What types of accounts are (I) GST...

Quiz 22: Liabilities

Which statement relating to workers' compensation insurance is not true?

Which of these is a disadvantage to shareholders of using long-term debt rather than equity?

Which statement concerning long-service leave is correct?

If the debt ratio is 40% the equity ratio is:

A capitalisation ratio of 4:1 means:

An arrangement whereby the terms and conditions of a debt are avoided or defeated is known as:

A $100 debenture quoted at 104 is said to:

Under Australian awards, which statement relating to annual leave is true?

A capitalisation ratio of 2:1 compared to 2.5:1 means:

Debentures may be: i. secured by a specific charge over particular assets. ii. secured by a floating charge over assets. iii. unsecured.

A liability where the borrowings are from many investors, representing a written promise to pay a principal amount at a specific time, as well as interest on the principal at a specific rate per period, is known as:

How many of these ratios are used to evaluate long-term financial stability? $\bullet$ Debt ratio $\bullet$ Current ratio $\bullet$ Equity ratio $\bullet$ Profit margin $\bullet$ Quick ratio

On 1 October 2015 Rugworld purchased a building for $800 000, paying $300 000 as a deposit and giving the seller a 12% mortgage for the balance. The monthly repayment was $6000. What is the entry to record the payment on 1 November 2015?

Which statement concerning debentures is incorrect?

Indigo had previously purchased inventory from Larry for $40 000. On 1 October Indigo gave Larry a 90-day, bill of exchange to cover the amount of the account payable plus interest at 10% p.a. The correct accounting entry in Indigo's books to record the settlement of the bill at maturity is:

What is the formula for the debt ratio?

What types of accounts are (I) GST collections and (II) GST outlays?