TEST CODE O210101O

FORM TP 20151 MAY/JUNE 20I5

CARIBBEAN EXAMINATIONS COUNCIL

CARIBBEAN ADVANCED PROFICIENCY EXAMINATION@
ACCOUNTING
Unitl-Paper01
I ltour 30 minutes

11 JUNE 2015 (a.m.)

READ THIT FOLLOWING INSTRUCTIONS CAREFUI,LY.

1
t. This tist consists of 45 items. You will have I hour and 30 minutes to answer them.

z. In aclditiorr to this test booklet, you should have an answer sheet.

3. Do not be concerned that the answer sheet provides spaces for nrore at'lswers than there are
items in this test.

4. 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.

5. On your answer sheet, find the number which corresponds to your item and shade the space
haviug the same letter as the answer you have chosen. Look at the sample itern below.

Sample ltem

The cost of an asset corrsumed in the generation of

revenue is treated in the bool<s as
Sample Answer
(A) a gain
(B)
(C)
a liability
an expense
@@o@
(D) an allowance

The best answer to this item is "an expense", so (C) has been shaded.

6. If you want to change your answer, erase it completely before you fill in your new choice.

7. 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'
8. You may do any rough work in this booklet.
I
9. You may use a silent, non-programmable calculator to answer items.
I
I

I DO NOT TURN THIS PAGE UN'TIL YOU ARE TOLD TO DO SO.

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I Copyright @ 2013 Caribbean Examinations Council
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1. Aecounting information that provides users 2. Fromthepointofviewoftheshareholders,
offinancialstatementswiththeassurancethat the MAIN duty of the external auditor is to
the infomation is free from errors and bias
demonstrates the characteristic of (A) adhere to generally accepted
auditing standards
(A) relevance (B) plan and perform the audit using
(B) reliability statistical techniques
(C) consistency (C) express an opinion on the reliability
(D) comparability of the finarrcialstatements
(D) exercise accuracy in conducting the
audit of financial statements

3. Acorporationreacquired5000ofitsownsharesat$4pershare. Whichofthefollowingisthe
journal entry to record this transaction?

(A) Treasury stock Dr. $20 000

Cash Cr. $20 000

(B) Share capital Dr. $20 000

Cash Cr. $20 000

(C) Cash Dr. $20 000

Treasury stock Cr. $20 000

(D) Treasury stock Dr. $20 000

Share capital Cr. $20 000

4. On 15 January 2014, R. Sammy's advertising agency collected $6 000 from clients who were
billed for jobs done in December 2013. Using the accrual basis of accounting, how should the
accounts be affbcted bv the transactions on l5 Januarv 2014?

(A) Increase: Cash Increase: Service revenue

(B) Increase: Cash Decrease: Accounts receivable
(C) Increase: Service revenue Decrease: Fees earned
(D) Increase: Cash Increase : Accounts receivable

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5. T'he historical cost principle states that 7. 'Treasury Stock' is the terrn used to
describe shares that are
(A) transactions involving assets are
recorded at acquisition cost (A) fully paid up
(B) assets should be recorded initially (B) sold above par
at cost and then adjusted as (C) paid in excess of par
market value changes (D) reacquired by the issuing firm
(c) the private activities of the owner
of a business should not be
incorporated into the activities 8. The newly formed Daryl Inc. was billed
of the business $8 000 by its attorneys for organizational
(D) only transactions that are capable costs. The attorneys agreed to accept 6 000
of being expressed in monetary shares of $l par value common stock in full
terms should be included in the settlement of their bill. Shares of Daryl Inc.,
accounting records being new, had no established market value.
The amount to be credited to common stock
in the books is
6. Internal controls are used in a business to
(A)$o
(A) produce correct fi nanc ial statements (B) $2 000
and deter employee dishonesty (c) $6 000
(B) enhance the accuracy and rel iabi I ity (D) 58 000
of its accounting records, and to
prevent fraud
(c) establish responsibi I ity and conduct
independent checks on employee
performance
(D) safeguard the business' assets
and enhance the accuracy and
reliability of accounting records

9' A firm issued 35 000 no par ordinary shares in exchange for a building which had a fair rnarket
value of $525 000. The entry to record this transaction is

(A) Dr. Building ss2s 000

Cr. Ordinary share capital $52s 000

(B) Dr. Cash $s2s 000

Cr. Ordinary share capital $s2s 000

(c) Dr. Ordinary slrare capital $525 000

Cr. Building $525 000

(D) Dr. Ordinary share capital ss25 000

Cr. Cash $525 000

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02101010/CAPE 2015
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10. of 13.
Stephens lnc. issues 3 000 ordinary shares Two-thirds of an insurance policy has
this
$i0 par value for $45 000. How should expired. The policy was acquired at a cost
be treated in the financial statements? of $5 700. The adjusting entry to record
the expired portion would involve a
(A) Cash should be debited for $ I 5 000.
(B) Ordinary share capital should be (A) creditof$l9O0toprepaidinsurance
creclited for $45 000. (B) debitof$3 S0Otoprepaidinsurance
(C) Paid-in capital in excess of par (C) debitof$l9o0toinsuranceexpense
(share premium) should be (D) debitof$3SO0toinsuranceexpense
debited for $10 000.
(D) Paid-in capital in excess of par
(share premium) should be 14. Memo Inc., a company with annual sales
credited ror $rs 000' ::f,f"::tr::tila:"ff''Ji:r:HiJT:
1r. A summary orthe procedures (principres) trJi::J:,ll,:""fllHii:J::::,%ilil:
for controlling Accounts Receivable softwareasanexpense. Whichconceptcan
includes be used to justify this treatment?

I. duties
segregation of (A) Prudence
IL responsibilities
establishment of (B) Materiality
Ill. proper documentation (C) Historical cost
IV. assets
physical safeguard of (D) Going concern

(A) I only
(B) I and ll only 15. 'Ihepreparationandpresentationoffinancial
(c) I, II and III only statements of linrited liability businesses
(D) I, II and IV only are regulated by

L the Companies Act

12. Which of the following relationships IL accounting standards
CANNOT be derived from the fundamental III. concepts and conventions
accounting equation?
(A) I and II only
(A) Assets - Liabilities : Owners' (B) I and III only
Equity (C) II and III onlY
(B) Owners' Equity + Liabilities : (D) I, II and III
Assets
(C) Assets - Owners' EquitY :
. Liabilities 16. What type of asset is a franchise?
(D) t,iabilities * Assets : Owners'
Equity (A) Liquid
(B) Current
(C) Intangible
(D) Extraordinary

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t7. Ashley Manufacturing Co. received net 20. Which of the following reports is NOT
proceeds of $82 000 on the sale of an a component of financial statements
investmentthatcost$69 500. This transaction according to IAS I (Sec. 3 of IFRS for
should be reported in the income statement SMEs)?
asa
,(A) Financial ratios
(A) gain of $ 12 500 under Other (B) Statement of financial position
Revenues and Gains (C) Statement of changes in equity
(B) gain of $12 500 under Operating (D) Notes to the financial statements
Revenues
(C) loss of $12 500 under Operating
Expenses and l-osses 21. Which ofthe following is/are characteristics
(D) loss of $12 500 under Operating of a privately owned corporation?
Expenses
I. Shares are sold to the public.
Il. Shares are not sold to the public.
Items 18-19 refer to the following lll. The conrpany can be owned by
infbrmation. farnily members only.

Will Smith, a new partner, is being admitted (A) I only

to the Labell arrd Ross partnership under (B) I and III only
the bonus method. Smith contributes cash (C) II and III only
of $20 000 and equipment with a market (D) I, II and III
value of $30 000 in exchange for a 20Yo
ownership interest. The capital of the old
partnership is $130 000. I-abell and Ross 22. The ability to raise funds from the Stock
shared profits and losses in the ratio 80:20 Exchange Market is a distinguishing feature
respectively. of which ofthe following types of business
organization?
18. What is the new partnership capital?
(A) Statutory corporation
(A) $140 000 (B) Public corporation
(B) $l s0 000 (C) Private corporation
(c) $ 160 000 (D) Partnership
(D) $180 000

23. An extraordinary item in financial

19. What is Smith's capital balance? accounting is an income or an expense that
arises from events that are distinct from
(A) ordinary activities of the entity and are
$30 000
(B) S3s 000
(A)
(c) s36 000
(B)
usual in nature
(D) $s0 000
(C)
not distinct in nature
expected to recur frequently
(D) not expected to recur fiequently

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24. Which of the fbllowing statements is NOT 26. A social club held an annual dinner dance
trueregardingordinarysharesorpreference and afterwards presented the following
shares? incomplete Statement of Receipts and
Payments.
(A) All companies issue ordinary
' shares. $
(B) Ordinary shares are the most basic Sale oftickets 100 000
and common type of shares. Catering l0 000
(C) With preference shares, the amount Hiring of band ? |
of dividend is generally specified Net receipts 50 000 \
artd increa.ses every year.
I (p) With preference shares, the holders What was the cost of hiring the band?
have priority over ordinary
shareholders in dividend and (A) $40 000
assets distribution. (B) $50 000
(c) $60 000
Item25referstothefollowinginformation. (D) $70 000

On 3l December 2010, equipment which .n

27 ' A statutory corporation is an entity that has
cost $60 000 hacr accumuraieia"p*"i"ii",,
been established by an Act of Parliament.
of $12 000.
It is owned by the
On3lDecember20ll,apieceofequipment / emplovees
with a net book value of $8 000 ria|;;il lol
(B)
for $6 000. (C)
government
board of directors
The company uses the reducing balance
(D) co-operative society
method for asset depreciation at a rate of
lsyo.

25. 'Ihe net book value of equipment on 3l

December 201I was

(A) $40 800

(B) $34 680
(c) $27 880
(D) $26 680

'l

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 Items 28-29 refer to the following 31. Which of the following statements is TRUE
information. regarding infonnation provided by financial
reporting?
Savi commenced business on 0l January
2013 with $ 100 000 together with a credit I. It increases the value of the
union loan of $2 000. Savi's assets and company.
liabilities as at 3 I Decentber 2013 were as II. It is useful for making investment
follows and credit decisions.
I lll. It identifies what is owned, what is
Buildings $400 000 owed and the ownership interest
I
Motor van $ 20 000 in the company.
Inventory $ 5000
Loan from credit union $ 15 000 (A) I and II only
Accounts payable $ l0 000 (B) I and III only
(C) II and III only
(D) I,II and III
28. Savi's capital as at 01 January 2013 was

(A) $ 30 000 32. Operating activities of a business

(B) s 100 000 organization include
(c) $ 120 000
(D) $ rs0 000 (A) long-term borrowings
(B) a new issue of ordinary shares
(C) cash receipts from the sale of goods
29. Savi's capitalas at 31 December20l3 was (D) the acquisition of long-term assets

(A) $ 2s 000
(B) $ s0 000 Item 33 refers to the following information.
(c) $400 000
(D) $42s 000 Alata's financial position at the end of the
year is given as follows:

30. Which of the following is a feature of a $

co-operative? Cash l0 000
Accounts'receivable l5 000
(A) Separation of ownership and control Inventory 25 000
(B) Free transfer of shares Accounts payable 20 000
(c) Unlimited liability Long-term notes payable 1 50 000

(D) Democratic control

33. What is the current ratio?

) (A) 0.20:r
I
(B) 0.30:l
(C) 1.25:I
(D) 2:50:l

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0210101O/CAPE 201s
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34. In preparing a statement of cash flows, 38. During periods of inflation or deflation, the
which of the following transactions would historical cost model for financial reporting
be considered an investing activity? is deficient becattse the rePorts

(A) Sale of equipment at book value (A) use numerous estimates for revenue
(B) Declaration of a cash dividend and expenses
(C) Sale of merchandise on credit (B) recognize revenue and expenses
(D) Issuance of a note payable before they are realiz'ed
(C) are published three years prior to
the rePort date
35. The change in cash fortheyearforaparticular (D) add and subtract dollars with
company is $4 500. If cash flow from different Purchasing Power
investing activities is $46 200 and cash flow without adjusting for those
from financing activities is $34 400, what is differences
the cash flow from operating activities?

(A) ($70 100) 39. An example of a contingent liability is

(B) ($76 100)
(c) ($80 1oo) (A) out'standing lawsuits
(D) ($8s r 00) (B) any interest bearing liability
(C) a bond which can be converted into
ordinary shares
36. Which ofthe following statements relating (D) the unrealized loss from the
to the liquidation of a firm is FALSE? reduction in the market Price of
a long-term liabilitY
(A) A liquidator is appointed to sell all
the assets and pay the debts.
(B) The rcceiver recovers money owing 40. A runaway truck crashed into a firm's
to the creditor who appointed warelrouse and c{estroyed inventory costing
him. $ 1 00 000. The firm does not have insurance.
(C) After the receiver recovers the How should this event be recorded in
money, the receiver takes over the firm's Statement of Comprehensive
management of the firm. Income?
(D) In a liquidation, the receiver
represents a secured creditor (A) Other loss $100 000
who has appointed him. (B) Selling expense $100 000
(C) lncrease cost of sale by $50 000
(D) Decrease cost of sale by $50 000
37. DominicaCompany reportednet income of
$45 000, net sales of $650 000 and average
assets of $400 000 in 2012. What is the
company's percentage return on assets for
2012?

(A) 6.e2
(B) t1.2s
(c) 6s.54
(D) t62.s0

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