MULTIPLE CHOICE
1.Which of the following terms best describes a firm-specific risk that an entity faces, as opposed to an industry-specific risk?
|
A. |
Investment risk |
|
B. |
Financial risk |
|
C. |
Market risk |
|
D. |
Business risk |
2.Which of the following statements regarding tax-effect accounting is incorrect?
|
A. |
The tax-effect method of accounting for income tax determines that temporary differences may arise, resulting in the recognition of either a liability or an asset. |
|
B. |
The tax-effect method for calculating income tax expense is where the taxable income is multiplied by the tax rate. |
|
C. |
A tax loss can only be carried forward as a future tax benefit if it is probable that the entity will earn taxable income in the future. |
|
D. |
A deferred tax liability will occur where taxable income is less than accounting profit in the current period. |
3.AKP Ltd uses the accrual-basis method of accounting for accounting profit. In the current accounting period, they have recognised income for interest not yet received. Taxable income is determined on a cash basis. Based on this information, which of the following statements is correct?
|
A. |
Taxable income will be greater than accounting profit, and will give rise to a deferred tax liability. |
|
B. |
Taxable income will be less than accounting profit, and will give rise to a deferred tax liability. |
|
C. |
Taxable income will be greater than accounting profit, and will give rise to a deferred tax benefit. |
|
D. |
Taxable income will be less than accounting profit, and will give rise to a deferred tax benefit. |
4.AKP Ltd depreciates a non-current asset using the straight-line method. Tax law stipulates that the asset should be depreciated using the reducing-balance method at 1.5 times the straight line rate. Under normal circumstances, which of the following statements is correct?
|
A. |
After year 1, the tax base of the asset exceeds the accounting base and will give rise to a deferred tax liability. |
|
B. |
After year 1, the tax base of the asset is less than the accounting base and will give rise to a deferred tax liability. |
|
C. |
After year 1, the tax base of the asset exceeds the accounting base and will give rise to a deferred tax asset. |
|
D. |
After year 1, the tax base of the asset exceeds the accounting base and will give rise to a tax asset. |
5.Sporter Enterprises has incurred a tax loss in the current period. Under tax law, which of the following statements is not correct?
|
A. |
A deferred tax asset can be recognised if it is probable that Sporter will earn taxable income in the future. |
|
B. |
Assuming all relevant tax laws have been adhered to, Sporter can carry the loss forward to reduce taxable income in future periods. |
|
C. |
A deferred tax liability is created, as Sporter will have to pay tax on taxable income in the future. |
|
D. |
Sporter cannot carry the loss forward as a deferred tax asset if it is probable that future taxable income will not be earned. |
6.Working capital is:
|
A. |
loan capital. |
|
B. |
total assets less total liabilities. |
|
C. |
current assets less current liabilities. |
|
D. |
quick assets less current liabilities. |
7.The term ‘working capital’ is used to describe the:
|
A. |
amount of equity (ownership) capital in the firm. |
|
B. |
portion of capital actively employed in generating revenues. |
|
C. |
amount of debt (borrowed) capital in the firm. |
|
D. |
cushion of current assets over current liabilities. |
8.Which of the following must be known in order to determine the firm’s total amount of working capital?
Current assets Current liabilities
|
A. |
Yes Yes |
|
B. |
Yes No |
|
C. |
No Yes |
|
D. |
No No |
9.What is the total working capital for the following company?
|
Cash |
$10 000 |
|
Accounts Receivable |
$40 000 |
|
Accounts Payable |
$30 000 |
|
Land |
$100 000 |
|
Equipment |
$70 000 |
|
Long-term loan |
$40 000 |
|
A. |
$10 000 |
|
B. |
$20 000 |
|
C. |
$50 000 |
|
D. |
$150 000 |
10.Which of the following is not an example of short-term finance?
|
A. |
Trade credit |
|
B. |
Factoring |
|
C. |
Finance lease |
|
D. |
Bank overdraft |
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