Chapter 18 Multiple-choice questions

Double-entry Bookkeeping II
. Mark buys equipment second hand for £20,000 when it would have cost him £28,000 if he had bought new equipment.
Mark should record the equipment in the financial statements at the amount of £28,000

. Mark bought a fridge for the amount of £300 for his personal use. Mark should include the fridge at a cost of £300 in the financial statements.

. Mark has a year-end of 30 June 2021. He has paid telephone line rental of £60 for the period from 1 June 2021 to 31 August 2021. Mark should record a prepayment of £20 in his financial statements.

. Mark has been informed that one of the trade receivables, Notgrate Freight, has ceased trading and is unlikely to pay any of its business debts. Notgrate Freight owes the business £610 and this amount should be written off as a bad debt in line with the prudence concept.

. Mark employs a member of staff who has experience of sales. Mark should record the member of staff as an asset in the business's financial statements.

. Included in the telephone rentals account at 31 December 2021, James had included business telephone rental of £150 paid in advance for 2022.
The double entry for this should be
Increase an asset a/c= DEBIT PREPAYMENT A/C £150
Decrease an expense a/c = CREDIT EXPENSE A/C £150

. James rented an office for the business for £6,000 per annum from 1 January 2021 and pays the rental quarterly in arrears. One quarter's rent was owing at the year end.
The double entry for this should be
decrease liability a/c = DEBIT ACCRUALS A/C £1,500
decrease expense a/c = CREDIT OFFICE RENTAL A/C £1,500

. James bought a washing machine for his own personal use costing £8,000 on 31 December 2021. He took out a personal loan for this on 31 December 2021.
For this transaction, the washing machine would not be recorded as it is not a business transaction.

. James bought a van for use in the company costing £10,000 on 31 December 2021. He took out a business loan for this on 31 December 2021.
The double entry for the purchase of van is:
Increase the expense a/c = DEBIT MOTOR VEHICLES expenses A/C £10,000
Increase liability a/c = CREDIT LOAN A/C £10,000

. James took out a business loan on 30 October 2022.The loan attracts interest at the rate of 10% per annum, payable 6 monthly in arrears. If the business year end is 31 December 2022, then 2 months interest should be charged as an expense in the statement of profit or loss.

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