At the End of Its First Year Trading the Trial

question 4

Multiple Choice

At the end of its first year trading the trial balance shows the following balances. Trade payables £240 000, total equity £230 000 of which £130 000 represents the profit for the year, bank £13 200, machinery £60 000, van £20 000, inventory £ 100 000, receivables £40 000 and prepayments £20 800. Hugh has yet to account for depreciation for which he is using the straight line method over four years assuming no residual value. He also identifies that he has only paid three quarters electricity bills and owes an estimated £ 1 200 which is not recorded.
-having had further discussions with Hugh you find that the actual inventory at the year end is £6000 and no charges have been made for the cost of sales and you also find that included in prepayments is £8000 that relates to the year just gone. What is the effect of these on profit and total assets?

• A) Decrease in profit of £94000 and decrease in assets of £94000
• B) Decrease in profit of £86000 and decrease in assets of £86000
• C) Decrease in profit of £102000 and decrease in liabilities of £102000
• D) None of the above

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Definitions:

Stereotypes

Widely held but fixed and oversimplified images or ideas of a particular type of person or thing, often used to generalize about groups of people.

Associative Networks

A model in psychology that explains how thoughts and memories are interconnected through associations.

Content-Free Schemas

Mental structures that organize general concepts or strategies rather than specific information or content.

Exemplary Prototypes

Ideal or highly representative examples of a category or class that serve as benchmarks or standards.