Question: Atlantic Corporation reported the following amounts at the end of the first year of operations: common stock £200,000; sales revenue £800,000; total assets £600,000; and total liabilities £320,000.

1. Atlantic Corporation reported the following amounts at the end of the first year of operations: common stock £200,000; sales revenue £800,000; total assets £600,000; and total liabilities £320,000. Dividends were not distributed. What are Atlantics' retained earnings at the end of the year and what amount of expenses were incurred during the year?

1. Retained earnings are £80,000 and expenses incurred totaled £680,000.
2. Retained earnings are £280,000 and expenses incurred totaled £480,000.
3. Retained earnings are £80,000 and expenses incurred totaled £720,000.
4. Retained earnings are £280,000 and expenses incurred totaled £520,000.
5. Retained earnings are £800,000 and expenses incurred totaled £200,000.

2. The Eaton company owns an interest-bearing note receivable with a nominal value of £1,000. Interest at 8% per annum on the note receivable was earned for the three months and is expected to be collected when the note is due in July. What adjusting entry is necessary on 31 March, if the company decides to prepare financial statements at that date?
   1.  

3. A company purchased land for constructing a residential complex on 1 January 2016 at a cost of £3,000,000.  The company borrowed £1,000,000, with an 8% annual interest rate on 1 January 2016 to help finance the construction.  The project was delayed until 1 July 2016 at which point architects were enlisted at a cost of £100,000 to draw up plans and obtain planning permission.  On 1 October 2016 work was suspended to allow the company to concentrate on another project.  Interest costs, which were incurred evenly throughout the year to 31 December 2016, on the loan amounted to £80,000.  The borrowing costs which should be capitalised as of 31 December 2016 are:
4. £80,000
5. £40,000
6. £20,000
7. £100,000
8. The borrowing costs should not be capitalized

4. A company has an asset with a carrying amount of £100,000.  At present the asset could be sold for £50,000.  Disposal costs would be £2,000.  The asset is expected to generate net cash inflows for the next 3 years of £20,000 per year and then to be sold for £10,000.  All cash flows occur at the end of the year concerned.  The company borrows at a rate of 10%.  What is the amount of the impairment loss?
5. £30,000
6. £52,000
7. £50,000
8. £42,750

5. An audit shows that the beginning inventory at 1 January X1 had been overstated by £1,000 and the ending inventory (31/12/X1) was overstated by £400. As a consequence, the cost of goods sold for X1 was
   1. Overstated by 400
   2. Understated by 400
   3. Understated by 600
   4. Overstated by 600