fin 621 quizzes and papers vu solutions guru

Fin621 Online Quizzes & Papers GURU

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1.If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an: A. . understatement of net income for the year by $7,500 B. . understatement of cost of merchandise sold for the year by $7,500 C. . overstatement of merchandise inventory for the year by $7,500 D. . overstatement of gross profit for the year by $7,500 2.The balance sheet contains the same major headings as appear in the accounting equation. A. . False B. . True 3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the a amount of net income or net loss would be: A. . $37,500 net loss B. . $2,500 net loss C. . $7,500 net income D. . $45,000 net income 4. If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to record depreciation would be: A. . debit depreciation expense, $2,000; credit accumulated depreciation, $2,000 B. . debit equipment, $2,000; credit depreciation expense, $2,000 C. . debit depreciation expense, $$2,000; credit equipment, $2,000 D. . debit accumulated depreciation, $2,000; credit depreciation expense, $2,000 5. Liabilities result from some future transaction. A. . False B. . True 6. All calendar years are also fiscal years, but not all fiscal years are calendar years. A. . True B. . False 7. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted from, gross sales. A. . True B. . False 8. The post-closing trial balance may contain revenue and expense accounts. A. . True B. . False 9. Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross profit and net income.



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A. . True B. . False 10. All accounting systems currently in use are computerized. A. . False B. . True 11. In a period of rising prices, FIFO results in the lowest cost of goods sold. A. . True B. .False 12. If all of the adjusting entries are not made, the financial statements are incorrect. A. . False B. . True 13. Which of the following entries closes the owner's drawing account at the end of the period. A. . debit the owner's capital account, credit the drawing account B. . debit the income summary account, credit the drawing account C. . debit the drawing account, credit the owner's capital account D. . debit the drawing account, credit income summary account 14. Which of the following accounts would not be included in a post-closing trial balance. A. . fees earned B. . accumulated depreciation C. . cash D. . owner's equity 15. Which of the following is an example of an intangible asset. A. . Patents B. . all possible answers C. . copyrights D. . goodwill 16. If total assets increased $20,000 during a period and total liabilities increased $12,000 during the same period, the amount and direction (increase or decrease) of the change in owner's equity for that period is: A. . an $8,000 decrease B. . an $8,000 increase C. . a $32,000 increase D. . a $32,000 decrease 17. The following units of a particular item were available for sale during the period: Beginning inventory 40 units at $20



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First purchase 50 units at $21 Second purchase 50 units at $22 Third purchase 50 units at $23 What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic inventory system by the FIFO costing method. A. . $20 B. . $23 C. . $21 D. . $22 18. The Unearned Fees account is a revenue account. A. . True B. . False 19. The accumulated depreciation account is an asset account that shows the amount of depreciation for the current year only. A. . True B. . False 20. At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable is: A. . $107,000 B. . $7,000 C. . $93,000 D. . $100,000 21. The percentage-of-sales method estimates the uncollectible accounts from the ending balance in accounts receivable. A. . True B. . False 22. An example of an accelerated depreciation method is: A. . Units-of-production B. . Straight-line C. . Depletion D. . Declining-balance 23. The three forms business organizations are single proprietorship, partnership, and trust A. . False B. . True 24. Current Liabilities are classified as clearly determinable, estimated and contingent. A. . False



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B. . True 25. The type of account with a normal credit balance is: A. . drawing B. . a revenue C. . an asset D. . an expense 26. Which of the following expenses would normally be classified as Other or Non Operating expense on a multiple-step income statement. A. . interest expense B. . insurance expense C. . depreciation expense - office equipment D. . sales salaries expense 27. The following units of a particular item were purchased and sold during the period: Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 First sale 110 units Third purchase 50 units at $23 Second sale 45 units What is the cost of the 35 units on hand at the end of the period as determined under the perpetual inventory system by the LIFO costing method. A. . $715 B. . $705 C. . $700 D. . $805 28. Which of the following accounts would not be closed to the income summary account at the end of a period. A. . fees earned B. . rent expense C. . wages expense D. . accumulated depreciation 29. Revenues, liabilities and equity accounts are increased by debits. A. . False B. . True 30. Under the allowance method, uncollectible accounts expense is recognized when a specific customer's account is written off. A. . True B. . False



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31. If the trial balance has equal debit and credit totals, it cannot contain any errors. A. . True B. . False 32. The left side of any account is the credit side. A. . False B. . True 33. The purpose of depreciation accounting is to provide the case required to replace plant assets. A. . True B. . False 34. The income statement shows the profitability of the company and is dated as of a particular date, such as December 31, 2010. A. . True B. . False 35. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5. A. . November 4 B. . October 31 C. . November 3 D. . November 2 36. Which of the following accounts would be classified as a current asset on the balance sheet. A. . accumulated depreciation B. . accounts receivable C. . office equipment D. . land 37. Purchase discounts and purchase returns and allowances are recorded in contra accounts to the purchases account. A. . True B. . False 38. A transaction must be journalized in the journal before it can be posted to the ledger accounts. A. . False B. . True 39. A multi-step income statement consists of only two categories of items, revenues and expenses A. . True



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B. . False 40. If the equipment account has a balance of $22,500 and its accumulated depreciation account has a balance of $14,000, the book value of the equipment is: A. . $36,500 B. . $14,000 C. . $22,500 D. . $8,500 41. A debit may signify: A. . an increase in an asset account B. . a decrease in an asset account C. . an increase in a liability account D. . an increase in the owner's capital account 42. A payment of cash for the purchases of services should be recorded in the: A. . cash receipts journals B. . revenue journal C. . purchases journal D. . cash payments journal 43. After the closing process is complete, no balance can exist in any revenue, expense, or income summary account. A. . True B. . False 44. Which of the following items represents a deferral. A. . fees earned B. . accumulated depreciation C. . wages payable D. . prepaid insurance 45. The inventory costing method that is based on the assumption that costs should be charged against revenue in the order in which they were incurred is: A. . perpetual inventory B. . average cost C. . FIFO D. . LIFO 46. The resources owned by a business are called: A. . The accounting Equation B. . Owner's Equity C. . Assets D. . Liabilities



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47. A listing of a business entity's assets, liabilities, and owner's equity as of a specific date is: A. . a statement of cash flows B. . a statement of owner's equity C. . a balance sheet D. . an income statement 48. The policies and procedures used by management to protect assets from misuse, ensure accurate business information, and ensure compliance with laws and regulations re called: A. . systems analysis B. . systems implementation C. . internal controls D. . systems design 49. If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing: A. . a credit memorandum B. . a bill C. . an invoice D. . a debit memorandum 50. The amounts in the Adjustments columns are always added to the amounts in the Trial Balance columns to determine the amounts in the Adjusted Trial Balance columns. A. . True B. . False 51. A debit balance in which of the following accounts would indicate a likely error. A. . miscellaneous expense B. . cash C. . fees earned D. . accounts receivable 52. What is the maturity value of a 90-day, 12% note for $10,000. A. . $10,300 B. . $10,000 C. . $8,800 D. . $11,200 53. The form listing the titles and balances of the accounts in the ledger on a given date is the: A. . balance sheet B. . income statement C. . trial balance D. . statement of owner's equity



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54. When a note receivable is dishonored, Accounts receivable is debited for what amount. A. . the face value of the note B. . the maturity value of the note plus accrued interest C. . the maturity value of the note D. . the maturity value of the note less accrued interest 55. Depreciation is the process of valuation of an asset to arrive at its market value. A. . True B. . False 56. All of the steps in the accounting cycle are performed only at the end of the accounting period. A. . False B. . True 57. On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is called: A. . income from operations B. . net income C. . operating income D. . gross profit 58. When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called: A. . a creditors ledger B. . an accounts payable ledger C. . an accounts receivable ledger D. . a subsidiary ledger 59. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30, and the seller prepays $50 in transportation costs, the amount of the discount for early payment would be: A. . $0 B. . $10.00 C. . $10.50 D. . $5.00 60. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is: A. . FIFO B. . periodic C. . LIFO D. . average



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61. The balance on the unearned rent account for Jones Co. as of 12/31 is $1,200. If Jones Co. failed to record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and income statement for December is: A. . liabilities overstated $600; net income understated $600 B. . liabilities overstated $600; net income overstated $600 C. . liabilities understated $600; net income understated $600 D. . assets understated $600; net income overstated $600 62. A petty cash fund is: A. . All of the proposed answers B. . used to pay relatively small amounts C. . established by estimating the amount of cash needed for disbursement of relatively small amounts during a specified period D. . reimbursed when the amount of money in the fund is reduced to a predetermined minimum amount 63. Under perpetual procedure, cost of goods sold is determined as a result of the closing entries made at the end of the period. A. . True B. . False 64. At the end of the accounting period, three trial balances are prepared. A. . True B. . False 65. The statement of equity shows both the net income for the period and the beginning and ending balances of equity. A. . True B. . False 66. If a net loss occurs, it appears in the Income Statement credit column and Balance Sheet debit column. A. . True B. . False 67. Which of the following accounts in the adjusted trial balance columns of the work sheet would be extended to the balance sheet columns: A. . Rent revenue B. . Miscellaneous expense C. . Utilities expense D. . Owner Drawing 68. At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of uncollectible accounts determined by aging the receivables is $8,500, the amount of uncollectible accounts expense is: A. . $2,500



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B. . $11,000 C. . $6,000 D. . $8,500 69. The income statement in which the total of all expenses is deducted from the total of all revenues is terms: A. . multiple-step form B. . single-step form C. . report form D. . account form 70. Under Lower of Cost or Market, inventory is written down to market value when the market value is less than the cost, and inventory is written up to market value when the market value is greater than the cost. A. . False B. . True 71. A profit making business operating as a separate legal entity and in which ownership is divided into shares of stock is known as a: A. . Proprietorship B. . Corporation C. . Service Business D. . Partnership 72. The three most common types of business activity are service, merchandising, and manufacturing. A. . True B. . False 73. In taking a physical inventory, consigned goods are usually not included in the ending inventory, but merchandise in transit is included. A. . True B. . False 74. Every adjusting entry affects at lease one income statement account and one balance sheet account. A. . True B. . False 75. A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is: A. . $4,900 B. . $5,000 C. . $5,600 D. . $5,100



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76. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each purchase and credited for each sale. A. . False B. . True 77. If the supplies account (asset), before adjustment on May 31, indicated a balance of $2,250, and supplies on hand at May 31 totaled $950, the adjusting entry would be: A. . debit supplies, $950; credit supplies expense, $950 B. . debit supplies, $1,300; credit supplies expense, $1,300 C. . debit supplies expense, $1,300; credit supplies, $1,300 D. . debit supplies expense, $950; credit supplies, $950 78. The receipt of cash from customers in payment of their accounts would be recorded by a: A. . debit to cash; credit to accounts receivable B. . debit to accounts receivable; credit to cash C. . debit to accounts payable; credit to cash D. . debit to cash; credit to accounts payable 79. Which of the following expenditures incurred in connection with acquiring machinery is a proper charge to the asset account A. . Neither one B. . Installation costs C. . Freight D. . Both 80. The purchase price of land includes its purchase price and other related costs, including the cost of removing an old unusable building that is on the land. A. . True B. . False Which of the following is TRUE about both sides of the trial balance? Both sides are always positive Both sides are negative Both sides are equal Both sides are not linked which each other Adjusting entries are used to: Bring account balances up to date at year end Close temporary accounts at year end Close permanent accounts at year end Bring account balances at zero



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Which of the following statement is NOT true? Financial statements may be prepared soon after the adjusted trail balance The owner’s equity is not up to the date until the closing entries are posted Adjusting entries are prepared before the financial statements are prepared In the accounting cycle, closing entries are made before the adjusting entries Which of the following is the second name for the journal? Book of default entries Book of original entries Book of detailed entries Book of annual entries Which of the following represents the negative future cash flows for an enterprise? Assets Owner’s equity Liabilities Capital The definition of cash as used in “Cash Flow Statements” includes: Only cash balances Only bank balances Bank balances and bank overdrafts Cash in hand plus bank balances less bank overdrafts Accounting is called the “language of business” because__________: It communicates the financial information to the Management only In order to run a business one must have knowledge about accounting Different business accounts are involved in financial statements It helps to organize and communicate financial information to end users Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements? Description of current year equity transactions Summary of long-term debt outstanding Schedule of fixed assets Revenue recognition policies Generally speaking, investors want to buy shares at which of the following price? At face value



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Below face value Above face value At market value The true and fair presentation of the financial statements depends, among other things, upon which of the following? Strong financial position Concept of materiality Matching principle Realization principle Which of the following explains the debit and credit rules relating to recording revenues and expenses? Realization and matching principle The effect of revenues and expenses in the owner’s equity Expenses appear on the left side of the income statement Liabilities are recorded as debit on the balance sheet Net current assets are equivalent to: Stock plus debtors plus cash Current liabilities less current assets Working capital Fixed assets plus current assets less current liabilities Which of the following is NOT an example of cash equivalents? Certificates of Deposit Money market accounts Money market mutual funds Euro Bond Which of the following principle provides the definite and factual basis for assets valuation? Stable Currency principle Objectivity Principle Matching Principle Cost Principle Which of the following principle states that the assets are purchased for the use and not for resale purpose? Stable Currency principle Objectivity Principle



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Going-concern principle Cost Principle For purpose of measuring business income, the life of a business is divided into which of the following? Divided into specific points in time Divided into irregular cycles Divided into discrete accounting periods Considered to be a continuous cycle End product of the accounting cycle is known as the__________ Tax return Financial statements Auditor’s annual report Annual general meeting According to _____ the personal expenses paid by Mr. A from his own pocket would not be recorded in business books of account. Realization principle Separate entity principle Matching principle Materiality principle Current assets are those assets which management intends to convert into cash or consume within: The operating cycle One year The longer of operating cycle or one year The shorter of operating cycle or one year Identify the statement that is NOT true about the Incomes Account and Expenses Account: These are the temporary accounts These are closed in Income summery account These may included in closing trial balance These are also known as Nominal Accounts Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following reasons? Decreased cash flows from higher taxes Increased cash flows from lower taxes



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Increased cash flows from higher taxes Decreased cash flows from lower taxes Which one of the following remains intact and unaffected by the continuous changes in business? Capital Stock Assets Liabilities Retained Earnings (not sure) Which of the following is the proper journal entry to record Ransom Company's billing of clients for Rs. 500 of services rendered? Select correct option: Debit Cash 500; Credit Accounts Receivable 500 Debit Accounts Receivable 500; Service Revenue 500 Debit Accounts Receivable 500; Credit Capital Stock 500 Cash 500; Credit Service Revenue 500 If a company needs extra funds then it is allowed by the Companies Ordinance 1984 to issue shares at: Face value On discount On premium Both at face value and at discount Statement of cash flows helps the investors and other stake holders to assess: The ability to generate future cash flows The liquidity of the business Ability to pay cash dividends in the future All of the given options Which of the following is NOT the part of the stockholder’s equity? Paid-in-Capital Additional Paid-in-Capital Gross profit Retained Earnings Which of the following is the second name for the journal? Book of default entries Book of original entries Book of detailed entries Book of annual entries



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Which of the following items are included in the financing activities section of the statement of cash flows? Cash effects of transactions involving making and collecting loans Cash effects of acquiring and disposing of investments and property, plant, and equipment Cash effects of transactions obtaining resources from owners and providing them with a return on their investment Cash effects of transactions that enter into the determination of net income How many basic types of adjusting entries are there? Two types Three types Four types Ten types There are five main kinds of current assets. Which of the following is NOT among them? Cash and equivalents Deferred income Accounts receivable Prepaid expenses Which of the following is NOT true about depreciation? Select correct option: Depreciation causes perpetual and gradual fall in the value of asset Depreciation does not depend upon on fluctuations in the market value of asset Depreciation is a charged in case of fixed assets only Depreciation is a charge against revenue of two or more accounting periods Which of the following would be affected by the difference between revenues and expenses? Assets Owner’s equity Liabilities Capital Which of the following is the largest single expense of most merchandising firms? Cost of goods sold Rent Expense



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Amortization Expense Salaries Expense When dividends are declared by a corporation's board of directors, what will be its journal entry on the declaration date? Debit Dividends payable; Credit Retained Earnings Debit Retained Earnings; Credit Cash Debit Retained Earnings; Credit Dividends Payable Debit Cash; Credit Retained Earnings Which of the following is TRUE regarding the entry to recognize the depreciation expense? It is an application of matching principle It is a closing entry Usually includes an offsetting credit to cash It is done only at the end of each month Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements? Description of current year equity transactions Summary of long-term debt outstanding Schedule of fixed assets Revenue recognition policies According to the statement of cash flows; following are the examples of investing activities except: Sales of machinery Capital invested by the owners Purchase of building for the business use Cash received from the disposal of equipment Which of the following refers to the term “posting”? The recording of transactions The system of giving numbers to the accounts Transferring the debits and credits to ledger Transferring the debits and credits to journal The purpose of recording depreciation on productive assets is to: Reflect the decline in the market value of the assets each period Reduce income when the company has an exceptionally profitable year Be in conformity with the revenue recognition principle



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Allocate the original cost of a productive asset to expense over its useful life The cash flow from investing activities shows the cash effects of which of the following? Income statement items Long term assets items Long term liability & stockholder’s equity Long term liability and long term assets Which of the following account would NOT be closed to the income summary account at the end of a period? Select correct option: Rent expense Revenue earned Wages expense Accumulated depreciation Which of the following explains the debit and credit rules relating to recording revenues and expenses? Select correct option: Realization and matching principle The effect of revenues and expenses in the owner’s equity Expenses appear on the left side of the income statement Liabilities are recorded as debit on the balance sheet The Drawing account is closed by which of the following entry? Capital – Debit; Drawing - Credit Drawing – Debit; Capital - Credit Income Summary – Debit; Drawing - Crediting Drawing – Debit; Income Summary - Crediting Which of the following would NOT be the characteristics of current assets? Likely to change before the next accounting period is over Not bought for resale Use as part of the firm's trading operations Liquidity Which of the following is NOT one of the three items required to be shown in the heading of a financial statement? Select correct option:



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The preparation date of the financial statement The title of the financial statement The unit of measure in the financial statement The name of the business entity The percentage change is computed by dividing the amount of the dollar change between years and which of the follwing amount? The base year The current year The average of past ten years The average of past five year Which of the following expenses would normally be classified as Other or Non Operating Expense on a multiple-step income statement? Interest expense Depreciation expense Insurance expense Salaries expense What will be the affect of dividends paid on the book value of a company? Increase Decrease No effect Depends upon the situation All of the following accounts would be closed in Income Summery Account EXCEPT: Select correct option: Commission earned account Prepaid insurance Salaries Expense account Wages account Question # 1 Which of the following section of cash flow statement shows the cash effects of those transactions reported in the income statement? Cash flow from investing activities Cash flow from financing activities Cash flow from operating activities All parts show effects of different transactions of income statement Question # 2 If we take goods for own use we should: Debit - Drawings Account: Credit - Purchases Account Debit - Drawings Account: Credit - Stock Account Debit - Purchases Account: Credit - Drawings Account Debit - Sales Account: Credit - Stock Account



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Question # 3 The income statement of the UBL shows the interest revenue of Rs. 6,000, and the amount of accrued interest receivable has increased from Rs. 3000 to Rs. 4000 during the year. Calculate the amount of interest received. RS. 7000 Rs. 5000 Rs. 8000 Rs. 1000 Question # 4 Which of the following is an example of an accrual? Equipment purchased for use in the business Book-keeping fees collected but not yet earned Six months’ rent paid in advance Interest earned but not yet received Question # 5 Net current assets are equivalent to: Stock plus debtors plus cash Current liabilities less current assets Working capital Fixed assets plus current assets less current liabilities Working capital= Current assets minus current liabilities. Question # 6 Accounting is called the “language of business” because__________: It communicates the financial information to the Management only In order to run a business one must have knowledge about accounting Different business accounts are involved in financial statements It helps to organize and communicate financial information to end users Page 1 In the case of the business entity, accounting would deal with measuring, recording and communicating the results of business activities. That is why; Accounting is often called “Language of Business”.

Question # 7 In which of the following account, a credit balance would be an evidence for a mistake or an error? Mr. A Capital Account Cash account Notes payable account page 6 Drawings account Which of the following represents the main step(s) of accounting cycle? Recording the transactions



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Classifying the transactions Ordering, summarizing, counting the transactions Recording, classifying, summarizing transactions The accounting process or cycle has the following five steps. 1. Identifying the financial transaction 2. Recording Of Financial Transactions 3. Classifying Financial Transactions 4. Summarizing Financial Transactions 5. Communicating the Results of Business Question # 8 A company purchased the land in exchange for the capital stock; it would affect which of the following? Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities It would not affect any section Question # 9 Primary purpose of the cash flows statement is to provide the information about: Errors or discrepancies between cash book and income statement Receipts and payments of cash in the period Non cash adjustment that effect the income statement Cash paid to the customers and creditors of the business A primary purpose and objective of cash flow statement is to provide information about the cash receipts and cash payments of a business entity for the accounting period covered by the income statement. Question # 10 Cash has been described as: The lifebuoy of the business The lifeboat of the business The lifeline of the business The lifeblood of the business Question # 11 If a company has paid dividends on its preference shares, under which one of the cash flow statement headings would they appear? Returns on investments and servicing of finance Financing Equity dividends paid Capital investment and financial investment Ref: http://www.oup.com/uk/orc/bin/9780199264711/01student/mcqs/ch09/ Question # 12 Which of the following is the third step of accounting cycle? Preparing financial statements



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Preparing trial balance Posting Making adjusting entries Question # 13 which of the following term refers to each element of the Balance Sheet? Ledger Journal General T- Account Account Page no 6 Each element/sub-element of the balance sheet is named as “Account”, Question # 14 Which of the following is the most common adjusting entry? Un-earned revenue Pre-paid expense Depreciation expense Accrued revenue

Question # 15 Which of the following account would NOT be closed to the income summary account at the end of a period? Rent expense Revenue earned Wages expense Accumulated depreciation Because we close the Income Summary account to Retained Earnings, by doing this, all revenues and expenses are "corralled" in Income Summary (the net of which represents the income or loss for the period). In turn, the income or loss is then swept to Retained Earnings along with the dividends

Question # 16 How the transactions in a journal are initially recorded? Alphabetical order Ascending order Chronological order Alphanumeric order Question # 17 The true and fair presentation of the financial statements depends, among other things, upon which of the following? Strong financial position



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Concept of materiality Matching principle Realization principle Refhttp://docs.google.com/viewer?a=v&q=cache:2xia_fB5R4sJ:eprints.ouls.ox.ac.uk/archive/00001060/01/AUDIT_MATERIALITY.pdf+The+true+and+fair+presentation+of+the+financial+statements+depends,+among+other+things,+upon+which+of+the+following%3F&hl=en&gl=pk&pid=bl&srcid=ADGEESjxMXJdJbZNe9veq56MXH_Rr51RyAisYr3-ks31XZc0H2TRwBI4f3YIaZ_UPrUcEWqX3KzdfsxdiA5m5ZzMybhWcZ-b3UzrHhNfoqZx727IWz-zQBH0CjYsCqG78YfFErKqfNMm&sig=AHIEtbRhuwjCLb7c3oyoed8bQzgqvGg6aw Question # 18 Use the following information to calculate net cash from investing activities: sell a capital asset for Rs. 10,000 cash and a Rs. 1,000 gain; purchase a bond investment for Rs. 16,000; receive Rs. 2,000 interest payment from the bond investment; and pay off a Rs. 3,000 mortgage payable. Rs. 6,000 net cash Rs. 4,000 net cash Rs. 5,000 net cash Rs. 9,000 net cash Question # 19 Which one of the following statement shows the effects of cash inflows and outflows? Balance Sheet Statement of Owner’s Equity Income Statement Statement of Cash Flows Question # 20 Journal entries are done at the end of the accounting period for which type of accounts? Assets and liabilities Office supplies and office equipment Raw material and office supplies Depreciation and expenses Page 29 Immediate recording of every event in some cases is not practical e.g. raw material, office supplies, depreciation. Journal entries of such expenses are recorded at the end of accounting period and are called adjusting entries. Question # 21 Which one of the following is usually classified as an inventory item? : Goods purchased for resale to customers Items purchased and used by the company such as office supplies



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Items purchased for a specific customer job Items purchased and the quantity on hand does not need to be tracked PAGE 65 Inventory: This consists of items held for sale or used in manufacture of products that would be sold. Inventory in merchandising business consists of goods owned and held for sale. Question # 22 In the long run, a business must generate positive net cash flow from which of the following activities, if it is to survive? Investing activities Financing activities Operating activities Non cash activities PAGE 47 In the long run Cash flow from operations must be positive. Question # 23 If the estimated amount of depreciation on equipment for a period is Rs.2000, the adjusting entry to record depreciation would be: Depreciation expense - Debit; Equipment - Credit Depreciation expense - Debit; Accumulated depreciation - Credit Equipment - Debit; Depreciation expense - Credit Accumulated depreciation - Debit; Depreciation expense - Credit Question # 24 According to _____ the personal expenses paid by Mr. A from his own pocket would not be recorded in business books of account. Realization principle Separate entity principle Matching principle Materiality principle Question # 25 Financial statements are a subset of which of the following? Financial reporting Financial statement analysis Accounting information Accounting system Question # 26 Which of the following account will appear in the post-closing trial balance? Owner’s Capital Service Fees Earned



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Income Summary Owner’s Withdrawals Question # 27 When cash flow statement is prepared by using indirect method, which part of it is different from the direct method? Cash flow from investing activities Cash flow from financing activities Cash flow from operating activities All parts are same in both methods Question # 28 Which of the following people and groups are NOT interested in cash flow statements of a company? Select correct option: Accounting personnel Potential customers Potential creditors Potential employees People and groups interested in cash flow statements include: Accounting personnel, Potential lenders or creditors, Potential investors, , Potential employees or contractors, Shareholders of the business. Question # 29 Which of the following is an example of an accrual? Equipment purchased for use in the business Book-keeping fees collected but not yet earned Six months’ rent paid in advance Interest earned but not yet received Question # 30 Which one of the following transactions should be classified as a financing activity? Purchase of equipment Purchase of treasury stock Sale of trademarks Income tax refund Question # 31 Accelerated depreciation method is mostly used for __________. Financial statements Assets valuation Inventory valuation Income tax returns Question # 32 Depreciation is added back to profit when arriving at the cash flow from operating



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activities because: Depreciation is only an estimated amount Depreciation does not affect profit Depreciation does not result in a flow of cash Depreciation only affects the balance sheet, not the profit and loss account Question # 33 To find the value of closing stock at the end of a period we: Deduct opening stock from cost of goods sold Look in the stock account Deduct cost of goods sold from sales Do this by stocktaking Question # 34 Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following reasons? Decreased cash flows from higher taxes Increased cash flows from lower taxes (not sure) Increased cash flows from higher taxes Decreased cash flows from lower taxes Question # 35 Identify the statement that is NOT true about the Incomes Account and Expenses Account: These are the temporary accounts These are closed in Income summery account These may included in closing trial balance These are also known as Nominal Accounts Question # 36 Which of the following terms present a cause and effect relationship with each other? Income statement and balance sheet Revenue and assets Assets and liabilities Revenues and expenses

Question # 37 Which of the following company would like to use the accelerated depreciation method? A company with large tax burdens A company with low tax burdens A company that wan to report high net income A company that want to report huge assets



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These methods provide a greater tax shield effect than straight line depreciation, and so companies with large tax burdens might like to use accelerated depreciation methods. Question # 38 The cash flow from investing activities shows the cash effects of which of the following? Income statement items Long term assets items Long term liability & stockholder’s equity Long term liability and long term assets Question # 39 Pre-paid expense is a(n) _______ type of account. Liability Asset Revenue Expense Question # 40 Which of the following should NOT be called “Sales”? Goods sold for cash Office fixtures sold Goods sold on credit Sale of item previously included in ‘Purchases’ Question # 41 Which of the following is true about "After closing trial balance"? It may consist of balances of only Real and Personal accounts It may consist of balances of only Nominal and Real accounts It may consist of balances of Nominal, Real and Personal accounts It may consist of balances of only Nominal and Personal accounts Question # 42 Audit opinions can NOT be classified as which of the following? Adverse opinion Unqualified opinion Qualified opinion Disagreement of opinion Question # 43 Which of the following is an inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation? FIFO LIFO Specific identification Weighted-average



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Page 75 In the FIFO method, oldest available purchase costs are transferred to cost of goods sold. That Means the cost if goods sold has a lower value and the profitability of the organization becomes higher. Question # 44 The users of a statement of cash flows usually are interested in: Select correct option: Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities (not sure) Net cash flow from non-cash transactions Question # 45 Which one of the following is the most common type of opinion given by the auditor? Select correct option: Unqualified opinion Qualified opinion Adverse opinion Disclaimer of opinion Question # 46 Which of the following is a special temporary account used to close all of the revenue and expense accounts? Close-out Summary Owner’s Capital Income Summary Temporary Summary Page 35 Revenue and expense accounts are closed at the end of each accounting period by transferring their balances to a summary account called income summary. Question # 47 End product of the accounting cycle is known as the__________ Tax return Financial statements Auditor’s annual report Annual general meeting Question # 48 Which of the following is NOT one of the four basic financial statements? Balance sheet Audit report



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Income statement Statement of cash flows Question # 49 Which of the following is NOT a cash outflow for the firm? Depreciation expense Dividends payments Interest payments Tax payments Question # 50 Which of the following principle states that the assets are purchased for the use and not for resale purpose? Stable Currency principle Objectivity Principle Going-concern principle Cost Principle Page no 3 Going-concern assumptions: connected with cost principle, assets acquired for use and not for resale. Question # 51 Which of the following expenses would normally be classified as Other or Non Operating Expense on a multiple-step income statement? Interest expense Depreciation expense Insurance expense Salaries expense Question # 52 Which of the following would be considered a cash-flow item from an "operating" activity? Cash outflow to the government for taxes Cash outflow to shareholders as dividends Cash inflow to the firm from selling new common equity shares Cash outflow to purchase bonds issued by another company Question # 53 Which of the following principle provides the definite and factual basis for assets valuation? Stable Currency principle Objectivity Principle Matching Principle Cost Principle

Question # 54



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The basic purpose of financial statements is to assist users in evaluating the______ Financial position Profitability of an organization Future prospects All of the given options Question # 55 The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were: Less than current market value Greater than cost Greater than book value Less than book value Question # 56 The appropriate journal entry to record equipment depreciation expense would consist of a debit to Depreciation Expense and a credit to which of the following accounts? Equipment Accumulated Depreciation: Equipment Retained Earnings Cash Question # 57 Which of the following truly represents expenses? Future benefits Past results Cost of doing business Past receipts Question # 58 Capital assets of Rs. 120,000 were purchased for cash. A capital asset was sold at a gain of Rs. 40,000. Amortization expense was Rs. 138,000. What amount would appear on the Cash Flow Statement as "Sale of Capital Asset?" Rs. 40,000 (not sure) Rs. 130,000 Rs. 170,000 Rs. 225,000 Question # 59 Decision makers compare net income to net cash from operating activities. To make these amounts more comparable, the same accounts are included in each. The following accounts are used to compute both net income and net cash from operating activities EXCEPT:



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Dividends declared and paid Dividend revenue Interest expense Interest revenue Question # 60 Which of the following refers to the term “posting”? The recording of transactions The system of giving numbers to the accounts Transferring the debits and credits to ledger Transferring the debits and credits to journal

Question # 61 The definition of cash as used in “Cash Flow Statements” includes: Only cash balances Only bank balances Bank balances and bank overdrafts Cash in hand plus bank balances less bank overdrafts Question # 62 Which of the following principle is used for recording revenue? Matching Principle Cost Principle Realization Principle Objectivity Principle Question # 63 An entry that effects more than one accounts is knows as ___________. Journal entry Compound entry Adjusting entry Reversing entry Question # 64 Which of the following auditor's opinion shows the inability of the auditor to audit the accounts of a business? Qualified Opinion Adverse Opinion Unqualified Opinion Disclaimer of Opinion Question # 65 Which of the following is the largest single expense of most merchandising firms? Cost of goods sold Rent Expense



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Amortization Expense Salaries Expense Question # 66 Which of the following type of reports is most frequently used by external users, such as investors? Financial Statements Tax Forms Management Reports Audit reports Question # 67 Which of the following best describes the meaning of the term “Purchases”? Goods bought on credit Goods paid Goods bought for resale Items bought Question # 68 All of the following accounts would be closed in Income Summery Account EXCEPT: Commission earned account Prepaid insurance Salaries Expense account Wages account Question # 69 Which of the following is NOT one of the three items required to be shown in the heading of a financial statement? The preparation date of the financial statement The title of the financial statement The unit of measure in the financial statement The name of the business entity Question # 70 If a company has paid dividends on its preference shares, under which one of the cash flow statement headings would they appear? Returns on investments and servicing of finance Financing Equity dividends paid Capital investment and financial investment

Which of the following arrangement is used to maintain the accounts? Sequentially Alphabetically



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Monthly Orderly Page no 8 Orderly arrangements of Accounts is to be maintained.

The process of recording the economic effects of business transactions in a book of original entry is knows as which of the following? Double entry system Debit Journalizing Posting An entry that affects more than one accounts is knows as _____________. Journal entry Compound entry Adjusting entry Reversing entry In which of the following form of Income Statement, the total of all expenses is deducted from the total of all revenues? Multiple-step form Account form Report form Single-step form Which one of the following statements is TRUE regarding distributions to stockholders? The payment of dividends is not directly related to the profits of a given period Shareholders can individually decide on their distributions To receive a corporate dividend, stock must be owned on the date of declaration Corporate dividends reduce contributed capital and therefore, stockholders equity All of the following are true regarding the financing activity section of the cash flow statement EXCEPT: Financing activities require analysis of long-term liability and shareholders’ equity accounts The ability to issue large quantities of common shares usually signals investor confidence In the future of the company Excessive borrowing has been the downfall of many companies The declaration and payment of a large cash dividend may signal an emergency



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Which of the following would NOT be the cash inflow for the business? Sale of land for cash Issuance of long term bonds The sale of common stock Retirement of long term debt Under which cost flow assumption, the ending inventory is composed of the earliest purchased Merchandise? FIFO LIFO Average cost Specific identification Which of the following would affect the gross profit rate if sales remain constant? An increase in advertising expense A decrease in depreciation expense An increase in cost of goods sold A decrease in insurance expense Which of the following is NOT an advantage of a Sole proprietorship? Easy to form and wind up Direct motivation Better control Limited liability Which of the following is a type of preferred stock that entitles the holder to a fixed dividend And, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock? In arrears preferred shares Call able preferred shares Cumulative preferred shares Participating preferred shares I f a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, What is the firm's Net Working Capital? Rs. 0 Rs. 100 Rs. 200 Rs. 1,000 To financial analysts, "working capital" means the same thing as which of the following? Total assets Fixed assets Current assets Current assets minus current liabilities



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Which of the following could account for a company's gross profit ratio increasing from one Period to the next? An increase in the cost of sales which has not been accompanied by an increase in the Selling price of goods sold An increase in the selling price of goods sold which has not been accompanied by an Increase in the cost of sales A change in the mix of goods sold so that lower profit margin goods take a greater Proportion of total sales A change in stock valuation method at the year end which leads to a decrease in the Closing stock figure Nestle Pakistan Limited is an example of which of the following types of businesses? Manufacturing Service Merchandise Whole seller Which of the following represents the long term debt paying ability of the company as they Become due? Liquidity Solvency Profitability Stability Which group of ratios relates the financial charges of a firm to its ability to service them? Debt ratios Coverage ratios Profitability ratios Activity ratios In isolation, which of the following is TRUE about a financial ratio? Useless piece of information Useful piece of information Useful only for past performance Useful only for future predictions How is the accounts receivable turnover ratio calculated? Net credit sales / Average total assets Net credit sales /Operating income Net credit sales /Average accounts receivables Net credit sales /Cost of goods sold Company A makes an operating profit margin of 5 % on sales of Rs. 2.5 million. Company B has sales that are 20% higher than Company A and achieves



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an operating profit margin of 3.5%. Which company makes the highest operating profit? Company B Company A Both make the same operating profit Not possible to calculate The DuPont Approach breaks down the earning power on shareholders' equity (ROE) as which of the following? Net profit margin × Total asset turnover × Equity multiplier Total asset turnover × Gross profit margin × Debt ratio Total asset turnover × Net profit margin Total asset turnover × Gross profit margin × Equity multiplier Which of the following statement best describes the operating profit margin? It shows what portion of profits are being distributed to shareholders It shows what return is being made on assets employed in the business It shows how well a company is controlling its costs, including overheads It shows how efficiently a company is turning profits into cash Return on Sales is also known as which of the following? Gross profit margin Operating profit margin Return on total assets Return on investment Which of the following is NOT a profitability measure? Accounts receivable turnover ratio Return on total assets Return on sales Dividend yield Which of the following is formula to measure the return on total assets? Average total assets by operating income Average total assets by net income Operating income by average total assets Net income by average total assets Which of the following is NOT part of additional paid-in-capital of the company? Preferred stocks Common stocks Retained earnings Dividends distributed Which of the following options indicate how quickly accounts receivables are converted into cash? Accounts receivable turnover



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Days to collect accounts receivable Working capital Total assets turnover Which one of the following statement indicates the Inventory turnover ratio? How quickly company prepared its inventory How quickly company converts its inventory into cash How quickly company purchases its inventory How quickly company sells its inventory Assume that a company has current assets of Rs. 60,000, current liabilities of Rs. 5,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the company? 1.57 1.71 1.86 0.58 What will be the effect on the EPS of the company, if it paid stock dividend on common stock? Increase Decrease No effect Can not be found from the given information What will be the effect of appropriated retained earnings on the rate of return on stockholder's equity? Increase Decrease No effect Can not be found from the given information Which of the following is the basic purpose of an accounting system? Develop financial statements in conformity GAAP Provide as much useful information to decision makers as possible Record changes in the financial position of an entity Meet an organization's need for accounting information as efficiently as possible A complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, EXCEPT: Balance sheet as of December 31, 1999 Income statement for the year ended December 31, 1999 Statement of projected cash flows for 2000 Notes containing additional information that is useful in interpreting the financial statements



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Which of the following equations properly represents a derivation of the fundamental accounting equation? Assets + liabilities = owner's equity Assets = owner's equity Cash = assets Assets - liabilities = owner's equity Which of the following is TRUE regarding Retained Earnings? Increased by net income Increased by revenues Decreased by dividends declared Decreased by gains and losses What are the effects of an adjusting entry on the financial statements? Match revenues and expenditures Increase net income Increase the accuracy of balance sheet and income statement Match revenues and assets The supplies account has a balance of Rs. 1,500 at year end. The actual amount of supplies in hand at the end of period is Rs. 400. The necessary adjusting entry is: Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100 Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400 Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100 Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400 Which of the following principle deals with the valuation and recording of the assets at cost? ► Entity Principle ► Matching Principle ► Cost Principle ► Stable Currency principle Which of the following is the acronym for GAAP? ► Generally Adopted Accounting Principles ► Generally Accepted Auditing Principles ► Generally Accepted Accounting Principles ► Generally Adapted American Principles How much duration does an accounting period usually have? ► Three months ► Two years



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► One year ► Five years To determine the balance of a particular account, one should refer to which of the following? ► Ledger ► Source document ► Chart of accounts ► Journal As transactions and events related to financial resources occur, they are analyzed with respect to their effect on which of the following? ► Financial position of the company ► Accounting cycle ► Trial balance (doubted) ► Liquidity position of the company Which of the following refers to the term “posting”? ► The system of giving numbers to the accounts ► Transferring the debits and credits to ledger ► Transferring the debits and credits to journal ► The recording of transactions Which of the following is the next step after the preparation of trial balance? ► Adjusted trial balance ► Financial statements ► Adjusting entries ► Closing entries Which of the following is TRUE regarding the income statement? ► The income statement reports only revenue for which cash was received at the point of sale ► The income statement reports the financial position of a business at a particular point in time ► The income statement is sometimes called the statement of operations ► The income statement reports revenues, expenses and liabilities Which of the following principle is used for recording an expense? ► Matching Principle ► Cost Principle ► Realization Principle ► Objectivity Principle The net income reported on the income statement is Rs. 90,000. However, adjusting entries have not been made at the end of the period for supplies expense of Rs. 2,700 and accrued salaries of Rs. 1,300. Net income, as corrected, would be: ► Rs. 87,300 ► Rs. 86,000 ► Rs. 88,700 ► Rs. 90,000 Prepaid Expense is a(n) _________ account and has a _________ normal balance. ► Revenue, credit ► Liability, credit



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► Asset, debit ► Expense, debit Company A owns a building. Which of the following statements regarding depreciation is FALSE from an accounting perspective? ► As the market value of the building increases, depreciation should increase ► Depreciation is an estimated expense to be recorded each period during the building’s life ► As depreciation is recorded, stockholders’ equity is reduced ►As depreciation is recorded, total assets are reduced A firm paid Rs. 800,000 in dividends over the last period. The beginning and ending retained earnings account balances were Rs. 10,100,000 and Rs. 12,500,000 respectively. Assuming a 40% average tax rate, what was the firm's net income (net profit after taxes)? ► Rs. 5,333,333 ► Rs. 3,200,000 ► Rs. 2,400,000(doubted) ► Rs. 1,600,000 Which of the following is the largest single expense of most merchandising firms? ► Cost of goods sold ► Rent Expense ► Amortization Expense ► Salaries Expense Which of the following is NOT among the five main kinds of current assets? ► Cash and equivalents ► Deferred income ► Accounts receivable ► Prepaid expenses When preparing a statement of cash flows under the indirect method, supplemental disclosure should be made for which of the following? ► Net cash consumed by operating activities ► Cash dividend distributions ► Cash paid for interest and taxes ► Cash paid for wages Which of the following items is included in the financing activities section of the statement of cash flows? ► Cash effects of transactions involving making and collecting loans ► Cash effects of acquiring and disposing of investments and property, plant, and equipment ► Cash effects of transactions obtaining resources from owners and providing them with a return on their investment ► Cash effects of transactions that enter into the determination of net income ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the year. What would be the cash payments for the purchase of the merchandise.



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► Rs. 505,000 ► Rs. 516,000 ► Rs. 490,000 ► Rs. 495,000 Which of the following arrangement is used to maintain the accounts? ► Sequentialy ► Alphabaticaly ► Monthly ► Orderly Which of the following represents the main step(s) of accounting cycle? ► Recording the transactions ► Classifying the transactions ► Ordering, summarizing, counting the transactions ► Recording, classifying, summarizing transactions Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically Rs.10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday? ► Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit ► Salary expense Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit ► Salary payable Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit ► Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit Retained earnings change over time because of several factors. Which of the following factors would explain an INCREASE in retained earnings? ► Net Income ► Dividends payment ► Investment by the stockholders ► Net Loss Which one of the following statements is TRUE regarding distributions to stockholders? ► The payment of dividends is not directly related to the profits of a given period ► Shareholders can individually decide on their distributions ► To receive a corporate dividend, stock must be owned on the date of declaration ► Corporate dividends reduce contributed capital and therefore, stockholders’ equity Which of the following is NOT the most common example of cash equivalents? ► Savings deposits ► Certificates of Deposit (CDs) ► Stocks of other companies ► Money market mutual funds In perpetual inventory system, a return of defective merchandise is recorded by crediting __________.



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► Purchases ► Purchase Returns ► Purchase Allowance ► Merchandise Inventory Which factor would NOT affect the gross profit rate? ► An increase in the cost of heating the store ► An increase in the price of inventory items ► An increase in the sale of luxury items ► An increase in the use of “discount pricing” to sell merchandise Assets which have NO market value are called: ► Wasting assets ► Fictitious assets ► Quick assets ► Tangible assets Audit opinions can NOT be classified as which of the following? ►Adverse opinion ► Unqualified opinion ► Qualified opinion ► Disagreement of opinion The audit is NOT a necessary requirement for which of the following companies? ► Listed companies ► Corporations ► Sole proprietorship ► Partnerships Which of the following is NOT a part of the five-year summary of a company? ► Net income/Loss ► Total assets ► Discontinued operations ► Net sales Which of the following is NOT a feature of preferred shares? ► Distributive ► Callable ► In arrears ► Cumulative Which of the following is a type of preferred stock that entitles the holder to a fixed dividend and, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock? ► In arrears preferred shares (doubted) ► Call able preferred shares ► Cumulative preferred shares ► Participating preferred shares



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Which one of the following represents the value of shares in the market at any point of time? ► Par value ► Book value ► Face value ► Market value Which one of the following represents the value of shares iive balance sheets, which of the following can NOT be found? ► The increasing items ► The decreasing items ► The unchanged items ► The future profitable items Which of the following would NOT improve the current ratio? ► Issue long-term debt to buy inventory ► Sell common stock to reduce current liabilities ► Sell fixed assets to reduce accounts payable ► Borrow short term to finance additional fixed assets (doubted) A company experiences a dramatic fall in its gross profit ratio. This could be the result of which of the following? ► An increase in competition in the company's main product market ► An increase in the incidence of bad debts ► An increase in overhead expenses ► An increase in demand for the company's products Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting. The note should not be used to: ► Correct an improper presentation in the financial statements ► Describe significant accounting policies ► Describe depreciation methods employed by the company ► Describe principles and methods peculiar to the industry Which of the following feature is shown by the income statement for a merchandising company? ► Gross profit ► Cost of goods sold ► A sales revenue section ► All of the given options In a period of rising prices, all of the following statements regarding LIFO are true EXCEPT: ► Net income is generally higher ► Ending inventory is generally undervalued(Doubted) ► It can be used to manipulate net income ► Most recent inventory costs are allocated to cost of goods sold



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From the given data, calculate Cost of Goods Sold using the FIFO costing method: Beginning inventory is 10 units . Rs. 10 each. On January 20, purchased 10 units . Rs. 20 each On January 30, purchased 5 units . Rs. 30 each 15 of the 25 units are sold. ► Rs. 200 ► Rs. 150 ` ► Rs. 350 ► Rs. 450 In which of the following inventory pricing procedure, the oldest costs incurred rarely have an effect on the ending inventory valuation? ► FIFO ►LIFO ► Retail ► Weighted-average If beginning inventory is Rs. 60,000, cost of goods purchased is Rs. 380,000, and ending inventory is Rs. 50,000, what is cost of goods sold under a periodic system? ► Rs. 390,000(formula : opening + purchases - ending) ► Rs. 370,000 ► Rs. 330,000 ► Rs. 420,000 The purpose of recording depreciation on productive assets is to: ► Reflect the decline in the market value of the assets each period ► Reduce income when the company has an exceptionally profitable year ► Be in conformity with the revenue recognition principle ► Allocate the original cost of a productive asset to expense over its useful life In which of the following situations, a company should NOT record any depreciation expense on asset described? ► Computer Airline is required by law to maintain its aircraft in “as good as new” condition ► Metro Advertising owns an office building that has been increasing in value each year ► Computer Sales Company has in inventory a new type of computers, designed never to obsolete ► None of the given option is right as depreciation is applied on all assets Which of the following is NOT the part of annual report? ► Financial statements ► Auditor’s report ► Five year summary ► Future investments report In a statement of cash flows, the acquisition of land by issuing capital stock: ► Is not shown at all, since no cash was received or disbursed ► Is shown as an investing activity ► Is shown as a financing activity(Doubted) ► Is shown in a supplementary schedule as a non-cash investing and financing transaction



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Which of the following would represent an increase in Owner's Equity? ► Increase in net income ► Increase in assets ► Increase in accounts receivable ► Increase in cash Which of the following steps of accounting cycle keep on occurring throughout the period? ► Journalizing and posting the entries ► Making adjusting entries for the relevent accounts ► Preparing Trial Balance ► Preparing financial statements Which one of the following items is NOT generally used in preparing a statement of cash flows? ► Adjusted trial balance ► Comparative balance sheets(doubted) ► Current income statement ► Additional information From the given information, calculate the Cost of Goods Sold using the weighted-average cost method: Beginning inventory 10 units . Rs. 10 each On January 20, purchased 10 units . Rs. 20 each On January 30, purchased 5 units . Rs. 30 each 15 of the 25 units are sold ► Rs. 200 ► Rs. 270 ► Rs. 300 ► Rs. 350 Which of the following is the most common item in adjusting entries of a merchandising business? ► Un-earned revenue ► Pre-paid expense ► Depreciation expense ► Accrued revenue Closing entries result in net income being calculated in the income summary account and then transferred to which of the following account? ► Revenue account ► Common Stock account ► Dividends account ► Owner's Capital account Which of the following question is NOT addressed by cash flow statement? ► How much cash was generated by the company’s operations? ► Why is such a profitable company able to pay only small dividends? ► How much was spent for the new plants and equipment? ► How profitable the company’s current assets are? Which of the following statements is CORRECT regarding depreciation methods? ► Accumulated depreciation represents a fund being accumulated fro the replacement of assets



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► The cost of a machine includes the cost of repairing damage to the machine during the installation process ► A company may use different depreciation methods in its financial statements and its income tax returns

► The use of an accelerated depreciation method causes an asset to wear out more quickly than does the straight line method

1. Which one of the following is a temporary account? a. Cash b. Accounts Receivables c. Insurance Expense d. Accounts payable 2. The term used for the difference between fair value of a company and the purchase price is: a. Trade Mark b. Market Value c. Good Will d. Purchase Price 3. Financial statement (s) that has all temporary accounts is: a. Balance Sheet b. Income Statement c. Cash Flow Statement d. Statement of Owner’s Equity 4. The accounting cycle runs in the sequence a. Analyze, journalize, post, adjust, and prepare statements, close b. Post, journalize, analyze, prepare statements, close, adjust c. Prepare statements, journalize, post, adjust, close, analyze d. Journalize, post, close, prepare statements, adjust, analyze 5. After all the closing entries have been posted, what will be the balance of the income summary account? a. A debit if a net income has occurred b. A debit if a net loss has occurred c. A credit if a net loss has occurred d. Zero 6. Which one is TRUE about Post-Closing trial balance? a. Be prepared before closing entries are posted to the ledger



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b. Contain both income statement and balance sheet accounts c. Contain only balance sheet accounts d. Contain only income statement accounts 7. Revenue from services is classified as: a. Investing Inflow b. Operating Inflow c. Investing Outflow d. Operating Outflow 8. If the cost of a building is Rs. 90, 000 and its estimated useful life is 30 years. The depreciation expense for one month is: a. Rs. 600 b. Rs. 250 c. Rs. 300 d. Rs. 500 9. The supplies on hand account have a balance of Rs. 1500 at year end. The actual amount of supplies on hand at the end of period is Rs. 400. The necessary adjusting entry is: a. Dr. Supplies on Hand Rs. 1100 Cr. Supplies Expense Rs. 1100 b. Dr. Supplies Expense Rs. 400 Cr. Supplies on Hand Rs. 400 c. Dr. Supplies Expense Rs. 1100 Cr. Supplies on Hand Rs. 1100 d. Dr. Supplies on Hand Rs. 400 Cr. Supplies Expense Rs. 400 10. If a company has Revenue Rs. = 45,000, Expenses were Rs. = 37,500, Owner’s withdrawals = Rs. 10,000. Calculate the amount of net income or net loss of the company. a. Profit of $ 15, 00 b. Loss of $ 25, 00 c. Profit of $ 25, 00 d. Loss of $25,000 How much duration does an accounting period usually have? ► Three months ► Two years ► One year



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► Five years Which of the following statement shows the effects of cash inflows and outflows? ► Balance Sheet ► Statement of Owner’s Equity ► Income Statement ► Statement of Cash Flows To determine the balance of a particular account, one should refer to which of the following? ► Ledger ► Source document ► Chart of accounts ► Journal : 4 A business has purchased a building on credit, how it would be recorded in the journal? ► Building - Credit; Accounts payable - Debit ► Building - Debit; Notes payable -Credit ► Building - Debit; Owner’s equity- Credit ► Building - Debit; Accounts payable - Credit : 5 An entry that affects more than one accounts is knows as _____________. ► Journal entry ► Compound entry ► Adjusting entry ► Reversing entry : 6 Which of the following is NOT true about the net income? ► It is a calculated figure and represents actual cash ► It can be distributed among holders of common stock as a dividend ► It can be held by the firm as retained earnings ► It is obtained by subtracting expenses from the revenues : 7 What would be the adjusting entry to record depreciation if the estimated amount of depreciation on equipment for a period is Rs. 2,000? ► Depreciation expense - Debit; Equipment - Credit ► Depreciation expense - Debit; Accumulated depreciation - Credit



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► Equipment - Debit; Depreciation expense - Credit ► Accumulated depreciation - Debit; Depreciation expense - Credit : 8 The trial balance shows Supplies of Rs.1,350 and Supplies Expense of Rs.0. If Rs.600 of supplies are on hand at the end of the period, the adjusting entry would be: ► Supplies, Rs. 600 - Debit; Supplies Expense, Rs. 600 - Credit ► Supplies, Rs. 750 - Debit; Supplies Expense, Rs. 750 - Credit ► Supplies Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit ► Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit : 9 Which of the following accounts would NOT be included in a post-closing trial balance? ► Cash ► Accumulated depreciation ► Owner’s equity ► Fees earned : 10 After the closing entries are posted to the ledger, each expense account will have? ► A debit balance ► A negative balance ► A credit balance ► A zero balance : 11 Current assets are those assets which management intends to convert into cash or consume within: ► The operating cycle ► One year ► The longer of operating cycle or one year ► The shorter of operating cycle or one year : 12 Which of the following is NOT the most common example of cash equivalents? ► Savings deposits ► Certificates of Deposit (CDs) ► Stocks of other companies ► Money market mutual funds : 13



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In preparing the statement of cash flows, how should non-cash investing/financing activities be reported? ► In the financing activities section of the statement of cash flows ► In a separate schedule accompanying the statement of cash flows ► In the investing activities section of the statement of cash flows ► Shoud not to be reported : 14

Which of the following items are NOT added back to the net income figure (which is found on the Income Statement) to arrive at cash flows from operations? ► Depreciation ► Deferred tax ► Amortization ► Investments : 15

Which of the following activities convert the income statement items from the accrual basis of accounting to cash? ► Operating activities ► Investing activities ► Financing activities ► Non cash activities : 16

Which one of the following items is specifically included in the body of a statement of cash flows? ► Operating and non-operating cash flow information ► Conversion of debt to equity ► Acquiring an asset through a capital leases ► Purchasing a building by giving a mortgage to the seller : 17

ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the year. What would be the cash payments for the purchase of the merchandise. ► Rs. 505,000 ► Rs. 516,000 ► Rs. 490,000 ► Rs. 495,000 : 18

The cash flow from investing activities shows the cash effects of which of the following? ► Income statement items ► Long term assets items



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► Long term liability & stockholder’s equity ► Long term liability and long term assets : 19

Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements? ► Description of current year equity transactions ► Summary of long-term debt outstanding ► Schedule of fixed assets ► Revenue recognition policies : 20

Gross profit is: ► Excess of sales over cost of goods sold ► Sales less Purchases ► Cost of goods sold + Opening stock ► Net profit less expenses of the period : 21

An inventory error affects ___________ accounting periods. ► Only current ► Two ► Three ► Four : 22

From the given data, calculate Cost of Goods Sold using the FIFO costing method: Beginning inventory is 10 units @ Rs. 10 each. On January 20, purchased 10 units @ Rs. 20 each On January 30, purchased 5 units @ Rs. 30 each 15 of the 25 units are sold. ► Rs. 200 ► Rs. 150 ► Rs. 350 ► Rs. 450 : 23

Under which cost flow assumption, the ending inventory is composed of the most recently purchased merchandise? ► FIFO ► LIFO ► Average cost ► Specific identification : 24

If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operating expenses are Rs. 60,000, what is the gross profit?



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► Rs. 30,000 ► Rs. 90,000 ► Rs. 340,000 ► Rs. 400,000 : 25

Which cost flow assumption most closely matches the actual physical flow of inventory in most retailing businesses? ► FIFO ► LIFO ► Average cost ► Specific identification : 26

The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were: ► Less than current market value ► Greater than cost ► Greater than book value ► Less than book value : 27

The purpose of recording depreciation on productive assets is to: ► Reflect the decline in the market value of the assets each period ► Reduce income when the company has an exceptionally profitable year ► Be in conformity with the revenue recognition principle ► Allocate the original cost of a productive asset to expense over its useful life : 28 Which depreciation method allocates an equal portion of depreciation expense to each period of asset’s useful life? ► Straight-line method ► Double-declining balance method ► Sum-of-the-year digit method ► Accelerated depreciation method : 2 Which of the following is NOT an example of accelerated depreciation method? ► Straight-line method ► Sum-of-the-years digit method ► Double-declining balance method ► Modified Accelerated Cost Recovery System : 30 The Drawing account is closed by which of the following entry? ► Capital – Debit; Drawing - Credit ► Drawing – Debit; Capital - Credit ► Income Summary – Debit; Drawing - Crediting ► Drawing – Debit; Income Summary - Crediting



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: 31 Which of the following account would be classified as a current asset on the balance sheet? ► Accumulated depreciation ► Accounts receivable ► Office equipment ► Land : 32 An adjusting entry would NOT be required for which of the following account? ► Salaries ► Past due expense ► Income tax expense ► Accounts receivable : 33 Which of the following accounts will be debited, when increased? ► Liabilities and expenses ► Assets and equity ► Assets and expenses ► Equity and revenues : 34 Accounting Cycle is a series of activities that begins with ___________ and ends with ___________. ► Closing of books, transactions ► Transaction, After closing Trial Balance ► Journal, ledger account ► Transactions, financial statements : 35 The income statement of ABL shows other operating expenses of Rs. 30 million; prepaid insurance expense increased by Rs. 4 million; and accrued utilities payable decreased by Rs. 7 million. How much did the company pay in other operating expenses? ► Rs. 41 million ► Rs. 33 million ► Rs. 27 million ► Rs. 19 million : 36 The statement of cash flows does NOT report the: ► Sources of cash in the current period ► Amount of checks outstanding at the end of the period ► Uses of cash in the current period ► Change in the cash balance for the current period : 37 Which of the following is NOT normally required for revenue to be recognized according to the revenue principle for accrual basis accounting? ► The price is fixed or determinable ► Services have been performed ► Cash that has already been collected



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► Evidence of an arrangement for customer payment exists : 38 Which of the following balances does the Contra-Asset account show typically? ► Credit ► Debit ► Negative ► Positive : 39 Which one of the following would lead to the decrease in the owner’s equity? ► Purchasing a piece of land ► Paying dividends to shareholders ► Purchasing equipment on account ► Paying back the principal of a loan : 40 The users of a statement of cash flows are mostly interested in: ► Net cash flow from operating activities ► Net cash flow from investing activities ► Net cash flow from financing activities ► Net cash flow from non-cash transactions



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FINALTERM EXAMINATION

Fall 2009 FIN621- Financial Statement Analysis (Session - 1)

Question No: 1 ( Marks: 1 ) - Please choose one Which of the following arrangement is used to maintain the accounts? ► Sequentialy ► Alphabaticaly ► Monthly ► Orderly Question No: 2 ( Marks: 1 ) - Please choose one Which of the following represents the main step(s) of accounting cycle? ► Recording the transactions ► Classifying the transactions ► Ordering, summarizing, counting the transactions ► Recording, classifying, summarizing transactions Question No: 3 ( Marks: 1 ) - Please choose one Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically Rs.10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday? ► Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit ► Salary expense Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit ► Salary payable Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit ► Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit Question No: 4 ( Marks: 1 ) - Please choose one Retained earnings change over time because of several factors. Which of the following factors would explain anINCREASE in retained earnings?



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► Net Income ► Dividends payment ► Investment by the stockholders ► Net Loss Question No: 5 ( Marks: 1 ) - Please choose one Which one of the following statements is TRUE regarding distributions to stockholders? ► The payment of dividends is not directly related to the profits of a given period ► Shareholders can individually decide on their distributions ► To receive a corporate dividend, stock must be owned on the date of declaration ► Corporate dividends reduce contributed capital and therefore, stockholders’ equity Question No: 6 ( Marks: 1 ) - Please choose one Which of the following is the largest single expense of most merchandising firms? ► Cost of goods sold ► Rent Expense ► Amortization Expense ► Salaries Expense Question No: 7 ( Marks: 1 ) - Please choose one Which of the following is NOT the most common example of cash equivalents? ► Savings deposits ► Certificates of Deposit (CDs) ► Stocks of other companies ► Money market mutual funds Question No: 8 ( Marks: 1 ) - Please choose one



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The statement of cash flow does NOT assist investors, creditors and others in assessing: ► The company’s ability to generate positive cash flows in future periods ► The company’s ability to meet its obligations and to pay dividends ► The company’s needs for external financing ► The company’s ability to forecast future losses Question No: 9 ( Marks: 1 ) - Please choose one When using the perpetual inventory system, each time a sale is recorded the: ► Inventory account is increased ► Inventory account is decreased ► Cost of Goods Sold account is decreased ► Cost of goods available for sale decreases Question No: 10 ( Marks: 1 ) - Please choose one In perpetual inventory system, a return of defective merchandise is recorded by crediting __________. ► Purchases ► Purchase Returns ► Purchase Allowance ► Merchandise Inventory Question No: 11 ( Marks: 1 ) - Please choose one Which factor would NOT affect the gross profit rate? ► An increase in the cost of heating the store ► An increase in the price of inventory items ► An increase in the sale of luxury items ► An increase in the use of “discount pricing” to sell merchandise Question No: 12 ( Marks: 1 ) - Please choose one Assets which have NO market value are called: ► Wasting assets ► Fictitious assets ► Quick assets ► Tangible assets



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Question No: 13 ( Marks: 1 ) - Please choose one Audit opinions can NOT be classified as which of the following? ► Adverse opinion ► Unqualified opinion ► Qualified opinion ► Disagreement of opinion Question No: 14 ( Marks: 1 ) - Please choose one The audit is NOT a necessary requirement for which of the following companies? ► Listed companies ► Corporations ► Sole proprietorship ► Partnerships Question No: 15 ( Marks: 1 ) - Please choose one Which of the following is NOT a part of the five-year summary of a company? ► Net income/Loss ► Total assets ► Discontinued operations ► Net sales Question No: 16 ( Marks: 1 ) - Please choose one Which of the following is NOT a limitation of financial statements for an investor? ► It provides complete basis for the analysis of a company ► Past financial performance does not signify what will happen with the investor in future ► The financial statements are useless without the notes to the financial statements ► Unless the statements are audited their authenticity is under doubt Question No: 17 ( Marks: 1 ) - Please choose one Which of the following is NOT a feature of preferred shares? ► Distributive ► Callable ► In arrears ► Cumulative Question No: 18 ( Marks: 1 ) - Please choose one



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Which of the following is a type of preferred stock that entitles the holder to a fixed dividend and, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock? ► In arrears preferred shares ► Call able preferred shares ► Cumulative preferred shares ► Participating preferred shares Question No: 19 ( Marks: 1 ) - Please choose one Which one of the following represents the value of shares in the market at any point of time? ► Par value ► Book value ► Face value ► Market value Question No: 20 ( Marks: 1 ) - Please choose one By computing component percentages for several successive balance sheets, which of the following can NOT be found? ► The increasing items ► The decreasing items ► The unchanged items ► The future profitable items Question No: 21 ( Marks: 1 ) - Please choose one Which of the following would NOT improve the current ratio? ► Issue long-term debt to buy inventory ► Sell common stock to reduce current liabilities ► Sell fixed assets to reduce accounts payable ► Borrow short term to finance additional fixed assets Question No: 22 ( Marks: 1 ) - Please choose one Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio? ► 2% ► 7% ► 6% ► 3% Question No: 23 ( Marks: 1 ) - Please choose one



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A company experiences a dramatic fall in its gross profit ratio. This could be the result of which of the following? ► An increase in competition in the company's main product market ► An increase in the incidence of bad debts ► An increase in overhead expenses ► An increase in demand for the company's products Question No: 24 ( Marks: 1 ) - Please choose one Which of the following is NOT an objective of fundamental analysis? ► To make projection on its business performance ► To predict the future stock price ► To evaluate its management and make internal business decisions ► To calculate its credit risk Question No: 25 ( Marks: 1 ) - Please choose one Which of the following is NOT a goal of analysis of financial statement? ► Assess the past performance ► Asses the current financial position ► Predict the future performance of the company ► Asses the working of management in the future Question No: 26 ( Marks: 1 ) - Please choose one In isolation, which of the following is TRUE about a financial ratio? ► Useless piece of information ► Useful piece of information ► Useful only for past performance ► Useful only for future predictions Question No: 27 ( Marks: 1 ) - Please choose one Financial statement ratio analysis may be undertaken to study liquidity, turnover, profitability, and other indicators. To which does the current ratio most relate? ► Liquidity ► Turnover ► Profitability ► Other indicator Question No: 28 ( Marks: 1 ) - Please choose one Which of the following would NOT result in an improved overall gross margin of a business? ► A fall in raw material prices resulting in a lower cost of sales ► Higher discounts offered to customers ► Increased selling price of existing products ► Introduction of new products with a higher gross profit margin Question No: 29 ( Marks: 1 ) - Please choose one Which of the following would NOT improve the return on investment ratio?



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► Reducing costs ► Increasing gains ► Accelerating gains ► Issuing treasury stock Question No: 30 ( Marks: 1 ) - Please choose one Which one of the following statement indicates the Inventory turnover ratio? ► How quickly company prepared its inventory ► How quickly company converts its inventory into cash ► How quickly company purchases its inventory ► How quickly company sells its inventory Question No: 31 ( Marks: 1 ) - Please choose one Which of the following is the ideal position of debt ratio? ► 30% ► 60% ► 50% ► 45% Question No: 32 ( Marks: 1 ) - Please choose one If current assets are Rs. 15.6 million, current liabilities Rs. 11.2 million and stocks Rs. 1.8 million, what is the acid test ratio? ► 1.39 ► 1.23 ► 1.65 ► 0.89 Question No: 33 ( Marks: 1 ) - Please choose one Which of the following is essential to conduct business activity, particularly in times of adversity? ► Profitability ► Liquidity ► Stability ► Solvency Question No: 34 ( Marks: 1 ) - Please choose one Which of the following explains the debit and credit rules relating to recording revenues and expenses? ► Realization and matching principle ► The effect of revenues and expenses in the owner’s equity ► Expenses appear on the left side of the income statement ► Liabilities are recorded as debit on the balance sheet Question No: 35 ( Marks: 1 ) - Please choose one Which of the following equations properly represents a derivation of the fundamental accounting equation?



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► Assets + liabilities = owner's equity ► Assets = owner's equity ► Cash = assets ► Assets - liabilities = owner's equity Question No: 36 ( Marks: 1 ) - Please choose one How would the purchase of merchandise on account be represented in the buyer's records? ► Increase assets and increase expenses ► Increase assets and increase liabilities ► Increase liabilities and increase paid-in capital ► Increase liabilities and decrease assets Question No: 37 ( Marks: 1 ) - Please choose one Which of the following is NOT an advantage of the accrual basis of accounting? ► It is simple to see what payments to vendors are outstanding ► It is easy to see how much revenue is due the company ► It is much easier to assess the overall financial health of the company ► It is much easier and cheaper to maintain Question No: 38 ( Marks: 1 ) - Please choose one ABC company has decided to change the inventory system from FIFO to LIFO keeping in view the raising day by day inflation threat. What different things/factors Mr Ali, the auditor of the company, will have to notify or report? ► The purpose of switching ► The existing system drawbacks ► The new system threats ► All of the above Question No: 39 ( Marks: 1 ) - Please choose one Which of the following elements of financial statements is MOST closely related to measurement of financial position? ► Equity ► Income ► Expense ► Disclosures Question No: 40 ( Marks: 1 ) - Please choose one All of the following steps are considered during the formation of a company EXCEPT: ► The memorandum and articles of association of articles should be prepared ► Suitable persons should be appointed for the subscription of memorandum of association ► The election of the CEO of the company ► Registration fees should be deposited to registrar of companies and receipt of certificate of incorporation should be collected



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Question No: 41 ( Marks: 1 ) - Please choose one The basic type of capital stock issued by every corporation is known as: ► Common stock ► Preferred stock ► Class B ► Cumulative Stock Question No: 42 ( Marks: 1 ) - Please choose one Which of the following ratios provide a MORE penetrating measure of liquidity than does the current ratio? ► Assets Test Ratio ► Defensive interval ratio ► Investments ratio ► Current ratio Question No: 43 ( Marks: 1 ) - Please choose one Average payment period is calculated as: ► 365 / Accounts payable turnover ► 365 X Accounts payable turnover ► 365/ Total purchases ► Accounts payable turnover / 365 Question No: 44 ( Marks: 1 ) - Please choose one Which of the following ratios indicates in days how quickly inventory is sold? ► Inventory turnover Rate ► Inventory Turnover ratio ► Operating Cycle ► Days sales of inventory Question No: 45 ( Marks: 3 ) How does working capital help management in making rationale decisions? Question No: 46 (Marks: 5 ) Consider the following information. Cash Rs. 15,000 Beginning net receivables Rs. 55,000 Ending net receivables Rs. 57,000 Net sales Rs. 640,000 Net credit sales Rs. 480,000 Cost of goods sold Rs. 390,000 Average inventory Rs. 62,000 Requirement: Compute the receivable turnover to the nearest tenth.



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Receivables turn over ratio = Net credit sales /Average Debtors = 640,000 / [(55,000+57,000)/2] = 640,000 / 56,000 = 11.43 Question No: 47 (Marks: 5 ) Assume that you are a commercial loan officer at a large bank. One of your clients recently submitted an application for Rs. 300,000 five year loan. You have worked with this business before on numerous occasions and have periodically been forced to deal with late and missed payments attributed to cash flow problems. Thus you are surprised to see in the business plan accompanying the application that the management expects to reduce the company’s operating cycle from 190 days to 90 days. A footnote to the business plan indicates that the reduction in the operating cycle will result from a tighter credit policy and the implementation of a just-in-time inventory system. Requirement: Would the company be able to reduce the operating cycle by applying the new strategy and would you give the loan to the company on this basis? Question No: 48 (Marks: 5 ) Assume that you are a graduate student and going to form a web page consultancy firm. You are very young and compassionate to form this company. You need a bank loan of Rs.50,000 for computer equipment , as a collateral you have a bike your father gave you after securing 80% marks in FSc. Not wanting to lose your bike and to protect yourself you decided to organize a corporation. Explain will it be beneficial idea for you or not. Question No: 49 (Marks: 10 ) The data shown below were taken from the financial records of J Ltd at the end of the year. The financial year of the company ends on 31, December each year.

Accounts Payable Rs 50,000

Accrued Liabilities Rs. 33,000

Cash 32,000 Inventories Jan 42,000 Inventories Dec 38,000 Marketable Securities 10,000 Operating Expenses 120,000 Prepaid Expenses 25,000

Purchases (Net) 360,000 Accounts Receivable Jan

61,000



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Accounts Receivable Dec

61,000 Long Term Loan 150,000

Plant Assets 400,000 Sales 604,000 Sales Returns 20,000 Retained Earning 133,000 Share Capital (Rs.10 Par) 92,000 Market Price 18

Interest expense 30,000 On the basis of above information, calculate the following.

a. Debt ratio (4) b. Debt to equity ratio (2)

c. Debt to total asset ratio (4)

Question No: 50 ( Marks: 10 ) How many types of audit opinions are there? Assume that you have been appointed as an Auditor of the company, after the audit of the company, what can be your possible audit opinions. Briefly explain each of the audit opinion.



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FINALTERM EXAMINATION Spring 2009

FIN621- Financial Statement Analysis (Session - 2)

Question No: 1 ( Marks: 1 ) - Please choose one The process of recording the economic effects of business transactions in a book of original entry is knows as which of the following? Double entry system Debit Journalizing Posting Question No: 2 ( Marks: 1 ) - Please choose one An entry that affects more than one accounts is knows as _____________. Journal entry Compound entry Adjusting entry Reversing entry Question No: 3 ( Marks: 1 ) - Please choose one In which of the following form of Income Statement, the total of all expenses is deducted from the total of all revenues? Multiple-step form Account form Report form Single-step form Question No: 4 ( Marks: 1 ) - Please choose one Which one of the following statements is TRUE regarding distributions to stockholders? The payment of dividends is not directly related to the profits of a given period Shareholders can individually decide on their distributions To receive a corporate dividend, stock must be owned on the date of declaration Corporate dividends reduce contributed capital and therefore, stockholders equity Question No: 5 ( Marks: 1 ) - Please choose one All of the following are true regarding the financing activity section of the cash flow statement EXCEPT: Financing activities require analysis of long-term liability and shareholders' equity accounts



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The ability to issue large quantities of common shares usually signals investor confidence in the future of the company Excessive borrowing has been the downfall of many companies The declaration and payment of a large cash dividend may signal an emergency Question No: 6 ( Marks: 1 ) - Please choose one The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is subtracted during the reconciliation. Revenues earned and received in cash. Non-cash expenses (expenses incurred but not paid) reported on the income statementone example is amortization expense. Non-cash revenues (revenues earned but payment not yet received) reported on the income statement A decrease in Accounts Receivable or another non-cash current asset Question No: 7 ( Marks: 1 ) - Please choose one Which of the following would NOT be the cash inflow for the business? Sale of land for cash Issuance of long term bonds The sale of common stock Retirement of long term debt Question No: 8 ( Marks: 1 ) - Please choose one Under which cost flow assumption, the ending inventory is composed of the earliest purchased merchandise? FIFO LIFO Average cost Specific identification Question No: 9 ( Marks: 1 ) - Please choose one Which of the following would affect the gross profit rate if sales remain constant? An increase in advertising expense A decrease in depreciation expense An increase in cost of goods sold A decrease in insurance expense Question No: 10 ( Marks: 1 ) - Please choose one



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Nishat Mills Ltd. is a rapidly growing company that acquires more equipment every year. The company uses straight line depreciation in its financial statements and MACRS in its tax returns. Which of the following statements is NOT correct? Using straight line depreciation in the financial statements instead of accelerated method increases the company s reported net income Using straight line depreciation in the financial statements instead of accelerated method increases the company s annual net cash flow Using MACRS instead of straight line in income tax returns increases company s net cash flow As long as the company keeps growing, it will report more depreciation in its income taxreturns each year than it does in its financial statements Question No: 11 ( Marks: 1 ) - Please choose one A statement of cash flows would be least useful in answering which of the following questions? What was the average balance in the Cash account during the period? Did operating activities result in a positive or negative net cash flow? How much cash was provided or used by financing activities during the period? Were cash dividends paid by the company more or less than the net cash flow from operations? Question No: 12 ( Marks: 1 ) - Please choose one Which of the following is NOT a limitation of financial statements for an investor? It provides complete basis for the analysis of a company Past financial performance does not signify what will happen with the investor in future The financial statements are useless without the notes to the financial statements Unless the statements are audited their authenticity is under doubt Question No: 13 ( Marks: 1 ) - Please choose one Which of the following is NOT an advantage of a Sole proprietorship? Easy to form and wind up Direct motivation Better control Limited liability Question No: 14 ( Marks: 1 ) - Please choose one Which of the following is a type of preferred stock that entitles the holder to a fixed dividend and, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock? In arrears preferred shares Call able preferred shares



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Cumulative preferred shares Participating preferred shares Question No: 15 ( Marks: 1 ) - Please choose one The current ratio will be excessively very high in which of the following inventory costing methods? FIFO LIFO Average cost Specific identification Question No: 16 ( Marks: 1 ) - Please choose one I f a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm's Net Working Capital? Rs. 0 Rs. 100 Rs. 200 Rs. 1,000 Question No: 17 ( Marks: 1 ) - Please choose one To financial analysts, "working capital" means the same thing as which of the following? Total assets Fixed assets Current assets Current assets minus current liabilities Question No: 18 ( Marks: 1 ) - Please choose one Which of the following could account for a company's gross profit ratio increasing from one period to the next? An increase in the cost of sales which has not been accompanied by an increase in the selling price of goods sold An increase in the selling price of goods sold which has not been accompanied by an increase in the cost of sales A change in the mix of goods sold so that lower profit margin goods take a greater proportion of total sales A change in stock valuation method at the year end which leads to a decrease in the closing stock figure Question No: 19 ( Marks: 1 ) - Please choose one Nestle Pakistan Limited is an example of which of the following types of businesses? Manufacturing Service



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Merchandise Whole seller Question No: 20 ( Marks: 1 ) - Please choose one Which of the following represents the long term debt paying ability of the company as they become due? Liquidity Solvency Profitability Stability for more contents visit Question No: 21 ( Marks: 1 ) - Please choose one Which group of ratios relates the financial charges of a firm to its ability to service them? Debt ratios Coverage ratios Profitability ratios Activity ratios Question No: 22 ( Marks: 1 ) - Please choose one In isolation, which of the following is TRUE about a financial ratio? Useless piece of information Useful piece of information Useful only for past performance Useful only for future predictions Question No: 23 ( Marks: 1 ) - Please choose one Ames Corporation's net accounts receivable were Rs. 750,000 on December 31, 20X1, and Rs.1,250,000 on December 31, 20X2. Net cash sales for 20X2 were Rs. 3,300,000. The accounts receivable turnover ratio for 20X2 was 16. What were the total net sales for 20X2? Rs. 12,800,000 Rs. 16,000,000 Rs. 16,100,000 Rs. 19,300,000 Question No: 24 ( Marks: 1 ) - Please choose one How is the accounts receivable turnover ratio calculated? Net credit sales / Average total assets Net credit sales /Operating income Net credit sales /Average accounts receivables Net credit sales /Cost of goods sold Question No: 25 ( Marks: 1 ) - Please choose one Company A makes an operating profit margin of 5 % on sales of Rs. 2.5 million. Company B has sales that are 20% higher than Company A and achieves an



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operating profit margin of 3.5%.Which company makes the highest operating profit? Company B Company A Both make the same operating profit Not possible to calculate Question No: 26 ( Marks: 1 ) - Please choose one The DuPont Approach breaks down the earning power on shareholders' equity (ROE) as which of the following? Net profit margin × Total asset turnover × Equity multiplier Total asset turnover × Gross profit margin × Debt ratio Total asset turnover × Net profit margin Total asset turnover × Gross profit margin × Equity multiplier Question No: 27 ( Marks: 1 ) - Please choose one Which of the following statement best describes the operating profit margin? It shows what portion of profits are being distributed to shareholders It shows what return is being made on assets employed in the business It shows how well a company is controlling its costs, including overheads It shows how efficiently a company is turning profits into cash Question No: 28 ( Marks: 1 ) - Please choose one Return on Sales is also known as which of the following? Gross profit margin Operating profit margin Return on total assets Return on investment Question No: 29 ( Marks: 1 ) - Please choose one Which of the following is NOT a profitability measure? Accounts receivable turnover ratio Return on total assets Return on sales Dividend yield Question No: 30 ( Marks: 1 ) - Please choose one Which of the following is formula to measure the return on total assets? Average total assets by operating income Average total assets by net income Operating income by average total assets Net income by average total assets Question No: 31 ( Marks: 1 ) - Please choose one Which of the following is NOT part of additional paid-in-capital of the company? Preferred stocks Common stocks



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Retained earnings Dividends distributed Question No: 32 ( Marks: 1 ) - Please choose one Which of the following options indicate how quickly accounts receivables are converted into cash? Accounts receivable turnover Days to collect accounts receivable Working capital Total assets turnover Question No: 33 ( Marks: 1 ) - Please choose one Which one of the following statement indicates the Inventory turnover ratio? How quickly company prepared its inventory How quickly company converts its inventory into cash How quickly company purchases its inventory How quickly company sells its inventory Question No: 34 ( Marks: 1 ) - Please choose one Assume that a company has current assets of Rs. 60,000, current liabilities of Rs. 35,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the company? 1.57 1.71 1.86 0.58 Question No: 35 ( Marks: 1 ) - Please choose one What will be the effect on the EPS of the company, if it paid stock dividend on common stock? Increase Decrease No effect Can not be found from the given information Question No: 36 ( Marks: 1 ) - Please choose one What will be the effect of appropriated retained earnings on the rate of return on stockholder's equity? Increase Decrease No effect Can not be found from the given information Question No: 37 ( Marks: 1 ) - Please choose one Which of the following is the basic purpose of an accounting system? Develop financial statements in conformity GAAP Provide as much useful information to decision makers as possible



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Record changes in the financial position of an entity Meet an organization's need for accounting information as efficiently as possible Question No: 38 ( Marks: 1 ) - Please choose one A complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, EXCEPT: Balance sheet as of December 31, 1999 Income statement for the year ended December 31, 1999 Statement of projected cash flows for 2000 Notes containing additional information that is useful in interpreting the financial Statements Question No: 39 ( Marks: 1 ) - Please choose one Which of the following equations properly represents a derivation of the fundamental accounting equation? Assets + liabilities = owner's equity Assets = owner's equity Cash = assets Assets - liabilities = owner's equity Question No: 40 ( Marks: 1 ) - Please choose one Which of the following is TRUE regarding Retained Earnings? Increased by net income Increased by revenues Decreased by dividends declared Decreased by gains and losses Question No: 41 ( Marks: 1 ) - Please choose one What are the effects of an adjusting entry on the financial statements? Match revenues and expenditures Increase net income Increase the accuracy of balance sheet and income statement Match revenues and assets Question No: 42 ( Marks: 1 ) - Please choose one The supplies account has a balance of Rs. 1,500 at year end. The actual amount of supplies in hand at the end of period is Rs. 400. The necessary adjusting entry is: Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100 Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400 Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100 Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400 Question No: 43 ( Marks: 3 ) If the retained earnings account has a debit balance, how is it presented in the balance sheet and what is it called?



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Question No: 44 ( Marks: 3 ) Using the following information, compute the dividend yield to the nearest tenth. Income Rs. 130,000 Beginning shares outstanding 250,000 Ending shares outstanding 270,000 Current price per share Rs. 7.50 Dividend per share Rs. 1.20 Question No: 45 ( Marks: 3 ) What information is provided by the balance sheet to the short term and log term creditors? Question No: 46 ( Marks: 5 ) Assume that you are a commercial loan officer at a large bank. One of your clients recently submitted an application for Rs. 300,000 five year loan. You have worked with this business before on numerous occasions and have periodically been forced to deal with late and missed payments attributed to cash flow problems. Thus you are surprised to see in the business plan accompanying the application that the management expects to reduce the company s operating cycle from 190 days to 90 days. A footnote to the business plan indicates that the reduction in the operating cycle will result from a tighter credit policy and the implementation of a just-in-time inventory system. Requirement: Would the company be able to reduce the operating cycle by applying the new strategy and would you give the loan to the company on this basis? Question No: 47 ( Marks: 5 ) In each of the following situations, indicate the form of organization that you would expect the business to take. a) A neighborhood lawn-moving business operated by a teenager b) A company organized to manufacture an electric car c) A small retail clothing store, owned and operated by a brother and sister d) A medical group consisting of six doctors, organized in a state that does not allow professional practices to incorporate. e) A flight school owned by an airline pilot. The business is profitable, but the owner uses the profits to buy planes and expand the business. Question No: 48 ( Marks: 10 ) The year end balance sheet of LaserTech, Inc includes the following stockholder s equity section. Stockholder s equity: Rs. 8 cumulative preferred stock, Rs. 100 par value, callable at Rs. 103, 200,000 shares authorized Rs. 6,000,000 Common stock, Rs. 2 par value, 5,000,000 shares authorized:



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Issued Rs. 3,600,000 Subscribed 1,400,000 5,000,000 Additional paid in capital Preferred Rs. 240,000 Common (including subscribed shares) 25,000,000 25,240,000 Retained earnings 3,690,000 Total stockholder s equity Rs. 39,930,000 Assets of the corporation include subscriptions receivable, Rs. 5,600,000. Requirement: a. How many shares of commons stock have been issued or subscribed? (2) b. What is the total legal capital, including shares subscribed? (2) c. What is the total paid in capital, including shares subscribed? (3) d. What is the book value per share of the common stock, assuming that no dividends in arrears. (3) Question No: 49 ( Marks: 10 ) Listed below is the working capital information for ABC Company, at the beginning of the year. Cash Rs. 405,000 Temporary investment in marketable securities 216,000 Notes receivables current 324,000 Accounts receivables 540,000 Allowance for doubtful accounts 27,000 Inventory 432,000 Prepaid expenses 54,000 Notes payable within one year 162,000 Accounts payable 445,000 Accrued liabilities 40,500 The following transactions are completed during the year: 1. Sold on account inventory costing Rs. 72,000 for Rs. 65,000 2. Issued additional shares of capital stock for cash, Rs. 800,000 3. Sold temporary investments, Rs. 60,000, for Rs. 54,000 cash 4. Acquired temporary investments costing Rs. 105,000. paid cash 5. Wrote off uncollectible accounts, Rs. 18,000 6. Sold on account inventory costing Rs. 75,000 for Rs. 90,000 7. Acquired plant and equipment for cash, Rs. 480,000 8. Declared a cash dividend, Rs. 240,000 9. Declared a 10% stock dividend 10. Paid accounts payable, Rs. 120,000 11. Purchased goods on account, Rs. 90,000 12. Collected cash on accounts receivables, Rs. 180,000 13. Borrowed cash from a bank by issuing a short term note, Rs. 250,000 Requirement: a) Compute the amount of quick assets, current assets, and current liabilities at the beginning of the year shown by the above account balances (2+2+2)



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b) Compute the current ratio, and quick ratio. (2+2)



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FINALTERM EXAMINATION Fall 2009

FIN621- Financial Statement Analysis (Session - 1) Question No: 1 ( Marks: 1 ) - Please choose one Which of the following arrangement is used to maintain the accounts? ► Sequentialy ► Alphabaticaly ► Monthly ► Orderly Question No: 2 ( Marks: 1 ) - Please choose one Which of the following represents the main step(s) of accounting cycle? ► Recording the transactions ► Classifying the transactions ► Ordering, summarizing, counting the transactions ► Recording, classifying, summarizing transactions Question No: 3 ( Marks: 1 ) - Please choose one Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically Rs.10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday? ► Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit ► Salary expense Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit ► Salary payable Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit ► Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit Question No: 4 ( Marks: 1 ) - Please choose one Retained earnings change over time because of several factors. Which of the following factors would explain an INCREASE in retained earnings?



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► Net Income ► Dividends payment

► Investment by the stockholders ► Net Loss Net income would cause increases in retained earnings. In contrast, losses and dividends are factors that will cause decreases in retained earnings. Investments by stockholders' would cause an increase in capital stock, not retained earnings.

Question No: 5 ( Marks: 1 ) - Please choose one Which one of the following statements is TRUE regarding distributions to stockholders? ► The payment of dividends is not directly related to the profits of a given period ► Shareholders can individually decide on their distributions ► To receive a corporate dividend, stock must be owned on the date of declaration ► Corporate dividends reduce contributed capital and therefore, stockholders’ equity Question No: 6 ( Marks: 1 ) - Please choose one Which of the following is the largest single expense of most merchandising firms? ► Cost of goods sold ► Rent Expense ► Amortization Expense ► Salaries Expense Question No: 7 ( Marks: 1 ) - Please choose one Which of the following is NOT the most common example of cash equivalents? ► Savings deposits ► Certificates of Deposit (CDs) ► Stocks of other companies ► Money market mutual funds Cash equivalent are cash substitutes not immediately required i.e. short-term high liquid investment, usually for three months.Examples are Treasury bills, certificates, prize bonds etc. Marketable securities are investments in govt.bonds and stocks and bonds of other companies



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Question No: 8 ( Marks: 1 ) - Please choose one The statement of cash flow does NOT assist investors, creditors and others in assessing: ► The company’s ability to generate positive cash flows in future periods ► The company’s ability to meet its obligations and to pay dividends ► The company’s needs for external financing ► The company’s ability to forecast future losses Question No: 9 ( Marks: 1 ) - Please choose one When using the perpetual inventory system, each time a sale is recorded the: ► Inventory account is increased ► Inventory account is decreased ► Cost of Goods Sold account is decreased ► Cost of goods available for sale decreases Merchandise sold→ Dr. Cost of goods sold → Cr. Inventory Question No: 10 ( Marks: 1 ) - Please choose one In perpetual inventory system, a return of defective merchandise is recorded by crediting __________. ► Purchases ► Purchase Returns ► Purchase Allowance ► Merchandise Inventory Question No: 11 ( Marks: 1 ) - Please choose one Which factor would NOT affect the gross profit rate? ► An increase in the cost of heating the store ► An increase in the price of inventory items ► An increase in the sale of luxury items ► An increase in the use of “discount pricing” to sell merchandise Question No: 12 ( Marks: 1 ) - Please choose one Assets which have NO market value are called: ► Wasting assets ► Fictitious assets ► Quick assets ► Tangible assets



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Question No: 13 ( Marks: 1 ) - Please choose one Audit opinions can NOT be classified as which of the following? ► Adverse opinion ► Unqualified opinion ► Qualified opinion ► Disagreement of opinion Question No: 14 ( Marks: 1 ) - Please choose one The audit is NOT a necessary requirement for which of the following companies? ► Listed companies ► Corporations ► Sole proprietorship ► Partnerships Question No: 15 ( Marks: 1 ) - Please choose one Which of the following is NOT a part of the five-year summary of a company? ► Net income/Loss ► Total assets ► Discontinued operations ► Net sales Question No: 16 ( Marks: 1 ) - Please choose one Which of the following is NOT a limitation of financial statements for an investor? ► It provides complete basis for the analysis of a company ► Past financial performance does not signify what will happen with the investor in future ► The financial statements are useless without the notes to the financial statements ► Unless the statements are audited their authenticity is under doubt Question No: 17 ( Marks: 1 ) - Please choose one Which of the following is NOT a feature of preferred shares? ► Distributive ► Callable ► In arrears



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► Cumulative Question No: 18 ( Marks: 1 ) - Please choose one Which of the following is a type of preferred stock that entitles the holder to a fixed dividend and, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock? ► In arrears preferred shares ► Call able preferred shares ► Cumulative preferred shares ► Participating preferred shares A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition.The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount. Question No: 19 ( Marks: 1 ) - Please choose one Which one of the following represents the value of shares in the market at any point of time? ► Par value ► Book value ► Face value ► Market value Question No: 20 ( Marks: 1 ) - Please choose one By computing component percentages for several successive balance sheets, which of the following can NOT be found? ► The increasing items ► The decreasing items ► The unchanged items ► The future profitable items Question No: 21 ( Marks: 1 ) - Please choose one Which of the following would NOT improve the current ratio? ► Issue long-term debt to buy inventory ► Sell common stock to reduce current liabilities ► Sell fixed assets to reduce accounts payable



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► Borrow short term to finance additional fixed assets Question No: 22 ( Marks: 1 ) - Please choose one Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio? ► 2% ► 7% ► 6% ► 3% Question No: 23 ( Marks: 1 ) - Please choose one A company experiences a dramatic fall in its gross profit ratio. This could be the result of which of the following? ► An increase in competition in the company's main product market ► An increase in the incidence of bad debts ► An increase in overhead expenses ► An increase in demand for the company's products Question No: 24 ( Marks: 1 ) - Please choose one Which of the following is NOT an objective of fundamental analysis? ► To make projection on its business performance ► To predict the future stock price ► To evaluate its management and make internal business decisions ► To calculate its credit risk Seems that question is not properly designed.Have a look at reference from wikipedia. There are several possible objectives: to conduct a company stock valuation and predict its probable price evolution, to make a projection on its business performance, to evaluate its management and make internal business decisions, to calculate its credit risk.

Question No: 25 ( Marks: 1 ) - Please choose one Which of the following is NOT a goal of analysis of financial statement? ► Assess the past performance



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► Asses the current financial position ► Predict the future performance of the company ► Asses the working of management in the future Question No: 26 ( Marks: 1 ) - Please choose one In isolation, which of the following is TRUE about a financial ratio? ► Useless piece of information ► Useful piece of information ► Useful only for past performance ► Useful only for future predictions Question No: 27 ( Marks: 1 ) - Please choose one Financial statement ratio analysis may be undertaken to study liquidity, turnover, profitability, and other indicators. To which does the current ratio most relate? ► Liquidity ► Turnover ► Profitability ► Other indicator Question No: 28 ( Marks: 1 ) - Please choose one Which of the following would NOT result in an improved overall gross margin of a business? ► A fall in raw material prices resulting in a lower cost of sales ► Higher discounts offered to customers ► Increased selling price of existing products ► Introduction of new products with a higher gross profit margin Question No: 29 ( Marks: 1 ) - Please choose one Which of the following would NOT improve the return on investment ratio? ► Reducing costs ► Increasing gains ► Accelerating gains ► Issuing treasury stock Question No: 30 ( Marks: 1 ) - Please choose one Which one of the following statement indicates the Inventory turnover ratio? ► How quickly company prepared its inventory



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► How quickly company converts its inventory into cash ► How quickly company purchases its inventory ► How quickly company sells its inventory Question No: 31 ( Marks: 1 ) - Please choose one Which of the following is the ideal position of debt ratio? ► 30% ► 60% ► 50% ► 45% Question No: 32 ( Marks: 1 ) - Please choose one If current assets are Rs. 15.6 million, current liabilities Rs. 11.2 million and stocks Rs. 1.8 million, what is the acid test ratio? ► 1.39 ► 1.23 ► 1.65 ► 0.89 Question No: 33 ( Marks: 1 ) - Please choose one Which of the following is essential to conduct business activity, particularly in times of adversity? ► Profitability ► Liquidity ► Stability ► Solvency Question No: 34 ( Marks: 1 ) - Please choose one Which of the following explains the debit and credit rules relating to recording revenues and expenses? ► Realization and matching principle ► The effect of revenues and expenses in the owner’s equity ► Expenses appear on the left side of the income statement ► Liabilities are recorded as debit on the balance sheet Question No: 35 ( Marks: 1 ) - Please choose one Which of the following equations properly represents a derivation of the fundamental accounting equation? ► Assets + liabilities = owner's equity ► Assets = owner's equity ► Cash = assets ► Assets - liabilities = owner's equity



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Question No: 36 ( Marks: 1 ) - Please choose one How would the purchase of merchandise on account be represented in the buyer's records? ► Increase assets and increase expenses ► Increase assets and increase liabilities ► Increase liabilities and increase paid-in capital ► Increase liabilities and decrease assets Question No: 37 ( Marks: 1 ) - Please choose one Which of the following is NOT an advantage of the accrual basis of accounting? ► It is simple to see what payments to vendors are outstanding ► It is easy to see how much revenue is due the company ► It is much easier to assess the overall financial health of the company ► It is much easier and cheaper to maintain Question No: 38 ( Marks: 1 ) - Please choose one ABC company has decided to change the inventory system from FIFO to LIFO keeping in view the raising day by day inflation threat. What different things/factors Mr Ali, the auditor of the company, will have to notify or report? ► The purpose of switching ► The existing system drawbacks ► The new system threats ► All of the above Question No: 39 ( Marks: 1 ) - Please choose one Which of the following elements of financial statements is MOST closely related to measurement of financial position? ► Equity ► Income ► Expense ► Disclosures Question No: 40 ( Marks: 1 ) - Please choose one All of the following steps are considered during the formation of a company EXCEPT: ► The memorandum and articles of association of articles should be prepared ► Suitable persons should be appointed for the subscription of memorandum of association ► The election of the CEO of the company ► Registration fees should be deposited to registrar of companies and receipt of certificate of incorporation should be collected Question No: 41 ( Marks: 1 ) - Please choose one



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The basic type of capital stock issued by every corporation is known as: ► Common stock ► Preferred stock ► Class B ► Cumulative Stock Question No: 42 ( Marks: 1 ) - Please choose one Which of the following ratios provide a MORE penetrating measure of liquidity than does the current ratio? ► Assets Test Ratio (Acid test ratio) ► Defensive interval ratio ► Investments ratio ► Current ratio Question No: 43 ( Marks: 1 ) - Please choose one Average payment period is calculated as: ► 365 / Accounts payable turnover ► 365 X Accounts payable turnover ► 365/ Total purchases ► Accounts payable turnover / 365 Question No: 44 ( Marks: 1 ) - Please choose one Which of the following ratios indicates in days how quickly inventory is sold? ► Inventory turnover Rate ► Inventory Turnover ratio ► Operating Cycle ► Days sales of inventory Question No: 45 ( Marks: 3 ) How does working capital help management in making rationale decisions? Question No: 46 (Marks: 5 ) Consider the following information. Cash Rs. 15,000 Beginning net receivables Rs. 55,000 Ending net receivables Rs. 57,000 Net sales Rs. 640,000 Net credit sales Rs. 480,000 Cost of goods sold Rs. 390,000 Average inventory Rs. 62,000 Requirement: Compute the receivable turnover to the nearest tenth. Question No: 47 (Marks: 5 )



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Assume that you are a commercial loan officer at a large bank. One of your clients recently submitted an application for Rs. 300,000 five year loan. You have worked with this business before on numerous occasions and have periodically been forced to deal with late and missed payments attributed to cash flow problems. Thus you are surprised to see in the business plan accompanying the application that the management expects to reduce the company’s operating cycle from 190 days to 90 days. A footnote to the business plan indicates that the reduction in the operating cycle will result from a tighter credit policy and the implementation of a just-in-time inventory system. Requirement: Would the company be able to reduce the operating cycle by applying the new strategy and would you give the loan to the company on this basis? Question No: 48 (Marks: 5 ) Assume that you are a graduate student and going to form a web page consultancy firm. You are very young and compassionate to form this company. You need a bank loan of Rs.50,000 for computer equipment , as a collateral you have a bike your father gave you after securing 80% marks in FSc. Not wanting to lose your bike and to protect yourself you decided to organize a corporation. Explain will it be beneficial idea for you or not. Question No: 49 (Marks: 10 ) The data shown below were taken from the financial records of J Ltd at the end of the year. The financial year of the company ends on 31, December each year.

Accounts Payable Rs 50,000

Accrued Liabilities Rs. 33,000

Cash 32,000 Inventories Jan 42,000 Inventories Dec 38,000 Marketable Securities 10,000 Operating Expenses 120,000 Prepaid Expenses 25,000

Purchases (Net) 360,000 Accounts Receivable Jan

61,000

Accounts Receivable Dec 61,000 Long Term Loan 150,000

Plant Assets 400,000 Sales 604,000 Sales Returns 20,000 Retained Earning 133,000 Share Capital (Rs.10 Par)

92,000 Market Price 18

Interest expense 30,000 On the basis of above information, calculate the following.

a. Debt ratio (4)

b. Debt to equity ratio (2)



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c. Debt to total asset ratio (4) Question No: 50 ( Marks: 10 ) How many types of audit opinions are there? Assume that you have been appointed as an Auditor of the company, after the audit of the company, what can be your possible audit opinions. Briefly explain each of the audit opinion.



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MIDTERM EXAMINATION Fall 2009

FIN621- Financial Statement Analysis Question No: 1 ( Marks: 1 ) - Please choose one How much duration does an accounting period usually have? ► Three months ► Two years ► One year ► Five years Question No: 2 ( Marks: 1 ) - Please choose one Which of the following statement shows the effects of cash inflows and outflows? ► Balance Sheet ► Statement of Owner’s Equity ► Income Statement ► Statement of Cash Flows Question No: 3 ( Marks: 1 ) - Please choose one To determine the balance of a particular account, one should refer to which of the following? ► Ledger ► Source document ► Chart of accounts ► Journal Question No: 4 ( Marks: 1 ) - Please choose one A business has purchased a building on credit, how it would be recorded in the journal? ► Building - Credit; Accounts payable - Debit



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► Building - Debit; Notes payable -Credit ► Building - Debit; Owner’s equity- Credit ► Building - Debit; Accounts payable - Credit Question No: 5 ( Marks: 1 ) - Please choose one An entry that affects more than one accounts is knows as _____________. ► Journal entry ► Compound entry ► Adjusting entry ► Reversing entry Question No: 6 ( Marks: 1 ) - Please choose one Which of the following is NOT true about the net income? ► It is a calculated figure and represents actual cash ► It can be distributed among holders of common stock as a dividend ► It can be held by the firm as retained earnings ► It is obtained by subtracting expenses from the revenues Question No: 7 ( Marks: 1 ) - Please choose one What would be the adjusting entry to record depreciation if the estimated amount of depreciation on equipment for a period is Rs. 2,000? ► Depreciation expense - Debit; Equipment - Credit ► Depreciation expense - Debit; Accumulated depreciation - Credit ► Equipment - Debit; Depreciation expense - Credit ► Accumulated depreciation - Debit; Depreciation expense - Credit Question No: 8 ( Marks: 1 ) - Please choose one



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The trial balance shows Supplies of Rs.1,350 and Supplies Expense of Rs.0. If Rs.600 of supplies are on hand at the end of the period, the adjusting entry would be: ► Supplies, Rs. 600 - Debit; Supplies Expense, Rs. 600 - Credit ► Supplies, Rs. 750 - Debit; Supplies Expense, Rs. 750 - Credit ► Supplies Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit ► Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit

Question No: 9 ( Marks: 1 ) - Please choose one Which of the following accounts would NOT be included in a post-closing trial balance? ► Cash ► Accumulated depreciation ► Owner’s equity ► Fees earned Question No: 10 ( Marks: 1 ) - Please choose one After the closing entries are posted to the ledger, each expense account will have? ► A debit balance ► A negative balance ► A credit balance ► A zero balance Question No: 11 ( Marks: 1 ) - Please choose one Current assets are those assets which management intends to convert into cash or consume within: ► The operating cycle ► One year ► The longer of operating cycle or one year



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► The shorter of operating cycle or one year Question No: 12 ( Marks: 1 ) - Please choose one Which of the following is NOT the most common example of cash equivalents? ► Savings deposits ► Certificates of Deposit (CDs) ► Stocks of other companies ► Money market mutual funds Question No: 13 ( Marks: 1 ) - Please choose one In preparing the statement of cash flows, how should non-cash investing/financing activities be reported? ► In the financing activities section of the statement of cash flows ► In a separate schedule accompanying the statement of cash flows ► In the investing activities section of the statement of cash flows ► Shoud not to be reported Question No: 14 ( Marks: 1 ) - Please choose one Which of the following items are NOT added back to the net income figure (which is found on the Income Statement) to arrive at cash flows from operations? ► Depreciation ► Deferred tax ► Amortization ► Investments Question No: 15 ( Marks: 1 ) - Please choose one Which of the following activities convert the income statement items from the accrual basis of accounting to cash? ► Operating activities ► Investing activities ► Financing activities ► Non cash activities Question No: 16 ( Marks: 1 ) - Please choose one Which one of the following items is specifically included in the body of a statement of cash flows?



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► Operating and non-operating cash flow information ► Conversion of debt to equity ► Acquiring an asset through a capital leases ► Purchasing a building by giving a mortgage to the seller Question No: 17 ( Marks: 1 ) - Please choose one ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the year. What would be the cash payments for the purchase of the merchandise. ► Rs. 505,000 ► Rs. 516,000 ► Rs. 490,000 ► Rs. 495,000 Question No: 18 ( Marks: 1 ) - Please choose one The cash flow from investing activities shows the cash effects of which of the following? ► Income statement items ► Long term assets items ► Long term liability & stockholder’s equity ► Long term liability and long term assets Question No: 19 ( Marks: 1 ) - Please choose one Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements? ► Description of current year equity transactions ► Summary of long-term debt outstanding ► Schedule of fixed assets ► Revenue recognition policies Question No: 20 ( Marks: 1 ) - Please choose one Gross profit is: ► Excess of sales over cost of goods sold ► Sales less Purchases ► Cost of goods sold + Opening stock



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► Net profit less expenses of the period Question No: 21 ( Marks: 1 ) - Please choose one An inventory error affects ___________ accounting periods. ► Only current ► Two ► Three ► Four Question No: 22 ( Marks: 1 ) - Please choose one From the given data, calculate Cost of Goods Sold using the FIFO costing method: Beginning inventory is 10 units @ Rs. 10 each. On January 20, purchased 10 units @ Rs. 20 each On January 30, purchased 5 units @ Rs. 30 each 15 of the 25 units are sold. ► Rs. 200 ► Rs. 150 ► Rs. 350 ► Rs. 450 Question No: 23 ( Marks: 1 ) - Please choose one Under which cost flow assumption, the ending inventory is composed of the most recently purchased merchandise? ► FIFO ► LIFO ► Average cost ► Specific identification Question No: 24 ( Marks: 1 ) - Please choose one If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operating expenses are Rs. 60,000, what is the gross profit? ► Rs. 30,000 ► Rs. 90,000 ► Rs. 340,000 ► Rs. 400,000 Question No: 25 ( Marks: 1 ) - Please choose one Which cost flow assumption most closely matches the actual physical flow of inventory in most retailing businesses?



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► FIFO ► LIFO ► Average cost ► Specific identification Question No: 26 ( Marks: 1 ) - Please choose one The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were: ► Less than current market value ► Greater than cost ► Greater than book value ► Less than book value Question No: 27 ( Marks: 1 ) - Please choose one The purpose of recording depreciation on productive assets is to: ► Reflect the decline in the market value of the assets each period ► Reduce income when the company has an exceptionally profitable year ► Be in conformity with the revenue recognition principle ► Allocate the original cost of a productive asset to expense over its useful life Question No: 28 ( Marks: 1 ) - Please choose one Which depreciation method allocates an equal portion of depreciation expense to each period of asset’s useful life? ► Straight-line method ► Double-declining balance method ► Sum-of-the-year digit method ► Accelerated depreciation method Question No: 29 ( Marks: 1 ) - Please choose one Which of the following is NOT an example of accelerated depreciation method? ► Straight-line method ► Sum-of-the-years digit method ► Double-declining balance method ► Modified Accelerated Cost Recovery System Question No: 30 ( Marks: 1 ) - Please choose one The Drawing account is closed by which of the following entry? ► Capital – Debit; Drawing - Credit ► Drawing – Debit; Capital - Credit ► Income Summary – Debit; Drawing - Crediting ► Drawing – Debit; Income Summary - Crediting



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Question No: 31 ( Marks: 1 ) - Please choose one Which of the following account would be classified as a current asset on the balance sheet?

► Accumulated depreciation ► Accounts receivable

► Office equipment ► Land Question No: 32 ( Marks: 1 ) - Please choose one An adjusting entry would NOT be required for which of the following account? ► Salaries ► Past due expense ► Income tax expense ► Accounts receivable Question No: 33 ( Marks: 1 ) - Please choose one Which of the following accounts will be debited, when increased? ► Liabilities and expenses ► Assets and equity ► Assets and expenses ► Equity and revenues Question No: 34 ( Marks: 1 ) - Please choose one Accounting Cycle is a series of activities that begins with ___________ and ends with ___________. ► Closing of books, transactions ► Transaction, After closing Trial Balance ► Journal, ledger account ► Transactions, financial statements Question No: 35 ( Marks: 1 ) - Please choose one The income statement of ABL shows other operating expenses of Rs. 30 million; prepaid insurance expense increased by Rs. 4 million; and accrued utilities payable decreased by Rs. 7 million. How much did the company pay in other operating expenses? ► Rs. 41 million ► Rs. 33 million ► Rs. 27 million ► Rs. 19 million Question No: 36 ( Marks: 1 ) - Please choose one



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The statement of cash flows does NOT report the: ► Sources of cash in the current period ► Amount of checks outstanding at the end of the period ► Uses of cash in the current period ► Change in the cash balance for the current period Question No: 37 ( Marks: 1 ) - Please choose one Which of the following is NOT normally required for revenue to be recognized according to the revenue principle for accrual basis accounting? ► The price is fixed or determinable ► Services have been performed ► Cash that has already been collected ► Evidence of an arrangement for customer payment exists Question No: 38 ( Marks: 1 ) - Please choose one Which of the following balances does the Contra-Asset account show typically? ► Credit ► Debit ► Negative ► Positive Question No: 39 ( Marks: 1 ) - Please choose one Which one of the following would lead to the decrease in the owner’s equity? ► Purchasing a piece of land ► Paying dividends to shareholders ► Purchasing equipment on account ► Paying back the principal of a loan Question No: 40 ( Marks: 1 ) - Please choose one The users of a statement of cash flows are mostly interested in: ► Net cash flow from operating activities ► Net cash flow from investing activities ► Net cash flow from financing activities ► Net cash flow from non-cash transactions Question No: 41 ( Marks: 5 ) Classify the following activities as cash flow from operating, investing and financing activities.

· Payments for repurchase of company shares · Collections on loan principal and sales of other firms' debt instruments · Tax payments · Expenditure for purchase of other firms' equity instruments · Payments to suppliers for goods and services



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Answer: Payments for repurchase of company shares: Financing activities Collections on loan principal and sales of other firms' debt instruments: Investing activities. Tax payments: Operating activities Expenditure for purchase of other firms' equity instruments: Investing activities Payments to suppliers for goods and services: Operating activities Question No: 42 ( Marks: 5 ) Listed below in random order are the items to be included in the balance sheet of the Mystery Mountain Lodge at December 31, 2001:

Equipment Rs. 29,200 Buildings Rs. 450,000

Land 425,000 Owner’s capital ? Accounts payable 54,800 Cash 21,400 Accounts receivable

10,600 Furnishings 58,700

Salaries payable 33,500 Snowmobiles 15,400 Interest payable 12,000 Notes payable 620,000

Requirement: Prepare a Balance Sheet at December 31, 2001. Mystery Mountain Lodge Balance Sheet as on December 31, 2001 Particulars Amount (Rs.) Current Assets: Cash 21,400 Accounts receivable 10,600 Snowmobiles 15,400 Fixed Assets: Equipment 29,200 Furnishings 58,700 Buildings 450,000 Land 425,000 1,010,300 Liabilities: Interest payable 12,000 Salaries Payable 33,500



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Accounts Payable 54,800 Notes Payable 620,000 Capital: Owner’s capital 290,000 1,010,300



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MIDTERM EXAMINATION

Fall 2009 FIN621- Financial Statement Analysis (Session - 4)

Question No: 1 (Marks: 1) - Please choose one Which of the following is the acronym for GAAP? ► Generally Adopted Accounting Principles ► Generally Accepted Auditing Principles ► Generally Accepted Accounting Principles ► Generally Adapted American Principles Question No: 2 ( Marks: 1 ) - Please choose one After recording the transactions in journal, posting is made to which of the following? ► Trial Balance ► Financial Statements ► Ledger ► After-closing Trial Balance Question No: 3 ( Marks: 1 ) - Please choose one Which one of the following is the second step in the accounting cycle? ► Recording entries in the journal ► Analyzing the business transaction ► Posting the entries to the ledger ► Making the adjusting entries Question No: 4 ( Marks: 1 ) - Please choose one Which of the following is the basic function of the Trial Balance?

► To prove the equality of debits and credits ► To check the balance of all assets ► To prepare the balance sheet ► To check the validity of accounts

Question No: 5 ( Marks: 1 ) - Please choose one Which of the following refers to the term “posting”? ► The system of giving numbers to the accounts ► Transferring the debits and credits to ledger ► Transferring the debits and credits to journal ► The recording of transactions Question No: 6 ( Marks: 1 ) - Please choose one Which of the following results are summarized by the income statement of a company? ► Operating results



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► Economic results ► Auditing results ► Marketing results Question No: 7 ( Marks: 1 ) - Please choose one Which of the following is an example of an accrual? ► Equipment purchased for use in the business ► Book-keeping fees collected but not yet earned ► Six months’ rent paid in advance ► Interest earned but not yet received Question No: 8 ( Marks: 1 ) - Please choose one Prepaid Expense is a(n) _________ account and has a _________ normal balance. ► Revenue, credit ► Liability, credit ► Asset, debit ► Expense, debit Question No: 9 ( Marks: 1 ) - Please choose one Company A owns a building. Which of the following statements regarding depreciation is FALSE from an accounting perspective? ► As the market value of the building increases, depreciation should increase ► Depreciation is an estimated expense to be recorded each period during the building’s life ► As depreciation is recorded, stockholders’ equity is reduced ► As depreciation is recorded, total assets are reduced Question No: 10 ( Marks: 1 ) - Please choose one Retained earnings change over time because of several factors. Which of the following factors would explain anINCREASE in retained earnings?

► Net Income ► Dividends payment ► Investment by the stockholders ► Net Loss

Question No: 11 ( Marks: 1 ) - Please choose one The revenue account “Fees Income” is closed by which of the following entry? ► Cash – Debit; Fees Income - Credit ► Fees Income – Debit; Income Summary - Credit ► Capital – Debit; Fees Income - Credit ► Income Summary – Debit; Fees Income - Credit Question No: 12 ( Marks: 1 ) - Please choose one Which of the following regarding retained earnings is FALSE? ► Retained earnings represent earnings not distributed to stockholders



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► Retained earnings is increased by net income and decreased by a net loss ► Retained earnings are a component of stockholders’ equity on the balance sheet ► Retained earnings are an asset on the balance sheet Question No: 13 ( Marks: 1 ) - Please choose one Current assets are those assets which management intends to convert into cash or consume within: ► The operating cycle ► One year ► The longer of operating cycle or one year ► The shorter of operating cycle or one year Question No: 14 ( Marks: 1 ) - Please choose one Decision makers compare net income to net cash from operating activities. To make these amounts more comparable, the same accounts are included in each. The following accounts are used to compute both net income and net cash from operating activities EXCEPT: ► Interest expense ► Dividend revenue ► Interest revenue ► Dividends declared and paid Question No: 15 ( Marks: 1 ) - Please choose one If the indirect approach for the statement of cash flows is used, which of the following items should be subtracted from accrual basis net income to derive cash flow from operating activities? ► Losses on the sale of long-term investments ► Depreciation expense ► Amortization expense ► Gains on the sale of long-term investments Question No: 16 ( Marks: 1 ) - Please choose one The cash flow from financing activities shows: ► The cash outflow due to loan interest payments being made ► The change in the level of bank balances in the period ► The cash flow from share and loan issues and repayments ► Cash dividends paid to shareholders Question No: 17 ( Marks: 1 ) - Please choose one Which of the following transaction should be classified as a financing activity? ► Purchase of equipment ► Purchase of treasury stock ► Sale of trademarks ► Income tax refund



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Question No: 18 ( Marks: 1 ) - Please choose one Cash flow relating to investing activities does NOT present the cash effects of which of the following? ► Plant assets ► Intangible assets ► Investments ► Debt financing Question No: 19 ( Marks: 1 ) - Please choose one The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is added during the reconciliation. ► A decrease in accrued liabilities ► A decrease in Salaries Payable ► Payment of long-term debt ► An increase in Accounts Payable Question No: 20 ( Marks: 1 ) - Please choose one The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is subtracted during the reconciliation. ► Non-cash revenues (revenues earned but payment not yet received) reported on the income statement ► A decrease in Accounts Receivable or another non-cash current asset ► Revenues earned and received in cash. ► Non-cash expenses (expenses incurred but not paid) reported on the income statement-one example is amortization expense. Question No: 21 ( Marks: 1 ) - Please choose one Investing activities include all of the following EXCEPT: ► Payment of debt ► Collection of loans ► Making of loans ► Sale of available for sale and held to maturity securities Question No: 22 ( Marks: 1 ) - Please choose one If sales on an accrual basis are Rs. 500,000 and accounts receivables increased by Rs. 30,000, the cash received from the customers would be: ► Rs. 500,000 ► Rs. 470,000 ► Rs. 530,000 ► Can not be found from the given information Question No: 23 ( Marks: 1 ) - Please choose one Which of the following would NOT be the cash inflow for the business? ► Sale of land for cash ► Issuance of long term bonds ► The sale of common stock ► Retirement of long term debt



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Question No: 24 ( Marks: 1 ) - Please choose one Which one of the following is NOT an inventory costing method? ► FIFO cost method ► Weighted-average cost method ► Specific unit cost method ► LIFO cost method Question No: 25 ( Marks: 1 ) - Please choose one When merchandise is purchased in a periodic inventory system, its cost is debited to ________ account. ► Inventory ► Inventory expense ► Purchases ► Cost of goods sold Question No: 26 ( Marks: 1 ) - Please choose one Office supplies are purchased on account. The company uses a perpetual inventory system. What is the correct journal entry for this purchase of office supplies? ► Debit - Purchases; Credit - Cash ► Debit - Merchandise Inventory; Credit - Cost of Goods Sold ► Debit - Office Supplies; Credit - Accounts Payable ► Debit - Merchandise Inventory; Credit - Accounts Payable Question No: 27 ( Marks: 1 ) - Please choose one An inventory error affects ___________ accounting periods. ► Only current ► Two ► Three ► Four Question No: 28 ( Marks: 1 ) - Please choose one Equipment costing Rs. 3,000 with accumulated depreciation of Rs. 2,125 is exchanged for another asset with a fair value of Rs. 625. The exchange has commercial substance. How much is the gain or loss on this transaction? ► A gain of Rs. 250 should be recognized ► A loss of Rs. 250 should be recognized ► A loss of Rs. 500 should be recognized ► No gain or loss should be recognized Question No: 29 ( Marks: 1 ) - Please choose one Which of the following asset does NOT have a depreciation expense? ► Furniture ► Building ► Plant & equipment ► Land



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Question No: 30 ( Marks: 1 ) - Please choose one Which of the following is NOT an example of accelerated depreciation method? ► Straight-line method ► Sum-of-the-years digit method ► Double-declining balance method ► Modified Accelerated Cost Recovery Syste Question No: 31 ( Marks: 1 ) - Please choose one Accelerated depreciation method is mostly used for ____________. ► Financial statements ► Assets valuation ► Inventory valuation ► Income tax returns Question No: 32 ( Marks: 1 ) - Please choose one Which of the following is NOT an example of deferred item? ► Depreciation ► Accounts payable ► Unearned revenue ► Prepaid insurance Question No: 33 ( Marks: 1 ) - Please choose one Assets which have NO market value are called: ► Wasting assets ► Fictitious assets ► Quick assets ► Tangible assets Question No: 34 ( Marks: 1 ) - Please choose one Which of the following accounts will be debited, when increased? ► Liabilities and expenses ► Assets and equity ► Assets and expenses ► Equity and revenues Question No: 35 ( Marks: 1 ) - Please choose one Which of the following provides the basis for the trial balance? ► Income statement ► Statement of cash flow ► Ledger ► Adjusting entries Question No: 36 ( Marks: 1 ) - Please choose one The income statement of ABL shows other operating expenses of Rs. 30 million; prepaid insurance expense increased by Rs. 4 million; and accrued utilities payable



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decreased by Rs. 7 million. How much did the company pay in other operating expenses? ► Rs. 41 million ► Rs. 33 million ► Rs. 27 million ► Rs. 19 million Question No: 37 ( Marks: 1 ) - Please choose one From the given information, calculate the Cost of Goods Sold using the weighted-average cost method: Beginning inventory 10 units @ Rs. 10 each On January 20, purchased 10 units @ Rs. 20 each On January 30, purchased 5 units @ Rs. 30 each 15 of the 25 units are sold ► Rs. 200 ► Rs. 270 ► Rs. 300 ► Rs. 350 Question No: 38 ( Marks: 1 ) - Please choose one Which of the following balances does the Contra-Asset account show typically? ► Credit ► Debit ► Negative ► Positive Question No: 39 ( Marks: 1 ) - Please choose one Using the following information calculate Net Income: Sales Revenue Rs.200, 000, Loss on Sale of Equipment Rs.10, 000, Amortization Expense Rs.20, 000 and Cost of Goods Sold Rs.50, 000. ► Rs. 170,000 ► Rs. 120,000 ► Rs. 130,000 ► Rs. 180,000 Question No: 40 ( Marks: 1 ) - Please choose one Which of the following question is NOT addressed by cash flow statement? ► How much cash was generated by the company’s operations? ► Why is such a profitable company able to pay only small dividends? ► How much was spent for the new plants and equipment? ► How profitable the company’s current assets are? Question No: 41 ( Marks: 5 ) On 15, 2001, ABC Company sold 1,000 printers to another company. Immediately prior to this sale, the perpetual inventory records of the company for the printers included the following cost layers.



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Purchase date

Quantity Unit Cost Total Cost

Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550 Jan. 9, 2001 900 Rs. 9.50 8,550 Total on hand

1,500 Rs. 14,100

Instructions: Prepare a separate general entry to record the cost of printers, assuming that the company uses the following methods. Answer:

a. FIFO (2.5) DR CR Rs. Rs.

Cost of Printers Sold A/C 9350 Printers Inventory A/C 9350

b. LIFO (2.5) DR CR

Rs. Rs. Cost of Printers Sold A/C 9475 Printers Inventory A/C 9475 Question No: 42 (Marks: 5) Hill Company adjusts its accounts at the end of each month. Prepare the adjusting entries required at December 31 based on the following information. a. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to Rs. 1,050. No interest expense has yet been recorded.

DR CR

b. Depreciation of the office equipment is based on an estimated life of five years. The balance in the office equipment account is Rs. 24,000; no change has occurred in the account during the year.

General Entry Rs Rs Interest Expense A/C 1050 Interest Payable A/C 1050

General Entry Rs Rs Depreciation of Office Equip. A/C



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c Interest revenue earned on US government bonds during December amounts to Rs. 750. This accrued interest revenue has not been recorded or received as of December 3

d. On December 31, an agreement was signed to lease a truck for 12 months beginning January 1 at a rate of 35 cents per mile. Usage is expected to be 2,000 miles per month, and the contract specifies a minimum payment equivalent to 18,000 miles a year.

e.The company’s policy is to pay all employees up-to-date each Friday. Since December 31 fell on Monday, there was a liability to employees at December 31 for one day’s pay amounting to Rs. 2,800.

General Entry Rs Rs Interest Receivable on Bonds A/C

750

Interest Income on Bonds A/C

750

General Entry Rs Rs

General Entry Rs Rs Salary Expense A/C 2800 Salary Payable A/C 2800



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MIDTERM EXAMINATION

Spring 2010 FIN621- Financial Statement Analysis

Time: 60 min Marks: 44 Question No: 1 ( Marks: 1 ) - Please choose one How much duration does an accounting period usually have? ► Three months ► Two years ► One year ► Five years Question No: 2 ( Marks: 1 ) - Please choose one Balance Sheet and Accounting Cycle are based on which of the following? ► Adjusting entries ► Closing entries ► Financial position ► Accounting Equation Question No: 3 ( Marks: 1 ) - Please choose one Which of the following is the next step after the preparation of trial balance? ► Adjusted trial balance ► Financial statements ► Adjusting entries ► Closing entries Question No: 4 ( Marks: 1 ) - Please choose one Which of the following errors are identified during the preparation of trial balance? ► Recording transactions in the wrong account ► Duplication of a transaction in the accounting records ► Posting only the debit portion of a particular journal entry ► Recording the wrong amount for a transaction to both the accounts Question No: 5 ( Marks: 1 ) - Please choose one Which of the following is NOT an advantage of the Trial Balance? ► It ensures that the all accounts have identical debits and credits ► It ensures that the balance of each ledger account has been computed correctly ► The debit and the credit columns of trial balance have been added up correctly ► All the transactions have been recorded and nothing has been omitted Question No: 6 ( Marks: 1 ) - Please choose one Cost of a building is Rs. 90,000 and its estimated useful life is 30 years. What will be the depreciation expense of this building for one month by using straight line depreciation method? ► Rs. 600 ► Rs. 250 ► Rs. 300



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► Rs. 500 Question No: 7 ( Marks: 1 ) - Please choose one Retained earnings change over time because of several factors. Which of the following factors would explain an INCREASE in retained earnings? ► Net Income ► Dividends payment ► Investment by the stockholders ► Net Loss Question No: 8 ( Marks: 1 ) - Please choose one At the end of the fiscal year, Accounts Receivable has a balance of Rs. 100,000 and Allowance for Doubtful Accounts has a balance of Rs. 7,000. The expected net realizable value of the accounts receivable is: ► Rs. 7,000 ► Rs. 93,000 ► Rs. 100,000 ► Rs. 107,000 Question No: 9 ( Marks: 1 ) - Please choose one Which of the following regarding retained earnings is FALSE? ► Retained earnings represent earnings not distributed to stockholders ► Retained earnings is increased by net income and decreased by a net loss ► Retained earnings are a component of stockholders’ equity on the balance sheet ► Retained earnings are an asset on the balance sheet Question No: 10 ( Marks: 1 ) - Please choose one Which of the following would be considered a cash-flow item from a "financing" activity? ► A cash outflow to the government for taxes ► A cash outflow to repurchase the firm's own common stock ► A cash outflow to lenders as interest ► A cash outflow to purchase bonds issued by another company Question No: 11 ( Marks: 1 ) - Please choose one 'Equity dividends' shown in the cash flow statement will comprise: ► All company dividends paid during the year ► All dividends paid to voting shares in the year ► All dividends paid and proposed in the year relating to voting shares ► All proposed dividends in the year relating to voting shares Question No: 12 ( Marks: 1 ) - Please choose one Which of the following activities convert the income statement items from the accrual basis of accounting to cash? ► Operating activities ► Investing activities ► Financing activities



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► Non cash activities Question No: 13 ( Marks: 1 ) - Please choose one The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable and an ending balance of Rs. 15,000. The income statement reported Sales Revenue of Rs. 200,000. Using this information, compute cash collected from customers. ► Rs. 205,000 ► Rs. 215,000 ► Rs. 195,000 ► Rs. 200,000 Question No: 14 ( Marks: 1 ) - Please choose one Which of the following would be considered as cash flow from investing activities? ► Proceeds from issuance of long-term debt ► Expenditure for sale of plant and equipment ► Payments to suppliers ► Receipts from sale of goods or services Question No: 15 ( Marks: 1 ) - Please choose one When cash flow statement is prepared by using indirect method, which part of it is different from the direct method? ► Cash flow from investing activities ► Cash flow from financing activities ► Cash flow from operating activities ► All parts are same in both methods Question No: 16 ( Marks: 1 ) - Please choose one The cash flow from financing activities shows the cash effects of which of the following? ► Income statement items ► Long term assets items ► Long term liability & stockholder’s equity ► Long term liability and long term assets Question No: 17 ( Marks: 1 ) - Please choose one Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements? ► Description of current year equity transactions ► Summary of long-term debt outstanding ► Schedule of fixed assets ► Revenue recognition policies Question No: 18 ( Marks: 1 ) - Please choose one Which one of the following is NOT an inventory costing method? ► FIFO cost method ► Weighted-average cost method



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► Specific unit cost method ► LIFO cost method Question No: 19 ( Marks: 1 ) - Please choose one In a perpetual inventory system, which of the following would be debited when inventory is sold on account? ► Cost of goods sold ► Merchandise inventory ► Sales ► Both Accounts receivable & cost of goods sold Question No: 20 ( Marks: 1 ) - Please choose one Which of the following would affect the gross profit rate if sales remain constant? ► An increase in advertising expense ► A decrease in depreciation expense ► An increase in cost of goods sold ► A decrease in insurance expense Question No: 21 ( Marks: 1 ) - Please choose one Which of the following statements best describes the nature of depreciation? ► Regular reduction of asset value to correspond to the decline in market value as the asset ages ► A process of correlating the book value of an asset with its gradual decline in physical efficiency ► Allocation of the cost in a manner that will ensure that plant and equipment items are not carried on the balance sheet at amounts in excess of net realizable value ► Allocation of the cost of a plant asset to the periods in which benefits are received Question No: 22 ( Marks: 1 ) - Please choose one Warner Corporation reported net income in excess of its net cash flow from operations. A possible explanation of this difference is: ► Depreciation expense ► Non operating gains ► A decrease in income tax rates ► A decrease in accounts receivable over the period Question No: 23 ( Marks: 1 ) - Please choose one Which of the following transaction have an effect on expense account? ► Purchase of office equipment on credit ► Payment on accounts payable ► Repayment of principle of bank loan ► Payment of wages Question No: 24 ( Marks: 1 ) - Please choose one



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The supplies account has a balance of Rs. 1,500 at year end. The actual amount of supplies in hand at the end of period is Rs. 400. The necessary adjusting entry is: ► Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100 ► Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400 ► Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100 ► Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400 Question No: 25 ( Marks: 1 ) - Please choose one The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1, 200. If Jones Co. failed to record the adjusting entry for Rs.600 of rent earned during December, the effect on the Balance Sheet and Income Statement for December will be: ► Assets understated by Rs.600; net income overstated by Rs.600 ► Liabilities overstated by Rs.600; net income understated by Rs.600 ► Liabilities understated by Rs.600; net income understated by Rs.600 ► Liabilities overstated by Rs.600; net income overstated by Rs.600 Question No: 26 ( Marks: 1 ) - Please choose one A business has purchased machinery on credit, what will be its journal entry? ► Cash - (Debit); Machinery - (Credit) ► Machinery - (Debit) ; Accounts payable - (Credit) ► Accounts payable - (Debit) ; Machinery - (Credit) ► Machinery - (Debit) ;Cash - (Credit) Question No: 27 ( Marks: 1 ) - Please choose one Closing entries result in net income being calculated in the income summary account and then transferred to which of the following account? ► Revenue account ► Common Stock account ► Dividends account ► Owner's Capital account Question No: 28 ( Marks: 1 ) - Please choose one Assuming that net purchases cost Rs 250,000 during the year. The closing inventory was of Rs 4,000, and opening inventory was of Rs 30,000, how much was the cost of goods sold? ► Rs. 276, 000 ► Rs. 280,000 ► Rs. 254,000 ► Rs. 246,000 Question No: 29 ( Marks: 3 ) Assume that net income was Rs. 200,000, depreciation expense was Rs. 10,000, accounts receivable increased by Rs. 15,000, and accounts payable increased by Rs. 5,000. Calculate the cash flow from operating activities. A. Net Cash Flow from Operating Activities 200000Rs.



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Question No: 30 ( Marks: 3 ) Explain how the adoptions of FIFO method rather than LIFO will tend to raise or lower the quality of a company’s earnings? Assume the continuance of the inflation. A. During Inflation, FIFO shows less expense on income statement and higher inventory valuation on balance sheet and values ending inventory at current cost, whereas LIFO shows higher expenses on income statement and lower inventory valuation on balance sheet. Question No: 31 ( Marks: 5 ) Nestle Pakistan has two conflicting objectives. Management wants to report the highest possible earnings to stockholders in the near future yet also wants to minimize the taxable income. Indicate the depreciation method that the company will probably use in its financial statements and its federal income tax return. Explain your answer with the reasons.

A. We will use fixed depreciation Method Question No: 32 ( Marks: 5 ) Patterson Company reported net income for the current year of Rs. 666,000. During the year the company’s accounts receivable increased by Rs. 50,000, inventory decreased by Rs. 23,000, accounts payable decreased by Rs. 55,000, pre-paid expenses increased by Rs. 35,000, and accrued expenses payable increased by Rs. 14,000. Determine the amount of cash provided by or used for operating activities by the indirect method.

A. Net Cash Flow from Operating Activities 663000Rs.

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