FIN621 solved MCQs

Shared by Hafiz Tanveer Ahmad h_tanveer786@yahoo.com

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

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

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 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

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

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 ► 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 ► 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.

► 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 __________.

► 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

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

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

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 ► 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 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 ► 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 ► 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

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 ► 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? ► 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 : 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 ► 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