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MCQ's Treasure
MCQ's Treasure
Spring 2009
FIN622- Corporate Finance (Session - 5)
Which of the following could be used to calculate the cost of common equity?
► Interpolation method
► Dividend discount model
► YTM method
► Capital structure valuation
What will be the effect of reduction in the cost of capital on the accounting break-even
level of revenues?
In Capital Assets Pricing Model, which of the following shows time value of money?
In which of the following dividend policies, the amount of dividend is relatively fixed?
http://vustudents.ning.com/
► Constant payout ratio policy
► Hybrid dividend policy
► Residual dividend policy
► Stable dividend policy
A constant payout ratio policy is a policy of paying a FIXED percentage of a firm’s earnings
as dividends in each period. Such a policy is likely to result in wildly fluctuating dividends. As a
result, only a small percentage of dividend paying firms follow such a policy.
Which of the following risks increases as the debt level of a business increases?
► financial risk
► Operating risk
► Business risk
► Investment risk
► Financial risk
► Systematic risk
► Business risk
► Total risk DOUBT
Suppose a stock is selling today for Rs.40 per share. At the end of the year, it pays a
dividend of Rs.2.00 per share and sells for Rs.44.00. what is the rate of return on this
stock?
► 12%
► 13%
► 14%
► 15%
Which of the following best illustrates the problem imposed by capital rationing?
Market demand allowed a company, to raise its price by 20% to $60. What is the new
level of break-even revenues if fixed charges including depreciation are $1 million and
variable costs were 70% of the old price?
► $2,000,000
► $2,400,000
► $2,857,143
► $3,333,333
Which of the following capital budgeting methods states the project return as a
percentage?
► Payback period
► Net present value
► Internal Rate of Return fm bok
► None of the given options
which makes it comparable to the other market interest rates or the inflation rate
A company has a dividend yield of 8%. If its dividend is expected to grow at a constant
rate of 5%, what must be the expected rate of return on the company’s stock?
► 14%
► 13%
► 12%
► 10%
You are considering buying common stock in Grow On, Inc. The firm yesterday paid a
dividend of $7.80. You have projected that dividends will grow at a rate of 9.0% per year
indefinitely. If you want an annual return of 24.0%, what is the most you should pay for
the stock now? http://vustudents.ning.com/
► $52.00
► $56.68
► $32.50
► $35.43
If a bond sells at a high premium, then which of the following relationships hold true?
(P0 represents the price of a bond and YTM is the bond's yield to maturity.)
http://web.utk.edu/~jwachowi/mcquiz/mc4.html
An investor buys a bond that will pay the interest amount of Rs.60 annually, forever. If
there is exactly one year remaining until the next interest payment and the investor's
required annual return is 5 percent, the present value of this bond is closest to which one
of the following?
► Rs.1,200.
► Rs.800.
► Rs.600.
► Rs.1,000.
► Common stock.
► Preferred stock
► Equity contract.
► Bond.
If you deposit $12,000 per year for 16 years (each deposit is made at the beginning of
each year) in an account that pays an annual interest rate of 15%, what will your account
be worth at the end of 16 years?
► $82,168.44
► $71,450.82
► $768,901.12
► $668,609.67
Suppose you wish to set aside Rs.2,000 at the beginning of each of the next 10 years (the
first Rs.2,000 deposit would be made now) in an account paying 12 percent compounded
annually. Approximately how much will you accumulate at the end of 10 years?
► Rs.22,863
► Rs.35,097
► Rs.39,310
► Rs.25,151
http://web.utk.edu/~jwachowi/mcquiz/mc6.html
Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average
of 1.4. What do these ratios tell about this company?
Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and a net
profit margin of 5%. What are its sales?
► Rs.3,750,000
► Rs.480,000
► Rs.300,000
► Rs.1,500,000
In which one of the following markets the bonds of a Corporation shall be traded now
who were issued 10 years back? http://vustudents.ning.com/
► Primary market
► Secondary market
► Money Market
► All of the above
a) Current Ratio = 2
b) Acid Ratio = 1.5
c) Current Liabilities = $500,000
d) Inventory Turnover = 5
e) Gross Profit Margin = 20 percent
Bank A pays 6.2% interest compounded semiannually and Bank B pays 6% interest,
compounded monthly. Which bank offers the higher effective annual rate?
MIDTERM EXAMINATION
Spring 2009
FIN622- Corporate Finance (Session - 5)
Time: 60 min
Marks: 45
Which of the following could be used to calculate the cost of common equity?
► Interpolation method
► Dividend discount model
► YTM method doubted
► Capital structure valuation
What will be the effect of reduction in the cost of capital on the accounting break-even
level of revenues?
► It raises the break-even level
► It reduces the break-even level. Doubted
► It has no effect on the break-even level.
► This cannot be determined without knowing the length of the investment horizon.
In which of the following dividend policies, the amount of dividend is relatively fixed?
Which of the following risks increases as the debt level of a business increases?
► Financial risk
► Systematic risk
► Business risk
► Total risk
Question No: 8 ( Marks: 1 ) - Please choose one
http://vustudents.ning.com/
Question No: 9 ( Marks: 1 ) - Please choose one
Suppose a stock is selling today for Rs.40 per share. At the end of the year, it pays a
dividend of Rs.2.00 per share and sells for Rs.44.00. what is the rate of return on this
stock? http://vustudents.ning.com/
► 12%
► 13%
► 14%
MIDTERM EXAMINATION
Fall 2009
FIN622- Corporate Finance (Session - 4)
Question No: 1 ( Marks: 1 ) - Please choose one
► Financial institutions
► Investments
► Accounting
► Financial management
► Rs. 1,080
► Rs. 940
► Rs. 920
► Rs. 926
http://groups.google.com/group/vuZs
► 7%
► 8%
► 9%
► 10%
► Government T-bills
► Junk bonds
► Preferred stock
► Secured bonds
Ref: http://www.investopedia.com/terms/r/riskfreeasset.asp
► Normal stocks
► Aggressive stocks
► Defensive stocks
► Income stocks
http://vustudents.ning.com/
Question No: 12 ( Marks: 1 ) - Please choose one
What will be the risk premium if the market portfolio has an expected return of 10% and
the risk free rate is 4%?
► 4%
► 5%
► 6%
► 7%
► 9%
► 4%
► 5%
► 7%
► Ex-Dividend
► Cum-Dividend
► Stock- Dividend
► Cash Dividend
► Stock Dividend
► Cum Dividend
► Ex Dividend
► Extra Dividend
► Tax savings
► Low Bankruptcy costs
► Minimum financial risk
► Low financial leverage
► Rs.9,624
► Rs.10,208
► Rs.9,728
► Rs.10,880
► Journal entry
► Compound entry
► Adjusting entry
► Reversing entry
► Rs. 1,600
► Rs. 400
► Rs. 800
► Rs. 2,400
Question No: 5 ( 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
► Rs. 500
► Equipment
► Retained Earnings
► Cash
► Rent Expense
► Amortization Expense
► Salaries Expense
► Investing activities
► Financing activities
► Operating activities
► Non cash activities
► Rs. 205,000
► Rs. 215,000
► Rs. 195,000
► Rs. 200,000
► Rs. 505,000
► Rs. 516,000
► Rs. 490,000
► Rs. 495,000
► LIFO
► Average cost
► Specific identification
► FIFO
► LIFO
► Average cost
► Specific identification
► Salaries
► Accounts receivable
► Treasury bills
► Commercial paper
► Income statement
► Ledger
► Adjusting entries
► Balance sheet
► Income statement
► Work Sheet
► Ledger
Yes Depreciation is source of fund as depreciation do not involve movement of cash, but
the provision in the short run could be used for other purposes hence it is a source of
fund.
Rs.
100,000.0
Purchase Price 0
10,000.0
Less Residual Value 0
90,000.0
Amount to be depreciate 0
Life of asset 5 years 60.00 Months
1,500.0
Per Month 90,000 / 60 0
18,000.0
Per year 1500 *12 0
Yes definitely I will suggest increasing the price of doll at 100 dollar because price has a
direct relation with demand. And another thing that resell activities of purchaser shows
that people have ability to buy it on 100 Dollars. So by increasing the price my firm can
earn a good profit. And according to situation given above that people those are reselling
the doll are getting profit of the firm from the market than why shouldn’t my firm get the
same profit.
But one thing must be discussed, before taking this decision. It seems to be short term
benefit and in order to maintain the loyalty of the customer of firm. Firm can continue
selling it at its original price and should announce that resell of this doll in commercial
markets is prohibited. This option can only be utilize if the doll is available only at firm’s
outlet.
ABC Company has Rs. 120,000 cash, Rs. 50,000 as accounts receivables, Rs. 10,000
as allowance for doubtful accounts, Rs. 30,000 as work in progress inventory, Rs.
45,000 as finished goods, Rs. 40,000 land purchased in the current year. Calculate
the value of current assets.
► Rs. 275,000
► Rs. 285000
► Rs. 235,000
► Rs. 210,000
(120,000+50000,-10,000+30,000+45,000) = 235,000 land r fix assets
Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio?
► 2%
► 7%
► 6%
► 3%
Since the debt-to-total assets ratio is.4, then equity-to-total assets ratio is.6. The
ratio of debt to equity is then .4/.6 or .667 (66.7%).
A firm has beginning accounts receivables of Rs. 375,000, and ending accounts
receivables of Rs. 400,000. The sales were Rs. 2,500,000 including cash sales of Rs.
600,000. Calculate the accounts receivable turnover ratio of the company.
0.76 ►
6.45 ►
4.75 ►
4.90 ►
If the prepaid rent account before adjustment at the end of the month has a debit
balance of Rs. 1,600, representing a payment made on the first day of the month,
and if the monthly rent was Rs.800, the amount of prepaid rent that would appear
on the balance sheet at the end of the month, after adjustment, is:
► Rs. 1,600
► Rs. 400
► Rs. 2,400
A company has interest expense of Rs. 35,000, its accrued liabilities increased by Rs.
7,000. What will be the cash payments for the interest?
Rs. 28,000 ►
Rs. 42,000 ►
Rs. 30,000 ►
Rs. 18,000 ►
(35,000+7000) =42,000
A company has the following currents assets: Cash Rs. 30,000; marketable securities
Rs. 20,000; accounts receivable Rs. 20,000, inventory Rs. 15,000; prepaid expenses
Rs. 10,000; the total current liabilities were Rs. 55,400. Calculate the quick ratio of
the company.
1.71 ►
1.44 ►
1.26 ►
1.53 ►
2:1 ►
2.3 : 1 ►
3:2 ►
1:1 ►
100/100 = 1
Assume that a company total paid in capital of Rs. 57,160,000, Preferred shares Rs.
12,000,000 and commons tock Rs. 14,000,000. Calculate the amount of total legal
capital of the company.
Rs. 26,000,000 ►
Rs. 2000,000 ►
Rs. 45,160,000 ►
Rs. 43,160,000 ►
(14,000,000+12,000,000) =26,000,000
Suppose that a company has cash sales of Rs. 50 million, total expenses of Rs. 35
million, and net income of Rs.15 million. If accounts receivable decreased by Rs. 12
million, how much cash did the company receive from the customers?
► Rs. 62 million
► Rs. 50 million
► Rs. 15 million
A company has a cost of goods sold of Rs. 530,000; the beginning inventory is Rs.
120,000, and ending inventory is Rs. 180,000. Calculate the number of days to sell
the inventory. (Round the figures to the nearest whole)
83 days ►
104 days ►
100 days ►
Which of the following is NOT among the five main kinds of current assets?
► Deferred income
► Accounts receivable
► Prepaid expenses
► Payment of debt
► Collection of loans
► Making of loans
► Inventory
► Inventory expense
► Purchases
The indirect method shows the reconciliation from net income to operating cash
flows. Select the adjustment that is subtracted during the reconciliation.
► Non-cash expenses (expenses incurred but not paid) reported on the income
statement-one example is amortization expense.
► Depreciation
► Accounts payable
► Unearned revenue
► Prepaid insurance
► Companies determine cost of goods sold only at the end of the accounting
period
► The periodic system provides better control over inventories than a perpetual
system
► The increased use of computerized systems has increased the use of the periodic
system
Which of the following transactions would increase the net cash flow from operating
activities?
Balance Sheet and Accounting Cycle are based on which of the following?
► Adjusting entries
► Closing entries
► Financial position
► Accounting Equation
► Adverse opinion
► Unqualified opinion
► Qualified opinion
► Disagreement of opinion
http://www.urlaubaccounting.com/typeaudit.html
The audit is NOT a necessary requirement for which of the following companies?
► Listed companies
► Corporations
► Sole proprietorship
► Partnerships
Which of the follwing business owner is personally liable for its debts?
► Corporations
► Sole proprietorship
► General partnership
► Sole proprietorship
► Corporations
► Partnerships
► Direct motivation
► Better control
► Limited liability
► Paid in capital
► Net income
► Retained earnings
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?
What will be the effect of purchases of its own shares by the business on the book
value of the business?
What will be the affect of dividends paid on the book value of a company?
The amount of current assets that varies with seasonal requirements is referred to as
which of the following?
Which of the following is NOT true about the accounts receivable turnover ratio?
This ratio tells the number of time accounts receivables have been turned over in a
month ►
What will be the effect on the day’s sales in accounts receivables of a company if it
uses a natural business year?
Which of the following is the percentage change if a negative amount appears in the
base year?
Misleading
Positive
Negative
Page 125 Percentage change cannot be computed for negative amount or zero
amount in base
year.
When calculating the gross profit percentages, which of the following is used as the
base year for each year?
Net sales
Net income (not sure)
Gross profit
Debt ratio ►
Dividend yield ►
Company B ►
Company A ►
Which of the following statement best describes the operating profit margin?
Page 144: A ratio widely used to evaluate a company's operational efficiency. ROS is
also known as a firm's "operating profit margin".
The total legal capital of the company consists of which of the following?
Which one of the following statement indicates the Inventory turnover ratio?
Leverage ratios ►
Liquidity ratios ►
Profitability ratios ►
Activity ratios ►
The period of time required to convert inventory into cash is known as which of the
following?
Operating cycle ►
Accounting cycle ►
Page 43: assets capable of being converted into cash within one year or operating
What will be effect of purchase of inventory on open account on quick ratio of the
company?
Increase ►
Decrease ►
No effect ►
What will be the effect of conversion of a portion of bonds payable into common
stock on the interest coverage ratio of the company?
Increase ►
Decrease ►
No effect ►
Can not be found from the given information ►
What will be the effect on the current ratio of the company, if company purchased
factory supplies on open account?
Increase ►
Decrease ►
No effect ►
Cash ►
Accounts receivable ►
Marketable securities ►
Prepaid expenses ►
Prepaid expenses — these are expenses paid in cash and recorded as assets before
they are used or consumed (a common example is insurance). See also adjusting
entries.
Arch Co. has a note payable to its bank. An adjusting entry is likely to be required
on Arch's books at the end of every month that the loan is outstanding to record
which of the following?
To measure the business income, life of a business is divided into which of the
following?
How fast number of times the company sells it inventory during the year? ►
Cash flow relating to investing activities does NOT present the cash effects of which
of the following?
► Plant assets
► Intangible assets
► Investments
► Debt financing
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?
Which of the following is NOT true about the specific identification method?
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
► 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
Warner Corporation reported net income in excess of its net cash flow from
operations. A possible explanation of this difference is:
► Depreciation expense
Which of the following opinions state that the financial statements do not present
fairly the financial position, results of operations etc, in conformity with GAAP?
► Unqualified opinion
► Qualified opinion
► adverse opinion
► Disclaimer of opinion
Which of the follwing business owner is personally liable for its debts?
► Corporations
► Sole proprietorship
► General partnership
► Preemptive right
► Voting rights
► Preference in liquidation
► Transferability of shares
What would be the journal entry to record the issue of 1,000 shares of Rs. 1 par-
value common stock, which is issued for Rs. 4 per share?
Suppose that an investor buys shares for Rs. 15per share from a company whose
stock's par value is stated at Rs. 10 per share, then what will be the value of paid in
capital for each share sold?
► Rs. 25
► Rs. 5
► Rs. 20
► Rs. 30
In the vertical analysis of income statement, all the accounts are expressed as a
percentage of which of the following?
► Net sales
► Gross sales
► Net income
► Total expenses
When using vertical analysis, the analyst calculates each item on a single financial
statement as a
percentage of a total.. The total used by the analyst on the income statement is net
sales revenue,
The changes in the financial statement items from a base year to following years are
often expressed as which of the following?
► Trend percentages
► Component percentages
► Common percentages
items of financial statement from a base year to the following years to show the
direction of change.This is also called horizontal analysis.
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following indicates the relative size of each item included in a total?
► Trend percentages
► Component percentages
► Common percentages
indicates the relative size of each item in the Financial Statements as a percentage of
the total of that Statement i.e. Total Assets or total Liabilities & Shareholders equity
in Balance Sheet and Sales in Income Statement.
If 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
A company can improve (lower) its debt-to-total asset ratio by doing which of the
following?
► Borrow more
REF http://web.utk.edu/~jwachowi/mcquiz/mc6.html
Earnings per share, return on sales, and return on equity are all examples of which
of the following?
► Leverage ratios
► Liquidity ratios
► Turnover ratios
► Profitability ratios
Which of the following could account for a company's gross profit ratio increasing
from one period to the next?
► 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
► Preference shares
► Ordinary shares
► Government bonds
Assume that a company total paid in capital of Rs. 57,160,000, Preferred shares Rs.
12,000,000 and commons tock Rs. 14,000,000. Calculate the amount of total legal
capital of the company.
► Rs. 26,000,000
► Rs. 2000,000
► Rs. 45,160,000
► Rs. 43,160,000
ABC Company has cumulative preferred stock and three years of dividends are
owed. Using the following information, calculate the book value per share of the
preferred stock.
► Rs. 109
► Rs. 202
► Rs. 211
► Rs. 118
Which one of the following statement indicates the Inventory turnover ratio?
► Leverage ratios
► Liquidity ratios
► Profitability ratios
► Activity ratios
► 30%
► 60%
► 50%
► 45%
What will be effect of purchase of inventory on open account on quick ratio of the
company?
► Increase
► Decrease
► No effect
What will be the effect on the inventory turnover ratio of the company, if it changed
from FIFO to LIFO during the period of inflation?
► Increase
► Decrease
► No effect
What will be the effect on the EPS of the company, if it paid stock dividend on
common stock?
► Increase
► Decrease
► No effect
► Profitability
► Liquidity
► Stability
► Solvency
Failure to record the receipt of a utility bill for services already received will result in
which of the following?
► An overstatement of assets
► An overstatement of liabilities
► An overstatement of equity
► An understatement of assets
Which of the following would be the proper journal entry to record Rs. 1,000 of
Dividends paid by ABC Corporation?
How does the acid test ratio differ from the current ratio?
► It is concerned with future cash flows rather than historical cash flows
Which of the following provides the basis for the trial balance?
► Income statement
► Adjusting entries
ABC Company sold a plant asset that originally cost Rs. 50,000 for Rs. 22,000 cash.
If the company correctly reports a Rs. 5,000 gain on this sale, the accumulated
depreciation on the asset at the date of sale must be:
► Rs. 33,000
► Rs. 28,000
► Rs. 27,000
► Rs. 23,000
► The cost of a machine includes the cost of repairing damage to the machine
during the installation process
► Window dressing
► Understanding
► Comprehensiveness
► Materiality
ABC Company selected ‘Abdullah and Ahmad Charted Accountants’ as its auditors /
accountancy firm. After audit the auditors stated company’s audit report as:
We have examined the accounts of ABC Company up to the year ended 30th June,
2009, and other record based on these accounts and we got all the information
required by us. In our opinion the financial statements and the accounts on which
they are based have been prepared in conformity with GAAP and present a true and
fair position of the affairs of ABC Company.
What do you think the above case is which type of following audit reports?
All of the following users are very much concerned with the ratio analysis EXCEPT?
► Customers, who want to know the designs and quality of the products offered
► Debt Ratio
► Equity Ratio
► Quick Ratio
The creditors' equity ratio equals total liabilities divided by total assets. This
reflects the percentage of assets financed by creditors. In the event of corporate
liquidation, creditors are paid before
► A firm that has a high degree of business risk is less likely to want to incur
financial risk
A firm that has a high degree of business risk is much more likely to use equity
financing because there is no contractual responsibility to make interest payments.
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
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
Question # 6
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
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 # 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
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
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
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+presentati
on+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
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
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
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,
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
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
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
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
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
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
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
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?"
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:
Question # 60
Question # 62
Question # 63
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
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
► Sequentialy
► Alphabaticaly
► Monthly
► Orderly
► Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit
► Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit
► Net Income
► Dividends payment
► 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.
► The payment of dividends is not directly related to the profits of a given period
► Rent Expense
► Amortization Expense
► Salaries Expense
► Savings deposits
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
► Purchases
► Purchase Returns
► Purchase Allowance
► Merchandise Inventory
► Wasting assets
► Fictitious assets
► Quick assets
► Tangible assets
► 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
► Net income/Loss
► Total assets
► Discontinued operations
► Net sales
► 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
► Distributive
► Callable
► In arrears
► Cumulative
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.
► Book value
► Face value
► Market value
► 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?
to conduct a company stock valuation and predict its probable price evolution,
► Reducing costs
► Increasing gains
► Accelerating gains
► Issuing treasury stock
► 30%
► 60%
► 50%
► 45%
► 1.39
► 1.23
► 1.65
► 0.89
► Profitability
► Liquidity
► Stability
► Solvency
► Equity
► Income
► Expense
► Disclosures
► Common stock
► Preferred stock
► Class B
► Cumulative Stock
1. Owner equity
2. Assets (page# 18)
3. Reserves
4. Liabilities
1. Decrease in inventories
2. Increase in accounts payable (not shure)
3. Depreciation
4. Increase in inventories
1. Assets
2. Ownerequity
3. Liabilities
4. Capital
1. FIFO
2. LIFO
3. Average cost
4. Specific identification
1. Matching Principle
2. Cost Principle
3. Realization Principle
4. Objectivity Principle
1. Rs. 170,000
2. Rs. 130,000
3. Rs. 120,000
4. Rs. 180,000
1. Adverse opinion
2. Unqualified opinion
3. Qualified opinion
4. Disagreement of opinion
1. Realization principle
2. Separate entity principle
3. Matching principle
4. Materiality principle
1. Marketable securities
2. Receivables
3. Inventory
4. Short-term investments
► Three months
► Two years
► One year
► Five years
Balance Sheet and Accounting Cycle are based on which of the following?
► Adjusting entries
► Closing entries
► Financial position
► Accounting Equation
Which of the following is the next step after the preparation of trial balance?
► Financial statements
► Adjusting entries
► Closing entries
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Which of the following errors are identified during the preparation of trial balance?
► 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
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
► Rs. 500
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
► Net Loss
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
► All dividends paid and proposed in the year relating to voting shares
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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
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
Which of the following would be considered as cash flow from investing activities?
► Payments to suppliers
When cash flow statement is prepared by using indirect method, which part of it is
different from the direct method?
The cash flow from financing activities shows the cash effects of which of the following?
In a perpetual inventory system, which of the following would be debited when inventory
is sold on account?
► Merchandise inventory
► Sales
Which of the following would affect the gross profit rate if sales remain constant?
► 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
Warner Corporation reported net income in excess of its net cash flow from
operations. A possible explanation of this difference is:
► Depreciation expense
► Payment of wages
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
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:
A business has purchased machinery on credit, what will be its journal entry?
Closing entries result in net income being calculated in the income summary
account and then transferred to which of the following account?
► Revenue account
► Dividends account
► Rs. 280,000
► Rs. 254,000
► Rs. 246,000
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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.
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.
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.
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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.
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
All of the following are true regarding the financing activity section of the ca
sh 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
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 increa
sing 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
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
Which of the following options indicate how quickly accounts receivables are c
onverted 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
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
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 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
The audit is NOT a necessary requirement for which of the following companies?
► Listed companies
► Corporations
► Sole proprietorship
► Partnerships
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
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
► The use of an accelerated depreciation method causes an asset to wear out more quickly than does the
straight line method
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
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
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
To determine the balance of a particular account, one should refer to which of the
following?
► Ledger
► Source document
► Chart of accounts
► Journal
:4
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
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
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
Which of the following is TRUE about both sides of the trial balance?
:
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
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?
Which of the following represents the negative future cash flows for an enterprise?
Assets
Owner’s equity
Liabilities
Capital
Generally speaking, investors want to buy shares at which of the following price?
At face value
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?
Which of the following explains the debit and credit rules relating to recording
revenues and expenses?
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?
Which of the following principle states that the assets are purchased for the use and
not for resale purpose?
For purpose of measuring business income, the life of a business is divided into
which of the following?
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:
Identify the statement that is NOT true about the Incomes Account and Expenses
Account:
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:
Paid-in-Capital
Additional Paid-in-Capital
Gross profit
Retained Earnings
Which of the following is the second name for the journal?
Which of the following items are included in the financing activities section of the
statement of cash flows?
Two types
Three types
Four types
Ten types
There are five main kinds of current assets. Which of the following is NOT among
them?
Assets
Owner’s equity
Liabilities
Capital
Which of the following is the largest single expense of most merchandising firms?
When dividends are declared by a corporation's board of directors, what will be its
journal entry on the declaration date?
Which of the following is TRUE regarding the entry to recognize the depreciation
expense?
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
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
The cash flow from investing activities shows the cash effects of which of the
following?
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:
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:
The percentage change is computed by dividing the amount of the dollar change
between years and which of the follwing amount?
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:
► Trial Balance
► Financial Statements
► Ledger
Which one of the following is the second step in the accounting cycle?
► Operating results
► Economic results
► Auditing results
► Marketing results
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
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
► Net Loss
The revenue account “Fees Income” is closed by which of the following entry?
► One year
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
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?
► Depreciation expense
► Amortization expense
► The cash flow from share and loan issues and repayments
► Sale of trademarks
Cash flow relating to investing activities does NOT present the cash effects of which
of the following?
► Plant assets
► Intangible assets
► Investments
► Debt financing
The indirect method shows the reconciliation from net income to operating cash
flows. Select the adjustment that is added during the reconciliation.
The indirect method shows the reconciliation from net income to operating cash
flows. Select the adjustment that is subtracted during the reconciliation.
► Non-cash expenses (expenses incurred but not paid) reported on the income
statement-one example is amortization expense.
► Collection of loans
► Making of loans
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
Which of the following would NOT be the cash inflow for the business?
► Inventory
► Inventory expense
► Purchases
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?
► Only current
► Two
► Three
► Four
► Furniture
► Building
► Land
► Straight-line method
► Financial statements
► Assets valuation
► Inventory valuation
► Depreciation
► Accounts payable
► Unearned revenue
► Prepaid insurance
► Wasting assets
► Fictitious assets
► Quick assets
► Tangible assets
Question No: 34 ( Marks: 1 ) - Please choose one
Which of the following provides the basis for the trial balance?
► Income statement
► Ledger
► Adjusting entries
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
From the given information, calculate the Cost of Goods Sold using the weighted-
average cost method:
► Rs. 200
► Rs. 270
► Rs. 300
► Rs. 350
Which of the following balances does the Contra-Asset account show typically?
► Credit
► Debit
► Negative
► Positive
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
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Journal entry
Compound entry
Adjusting entry
Reversing entry
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
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