Chapter-1: Financial Accounting Self Assessment Questions 1. A complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, except: a. Balance sheet as of December 31, 1999. b. Income statement for the year ended December 31, 1999. c. Statement of projected cash flows for 2000. d. Notes containing additional information that is useful in interpreting the financial statements. 2. Information is cost effective when: a. The information aids management in controlling costs. b. The information is based upon historical costs, rather than upon estimated market values. c. The value of the information exceeds the cost of producing it. d. The information is generated by a computer-based accounting system. 3. Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the information needs of: (a) Investors and creditors. (b) Government agencies such as the Internal Revenue Service. (c) Customers. (d) Trade associations and labor unions. 4. Any expense that gives benefit for a period of less than twelve months is called ……………... a. Capital Expense b. Revenue Expense c. Revenue Receipt d. Deferred Expense 5. Prepaid rent given in the Trial Balance will be treated as a (an): a. Asset b. Liability c. Revenue d. Deferred expense 6. If Assets = Rs. 99,500 and Owner's equity = Rs. 50,500 then Liabilities =? a. Rs. 49,000 b. Rs. 55,000 c. Rs. 125,000 d. Rs. 115,700 7. Sale of goods to Amir is wrongly debited to Umair A/c instead of Amir A/c. Both are debtors of business, this is an example of: a. Error of Omission b. Error of Commission c. Error of Principle d. Error of Original entry
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Chapter-1: Financial Accounting
Self Assessment Questions
1. A complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, except:
a. Balance sheet as of December 31, 1999. b. Income statement for the year ended December 31, 1999. c. Statement of projected cash flows for 2000. d. Notes containing additional information that is useful in interpreting the financial
statements. 2. Information is cost effective when:
a. The information aids management in controlling costs. b. The information is based upon historical costs, rather than upon estimated market
values. c. The value of the information exceeds the cost of producing it. d. The information is generated by a computer-based accounting system.
3. Although accounting information is used by a wide variety of external parties, financial reporting is primarily directed toward the information needs of: (a) Investors and creditors. (b) Government agencies such as the Internal Revenue Service. (c) Customers. (d) Trade associations and labor unions. 4. Any expense that gives benefit for a period of less than twelve months is called ……………...
a. Capital Expense b. Revenue Expense c. Revenue Receipt d. Deferred Expense
5. Prepaid rent given in the Trial Balance will be treated as a (an):
a. Asset b. Liability c. Revenue d. Deferred expense
6. If Assets = Rs. 99,500 and Owner's equity = Rs. 50,500 then Liabilities =?
a. Rs. 49,000 b. Rs. 55,000 c. Rs. 125,000 d. Rs. 115,700
7. Sale of goods to Amir is wrongly debited to Umair A/c instead of Amir A/c. Both are debtors of business, this is an example of:
a. Error of Omission b. Error of Commission c. Error of Principle d. Error of Original entry
8. Which of the following is TRUE about a merchandising company?
a. A merchandising company's business is to buy and sell products. b. A merchandising company must use the perpetual system to account for
merchandising inventory. c. A merchandising company's business is to provide services. d. None of the given options
9. Money spent to acquire or upgrade physical assets is known as:
a. Revenue Expense b. Capital Expense c. Administrative Expense d. Operating Expense
10. Goods of Rs. 1,000 purchased from Mr. “A” were recorded in sales book. The rectification of this error will:
a. Increase the gross profit b. Reduce the gross profit c. Have no effect on gross Profit d. None of these
11. An amount of Rs. 200 received from Mr. "P" but credited to Mr. "Q" would affect:
a. Accounts of P & Q b. Only Cash Account c. Only P’s account d. Only Q’s account
12.………….. is the art of recording, classifying and summarizing the transactions and events of a business and interpreting the results thereof.
a. Book-keeping b. Accounting c. Management d. Auditing
13 What will be debited, if Mohsin commenced business with cash?
a. Cash account b. Capital account c. Drawings account d. Proprietor account
14. Current accounts of the partners should be opened when the capitals are:
a. Fixed b. Fluctuating c. Floating d. Normal
15. Which of the following is (are) type(s) of Public Limited Companies?
a. Listed company b. Non listed company c. Private limited company d. Both Listed Company and non listed company
16. The charter of a company which defines the limitations and powers of the company is called:
a. The memorandum of association b. Articles of association c. Statutory report d. Certificate of commencement
17. Merchandise on hand at either the beginning or end of the reporting period is called…………………..
a. Raw material b. Cost of good sold c. Work in process d. Inventory
18. The balance sheet reported a beginning balance of $20,000 in Accounts Receivable and an ending balance of $15,000. Credit Sales of $200,000 were made during the year. Using this information, compute cash collected from customers.
a. $205,000 b. $195,000 c. $200,000 d. $215,000
19. Financial statements are prepared:
a. Only for publicly owned business organizations. b. For corporations, but not for sole proprietorships or partnerships. c. Primarily for the benefit of persons outside of the business organization. d. In either monetary or nonmonetary terms, depending upon the need of the decision
maker. 20. The basic purpose of an accounting system is to:
a. Develop financial statements in conformity with generally accepted accounting principles.
b. Provide as much useful information to decision makers as possible, regardless of cost.
c. Record changes in the financial position of an organization by applying the concepts of double-entry accounting.
d. Meet an organization's need for accounting information as efficiently as possible. Answers for Self Assessment Questions
1. (c) 2.(c) 3.(a) 4.(b) 5.(a)
6. (a) 7.(b) 8. (a) 9.(b) 10.(b)
11.(a) 12.(a) 13.(a) 14.(a) 15. (d)
16.(b) 17.(d) 18.(a) 19.(c) 20. (d)
Chapter-2: Financial Statement Analysis
Self Assessment Questions
1. Which of the following is not a reason financial analysis is useful to investors?
a. Investors read financial statements either to monitor their current investments or to
plan their future ones
b. Future trends can always be accurately predicted
c. Current position is the base on which future performance must be built
d. Past performance is often a good indicator of future performance
2. In relation to a company, creditors are least concerned with:
a. Its solvency
b. Its profitability
c. Its future share price
d. Its short-term liquidity
3. In relation to a company, investors are least concerned with:
a. Its profitability
b. Its short-term liquidity
c. Its future share price
d. Its solvency
4. Which of the following is not true of trend analysis? (several possible answers)
a. It concentrates on different geographic segments of production
b. It concentrates on the relative size of current assets
c. It examines the relationships of percentage changes to each other
d. All of the above
5. In order to have a smoothed rate of growth, we use:
a. Common-size statements
b. Trends statements
c. CAGR
d. Financial ratios
6. Which of the following statements are true in relation to common-size statements
analysis? (several possible answers)
a. It may concentrate on the gross margin percentage
b. It uses changes in euro amount and percentage terms to identify patterns
c. It may concentrate on the relative size of current assets
d. Both (a) and (c)
7. The difference between total current assets and total current liabilities is:
a. Accounting working capital
b. Trade working capital
c. Operating working capital
d. Net assets
8. Which of the following is a short-term liquidity ratio?
a. Current ratio
b. Quick ratio
c. Inventory turnover
d. All of the above
9. Gofrade srl has a current ratio of 1.2. If its ending inventory is understated by € 12,000 and
beginning inventory is overstated by € 20,000, Gofrade's inventory turnover, current and
quick ratios would be:
a. Inventory turnover: higher; Current ratio: lower; Quick ratio: higher
b. Inventory turnover: higher; Current ratio: lower; Quick ratio: lower
c. Inventory turnover: higher; Current ratio: lower; Quick ratio: unaffected
d. Inventory turnover: lower; Current ratio: lower; Quick ratio: lower
10. Financial statements report only items that have significant economic value.” This
statement summarizes which basic accounting concept?
a. Materiality.
b. Matching.
c. Realization.
d. Disclosure.
11. Which basic accounting concept does the following statement summarize?
“Transactions are recorded using price paid, not current prices.”
a. Historical cost.
b. Matching.
c. Conservatism.
d. Disclosure.
12. Which basic accounting concept prohibits firms from frequently changing their method
of valuing inventory?
a. Consistency.
b. Disclosure.
c. Conservatism.
d. Historical cost.
13. Which of the following does not indicate high quality of earnings?
a. Earnings are stable.
b. Conservative accounting methods were used to calculate earnings.
c. Earnings are from financing activities.
d. The firm has no extraordinary income.
14. Which of the following is least likely to be associated with low-quality earnings?
a. Increase in intangible assets.
b. Slowdown in inventory turnover.
c. One-time sources of income.
d. Decrease in borrowings.
15. If the trend of the current ratio is increasing, while the trend of the acid-test ratio is
decreasing over a period of time, this could be a warning that the firm is:
a. Having trouble collecting its receivables.
b. Purchasing too much treasury stock.
c. Paying "extra" dividends.
d. Carrying excess inventories.
16. Return on Investment is computed as:
a. Net income divided by average total assets.
b. Net income divided by total sales.
c. Net income divided by average total owners' equity.
d. Sales divided by average total assets.
17. Which of the following is not a category of financial statement ratios?
a. Financial leverage.
b. Liquidity.
c. Profitability.
d. Reliability.
18. An individual interested in making a judgment about the profitability of a company
should:
a. Review the trend of working capital for several years.
b. Calculate the company's ROE for the most recent year.
c. review the trend of the company's ROI for several years.
d. compare the company's price/earnings ratio trend the most recent year with the
industry average price/earnings ratio trend for the most recent year.
19. A potential creditor's judgment about granting credit would be most influenced by the
potential customer's:
a. most recent acid-test ratio.
b. trend of acid-test ratio over the past three years.
c. practice with respect to taking cash discounts offered by current suppliers.
d. price/earnings ratio.
20. The comparison of activity measures of different companies is complicated by the fact
that:
a. dollar amounts of assets may be significantly different.
b. only one of the companies may have preferred stock outstanding.
c. the number of shares of common stock issued may be significantly different.
d. different inventory cost flow assumptions may be used.
Answers for Self Assessment Questions
1. (b) 2.(c) 3.(b) 4.(d) 5.(c)
6. (d) 7.(c) 8. (d) 9.(c) 10.(a)
11.(a) 12.(a) 13.(c) 14.(d) 15. (d)
16.(a) 17.(d) 18.(d) 19.(c) 20. (d)
Chapter-3: Fund Flow Statement
Self Assessment Questions
1. According to the accounting profession, which of the following would be considered a
cash-flow item from an "investing" activity?
a. cash inflow from interest income.
b. cash inflow from dividend income.
c. cash outflow to acquire fixed assets.
d. all of the above.
2. According to the Financial Accounting Standards Board (FASB), which of the following is
a cash flow from a "financing" activity?
a. cash outflow to the government for taxes.
b. cash outflow to shareholders as dividends.
c. cash outflow to lenders as interest.
d. cash outflow to purchase bonds issued by another company.
3. If the following are balance sheet changes:
$5,005 decrease in accounts receivable
$7,000 decrease in cash
$12,012 decrease in notes payable
$10,001 increase in accounts payable
a "use" of funds would be the:
a. $7,000 decrease in cash.
b. $5,005 decrease in accounts receivable.
c. $10,001 increase in accounts payable.
d. $12,012 decrease in notes payable.
4. On an accounting statement of cash flows an "increase(decrease) in cash and cash
equivalents" appears as
a. a cash flow from operating activities.
b. a cash flow from investing activities.
c. a cash flow from financing activities.
d. none of the above.
5. Uses of funds include a (an):
a. decrease in cash.
b. increase in any liability.
c. increase in fixed assets.
d. tax refund.
6. Which of the following would be included in a cash budget?
a. depreciation charges.
b. dividends.
c. goodwill.
d. patent amortization.
7. An examination of the sources and uses of funds statement is part of:
a. a forecasting technique.
b. a funds flow analysis.
c. a ratio analysis.
d. calculations for preparing the balance sheet.
8. Which of the following is NOT a cash outflow for the firm?
a. depreciation.
b. dividends.
c. interest payments.
d. taxes.
9. Which of the following would be considered a use of funds?
a. a decrease in accounts receivable.
b. a decrease in cash.
c. an increase in account payable.
d. an increase in cash.
10. The cash flow statement in the United States is most likely to appear using
a. a "supplementary method."
b. a "direct method."
c. an "indirect method."
d. a "flow of funds method."
11. For a profitable firm, total sources of funds will always total uses of funds.
a. be equal to
b. be greater than
c. be less than
d. have no consistent relationship to
12. The sustainable growth rate (SGR) can be expressed as:
a. the percentage change in retained earnings assuming a steady state model where the
retention rate is held constant.
b. being positively related to the firm's target return on equity and negatively related to
its target retention rate.
c. the maximum annual percentage increase in sales that can be achieved based on
target operating, debt, and dividend-payout ratios.
d. being negatively related to the firm's target return on equity and positively related to
its retention rate.
13. A firm receives cash for 30% of its sales with the remaining 70% being credit sales. Of the
credit sales, 20% are collected in the month of sale, 60% in the month following the sale, and
20% in the second month following the sale. Forecasted sales for January through April are
$400,000, $500,000, $600,000, and $400,000 respectively. What are total cash receipts in the
month of April?
a. $120,000
b. $400,000
c. $498,000
d. $530,000
14. A firm makes all purchases on credit. Cash payment on this trade credit is required in the
month following purchase on 70% of all purchases. The firm takes a 2% cash discount and
makes payment for the remaining 30% of all purchases in the month of purchase. Forecasted
purchases for January through April are $300,000, $375,000, $450,000, and $300,000
respectively. In the month of March, what is the total cash disbursement for purchases?
a. $132,300
b. $394,800
c. $403,200
d. $450,000
15. Assume that total cash receipts for January through June are $100, $120, $80, $60, $120,
and $190 respectively. Also assume that total cash disbursements for January through June
are $80, $100, $80, $150, $150, and $70 respectively. Your firm has a beginning cash balance
at the beginning of January of $55. At the end of what month is the firm forecasting a
negative cash balance?
a. June.
b. May.
c. April.
d. March.
16. Assume that total cash receipts for January through June are $100, $120, $80, $60, $120,
and $190 respectively. Also assume that total cash disbursements for January through June
are $80, $100, $80, $150, $150, and $70 respectively. Your firm has a beginning cash balance
at the beginning of January of $20 and requires a minimum cash balance of $30. At the end
of what month is the firm forecasting a cash balance below the minimum?
a. January.
b. February.
c. March.
d. April.
17. Which of the following statements regarding forecasted ending cash balances?
a. The cash balance is simply a forecast and the ending cash balance can be more
correctly viewed via a probability distribution of possible ending cash balances.
b. The forecasted ending cash balance reveals the firm's actual profits.
c. From an internal management standpoint, a range of possible cash balances is much
less useful to managers than a single most-likely ending cash balance.
d. If the forecasted ending cash balance is below a minimum required level, then the
firm will have to borrow funds.
18. Information that goes into ........................ can be used to help prepare .........................
a. a forecast balance sheet; a forecast income statement
b. forecast financial statements; a cash budget
c. a cash budget; forecast financial statements
d. a forecast income statement; a cash budget
19. In preparing a forecast balance sheet, it is likely that either cash or ........................ will
serve as a "plug figure" or balancing factor to ensure that assets equal liabilities plus
shareholders' equity.
a. retained earnings
b. accounts receivable
c. shareholders' equity
d. Notes payable (short-term borrowings)
20. The accounting statement of cash flows reports a firm's cash flows segregated into what
categorical order?
a. Operating, investing, and financing.
b. Investing, operating, and financing.
c. Financing, operating and investing.
d. Financing, investing, and operating.
Answers for Self Assessment Questions
1. (c) 2.(b) 3.(d) 4.(d) 5.(c)
6. (b) 7.(b) 8. (a) 9.(d) 10.(c)
11.(a) 12.(c) 13.(c) 14.(b) 15. (b)
16.(d) 17.(a) 18.(c) 19.(d) 20. (a)
Chapter-4: Cost Accounting
Self Assessment Questions
1. ..........................process of accounting for the incurrence of cost and the control of cost.
a. Financial accounting
b. Cost accounting
c. Managerial accounting
d. None of these
2. The objective of determining the ..........................of products is of main importance in cost
accounting.
a. cost
b. cost accounting
c. Both (a) and (b)
d. None of these
3. Cost accounting provides information regarding the cost to make and
..........................product or services.
a. supply
b. manufacture
c. buy
d. sell
4. Cost accounting helps the management in providing information
for..........................decisions for formulating operative policies.
a. corporate
b. managerial
c. government
d. All of these
5. A ..........................system provides immediate information regarding stock of raw material,
semi-finished and finished goods.
a. business accounting
b. managerial accounting
c. cost accounting
d. financial accounting
6. Cost accounting is the process of determining and accumulating the …………….or
activity.
a. cost of product
b. cost of labor
c. cost of land
d. None of these
7. The results shown by …………………differ from those shown by financial accountant.
a. account manager
b. cost accountant
c. chartered accountant
d. None of these
8. Management enables to check the wastage in term of time and expenses.
a. True
b. False
9. Cost accounting can be most beneficial as a tool for management in ……………..
a. planning
b. forecasting
c. budgeting
d. risk taking
10. Cost accounting lacks a dynamic procedure.
a. True
b. False
11. Accounting is related to.....................
a. management control
b. management function
c. Both (a) and (b)
d. None of these.
12. The collection and presentation of accounting information come within the area of Cost
accounting.
a. True
b. False
13. A study of sociology helps to understand the behaviour of man in groups.
a. True
b. False
14. Cost accounting is.................. to management needs.
a. low sensitive
b. highly sensitive
c. Both a and b
d. None of these.
15. The accounting data required for managerial decisions is properly compiled and
classified is...............
a. modifies data
b. provides data
c. facilitates control
d. None of these.
16. Cost accounting is mainly concerned with the rearrangement of the information
provided by..............
a. cost accounting
b. accounting
c. financial accounting
d. None of these.
17. The financial data are so devised and systematically development that they become a
unique tool for management decision.
a. True
b. False
18. CIS stands for.................
a. Comparative Income Sheet
b. Comparative Income Statement
c. Comparative Income Size
d. None of these.
19. All of the following are characteristics of managerial accounting, except:
a. Reports are used primarily by insiders rather than by persons outside of the business
entity.
b. Its purpose is to assist managers in planning and controlling business operations.
c. Information must be developed in conformity with generally accepted accounting
principles or with income tax regulations.
d. Information may be tailored to assist in specific managerial decisions.
20. In comparison with a financial statement prepared in conformity with generally accepted
accounting principles, a managerial accounting report is more likely to:
a. Be used by decision makers outside of the business organization.
b. Focus upon the operation results of the most recently completed accounting period.
c. View the entire organization as the reporting entity.
d. Be tailored to the specific needs of an individual decision maker.