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MIDTERM EXAMINATIONSpring 2009

FIN622- Corporate Finance (Session - 5)

Question No: 1 ( Marks: 1 ) - Please choose one

Which of the following could be used to calculate the cost of common equity? ► Interpolation method ► Dividend discount model ► YTM method ► Capital structure valuation Question No: 2 ( Marks: 1 ) - Please choose one

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. ► It has no effect on the break-even level. ► This cannot be determined without knowing the length of the investment horizon. Question No: 3 ( Marks: 1 ) - Please choose one

In Capital Assets Pricing Model, which of the following shows time value of money?

► Beta of the security ► Risk free rate of return ► Risk premium ► Market rate of return Question No: 4 ( Marks: 1 ) - Please choose one

Which of the following is a proposition of Miller and Modigliani theory of Capital structure? ► Value of a firm is independent of its capital structure ► Value of a firm is independent of its level of debt ► Value of a firm is dependent of its cost of capital ► Value of a firm is independent on its level of equity finances Question No: 5 ( Marks: 1 ) - Please choose one

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. Question No: 6 ( Marks: 1 ) - Please choose one

Which of the following risks increases as the debt level of a business increases? ► financial risk ► Operating risk ► Business risk ► Investment risk Question No: 7 ( Marks: 1 ) - Please choose one

Which of the following risks is independent of capital structure of a firm? ► Financial risk ► Systematic risk ► Business risk ► Total risk DOUBT Question No: 8 ( Marks: 1 ) - Please choose one

Which of the following bestdefine the term 'Capital Structure'? http://vustudents.ning.com/ ► The proportion of equity used by a firm ► The proportion of debt and equity capital used by a firm ► The proportion of long-term liabilities used by a firm ► The proportion of short-term bank loan used by a firm Question No: 9 ( Marks: 1 ) - Please choose one

Which of the following is tax deductible? ► Dividend on preferred shares ► Dividend on common stocks ► Coupon payments on bonds ► Capital gain on common stocks


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% Question No: 11 ( Marks: 1 ) - Please choose one

Which of the following is determined by variance of an investment's returns? ► Volatility of the rates of return. ► Probability of a negative return. ► Historic return over long periods. ► Average value of the investment. Question No: 12 ( Marks: 1 ) - Please choose one

Which of the following best illustrates the problem imposed by capital rationing? ► Accepting projects with the highest NPVs first ► Accepting projects with the highest IRRs first ► Bypassing projects that have positive NPVs ► Bypassing projects that have positive IRRs Question No: 13 ( Marks: 1 ) - Please choose one

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 Question No: 14 ( Marks: 1 ) - Please choose one

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

is always quoted in terms of percentage,

which makes it comparable to the other market interest rates or the inflation rate


Which of the following capital budgeting methods focuses on firm's liquidity? ► None of the given options ► Payback method ► Net Present Value ► Internal Rate of Return Question No: 16 ( Marks: 1 ) - Please choose one

In which of the following situations a project is acceptable? ► When a project has conventional cash flows patterns ► When a project has a non-conventional cash flow pattern ► When a project has a discounted rate higher than the inflation rate ► When a project has a positive net present value Question No: 17 ( Marks: 1 ) - Please choose one

Which of the following statements is Correct regarding the fundamental analysis? ► Fundamental analysts use only Economic indicators to evaluate a stock ► Fundamental analysts use only financial information to evaluate a company’s stocks ► Fundamental analysts use financial and non-financial information to evaluate a company’s stocks ► Fundamental analysts use only non-financial information to evaluate a company’s stocks Question No: 18 ( Marks: 1 ) - Please choose one

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% Question No: 19 ( Marks: 1 ) - Please choose one

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 Question No: 20 ( Marks: 1 ) - Please choose one

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.) ► P0 < par and YTM < the coupon rate. ► P0 < par and YTM > the coupon rate. ► P0 > par and YTM > the coupon rate. ► P0 > par and YTM < the coupon rate.

http://web.utk.edu/~jwachowi/mcquiz/mc4.html Question No: 21 ( Marks: 1 ) - Please choose one

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. Question No: 22 ( Marks: 1 ) - Please choose one

Which one of the following is a long-term contract under which a borrower agrees to make payments of interest and principal on specific dates?

► Common stock. ► Preferred stock ► Equity contract. ► Bond. Question No: 23 ( Marks: 1 ) - Please choose one

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 Question No: 24 ( Marks: 1 ) - Please choose one

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 Question No: 25 ( Marks: 1 ) - Please choose one

Which of the following transactions affects the acid-test ratio? ► Receivables are collected. ► Inventory is liquidated for cash. ► New common stock is sold and used to retire a debt issue. ► A new common stock issue is sold and equipment purchased. Question No: 26 ( Marks: 1 ) - Please choose one

Which of the following would be a consequence of a high Inventory Turnover Ratio? ► Too low a level of inventory and frequent stock-outs. ► Seasonal elements peculiar to the business. ► Efficient inventory management. ► Any of the given option. Question No: 27 ( Marks: 1 ) - Please choose one

Which of the following statements (in general) is correct? ► A low receivables turnover is desirable. ► The lower the total debt-to-equity ratio, the lower the financial risk for a firm. ► An increase in net profit margin with no change in sales or assets means a poor ROI. ► The higher the tax rate for a firm, the lower the interest coverage ratio 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? ► The company will be viewed as having high creditworthiness ► The company has greater than average financial risk when compared to other firms in its industry ► The company will not experience any difficulty with its creditors ► The company has less liquidity than other firms in the industry Question No: 29 ( Marks: 1 ) - Please choose one

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 Question No: 30 ( Marks: 1 ) - Please choose one

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 Question No: 31 ( Marks: 5 )

A Company had the following data, extracted from its financial statements for the year ending June 30, 2008:

a) Current Ratio = 2b) Acid Ratio = 1.5 c) Current Liabilities = $500,000d) Inventory Turnover = 5e) Gross Profit Margin = 20 percent

What were its sales for the year? Question No: 32 ( Marks: 10 )

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 EXAMINATIONSpring 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 Question No: 2 ( Marks: 1 ) - Please choose one

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. Question No: 3 ( Marks: 1 ) - Please choose one

In Capital Assets Pricing Model, which of the following shows time value of money? ► Beta of the security ► Risk free rate of return

► Risk premium ► Market rate of return Ref: http://www.answers.com/topic/capital-asset-pricing-modelQuestion No: 4 ( Marks: 1 ) - Please choose one

Which of the following is a proposition of Miller and Modigliani theory of Capital structure? ► Value of a firm is independent of its capital structure ► Value of a firm is independent of its level of debt ► Value of a firm is dependent of its cost of capital ► Value of a firm is independent on its level of equity finances http://vustudents.ning.com/Question No: 5 ( Marks: 1 ) - Please choose one

In which of the following dividend policies, the amount of dividend is relatively fixed? ► Constant payout ratio policy ► Hybrid dividend policy ► Residual dividend policy ► Stable dividend policy Question No: 6 ( Marks: 1 ) - Please choose one

Which of the following risks increases as the debt level of a business increases? ► Financial risk doubt ► Operating risk ► Business risk ► Investment risk Question No: 7 ( Marks: 1 ) - Please choose one

Which of the following risks is independent of capital structure of a firm? ► Financial risk ► Systematic risk ► Business risk ► Total risk Question No: 8 ( Marks: 1 ) - Please choose one

Which of the following bestdefine the term 'Capital Structure'? ► The proportion of equity used by a firm

► The proportion of debt and equity capital used by a firm ► The proportion of long-term liabilities used by a firm ► The proportion of short-term bank loan used by a firm http://vustudents.ning.com/Question No: 9 ( Marks: 1 ) - Please choose one

Which of the following is tax deductible? ► Dividend on preferred shares ► Dividend on common stocks ► Coupon payments on bonds ► Capital gain on common stocks Question No: 10 ( 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 EXAMINATIONFall 2009

FIN622- Corporate Finance (Session - 4)Question No: 1 ( Marks: 1 ) - Please choose one

Following are amongst the three main areas of Finance EXCEPT: ► Financial institutions ► Investments ► Accounting ► Financial management Question No: 2 ( Marks: 1 ) - Please choose one Which one of the following is an offering in which the shares of a company are offered to a limited number of investors? ► Initial Public Offering ► Private Placement ► Direct Public Offering ► Primary Offering

Question No: 3 ( Marks: 1 ) - Please choose one If you want to earn 8 percent, approximately how much should you pay for a security which matures in one year at Rs. 1,000? ► Rs. 1,080 ► Rs. 940 ► Rs. 920 ► Rs. 926 Question No: 4 ( Marks: 1 ) - Please choose one

When the market's nominal annual required rate of return for a particular bond is less than its coupon rate, the bond will be selling at which of the following? http://vustudents.ning.com/ ► At discount ► At premium ► At par value ► At indeterminate price Question No: 5 ( Marks: 1 ) - Please choose one Which of the following terms refers to the process of systematic investigation of the effects on estimates or outcomes of changes in data or parameter inputs or assumptions to evaluate a capital project? ► Sensitivity Analysis ► Fundamental Analysis ► Technical Analysis ► Trend Analysis Question No: 6 ( Marks: 1 ) - Please choose one For a firm with a Degree of Operating Leverage of 3.5, an increase in sales of 6% will: http://vustudents.ning.com/ ► Increase pre-tax profits by 3.5% ► Decrease pre-tax profits by 3.5%. ► Increase pre-tax profits by 21.0%. ► Increase pre-tax profits by 1.71%. Question No: 7 ( Marks: 1 ) - Please choose one The percentage change in a firm's operating profit (EBIT) resulting from a 1% change in output (sales) is known as the ________. ► Degree of operating leverage ► Degree of profit leverage ► Degree of total leverage ► Degree of financial leverage Question No: 8 ( Marks: 1 ) - Please choose one

Suppose a stock is selling today for Rs.60 per share. At the end of the year, it pays a dividend of Rs.2.00 per share and sells for Rs.66.00. what is the capital gain yield on the stock? http://groups.google.com/group/vuZs ► 7% ► 8% ► 9% ► 10% Question No: 9 ( Marks: 1 ) - Please choose one Which of the following is considered as a risk free financial asset? ► Government T-bills ► Junk bonds ► Preferred stock ► Secured bonds Ref: http://www.investopedia.com/terms/r/riskfreeasset.asp

Question No: 10 ( Marks: 1 ) - Please choose one If the common stocks of a company have beta value less than 1, then such stocks refer to which of the following? ► Normal stocks ► Aggressive stocks ► Defensive stocks ► Income stocks Question No: 11 ( Marks: 1 ) - Please choose one Which of the following is known as market portfolio? ► A portfolio consists of all risk free securities available in the market ► A portfolio consists of securities of the same industry ► A portfolio consists of all aggressive securities available in the market ► A portfolio consists of all securities available in the market 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%

http://www.investopedia.com/terms/r/riskfreeasset.asp

► 6% ► 7% Question No: 13 ( Marks: 1 ) - Please choose one Which of the following statements is true regarding Weighted Average Cost of Capital (WACC)? ► WACC of a levered firm is greater than that of an un-levered firm ► WACC of a levered firm is lesser than that of an un-levered firm ► WACC of a levered firm is equal to that of an un-levered firm ► An Un-levered firm has zero WACC. Question No: 14 ( Marks: 1 ) - Please choose one XYZ Airlines will pay a Rs.4.00 dividend next year on its common stock, which is currently selling at Rs.100 per share. What is the market’s required return on this investment if the dividend is expected to grow at 5% forever? ► 9% ► 4% ► 5% ► 7% Question No: 15 ( Marks: 1 ) - Please choose one A Pure Play method of selecting a discount rate is most suitable in which of the following situations? ► When the intended investment project has a Non-conventional stream of cash flows ► When the intended investment project is a replacement project ► When the intended investment project belongs to industry other than the firms operating in ► When the intended investment project has a conventional stream of cash flows Question No: 16 ( Marks: 1 ) - Please choose one A Levered firm has a lower weighted average cost of capital as compare to an Un-levered firm because of which of the following? ► Interest tax shield ► Low level of financial risk ► Low level of business risk ► Low level of systematic risk Question No: 17 ( Marks: 1 ) - Please choose one ABC Corporation declared 10% dividend on its shares. A person purchased some shares of this corporation after the dividend was announced. If he is entitled to receive the declared dividend, his shares would be categorized as which of the following?

► Ex-Dividend ► Cum-Dividend ► Stock- Dividend ► Cash Dividend Question No: 18 ( Marks: 1 ) - Please choose one Which of the following is a dividend that is paid in the form of additional shares, rather than a cash payout? ► Stock Dividend ► Cum Dividend ► Ex Dividend ► Extra Dividend Question No: 19 ( Marks: 1 ) - Please choose one Which of the following firms would have the highest financial leverage? ► A firm having debt-to-equity ratio of 30:70 ► A firm having debt-to-equity ratio of 40:60 ► A firm having debt-to-equity ratio of 50:50 ► A firm having debt-to-equity ratio of 60:40 Question No: 20 ( Marks: 1 ) - Please choose one Which of the following is the principal advantage of high debt financing? ► Tax savings ► Low Bankruptcy costs ► Minimum financial risk ► Low financial leverage Question No: 21 ( Marks: 1 ) - Please choose one Which of the following is a proposition of Miller and Modigliani theory of Capital structure? http://vustudents.ning.com/ ► Value of a firm is independent of its capital structure ► Value of a firm is independent of its level of debt ► Value of a firm is dependent of its cost of capital ► Value of a firm is independent on its level of equity finances Question No: 22 ( Marks: 1 ) - Please choose one Which of the following is a disadvantage of Capital Asset Pricing Model? ► It considers market risk ► It can be used for listed companies ► It can be used for non-listed companies ► It is based on past data

Question No: 23 ( Marks: 1 ) - Please choose one Which of the following shows the reward to risk ratio of a Security A? ► Expected return of A (rA) – risk free return / beta of A ► Expected return of A (rA) – risk free return / required return of A ► Expected return of A (rA) – beta of A / risk free return ► Risk free return - expected return of A (rA)/ beta of A Question No: 24 ( Marks: 1 ) - Please choose one In Capital Assets Pricing Model, which of the following shows time value of money? ► Beta of the security ► Risk free rate of return ► Risk premium ► Market rate of return Question No: 25 ( Marks: 1 ) - Please choose one Which of the following statements is TRUE regarding Balance Sheet of a firm? http://vustudents.ning.com/ ► It reports how much of the firm’s earnings were retained in the business rather than paid out in dividends. ► It reports the impact of a firm’s operating, investing, and financing activities on cash flows over an accounting period. ► It shows the firm’s financial position at a specific point in time. ► It summarizes the firm’s revenues and expenses over an accounting period. Question No: 26 ( Marks: 1 ) - Please choose one Suppose that a corporation of which you are a shareholder has just gone bankrupt. Its liabilities are far in excess of its assets. How much of your investment would you get back? ► A proportionate share of bondholder claims based on the number of common shares that you own ► A proportional share of all creditor claims based on the number of common shares that you own ► An amount that could, at most, equal what you originally paid for the shares of common stock in the corporation ► Nothing at all doubt Question No: 27 ( Marks: 1 ) - Please choose one The gross profit margin is unchanged, but the net profit margin declined over same period. This could have happened due to which one of the following reasons? ► Cost of goods sold increased relative to sales ► Sales increased relative to expenses

► The tax rate has been increased ► Dividends were decreased Question No: 28 ( Marks: 1 ) - Please choose one 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? ► The company will be viewed as having high creditworthiness ► The company has greater than average financial risk when compared to other firms in its industry ► The company will not experience any difficulty with its creditors ► The company has less liquidity than other firms in the industry Question No: 29 ( Marks: 1 ) - Please choose one If a creditor wants to know about the bill payment status of a potential customer, the creditor could look at which one of the following ratios? ► Current ratio ► Acid ratio ► Average age of accounts payable ► Average age of accounts receivable Question No: 30 ( Marks: 1 ) - Please choose one Suppose you invested Rs. 8,000 in a savings account paying 5 percent interest a year, compounded annually. How much amount your account will have at the end the end of four years? ► Rs.9,624 ► Rs.10,208 ► Rs.9,728 ► Rs.10,880 Question No: 31 ( Marks: 1 ) - Please choose one The present value of Rs.100 per year received for 10 years discounted at 8 percent is closest to which of the following amounts? ► Rs.177 ► Rs.362 ► Rs.425 ► Rs.671 Question No: 32 ( Marks: 1 ) - Please choose one How many years will it take for Rs.152,000 to grow to be Rs. 405,000 if it is invested in an account with an annual interest rate of 10%? ► 13.68 ► 8.23

► 10.28 ► Cannot be calculated from the given data Question No: 33 ( Marks: 1 ) - Please choose one Which of the following types of bonds pays no annual interest to the holder, but is sold at discount below the par value? ► An original maturity bond ► A floating rate bond ► A fixed maturity date bond ► A zero coupon bond Question No: 34 ( Marks: 1 ) - Please choose one Which of the following is a financial asset? http://vustudents.ning.com/ ► A building ► Bonds ► Inventories ► Equipments Question No: 35 ( Marks: 1 ) - Please choose one An investor buys a bond that will pay the interest amount of Rs.60 annually, forever. Which of the following would be the present value of the bond if there is exactly one year remaining until the next interest payment and the investor's required annual return is 5 percent? ► Rs. 1,200 ► Rs. 800 ► Rs. 600 ► Rs. 1,000 Question No: 36 ( Marks: 1 ) - Please choose one How much should you pay for a bond with Rs.1,000 face value, a 10 percent coupon rate, and seven years to maturity if your appropriate discount rate is 8 percent and interest is paid annually? (Answers are rounded to the nearest dollar) http://vustudents.ning.com/ ► Rs.560 ► Rs.1,000 ► Rs.903 ►


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 errors are identified during the preparation of trial balance?

► Recording transactions in the wrong account

► Duplication of a transaction in the accounting records

► Posting only the debit portion of a particular journal entry

► Recording the wrong amount for a transaction to both the accounts


An entry that affects more than one accounts is knows as _____________.

► Journal entry

► Compound entry

► Adjusting entry

► Reversing entry


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. 800

► Rs. 2,400


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


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


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 an example of cash equivalents?

► Certificates of Deposit ► Money market accounts ► Money market mutual funds ► Euro Bond Question No: 9 ( Marks: 1 ) - Please choose one

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 Question No: 10 ( Marks: 1 ) - Please choose one

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 Question No: 11 ( Marks: 1 ) - Please choose one

The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable and an ending balance of Rs. 15,000. The income statement reported Sales Revenue of Rs. 200,000. Using this information, compute cash collected from customers.

► Rs. 205,000

► Rs. 215,000

► Rs. 195,000

► Rs. 200,000


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

► Rs. 505,000 ► Rs. 516,000 ► Rs. 490,000 ► Rs. 495,000 Question No: 13 ( Marks: 1 ) - Please choose one

The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is added during the reconciliation.

► A decrease in accrued liabilities ► A decrease in Salaries Payable ► Payment of long-term debt ► An increase in Accounts Payable Question No: 14 ( Marks: 1 ) - Please choose one

Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements?

► Description of current year equity transactions ► Summary of long-term debt outstanding ► Schedule of fixed assets ► Revenue recognition policies Question No: 15 ( Marks: 1 ) - Please choose one

Gross profit is: ► Excess of sales over cost of goods sold

► Sales less Purchases

► Cost of goods sold + Opening stock

► Net profit less expenses of the period


Under which cost flow assumption, the ending inventory is composed of the earliest purchased merchandise? ► FIFO

► LIFO

► Average cost

► Specific identification


Which cost flow assumption most closely matches the actual physical flow of inventory in most retailing businesses?

► FIFO

► LIFO

► Average cost

► Specific identification


An adjusting entry would NOT be required for which of the following account?

► Salaries

► Past due expense

► Income tax expense

► Accounts receivable


For purposes of preparing a cash flow statement, which of the following is NOT considered a "cash equivalent"?

► A money market fund

► An investment in IBM bonds

► Treasury bills

► Commercial paper


Which one of the following account has a normal debit balance? ► Revenue ► Capital ► Assets ► Liabilities Question No: 21 ( Marks: 1 ) - Please choose one

Which of the following should be the first step to locate an error in the trial balance?

► Re-calculate the balances of both sides

► Look for the correct location of the normal balances

► Verify figures transferred from the accounts to the trail balance

► Check foot notes and balances of financial statements


Which of the following provides the basis for the trial balance?

► Income statement

► Statement of cash flow

► Ledger

► Adjusting entries


A business has purchased machinery on credit, what will be its journal entry?

► Cash - (Debit); Machinery - (Credit) ► Machinery - (Debit) ; Accounts payable - (Credit) ► Accounts payable - (Debit) ; Machinery - (Credit) ► Machinery - (Debit) ;Cash - (Credit) Question No: 24 ( Marks: 1 ) - Please choose one

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. 38 million ► Rs. 15 million Question No: 25 ( Marks: 1 ) - Please choose one

Which of the following is NOT affected by the adjusting entries?

► Balance sheet ► Income statement ► Work Sheet ► Ledger Question No: 26 ( Marks: 1 ) - Please choose one

If monthly financial statements are desired by management then: ► Journalizing and posting adjusting entries must be done each month

► Journalizing and posting closing entries must be done each month ► Monthly financial statements can be prepared from worksheets; adjustments and closing entries need not be entered in the accounting records ► Adjusting and closing entries must be entered in the accounting records before preparation of interim financial statements Question No: 27 ( Marks: 1 ) - Please choose one

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 Question No: 28 ( Marks: 1 ) - Please choose one

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 Question No: 29 ( Marks: 3 )

Is depreciation a source of fund or not? Give reasons to support your answer.

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. Question No: 30 ( Marks: 3 )

On March 29, 1998, Nestle Pakistan Limited purchased new equipment with a cost of Rs. 100,000, an estimated useful life of 5 years, and an estimated residual value of Rs 10,000. For income tax purposes, this equipment is classified as 5-year property. Requirements:Compute the annual depreciation expense under Straight-line depreciation method.

Rs.

Purchase Price 100,000.00

Less Residual Value 10,000.00

Amount to be depreciate 90,000.00

Life of asset 5 years 60.00 Months

Per Month 90,000 / 60 1,500.00

Per year 1500 *12 18,000.00

Question No: 31 ( Marks: 5 )

Assume you are a marketing manager for Toys “R” US (the international chain). It is the 1996 Christmas season. A doll called Tickle-Me- Elmo has a suggested retail price of $. 29.95. The doll has become overwhelmingly popular and is in short supply. Customers who buy the doll are able to resell it for hundreds of dollars just be running a classified ad in the newspaper. Much news coverage is being given to the phenomenal prices these dolls command. Toys “R” Us easily could sell Tickle- Me- Elmo’s for $ 100 or more. Would you raise Elmo’s price during this temporary period of excess demand? Explain your reasoning.

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. Question No: 32 ( Marks: 5 )

XYZ is a small general store located just outside the National park. The store uses a periodic inventory system. Every January 1, the owner closes the store and takes a complete physical inventory. Last year the inventory amounted to be Rs. 5,200; this year it totaled Rs. 3,800. During the current year, the business recorded sales of Rs. 125,000 and purchases of Rs. 62,000.Requirements:

a. Compute the cost of goods sold of the company for the current year. (3)b. Write one disadvantage and one advantage of periodic inventory system. (2)

(a) Cost of goods sold:

Opening Inventory Rs. 5,200+ Purchases Rs. 62,000-Closing Finished goods Rs. 3,800Goods sold Rs. 63,400* Gross Profit = Sales – COGS = 125,000 – 63,400 = 61,600

(b) Advantage of Periodic Inventory System Low cost, Simple and no need to use of high expertise to maintain inventory.

Disadvantage of Periodic Inventory System:As under this method continuous record of inventory issuance and receiving is not

maintained so there is a huge chance of theft and misuse of inventory.

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►

(agv ac rec 375,000 + 400,000 / 2 ) 387,500

Crdt sale (2,500,000-600,000) = 1,900,000

Turnover ratio = 1,900,000/387,500 = 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. 800 1600-800 = 800

► 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►

(30,000+20,000+20,000+10,000) =80,000/55,400 = 1.44

The situation, where the amount of current assets is exactly equal to current liabilities, is found when current ratio is:

2 : 1►

2.3 : 1►

3 : 2►

1 : 1►

Current ratio = current assets/ current liabilities

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. 38 million (doubted)

►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►

125 days►(doubted)

104 days►

100 days►

Which of the following is NOT among the five main kinds of current assets?

► Cash and equivalents

► Deferred income

► Accounts receivable

► Prepaid expenses

Investing activities include all of the following EXCEPT:

► Payment of debt

► Collection of loans

► Making of loans

► Sale of available for sale and held to maturity securities

When merchandise is purchased in a periodic inventory system, its cost is debited to ________ account.

► Inventory

► Inventory expense

► Purchases

► Cost of goods sold

The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is subtracted during the reconciliation.

► Non-cash revenues (revenues earned but payment not yet received) reported on the income statement

► A decrease in Accounts Receivable or another non-cash current asset

► Revenues earned and received in cash.

► Non-cash expenses (expenses incurred but not paid) reported on the income statement-one example is amortization expense.

Which of the following is NOT an example of deferred item?

► Depreciation

► Accounts payable

► Unearned revenue

► Prepaid insurance

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

Which of the following statements about a periodic inventory system is TRUE?

► Companies determine cost of goods sold only at the end of the accounting period

► Companies continuously maintain detailed records of the cost of each inventory purchases

► 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?

► The collection of an account receivable from a customer

► The issuance of capital stock for cash at a price above par

► The purchase of a delivery truck by issuing a note payable

► The sale of equipment for cash at a gain

Balance Sheet and Accounting Cycle are based on which of the following?


► Closing entries

► Financial position

► Accounting Equation

Audit opinions can NOT be classified as which of the following?

► 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


► General partnership

► Limited liability company

The rules of GAAP are applicable to all types of companies EXCEPT:


► Corporations

► Partnerships

► None of the given option

Which of the following is NOT an advantage of a Sole proprietorship?

http://www.urlaubaccounting.com/typeaudit.html

► Easy to form and wind up

► Direct motivation

► Better control

► Limited liability

Which of the following is NOT a part of the shareholder’s equity?

► Paid in capital

► Additional 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?

► In arrears preferred shares

► Call able preferred shares

► Cumulative preferred shares

► Participating preferred shares

What will be the effect of purchases of its own shares by the business on the book value of the business?

►Increase the total book value

►Decrease total book value

►No effect on the total book value

►May or may not change

What will be the affect of dividends paid on the book value of a company?

No effect on book value►

Increase in book value►

Decrease in book value►

Depends upon the situation►

The amount of current assets that varies with seasonal requirements is referred to as which of the following?

Permanent Working Capital►

Net Working Capital►

Temporary Working Capital►

Gross Working Capital►

Which of the following is NOT true about the accounts receivable turnover ratio?

It provides insight into the quality of the firm’s receivables►

This ratio is calculated by dividing the receivables to annual credit sales►

This ratio tells the number of time accounts receivables have been turned over in a month►

The higher the ratio, the better is for company►

What will be the effect on the day’s sales in accounts receivables of a company if it uses a natural business year?

Accounts receivables will be understated►

Accounts receivables will be understated for service firms►

Accounts receivables will be overstated►

Accounts receivables will be have no effect►

Which of the following is NOT a goal of analysis of financial statement?

Assess the past performance►

Asses the current financial position►

Predict the future performance of the company►

Asses the working of management in the future►

Which of the following is the percentage change if a negative amount appears in the base year?

Misleading

Positive

Can not be computed

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

Cost of goods sold

Which of the following performance measures would be of most direct interest to shareholders?

Return on net assets►

Gross profit margin►

Debt ratio►

Dividend yield►

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►

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►

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?

Only common stocks issued►

Only preferred stocks issued►

Common stocks and preferred stocks►

Common stocks and retained earnings►

Page 149: Total legal capital = 12,000,000 (preferred) +14,000,000 (common)

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►

It shows how quickly inventory is sold and is determined by Inventory Turnover Ratio

Operating cycle belongs to which group of ratios?

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►

Cash conversion cycle►

None of the above►

Page 43: assets capable of being converted into cash within one year or operating

cycle, whichever is longer. Operating cycle is the time required to purchase or manufacture inventory, sell the product and collect cash i.e.

What will be effect of purchase of inventory on open account on quick ratio of the company?

Increase►

Decrease►

No effect►

Can not be found from the given information►

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►


What will be the effect on the current ratio of the company, if company purchased factory supplies on open account?

Increase►

Decrease►

No effect►


Which of the following is NOT an example of liquid assets?

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?

Amount of interest paid during the month►

Amount of total interest to be paid when the note is paid off►

Amount of principal payable at the maturity date of the note►

Accrued interest expense for the month►

Ref: http://highered.mcgraw-hill.com/novella/QuizProcessingServlet

To measure the business income, life of a business is divided into which of the following?

Divided into specific points in time►

Divided into irregular cycles►

Divided into discrete accounting periods►

Considered to be a continuous cycle►

Posting is performed by transferring information from:

►Source documents to the journal

►Ledger to the journal

►Ledger to trial balance

► Journal to the ledger

Higher Inventory Turnover Ratio means all of the following EXCEPT:

How efficient the inventory management of the firm is?►

How quickly inventory is sold?►

How fast number of times the company sells it inventory during the year?►

How quickly company converts its account receivables into cash?

http://highered.mcgraw-hill.com/novella/QuizProcessingServlet

Which one of the following is NOT a type of adjusting entries?

► Entries to record accrued revenues

► Entries to record accrued expenses

► Entries to distribute un-earned revenue

► Entries to record revenues page 29

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

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?

► Debit - Purchases; Credit - Cash

► Debit - Merchandise Inventory; Credit - Cost of Goods Sold

► Debit - Office Supplies; Credit - Accounts Payable

► Debit - Merchandise Inventory; Credit - Accounts Payable

Which of the following is NOT true about the specific identification method?

► It requires a very detailed physical count

► This method allows management to easily manipulate ending inventory cost

► This method is very hard to use on interchangeable goods

► This results in an overstated inventory account during the period of inflation

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

G.P= SALES – C.O.G.S = 400000-310000= 90,000

Which of the following statements best describes the nature of depreciation?

► Regular reduction of asset value to correspond to the decline in market value as the asset ages

► A process of correlating the book value of an asset with its gradual decline in physical efficiency

► Allocation of the cost in a manner that will ensure that plant and equipment items are not carried on the balance sheet at amounts in excess of net realizable value

► Allocation of the cost of a plant asset to the periods in which benefits are received

Warner Corporation reported net income in excess of its net cash flow from operations. A possible explanation of this difference is:

► Depreciation expense

► Non operating gains

► A decrease in income tax rates

► A decrease in accounts receivable over the period

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

► Is shown in a supplementary schedule as a non-cash investing and financing transaction

Examples of cash flows from investing activities are: Cash payments and receipts from acquisition and disposal of other than long term assets e.g.

Shares, debentures, TFC, long term loans given etc.

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?



► adverse opinion

► Disclaimer of opinion

Which one of the following is NOT a limitation of financial statements?

► They always present past

► They always present the monetary terms

► They help in assessment of future profitability

► They give no information about management and employee relations

Which of the follwing business owner is personally liable for its debts?

► Corporations


► General partnership

► Limited liability company

Which of the following characteristics is NOT generally regarded as right of common shareholders?

► Preemptive right

► Voting rights

► Preference in liquidation

► Transferability of shares

Preferred stockholders have no voting rights. Preferred shares are callable or redeemable at higher price by the company issuing these.

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?

► Debit Cash 4,000; Credit Common Stock 4,000

► Debit Cash 4,000; Credit Common Stock, 1,000, Credit Paid-in-Capital in Excess of Par 3,000

► Debit Cash 4,000; Credit Common Stock, 1,000, Credit Retained Earnings 3,000

► Debit Cash 4,000, Debit Paid-in-Capital in Excess of Par 3,000; Credit Common Stock 4,000

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

► Both trend and component percentages

Trend percentages/ Horizontal Analysis/ Index Analysis: This analysis considers changes in

items of financial statement from a base year to the following years to show the direction of change.This is also called horizontal analysis.


Which of the following indicates the relative size of each item included in a total?

► Trend percentages

► Component percentages

► Common percentages

► Both trend and component percentages

Component percentages/ Vertical Analysis/ Common- Size Analysis: This type of analysis

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

► Shift short-term to long-term debt

► Shift long-term to short-term debt

► Sell common stock

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 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

http://web.utk.edu/~jwachowi/mcquiz/mc6.html

► A change in stock valuation method at the year end which leads to a decrease in the closing stock figure

Which of the following is MOST likely to offer you the highest rate of return together with the highest risk?

► Cash in a building society deposit account

► 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.

9% preferred stock, Rs. 100 par, 300 shares Rs. 3,000

authorized and issuedCall price Rs. 109Retained Earnings Rs. 28,000

► Rs. 109

► Rs. 202

► Rs. 211

► Rs. 118


► 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

Operating cycle belongs to which group of ratios?

► Leverage ratios

► Liquidity ratios

► Profitability ratios

► Activity ratios

Which of the following is the ideal position of debt ratio?

► 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

► Can not be found from the given information

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


Which of the following is essential to conduct business activity, particularly in times of adversity?

► 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?

► Debit Dividends 1,000; Credit Cash 1,000

► Debit Accounts Payable 1,000; Credit Cash 1,000

► Debit Dividends Expense 1,000; Credit Cash 1,000

► Debit Dividends Expense 1,000; Credit Service Revenue 1,000

How does the acid test ratio differ from the current ratio?

► It is concerned with future cash flows rather than historical cash flows

► It does not differ from the current ratio

► It excludes the value of stocks

► It excludes the trade debtors




► Ledger


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

If monthly financial statements are desired by management then:

► Journalizing and posting adjusting entries must be done each month

► Journalizing and posting closing entries must be done each month

► Monthly financial statements can be prepared from worksheets; adjustments and closing entries need not be entered in the accounting records

► Adjusting and closing entries must be entered in the accounting records before preparation of interim financial statements

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

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

The actions taken by the management to make company appear as strong as possible in its financial statements is termed as which of the following?

► 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?

► Qualified Audit Opinion

► Un-qualified Audit Opinion

► Adverse Audit Opinion

► Disclaimer Audit Opinion

All of the following users are very much concerned with the ratio analysis EXCEPT?

► Credit analyst, including banks who want to know the credibility of company

► Bond rating companies, who analyze ratios to help ascertain a company’s ability to pay its debts

► Customers, who want to know the designs and quality of the products offered

► Managers, to analyze, control, and thus improve their working operations

In order to know the percentage of assets financed by creditors, which of the following ratio is calculated?

► Debt Ratio

► Equity Ratio

► Operating credit 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

Which of the following statement is the LEAST LIKELY to be correct?

► A firm that has a high degree of business risk is less likely to want to incur financial risk

► There exists little or no negotiation with suppliers of capital regarding the financing needs of the firm

► Financial ratios are relevant for making internal comparisons

► It is important to make external comparisons or financial ratios

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.

Which of the following is LEAST likely to be presented in Notes to financial statements of a firm?

► Significant pending lawsuits

► Methods of Cost flow assumptions

► A firm’s capital resource needs and liquidity

► Sales by region or business segment

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 activitiesCash flow from financing activitiesCash flow from operating activitiesAll 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 AccountDebit - Purchases Account: Credit - Drawings AccountDebit - 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. 7000Rs. 5000Rs. 8000Rs. 1000

Question # 4 Which of the following is an example of an accrual?Equipment purchased for use in the businessBook-keeping fees collected but not yet earnedSix months’ rent paid in advanceInterest earned but not yet received

Question # 5 Net current assets are equivalent to:Stock plus debtors plus cashCurrent liabilities less current assetsWorking capitalFixed assets plus current assets less current liabilities

Working capital= Current assets minus current liabilities.

Question # 6

Accounting is called the “language of business” because__________:It communicates the financial information to the Management onlyIn order to run a business one must have knowledge about accountingDifferent business accounts are involved in financial statementsIt helps to organize and communicate financial information to end users

Page 1 In the case of the business entity, accounting would deal with measuring, recording and communicating the results of business activities. That is why; Accounting is often called “Language of Business”.

Question # 7 In which of the following account, a credit balance would be an evidence for a mistake or an error?

http://www.investorwords.com/1254/current_liabilities.html

http://www.investorwords.com/1245/current_assets.html

Mr. A Capital AccountCash accountNotes payable account page 6Drawings account

Which of the following represents the main step(s) of accounting cycle?Recording the transactionsClassifying the transactionsOrdering, summarizing, counting the transactionsRecording, classifying, summarizing transactions

The accounting process or cycle has the following five steps.1. Identifying the financial transaction 2. Recording Of Financial Transactions 3. Classifying Financial Transactions 4. Summarizing Financial Transactions 5. Communicating the Results of Business

Question # 8 A company purchased the land in exchange for the capital stock; it would affect which of the following?Cash flow from operating activitiesCash flow from investing activitiesCash flow from financing activitiesIt 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 statementReceipts and payments of cash in the periodNon cash adjustment that effect the income statementCash paid to the customers and creditors of the business

A primary purpose and objective of cash flow statement is to provide information about the

cash receipts and cash payments of a business entity for the accounting period covered by the

income statement.

Question # 10 Cash has been described as:The lifebuoy of the businessThe lifeboat of the businessThe lifeline of the businessThe lifeblood of the business

Question # 11 If a company has paid dividends on its preference shares, under which one of the cash flow statement headings would they appear?Returns on investments and servicing of financeFinancingEquity dividends paidCapital 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 statementsPreparing trial balancePostingMaking adjusting entries

Question # 13 which of the following term refers to each element of the Balance Sheet?LedgerJournal GeneralT- AccountAccount

Page no 6

Each element/sub-element of the balance sheet is named as “Account”,

Question # 14 Which of the following is the most common adjusting entry?Un-earned revenuePre-paid expenseDepreciation expenseAccrued revenue

Question # 15Which 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

http://www.oup.com/uk/orc/bin/9780199264711/01student/mcqs/ch09/

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 orderAscending orderChronological orderAlphanumeric order

Question # 17The 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+presentation+of+the+financial+statements+depends,+among+other+things,+upon+which+of+the+following%3F&hl=en&gl=pk&pid=bl&srcid=ADGEESjxMXJdJbZNe9veq56MXH_Rr51RyAisYr3-ks31XZc0H2TRwBI4f3YIaZ_UPrUcEWqX3KzdfsxdiA5m5ZzMybhWcZ-b3UzrHhNfoqZx727IWz-zQBH0CjYsCqG78YfFErKqfNMm&sig=AHIEtbRhuwjCLb7c3oyoed8bQzgqvGg6aw

Question # 18Use 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 # 19Which 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 # 20Journal entries are done at the end of the accounting period for which type of accounts?Assets and liabilities Office supplies and office equipment

http://docs.google.com/viewer?a=v&q=cache:2xia_fB5R4sJ:eprints.ouls.ox.ac.uk/archive/00001060/01/AUDIT_MATERIALITY.pdf+The+true+and+fair+presentation+of+the+financial+statements+depends,+among+other+things,+upon+which+of+the+following%3F&hl=en&gl=pk&pid=bl&srcid=ADGEESjxMXJdJbZNe9veq56MXH_Rr51RyAisYr3-ks31XZc0H2TRwBI4f3YIaZ_UPrUcEWqX3KzdfsxdiA5m5ZzMybhWcZ-b3UzrHhNfoqZx727IWz-zQBH0CjYsCqG78YfFErKqfNMm&sig=AHIEtbRhuwjCLb7c3oyoed8bQzgqvGg6aw



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 # 21Which 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 # 22In the long run, a business must generate positive net cash flow from which of the following activities, if it is to survive? Investing activities Financing activities Operating activities Non cash activities

PAGE 47

In the long run Cash flow from operations must be positive.

Question # 23If 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 # 24According 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 # 25Financial statements are a subset of which of the following? Financial reporting Financial statement analysis Accounting information Accounting system

Question # 26Which of the following account will appear in the post-closing trial balance? Owner’s Capital Service Fees Earned Income Summary Owner’s Withdrawals

Question # 27When cash flow statement is prepared by using indirect method, which part of it is different from the direct method?Cash flow from investing activitiesCash flow from financing activitiesCash flow from operating activitiesAll parts are same in both methods

Question # 28Which of the following people and groups are NOT interested in cash flow statements of a company?Select correct option:Accounting personnelPotential customersPotential creditorsPotential employees

People and groups interested in cash flow statements include: Accounting personnel,

Potential lenders or creditors, Potential investors, , Potential employees or contractors,

Shareholders of the business.

http://www.answers.com/topic/shareholder

http://www.answers.com/topic/investor-2

http://www.answers.com/topic/creditor

http://www.answers.com/topic/loan

Question # 29Which of the following is an example of an accrual?Equipment purchased for use in the businessBook-keeping fees collected but not yet earnedSix months’ rent paid in advanceInterest earned but not yet received

Question # 30Which one of the following transactions should be classified as a financing activity?Purchase of equipmentPurchase of treasury stockSale of trademarksIncome tax refund

Question # 31Accelerated depreciation method is mostly used for __________.Financial statementsAssets valuationInventory valuationIncome tax returns

Question # 32Depreciation is added back to profit when arriving at the cash flow from operating activities because:Depreciation is only an estimated amountDepreciation does not affect profitDepreciation does not result in a flow of cashDepreciation only affects the balance sheet, not the profit and loss account

Question # 33To find the value of closing stock at the end of a period we:Deduct opening stock from cost of goods soldLook in the stock accountDeduct cost of goods sold from salesDo this by stocktaking

Question # 34Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following reasons?Decreased cash flows from higher taxesIncreased cash flows from lower taxes (not sure)Increased cash flows from higher taxesDecreased cash flows from lower taxes

Question # 35Identify the statement that is NOT true about the Incomes Account and Expenses Account:These are the temporary accountsThese are closed in Income summery accountThese may included in closing trial balanceThese are also known as Nominal Accounts

Question # 36Which of the following terms present a cause and effect relationship with each other?Income statement and balance sheetRevenue and assetsAssets and liabilitiesRevenues and expenses

Question # 37Which of the following company would like to use the accelerated depreciation method?A company with large tax burdensA company with low tax burdensA company that wan to report high net incomeA 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 # 38The cash flow from investing activities shows the cash effects of which of the following?Income statement itemsLong term assets itemsLong term liability & stockholder’s equityLong term liability and long term assets

Question # 39Pre-paid expense is a(n) _______ type of account.LiabilityAssetRevenueExpense

Question # 40

Which of the following should NOT be called “Sales”?Goods sold for cashOffice fixtures soldGoods sold on creditSale of item previously included in ‘Purchases’

Question # 41Which of the following is true about "After closing trial balance"?It may consist of balances of only Real and Personal accountsIt may consist of balances of only Nominal and Real accountsIt may consist of balances of Nominal, Real and Personal accountsIt may consist of balances of only Nominal and Personal accounts

Question # 42Audit opinions can NOT be classified as which of the following?Adverse opinionUnqualified opinionQualified opinionDisagreement of opinion

Question # 43Which of the following is an inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation?FIFOLIFOSpecific identificationWeighted-average

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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 # 44The users of a statement of cash flows usually are interested in:Select correct option:Net cash flow from operating activitiesNet cash flow from investing activitiesNet cash flow from financing activities (not sure)Net cash flow from non-cash transactions

Question # 45Which one of the following is the most common type of opinion given by the auditor?Select correct option:

Unqualified opinionQualified opinionAdverse opinionDisclaimer of opinion

Question # 46Which of the following is a special temporary account used to close all of the revenue and expense accounts?Close-out SummaryOwner’s CapitalIncome SummaryTemporary 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 # 47End product of the accounting cycle is known as the__________Tax returnFinancial statementsAuditor’s annual reportAnnual general meeting

Question # 48Which of the following is NOT one of the four basic financial statements?Balance sheetAudit reportIncome statementStatement of cash flows

Question # 49Which of the following is NOT a cash outflow for the firm?Depreciation expenseDividends paymentsInterest paymentsTax payments

Question # 50Which of the following principle states that the assets are purchased for the use and not for resale purpose?Stable Currency principleObjectivity PrincipleGoing-concern principleCost Principle

Page no 3 Going-concern assumptions: connected with cost principle, assets acquired for use and not for resale.

Question # 51Which of the following expenses would normally be classified as Other or Non Operating Expense on a multiple-step income statement?Interest expenseDepreciation expenseInsurance expenseSalaries expense

Question # 52

Which of the following would be considered a cash-flow item from an "operating" activity? Cash outflow to the government for taxes Cash outflow to shareholders as dividends Cash inflow to the firm from selling new common equity shares Cash outflow to purchase bonds issued by another company

Question # 53

Which of the following principle provides the definite and factual basis for assets valuation? Stable Currency principle Objectivity Principle Matching Principle Cost Principle

Question # 54

The basic purpose of financial statements is to assist users in evaluating the______ Financial position Profitability of an organization Future prospects All of the given options

Question # 55

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

Question # 56

The appropriate journal entry to record equipment depreciation expense would consist of a debit to Depreciation Expense and a credit to which of the following accounts? Equipment Accumulated Depreciation: Equipment Retained Earnings Cash

Question # 57Which of the following truly represents expenses? Future benefits Past results Cost of doing business Past receipts

Question # 58Capital assets of Rs. 120,000 were purchased for cash. A capital asset was sold at a gain of Rs. 40,000. Amortization expense was Rs. 138,000. What amount would appear on the Cash Flow Statement as "Sale of Capital Asset?"

Rs. 40,000 (not sure)Rs. 130,000 Rs. 170,000 Rs. 225,000

Question # 59

Decision makers compare net income to net cash from operating activities. To make these amounts more comparable, the same accounts are included in each. The following accounts are used to compute both net income and net cash from operating activities EXCEPT:

Dividends declared and paid Dividend revenue Interest expense Interest revenue

Question # 60

Which of the following refers to the term “posting”? The recording of transactions The system of giving numbers to the accounts Transferring the debits and credits to ledger Transferring the debits and credits to journal

Question # 61

The definition of cash as used in “Cash Flow Statements” includes: Only cash balances Only bank balances Bank balances and bank overdrafts Cash in hand plus bank balances less bank overdrafts

Question # 62

Which of the following principle is used for recording revenue? Matching Principle Cost Principle Realization Principle Objectivity Principle

Question # 63

An entry that effects more than one accounts is knows as ___________.Journal entry Compound entry Adjusting entry Reversing entry

Question # 64

Which of the following auditor's opinion shows the inability of the auditor to audit the accounts of a business? Qualified Opinion Adverse Opinion Unqualified Opinion Disclaimer of Opinion

Question # 65

Which of the following is the largest single expense of most merchandising firms? Cost of goods sold Rent Expense Amortization Expense Salaries Expense

Question # 66

Which of the following type of reports is most frequently used by external users, such as investors? Financial Statements Tax Forms Management Reports Audit reports

Question # 67

Which of the following best describes the meaning of the term “Purchases”? Goods bought on credit Goods paid Goods bought for resale Items bought

Question # 68

All of the following accounts would be closed in Income Summery Account EXCEPT: Commission earned account Prepaid insurance Salaries Expense account Wages account

Question # 69

Which of the following is NOT one of the three items required to be shown in the heading of a financial statement? The preparation date of the financial statement The title of the financial statement The unit of measure in the financial statement The name of the business entity

Question # 70

If a company has paid dividends on its preference shares, under which one of the cash flow statement headings would they appear? Returns on investments and servicing of finance Financing Equity dividends paid Capital investment and financial investment

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

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

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

► Net Income

► Dividends payment

► Investment by the stockholders

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

Question No: 5 ( Marks: 1 ) - Please choose one Which one of the following statements is TRUE regarding distributions to stockholders? ► The payment of dividends is not directly related to the profits of a given period ► Shareholders can individually decide on their distributions ► To receive a corporate dividend, stock must be owned on the date of declaration ► Corporate dividends reduce contributed capital and therefore, stockholders’ equity Question No: 6 ( Marks: 1 ) - Please choose one Which of the following is the largest single expense of most merchandising firms? ► Cost of goods sold ► Rent Expense ► Amortization Expense ► Salaries Expense Question No: 7 ( Marks: 1 ) - Please choose one Which of the following is NOT the most common example of cash equivalents? ► Savings deposits ► Certificates of Deposit (CDs) ► Stocks of other companies ► Money market mutual funds Cash equivalent are cash substitutes not immediately required i.e. short-term high liquid investment, usually for three months.Examples are Treasury bills, certificates, prize bonds etc. Marketable securities are investments in govt.bonds and stocks and bonds of other companies Question No: 8 ( Marks: 1 ) - Please choose one The statement of cash flow does NOT assist investors, creditors and others in assessing: ► The company’s ability to generate positive cash flows in future periods ► The company’s ability to meet its obligations and to pay dividends ► The company’s needs for external financing

► The company’s ability to forecast future losses Question No: 9 ( Marks: 1 ) - Please choose one When using the perpetual inventory system, each time a sale is recorded the: ► Inventory account is increased ► Inventory account is decreased ► Cost of Goods Sold account is decreased ► Cost of goods available for sale decreasesMerchandise sold→ Dr. Cost of goods sold → Cr. Inventory Question No: 10 ( Marks: 1 ) - Please choose one In perpetual inventory system, a return of defective merchandise is recorded by crediting __________. ► Purchases ► Purchase Returns ► Purchase Allowance ► Merchandise Inventory Question No: 11 ( Marks: 1 ) - Please choose one Which factor would NOT affect the gross profit rate?

► An increase in the cost of heating the store ► An increase in the price of inventory items ► An increase in the sale of luxury items ► An increase in the use of “discount pricing” to sell merchandise Question No: 12 ( Marks: 1 ) - Please choose one

Assets which have NO market value are called: ► Wasting assets ► Fictitious assets ► Quick assets ► Tangible assets Question No: 13 ( Marks: 1 ) - Please choose one Audit opinions can NOT be classified as which of the following?

► Adverse opinion ► Unqualified opinion ► Qualified opinion

► Disagreement of opinion Question No: 14 ( Marks: 1 ) - Please choose one The audit is NOT a necessary requirement for which of the following companies? ► Listed companies ► Corporations ► Sole proprietorship ► Partnerships Question No: 15 ( Marks: 1 ) - Please choose one Which of the following is NOT a part of the five-year summary of a company? ► Net income/Loss ► Total assets ► Discontinued operations ► Net sales Question No: 16 ( Marks: 1 ) - Please choose one Which of the following is NOT a limitation of financial statements for an investor?

► It provides complete basis for the analysis of a company ► Past financial performance does not signify what will happen with the investor in future ► The financial statements are useless without the notes to the financial statements ► Unless the statements are audited their authenticity is under doubt Question No: 17 ( Marks: 1 ) - Please choose one Which of the following is NOT a feature of preferred shares?

► Distributive

► Callable ► In arrears ► Cumulative Question No: 18 ( Marks: 1 ) - Please choose one Which of the following is a type of preferred stock that entitles the holder to a fixed dividend and, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock?

► In arrears preferred shares ► Call able preferred shares

► Cumulative preferred shares ► Participating preferred shares

A type of preferred stock that gives the holder the right to receive dividends equal to the normally specified rate that preferred dividends receive as well as an additional dividend based on some predetermined condition.The additional dividend paid to preferred shareholders is commonly structured to be paid only if the amount of dividends that common shareholders receive exceeds a specified per-share amount. Question No: 19 ( Marks: 1 ) - Please choose one Which one of the following represents the value of shares in the market at any point of time? ► Par value ► Book value ► Face value ► Market value Question No: 20 ( Marks: 1 ) - Please choose one By computing component percentages for several successive balance sheets, which of the following can NOT be found? ► The increasing items ► The decreasing items ► The unchanged items ► The future profitable items Question No: 21 ( Marks: 1 ) - Please choose one Which of the following would NOT improve the current ratio?

► Issue long-term debt to buy inventory ► Sell common stock to reduce current liabilities ► Sell fixed assets to reduce accounts payable ► Borrow short term to finance additional fixed assets Question No: 22 ( Marks: 1 ) - Please choose one Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio? ► 2% ► 7% ► 6%

► 3% Question No: 23 ( Marks: 1 ) - Please choose one A company experiences a dramatic fall in its gross profit ratio. This could be the result of which of the following?

► An increase in competition in the company's main product market ► An increase in the incidence of bad debts ► An increase in overhead expenses ► An increase in demand for the company's products Question No: 24 ( Marks: 1 ) - Please choose one Which of the following is NOT an objective of fundamental analysis?

► To make projection on its business performance ► To predict the future stock price ► To evaluate its management and make internal business decisions ► To calculate its credit risk Seems that question is not properly designed.Have a look at reference from wikipedia.

There are several possible objectives:

to conduct a company stock valuation and predict its probable price evolution,

to make a projection on its business performance,

to evaluate its management and make internal business decisions,

to calculate its credit risk.

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

► Assess the past performance ► Asses the current financial position ► Predict the future performance of the company ► Asses the working of management in the future Question No: 26 ( Marks: 1 ) - Please choose one In isolation, which of the following is TRUE about a financial ratio?

► Useless piece of information ► Useful piece of information ► Useful only for past performance ► Useful only for future predictions Question No: 27 ( Marks: 1 ) - Please choose one Financial statement ratio analysis may be undertaken to study liquidity, turnover, profitability, and other indicators. To which does the current ratio most relate?

http://en.wikipedia.org/wiki/Credit_risk

http://en.wikipedia.org/wiki/Stock_valuation

► Liquidity ► Turnover ► Profitability ► Other indicator Question No: 28 ( Marks: 1 ) - Please choose one Which of the following would NOT result in an improved overall gross margin of a business?

► A fall in raw material prices resulting in a lower cost of sales ► Higher discounts offered to customers ► Increased selling price of existing products ► Introduction of new products with a higher gross profit margin Question No: 29 ( Marks: 1 ) - Please choose one Which of the following would NOT improve the return on investment ratio?

► Reducing costs ► Increasing gains ► Accelerating gains ► Issuing treasury stock Question No: 30 ( Marks: 1 ) - Please choose one Which one of the following statement indicates the Inventory turnover ratio?

► How quickly company prepared its inventory ► How quickly company converts its inventory into cash ► How quickly company purchases its inventory ► How quickly company sells its inventory Question No: 31 ( Marks: 1 ) - Please choose one Which of the following is the ideal position of debt ratio?

► 30% ► 60% ► 50% ► 45% Question No: 32 ( Marks: 1 ) - Please choose one If current assets are Rs. 15.6 million, current liabilities Rs. 11.2 million and stocks Rs. 1.8 million, what is the acid test ratio?

► 1.39 ► 1.23 ► 1.65 ► 0.89 Question No: 33 ( Marks: 1 ) - Please choose one Which of the following is essential to conduct business activity, particularly in times of adversity?

► Profitability ► Liquidity ► Stability ► Solvency Question No: 34 ( Marks: 1 ) - Please choose one

Which of the following explains the debit and credit rules relating to recording revenues and expenses? ► Realization and matching principle ► The effect of revenues and expenses in the owner’s equity ► Expenses appear on the left side of the income statement ► Liabilities are recorded as debit on the balance sheet Question No: 35 ( Marks: 1 ) - Please choose one Which of the following equations properly represents a derivation of the fundamental accounting equation? ► Assets + liabilities = owner's equity ► Assets = owner's equity ► Cash = assets ► Assets - liabilities = owner's equity Question No: 36 ( Marks: 1 ) - Please choose one How would the purchase of merchandise on account be represented in the buyer's records? ► Increase assets and increase expenses ► Increase assets and increase liabilities ► Increase liabilities and increase paid-in capital ► Increase liabilities and decrease assets Question No: 37 ( Marks: 1 ) - Please choose one Which of the following is NOT an advantage of the accrual basis of accounting? ► It is simple to see what payments to vendors are outstanding ► It is easy to see how much revenue is due the company ► It is much easier to assess the overall financial health of the company ► It is much easier and cheaper to maintain Question No: 38 ( Marks: 1 ) - Please choose one ABC company has decided to change the inventory system from FIFO to LIFO keeping in view the raising day by day inflation threat. What different things/factors Mr Ali, the auditor of the company, will have to notify or report? ► The purpose of switching ► The existing system drawbacks ► The new system threats ► All of the above Question No: 39 ( Marks: 1 ) - Please choose one Which of the following elements of financial statements is MOST closely related to measurement of financial position?

► Equity ► Income ► Expense ► Disclosures Question No: 40 ( Marks: 1 ) - Please choose one All of the following steps are considered during the formation of a company EXCEPT: ► The memorandum and articles of association of articles should be prepared ► Suitable persons should be appointed for the subscription of memorandum of association ► The election of the CEO of the company ► Registration fees should be deposited to registrar of companies and receipt of certificate of incorporation should be collected

Question No: 41 ( Marks: 1 ) - Please choose one The basic type of capital stock issued by every corporation is known as:

► Common stock ► Preferred stock ► Class B ► Cumulative Stock Question No: 42 ( Marks: 1 ) - Please choose one Which of the following ratios provide a MORE penetrating measure of liquidity than does the current ratio? ► Assets Test Ratio (Acid test ratio) ► Defensive interval ratio ► Investments ratio ► Current ratio Question No: 43 ( Marks: 1 ) - Please choose one Average payment period is calculated as: ► 365 / Accounts payable turnover ► 365 X Accounts payable turnover ► 365/ Total purchases ► Accounts payable turnover / 365 Question No: 44 ( Marks: 1 ) - Please choose one Which of the following ratios indicates in days how quickly inventory is sold? ► Inventory turnover Rate ► Inventory Turnover ratio ► Operating Cycle ► Days sales of inventory

Question # 1 of 15 ( Start time: 11:26:34 AM ) Total Marks: 1 Resources owned by a business are called: Select correct option:

1. Owner equity2. Assets (page# 18)3. Reserves4. Liabilities

Question # 2 of 15 ( Start time: 11:26:41 AM ) Total Marks: 1 Which of the following is deducted from the net income while preparing cash flow statement by indirect method? Select correct option:

1. Decrease in inventories2. Increase in accounts payable (not shure)3. Depreciation 4. Increase in inventories

Question # 3 of 15 ( Start time: 11:27:53 AM ) Total Marks: 1

Which of the following represents the negative future cash flows for an enterprise? Select correct option:

1. Assets2. Ownerequity 3. Liabilities 4. Capital

Question # 4 of 15 ( Start time: 11:29:14 AM ) Total Marks: 1 Under which cost flow assumption is the ending inventory composed of the most recently purchased merchandise? Select correct option:

1. FIFO 2. LIFO 3. Average cost 4. Specific identification

Question # 5 of 15 ( Start time: 11:29:45 AM ) Total Marks: 1 The information in statement cash flows assists the investors, creditors, and others in assessing: Select correct option:

1. Enterprise ability to meet its obligations 2. Enterprise ability to pay dividends 3. Enterprise needs for external financing 4. Enterprise needs for external financing

http://vuattach.ning.com/Question # 6 of 15 ( Start time: 11:30:45 AM ) Total Marks: 1 Which of the following should NOT be called “Sales “? Select correct option:

1. Goods sold for cash 2. Office fixtures sold 3. Goods sold on credit 4. Sale of item previously included in Purchasese

Question # 7 of 15 ( Start time: 11:31:04 AM ) Total Marks: 1 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

Question # 8 of 15 ( Start time: 11:32:33 AM ) Total Marks: 1 A business has purchased a building on cash, how it would be recorded in the journal? Select correct option:

1. Building - Debit; Cash - Credit 2. Cash - Debit; Building - Credit 3. Building - Debit; Owner equity - Credit 4. Building - Debit; Accounts Payable - Credit

Question # 9 of 15 ( Start time: 11:32:41 AM ) Total Marks: 1 All of the following accounts would be closed in Income Summery Account EXCEPT: Select correct option:

1. Commission earned account 2. Prepaid insurance 3. Salaries Expense account 4. Wages account

Question # 10 of 15 ( Start time: 11:33:31 AM ) Total Marks: 1 In which of the following account, a credit balance would be an evidence for a mistake or an error? Select correct option:

1. Mr. A Capital Account 2. Cash account 3. Notes payable account (page #6)4. Drawings account

Question # 11 of 15 ( Start time: 11:34:53 AM ) Total Marks: 1 Which of the following principle is used for recording a revenue? Select correct option:

1. Matching Principle 2. Cost Principle 3. Realization Principle 4. Objectivity Principle

Question # 12 of 15 ( Start time: 11:36:18 AM ) Total Marks: 1 Primary purpose of the cash flows statement is to provide the information about:

Select correct option:

1. Errors or discrepancies between cash book and income statement 2. Receipts and payments of cash in the period 3. Non cash adjustment that effect the income statement 4. Cash paid to the customers and creditors of the business

Question # 13 of 15 ( Start time: 11:37:43 AM ) Total Marks: 1 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. Select correct option:

1. Rs. 170,000 2. Rs. 130,000 3. Rs. 120,000 4. Rs. 180,000

Question # 14 of 15 ( Start time: 11:39:10 AM ) Total Marks: 1 Audit opinions can NOT be classified as which of the following? Select correct option: http://vuattach.ning.com/

1. Adverse opinion 2. Unqualified opinion 3. Qualified opinion 4. Disagreement of opinion

Question # 15 of 15 ( Start time: 11:39:54 AM ) Total Marks: 1 According to _______ the personal expenses paid by Mr. A from his own pocket would not be recorded in business books of account. Select correct option:

1. Realization principle 2. Separate entity principle 3. Matching principle 4. Materiality principle

Question # 1 of 15 ( Start time: 03:06:44 PM ) Total Marks: 1 Which of the following is NOT the part of the stockholder’s equity? Select correct option:

1. Paid-in-Capital2. Additional Paid-in-Capital3. Gross profit 4. Retained Earnings

Question # 2 of 15 ( Start time: 03:07:31 PM ) Total Marks: 1 Which of the following would NOT represent the cash outflows for the business?

Select correct option: 1. Purchase of building for cash2. The sale of land for cash 3. Retirement of long term debt4. The payment of cash for dividends

Question # 3 of 15 ( Start time: 03:08:13 PM ) Total Marks: 1 Which of the following statement is NOT true? Select correct option:

1. Financial statements may be prepared soon after the adjusted trail balance2. The owner’s equity is not up to the date until the closing entries are posted3. Adjusting entries are prepared before the financial statements are prepared4. In the accounting cycle, closing entries are made before the adjusting entries page#36

Question # 4 of 15 ( Start time: 03:09:40 PM ) Total Marks: 1 Current assets are those assets which management intends to convert into cash or consume within: Select correct option:

1. The operating cycle2. One year3. The longer of operating cycle or one year4. The shorter of operating cycle or one year

Question # 5 of 15 ( Start time: 03:09:59 PM ) Total Marks: 1 Adjusting entries are required for which of the following accounts? Select correct option:

1. Income Summary accounts2. Revenue and expense accounts3. All types of accounts4. Assets and liabilities accounts

Question # 6 of 15 ( Start time: 03:10:22 PM ) Total Marks: 1 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:

1. Debit Cash 500; Credit Accounts Receivable 5002. Debit Accounts Receivable 500; Service Revenue 5003. Debit Accounts Receivable 500; Credit Capital Stock 5004. Cash 500; Credit Service Revenue 500

Question # 7 of 15 ( Start time: 03:10:54 PM ) Total Marks: 1 How many types of audit certificate are there? Select correct option:

1. Two2. Three3. Four 4. Five

Question # 8 of 15 ( Start time: 03:12:16 PM ) Total Marks: 1 Inventory accounts should be classified in which section of a balance sheet? Select correct option:

1. Current assets2. Investments3. Property, plant, and equipment4. Intangible assets

Question # 9 of 15 ( Start time: 03:12:49 PM ) Total Marks: 1 Which of the following is not true about the “Account”? Select correct option:

1. Accounts are only prepared by the business entities

2. Account always reflects the amount of the single transaction only3. Account is effected both by economic and non economic events4. All of the given options

Question # 10 of 15 ( Start time: 03:13:30 PM ) Total Marks: 1 In simple words book value would be the amount of money that a holder of a common share would get if a company were to: Select correct option:

1. Consolidate2. Merged with another company3. Acquired by another company4. Liquidate

Question # 11 of 15 ( Start time: 03:14:32 PM ) Total Marks: 1 Which of the following is NOT the part of annual report? Select correct option:

1. Financial statements2. Auditor’s report3. Five year summary4. Future investments report

Question # 12 of 15 ( Start time: 03:15:18 PM ) Total Marks: 1 Equipment costing Rs. 3,000 with accumulated depreciation of Rs. 2,125 is exchanged for another asset with a fair value of Rs. 625. The exchange has commercialsubstance. How much is the gain or loss on this transaction? Select correct option:

1. A gain of Rs. 250 should be recognized2. A loss of Rs. 250 should be recognized3. A loss of Rs. 500 should be recognized4. No gain or loss should be recognized.

Question # 13 of 15 ( Start time: 03:15:50 PM ) Total Marks: 1 Which of the following is NOT a financial asset? Select correct option:

1. Marketable securities2. Receivables 3. Inventory 4. Short-term investments

Question # 14 of 15 ( Start time: 03:16:39 PM ) Total Marks: 1 The basic purpose of financial statements is to assist users in evaluating the________ Select correct option:

1. Financial position2. Profitability of an organization3. Future prospects 4. All of the given options

Question # 15 Total Marks: 1 Retained earnings will change over time because of several factors. Which of the following factors would explain an increase in retained earnings? Select correct option:

1. Net loss2. Net income3. Dividends


How much duration does an accounting period usually have?

► Three months

► Two years

► One year

► Five years


Balance Sheet and Accounting Cycle are based on which of the following?


► Closing entries

► Financial position

► Accounting Equation


Which of the following is the next step after the preparation of trial balance?

► Adjusted trial balance

► Financial statements


► Closing entries

http://groups.google.com/group/vuZs


Which of the following errors are identified during the preparation of trial balance?

► Recording transactions in the wrong account

► Duplication of a transaction in the accounting records

► Posting only the debit portion of a particular journal entry

► Recording the wrong amount for a transaction to both the accounts


Which of the following is NOT an advantage of the Trial Balance?


► It ensures that the all accounts have identical debits and credits

► It ensures that the balance of each ledger account has been computed correctly

► The debit and the credit columns of trial balance have been added up correctly

► All the transactions have been recorded and nothing has been omitted


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



► 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


Which of the following regarding retained earnings is FALSE?

► Retained earnings represent earnings not distributed to stockholders

► Retained earnings is increased by net income and decreased by a net loss

► Retained earnings are a component of stockholders’ equity on the balance sheet

► Retained earnings are an asset on the balance sheet


Which of the following would be considered a cash-flow item from a "financing" activity?

► A cash outflow to the government for taxes

► A cash outflow to repurchase the firm's own common stock

► A cash outflow to lenders as interest

► A cash outflow to purchase bonds issued by another company


'Equity dividends' shown in the cash flow statement will comprise:

► All company dividends paid during the year

► All dividends paid to voting shares in the year

► All dividends paid and proposed in the year relating to voting shares

► All proposed dividends in the year relating to voting shares



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?

► Proceeds from issuance of long-term debt

► Expenditure for sale of plant and equipment

► Payments to suppliers

► Receipts from sale of goods or services


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


The cash flow from financing activities shows the cash effects of which of the following?

► Income statement items

► Long term assets items

► Long term liability & stockholder’s equity

► Long term liability and long term assets



► Description of current year equity transactions

► Summary of long-term debt outstanding

► Schedule of fixed assets

► Revenue recognition policies


Which one of the following is NOT an inventory costing method?

► FIFO cost method

► Weighted-average cost method

► Specific unit cost method

► LIFO cost method


In a perpetual inventory system, which of the following would be debited when inventory is sold on account?


► Merchandise inventory

► Sales

► Both Accounts receivable & cost of goods sold


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 statements best describes the nature of depreciation?

► Regular reduction of asset value to correspond to the decline in market value as the asset ages

► A process of correlating the book value of an asset with its gradual decline in physical efficiency

► Allocation of the cost in a manner that will ensure that plant and equipment items are not carried on the balance sheet at amounts in excess of net realizable value

► Allocation of the cost of a plant asset to the periods in which benefits are received


Warner Corporation reported net income in excess of its net cash flow from operations. A possible explanation of this difference is:


► Non operating gains

► A decrease in income tax rates

► A decrease in accounts receivable over the period


Which of the following transaction have an effect on expense account?

► Purchase of office equipment on credit

► Payment on accounts payable

► Repayment of principle of bank loan

► Payment of wages


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:

► Assets understated by Rs.600; net income overstated by Rs.600

► Liabilities overstated by Rs.600; net income understated by Rs.600

► Liabilities understated by Rs.600; net income understated by Rs.600

► Liabilities overstated by Rs.600; net income overstated by Rs.600


A business has purchased machinery on credit, what will be its journal entry?

► Cash - (Debit); Machinery - (Credit)

► Machinery - (Debit) ; Accounts payable - (Credit)

► Accounts payable - (Debit) ; Machinery - (Credit)

► Machinery - (Debit) ;Cash - (Credit)


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


Assuming that net purchases cost Rs 250,000 during the year. The closing inventory was of Rs 4,000, and opening inventory was of Rs 30,000, how much was the cost of goods sold?

► Rs. 276, 000

► Rs. 280,000

► Rs. 254,000

► Rs. 246,000



Assume that net income was Rs. 200,000, depreciation expense was Rs. 10,000, accounts receivable increased by Rs. 15,000, and accounts payable increased by Rs. 5,000. Calculate the cash flow from operating activities.

A. Net Cash Flow from Operating Activities 200000Rs.


Explain how the adoptions of FIFO method rather than LIFO will tend to raise or lower the quality of a company’s earnings? Assume the continuance of the inflation.

A. During Inflation, FIFO shows less expense on income statement and higher inventory valuation on balance sheet and values ending inventory at current cost, whereas LIFO shows higher expenses on income statement and lower inventory valuation on balance sheet.


Nestle Pakistan has two conflicting objectives. Management wants to report the highest possible earnings to stockholders in the near future yet also wants to minimize the taxable income. Indicate the depreciation method that the company will probably use in its financial statements and its federal income tax return. Explain your answer with the reasons.

A. We will use fixed depreciation Method



Patterson Company reported net income for the current year of Rs. 666,000. During the year the company’s accounts receivable increased by Rs. 50,000, inventory decreased by Rs. 23,000, accounts payable decreased by Rs. 55,000,



pre-paid expenses increased by Rs. 35,000, and accrued expenses payable increased by Rs. 14,000. Determine the amount of cash provided by or used for operating activities by the indirect method.

A. Net Cash Flow from Operating Activities 663000Rs.

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


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


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


► Net Income



► Net Loss


► 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



► Disagreement of opinion

The audit is NOT a necessary requirement for which of the following companies?

► Listed companies

► Corporations


► 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 eachOn January 30, purchased 5 units . Rs. 30 each15 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 eachOn January 20, purchased 10 units . Rs. 20 eachOn January 30, purchased 5 units . Rs. 30 each15 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. Cashb. Accounts Receivablesc. Insurance Expensed. Accounts payable 2. The term used for the difference between fair value of a company and the purchaseprice is:a. Trade Markb. Market Valuec. Good Willd. Purchase Price 3. Financial statement (s) that has all temporary accounts is:a. Balance Sheetb. Income Statementc. Cash Flow Statementd. Statement of Owner’s Equity 4. The accounting cycle runs in the sequencea. Analyze, journalize, post, adjust, and prepare statements, closeb. Post, journalize, analyze, prepare statements, close, adjustc. Prepare statements, journalize, post, adjust, close, analyzed. Journalize, post, close, prepare statements, adjust, analyze 5. After all the closing entries have been posted, what will be the balance of the incomesummary account?a. A debit if a net income has occurredb. A debit if a net loss has occurredc. A credit if a net loss has occurredd. Zero 6. Which one is TRUE about Post-Closing trial balance?a. Be prepared before closing entries are posted to the ledgerb. Contain both income statement and balance sheet accountsc. Contain only balance sheet accountsd. Contain only income statement accounts 7. Revenue from services is classified as:a. Investing Inflowb. Operating Inflowc. Investing Outflowd. Operating Outflow 8. If the cost of a building is Rs. 90, 000 and its estimated useful life is 30 years. Thedepreciation expense for one month is:a. Rs. 600b. Rs. 250c. Rs. 300d. Rs. 500 9. The supplies on hand account have a balance of Rs. 1500 at year end. The actualamount of supplies on hand at the end of period is Rs. 400. The necessary adjusting entry

is: a. Dr. Supplies on Hand Rs. 1100Cr. Supplies Expense Rs. 1100b. Dr. Supplies Expense Rs. 400Cr. Supplies on Hand Rs. 400c. Dr. Supplies Expense Rs. 1100Cr. Supplies on Hand Rs. 1100d. Dr. Supplies on Hand Rs. 400Cr. 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, 00b. Loss of $ 25, 00c. Profit of $ 25, 00d. 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 : 9Which 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 eachOn January 30, purchased 5 units @ Rs. 30 each15 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: 28Which 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: 2Which 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: 30The 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: 31Which of the following account would be classified as a current asset on the balance sheet?► Accumulated depreciation► Accounts receivable► Office equipment► Land: 32An adjusting entry would NOT be required for which of the following account?► Salaries► Past due expense► Income tax expense► Accounts receivable: 33Which of the following accounts will be debited, when increased?► Liabilities and expenses► Assets and equity► Assets and expenses► Equity and revenues: 34Accounting 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: 35The 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: 36The 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: 37Which 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: 38Which of the following balances does the Contra-Asset account show typically?► Credit► Debit► Negative► Positive: 39Which 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: 40The 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

Which of the following is TRUE about both sides of the trial balance?

Both sides are always positiveBoth sides are negativeBoth sides are equalBoth sides are not linked which each other

Adjusting entries are used to:

:Bring account balances up to date at year endClose temporary accounts at year endClose permanent accounts at year endBring account balances at zero

Which of the following statement is NOT true?

Financial statements may be prepared soon after the adjusted trail balanceThe owner’s equity is not up to the date until the closing entries are postedAdjusting entries are prepared before the financial statements are preparedIn the accounting cycle, closing entries are made before the adjusting entries

Which of the following is the second name for the journal?

Book of default entriesBook of original entriesBook of detailed entriesBook of annual entries

Which of the following represents the negative future cash flows for an enterprise?

AssetsOwner’s equityLiabilitiesCapital

The definition of cash as used in “Cash Flow Statements” includes:

Only cash balancesOnly bank balancesBank balances and bank overdraftsCash in hand plus bank balances less bank overdrafts

Accounting is called the “language of business” because__________:

It communicates the financial information to the Management onlyIn order to run a business one must have knowledge about accountingDifferent business accounts are involved in financial statementsIt helps to organize and communicate financial information to end users


Description of current year equity transactionsSummary of long-term debt outstandingSchedule of fixed assetsRevenue recognition policies

Generally speaking, investors want to buy shares at which of the following price?

At face valueBelow face valueAbove face valueAt market value

The true and fair presentation of the financial statements depends, among other things, upon which of the following?

Strong financial positionConcept of materialityMatching principleRealization principle

Which of the following explains the debit and credit rules relating to recording revenues and expenses?

Realization and matching principleThe effect of revenues and expenses in the owner’s equityExpenses appear on the left side of the income statementLiabilities are recorded as debit on the balance sheet

Net current assets are equivalent to:

Stock plus debtors plus cashCurrent liabilities less current assetsWorking capitalFixed assets plus current assets less current liabilities

Which of the following is NOT an example of cash equivalents?

Certificates of DepositMoney market accountsMoney market mutual fundsEuro Bond

Which of the following principle provides the definite and factual basis for assets valuation?

Stable Currency principleObjectivity PrincipleMatching PrincipleCost Principle

Which of the following principle states that the assets are purchased for the use and not for resale purpose?

Stable Currency principleObjectivity PrincipleGoing-concern principleCost Principle

For purpose of measuring business income, the life of a business is divided into which of the following?

Divided into specific points in timeDivided into irregular cyclesDivided into discrete accounting periodsConsidered to be a continuous cycle

End product of the accounting cycle is known as the__________

Tax returnFinancial statementsAuditor’s annual reportAnnual 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 principleSeparate entity principleMatching principleMateriality principle

Current assets are those assets which management intends to convert into cash or consume within:

The operating cycleOne yearThe longer of operating cycle or one yearThe shorter of operating cycle or one year

Identify the statement that is NOT true about the Incomes Account and Expenses Account:

These are the temporary accountsThese are closed in Income summery accountThese may included in closing trial balanceThese are also known as Nominal Accounts

Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following reasons?

Decreased cash flows from higher taxesIncreased cash flows from lower taxesIncreased cash flows from higher taxesDecreased cash flows from lower taxes

Which one of the following remains intact and unaffected by the continuous changes in business?

Capital StockAssetsLiabilitiesRetained 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 500Debit Accounts Receivable 500; Service Revenue 500Debit Accounts Receivable 500; Credit Capital Stock 500Cash 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 valueOn discountOn premiumBoth at face value and at discount

Statement of cash flows helps the investors and other stake holders to assess:

The ability to generate future cash flowsThe liquidity of the businessAbility to pay cash dividends in the futureAll of the given options

Which of the following is NOT the part of the stockholder’s equity?

Paid-in-CapitalAdditional Paid-in-CapitalGross profitRetained Earnings

Which of the following is the second name for the journal?

Book of default entriesBook of original entriesBook of detailed entriesBook of annual entries

Which of the following items are included in the financing activities section of the statement of cash flows?

Cash effects of transactions involving making and collecting loansCash effects of acquiring and disposing of investments and property, plant, and equipmentCash effects of transactions obtaining resources from owners and providing them with a return on their investmentCash effects of transactions that enter into the determination of net income

How many basic types of adjusting entries are there?

Two typesThree typesFour typesTen types

There are five main kinds of current assets. Which of the following is NOT among them?

Cash and equivalentsDeferred incomeAccounts receivablePrepaid expenses

Which of the following is NOT true about depreciation?Select correct option:

Depreciation causes perpetual and gradual fall in the value of assetDepreciation does not depend upon on fluctuations in the market value of assetDepreciation is a charged in case of fixed assets onlyDepreciation is a charge against revenue of two or more accounting periods

Which of the following would be affected by the difference between revenues and expenses?

AssetsOwner’s equityLiabilitiesCapital

Which of the following is the largest single expense of most merchandising firms?

Cost of goods soldRent ExpenseAmortization ExpenseSalaries Expense

When dividends are declared by a corporation's board of directors, what will be its journal entry on the declaration date?

Debit Dividends payable; Credit Retained EarningsDebit Retained Earnings; Credit CashDebit Retained Earnings; Credit Dividends PayableDebit Cash; Credit Retained Earnings

Which of the following is TRUE regarding the entry to recognize the depreciation expense?

It is an application of matching principleIt is a closing entryUsually includes an offsetting credit to cashIt is done only at the end of each month


Description of current year equity transactionsSummary of long-term debt outstandingSchedule of fixed assetsRevenue recognition policies

According to the statement of cash flows; following are the examples of investing activities except:

Sales of machineryCapital invested by the ownersPurchase of building for the business useCash received from the disposal of equipment

Which of the following refers to the term “posting”?

The recording of transactionsThe system of giving numbers to the accountsTransferring the debits and credits to ledgerTransferring the debits and credits to journal

The purpose of recording depreciation on productive assets is to:

Reflect the decline in the market value of the assets each periodReduce income when the company has an exceptionally profitable yearBe in conformity with the revenue recognition principleAllocate the original cost of a productive asset to expense over its useful life

The cash flow from investing activities shows the cash effects of which of the following?

Income statement items Long term assets items Long term liability & stockholder’s equity Long term liability and long term assets

Which of the following account would NOT be closed to the income summary account at the end of a period? Select correct option:

Rent expense Revenue earned Wages expense Accumulated depreciation

Which of the following explains the debit and credit rules relating to recording revenues and expenses? Select correct option:

Realization and matching principle

The effect of revenues and expenses in the owner’s equity Expenses appear on the left side of the income statement Liabilities are recorded as debit on the balance sheet

The Drawing account is closed by which of the following entry?

Capital – Debit; Drawing - Credit Drawing – Debit; Capital - Credit Income Summary – Debit; Drawing - Crediting Drawing – Debit; Income Summary - Crediting

Which of the following would NOT be the characteristics of current assets?

Likely to change before the next accounting period is over Not bought for resale Use as part of the firm's trading operations Liquidity

Which of the following is NOT one of the three items required to be shown in the heading of a financial statement? Select correct option:

The preparation date of the financial statement The title of the financial statement The unit of measure in the financial statement The name of the business entity

The percentage change is computed by dividing the amount of the dollar change between years and which of the follwing amount?

The base year The current year The average of past ten years The average of past five year

Which of the following expenses would normally be classified as Other or Non Operating Expense on a multiple-step income statement?

Interest expense Depreciation expense Insurance expense Salaries expense

What will be the affect of dividends paid on the book value of a company?

Increase Decrease No effect Depends upon the situation

All of the following accounts would be closed in Income Summery Account EXCEPT: Select correct option:

Commission earned account Prepaid insurance Salaries Expense account Wages account

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


After recording the transactions in journal, posting is made to which of the following?

► Trial Balance

► Financial Statements

► Ledger

► After-closing Trial Balance


Which one of the following is the second step in the accounting cycle?

► Recording entries in the journal

► Analyzing the business transaction

► Posting the entries to the ledger

► Making the adjusting entries


Which of the following is the basic function of the Trial Balance?

► To prove the equality of debits and credits

► To check the balance of all assets

► To prepare the balance sheet

► To check the validity of accounts


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 results are summarized by the income statement of a company?

► Operating results

► Economic results

► Auditing results

► Marketing results


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


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



► Net Income



► Net Loss


The revenue account “Fees Income” is closed by which of the following entry?

► Cash – Debit; Fees Income - Credit

► Fees Income – Debit; Income Summary - Credit

► Capital – Debit; Fees Income - Credit

► Income Summary – Debit; Fees Income - Credit


Which of the following regarding retained earnings is FALSE?

► Retained earnings represent earnings not distributed to stockholders

► Retained earnings is increased by net income and decreased by a net loss

► Retained earnings are a component of stockholders’ equity on the balance sheet

► Retained earnings are an asset on the balance sheet


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


Decision makers compare net income to net cash from operating activities. To make these amounts more comparable, the same accounts are included in each. The following accounts are used to compute both net income and net cash from operating activities EXCEPT:

► Interest expense

► Dividend revenue

► Interest revenue

► Dividends declared and paid


If the indirect approach for the statement of cash flows is used, which of the following items should be subtracted from accrual basis net income to derive cash flow from operating activities?

► Losses on the sale of long-term investments


► Amortization expense

► Gains on the sale of long-term investments


The cash flow from financing activities shows:

► The cash outflow due to loan interest payments being made

► The change in the level of bank balances in the period

► The cash flow from share and loan issues and repayments

► Cash dividends paid to shareholders


Which of the following transaction should be classified as a financing activity?

► Purchase of equipment

► Purchase of treasury stock

► Sale of trademarks

► Income tax refund


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.

► A decrease in accrued liabilities

► A decrease in Salaries Payable

► Payment of long-term debt

► An increase in Accounts Payable


The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is subtracted during the reconciliation.

► Non-cash revenues (revenues earned but payment not yet received) reported on the income statement

► A decrease in Accounts Receivable or another non-cash current asset

► Revenues earned and received in cash.

► Non-cash expenses (expenses incurred but not paid) reported on the income statement-one example is amortization expense.


Investing activities include all of the following EXCEPT:

► Payment of debt

► Collection of loans

► Making of loans

► Sale of available for sale and held to maturity securities


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?

► Sale of land for cash

► Issuance of long term bonds

► The sale of common stock

► Retirement of long term debt


Which one of the following is NOT an inventory costing method?

► FIFO cost method

► Weighted-average cost method

► Specific unit cost method

► LIFO cost method


When merchandise is purchased in a periodic inventory system, its cost is debited to ________ account.

► 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?

► Debit - Purchases; Credit - Cash

► Debit - Merchandise Inventory; Credit - Cost of Goods Sold

► Debit - Office Supplies; Credit - Accounts Payable

► Debit - Merchandise Inventory; Credit - Accounts Payable


An inventory error affects ___________ accounting periods.

► Only current

► Two

► Three

► Four


Equipment costing Rs. 3,000 with accumulated depreciation of Rs. 2,125 is exchanged for another asset with a fair value of Rs. 625. The exchange has commercial substance. How much is the gain or loss on this transaction?

► A gain of Rs. 250 should be recognized

► A loss of Rs. 250 should be recognized

► A loss of Rs. 500 should be recognized

► No gain or loss should be recognized


Which of the following asset does NOT have a depreciation expense?

► Furniture

► Building

► Plant & equipment

► Land


Which of the following is NOT an example of accelerated depreciation method?

► Straight-line method

► Sum-of-the-years digit method

► Double-declining balance method

► Modified Accelerated Cost Recovery Syste


Accelerated depreciation method is mostly used for ____________.

► Financial statements

► Assets valuation

► Inventory valuation

► Income tax returns


Which of the following is NOT an example of deferred item?

► Depreciation

► Accounts payable

► Unearned revenue

► Prepaid insurance


Assets which have NO market value are called:

► Wasting assets

► Fictitious assets

► Quick assets

► Tangible assets


Which of the following accounts will be debited, when increased?

► Liabilities and expenses

► Assets and equity

► Assets and expenses

► Equity and revenues





► Ledger



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:

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 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


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?

The process of recording the economic effects of business transactions in a book of original entryis knows as which of the following?Double entry systemDebitJournalizingPosting Question No: 2 ( Marks: 1 ) - Please choose oneAn entry that affects more than one accounts is knows as _____________.

Journal entryCompound entryAdjusting entryReversing entry Question No: 3 ( Marks: 1 ) - Please choose oneIn which of the following form of Income Statement, the total of all expenses is deducted fromthe total of all revenues?Multiple-step formAccount formReport formSingle-step form Question No: 4 ( Marks: 1 ) - Please choose oneWhich 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 periodShareholders can individually decide on their distributionsTo receive a corporate dividend, stock must be owned on the date of declarationCorporate dividends reduce contributed capital and therefore, stockholders equity Question No: 5 ( Marks: 1 ) - Please choose oneAll of the following are true regarding the financing activity section of the cash flow statementEXCEPT:Financing activities require analysis of long-term liability and shareholders' equityaccounts


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The ability to issue large quantities of common shares usually signals investor confidencein the future of the companyExcessive borrowing has been the downfall of many companiesThe declaration and payment of a large cash dividend may signal an emergency

Question No: 6 ( Marks: 1 ) - Please choose oneThe indirect method shows the reconciliation from net income to operating cash flows. Select theadjustment that is subtracted during the reconciliation.Revenues earned and received in cash.Non-cash expenses (expenses incurred but not paid) reported on the income statementoneexample is amortization expense.Non-cash revenues (revenues earned but payment not yet received) reported on theincome statementA decrease in Accounts Receivable or another non-cash current asset Question No: 7 ( Marks: 1 ) - Please choose oneWhich of the following would NOT be the cash inflow for the business?Sale of land for cashIssuance of long term bondsThe sale of common stockRetirement of long term debt Question No: 8 ( Marks: 1 ) - Please choose oneUnder which cost flow assumption, the ending inventory is composed of the earliest purchasedmerchandise?FIFOLIFOAverage costSpecific identification Question No: 9 ( Marks: 1 ) - Please choose oneWhich of the following would affect the gross profit rate if sales remain constant?An increase in advertising expenseA decrease in depreciation expenseAn increase in cost of goods soldA decrease in insurance expense Question No: 10 ( Marks: 1 ) - Please choose one

Nishat Mills Ltd. is a rapidly growing company that acquires more equipment every year. The company uses straight line depreciation in its financial statements and MACRS in its tax returns.Which of the following statements is NOT correct?Using straight line depreciation in the financial statements instead of accelerated methodincreases the company s reported net incomeUsing straight line depreciation in the financial statements instead of accelerated method increases the company s annual net cash flow Using MACRS instead of straight line in income tax returns increases company s net cash flow As long as the company keeps growing, it will report more depreciation in its income taxreturns each year than it does in its financial statements for more contents visithttp://groups.google.com/group/vuZs Question No: 11 ( Marks: 1 ) - Please choose oneA statement of cash flows would be least useful in answering which of the following questions?What was the average balance in the Cash account during the period?Did operating activities result in a positive or negative net cash flow?How much cash was provided or used by financing activities during the period?Were cash dividends paid by the company more or less than the net cash flow fromoperations? Question No: 12 ( Marks: 1 ) - Please choose oneWhich of the following is NOT a limitation of financial statements for an investor?It provides complete basis for the analysis of a companyPast financial performance does not signify what will happen with the investor in futureThe financial statements are useless without the notes to the financial statementsUnless the statements are audited their authenticity is under doubt Question No: 13 ( Marks: 1 ) - Please choose oneWhich of the following is NOT an advantage of a Sole proprietorship?Easy to form and wind upDirect motivationBetter controlLimited liability Question No: 14 ( Marks: 1 ) - Please choose one


Which of the following is a type of preferred stock that entitles the holder to a fixed dividend and, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock?In arrears preferred sharesCall able preferred sharesCumulative preferred sharesParticipating preferred shares Question No: 15 ( Marks: 1 ) - Please choose oneThe current ratio will be excessively very high in which of the following inventory costing methods?FIFOLIFOAverage costSpecific identification Question No: 16 ( Marks: 1 ) - Please choose oneI 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. 0Rs. 100Rs. 200Rs. 1,000 Question No: 17 ( Marks: 1 ) - Please choose oneTo financial analysts, "working capital" means the same thing as which of the following?Total assetsFixed assetsCurrent assetsCurrent assets minus current liabilities Question No: 18 ( Marks: 1 ) - Please choose oneWhich 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 theselling price of goods soldAn increase in the selling price of goods sold which has not been accompanied by anincrease in the cost of salesA change in the mix of goods sold so that lower profit margin goods take a greaterproportion of total sales

A change in stock valuation method at the year end which leads to a decrease in theclosing stock figure Question No: 19 ( Marks: 1 ) - Please choose oneNestle Pakistan Limited is an example of which of the following types of businesses?ManufacturingServiceMerchandiseWhole seller Question No: 20 ( Marks: 1 ) - Please choose oneWhich of the following represents the long term debt paying ability of the company as they become due?LiquiditySolvencyProfitabilityStability for more contents visithttp://groups.google.com/group/vuZsQuestion No: 21 ( Marks: 1 ) - Please choose oneWhich group of ratios relates the financial charges of a firm to its ability to service them?Debt ratiosCoverage ratiosProfitability ratiosActivity ratios Question No: 22 ( Marks: 1 ) - Please choose oneIn isolation, which of the following is TRUE about a financial ratio?Useless piece of informationUseful piece of informationUseful only for past performanceUseful only for future predictions Question No: 23 ( Marks: 1 ) - Please choose oneAmes Corporation's net accounts receivable were Rs. 750,000 on December 31, 20X1, and Rs.1,250,000 on December 31, 20X2. Net cash sales for 20X2 were Rs. 3,300,000. The accounts receivable turnover ratio for 20X2 was 16. What were the total net sales for 20X2?Rs. 12,800,000Rs. 16,000,000Rs. 16,100,000Rs. 19,300,000


Question No: 24 ( Marks: 1 ) - Please choose oneHow is the accounts receivable turnover ratio calculated?Net credit sales / Average total assetsNet credit sales /Operating incomeNet credit sales /Average accounts receivablesNet credit sales /Cost of goods sold Question No: 25 ( Marks: 1 ) - Please choose oneCompany 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 BCompany ABoth make the same operating profitNot possible to calculate Question No: 26 ( Marks: 1 ) - Please choose oneThe DuPont Approach breaks down the earning power on shareholders' equity (ROE) as which of the following?Net profit margin × Total asset turnover × Equity multiplierTotal asset turnover × Gross profit margin × Debt ratioTotal asset turnover × Net profit marginTotal asset turnover × Gross profit margin × Equity multiplier Question No: 27 ( Marks: 1 ) - Please choose oneWhich of the following statement best describes the operating profit margin?It shows what portion of profits are being distributed to shareholdersIt shows what return is being made on assets employed in the businessIt shows how well a company is controlling its costs, including overheadsIt shows how efficiently a company is turning profits into cash Question No: 28 ( Marks: 1 ) - Please choose oneReturn on Sales is also known as which of the following?Gross profit marginOperating profit marginReturn on total assetsReturn on investment Question No: 29 ( Marks: 1 ) - Please choose oneWhich of the following is NOT a profitability measure?Accounts receivable turnover ratioReturn on total assetsReturn on salesDividend yield

Question No: 30 ( Marks: 1 ) - Please choose oneWhich of the following is formula to measure the return on total assets?Average total assets by operating incomeAverage total assets by net incomeOperating income by average total assetsNet income by average total assets

for more contents visithttp://groups.google.com/group/vuZs Question No: 31 ( Marks: 1 ) - Please choose oneWhich of the following is NOT part of additional paid-in-capital of the company?Preferred stocksCommon stocksRetained earningsDividends distributed Question No: 32 ( Marks: 1 ) - Please choose oneWhich of the following options indicate how quickly accounts receivables are converted into cash?Accounts receivable turnoverDays to collect accounts receivableWorking capitalTotal assets turnover Question No: 33 ( Marks: 1 ) - Please choose oneWhich one of the following statement indicates the Inventory turnover ratio?How quickly company prepared its inventoryHow quickly company converts its inventory into cashHow quickly company purchases its inventoryHow quickly company sells its inventory Question No: 34 ( Marks: 1 ) - Please choose oneAssume that a company has current assets of Rs. 60,000, current liabilities of Rs. 35,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the company?1.571.711.860.58 Question No: 35 ( Marks: 1 ) - Please choose oneWhat will be the effect on the EPS of the company, if it paid stock dividend on common stock?Increase


DecreaseNo effect Can not be found from the given informationQuestion No: 36 ( Marks: 1 ) - Please choose oneWhat will be the effect of appropriated retained earnings on the rate of return on stockholder's equity?IncreaseDecreaseNo effectCan not be found from the given information Question No: 37 ( Marks: 1 ) - Please choose oneWhich of the following is the basic purpose of an accounting system?Develop financial statements in conformity GAAPProvide as much useful information to decision makers as possibleRecord changes in the financial position of an entityMeet an organization's need for accounting information as efficiently as possible Question No: 38 ( Marks: 1 ) - Please choose oneA 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, 1999Income statement for the year ended December 31, 1999Statement of projected cash flows for 2000Notes containing additional information that is useful in interpreting the financialStatements Question No: 39 ( Marks: 1 ) - Please choose oneWhich of the following equations properly represents a derivation of the fundamental accountingequation?Assets + liabilities = owner's equityAssets = owner's equityCash = assetsAssets - liabilities = owner's equity Question No: 40 ( Marks: 1 ) - Please choose oneWhich of the following is TRUE regarding Retained Earnings?Increased by net incomeIncreased by revenuesDecreased by dividends declaredDecreased by gains and losses for more contents visithttp://groups.google.com/group/vuZsQuestion No: 41 ( Marks: 1 ) - Please choose one


What are the effects of an adjusting entry on the financial statements?Match revenues and expendituresIncrease net incomeIncrease the accuracy of balance sheet and income statementMatch revenues and assets Question No: 42 ( Marks: 1 ) - Please choose oneThe 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. 1100Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400

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