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1.If the inventory shrinkage at the end of the year is overstated by $7,500, the
error will cause an:
A. . understatement of net income for the year by $7,500
B. . understatement of cost of merchandise sold for the year by $7,500
C. . overstatement of merchandise inventory for the year by $7,500
D. . overstatement of gross profit for the year by $7,500

2.The balance sheet contains the same major headings as appear in the accounting
equation.
A. . False
B. . True

3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals
were $10,000, the a amount of net income or net loss would be:
A. . $37,500 net loss
B. . $2,500 net loss
C. . $7,500 net income
D. . $45,000 net income

4. If the estimated amount of depreciation on equipment for a period is
$2,000, the adjusting entry to record depreciation would be:
A. . debit depreciation expense, $2,000; credit accumulated
depreciation, $2,000
B. . debit equipment, $2,000; credit depreciation expense, $2,000
C. . debit depreciation expense, $$2,000; credit equipment, $2,000
D. . debit accumulated depreciation, $2,000; credit depreciation expense,
$2,000
5. Liabilities result from some future transaction.
A. . False
B. . True

6. All calendar years are also fiscal years, but not all fiscal years are calendar
years.
A. . True
B. . False

7. To compute net sales, sales discounts are added to, and sales returns and
allowances are deducted from, gross sales.
A. . True
B. . False

8. The post-closing trial balance may contain revenue and expense accounts.
A. . True
B. . False

9. Overstated ending inventory results in an overstatement of cost of goods
sold and an understatement of gross profit and net income.
A. . True
B. . False
10. All accounting systems currently in use are computerized.
A. . False
B. . True

11. In a period of rising prices, FIFO results in the lowest cost of goods sold.
A. . True
B. .False

12. If all of the adjusting entries are not made, the financial statements are
incorrect.
A. . False
B. . True

13. Which of the following entries closes the owner's drawing account at the
end of the period.
A. . debit the owner's capital account, credit the drawing account
B. . debit the income summary account, credit the drawing account
C. . debit the drawing account, credit the owner's capital account
D. . debit the drawing account, credit income summary account

14. Which of the following accounts would not be included in a post-closing trial
balance.
A. . fees earned
B. . accumulated depreciation
C. . cash
D. . owner's equity

15. Which of the following is an example of an intangible asset.
A. . Patents
B. . all possible answers
C. . copyrights
D. . goodwill

16. If total assets increased $20,000 during a period and total liabilities
increased $12,000 during the same period, the amount and direction (increase or
decrease) of the change in owner's equity for that period is:
A. . an $8,000 decrease
B. . an $8,000 increase
C. . a $32,000 increase
D. . a $32,000 decrease

17. The following units of a particular item were available for sale during the
period:

Beginning inventory 40 units at $20
First purchase 50 units at $21
Second purchase 50 units at $22
Third purchase 50 units at $23

What is the unit cost of the 35 units on hand at the end of the period as determined
under the periodic inventory system by the FIFO costing method.
A. . $20
B. . $23
C. . $21
D. . $22

18. The Unearned Fees account is a revenue account.
A. . True
B. . False

19. The accumulated depreciation account is an asset account that shows the
amount of depreciation for the current year only.
A. . True
B. . False

20. At the end of the fiscal year, Accounts Receivable has a balance of
$100,000 and Allowance for Doubtful Accounts has a balance of $7,000. The
expected net realizable value of the accounts receivable is:
A. . $107,000
B. . $7,000
C. . $93,000
D. . $100,000

21. The percentage-of-sales method estimates the uncollectible accounts from
the ending balance in accounts receivable.
A. . True
B. . False

22. An example of an accelerated depreciation method is:
A. . Units-of-production
B. . Straight-line
C. . Depletion
D. . Declining-balance

23. The three forms business organizations are single proprietorship,
partnership, and trust
A. . False
B. . True

24. Current Liabilities are classified as clearly determinable, estimated and
contingent.
A. . False
B. . True

25. The type of account with a normal credit balance is:
A. . drawing
B. . a revenue
C. . an asset
D. . an expense

26. Which of the following expenses would normally be classified as Other or
Non Operating expense on a multiple-step income statement.
A. . interest expense
B. . insurance expense
C. . depreciation expense - office equipment
D. . sales salaries expense

27. The following units of a particular item were purchased and sold during the
period:
Beginning inventory 40 units at $20
First purchase 50 units at $21
Second purchase 50 units at $22
First sale 110 units
Third purchase 50 units at $23
Second sale 45 units

What is the cost of the 35 units on hand at the end of the period as determined
under the perpetual inventory system by the LIFO costing method.
A. . $715
B. . $705
C. . $700
D. . $805

28. Which of the following accounts would not be closed to the income
summary account at the end of a period.
A. . fees earned
B. . rent expense
C. . wages expense
D. . accumulated depreciation

29. Revenues, liabilities and equity accounts are increased by debits.
A. . False
B. . True

30. Under the allowance method, uncollectible accounts expense is recognized
when a specific customer's account is written off.
A. . True
B. . False

31. If the trial balance has equal debit and credit totals, it cannot contain any
errors.
A. . True
B. . False

32. The left side of any account is the credit side.
A. . False
B. . True

33. The purpose of depreciation accounting is to provide the case required to
replace plant assets.
A. . True
B. . False

34. The income statement shows the profitability of the company and is dated
as of a particular date, such as December 31, 2010.
A. . True
B. . False

35. What is the due date of a $12,000, 90-day, 8% note receivable dated
August 5.
A. . November 4
B. . October 31
C. . November 3
D. . November 2

36. Which of the following accounts would be classified as a current asset on
the balance sheet.
A. . accumulated depreciation
B. . accounts receivable
C. . office equipment
D. . land

37. Purchase discounts and purchase returns and allowances are recorded in
contra accounts to the purchases account.
A. . True
B. . False

38. A transaction must be journalized in the journal before it can be posted to
the ledger accounts.
A. . False
B. . True

39. A multi-step income statement consists of only two categories of items,
revenues and expenses
A. . True
B. . False

40. If the equipment account has a balance of
$22,500 and its accumulated depreciation account has a balance of $14,000, the
book value of the equipment is:
A. . $36,500
B. . $14,000
C. . $22,500
D. . $8,500

41. A debit may signify:
A. . an increase in an asset account
B. . a decrease in an asset account
C. . an increase in a liability account
D. . an increase in the owner's capital account

42. A payment of cash for the purchases of services should be recorded in the:
A. . cash receipts journals
B. . revenue journal
C. . purchases journal
D. . cash payments journal

43. After the closing process is complete, no balance can exist in any revenue,
expense, or income summary account.
A. . True
B. . False

44. Which of the following items represents a deferral.
A. . fees earned
B. . accumulated depreciation
C. . wages payable
D. . prepaid insurance

45. The inventory costing method that is based on the assumption that costs
should be charged against revenue in the order in which they were incurred is:
A. . perpetual inventory
B. . average cost
C. . FIFO
D. . LIFO

46. The resources owned by a business are called:
A. . The accounting Equation
B. . Owner's Equity
C. . Assets
D. . Liabilities

47. A listing of a business entity's assets, liabilities, and owner's equity as of a
specific date is:
A. . a statement of cash flows
B. . a statement of owner's equity
C. . a balance sheet
D. . an income statement

48. The policies and procedures used by management to protect assets from
misuse, ensure accurate business information, and ensure compliance with laws
and regulations re called:
A. . systems analysis
B. . systems implementation
C. . internal controls
D. . systems design

49. If merchandise purchased on account is returned, the buyer may inform
the seller of the details by issuing:
A. . a credit memorandum
B. . a bill
C. . an invoice
D. . a debit memorandum

50. The amounts in the Adjustments columns are always added to the amounts
in the Trial Balance columns to determine the amounts in the Adjusted Trial
Balance columns.
A. . True
B. . False
51. A debit balance in which of the following accounts would indicate a likely
error.
A. . miscellaneous expense
B. . cash
C. . fees earned
D. . accounts receivable

52. What is the maturity value of a 90-day, 12% note for $10,000.
A. . $10,300
B. . $10,000
C. . $8,800
D. . $11,200

53. The form listing the titles and balances of the accounts in the ledger on a
given date is the:
A. . balance sheet
B. . income statement
C. . trial balance
D. . statement of owner's equity

54. When a note receivable is dishonored, Accounts receivable is debited for
what amount.
A. . the face value of the note
B. . the maturity value of the note plus accrued interest
C. . the maturity value of the note
D. . the maturity value of the note less accrued interest

55. Depreciation is the process of valuation of an asset to arrive at its market
value.
A. . True
B. . False

56. All of the steps in the accounting cycle are performed only at the end of the
accounting period.
A. . False
B. . True

57. On a multiple-step income statement, the excess of net sales over the cost
of merchandise sold is called:
A. . income from operations
B. . net income
C. . operating income
D. . gross profit

58. When there are a large number of individual accounts with a common
characteristic, it is common to place them in a separate ledger called:
A. . a creditors ledger
B. . an accounts payable ledger
C. . an accounts receivable ledger
D. . a subsidiary ledger

59. If merchandise is sold on account to a customer for $1,000, terms FOB
shipping point, 1/10, n/30, and the seller prepays $50 in transportation costs, the
amount of the discount for early payment would be:
A. . $0
B. . $10.00
C. . $10.50
D. . $5.00

60. If merchandise inventory is being valued at cost and the price level is
steadily rising, the method of costing that will yield the highest net income is:
A. . FIFO
B. . periodic
C. . LIFO
D. . average

61. The balance on the unearned rent account for Jones Co. as of 12/31 is
$1,200. If Jones Co. failed to record the adjusting entry for $600 of rent earned
during December, the effect on the balance sheet and income statement for
December is:
A. . liabilities overstated $600; net income understated $600
B. . liabilities overstated $600; net income overstated $600
C. . liabilities understated $600; net income understated $600
D. . assets understated $600; net income overstated $600

62. A petty cash fund is:
A. . All of the proposed answers
B. . used to pay relatively small amounts
C. . established by estimating the amount of cash needed for disbursement
of relatively small amounts during a specified period
D. . reimbursed when the amount of money in the fund is reduced to a
predetermined minimum amount

63. Under perpetual procedure, cost of goods sold is determined as a result of
the closing entries made at the end of the period.
A. . True
B. . False

64. At the end of the accounting period, three trial balances are prepared.
A. . True
B. . False

65. The statement of equity shows both the net income for the period and the
beginning and ending balances of equity.
A. . True
B. . False
66. If a net loss occurs, it appears in the Income Statement credit column and
Balance Sheet debit column.
A. . True
B. . False

67. Which of the following accounts in the adjusted trial balance columns of the
work sheet would be extended to the balance sheet columns:
A. . Rent revenue
B. . Miscellaneous expense
C. . Utilities expense
D. . Owner Drawing

68. At the end of the fiscal year, before the accounts are adjusted, Accounts
Receivable has a balance of $200,000 and Allowance for Doubtful Accounts has a
credit balance of $2,500. If the estimate of uncollectible accounts determined by
aging the receivables is $8,500, the amount of uncollectible accounts expense is:
A. . $2,500
B. . $11,000
C. . $6,000
D. . $8,500

69. The income statement in which the total of all expenses is deducted from
the total of all revenues is terms:
A. . multiple-step form
B. . single-step form
C. . report form
D. . account form

70. Under Lower of Cost or Market, inventory is written down to market value
when the market value is less than the cost, and inventory is written up to market
value when the market value is greater than the cost.
A. . False
B. . True

71. A profit making business operating as a separate legal entity and in which
ownership is divided into shares of stock is known as a:
A. . Proprietorship
B. . Corporation
C. . Service Business
D. . Partnership

72. The three most common types of business activity are service,
merchandising, and manufacturing.
A. . True
B. . False

73. In taking a physical inventory, consigned goods are usually not included in
the ending inventory, but merchandise in transit is included.
A. . True
B. . False

74. Every adjusting entry affects at lease one income statement account and
one balance sheet account.
A. . True
B. . False

75. A business issued a $5,000, 60-day, 12% note to the bank. The amount
due at maturity is:
A. . $4,900
B. . $5,000
C. . $5,600
D. . $5,100

76. Under perpetual inventory procedure, the Merchandise Inventory account is
debited for each purchase and credited for each sale.
A. . False
B. . True

77. If the supplies account (asset), before adjustment on May 31, indicated a
balance of $2,250, and supplies on hand at May 31 totaled $950, the adjusting
entry would be:
A. . debit supplies, $950; credit supplies expense, $950
B. . debit supplies, $1,300; credit supplies expense, $1,300
C. . debit supplies expense, $1,300; credit supplies, $1,300
D. . debit supplies expense, $950; credit supplies, $950

78. The receipt of cash from customers in payment of their accounts would be
recorded by a:
A. . debit to cash; credit to accounts receivable
B. . debit to accounts receivable; credit to cash
C. . debit to accounts payable; credit to cash
D. . debit to cash; credit to accounts payable

79. Which of the following expenditures incurred in connection with acquiring
machinery is a proper charge to the asset account
A. . Neither one
B. . Installation costs
C. . Freight
D. . Both

80. The purchase price of land includes its purchase price and other related
costs, including the cost of removing an old unusable building that is on the land.
A. . True
B. . False

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

Both sides are always positive
Both sides are negative
Both sides are equal
Both sides are not linked which each other

Adjusting entries are used to:
Bring account balances up to date at year end
Close temporary accounts at year end
Close permanent accounts at year end
Bring account balances at zero

Which of the following statement is NOT true?

Financial statements may be prepared soon after the adjusted trail balance
The owners equity is not up to the date until the closing entries are posted
Adjusting entries are prepared before the financial statements are prepared
In the accounting cycle, closing entries are made before the adjusting
entries

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

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

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

Assets
Owners equity
Liabilities
Capital

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

Only cash balances
Only bank balances
Bank balances and bank overdrafts
Cash in hand plus bank balances less bank overdrafts

Accounting is called the language of business because__________:

It communicates the financial information to the Management only
In order to run a business one must have knowledge about accounting
Different business accounts are involved in financial statements
It helps to organize and communicate financial information to end users

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

Description of current year equity transactions
Summary of long-term debt outstanding
Schedule of fixed assets
Revenue recognition policies

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

At face value
Below face value
Above face value
At market value

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

Strong financial position
Concept of materiality
Matching principle
Realization principle

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

Realization and matching principle
The effect of revenues and expenses in the owners equity
Expenses appear on the left side of the income statement
Liabilities are recorded as debit on the balance sheet

Net current assets are equivalent to:

Stock plus debtors plus cash
Current liabilities less current assets
Working capital
Fixed assets plus current assets less current liabilities

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

Certificates of Deposit
Money market accounts
Money market mutual funds
Euro Bond

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

Stable Currency principle
Objectivity Principle
Matching Principle
Cost Principle

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

Going-concern principle
Cost Principle

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

Divided into specific points in time
Divided into irregular cycles
Divided into discrete accounting periods
Considered to be a continuous cycle

End product of the accounting cycle is known as the__________

Tax return
Financial statements
Auditors annual report
Annual general meeting

According to _____ the personal expenses paid by Mr. A from his own pocket would
not be recorded in business books of account.

Separate entity principle
Matching principle
Materiality principle

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

The operating cycle
One year
The longer of operating cycle or one year
The shorter of operating cycle or one year

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

These are the temporary accounts
These are closed in Income summery account
These may included in closing trial balance
These are also known as Nominal Accounts

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

Decreased cash flows from higher taxes
Increased cash flows from lower taxes
Increased cash flows from higher taxes
Decreased cash flows from lower taxes

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

Capital Stock
Assets
Liabilities
Retained Earnings (not sure)

Which of the following is the proper journal entry to record Ransom Company's
billing of clients for Rs. 500 of services rendered?
Select correct option:
Debit Cash 500; Credit Accounts Receivable 500
Debit Accounts Receivable 500; Service Revenue 500
Debit Accounts Receivable 500; Credit Capital Stock 500
Cash 500; Credit Service Revenue 500
If a company needs extra funds then it is allowed by the Companies Ordinance
1984 to issue shares at:

Face value
On discount
On premium
Both at face value and at discount

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

The ability to generate future cash flows
The liquidity of the business
Ability to pay cash dividends in the future
All of the given options

Which of the following is NOT the part of the stockholders equity?

Paid-in-Capital
Additional Paid-in-Capital
Gross profit
Retained Earnings

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

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

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

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

How many basic types of adjusting entries are there?

Two types
Three types
Four types
Ten types

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

Cash and equivalents
Deferred income
Accounts receivable
Prepaid expenses

Which of the following is NOT true about depreciation?
Depreciation causes perpetual and gradual fall in the value of asset
Depreciation does not depend upon on fluctuations in the market value of asset
Depreciation is a charged in case of fixed assets only
Depreciation is a charge against revenue of two or more accounting
periods

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

Assets
Owners equity
Liabilities
Capital

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

Cost of goods sold
Rent Expense
Amortization Expense
Salaries Expense

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

Debit Dividends payable; Credit Retained Earnings
Debit Retained Earnings; Credit Cash
Debit Retained Earnings; Credit Dividends Payable
Debit Cash; Credit Retained Earnings

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

It is an application of matching principle
It is a closing entry
Usually includes an offsetting credit to cash
It is done only at the end of each month



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

Sales of machinery
Capital invested by the owners
Purchase of building for the business use
Cash received from the disposal of equipment

Which of the following refers to the term posting?

The recording of transactions
The system of giving numbers to the accounts
Transferring the debits and credits to ledger
Transferring the debits and credits to journal
The purpose of recording depreciation on productive assets is to:

Reflect the decline in the market value of the assets each period
Reduce income when the company has an exceptionally profitable year
Be in conformity with the revenue recognition principle
Allocate the original cost of a productive asset to expense over its useful
life

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

Income statement items
Long term assets items
Long term liability & stockholders 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?

Rent expense
Revenue earned
Wages expense
Accumulated depreciation



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?

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:

Commission earned account
Prepaid insurance
Salaries Expense account
Wages account

Question # 1
Which of the following section of cash flow statement shows the cash effects of
those transactions reported in the income statement?
Cash flow from investing activities
Cash flow from financing activities
Cash flow from operating activities
All parts show effects of different transactions of income statement

Question # 2
If we take goods for own use we should:
Debit - Drawings Account: Credit - Purchases Account
Debit - Drawings Account: Credit - Stock Account
Debit - Purchases Account: Credit - Drawings Account
Debit - Sales Account: Credit - Stock Account

Question # 3
The income statement of the UBL shows the interest revenue of Rs. 6,000, and the
amount of accrued interest receivable has increased from Rs. 3000 to Rs. 4000
during the year. Calculate the amount of interest received.
RS. 7000
Rs. 5000
Rs. 8000
Rs. 1000
Question # 4
Which of the following is an example of an accrual?
Equipment purchased for use in the business
Book-keeping fees collected but not yet earned
Six months rent paid in advance
Interest earned but not yet received

Question # 5
Net current assets are equivalent to:
Stock plus debtors plus cash
Current liabilities less current assets
Working capital
Fixed assets plus current assets less current liabilities

Working capital= Current assets minus current liabilities.
Question # 6
Accounting is called the language of business because__________:
It communicates the financial information to the Management only
In order to run a business one must have knowledge about accounting
Different business accounts are involved in financial statements
It helps to organize and communicate financial information to end users

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

Question # 7
In which of the following account, a credit balance would be an evidence for a
mistake or an error?
Mr. A Capital Account
Cash account
Notes payable account page 6
Drawings account

Which of the following represents the main step(s) of accounting cycle?
Recording the transactions
Classifying the transactions
Ordering, summarizing, counting the transactions
Recording, classifying, summarizing transactions

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

Question # 8
A company purchased the land in exchange for the capital stock; it would affect
It would not affect any section

Question # 9
Primary purpose of the cash flows statement is to provide the information about:
Errors or discrepancies between cash book and income statement
Receipts and payments of cash in the period
Non cash adjustment that effect the income statement
Cash paid to the customers and creditors of the business
A primary purpose and objective of cash flow statement is to provide information
about the cash receipts and cash payments of a business entity for the accounting
period covered by the income statement.

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

Question # 11
If a company has paid dividends on its preference shares, under which one of the
cash flow statement headings would they appear?
Returns on investments and servicing of finance
Financing
Equity dividends paid
Capital investment and financial investment
Ref: http://www.oup.com/uk/orc/bin/9780199264711/01student/mcqs/ch09/

Question # 12
Which of the following is the third step of accounting cycle?
Preparing financial statements
Preparing trial balance
Posting
Making adjusting entries

Question # 13
which of the following term refers to each element of the Balance Sheet?
Ledger
Journal General
T- Account
Account
Page no 6
Each element/sub-element of the balance sheet is named as Account,

Question # 14
Which of the following is the most common adjusting entry?
Un-earned revenue
Pre-paid expense
Accrued revenue

Question # 15
Which of the following account would NOT be closed to the income summary
account at the end of a period?
Rent expense
Revenue earned
Wages expense

Because we close the Income Summary account to Retained Earnings, by doing
this, all revenues and expenses are "corralled" in Income Summary (the net of
which represents the income or loss for the period). In turn, the income or loss is
then swept to Retained Earnings along with the dividends

Question # 16
How the transactions in a journal are initially recorded?
Alphabetical order
Ascending order
Chronological order
Alphanumeric order

Question # 17
The true and fair presentation of the financial statements depends, among other
things, upon which of the following?
Strong financial position
Concept of materiality
Matching principle
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Question # 18
Use the following information to calculate net cash from investing activities: sell a
capital asset for Rs. 10,000 cash and a Rs. 1,000 gain; purchase a bond investment
for Rs. 16,000; receive Rs. 2,000 interest payment from the bond investment; and
pay off a Rs. 3,000 mortgage payable.
Rs. 6,000 net cash
Rs. 4,000 net cash
Rs. 5,000 net cash
Rs. 9,000 net cash

Question # 19
Which one of the following statement shows the effects of cash inflows and
outflows?
Balance Sheet
Statement of Owners Equity
Income Statement
Statement of Cash Flows

Question # 20
Journal entries are done at the end of the accounting period for which type of
accounts?
Assets and liabilities
Office supplies and office equipment
Raw material and office supplies
Depreciation and expenses

Page 29
Immediate recording of every event in some cases is not practical e.g. raw
material, office supplies, depreciation. Journal entries of such expenses are
recorded at the end of accounting period and are called adjusting entries.

Question # 21
Which one of the following is usually classified as an inventory item? :
Goods purchased for resale to customers
Items purchased and used by the company such as office supplies
Items purchased for a specific customer job
Items purchased and the quantity on hand does not need to be tracked

PAGE 65
Inventory: This consists of items held for sale or used in manufacture of products
that would be sold. Inventory in merchandising business consists of goods owned
and held for sale.

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

PAGE 47
In the long run Cash flow from operations must be positive.

Question # 23
If the estimated amount of depreciation on equipment for a period is Rs.2000, the
adjusting entry to record depreciation would be:
Depreciation expense - Debit; Equipment - Credit
Depreciation expense - Debit; Accumulated depreciation - Credit
Equipment - Debit; Depreciation expense - Credit
Accumulated depreciation - Debit; Depreciation expense - Credit

Question # 24
According to _____ the personal expenses paid by Mr. A from his own pocket would
not be recorded in business books of account.
Separate entity principle
Matching principle
Materiality principle

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

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

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

Question # 28
Which of the following people and groups are NOT interested in cash flow
statements of a company?
Accounting personnel
Potential customers
Potential creditors
Potential employees
People and groups interested in cash flow statements include: Accounting
personnel, Potential lenders or creditors, Potential investors, , Potential employees
or contractors, Shareholders of the business.

Question # 29

Question # 30
Which one of the following transactions should be classified as a financing activity?
Purchase of equipment
Purchase of treasury stock
Sale of trademarks
Income tax refund

Question # 31
Accelerated depreciation method is mostly used for __________.
Assets valuation
Inventory valuation
Income tax returns

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

Question # 33
To find the value of closing stock at the end of a period we:
Deduct opening stock from cost of goods sold
Look in the stock account
Deduct cost of goods sold from sales
Do this by stocktaking

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

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

Question # 36
Which of the following terms present a cause and effect relationship with each
other?
Income statement and balance sheet
Revenue and assets
Assets and liabilities
Revenues and expenses

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

These methods provide a greater tax shield effect than straight line depreciation,
and so companies with large tax burdens might like to use accelerated depreciation
methods.

Question # 38
following?

Question # 39
Pre-paid expense is a(n) _______ type of account.
Liability
Asset
Revenue
Expense

Question # 40
Which of the following should NOT be called Sales?
Goods sold for cash
Office fixtures sold
Goods sold on credit
Sale of item previously included in Purchases

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

Question # 42
Audit opinions can NOT be classified as which of the following?
Adverse opinion
Unqualified opinion
Qualified opinion
Disagreement of opinion

Question # 43
Which of the following is an inventory pricing procedure in which the oldest costs
incurred rarely have an effect on the ending inventory valuation?
FIFO
LIFO
Specific identification
Weighted-average
Page 75
In the FIFO method, oldest available purchase costs are transferred to cost of
goods sold. That
Means the cost if goods sold has a lower value and the profitability of the
organization becomes higher.

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

Question # 45
Which one of the following is the most common type of opinion given by the
auditor?
Unqualified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion

Question # 46
Which of the following is a special temporary account used to close all of the
revenue and expense accounts?
Close-out Summary
Owners Capital
Income Summary
Temporary Summary

Page 35 Revenue and expense accounts are closed at the end of each accounting
period by transferring their balances to a summary account called income
summary.

Question # 47
End product of the accounting cycle is known as the__________
Tax return
Auditors annual report
Annual general meeting

Question # 48
Which of the following is NOT one of the four basic financial statements?
Balance sheet
Audit report
Income statement
Statement of cash flows

Question # 49
Which of the following is NOT a cash outflow for the firm?
Dividends payments
Interest payments
Tax payments

Question # 50
Which of the following principle states that the assets are purchased for the use
and not for resale purpose?
Going-concern principle
Cost Principle
Page no 3 Going-concern assumptions: connected with cost principle, assets
acquired for use and not for resale.

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

Question # 52
Which of the following would be considered a cash-flow item from an "operating"
activity?
Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash inflow to the firm from selling new common equity shares
Cash outflow to purchase bonds issued by another company

Question # 53
Which of the following principle provides the definite and factual basis for assets
valuation?
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

Question # 55
The sale of a depreciable asset resulting in a loss indicates that the proceeds from
the sale were:
Less than current market value
Greater than cost
Greater than book value
Less than book value

Question # 56
The appropriate journal entry to record equipment depreciation expense would
consist of a debit to Depreciation Expense and a credit to which of the following
accounts?
Equipment
Accumulated Depreciation: Equipment
Retained Earnings
Cash

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

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

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

Question # 59
Decision makers compare net income to net cash from operating activities. To
make these amounts more comparable, the same accounts are included in each.
The following accounts are used to compute both net income and net cash from
operating activities EXCEPT:

Dividends declared and paid
Dividend revenue
Interest expense
Interest revenue

Question # 60

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

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
Cost of goods sold
Rent 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.

The process of recording the economic effects of business transactions in a book of
original entry
is knows as which of the following?
Double entry system
Debit
Journalizing
Posting

An entry that affects more than one accounts is knows as _____________.
Journal entry
Compound entry
Adjusting entry
Reversing entry

In which of the following form of Income Statement, the total of all expenses
is deducted from
the total of all revenues?
Multiple-step form
Account form
Report form
Single-step form

Which one of the following statements is TRUE regarding distributions to
stockholders?
The payment of dividends is not directly related to the profits of a given period
Shareholders can individually decide on their distributions
To receive a corporate dividend, stock must be owned on the date of
declaration
Corporate dividends reduce contributed capital and therefore, stockholders equity

All of the following are true regarding the financing activity section of the c
ash 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

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 incr
easing 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 c
ompany 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 sales
Dividend yield

Which of the following is formula to measure the return on total assets?
Average total assets by operating income
Average total assets by net income
Operating income by average total assets
Net income by average total assets

Which of the following is NOT part of additional paid-in-capital of the company?
Preferred stocks
Common stocks
Retained earnings
Dividends distributed

Which of the following options indicate how quickly accounts receivables are
converted into cash?
Accounts receivable turnover
Days to collect accounts receivable
Working capital
Total assets turnover

Which one of the following statement indicates the Inventory turnover ratio?
How quickly company prepared its inventory
How quickly company converts its inventory into cash
How quickly company purchases its inventory
How quickly company sells its inventory

Assume that a company has current assets of Rs. 60,000, current liabilities of
Rs. 5,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the
company?
1.57
1.71
1.86
0.58

What will be the effect on the EPS of the company, if it paid stock dividend on
common stock?
Increase
Decrease
No effect
Can not be found from the given information

What will be the effect of appropriated retained earnings on the rate of return
on stockholder's equity?
Increase
Decrease
No effect

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 fina
ncial 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

Which of the following principle deals with the valuation and recording of the assets
at cost?
Entity Principle
Matching Principle
Cost 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 is the next step after the preparation of trial balance?
Adjusted trial balance
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
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 buildings 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
Cost of goods sold
Rent 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
Sequentialy
Alphabaticaly
Monthly
Orderly


Blankenship Company pays its employees every Friday for work rendered that
week. The payroll is typically Rs.10,000 per week. Which of the following journal
entries would Blankenship ordinarily record on the Friday payday?
Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit
Salary expense Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit
Salary payable Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit
Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit
Retained earnings change over time because of several factors. Which of the
following factors would explain an INCREASE in retained earnings?

Net Income
Dividends payment
Investment by the stockholders
Net Loss

stockholders?
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

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

Adverse opinion
Unqualified opinion
Qualified opinion

The audit is NOT a necessary requirement for which of the following companies?
Listed companies
Corporations
Sole proprietorship
Partnerships

Which of the following is NOT a part of the five-year summary of a company?
Net income/Loss
Total assets
Discontinued operations
Net sales

Which of the following is NOT a feature of preferred shares?
Distributive
Callable
In arrears
Cumulative

Which of the following is a type of preferred stock that entitles the holder to a fixed
dividend and, in addition, to the right to get any surplus profits after payment of
agreed levels of dividends to holders of common stock?
In arrears preferred shares (doubted)

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
In a period of rising prices, all of the following statements regarding LIFO are true
EXCEPT:
Net income is generally higher
Ending inventory is generally undervalued(Doubted)
It can be used to manipulate net income
Most recent inventory costs are allocated to cost of goods sold
From the given data, calculate Cost of Goods Sold using the FIFO costing method:
Beginning inventory is 10 units . Rs. 10 each.
On January 20, purchased 10 units . Rs. 20 each
15 of the 25 units are sold.
Rs. 200
Rs. 150 `
Rs. 350
Rs. 450
In which of the following inventory pricing procedure, the oldest costs incurred
rarely have an effect on the ending inventory valuation?
FIFO
LIFO
Retail
Weighted-average
If beginning inventory is Rs. 60,000, cost of goods purchased is Rs. 380,000, and
ending inventory is Rs. 50,000, what is cost of goods sold under a periodic system?
Rs. 390,000(formula : opening + purchases - ending)
Rs. 370,000
Rs. 330,000
Rs. 420,000
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?
Auditors 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?
Comparative balance sheets(doubted)
Current income statement
Additional information
From the given information, calculate the Cost of Goods Sold using the weighted-
average cost method:
Beginning inventory 10 units . Rs. 10 each
15 of the 25 units are sold
Rs. 200
Rs. 270
Rs. 300
Rs. 350
Which of the following is the most common item in adjusting entries of a
merchandising business?
Un-earned revenue
Pre-paid expense
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 companys 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 companys current assets are?
Which of the following statements is CORRECT regarding depreciation methods?
Accumulated depreciation represents a fund being accumulated fro the
replacement of assets
The cost of a machine includes the cost of repairing damage to the machine
during the installation process
A company may use different depreciation methods in its financial
statements and its income tax returns

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

1. Which one of the following is a temporary account?
a. Cash
b. Accounts Receivables
c. Insurance Expense
d. Accounts payable

2. The term used for the difference between fair value of a company and the
purchase
price is:
a. Trade Mark
b. Market Value
c. Good Will
d. Purchase Price

3. Financial statement (s) that has all temporary accounts is:
a. Balance Sheet
b. Income Statement
c. Cash Flow Statement
d. Statement of Owners Equity

4. The accounting cycle runs in the sequence
a. Analyze, journalize, post, adjust, and prepare statements, close
b. Post, journalize, analyze, prepare statements, close, adjust
c. Prepare statements, journalize, post, adjust, close, analyze
d. Journalize, post, close, prepare statements, adjust, analyze

5. After all the closing entries have been posted, what will be the balance of the
income
summary account?
a. A debit if a net income has occurred
b. A debit if a net loss has occurred
c. A credit if a net loss has occurred
d. Zero

6. Which one is TRUE about Post-Closing trial balance?
a. Be prepared before closing entries are posted to the ledger
b. Contain both income statement and balance sheet accounts
c. Contain only balance sheet accounts
d. Contain only income statement accounts

7. Revenue from services is classified as:
a. Investing Inflow
b. Operating Inflow
c. Investing Outflow
d. Operating Outflow

8. If the cost of a building is Rs. 90, 000 and its estimated useful life is 30 years.
The
depreciation expense for one month is:
a. Rs. 600
b. Rs. 250
c. Rs. 300
d. Rs. 500

9. The supplies on hand account have a balance of Rs. 1500 at year end. The actual
amount of supplies on hand at the end of period is Rs. 400. The necessary
adjusting entry
is:
a. Dr. Supplies on Hand Rs. 1100
Cr. Supplies Expense Rs. 1100
b. Dr. Supplies Expense Rs. 400
Cr. Supplies on Hand Rs. 400
c. Dr. Supplies Expense Rs. 1100
Cr. Supplies on Hand Rs. 1100
d. Dr. Supplies on Hand Rs. 400
Cr. Supplies Expense Rs. 400

10. If a company has
Revenue Rs. = 45,000,
Expenses were Rs. = 37,500,
Owners withdrawals = Rs. 10,000.
Calculate the amount of net income or net loss of the company.
a. Profit of $ 15, 00
b. Loss of $ 25, 00
c. Profit of $ 25, 00
d. Loss of $25,000

Three months
Two years
One year
Five years

Which of the following statement shows the effects of cash inflows and outflows?
Balance Sheet
Income Statement

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; Owners equity- Credit
Building - Debit; Accounts payable - Credit
: 5

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?
: 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 Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit
Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit

: 9
Which of the following accounts would NOT be included in a post-closing trial
balance?
Cash
Owners 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

consume within:
The operating cycle
One year
: 12

Savings deposits
: 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?
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?
: 19
Which of
the following must be included in a company's summary of significant accounting
policies in the notes to the financial statements?
: 20
Gross
profit is:
Excess of sales over cost of goods sold
Sales less Purchases
Cost of goods sold + Opening stock
Net profit less expenses of the period
: 21
An
inventory error affects ___________ accounting periods.
Only current
Two
Three
Four
: 22
From the
given data, calculate Cost of Goods Sold using the FIFO costing method:
Beginning inventory is 10 units @ Rs. 10 each.
On January 20, purchased 10 units @ Rs. 20 each
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
: 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
: 26
The sale of
a depreciable asset resulting in a loss indicates that the proceeds from the sale
were:
Greater than cost
: 27
The
purpose of recording depreciation on productive assets is to:
life
: 28
Which depreciation method allocates an equal portion of depreciation expense to
each period of assets useful life?
Straight-line method
Double-declining balance method
Sum-of-the-year digit method
Accelerated depreciation method
: 2
Which of the following is NOT an example of accelerated depreciation method?
Sum-of-the-years digit method
Modified Accelerated Cost Recovery System
: 30
: 31
Which of the following account would be classified as a current asset on the balance
sheet?
Accounts receivable
Office equipment
Land
: 32
An adjusting entry would NOT be required for which of the following account?
Salaries
Past due expense
Income tax expense
Accounts receivable
: 33
Which of the following accounts will be debited, when increased?
Liabilities and expenses
Assets and equity
Assets and expenses
Equity and revenues
: 34
Accounting Cycle is a series of activities that begins with ___________ and ends
with ___________.
Closing of books, transactions
Transaction, After closing Trial Balance
Journal, ledger account
Transactions, financial statements
: 35
The income statement of ABL shows other operating expenses of Rs. 30 million;
prepaid insurance expense increased by Rs. 4 million; and accrued utilities payable
decreased by Rs. 7 million. How much did the company pay in other operating
expenses?
Rs. 41 million
Rs. 33 million
Rs. 27 million
Rs. 19 million
: 36
The statement of cash flows does NOT report the:
Sources of cash in the current period
Amount of checks outstanding at the end of the period
Uses of cash in the current period
Change in the cash balance for the current period
: 37
Which of the following is NOT normally required for revenue to be recognized
according to the revenue principle for accrual basis accounting?
The price is fixed or determinable
Services have been performed
Cash that has already been collected
Evidence of an arrangement for customer payment exists
: 38
Which of the following balances does the Contra-Asset account show typically?
Credit
Debit
Negative
Positive
: 39
Which one of the following would lead to the decrease in the owners equity?
Purchasing a piece of land
Paying dividends to shareholders
Purchasing equipment on account
Paying back the principal of a loan
: 40
The users of a statement of cash flows are mostly interested in:
Net cash flow from financing activities
FINALTERM EXAMINATION
Fall 2009
FIN621- Financial Statement Analysis (Session - 1)
Question No: 1 ( Marks: 1 ) - Please choose one

Sequentialy

Alphabaticaly

Monthly

Orderly







Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 -
Credit




following factors would explain anINCREASE in retained earnings?

Net Income

Dividends payment


Net Loss

stockholders?

The payment of dividends is not directly related to the profits of a given
period


declaration

Corporate dividends reduce contributed capital and therefore, stockholders
equity


Cost of goods sold

Rent Expense


Salaries Expense


Savings deposits

The statement of cash flow does NOT assist investors, creditors and others in
assessing:

The companys ability to generate positive cash flows in future periods
The companys ability to meet its obligations and to pay dividends
The companys needs for external financing
The companys ability to forecast future losses

When using the perpetual inventory system, each time a sale is recorded the:

Inventory account is increased
Inventory account is decreased
Cost of Goods Sold account is decreased
Cost of goods available for sale decreases


Purchases
Purchase Returns
Purchase Allowance






Wasting assets

Fictitious assets

Quick assets

Tangible assets


Adverse opinion

Unqualified opinion

Qualified opinion



Listed companies
Corporations
Sole proprietorship
Partnerships


Net income/Loss
Total assets
Net sales

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

Distributive
Callable
In arrears
Cumulative


point of time?
Par value
Book value
Face value
Market value

By computing component percentages for several successive balance sheets, which
of the following can NOT be found?

The unchanged items

Borrow short term to finance additional fixed assets

Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity
ratio?

2%
7%
6%
3%


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

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


Financial statement ratio analysis may be undertaken to study liquidity, turnover,
profitability, and other indicators. To which does the current ratio most relate?
Liquidity
Turnover
Profitability
Other indicator

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

Which of the following would NOT improve the return on investment ratio?
Reducing costs
Increasing gains
Accelerating gains
Issuing treasury stock


Which of the following is the ideal position of debt ratio?
30%
60%
50%
45%

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

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



Cash = assets

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

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

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

Which of the following elements of financial statements is MOST closely related to
measurement of financial position?
Equity
Income
Expense
Disclosures

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

The basic type of capital stock issued by every corporation is known as:
Common stock
Preferred stock
Class B
Cumulative Stock

Which of the following ratios provide a MORE penetrating measure of liquidity than
does the current ratio?
Assets Test Ratio
Defensive interval ratio
Investments ratio
Current ratio

Average payment period is calculated as:
365 / Accounts payable turnover
365 X Accounts payable turnover
365/ Total purchases
Accounts payable turnover / 365

Which of the following ratios indicates in days how quickly inventory is sold?
Inventory turnover Rate
Inventory Turnover ratio
Operating Cycle
Days sales of inventory

Question No: 45 ( Marks: 3 )
How does working capital help management in making rationale decisions?

Question No: 46 (Marks: 5 )
Consider the following information.

Cash Rs. 15,000
Beginning net receivables Rs. 55,000
Ending net receivables Rs. 57,000
Net sales Rs. 640,000
Net credit sales Rs. 480,000
Cost of goods sold Rs. 390,000
Average inventory Rs. 62,000

Requirement:
Compute the receivable turnover to the nearest tenth.

Receivables turn over ratio = Net credit sales /Average Debtors
= 640,000 / [(55,000+57,000)/2]
= 640,000 / 56,000
= 11.43

Assume that you are a commercial loan officer at a large bank. One of your clients
recently submitted an application for Rs. 300,000 five year loan. You have worked
with this business before on numerous occasions and have periodically been forced
to deal with late and missed payments attributed to cash flow problems. Thus you
are surprised to see in the business plan accompanying the application that the
management expects to reduce the companys operating cycle from 190 days to 90
days. A footnote to the business plan indicates that the reduction in the operating
cycle will result from a tighter credit policy and the implementation of a just-in-time
inventory system.

Requirement:
Would the company be able to reduce the operating cycle by applying the new
strategy and would you give the loan to the company on this basis?

Assume that you are a graduate student and going to form a web page
consultancy firm. You are very young and compassionate to form this company.
You need a bank loan of Rs.50,000 for computer equipment , as a collateral you
have a bike your father gave you after securing 80% marks in FSc. Not wanting to
lose your bike and to protect yourself you decided to organize a
corporation. Explain will it be beneficial idea for you or not.

The data shown below were taken from the financial records of J Ltd at the end of
the year. The financial year of the company ends on 31, December each year.

Accounts Payable
Rs
50,000
Accrued Liabilities
Rs.
33,000
Cash 32,000 Inventories Jan 42,000
Inventories Dec 38,000 Marketable Securities 10,000
Operating Expenses 120,000 Prepaid Expenses 25,000
Purchases (Net) 360,000
Accounts Receivable
Jan
61,000
Accounts Receivable
Dec
61,000 Long Term Loan 150,000
Plant Assets 400,000 Sales 604,000
Sales Returns 20,000 Retained Earning 133,000
Share Capital (Rs.10
Par)
92,000 Market Price 18
Interest expense 30,000
On the basis of above information, calculate the following.
a. Debt ratio (4)

b. Debt to equity ratio (2)

c. Debt to total asset ratio (4)

How many types of audit opinions are there? Assume that you have been
appointed as an Auditor of the company, after the audit of the company, what can
be your possible audit opinions. Briefly explain each of the audit opinion.
Spring 2009

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


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

stockholders?
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

The indirect method shows the reconciliation from net income to operating cash
flows. Select the
adjustment that is subtracted during the reconciliation.
Revenues earned and received in cash.
Non-cash expenses (expenses incurred but not paid) reported on the
income statementone
example is amortization expense.
Non-cash revenues (revenues earned but payment not yet received) reported on
the
income statement
A decrease in Accounts Receivable or another non-cash current asset


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


Nishat Mills Ltd. is a rapidly growing company that acquires more equipment every
year. The company uses straight line depreciation in its financial statements and
MACRS in its tax returns.
Which of the following statements is NOT correct?
Using straight line depreciation in the financial statements instead of accelerated
method
increases the company s reported net income
Using straight line depreciation in the financial statements instead of accelerated
method increases the company s annual net cash flow

Using MACRS instead of straight line in income tax returns increases company s net
cash flow

As long as the company keeps growing, it will report more depreciation in its
income taxreturns each year than it does in its financial statements

A statement of cash flows would be least useful in answering which of the following
questions?
What was the average balance in the Cash account during the period?
Did operating activities result in a positive or negative net cash flow?
How much cash was provided or used by financing activities during the period?
Were cash dividends paid by the company more or less than the net cash flow from
operations?

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

Which of the following is NOT an advantage of a Sole proprietorship?
Easy to form and wind up
Direct motivation
Better control
Limited liability


The current ratio will be excessively very high in which of the following inventory
costing methods?
FIFO
LIFO
Average cost

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
for more contents visit
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


Ames Corporation's net accounts receivable were Rs. 750,000 on December 31,
20X1, and Rs.1,250,000 on December 31, 20X2. Net cash sales for 20X2 were Rs.
3,300,000. The accounts receivable turnover ratio for 20X2 was 16. What were the
total net sales for 20X2?
Rs. 12,800,000
Rs. 16,000,000
Rs. 16,100,000
Rs. 19,300,000

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 investment

Which of the following is NOT a profitability measure?
Accounts receivable turnover ratio
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


Assume that a company has current assets of Rs. 60,000, current liabilities of Rs.
35,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the
company?
1.57
1.71
1.86
0.58

What will be the effect on the EPS of the company, if it paid stock dividend on
common stock?
Increase
Decrease
No effect

What will be the effect of appropriated retained earnings on the rate of return on
stockholder's equity?
Increase
Decrease
No effect

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

fundamental accounting
equation?
Cash = assets

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


If the retained earnings account has a debit balance, how is it presented in the
balance sheet and what is it called?

Using the following information, compute the dividend yield to the nearest tenth.
Income Rs. 130,000
Beginning shares outstanding 250,000
Ending shares outstanding 270,000
Current price per share Rs. 7.50
Dividend per share Rs. 1.20

What information is provided by the balance sheet to the short term and log term
creditors?

management expects to reduce the company s operating cycle from 190 days to 90
inventory system.
Requirement:

In each of the following situations, indicate the form of organization that you would
expect the business to take.
a) A neighborhood lawn-moving business operated by a teenager
b) A company organized to manufacture an electric car
c) A small retail clothing store, owned and operated by a brother and sister
d) A medical group consisting of six doctors, organized in a state that does not
allow
professional practices to incorporate.
e) A flight school owned by an airline pilot. The business is profitable, but the
owner uses
the profits to buy planes and expand the business.

The year end balance sheet of LaserTech, Inc includes the following stockholder s
equity section. Stockholder s equity:
Rs. 8 cumulative preferred stock, Rs. 100 par value,
callable at Rs. 103, 200,000 shares authorized
Rs. 6,000,000
Common stock, Rs. 2 par value, 5,000,000 shares
authorized:
Issued Rs.
3,600,000
Subscribed 1,400,000 5,000,000
Additional paid in capital
Preferred Rs. 240,000
Common (including subscribed shares) 25,000,000 25,240,000
Retained earnings 3,690,000
Total stockholder s equity Rs. 39,930,000
Assets of the corporation include subscriptions receivable, Rs. 5,600,000.
Requirement:
a. How many shares of commons stock have been issued or subscribed? (2)
b. What is the total legal capital, including shares subscribed? (2)
c. What is the total paid in capital, including shares subscribed? (3)
d. What is the book value per share of the common stock, assuming that no
dividends in arrears. (3)

Listed below is the working capital information for ABC Company, at the beginning
of the year.
Cash Rs. 405,000
Temporary investment in marketable securities 216,000
Notes receivables current 324,000
Accounts receivables 540,000
Allowance for doubtful accounts 27,000
Inventory 432,000
Prepaid expenses 54,000
Notes payable within one year 162,000
Accounts payable 445,000
Accrued liabilities 40,500

The following transactions are completed during the year:
1. Sold on account inventory costing Rs. 72,000 for Rs. 65,000
2. Issued additional shares of capital stock for cash, Rs. 800,000
3. Sold temporary investments, Rs. 60,000, for Rs. 54,000 cash
4. Acquired temporary investments costing Rs. 105,000. paid cash
5. Wrote off uncollectible accounts, Rs. 18,000
6. Sold on account inventory costing Rs. 75,000 for Rs. 90,000
7. Acquired plant and equipment for cash, Rs. 480,000
8. Declared a cash dividend, Rs. 240,000
9. Declared a 10% stock dividend
10. Paid accounts payable, Rs. 120,000
11. Purchased goods on account, Rs. 90,000
12. Collected cash on accounts receivables, Rs. 180,000
13. Borrowed cash from a bank by issuing a short term note, Rs. 250,000
Requirement:
a) Compute the amount of quick assets, current assets, and current liabilities at the
beginning of the year shown by the above account balances (2+2+2)
b) Compute the current ratio, and quick ratio. (2+2)
Fall 2009


Sequentialy

Alphabaticaly

Monthly

Orderly







Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit





Net Income
Dividends payment
Net Loss

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

stockholders?

The payment of dividends is not directly related to the profits of a given
period
To receive a corporate dividend, stock must be owned on the date
of declaration
Corporate dividends reduce contributed capital and therefore, stockholders
equity


Cost of goods sold
Rent Expense
Salaries Expense


Savings deposits

Cash equivalent are cash substitutes not immediately required i.e. short-term high
liquid investment, usually for three months.Examples are Treasury bills,
certificates, prize bonds etc. Marketable securities are investments in govt.bonds
and stocks and bonds of other companies

The statement of cash flow does NOT assist investors, creditors and others in
assessing:

The companys ability to generate positive cash flows in future periods
The companys ability to meet its obligations and to pay dividends
The companys needs for external financing
The companys ability to forecast future losses

When using the perpetual inventory system, each time a sale is recorded the:

Inventory account is increased
Inventory account is decreased
Cost of Goods Sold account is decreased
Cost of goods available for sale decreases
Merchandise sold Dr. Cost of goods sold Cr. Inventory


Purchases
Purchase Returns
Purchase Allowance




Wasting assets
Fictitious assets
Quick assets
Tangible assets



Adverse opinion
Unqualified opinion
Qualified opinion


Listed companies
Corporations
Sole proprietorship
Partnerships


Net income/Loss
Total assets
Net sales


Past financial performance does not signify what will happen with the
investor in future
The financial statements are useless without the notes to the financial
statements


Distributive
Callable
In arrears
Cumulative



A type of preferred stock that gives the holder the right to receive dividends equal
to the normally specified rate that preferred dividends receive as well as an
additional dividend based on some predetermined condition.The additional dividend
paid to preferred shareholders is commonly structured to be paid only if
the amount of dividends that common shareholders receive exceeds a specified
per-share amount.

point of time?
Par value
Book value
Face value
Market value

By computing component percentages for several successive balance sheets, which
of the following can NOT be found?

The unchanged items


Borrow short term to finance additional fixed assets

Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity
ratio?

2%
7%
6%
3%



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.

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



Financial statement ratio analysis may be undertaken to study liquidity, turnover,
profitability, and other indicators. To which does the current ratio most relate?

Liquidity
Turnover
Profitability
Other indicator

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

Which of the following would NOT improve the return on investment ratio?

Reducing costs
Increasing gains
Accelerating gains
Issuing treasury stock



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

30%
60%
50%
45%

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

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

Profitability
Liquidity
Stability
Solvency



Cash = assets

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

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

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

Which of the following elements of financial statements is MOST closely related to
measurement of financial position?

Equity
Income
Expense
Disclosures

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

The basic type of capital stock issued by every corporation is known as:

Common stock
Preferred stock
Class B
Cumulative Stock

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

Average payment period is calculated as:
365 / Accounts payable turnover
365 X Accounts payable turnover
365/ Total purchases
Accounts payable turnover / 365

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

How does working capital help management in making rationale decisions?

Consider the following information.

Cash Rs. 15,000
Beginning net receivables Rs. 55,000
Ending net receivables Rs. 57,000
Net sales Rs. 640,000
Net credit sales Rs. 480,000
Cost of goods sold Rs. 390,000
Average inventory Rs. 62,000

Requirement:
Compute the receivable turnover to the nearest tenth.

management expects to reduce the companys operating cycle from 190 days to 90
inventory system.

Requirement:

Assume that you are a graduate student and going to form a web page consultancy
firm. You are very young and compassionate to form this company. You need a
bank loan of Rs.50,000 for computer equipment , as a collateral you have a bike
your father gave you after securing 80% marks in FSc. Not wanting to lose your
bike and to protect yourself you decided to organize a corporation. Explain will it
be beneficial idea for you or not.
The data shown below were taken from the financial records of J Ltd at the end of
the year. The financial year of the company ends on 31, December each year.

Accounts Payable
Rs
50,000
Accrued Liabilities
Rs.
33,000
Cash 32,000 Inventories Jan 42,000
Inventories Dec 38,000 Marketable Securities 10,000
Operating Expenses 120,000 Prepaid Expenses 25,000
Purchases (Net) 360,000
Accounts Receivable
Jan
61,000
Accounts Receivable
Dec
61,000 Long Term Loan 150,000
Plant Assets 400,000 Sales 604,000
Sales Returns 20,000 Retained Earning 133,000
Share Capital (Rs.10
Par)
92,000 Market Price 18
Interest expense 30,000

On the basis of above information, calculate the following.
a. Debt ratio (4)

b. Debt to equity ratio (2)

c. Debt to total asset ratio (4)

How many types of audit opinions are there? Assume that you have been appointed
as an Auditor of the company, after the audit of the company, what can be your
possible audit opinions. Briefly explain each of the audit opinion.
MIDTERM EXAMINATION
Fall 2009
FIN621- Financial Statement Analysis


Three months

Two years

One year

Five years

Which of the following statement shows the effects of cash inflows and outflows?

Balance Sheet


Income Statement


following?

Ledger

Source document

Chart of accounts

Journal

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; Owners equity- Credit

Building - Debit; Accounts payable - Credit


Journal entry

Compound entry

Adjusting entry

Reversing entry

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

What would be the adjusting entry to record depreciation if the estimated amount
of depreciation on equipment for a period is Rs. 2,000?





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 Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit

Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit

Which of the following accounts would NOT be included in a post-closing trial
balance?

Cash


Owners equity

Fees earned

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

consume within:
The operating cycle

One year




Savings deposits

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

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

Which of the following activities convert the income statement items from the
accrual basis of accounting to cash?

Non cash activities

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

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

following?






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

An inventory error affects ___________ accounting periods.

Only current
Two
Three
Four

From the given data, calculate Cost of Goods Sold using the FIFO costing method:
Beginning inventory is 10 units @ Rs. 10 each.

Rs. 200
Rs. 150
Rs. 350
Rs. 450

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

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

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

FIFO
LIFO
Average cost

The sale of a depreciable asset resulting in a loss indicates that the proceeds from
the sale were:

Greater than cost

Allocate the original cost of a productive asset to expense over its
useful life

Which depreciation method allocates an equal portion of depreciation expense to
each period of assets useful life?

Sum-of-the-year digit method
Accelerated depreciation method


Modified Accelerated Cost Recovery System



Which of the following account would be classified as a current asset on the balance
sheet?

Accounts receivable
Office equipment
Land

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

Salaries
Past due expense
Income tax expense
Accounts receivable


Assets and equity
Assets and expenses
Equity and revenues

Accounting Cycle is a series of activities that begins with ___________ and ends
with ___________.
Closing of books, transactions
Transaction, After closing Trial Balance
Journal, ledger account
Transactions, financial statements

expenses?
Rs. 41 million
Rs. 33 million
Rs. 27 million
Rs. 19 million

The statement of cash flows does NOT report the:

Sources of cash in the current period
Amount of checks outstanding at the end of the period
Uses of cash in the current period
Change in the cash balance for the current period

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

Credit
Debit
Negative
Positive

Which one of the following would lead to the decrease in the owners equity?

Purchasing a piece of land
Paying dividends to shareholders
Purchasing equipment on account
Paying back the principal of a loan

The users of a statement of cash flows are mostly interested in:

Net cash flow from financing activities

Classify the following activities as cash flow from operating, investing and financing
activities.
Payments for repurchase of company shares
Collections on loan principal and sales of other firms' debt instruments
Tax payments
Expenditure for purchase of other firms' equity instruments
Payments to suppliers for goods and services

Answer:
Payments for repurchase of company shares: Financing activities

Collections on loan principal and sales of other firms' debt
instruments: Investing activities.

Tax payments: Operating activities

Expenditure for purchase of other firms' equity instruments: Investing
activities

Payments to suppliers for goods and services: Operating activities

Listed below in random order are the items to be included in the balance sheet of
the Mystery Mountain Lodge at December 31, 2001:

Equipment Rs. 29,200 Buildings Rs.
450,000
Land 425,000 Owners capital ?
Accounts payable 54,800 Cash 21,400
Accounts
receivable
10,600 Furnishings 58,700
Salaries payable 33,500 Snowmobiles 15,400
Interest payable 12,000 Notes payable 620,000

Requirement:
Prepare a Balance Sheet at December 31, 2001.

Mystery Mountain Lodge
Balance Sheet as on December 31, 2001
Particulars Amount (Rs.)
Current Assets:
Cash 21,400
Accounts receivable 10,600
Snowmobiles 15,400
Fixed Assets:
Equipment 29,200
Furnishings 58,700
Buildings 450,000
Land 425,000
1,010,300
Liabilities:
Interest payable 12,000
Salaries Payable 33,500
Accounts Payable 54,800
Notes Payable 620,000
Capital:
Owners capital 290,000
1,010,300

MIDTERM EXAMINATION
Fall 2009

Question No: 1 (Marks: 1) - Please choose one
Which of the following is the acronym for GAAP?
Generally Adopted Accounting Principles
Generally Accepted Auditing Principles
Generally Accepted Accounting Principles
Generally Adapted American Principles

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 results are summarized by the income statement of a
company?

Operating results
Economic results
Auditing results
Marketing results



Prepaid Expense is a(n) _________ account and has a _________ normal balance.
Revenue, credit
Liability, credit
Asset, debit
Expense, debit

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
buildings life
As depreciation is recorded, stockholders equity is reduced
As depreciation is recorded, total assets are reduced

following factors would explain anINCREASE in retained earnings?
Net Income
Dividends payment
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

consume within:
The operating cycle
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
Plant assets
Intangible assets
Investments
Debt financing

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

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 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
Cost of goods sold

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

Modified Accelerated Cost Recovery Syste

Accelerated depreciation method is mostly used for ____________.
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

Wasting assets
Fictitious assets
Quick assets
Tangible assets

Assets and equity
Assets and expenses
Equity and revenues

Which of the following provides the basis for the trial balance?
Income statement
Statement of cash flow
Ledger
Adjusting entries

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
15 of the 25 units are sold
Rs. 200
Rs. 270
Rs. 300
Rs. 350

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 companys 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 companys current assets are?

On 15, 2001, ABC Company sold 1,000 printers to another company. Immediately
prior to this sale, the perpetual inventory records of the company for the printers
included the following cost layers.

Purchase
date
Quantity Unit Cost Total Cost
Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550
Jan. 9, 2001 900 Rs. 9.50 8,550
Total on
hand
1,500 Rs. 14,100
Instructions:
Prepare a separate general entry to record the cost of printers, assuming that the
company uses the following methods.

Answer:
a. FIFO (2.5) DR CR
Rs. Rs.
Cost of Printers Sold A/C 9350
Printers Inventory A/C 9350

b. LIFO (2.5) DR CR
Rs. Rs.
Cost of Printers Sold A/C 9475
Printers Inventory A/C 9475

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

DR CR

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

General Entry Rs Rs
Interest Expense A/C 1050
Interest Payable A/C 1050
General Entry Rs Rs
Depreciation of Office
Equip. A/C

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

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

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

General Entry Rs Rs
Interest Receivable on
Bonds A/C
750
Interest Income on Bonds
A/C
750
General Entry Rs Rs

General Entry Rs Rs
Salary Expense A/C 2800
Salary Payable A/C 2800
MIDTERM EXAMINATION
Spring 2010
FIN621- Financial Statement Analysis

Time: 60 min Marks: 44

Three months Two years
One year Five years

Balance Sheet and Accounting Cycle are based on which of the following?
Adjusting entries
Closing entries
Financial position
Accounting Equation

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

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

Net Income
Dividends payment
Net Loss

At the end of the fiscal year, Accounts Receivable has a balance of Rs. 100,000 and
Allowance for Doubtful Accounts has a balance of Rs. 7,000. The expected net
realizable value of the accounts receivable is:
Rs. 7,000
Rs. 93,000
Rs. 100,000
Rs. 107,000

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?
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?
All parts are same in both methods

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


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?
Cost of goods sold
Merchandise inventory
Sales
Both Accounts receivable & cost of goods sold


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 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 companys 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 companys accounts receivable increased by Rs. 50,000,
inventory decreased by Rs. 23,000, accounts payable decreased by Rs. 55,000,
pre-paid expenses increased by Rs. 35,000, and accrued expenses payable
increased by Rs. 14,000. Determine the amount of cash provided by or used for
operating activities by the indirect method.
A. Net Cash Flow from Operating Activities 663000Rs.

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