MCQ's Treasure

MIDTERM EXAMINATION
Spring 2009
FIN622- Corporate Finance (Session - 5)
Question No: 1 ( Marks: 1 ) - Please choose one
Which of the following could be used to calculate the cost of common equity?
► Interpolation method
► Dividend discount model
► YTM method
► Capital structure valuation
What will be the effect of reduction in the cost of capital on the accounting break-even
level of revenues?
► It raises the break-even level.

► It reduces the break-even level.
► It has no effect on the break-even level.
► This cannot be determined without knowing the length of the investment horizon.
In Capital Assets Pricing Model, which of the following shows time value of money?
► Beta of the security

► Risk free rate of return
► Risk premium
► Market rate of return
Which of the following is a proposition of Miller and Modigliani theory of Capital

structure?
► Value of a firm is independent of its capital structure

► Value of a firm is independent of its level of debt
► Value of a firm is dependent of its cost of capital
► Value of a firm is independent on its level of equity finances
In which of the following dividend policies, the amount of dividend is relatively fixed?
http://vustudents.ning.com/
► Constant payout ratio policy
► Hybrid dividend policy
► Residual dividend policy
► Stable dividend policy
 A constant payout ratio policy is a policy of paying a FIXED percentage of a firm’s earnings
as dividends in each period. Such a policy is likely to result in wildly fluctuating dividends. As a
result, only a small percentage of dividend paying firms follow such a policy.
Which of the following risks increases as the debt level of a business increases?
► financial risk
► Operating risk
► Business risk
► Investment risk
Which of the following risks is independent of capital structure of a firm?
► Financial risk
► Systematic risk
► Business risk
► Total risk DOUBT
Which of the following bestdefine the term 'Capital Structure'?

► The proportion of equity used by a firm

► The proportion of debt and equity capital used by a firm
► The proportion of long-term liabilities used by a firm
► The proportion of short-term bank loan used by a firm
Which of the following is tax deductible?
► Dividend on preferred shares

► Dividend on common stocks
► Coupon payments on bonds
► Capital gain on common stocks
Suppose a stock is selling today for Rs.40 per share. At the end of the year, it pays a
dividend of Rs.2.00 per share and sells for Rs.44.00. what is the rate of return on this
stock?
► 12%
► 13%
► 14%
► 15%
Which of the following is determined by variance of an investment's returns?
► Volatility of the rates of return.

► Probability of a negative return.
► Historic return over long periods.
► Average value of the investment.
Which of the following best illustrates the problem imposed by capital rationing?
► Accepting projects with the highest NPVs first

► Accepting projects with the highest IRRs first
► Bypassing projects that have positive NPVs
► Bypassing projects that have positive IRRs
Market demand allowed a company, to raise its price by 20% to $60. What is the new
level of break-even revenues if fixed charges including depreciation are $1 million and
variable costs were 70% of the old price?
► $2,000,000
► $2,400,000
► $2,857,143
► $3,333,333
Which of the following capital budgeting methods states the project return as a
percentage?
► Payback period
► Net present value
► Internal Rate of Return fm bok
► None of the given options
is always quoted in terms of percentage,
which makes it comparable to the other market interest rates or the inflation rate
Which of the following capital budgeting methods focuses on firm's liquidity?
► None of the given options

► Payback method
► Net Present Value
► Internal Rate of Return
In which of the following situations a project is acceptable?
► When a project has conventional cash flows patterns

► When a project has a non-conventional cash flow pattern
► When a project has a discounted rate higher than the inflation rate
► When a project has a positive net present value
Which of the following statements is Correct regarding the fundamental analysis?
► Fundamental analysts use only Economic indicators to evaluate a stock

► Fundamental analysts use only financial information to evaluate a company’s
stocks
► Fundamental analysts use financial and non-financial information to evaluate a
company’s stocks
► Fundamental analysts use only non-financial information to evaluate a company’s
stocks
A company has a dividend yield of 8%. If its dividend is expected to grow at a constant
rate of 5%, what must be the expected rate of return on the company’s stock?
► 14%
► 13%
► 12%
► 10%
You are considering buying common stock in Grow On, Inc. The firm yesterday paid a
dividend of $7.80. You have projected that dividends will grow at a rate of 9.0% per year
indefinitely. If you want an annual return of 24.0%, what is the most you should pay for
the stock now? http://vustudents.ning.com/
► $52.00
► $56.68
► $32.50
► $35.43
If a bond sells at a high premium, then which of the following relationships hold true?
(P0 represents the price of a bond and YTM is the bond's yield to maturity.)
► P0 < par and YTM < the coupon rate.

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

► P0 > par and YTM < the coupon rate.
http://web.utk.edu/~jwachowi/mcquiz/mc4.html
An investor buys a bond that will pay the interest amount of Rs.60 annually, forever. If
there is exactly one year remaining until the next interest payment and the investor's
required annual return is 5 percent, the present value of this bond is closest to which one
of the following?
► Rs.1,200.
► Rs.800.
► Rs.600.
► Rs.1,000.

Which one of the following is a long-term contract under which a borrower agrees to
make payments of interest and principal on specific dates?
► Common stock.
► Preferred stock
► Equity contract.
► Bond.
If you deposit $12,000 per year for 16 years (each deposit is made at the beginning of
each year) in an account that pays an annual interest rate of 15%, what will your account
be worth at the end of 16 years?
► $82,168.44
► $71,450.82
► $768,901.12
► $668,609.67
Suppose you wish to set aside Rs.2,000 at the beginning of each of the next 10 years (the
first Rs.2,000 deposit would be made now) in an account paying 12 percent compounded
annually. Approximately how much will you accumulate at the end of 10 years?
► Rs.22,863
► Rs.35,097
► Rs.39,310
► Rs.25,151
Which of the following transactions affects the acid-test ratio?
► Receivables are collected.

► Inventory is liquidated for cash.
► New common stock is sold and used to retire a debt issue.
► A new common stock issue is sold and equipment purchased.
Which of the following would be a consequence of a high Inventory Turnover Ratio?

► Too low a level of inventory and frequent stock-outs.
► Seasonal elements peculiar to the business.
► Efficient inventory management.
► Any of the given option.
Which of the following statements (in general) is correct?
► A low receivables turnover is desirable.

► The lower the total debt-to-equity ratio, the lower the financial risk for a firm.
► An increase in net profit margin with no change in sales or assets means a poor
ROI.
► The higher the tax rate for a firm, the lower the interest coverage ratio
http://web.utk.edu/~jwachowi/mcquiz/mc6.html
Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average
of 1.4. What do these ratios tell about this company?
► The company will be viewed as having high creditworthiness

► The company has greater than average financial risk when compared to other
firms in its industry
► The company will not experience any difficulty with its creditors
► The company has less liquidity than other firms in the industry
Felton Farm Supplies, Inc., has an 8 percent return on total assets of Rs.300,000 and a net
profit margin of 5%. What are its sales?
► Rs.3,750,000
► Rs.480,000
► Rs.300,000
► Rs.1,500,000
In which one of the following markets the bonds of a Corporation shall be traded now
who were issued 10 years back? http://vustudents.ning.com/
► Primary market
► Secondary market
► Money Market
► All of the above
Question No: 31 ( Marks: 5 )

A Company had the following data, extracted from its financial statements for the year
ending June 30, 2008:
a) Current Ratio = 2
b) Acid Ratio = 1.5
c) Current Liabilities = $500,000
d) Inventory Turnover = 5
e) Gross Profit Margin = 20 percent
What were its sales for the year?
Bank A pays 6.2% interest compounded semiannually and Bank B pays 6% interest,
compounded monthly. Which bank offers the higher effective annual rate?
MIDTERM EXAMINATION
Spring 2009
Time: 60 min
Marks: 45
Which of the following could be used to calculate the cost of common equity?
► Interpolation method
► Dividend discount model
► YTM method doubted
► Capital structure valuation
What will be the effect of reduction in the cost of capital on the accounting break-even
level of revenues?

► It raises the break-even level
► It reduces the break-even level. Doubted
► It has no effect on the break-even level.
► This cannot be determined without knowing the length of the investment horizon.


► Risk premium
Ref: http://www.answers.com/topic/capital-asset-pricing-model

structure?


In which of the following dividend policies, the amount of dividend is relatively fixed?
► Constant payout ratio policy

► Hybrid dividend policy
► Residual dividend policy
► Stable dividend policy
Which of the following risks increases as the debt level of a business increases?
► Financial risk doubt

► Operating risk
► Business risk
► Investment risk
Which of the following risks is independent of capital structure of a firm?
► Financial risk
► Systematic risk
► Business risk
► Total risk
Which of the following bestdefine the term 'Capital Structure'?
► The proportion of equity used by a firm

► The proportion of debt and equity capital used by a firm
► The proportion of long-term liabilities used by a firm
► The proportion of short-term bank loan used by a firm
Which of the following is tax deductible?
► Dividend on preferred shares

► Dividend on common stocks
► Coupon payments on bonds
► Capital gain on common stocks
dividend of Rs.2.00 per share and sells for Rs.44.00. what is the rate of return on this
stock? http://vustudents.ning.com/
► 12%
► 13%
► 14%
MIDTERM EXAMINATION
Fall 2009
Following are amongst the three main areas of Finance EXCEPT:
► Financial institutions
► Investments
► Accounting
► Financial management

Which one of the following is an offering in which the shares of a company are offered
to a limited number of investors?
► Initial Public Offering
► Private Placement
► Direct Public Offering
► Primary Offering

If you want to earn 8 percent, approximately how much should you pay for a security
which matures in one year at Rs. 1,000?
► Rs. 1,080
► Rs. 940
► Rs. 920
► Rs. 926

When the market's nominal annual required rate of return for a particular bond is less
than its coupon rate, the bond will be selling at which of the following?
► At discount
► At premium
► At par value
► At indeterminate price

Which of the following terms refers to the process of systematic investigation of the
effects on estimates or outcomes of changes in data or parameter inputs or assumptions to
evaluate a capital project?
► Sensitivity Analysis
► Fundamental Analysis
► Technical Analysis
► Trend Analysis

For a firm with a Degree of Operating Leverage of 3.5, an increase in sales of 6% will:
► Increase pre-tax profits by 3.5%
► Decrease pre-tax profits by 3.5%.
► Increase pre-tax profits by 21.0%.
► Increase pre-tax profits by 1.71%.

The percentage change in a firm's operating profit (EBIT) resulting from a 1% change in
output (sales) is known as the ________.
► Degree of operating leverage

► Degree of profit leverage
► Degree of total leverage
► Degree of financial leverage

dividend of Rs.2.00 per share and sells for Rs.66.00. what is the capital gain yield on the
stock?
http://groups.google.com/group/vuZs
► 7%
► 8%
► 9%
► 10%

Which of the following is considered as a risk free financial asset?
► Government T-bills
► Junk bonds
► Preferred stock
► Secured bonds
Ref: http://www.investopedia.com/terms/r/riskfreeasset.asp

If the common stocks of a company have beta value less than 1, then such stocks refer to
which of the following?
► Normal stocks
► Aggressive stocks
► Defensive stocks
► Income stocks

Which of the following is known as market portfolio?
► A portfolio consists of all risk free securities available in the market
► A portfolio consists of securities of the same industry
► A portfolio consists of all aggressive securities available in the market
► A portfolio consists of all securities available in the market
What will be the risk premium if the market portfolio has an expected return of 10% and
the risk free rate is 4%?
► 4%
► 5%
► 6%
► 7%

Which of the following statements is true regarding Weighted Average Cost of Capital
(WACC)?
► WACC of a levered firm is greater than that of an un-levered firm
► WACC of a levered firm is lesser than that of an un-levered firm
► WACC of a levered firm is equal to that of an un-levered firm
► An Un-levered firm has zero WACC.

XYZ Airlines will pay a Rs.4.00 dividend next year on its common stock, which is
currently selling at Rs.100 per share. What is the market’s required return on this
investment if the dividend is expected to grow at 5% forever?
► 9%
► 4%
► 5%
► 7%

A Pure Play method of selecting a discount rate is most suitable in which of the
following situations?
► When the intended investment project has a Non-conventional stream of cash

flows
► When the intended investment project is a replacement project
► When the intended investment project belongs to industry other than the
firms operating in
► When the intended investment project has a conventional stream of cash flows

A Levered firm has a lower weighted average cost of capital as compare to an Un-
levered firm because of which of the following?
► Interest tax shield

► Low level of financial risk
► Low level of business risk
► Low level of systematic risk

ABC Corporation declared 10% dividend on its shares. A person purchased some shares
of this corporation after the dividend was announced. If he is entitled to receive the
declared dividend, his shares would be categorized as which of the following?
► Ex-Dividend
► Cum-Dividend
► Stock- Dividend
► Cash Dividend

Which of the following is a dividend that is paid in the form of additional shares, rather
than a cash payout?
► Stock Dividend
► Cum Dividend
► Ex Dividend
► Extra Dividend

Which of the following firms would have the highest financial leverage?
► A firm having debt-to-equity ratio of 30:70


Which of the following is the principal advantage of high debt financing?
► Tax savings
► Low Bankruptcy costs
► Minimum financial risk
► Low financial leverage

structure? http://vustudents.ning.com/


Which of the following is a disadvantage of Capital Asset Pricing Model?
► It considers market risk
► It can be used for listed companies
► It can be used for non-listed companies
► It is based on past data

Which of the following shows the reward to risk ratio of a Security A?
► Expected return of A (rA) – risk free return / beta of A
► Expected return of A (rA) – risk free return / required return of A
► Expected return of A (rA) – beta of A / risk free return
► Risk free return - expected return of A (rA)/ beta of A


► Risk premium

Which of the following statements is TRUE regarding Balance Sheet of a firm?
► It reports how much of the firm’s earnings were retained in the business rather
than paid out in dividends.
► It reports the impact of a firm’s operating, investing, and financing activities on
cash flows over an accounting period.
► It shows the firm’s financial position at a specific point in time.
► It summarizes the firm’s revenues and expenses over an accounting period.

Suppose that a corporation of which you are a shareholder has just gone bankrupt. Its
liabilities are far in excess of its assets. How much of your investment would you get
back?
► A proportionate share of bondholder claims based on the number of common

shares that you own
► A proportional share of all creditor claims based on the number of common shares
that you own
► An amount that could, at most, equal what you originally paid for the shares of
common stock in the corporation
► Nothing at all doubt

The gross profit margin is unchanged, but the net profit margin declined over same
period. This could have happened due to which one of the following reasons?
► Cost of goods sold increased relative to sales
► Sales increased relative to expenses
► The tax rate has been increased
► Dividends were decreased

Palo Alto Industries has a debt-to-equity ratio of 1.6 compared with the industry average
of 1.4. What do these ratios tell about this company?
► The company will be viewed as having high creditworthiness
► The company has greater than average financial risk when compared to
other firms in its industry
► The company will not experience any difficulty with its creditors
► The company has less liquidity than other firms in the industry

If a creditor wants to know about the bill payment status of a potential customer, the
creditor could look at which one of the following ratios?
► Current ratio
► Acid ratio
► Average age of accounts payable
► Average age of accounts receivable

Suppose you invested Rs. 8,000 in a savings account paying 5 percent interest a year,
compounded annually. How much amount your account will have at the end the end of
four years?
► Rs.9,624
► Rs.10,208
► Rs.9,728
► Rs.10,880

The present value of Rs.100 per year received for 10 years discounted at 8 percent is
closest to which of the following amounts?
► Rs.177
► Rs.362
► Rs.425
► Rs.671

How many years will it take for Rs.152,000 to grow to be Rs. 405,000 if it is invested in
an account with an annual interest rate of 10%?
► 13.68
► 8.23
► 10.28
► Cannot be calculated from the given data

Which of the following types of bonds pays no annual interest to the holder, but is sold
at discount below the par value?
► An original maturity bond
► A floating rate bond
► A fixed maturity date bond
► A zero coupon bond

Which of the following is a financial asset?
► A building
► Bonds
► Inventories
► Equipments

An investor buys a bond that will pay the interest amount of Rs.60 annually, forever.
Which of the following would be the present value of the bond if there is exactly one year
remaining until the next interest payment and the investor's required annual return is 5
percent?
► Rs. 1,200
► Rs. 800
► Rs. 600
► Rs. 1,000

How much should you pay for a bond with Rs.1,000 face value, a 10 percent coupon
rate, and seven years to maturity if your appropriate discount rate is 8 percent and interest
is paid annually? (Answers are rounded to the nearest dollar)
► Rs.560
► Rs.1,000
► Rs.903
►

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

Which of the following errors are identified during the preparation of trial balance?
► Recording transactions in the wrong account
► Duplication of a transaction in the accounting records
► Posting only the debit portion of a particular journal entry
► Recording the wrong amount for a transaction to both the accounts

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

If the prepaid rent account before adjustment at the end of the month has a debit balance
of Rs. 1,600, representing a payment made on the first day of the month, and if the
monthly rent was Rs.800, the amount of prepaid rent that would appear on the balance
sheet at the end of the month, after adjustment, is:
► Rs. 1,600
► Rs. 400
► Rs. 800
► Rs. 2,400
Cost of a building is Rs. 90,000 and its estimated useful life is 30 years. What will be the
depreciation expense of this building for one month by using straight line depreciation
method?
► Rs. 600
► Rs. 250
► Rs. 300
► Rs. 500

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

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

Which of the following is NOT an example of cash equivalents?
► Certificates of Deposit
► Money market accounts
► Money market mutual funds
► Euro Bond

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

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

The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable
and an ending balance of Rs. 15,000. The income statement reported Sales Revenue of
Rs. 200,000. Using this information, compute cash collected from customers.
► Rs. 205,000
► Rs. 215,000
► Rs. 195,000
► Rs. 200,000

ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory
increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest
expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the
year. What would be the cash payments for the purchase of the merchandise.
► Rs. 505,000
► Rs. 516,000
► Rs. 490,000
► Rs. 495,000

The indirect method shows the reconciliation from net income to operating cash flows.
Select the adjustment that is added during the reconciliation.
► A decrease in accrued liabilities

► A decrease in Salaries Payable
► Payment of long-term debt
► An increase in Accounts Payable

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

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

► Cost of goods sold + Opening stock
► Net profit less expenses of the period

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

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

An adjusting entry would NOT be required for which of the following account?
► Salaries
► Past due expense
► Income tax expense
► Accounts receivable

For purposes of preparing a cash flow statement, which of the following is NOT
considered a "cash equivalent"?
► A money market fund
► An investment in IBM bonds
► Treasury bills
► Commercial paper

Which one of the following account has a normal debit balance?
► Revenue
► Capital
► Assets
► Liabilities

Which of the following should be the first step to locate an error in the trial balance?
► Re-calculate the balances of both sides
► Look for the correct location of the normal balances
► Verify figures transferred from the accounts to the trail balance
► Check foot notes and balances of financial statements

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

A business has purchased machinery on credit, what will be its journal entry?
► Cash - (Debit); Machinery - (Credit)

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

Suppose that a company has cash sales of Rs. 50 million, total expenses of Rs. 35 million,
and net income of Rs.15 million. If accounts receivable decreased by Rs. 12 million, how
much cash did the company receive from the customers?
► Rs. 62 million
► Rs. 50 million
► Rs. 38 million
► Rs. 15 million

Which of the following is NOT affected by the adjusting entries?
► Balance sheet
► Work Sheet
► Ledger

If monthly financial statements are desired by management then:
► Journalizing and posting adjusting entries must be done each month
► Journalizing and posting closing entries must be done each month
► Monthly financial statements can be prepared from worksheets; adjustments and
closing entries need not be entered in the accounting records
► Adjusting and closing entries must be entered in the accounting records before
preparation of interim financial statements

ABC Company sold a plant asset that originally cost Rs. 50,000 for Rs. 22,000 cash. If
the company correctly reports a Rs. 5,000 gain on this sale, the accumulated depreciation
on the asset at the date of sale must be:
► Rs. 33,000
► Rs. 28,000
► Rs. 27,000
► Rs. 23,000

Which of the following statements is CORRECT regarding depreciation methods?
► Accumulated depreciation represents a fund being accumulated fro the
replacement of assets
► The cost of a machine includes the cost of repairing damage to the machine
during the installation process
► A company may use different depreciation methods in its financial statements and
its income tax returns
► The use of an accelerated depreciation method causes an asset to wear out more
quickly than does the straight line method

Is depreciation a source of fund or not? Give reasons to support your answer.
Yes Depreciation is source of fund as depreciation do not involve movement of cash, but
the provision in the short run could be used for other purposes hence it is a source of
fund.

On March 29, 1998, Nestle Pakistan Limited purchased new equipment with a cost of Rs.
100,000, an estimated useful life of 5 years, and an estimated residual value of Rs 10,000.
For income tax purposes, this equipment is classified as 5-year property.
Requirements:
Compute the annual depreciation expense under Straight-line depreciation method.
Rs.
100,000.0
Purchase Price 0
10,000.0
Less Residual Value 0
90,000.0
Amount to be depreciate 0
Life of asset 5 years 60.00 Months
1,500.0
Per Month 90,000 / 60 0
18,000.0
Per year 1500 *12 0

Assume you are a marketing manager for Toys “R” US (the international chain). It is the
1996 Christmas season. A doll called Tickle-Me- Elmo has a suggested retail price of $.
29.95. The doll has become overwhelmingly popular and is in short supply. Customers
who buy the doll are able to resell it for hundreds of dollars just be running a classified ad
in the newspaper. Much news coverage is being given to the phenomenal prices these
dolls command. Toys “R” Us easily could sell Tickle- Me- Elmo’s for $ 100 or more.
Would you raise Elmo’s price during this temporary period of excess demand? Explain
your reasoning.
Yes definitely I will suggest increasing the price of doll at 100 dollar because price has a
direct relation with demand. And another thing that resell activities of purchaser shows
that people have ability to buy it on 100 Dollars. So by increasing the price my firm can
earn a good profit. And according to situation given above that people those are reselling
the doll are getting profit of the firm from the market than why shouldn’t my firm get the
same profit.
But one thing must be discussed, before taking this decision. It seems to be short term
benefit and in order to maintain the loyalty of the customer of firm. Firm can continue
selling it at its original price and should announce that resell of this doll in commercial
markets is prohibited. This option can only be utilize if the doll is available only at firm’s
outlet.

XYZ is a small general store located just outside the National park. The store uses a
periodic inventory system. Every January 1, the owner closes the store and takes a
complete physical inventory. Last year the inventory amounted to be Rs. 5,200; this year
it totaled Rs. 3,800. During the current year, the business recorded sales of Rs. 125,000
and purchases of Rs. 62,000.
Requirements:
a. Compute the cost of goods sold of the company for the current year. (3)
b. Write one disadvantage and one advantage of periodic inventory system. (2)
(a) Cost of goods sold:
Opening Inventory Rs. 5,200

+ Purchases Rs. 62,000
-Closing Finished goods Rs. 3,800
Goods sold Rs. 63,400
* Gross Profit = Sales – COGS = 125,000 – 63,400 = 61,600
(b) Advantage of Periodic Inventory System

Low cost, Simple and no need to use of high expertise to maintain inventory.
Disadvantage of Periodic Inventory System:
As under this method continuous record of inventory issuance and receiving is not
maintained so there is a huge chance of theft and misuse of inventory.
ABC Company has Rs. 120,000 cash, Rs. 50,000 as accounts receivables, Rs. 10,000
as allowance for doubtful accounts, Rs. 30,000 as work in progress inventory, Rs.
45,000 as finished goods, Rs. 40,000 land purchased in the current year. Calculate
the value of current assets.
► Rs. 275,000
► Rs. 285000
► Rs. 235,000
► Rs. 210,000
(120,000+50000,-10,000+30,000+45,000) = 235,000 land r fix assets
Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio?
► 2%
► 7%
► 6%
► 3%
Since the debt-to-total assets ratio is.4, then equity-to-total assets ratio is.6. The
ratio of debt to equity is then .4/.6 or .667 (66.7%).
A firm has beginning accounts receivables of Rs. 375,000, and ending accounts
receivables of Rs. 400,000. The sales were Rs. 2,500,000 including cash sales of Rs.
600,000. Calculate the accounts receivable turnover ratio of the company.
0.76 ►
6.45 ►
4.75 ►
4.90 ►
(agv ac rec 375,000 + 400,000 / 2 ) 387,500
Crdt sale (2,500,000-600,000) = 1,900,000
Turnover ratio = 1,900,000/387,500 = 4.90
If the prepaid rent account before adjustment at the end of the month has a debit
balance of Rs. 1,600, representing a payment made on the first day of the month,
and if the monthly rent was Rs.800, the amount of prepaid rent that would appear
on the balance sheet at the end of the month, after adjustment, is:
► Rs. 1,600
► Rs. 400
► Rs. 800 1600-800 = 800
► Rs. 2,400
A company has interest expense of Rs. 35,000, its accrued liabilities increased by Rs.
7,000. What will be the cash payments for the interest?
Rs. 28,000 ►
Rs. 42,000 ►
Rs. 30,000 ►
Rs. 18,000 ►
(35,000+7000) =42,000
A company has the following currents assets: Cash Rs. 30,000; marketable securities
Rs. 20,000; accounts receivable Rs. 20,000, inventory Rs. 15,000; prepaid expenses
Rs. 10,000; the total current liabilities were Rs. 55,400. Calculate the quick ratio of
the company.
1.71 ►
1.44 ►
1.26 ►
1.53 ►
(30,000+20,000+20,000+10,000) =80,000/55,400 = 1.44

The situation, where the amount of current assets is exactly equal to current
liabilities, is found when current ratio is:
2:1 ►
2.3 : 1 ►
3:2 ►
1:1 ►
Current ratio = current assets/ current liabilities
100/100 = 1
Assume that a company total paid in capital of Rs. 57,160,000, Preferred shares Rs.
12,000,000 and commons tock Rs. 14,000,000. Calculate the amount of total legal
capital of the company.
Rs. 26,000,000 ►
Rs. 2000,000 ►
Rs. 45,160,000 ►
Rs. 43,160,000 ►
(14,000,000+12,000,000) =26,000,000
Suppose that a company has cash sales of Rs. 50 million, total expenses of Rs. 35
million, and net income of Rs.15 million. If accounts receivable decreased by Rs. 12
million, how much cash did the company receive from the customers?
► Rs. 62 million
► Rs. 50 million
► Rs. 38 million (doubted)
► Rs. 15 million
A company has a cost of goods sold of Rs. 530,000; the beginning inventory is Rs.
120,000, and ending inventory is Rs. 180,000. Calculate the number of days to sell
the inventory. (Round the figures to the nearest whole)
83 days ►
125 days ► (doubted)
104 days ►
100 days ►
Which of the following is NOT among the five main kinds of current assets?
► Cash and equivalents
► Deferred income
► Prepaid expenses
Investing activities include all of the following EXCEPT:
► Payment of debt
► Collection of loans
► Making of loans
► Sale of available for sale and held to maturity securities
When merchandise is purchased in a periodic inventory system, its cost is debited to

________ account.
► Inventory
► Inventory expense
► Purchases
The indirect method shows the reconciliation from net income to operating cash
flows. Select the adjustment that is subtracted during the reconciliation.
► Non-cash revenues (revenues earned but payment not yet received)

reported on the income statement
► A decrease in Accounts Receivable or another non-cash current asset
► Revenues earned and received in cash.
► Non-cash expenses (expenses incurred but not paid) reported on the income
statement-one example is amortization expense.
Which of the following is NOT an example of deferred item?
► Depreciation
► Accounts payable
► Unearned revenue
► Prepaid insurance
Which of the following is NOT true about the net income?
► It is a calculated figure and represents actual cash
► It can be distributed among holders of common stock as a dividend
► It can be held by the firm as retained earnings
► It is obtained by subtracting expenses from the revenues
Which of the following statements about a periodic inventory system is TRUE?
► Companies determine cost of goods sold only at the end of the accounting
period
► Companies continuously maintain detailed records of the cost of each inventory

purchases
► The periodic system provides better control over inventories than a perpetual
system
► The increased use of computerized systems has increased the use of the periodic
system
Which of the following transactions would increase the net cash flow from operating
activities?
► The collection of an account receivable from a customer
► The issuance of capital stock for cash at a price above par
► The purchase of a delivery truck by issuing a note payable

► The sale of equipment for cash at a gain
Balance Sheet and Accounting Cycle are based on which of the following?
► Closing entries
► Financial position
► Accounting Equation
Audit opinions can NOT be classified as which of the following?
► Adverse opinion
► Unqualified opinion
► Qualified opinion
► Disagreement of opinion
http://www.urlaubaccounting.com/typeaudit.html
The audit is NOT a necessary requirement for which of the following companies?
► Listed companies
► Corporations
► Sole proprietorship
► Partnerships
Which of the follwing business owner is personally liable for its debts?
► Corporations
► General partnership
► Limited liability company
The rules of GAAP are applicable to all types of companies EXCEPT:
► Corporations
► Partnerships
► None of the given option
Which of the following is NOT an advantage of a Sole proprietorship?
► Easy to form and wind up
► Direct motivation
► Better control
► Limited liability
Which of the following is NOT a part of the shareholder’s equity?
► Paid in capital
► Additional paid in capital
► Net income
► Retained earnings
Which of the following is a type of preferred stock that entitles the holder to a fixed
dividend and, in addition, to the right to get any surplus profits after payment of
agreed levels of dividends to holders of common stock?
► In arrears preferred shares
► Call able preferred shares
► Cumulative preferred shares
► Participating preferred shares
What will be the effect of purchases of its own shares by the business on the book
value of the business?
► Increase the total book value
►Decrease total book value
► No effect on the total book value
►May or may not change
What will be the affect of dividends paid on the book value of a company?
No effect on book value ►
Increase in book value ►
Decrease in book value ►

Depends upon the situation ►
The amount of current assets that varies with seasonal requirements is referred to as
Permanent Working Capital ►
Net Working Capital ►
Temporary Working Capital ►
Gross Working Capital ►
Which of the following is NOT true about the accounts receivable turnover ratio?
It provides insight into the quality of the firm’s receivables ►
This ratio is calculated by dividing the receivables to annual credit sales ►
This ratio tells the number of time accounts receivables have been turned over in a
month ►
The higher the ratio, the better is for company ►
What will be the effect on the day’s sales in accounts receivables of a company if it
uses a natural business year?
Accounts receivables will be understated ►
Accounts receivables will be understated for service firms ►

Accounts receivables will be overstated ►
Accounts receivables will be have no effect ►
Which of the following is NOT a goal of analysis of financial statement?
Assess the past performance ►
Asses the current financial position ►
Predict the future performance of the company ►
Asses the working of management in the future ►
Which of the following is the percentage change if a negative amount appears in the
base year?
Misleading
Positive
Can not be computed
Negative
Page 125 Percentage change cannot be computed for negative amount or zero
amount in base
year.
When calculating the gross profit percentages, which of the following is used as the
base year for each year?
Net sales
Net income (not sure)
Gross profit
Cost of goods sold
Which of the following performance measures would be of most direct interest to

shareholders?
Return on net assets ►
Gross profit margin ►
Debt ratio ►
Dividend yield ►
Company A makes an operating profit margin of 5 % on sales of Rs. 2.5 million.

Company B has sales that are 20% higher than Company A and achieves an
operating profit margin of 3.5%. Which company makes the highest operating profit?
Company B ►
Company A ►
Both make the same operating profit ►
Not possible to calculate ►
Which of the following statement best describes the operating profit margin?
It shows what portion of profits are being distributed to shareholders ►
It shows what return is being made on assets employed in the business ►
It shows how well a company is controlling its costs, including overheads ►

It shows how efficiently a company is turning profits into cash ►
Page 144: A ratio widely used to evaluate a company's operational efficiency. ROS is
also known as a firm's "operating profit margin".
The total legal capital of the company consists of which of the following?
Only common stocks issued ►
Only preferred stocks issued ►
Common stocks and preferred stocks ►
Common stocks and retained earnings ►
Page 149: Total legal capital = 12,000,000 (preferred) +14,000,000 (common)
Which one of the following statement indicates the Inventory turnover ratio?
How quickly company prepared its inventory ►
How quickly company converts its inventory into cash ►
How quickly company purchases its inventory ►
How quickly company sells its inventory ►
It shows how quickly inventory is sold and is determined by Inventory Turnover

Ratio
Operating cycle belongs to which group of ratios?
Leverage ratios ►
Liquidity ratios ►
Profitability ratios ►
Activity ratios ►
The period of time required to convert inventory into cash is known as which of the
following?
Operating cycle ►
Accounting cycle ►
Cash conversion cycle ►
None of the above ►
Page 43: assets capable of being converted into cash within one year or operating
cycle, whichever is longer. Operating cycle is the time required to purchase or

manufacture inventory, sell the product and collect cash i.e.
What will be effect of purchase of inventory on open account on quick ratio of the
company?
Increase ►
Decrease ►
No effect ►
Can not be found from the given information ►
What will be the effect of conversion of a portion of bonds payable into common
stock on the interest coverage ratio of the company?
Increase ►
Decrease ►
No effect ►
What will be the effect on the current ratio of the company, if company purchased
factory supplies on open account?
Increase ►
Decrease ►
No effect ►
Which of the following is NOT an example of liquid assets?
Cash ►
Accounts receivable ►
Marketable securities ►
Prepaid expenses ►
Prepaid expenses — these are expenses paid in cash and recorded as assets before
they are used or consumed (a common example is insurance). See also adjusting
entries.
Arch Co. has a note payable to its bank. An adjusting entry is likely to be required
on Arch's books at the end of every month that the loan is outstanding to record
Amount of interest paid during the month ►
Amount of total interest to be paid when the note is paid off ►
Amount of principal payable at the maturity date of the note ►
Accrued interest expense for the month ►

Ref: http://highered.mcgraw-hill.com/novella/QuizProcessingServlet
To measure the business income, life of a business is divided into which of the
following?
Divided into specific points in time ►
Divided into irregular cycles ►
Divided into discrete accounting periods ►
Considered to be a continuous cycle ►
Posting is performed by transferring information from:
► Source documents to the journal
► Ledger to the journal
► Ledger to trial balance
► Journal to the ledger
Higher Inventory Turnover Ratio means all of the following EXCEPT:
How efficient the inventory management of the firm is? ►
How quickly inventory is sold? ►
How fast number of times the company sells it inventory during the year? ►
How quickly company converts its account receivables into cash?
Which one of the following is NOT a type of adjusting entries?
► Entries to record accrued revenues
► Entries to record accrued expenses

► Entries to distribute un-earned revenue
► Entries to record revenues page 29
Which one of the following statements is TRUE regarding distributions to

stockholders?
► The payment of dividends is not directly related to the profits of a given

period
► Shareholders can individually decide on their distributions
► To receive a corporate dividend, stock must be owned on the date of

declaration
► Corporate dividends reduce contributed capital and therefore, stockholders’

equity
Cash flow relating to investing activities does NOT present the cash effects of which
of the following?
► Plant assets
► Intangible assets
► Investments
► Debt financing
Office supplies are purchased on account. The company uses a perpetual inventory
system. What is the correct journal entry for this purchase of office supplies?
► Debit - Purchases; Credit - Cash

► Debit - Merchandise Inventory; Credit - Cost of Goods Sold
► Debit - Office Supplies; Credit - Accounts Payable
► Debit - Merchandise Inventory; Credit - Accounts Payable
Which of the following is NOT true about the specific identification method?
► It requires a very detailed physical count
► This method allows management to easily manipulate ending inventory cost
► This method is very hard to use on interchangeable goods
► This results in an overstated inventory account during the period of

inflation
If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operating
expenses are Rs. 60,000, what is the gross profit?
► Rs. 30,000
► Rs. 90,000
► Rs. 340,000
► Rs. 400,000
G.P= SALES – C.O.G.S = 400000-310000= 90,000
Which of the following statements best describes the nature of depreciation?

► Regular reduction of asset value to correspond to the decline in
market value as the asset ages
► A process of correlating the book value of an asset with its gradual decline in
physical efficiency
► Allocation of the cost in a manner that will ensure that plant and equipment
items are not carried on the balance sheet at amounts in excess of net realizable
value
► Allocation of the cost of a plant asset to the periods in which benefits are
received
Warner Corporation reported net income in excess of its net cash flow from
operations. A possible explanation of this difference is:
► Depreciation expense
► Non operating gains
► A decrease in income tax rates
► A decrease in accounts receivable over the period
In a statement of cash flows, the acquisition of land by issuing capital stock:
► Is not shown at all, since no cash was received or disbursed
► Is shown as an investing activity
► Is shown as a financing activity
► Is shown in a supplementary schedule as a non-cash investing and financing

transaction
Examples of cash flows from investing activities are: Cash payments and receipts
from acquisition and disposal of other than long term assets e.g.
Shares, debentures, TFC, long term loans given etc.
Which of the following opinions state that the financial statements do not present
fairly the financial position, results of operations etc, in conformity with GAAP?
► adverse opinion
► Disclaimer of opinion
Which one of the following is NOT a limitation of financial statements?
► They always present past
► They always present the monetary terms
► They help in assessment of future profitability
► They give no information about management and employee relations
Which of the follwing business owner is personally liable for its debts?
► Corporations
► General partnership
► Limited liability company

Which of the following characteristics is NOT generally regarded as right of common
shareholders?
► Preemptive right
► Voting rights
► Preference in liquidation
► Transferability of shares
Preferred stockholders have no voting rights. Preferred shares are callable or

redeemable at higher price by the company issuing these.
What would be the journal entry to record the issue of 1,000 shares of Rs. 1 par-
value common stock, which is issued for Rs. 4 per share?
► Debit Cash 4,000; Credit Common Stock 4,000
► Debit Cash 4,000; Credit Common Stock, 1,000, Credit Paid-in-Capital in

Excess of Par 3,000
► Debit Cash 4,000; Credit Common Stock, 1,000, Credit Retained

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

Common Stock 4,000
Suppose that an investor buys shares for Rs. 15per share from a company whose
stock's par value is stated at Rs. 10 per share, then what will be the value of paid in
capital for each share sold?
► Rs. 25
► Rs. 5
► Rs. 20
► Rs. 30
In the vertical analysis of income statement, all the accounts are expressed as a
percentage of which of the following?
► Net sales
► Gross sales
► Net income
► Total expenses
When using vertical analysis, the analyst calculates each item on a single financial
statement as a
percentage of a total.. The total used by the analyst on the income statement is net
sales revenue,
The changes in the financial statement items from a base year to following years are
often expressed as which of the following?
► Trend percentages
► Component percentages
► Common percentages
► Both trend and component percentages
Trend percentages/ Horizontal Analysis/ Index Analysis: This analysis

considers changes in
items of financial statement from a base year to the following years to show the
direction of change.This is also called horizontal analysis.
Which of the following indicates the relative size of each item included in a total?
► Trend percentages
► Component percentages
► Common percentages
► Both trend and component percentages
Component percentages/ Vertical Analysis/ Common- Size Analysis: This

type of analysis
indicates the relative size of each item in the Financial Statements as a percentage of
the total of that Statement i.e. Total Assets or total Liabilities & Shareholders equity
in Balance Sheet and Sales in Income Statement.
If a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and a quick ratio
equal to 1.1, what is the firm's Net Working Capital?
► Rs. 0
► Rs. 100
► Rs. 200
► Rs. 1,000
A company can improve (lower) its debt-to-total asset ratio by doing which of the
following?
► Borrow more
► Shift short-term to long-term debt
► Shift long-term to short-term debt

► Sell common stock
REF http://web.utk.edu/~jwachowi/mcquiz/mc6.html
Earnings per share, return on sales, and return on equity are all examples of which
of the following?
► Leverage ratios
► Liquidity ratios
► Turnover ratios
► Profitability ratios
Which of the following could account for a company's gross profit ratio increasing
from one period to the next?
► An increase in the cost of sales which has not been accompanied by an

increase in the selling price of goods sold
► An increase in the selling price of goods sold which has not been
accompanied by an increase in the cost of sales
► A change in the mix of goods sold so that lower profit margin goods take a
greater proportion of total sales
► A change in stock valuation method at the year end which leads to a

decrease in the closing stock figure
Which of the following is MOST likely to offer you the highest rate of return together
with the highest risk?
► Cash in a building society deposit account
► Preference shares
► Ordinary shares
► Government bonds
Assume that a company total paid in capital of Rs. 57,160,000, Preferred shares Rs.
12,000,000 and commons tock Rs. 14,000,000. Calculate the amount of total legal
capital of the company.
► Rs. 26,000,000
► Rs. 2000,000
► Rs. 45,160,000
► Rs. 43,160,000
ABC Company has cumulative preferred stock and three years of dividends are
owed. Using the following information, calculate the book value per share of the
preferred stock.
9% preferred stock, Rs. 100 par, 300 shares Rs. 3,000

authorized and issued
Call price Rs. 109
Retained Earnings Rs. 28,000
► Rs. 109
► Rs. 202
► Rs. 211
► Rs. 118
► How quickly company prepared its inventory
► How quickly company converts its inventory into cash
► How quickly company purchases its inventory
► How quickly company sells its inventory
Operating cycle belongs to which group of ratios?
► Leverage ratios
► Liquidity ratios
► Profitability ratios
► Activity ratios
Which of the following is the ideal position of debt ratio?
► 30%
► 60%
► 50%
► 45%
What will be effect of purchase of inventory on open account on quick ratio of the
company?
► Increase
► Decrease
► No effect
► Can not be found from the given information
What will be the effect on the inventory turnover ratio of the company, if it changed
from FIFO to LIFO during the period of inflation?
► Increase
► Decrease
► No effect
What will be the effect on the EPS of the company, if it paid stock dividend on
common stock?
► Increase
► Decrease
► No effect
Which of the following is essential to conduct business activity, particularly in times

of adversity?
► Profitability
► Liquidity
► Stability
► Solvency
Failure to record the receipt of a utility bill for services already received will result in
► An overstatement of assets
► An overstatement of liabilities
► An overstatement of equity
► An understatement of assets
Which of the following would be the proper journal entry to record Rs. 1,000 of
Dividends paid by ABC Corporation?
► Debit Dividends 1,000; Credit Cash 1,000
► Debit Accounts Payable 1,000; Credit Cash 1,000
► Debit Dividends Expense 1,000; Credit Cash 1,000
► Debit Dividends Expense 1,000; Credit Service Revenue 1,000
How does the acid test ratio differ from the current ratio?
► It is concerned with future cash flows rather than historical cash flows
► It does not differ from the current ratio
► It excludes the value of stocks
► It excludes the trade debtors

► Ledger
Which of the following is NOT normally required for revenue to be recognized

according to the revenue principle for accrual basis accounting?
► The price is fixed or determinable
► Services have been performed
► Cash that has already been collected
► Evidence of an arrangement for customer payment exists
If monthly financial statements are desired by management then:
► Journalizing and posting adjusting entries must be done each month
► Journalizing and posting closing entries must be done each month
► Monthly financial statements can be prepared from worksheets;

adjustments and closing entries need not be entered in the accounting
records
► Adjusting and closing entries must be entered in the accounting records

before preparation of interim financial statements
ABC Company sold a plant asset that originally cost Rs. 50,000 for Rs. 22,000 cash.
If the company correctly reports a Rs. 5,000 gain on this sale, the accumulated
depreciation on the asset at the date of sale must be:
► Rs. 33,000
► Rs. 28,000
► Rs. 27,000
► Rs. 23,000

► The cost of a machine includes the cost of repairing damage to the machine
during the installation process
► A company may use different depreciation methods in its financial

statements and its income tax returns
► The use of an accelerated depreciation method causes an asset to wear out

more quickly than does the straight line method
The actions taken by the management to make company appear as strong as

possible in its financial statements is termed as which of the following?
► Window dressing
► Understanding
► Comprehensiveness
► Materiality
ABC Company selected ‘Abdullah and Ahmad Charted Accountants’ as its auditors /
accountancy firm. After audit the auditors stated company’s audit report as:
We have examined the accounts of ABC Company up to the year ended 30th June,
2009, and other record based on these accounts and we got all the information
required by us. In our opinion the financial statements and the accounts on which
they are based have been prepared in conformity with GAAP and present a true and
fair position of the affairs of ABC Company.
What do you think the above case is which type of following audit reports?
► Qualified Audit Opinion

► Un-qualified Audit Opinion
► Adverse Audit Opinion
► Disclaimer Audit Opinion
All of the following users are very much concerned with the ratio analysis EXCEPT?
► Credit analyst, including banks who want to know the credibility of

company
► Bond rating companies, who analyze ratios to help ascertain a company’s

ability to pay its debts
► Customers, who want to know the designs and quality of the products offered
► Managers, to analyze, control, and thus improve their working operations
In order to know the percentage of assets financed by creditors, which of the

following ratio is calculated?
► Debt Ratio
► Equity Ratio
► Operating credit Ratio
► Quick Ratio
The creditors' equity ratio equals total liabilities divided by total assets. This
reflects the percentage of assets financed by creditors. In the event of corporate
liquidation, creditors are paid before
Which of the following statement is the LEAST LIKELY to be correct?
► A firm that has a high degree of business risk is less likely to want to incur
financial risk
► There exists little or no negotiation with suppliers of capital

regarding the financing needs of the firm
► Financial ratios are relevant for making internal comparisons
► It is important to make external comparisons or financial ratios
A firm that has a high degree of business risk is much more likely to use equity
financing because there is no contractual responsibility to make interest payments.
Which of the following is LEAST likely to be presented in Notes to financial

statements of a firm?
► Significant pending lawsuits
► Methods of Cost flow assumptions
► A firm’s capital resource needs and liquidity
► Sales by region or business segment
Question # 1
Which of the following section of cash flow statement shows the cash effects of those
transactions reported in the income statement?
Cash flow from investing 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
Depreciation expense
Accrued revenue
Question # 15
Which of the following account would NOT be closed to the income summary account
at the end of a period?
Rent expense
Revenue earned
Wages expense
Accumulated depreciation
Because we close the Income Summary account to Retained Earnings, by doing this, all
revenues and expenses are "corralled" in Income Summary (the net of which represents the
income or loss for the period). In turn, the income or loss is then swept to Retained Earnings
along with the dividends
Question # 16
How the transactions in a journal are initially recorded?
Alphabetical order
Ascending order
Chronological order
Alphanumeric order
Question # 17
The true and fair presentation of the financial statements depends, among other
things, upon which of the following?
Strong financial position
Concept of materiality
Matching principle
Realization principle
Refhttp://docs.google.com/viewer?
a=v&q=cache:2xia_fB5R4sJ:eprints.ouls.ox.ac.uk/archive/00001060/01/AUDIT_MATERIALITY.pdf+The+true+and+fair+presentati
on+of+the+financial+statements+depends,+among+other+things,+upon+which+of+the+following
%3F&hl=en&gl=pk&pid=bl&srcid=ADGEESjxMXJdJbZNe9veq56MXH_Rr51RyAisYr3-
ks31XZc0H2TRwBI4f3YIaZ_UPrUcEWqX3KzdfsxdiA5m5ZzMybhWcZ-b3UzrHhNfoqZx727IWz-
zQBH0CjYsCqG78YfFErKqfNMm&sig=AHIEtbRhuwjCLb7c3oyoed8bQzgqvGg6aw
Question # 18
Use the following information to calculate net cash from investing activities: sell a
capital asset for Rs. 10,000 cash and a Rs. 1,000 gain; purchase a bond investment
for Rs. 16,000; receive Rs. 2,000 interest payment from the bond investment; and
pay off a Rs. 3,000 mortgage payable.
Rs. 6,000 net cash
Rs. 4,000 net cash
Rs. 5,000 net cash
Rs. 9,000 net cash
Question # 19
Which one of the following statement shows the effects of cash inflows and
outflows?
Balance Sheet
Statement of Owner’s Equity
Income Statement
Statement of Cash Flows
Question # 20
Journal entries are done at the end of the accounting period for which type of
accounts?
Assets and liabilities
Office supplies and office equipment
Raw material and office supplies
Depreciation and expenses
Page 29
Immediate recording of every event in some cases is not practical e.g. raw material, office
supplies, depreciation. Journal entries of such expenses are recorded at the end of accounting
period and are called adjusting entries.
Question # 21
Which one of the following is usually classified as an inventory item? :
Goods purchased for resale to customers
Items purchased and used by the company such as office supplies
Items purchased for a specific customer job
Items purchased and the quantity on hand does not need to be tracked
PAGE 65
Inventory: This consists of items held for sale or used in manufacture of products that would
be sold. Inventory in merchandising business consists of goods owned and held for sale.
Question # 22
In the long run, a business must generate positive net cash flow from which of the
following activities, if it is to survive?
Investing activities
Financing activities
Operating activities
Non cash activities
PAGE 47
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?
Owner’s Capital
Service Fees Earned
Income Summary
Owner’s Withdrawals
Question # 27
When cash flow statement is prepared by using indirect method, which part of it is
different from the direct method?
All parts are same in both methods
Question # 28
Which of the following people and groups are NOT interested in cash flow statements
of a company?
Select correct option:
Accounting personnel
Potential customers
Potential creditors
Potential employees
People and groups interested in cash flow statements include: Accounting personnel,
Potential lenders or creditors, Potential investors, , Potential employees or contractors,
Shareholders of the business.
Question # 29
Equipment purchased for use in the business
Book-keeping fees collected but not yet earned
Six months’ rent paid in advance
Interest earned but not yet received
Question # 30
Which one of the following transactions should be classified as a financing activity?
Purchase of equipment
Purchase of treasury stock
Sale of trademarks
Income tax refund
Question # 31
Accelerated depreciation method is mostly used for __________.
Financial statements
Assets valuation
Inventory valuation
Income tax returns
Question # 32
Depreciation is added back to profit when arriving at the cash flow from operating
activities because:
Depreciation is only an estimated amount
Depreciation does not affect profit
Depreciation does not result in a flow of cash
Depreciation only affects the balance sheet, not the profit and loss account
Question # 33
To find the value of closing stock at the end of a period we:
Deduct opening stock from cost of goods sold
Look in the stock account
Deduct cost of goods sold from sales
Do this by stocktaking
Question # 34
Even though LIFO generally results in lower reported earnings, firms will use LIFO
which of the following reasons?
Decreased cash flows from higher taxes
Increased cash flows from lower taxes (not sure)
Increased cash flows from higher taxes
Decreased cash flows from lower taxes
Question # 35
Identify the statement that is NOT true about the Incomes Account and Expenses
Account:
These are the temporary accounts
These are closed in Income summery account
These may included in closing trial balance
These are also known as Nominal Accounts
Question # 36
Which of the following terms present a cause and effect relationship with each other?
Income statement and balance sheet
Revenue and assets
Assets and liabilities
Revenues and expenses
Question # 37
Which of the following company would like to use the accelerated depreciation
method?
A company with large tax burdens
A company with low tax burdens
A company that wan to report high net income
A company that want to report huge assets
These methods provide a greater tax shield effect than straight line depreciation, and so
companies with large tax burdens might like to use accelerated depreciation methods.
Question # 38
The cash flow from investing activities shows the cash effects of which of the
following?
Income statement items
Long term assets items
Long term liability & stockholder’s equity
Long term liability and long term assets
Question # 39
Pre-paid expense is a(n) _______ type of account.
Liability
Asset
Revenue
Expense
Question # 40
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
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
Owner’s Capital
Income Summary
Temporary Summary
Page 35 Revenue and expense accounts are closed at the end of each accounting period by
transferring their balances to a summary account called income summary.
Question # 47
End product of the accounting cycle is known as the__________
Tax return
Auditor’s annual report
Annual general meeting
Question # 48
Which of the following is NOT one of the four basic financial statements?
Balance sheet
Audit report
Income statement
Statement of cash flows
Question # 49
Which of the following is NOT a cash outflow for the firm?
Dividends payments
Interest payments
Tax payments
Question # 50
Which of the following principle states that the assets are purchased for the use and
not for resale purpose?
Stable Currency principle
Objectivity Principle
Going-concern principle
Cost Principle
Page no 3 Going-concern assumptions: connected with cost principle, assets acquired for use
and not for resale.
Question # 51
Which of the following expenses would normally be classified as Other or Non
Operating Expense on a multiple-step income statement?
Interest expense
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
All of the given options
Question # 55
The sale of a depreciable asset resulting in a loss indicates that the proceeds from
the sale were:
Less than current market value
Greater than cost
Greater than book value
Less than book value
Question # 56
The appropriate journal entry to record equipment depreciation expense would
consist of a debit to Depreciation Expense and a credit to which of the following
accounts?
Equipment
Accumulated Depreciation: Equipment
Retained Earnings
Cash
Question # 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

The recording of transactions
The system of giving numbers to the accounts
Transferring the debits and credits to ledger
Transferring the debits and credits to journal
Question # 61
The definition of cash as used in “Cash Flow Statements” includes:

Only cash balances
Only bank balances
Bank balances and bank overdrafts
Cash in hand plus bank balances less bank overdrafts
Question # 62
Which of the following principle is used for recording revenue?

Matching Principle
Cost Principle
Realization Principle
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
Amortization Expense
Salaries Expense
Question # 66
Which of the following type of reports is most frequently used by external users, such as
investors?
Financial Statements
Tax Forms
Management Reports
Audit reports
Question # 67
Which of the following best describes the meaning of the term “Purchases”?
Goods bought on credit
Goods paid
Goods bought for resale
Items bought
Question # 68
All of the following accounts would be closed in Income Summery Account EXCEPT:
Commission earned account
Prepaid insurance
Salaries Expense account
Wages account
Question # 69
Which of the following is NOT one of the three items required to be shown in the heading of a
financial statement?
The preparation date of the financial statement
The title of the financial statement
The unit of measure in the financial statement
The name of the business entity
Question # 70
If a company has paid dividends on its preference shares, under which one of the cash flow
statement headings would they appear?
Returns on investments and servicing of finance
Financing
Equity dividends paid
Capital investment and financial investment
Which of the following arrangement is used to maintain the accounts?

Sequentially
Alphabetically
Monthly
Orderly
Page no 8 Orderly arrangements of Accounts is to be maintained.
► Sequentialy
► Alphabaticaly
► Monthly
► Orderly

► Recording the transactions
► Classifying the transactions
► Ordering, summarizing, counting the transactions
► Recording, classifying, summarizing transactions

Blankenship Company pays its employees every Friday for work rendered that week. The payroll
is typically Rs.10,000 per week. Which of the following journal entries would Blankenship
ordinarily record on the Friday payday?
► Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit
► Salary expense Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit
► Salary payable Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit
► Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit

Retained earnings change over time because of several factors. Which of the following factors
would explain an INCREASE in retained earnings?
► Net Income
► Dividends payment
► Investment by the stockholders
► Net Loss
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.

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
► To receive a corporate dividend, stock must be owned on the date of declaration
► Corporate dividends reduce contributed capital and therefore, stockholders’ equity

► Rent Expense

Which of the following is NOT the most common example of cash equivalents?
► Savings deposits
► Certificates of Deposit (CDs)

► Stocks of other companies
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 company’s ability to generate positive cash flows in future periods
► The company’s ability to meet its obligations and to pay dividends

► The company’s needs for external financing
► The company’s ability to forecast future losses

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

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
► Corporations
► Partnerships

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

Which of the following is NOT a 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

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

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.

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

By computing component percentages for several successive balance sheets, which of the
following can NOT be found?
► The increasing items
► The decreasing items
► The unchanged items
► The future profitable items

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

Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio?
► 2%
► 7%
► 6%
► 3%
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

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

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

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

► 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

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

Which of the following explains the debit and credit rules relating to recording revenues and
expenses?
► Realization and matching principle

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

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

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
Question # 1 of 15 ( Start time: 11:26:34 AM ) Total Marks: 1

Resources owned by a business are called:
1. Owner equity
2. Assets (page# 18)
3. Reserves
4. Liabilities

Which of the following is deducted from the net income while preparing cash flow
statement by indirect method?
1. Decrease in inventories
2. Increase in accounts payable (not shure)
3. Depreciation
4. Increase in inventories

Which of the following represents the negative future cash flows for an enterprise?
1. Assets
2. Ownerequity
3. Liabilities
4. Capital

Under which cost flow assumption is the ending inventory composed of the most recently
purchased merchandise?
1. FIFO
2. LIFO
3. Average cost
4. Specific identification

The information in statement cash flows assists the investors, creditors, and others in
assessing:
1. Enterprise ability to meet its obligations

2. Enterprise ability to pay dividends
3. Enterprise needs for external financing
4. Enterprise needs for external financing
http://vuattach.ning.com/
Which of the following should NOT be called “Sales “?
1. Goods sold for cash

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

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

A business has purchased a building on cash, how it would be recorded in the journal?
1. Building - Debit; Cash - Credit

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

1. Commission earned account

2. Prepaid insurance
3. Salaries Expense account
4. Wages account

In which of the following account, a credit balance would be an evidence for a mistake or
an error?
1. Mr. A Capital Account

2. Cash account
3. Notes payable account (page #6)
4. Drawings account

Which of the following principle is used for recording a revenue?
1. Matching Principle
2. Cost Principle
3. Realization Principle
4. Objectivity Principle

Primary purpose of the cash flows statement is to provide the information about:
1. Errors or discrepancies between cash book and income statement

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

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

Select correct option: http://vuattach.ning.com/
1. Adverse opinion
2. Unqualified opinion
3. Qualified opinion
4. Disagreement of opinion

According to _______ the personal expenses paid by Mr. A from his own pocket would
1. Realization principle
2. Separate entity principle
3. Matching principle
4. Materiality principle
Question # 1 of 15 ( Start time: 03:06:44 PM ) Total Marks: 1

Which of the following is NOT the part of the stockholder’s equity?
1. Paid-in-Capital
2. Additional Paid-in-Capital
3. Gross profit
4. Retained Earnings

Which of the following would NOT represent the cash outflows for the business?
1. Purchase of building for cash
2. The sale of land for cash
3. Retirement of long term debt
4. The payment of cash for dividends

Which of the following statement is NOT true?
1. Financial statements may be prepared soon after the adjusted trail balance
2. The owner’s equity is not up to the date until the closing entries are posted
3. Adjusting entries are prepared before the financial statements are prepared
4. In the accounting cycle, closing entries are made before the adjusting entries page#36

Current assets are those assets which management intends to convert into cash or consume within:
1. The operating cycle
2. One year
3. The longer of operating cycle or one year
4. The shorter of operating cycle or one year

Adjusting entries are required for which of the following accounts?
1. Income Summary accounts
2. Revenue and expense accounts
3. All types of accounts
4. Assets and liabilities accounts

Which of the following is the proper journal entry to record Ransom Company's billing of clients for Rs.
500 of services rendered?
1. Debit Cash 500; Credit Accounts Receivable 500
2. Debit Accounts Receivable 500; Service Revenue 500
3. Debit Accounts Receivable 500; Credit Capital Stock 500
4. Cash 500; Credit Service Revenue 500

How many types of audit certificate are there?
1. Two
2. Three
3. Four
4. Five

Inventory accounts should be classified in which section of a balance sheet?
1. Current assets
2. Investments
3. Property, plant, and equipment
4. Intangible assets

Which of the following is not true about the “Account”?
1. Accounts are only prepared by the business entities
2. Account always reflects the amount of the single transaction only
3. Account is effected both by economic and non economic events
4. All of the given options

In simple words book value would be the amount of money that a holder of a common share would get
if a company were to:
1. Consolidate
2. Merged with another company
3. Acquired by another company
4. Liquidate

Which of the following is NOT the part of annual report?
1. Financial statements
2. Auditor’s report
3. Five year summary
4. Future investments report

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?
1. A gain of Rs. 250 should be recognized
2. A loss of Rs. 250 should be recognized
3. A loss of Rs. 500 should be recognized
4. No gain or loss should be recognized.

Which of the following is NOT a financial asset?
1. Marketable securities
2. Receivables
3. Inventory
4. Short-term investments

The basic purpose of financial statements is to assist users in evaluating the________
1. Financial position
2. Profitability of an organization
3. Future prospects
4. All of the given options
Question # 15 Total Marks: 1

Retained earnings will change over time because of several factors. Which of the following factors
would explain an increase in retained earnings?
1. Net loss
2. Net income
3. Dividends

How much duration does an accounting period usually have?
► Three months
► Two years
► One year
► Five years
Balance Sheet and Accounting Cycle are based on which of the following?
► Closing entries
► Financial position
► Accounting Equation
Which of the following is the next step after the preparation of trial balance?
► Adjusted trial balance
► Financial statements
► Closing entries
Which of the following errors are identified during the preparation of trial balance?
► Recording transactions in the wrong account
► Duplication of a transaction in the accounting records
► Posting only the debit portion of a particular journal entry
► Recording the wrong amount for a transaction to both the accounts
Which of the following is NOT an advantage of the Trial Balance?

► It ensures that the all accounts have identical debits and credits
► It ensures that the balance of each ledger account has been computed correctly
► The debit and the credit columns of trial balance have been added up correctly
► All the transactions have been recorded and nothing has been omitted
Cost of a building is Rs. 90,000 and its estimated useful life is 30 years. What will be the
depreciation expense of this building for one month by using straight line depreciation
method?
► Rs. 600
► Rs. 250
► Rs. 300
► Rs. 500
Retained earnings change over time because of several factors. Which of the following
factors would explain an INCREASE in retained earnings?
► Net Income
► Net Loss
At the end of the fiscal year, Accounts Receivable has a balance of Rs. 100,000 and
Allowance for Doubtful Accounts has a balance of Rs. 7,000. The expected net realizable
value of the accounts receivable is:
► Rs. 7,000
► Rs. 93,000
► Rs. 100,000
► Rs. 107,000
Which of the following regarding retained earnings is FALSE?
► Retained earnings represent earnings not distributed to stockholders
► Retained earnings is increased by net income and decreased by a net loss
► Retained earnings are a component of stockholders’ equity on the balance sheet
► Retained earnings are an asset on the balance sheet
Which of the following would be considered a cash-flow item from a "financing"

activity?
► A cash outflow to the government for taxes
► A cash outflow to repurchase the firm's own common stock
► A cash outflow to lenders as interest
► A cash outflow to purchase bonds issued by another company
'Equity dividends' shown in the cash flow statement will comprise:
► All company dividends paid during the year
► All dividends paid to voting shares in the year
► All dividends paid and proposed in the year relating to voting shares
► All proposed dividends in the year relating to voting shares
Which of the following activities convert the income statement items from the accrual
basis of accounting to cash?
The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable
and an ending balance of Rs. 15,000. The income statement reported Sales Revenue of
Rs. 200,000. Using this information, compute cash collected from customers.
► Rs. 205,000
► Rs. 215,000
► Rs. 195,000
► Rs. 200,000
Which of the following would be considered as cash flow from investing activities?
► Proceeds from issuance of long-term debt
► Expenditure for sale of plant and equipment
► Payments to suppliers
► Receipts from sale of goods or services
When cash flow statement is prepared by using indirect method, which part of it is
different from the direct method?
► Cash flow from investing activities
► Cash flow from financing activities
► Cash flow from operating activities
► All parts are same in both methods
The cash flow from financing activities shows the cash effects of which of the following?
► Income statement items
► Long term assets items
► Long term liability & stockholder’s equity

► Long term liability and long term assets

Which one of the following is NOT an inventory costing method?
► FIFO cost method
► Weighted-average cost method
► Specific unit cost method
► LIFO cost method
In a perpetual inventory system, which of the following would be debited when inventory
is sold on account?
► Merchandise inventory
► Sales
► Both Accounts receivable & cost of goods sold
Which of the following would affect the gross profit rate if sales remain constant?
► An increase in advertising expense
► A decrease in depreciation expense
► An increase in cost of goods sold
► A decrease in insurance expense

Which of the following statements best describes the nature of depreciation?
► Regular reduction of asset value to correspond to the decline in market value

as the asset ages
► A process of correlating the book value of an asset with its gradual decline in
physical efficiency
► Allocation of the cost in a manner that will ensure that plant and equipment
items are not carried on the balance sheet at amounts in excess of net realizable
value
► Allocation of the cost of a plant asset to the periods in which benefits are
received
Warner Corporation reported net income in excess of its net cash flow from
operations. A possible explanation of this difference is:
► Non operating gains
► A decrease in income tax rates
► A decrease in accounts receivable over the period
Which of the following transaction have an effect on expense account?
► Purchase of office equipment on credit
► Payment on accounts payable
► Repayment of principle of bank loan
► Payment of wages
The supplies account has a balance of Rs. 1,500 at year end. The actual amount
of supplies in hand at the end of period is Rs. 400. The necessary adjusting entry
is:
► Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100
► Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400
► Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100
► Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400
The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1,
200. If Jones Co. failed to record the adjusting entry for Rs.600 of rent earned
during December, the effect on the Balance Sheet and Income Statement for
December will be:
► Assets understated by Rs.600; net income overstated by Rs.600
► Liabilities overstated by Rs.600; net income understated by Rs.600
► Liabilities understated by Rs.600; net income understated by Rs.600
► Liabilities overstated by Rs.600; net income overstated by Rs.600
A business has purchased machinery on credit, what will be its journal entry?
► Cash - (Debit); Machinery - (Credit)
► Machinery - (Debit) ; Accounts payable - (Credit)
► Accounts payable - (Debit) ; Machinery - (Credit)
► Machinery - (Debit) ;Cash - (Credit)
Closing entries result in net income being calculated in the income summary
account and then transferred to which of the following account?
► Revenue account
► Common Stock account
► Dividends account
► Owner's Capital account

Assuming that net purchases cost Rs 250,000 during the year. The closing
inventory was of Rs 4,000, and opening inventory was of Rs 30,000, how much
was the cost of goods sold?
► Rs. 276, 000
► Rs. 280,000
► Rs. 254,000
► Rs. 246,000
Assume that net income was Rs. 200,000, depreciation expense was Rs. 10,000,
accounts receivable increased by Rs. 15,000, and accounts payable increased
by Rs. 5,000. Calculate the cash flow from operating activities.
A. Net Cash Flow from Operating Activities 200000Rs.
Explain how the adoptions of FIFO method rather than LIFO will tend to raise or
lower the quality of a company’s earnings? Assume the continuance of the
inflation.
A. During Inflation, FIFO shows less expense on income statement and

higher inventory valuation on balance sheet and values ending inventory at
current cost, whereas LIFO shows higher expenses on income statement and
lower inventory valuation on balance sheet.
Nestle Pakistan has two conflicting objectives. Management wants to report the
highest possible earnings to stockholders in the near future yet also wants to
minimize the taxable income. Indicate the depreciation method that the company
will probably use in its financial statements and its federal income tax return.
Explain your answer with the reasons.
A. We will use fixed depreciation Method
Patterson Company reported net income for the current year of Rs. 666,000.
During the year the company’s accounts receivable increased by Rs. 50,000,
inventory decreased by Rs. 23,000, accounts payable decreased by Rs. 55,000,
pre-paid expenses increased by Rs. 35,000, and accrued expenses payable
increased by Rs. 14,000. Determine the amount of cash provided by or used for
operating activities by the indirect method.
A. Net Cash Flow from Operating Activities 663000Rs.
The process of recording the economic effects of business transactions in a book of

original entry
is knows as which of the following?
Double entry system
Debit
Journalizing
Posting

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?
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 ca
sh flow statement EXCEPT:
Financing activities require analysis of long-term liability and shareholders’ equity
accounts
The ability to issue large quantities of common shares usually signals investor
confidence
In the future of the company
Excessive borrowing has been the downfall of many companies
The declaration and payment of a large cash dividend may signal an
emergency
Which of the following would NOT be the cash inflow for the business?
Sale of land for cash
Issuance of long term bonds
The sale of common stock
Retirement of long term debt
Under which cost flow assumption, the ending inventory is composed of the earliest
purchased Merchandise?
FIFO
LIFO
Average cost
An increase in advertising expense
A decrease in depreciation expense
An increase in cost of goods sold
A decrease in insurance expense

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 increa
sing from one Period to the next?
An increase in the cost of sales which has not been accompanied by an increase in
the Selling price of goods sold
An increase in the selling price of goods sold which has
not been accompanied by an Increase in the cost of sales
A change in the
mix of goods sold so that lower profit margin goods take a greater
Proportion of total sales
A change in stock valuation method at the year end
which leads to a decrease in the Closing stock figure
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 co
mpany 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

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 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
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 c
onverted into cash?
Accounts receivable turnover
Days to collect accounts receivable
Working capital
Total assets turnover
How quickly company prepared its inventory
How quickly company converts its inventory into cash
How quickly company purchases its inventory
How quickly company sells its inventory
Assume that a company has current assets of Rs. 60,000, current liabilities of
Rs. 5,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the
company?
1.57
1.71
1.86
0.58
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 3

1, 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 financ
ial 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
► Stable Currency principle
Which of the following is the acronym for GAAP?
► Generally Adopted Accounting Principles
► Generally Accepted Auditing Principles
► Generally Accepted Accounting Principles
► Generally Adapted American Principles
► 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?
► Closing entries
Which of the following is TRUE regarding the income statement?
► The income statement reports only revenue for which cash was received at the
point of sale
► The income statement reports the financial position of a business at a particular
point in time
► The income statement is sometimes called the statement of operations
► The income statement reports revenues, expenses and liabilities
Which of the following principle is used for recording an expense?

► Matching Principle
► Cost Principle
► Realization Principle
► Objectivity Principle
The net income reported on the income statement is Rs. 90,000. However, adjusting
entries have not been made at the end of the period for supplies expense of Rs.
2,700 and accrued salaries of Rs. 1,300. Net income, as corrected, would be:
► Rs. 87,300
► Rs. 86,000
► Rs. 88,700
► Rs. 90,000
Prepaid Expense is a(n) _________ account and has a _________ normal balance.
► Revenue, credit
► Liability, credit
► Asset, debit
► Expense, debit
Company A owns a building. Which of the following statements regarding
depreciation is FALSE from an accounting perspective?
► As the market value of the building increases, depreciation should increase
► Depreciation is an estimated expense to be recorded each period during
the building’s life
► As depreciation is recorded, stockholders’ equity is reduced
►As depreciation is recorded, total assets are reduced
A firm paid Rs. 800,000 in dividends over the last period. The beginning and ending
retained earnings account balances were Rs. 10,100,000 and Rs. 12,500,000
respectively. Assuming a 40% average tax rate, what was the firm's net income (net
profit after taxes)?
► Rs. 5,333,333
► Rs. 3,200,000
► Rs. 2,400,000(doubted)
► Rs. 1,600,000
► Rent Expense
Which of the following is NOT among the five main kinds of current assets?
► Cash and equivalents
► Deferred income
► 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
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
► Recording the transactions

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

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
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
► Wasting assets
► Quick assets
► Tangible assets

►Adverse opinion
► Corporations
► Partnerships
Which of the following is NOT a part of the five-year summary of a company?

► Net income/Loss
► Total assets
► Discontinued operations
► Net sales
Which of the following is NOT a feature of preferred shares?

► Distributive
► Callable
► In arrears
► Cumulative
Which of the following is a type of preferred stock that entitles the holder to a fixed
dividend and, in addition, to the right to get any surplus profits after payment of
agreed levels of dividends to holders of common stock?
► In arrears preferred shares (doubted)
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
► A sales revenue section
► All of the given options
In a period of rising prices, all of the following statements regarding LIFO are true
EXCEPT:
► Net income is generally higher
► Ending inventory is generally undervalued(Doubted)
► It can be used to manipulate net income
► Most recent inventory costs are allocated to cost of goods sold
From the given data, calculate Cost of Goods Sold using the FIFO costing method:
Beginning inventory is 10 units . Rs. 10 each.
On January 20, purchased 10 units . Rs. 20 each
15 of the 25 units are sold.
► Rs. 200
► Rs. 150 `
► Rs. 350
► Rs. 450
In which of the following inventory pricing procedure, the oldest costs incurred rarely
have an effect on the ending inventory valuation?
► FIFO
►LIFO
► Retail
► Weighted-average
If beginning inventory is Rs. 60,000, cost of goods purchased is Rs. 380,000, and
ending inventory is Rs. 50,000, what is cost of goods sold under a periodic system?
► Rs. 390,000(formula : opening + purchases - ending)
► Rs. 370,000
► Rs. 330,000
► Rs. 420,000
The purpose of recording depreciation on productive assets is to:
► Reflect the decline in the market value of the assets each period
► Reduce income when the company has an exceptionally profitable year
► Be in conformity with the revenue recognition principle
► Allocate the original cost of a productive asset to expense over its useful
life
In which of the following situations, a company should NOT record any depreciation
expense on asset described?
► Computer Airline is required by law to maintain its aircraft in “as good as new”
condition
► Metro Advertising owns an office building that has been increasing in value each
year
► Computer Sales Company has in inventory a new type of computers, designed
never to obsolete
► None of the given option is right as depreciation is applied on all assets
Which of the following is NOT the part of annual report?
► Auditor’s report
► Five year summary
► Future investments report
In a statement of cash flows, the acquisition of land by issuing capital stock:
► Is not shown at all, since no cash was received or disbursed
► Is shown as an investing activity
► Is shown as a financing activity(Doubted)
► Is shown in a supplementary schedule as a non-cash investing and financing
transaction
Which of the following would represent an increase in Owner's Equity?
► Increase in net income
► Increase in assets
► Increase in accounts receivable
► Increase in cash
Which of the following steps of accounting cycle keep on occurring throughout the
period?
► Journalizing and posting the entries
► Making adjusting entries for the relevent accounts
► Preparing Trial Balance
► Preparing financial statements
Which one of the following items is NOT generally used in preparing a statement of
cash flows?
► 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 company’s operations?
► Why is such a profitable company able to pay only small dividends?
► How much was spent for the new plants and equipment?
► How profitable the company’s current assets are?
► The cost of a machine includes the cost of repairing damage to the machine during
the installation process
► A company may use different depreciation methods in its financial
statements and its income tax returns
► The use of an accelerated depreciation method causes an asset to wear out more quickly than does the
straight line method
1. Which one of the following is a temporary account?

a. Cash
b. Accounts Receivables
c. Insurance Expense
d. Accounts payable
2. The term used for the difference between fair value of a company and the
purchase
price is:
a. Trade Mark
b. Market Value
c. Good Will
d. Purchase Price
3. Financial statement (s) that has all temporary accounts is:

a. Balance Sheet
b. Income Statement
c. Cash Flow Statement
d. Statement of Owner’s Equity
4. The accounting cycle runs in the sequence

a. Analyze, journalize, post, adjust, and prepare statements, close
b. Post, journalize, analyze, prepare statements, close, adjust
c. Prepare statements, journalize, post, adjust, close, analyze
d. Journalize, post, close, prepare statements, adjust, analyze
5. After all the closing entries have been posted, what will be the balance of the
income
summary account?
a. A debit if a net income has occurred
b. A debit if a net loss has occurred
c. A credit if a net loss has occurred
d. Zero
6. Which one is TRUE about Post-Closing trial balance?

a. Be prepared before closing entries are posted to the ledger
b. Contain both income statement and balance sheet accounts
c. Contain only balance sheet accounts
d. Contain only income statement accounts
7. Revenue from services is classified as:

a. Investing Inflow
b. Operating Inflow
c. Investing Outflow
d. Operating Outflow
8. If the cost of a building is Rs. 90, 000 and its estimated useful life is 30 years. The
depreciation expense for one month is:
a. Rs. 600
b. Rs. 250
c. Rs. 300
d. Rs. 500
9. The supplies on hand account have a balance of Rs. 1500 at year end. The actual
amount of supplies on hand at the end of period is Rs. 400. The necessary adjusting
entry
is:
a. Dr. Supplies on Hand Rs. 1100
Cr. Supplies Expense Rs. 1100
b. Dr. Supplies Expense Rs. 400
Cr. Supplies on Hand Rs. 400
c. Dr. Supplies Expense Rs. 1100
Cr. Supplies on Hand Rs. 1100
d. Dr. Supplies on Hand Rs. 400
Cr. Supplies Expense Rs. 400
10. If a company has

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

► Three months
► Two years
► One year
► Five years
Which of the following statement shows the effects of cash inflows and outflows?
► Balance Sheet
► Statement of Owner’s Equity
► Income Statement
► Statement of Cash Flows
To determine the balance of a particular account, one should refer to which of the
following?
► Ledger
► Source document
► Chart of accounts
► Journal
:4
A business has purchased a building on credit, how it would be recorded in the

journal?
► Building - Credit; Accounts payable - Debit
► Building - Debit; Notes payable -Credit
► Building - Debit; Owner’s equity- Credit
► Building - Debit; Accounts payable - Credit
:5

► Journal entry
► Compound entry
► Adjusting entry
► Reversing entry
:6
Which of the following is NOT true about the net income?

► It is a calculated figure and represents actual cash
► It can be distributed among holders of common stock as a dividend
► It can be held by the firm as retained earnings
► It is obtained by subtracting expenses from the revenues
:7
What would be the adjusting entry to record depreciation if the estimated amount of
depreciation on equipment for a period is Rs. 2,000?
► Depreciation expense - Debit; Equipment - Credit
► Depreciation expense - Debit; Accumulated depreciation - Credit
► Equipment - Debit; Depreciation expense - Credit
► Accumulated depreciation - Debit; Depreciation expense - Credit
:8
The trial balance shows Supplies of Rs.1,350 and Supplies Expense of Rs.0. If Rs.600
of supplies are on hand at the end of the period, the adjusting entry would be:
► Supplies, Rs. 600 - Debit; Supplies Expense, Rs. 600 - Credit
► Supplies, Rs. 750 - Debit; Supplies Expense, Rs. 750 - Credit
► Supplies Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit
► Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit
:9
Which of the following accounts would NOT be included in a post-closing trial
balance?
► Cash
► Accumulated depreciation
► Owner’s equity
► Fees earned
: 10
After the closing entries are posted to the ledger, each expense account will have?
► A debit balance
► A negative balance
► A credit balance
► A zero balance
: 11
Current assets are those assets which management intends to convert into cash or
consume within:
► The operating cycle
► One year
► The longer of operating cycle or one year
► The shorter of operating cycle or one year
: 12
: 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?
: 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
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
following?
► Income statement items
► Long term assets items
► Long term liability & stockholder’s equity
► Long term liability and long term assets
: 19

: 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
15 of the 25 units are sold.
► Rs. 200
► Rs. 150
► Rs. 350
► Rs. 450
: 23
Under which cost flow assumption, the ending inventory is composed of the most
recently purchased merchandise?
► FIFO
► LIFO
► Average cost
: 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:
► Less than current market value
► Greater than cost
► Greater than book value
► Less than book value
: 27

► Reflect the decline in the market value of the assets each period
► Reduce income when the company has an exceptionally profitable year
► Be in conformity with the revenue recognition principle
► Allocate the original cost of a productive asset to expense over its useful
life
: 28
Which depreciation method allocates an equal portion of depreciation expense to
each period of asset’s useful life?
► Straight-line method
► Double-declining balance method
► Sum-of-the-year digit method
► Accelerated depreciation method
:2
Which of the following is NOT an example of accelerated depreciation method?
► Sum-of-the-years digit method
► Modified Accelerated Cost Recovery System
: 30
The Drawing account is closed by which of the following entry?
► Capital – Debit; Drawing - Credit
► Drawing – Debit; Capital - Credit
► Income Summary – Debit; Drawing - Crediting
► Drawing – Debit; Income Summary - Crediting
: 31
Which of the following account would be classified as a current asset on the balance
sheet?
► Accumulated depreciation
► Office equipment
► Land
: 32
An adjusting entry would NOT be required for which of the following account?
► Salaries
► Past due expense
► Income tax expense
: 33
Which of the following accounts will be debited, when increased?
► Liabilities and expenses
► Assets and equity
► Assets and expenses
► Equity and revenues
: 34
Accounting Cycle is a series of activities that begins with ___________ and ends
with ___________.
► Closing of books, transactions
► Transaction, After closing Trial Balance
► Journal, ledger account
► Transactions, financial statements
: 35
The income statement of ABL shows other operating expenses of Rs. 30 million;
prepaid insurance expense increased by Rs. 4 million; and accrued utilities payable
decreased by Rs. 7 million. How much did the company pay in other operating
expenses?
► Rs. 41 million
► Rs. 33 million
► Rs. 27 million
► Rs. 19 million
: 36
The statement of cash flows does NOT report the:
► Sources of cash in the current period
► Amount of checks outstanding at the end of the period
► Uses of cash in the current period
► Change in the cash balance for the current period
: 37
Which of the following is NOT normally required for revenue to be recognized
according to the revenue principle for accrual basis accounting?
► The price is fixed or determinable
► Services have been performed
► Cash that has already been collected
► Evidence of an arrangement for customer payment exists
: 38
Which of the following balances does the Contra-Asset account show typically?
► Credit
► Debit
► Negative
► Positive
: 39
Which one of the following would lead to the decrease in the owner’s equity?
► Purchasing a piece of land
► Paying dividends to shareholders
► Purchasing equipment on account
► Paying back the principal of a loan
: 40
The users of a statement of cash flows are mostly interested in:
► Net cash flow from operating activities
► Net cash flow from investing activities
► Net cash flow from financing activities
► Net cash flow from non-cash transactions
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 owner’s equity is not up to the date until the closing entries are posted
Adjusting entries are prepared before the financial statements are prepared
In the accounting cycle, closing entries are made before the adjusting
entries
Which of the following is the second name for the journal?
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
Owner’s 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

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

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

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
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
Auditor’s annual report
Annual general meeting
According to _____ the personal expenses paid by Mr. A from his own pocket would
Separate entity principle
Matching principle
Materiality principle
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?
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 stockholder’s 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
Owner’s equity
Liabilities
Capital
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

Description of current year equity transactions

Summary of long-term debt outstanding
Schedule of fixed assets
Revenue recognition policies
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
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
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
following?
Income statement items

Long term assets items
Long term liability & stockholder’s equity
Long term liability and long term assets
Which of the following account would NOT be closed to the income summary
account at the end of a period?
Rent expense
Revenue earned
Wages expense
Which of the following explains the debit and credit rules relating to recording
revenues and expenses?
Realization and matching principle

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

Prepaid insurance
Salaries Expense account
Wages account
Which of the following is the acronym for GAAP?
► Generally Adopted Accounting Principles
► Generally Accepted Auditing Principles
► Generally Accepted Accounting Principles
► Generally Adapted American Principles
After recording the transactions in journal, posting is made to which of the

following?
► Trial Balance
► Financial Statements
► Ledger
► After-closing Trial Balance
Which one of the following is the second step in the accounting cycle?
► Recording entries in the journal
► Analyzing the business transaction
► Posting the entries to the ledger
► Making the adjusting entries
Which of the following is the basic function of the Trial Balance?
► To prove the equality of debits and credits
► To check the balance of all assets

► To prepare the balance sheet
► To check the validity of accounts
Which of the following results are summarized by the income statement of a

company?
► Operating results
► Economic results
► Auditing results
► Marketing results
► Equipment purchased for use in the business
► Book-keeping fees collected but not yet earned
► Six months’ rent paid in advance
► Interest earned but not yet received
Prepaid Expense is a(n) _________ account and has a _________ normal balance.
► Revenue, credit
► Liability, credit
► Asset, debit
► Expense, debit
Company A owns a building. Which of the following statements regarding

depreciation is FALSE from an accounting perspective?
► As the market value of the building increases, depreciation should

increase
► Depreciation is an estimated expense to be recorded each period during the

building’s life
► As depreciation is recorded, stockholders’ equity is reduced
► As depreciation is recorded, total assets are reduced
Retained earnings change over time because of several factors. Which of the
following factors would explain an INCREASE in retained earnings?
► Net Income
► Net Loss
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
► The longer of operating cycle or one year
► The shorter of operating cycle or one year
Decision makers compare net income to net cash from operating activities. To make
these amounts more comparable, the same accounts are included in each. The
following accounts are used to compute both net income and net cash from operating
activities EXCEPT:
► Interest expense
► Dividend revenue
► Interest revenue
► Dividends declared and paid
If the indirect approach for the statement of cash flows is used, which of the
following items should be subtracted from accrual basis net income to derive cash
flow from operating activities?
► Losses on the sale of long-term investments
► Amortization expense
► Gains on the sale of long-term investments
The cash flow from financing activities shows:
► The cash outflow due to loan interest payments being made
► The change in the level of bank balances in the period
► The cash flow from share and loan issues and repayments
► Cash dividends paid to shareholders
Which of the following transaction should be classified as a financing activity?

► Purchase of equipment
► Purchase of treasury stock
► Sale of trademarks
► Income tax refund
Cash flow relating to investing activities does NOT present the cash effects of which
of the following?
► Plant assets
► Intangible assets
► Investments
► Debt financing
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
► Sale of land for cash
► Issuance of long term bonds
► The sale of common stock
► Retirement of long term debt
Which one of the following is NOT an inventory costing method?
► FIFO cost method
► Weighted-average cost method
► Specific unit cost method
► LIFO cost method
When merchandise is purchased in a periodic inventory system, its cost is debited to

________ account.
► Inventory
► Inventory expense
► Purchases
Office supplies are purchased on account. The company uses a perpetual inventory
system. What is the correct journal entry for this purchase of office supplies?
► Debit - Purchases; Credit - Cash
► Debit - Merchandise Inventory; Credit - Cost of Goods Sold
► Debit - Office Supplies; Credit - Accounts Payable
► Debit - Merchandise Inventory; Credit - Accounts Payable
An inventory error affects ___________ accounting periods.
► Only current
► Two
► Three
► Four
Equipment costing Rs. 3,000 with accumulated depreciation of Rs. 2,125 is

exchanged for another asset with a fair value of Rs. 625. The exchange has
commercial substance. How much is the gain or loss on this transaction?
► A gain of Rs. 250 should be recognized
► A loss of Rs. 250 should be recognized
► A loss of Rs. 500 should be recognized
► No gain or loss should be recognized
Which of the following asset does NOT have a depreciation expense?
► Furniture
► Building
► Plant & equipment
► Land
Which of the following is NOT an example of accelerated depreciation method?
► Sum-of-the-years digit method
► 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
► Quick assets
► Tangible assets
Which of the following accounts will be debited, when increased?
► Liabilities and expenses
► Assets and equity
► Assets and expenses
► Equity and revenues
► Ledger
The income statement of ABL shows other operating expenses of Rs. 30 million;
prepaid insurance expense increased by Rs. 4 million; and accrued utilities payable
decreased by Rs. 7 million. How much did the company pay in other operating
expenses?
► Rs. 41 million
► Rs. 33 million
► Rs. 27 million
► Rs. 19 million
From the given information, calculate the Cost of Goods Sold using the weighted-
average cost method:
Beginning inventory 10 units @ Rs. 10 each

15 of the 25 units are sold
► Rs. 200
► Rs. 270
► Rs. 300
► Rs. 350
Which of the following balances does the Contra-Asset account show typically?
► Credit
► Debit
► Negative
► Positive
Using the following information calculate Net Income: Sales Revenue Rs.200, 000,
Loss on Sale of Equipment Rs.10, 000, Amortization Expense Rs.20, 000 and Cost of
Goods Sold Rs.50, 000.
► Rs. 170,000
► Rs. 120,000
► Rs. 130,000
► Rs. 180,000
Which of the following question is NOT addressed by cash flow statement?
► How much cash was generated by the company’s operations?
► Why is such a profitable company able to pay only small dividends?

► How much was spent for the new plants and equipment?
► How profitable the company’s current assets are?
The process of recording the economic effects of business transactions in a book

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

All of the following are true regarding the financing activity section of the cash
flow statement
EXCEPT:
Financing activities require analysis of long-term liability and shareholders' equity
accounts
The ability to issue large quantities of common shares usually signals investor
confidence
in the future of the company
Excessive borrowing has been the downfall of many companies
The declaration and payment of a large cash dividend may signal an
emergency

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

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

An increase in advertising expense
A decrease in depreciation expense
An increase in cost of goods sold
A decrease in insurance expense

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
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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?

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

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

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
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

Useless piece of information
Useful piece of information
Useful only for past performance
Useful only for future predictions

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 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

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

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. 35,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the
company?
1.57
1.71
1.86
0.58

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

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:
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MIDTERM EXAMINATION

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

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

► It raises the break-even level.

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

► Beta of the security

Question No: 4 ( Marks: 1 ) - Please choose one

Which of the following is a proposition of Miller and Modigliani theory of Capital

► Value of a firm is independent of its capital structure

► Value of a firm is independent on its level of equity finances

Question No: 5 ( Marks: 1 ) - Please choose one

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

Question No: 7 ( Marks: 1 ) - Please choose one

Which of the following risks is independent of capital structure of a firm?

Question No: 8 ( Marks: 1 ) - Please choose one

Which of the following bestdefine the term 'Capital Structure'?

► The proportion of equity used by a firm

Question No: 9 ( Marks: 1 ) - Please choose one

Which of the following is tax deductible?

► Dividend on preferred shares

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

Which of the following is determined by variance of an investment's returns?

► Volatility of the rates of return.

Question No: 12 ( Marks: 1 ) - Please choose one

► Accepting projects with the highest NPVs first

Question No: 13 ( Marks: 1 ) - Please choose one

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

is always quoted in terms of percentage,

Question No: 15 ( Marks: 1 ) - Please choose one

Which of the following capital budgeting methods focuses on firm's liquidity?

► None of the given options

Question No: 16 ( Marks: 1 ) - Please choose one

In which of the following situations a project is acceptable?

► When a project has conventional cash flows patterns

Question No: 17 ( Marks: 1 ) - Please choose one

Which of the following statements is Correct regarding the fundamental analysis?

► Fundamental analysts use only Economic indicators to evaluate a stock

Question No: 18 ( Marks: 1 ) - Please choose one

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

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

► P0 < par and YTM < the coupon rate.

► P0 > par and YTM > the coupon rate.

Question No: 21 ( Marks: 1 ) - Please choose one

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

Question No: 23 ( Marks: 1 ) - Please choose one

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

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

Which of the following transactions affects the acid-test ratio?

► Receivables are collected.

Question No: 26 ( Marks: 1 ) - Please choose one

Which of the following would be a consequence of a high Inventory Turnover Ratio?

Question No: 27 ( Marks: 1 ) - Please choose one

Which of the following statements (in general) is correct?

► A low receivables turnover is desirable.

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

► The company will be viewed as having high creditworthiness

Question No: 29 ( Marks: 1 ) - Please choose one

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

Question No: 31 ( Marks: 5 )

What were its sales for the year?

Question No: 32 ( Marks: 10 )

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

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

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

MCQ's Treasure

MCQ's Treasure