FIN621- Financial Statement Analysis Composed By Faheem ...

FIN621- Financial Statement Analysis

Composed By Faheem Saqib

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MIDTERM EXAMINATION

Spring 2010

FIN621- Financial Statement Analysis (Session - 3)

Time: 60 min

Marks: 44

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

How much duration does an accounting period usually have?

► Three months

► Two years

► One year Correct

► Five years


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

► Adjusting entries

► Closing entries

► Financial position

► Accounting EquationCorrect


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

► Adjusted trial balance

► Financial statements

► Adjusting entriesCorrect

► 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 entryCorrect

► 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 omittedCorrect


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. 93,000Correct

► Rs. 100,000

► Rs. 107,000


Retained earnings change over time because of several factors. Which of the following

factors would explain an INCREASE in retained earnings?

► Net IncomeCorrect

► Dividends payment

► Investment by the stockholders

► Net Loss


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 stockCorrect

► A cash outflow to lenders as interest

► A cash outflow to purchase bonds isues by the other 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 yearCorrect

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

► All proposed dividends in the year relating to voting share.


Which of the following activities convert the income statement items from the accrual

basis of accounting to cash?

► Operating activitiesCorrect

► Investing activities

► Financing activities

► Non cash activities


The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable

and an ending balance of Rs. 15,000. The income statement reported Sales Revenue of

Rs. 200,000. Using this information

205000..correct

215000

195000

200000

Sales=200000

beginning balance=20000

total …….220000

less ending 15000

_____________

cash received from customer = 205000


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 equipmentCorrect

► Payments to suppliers

► Receipts from sale of goods or services

CASH FLOW FROM INVESTING ACTIVITIES

Principle repayment by borrowers (note the interest receipt on the loans cash

includes in operating activities )

The sale of loan (receivable) made by the firm

The sales of assets such as debt of equity securities of other firms (other than cash

equivalent), and property, plant, and equipment


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 activitiesCorrect

► 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 equityCorrect

► Long term liability and long term assets


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 policiesCorrect


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

► FIFO cost method

► Weighted-average cost method

► Specific unit cost method Correct

► LIFO cost method


In a perpetual inventory system, which of the following would be debited when inventory

is sold on account?

► Cost of goods soldCorrect

► Merchandise inventory

Sales

► Both Accounts receivable & cost of goods sold(Correct)


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

(Correct)

► 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:

► Depreciation expense

Non operating gains(Correct)

► A decrease in income tax rates

► A decrease in accounts receivable over the period

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

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(Correct)


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(Correct)



The balance of the unearned rent account for jones co .as on dec31 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(Correct)

► 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) (Correct)

► 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( correct)


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 (Correct)

► Rs. 280,000

► Rs. 254,000

► Rs. 246,000

Question No: 26 ( Marks: 3 )

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.

Net income200,000

Added back

Deprecation10000

Increase in account receivable(15,000)

Increase in Account payable5000

net cash flow from OP activity200,000

Same Question solved

Cash flow from operating activities= Net income- De preciation- Increase in

A/Cs receivable- Increase in A/Cs payable

Cash flow from operating activities= 200,000-10,000 -15,000-5,000

Cash flow from operating activities= =170,000 = Answer Correct


Explain how the adoptions of FIFO method rather tha n LIFO will tend to

raise or lower the quality of a company’s earnings? Assume the

continuance of the inflation.

Answer

During the period of inflation, prices increase. Under the FIFO method, valuation of

closing inventory is made at most recent prices or at increased prices and closing

inventory is shown at the credit side of trading & P&L account (income statement) with

increased value, as a result of which net income of the company increases because of

increase in the value of closing inventory ultimately company’s earnings increases.

Where as under the LIFO method company’s earnings decreases because of decrease in

the value of closing inventory


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.

Answer

Accelerated deprecation method will increase the earnings of stockholders

and defer the tax liability to far future years and current tax liability will be

minimum in near future.


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.

Net income 666,000

Accounts receivable increased (50,000)

MIDTERM EXAMINATION

Fall 2009



Which of the following is the acronym for GAAP?

► Generally Adopted Accounting Principles

► Generally Accepted Auditing Principles

► Generally Accepted Accounting Principles (Afaaq)

► Generally Adapted American Principles


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

following?

► Trial Balance

► Financial Statements

► Ledger (Afaaq)

► 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 (Afaaq)

► Making the adjusting entries


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

► To prove the equality of debits and credits (Afaaq)

► To check the balance of all assets

► To prepare the balance sheet

► To check the validity of accounts

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

► The system of giving numbers to the accounts

► Transferring the debits and credits to ledger (Afaaq)

► Transferring the debits and credits to journal

► The recording of transactions


Which of the following results are summarized by the income statement of a

company?

► Operating results (Afaaq)

P # 24

► Economic results

► Auditing results

► Marketing results


Which of the following is an example of an accrual?

► Equipment purchased for use in the business

► Book-keeping fees collected but not yet earned

► Six months’ rent paid in advance

► Interest earned but not yet received (Afaaq)

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Prepaid Expense is a(n) _________ account and has a _________ normal

balance.

► Revenue, credit

► Liability, credit

► Asset, debit (Afaaq)

► 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 (Afaaq)

► 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

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Retained earnings change over time because of several factors. Which of the

following factors would explain an INCREASE in retained earnings?

► Net Income (Afaaq)



► Net Loss

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

► Cash – Debit; Fees Income - Credit

► Fees Income – Debit; Income Summary – Credit (Afaaq)

► 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 (Afaaq)


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 (Afaaq)

► The shorter of operating cycle or one year

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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 (Afaaq)


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 (Afaaq)


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 (Afaaq)

► Cash dividends paid to shareholders

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

► Purchase of equipment

► Purchase of treasury stock (Afaaq)

► 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 (Afaaq)


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 (Afaaq)

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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 (Afaaq)

► 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 (Afaaq)

► Collection of loans

► Making of loans

► Sale of available for sale and held to maturity securities

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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 (Afaaq)

5,00,000 + 30000 = 5,30,000

► Can not be found from the given information


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 (Afaaq)





► Specific unit cost method (Afaaq)


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When merchandise is purchased in a periodic inventory system, its cost is

debited to ________ account.

► Inventory

► Inventory expense

► Purchases (Afaaq)

► Cost of goods sold


Office supplies are purchased on account. The company uses a perpetual

inventory system. What is the correct journal entry for this purchase of office

supplies?

► Debit - Purchases; Credit - Cash

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

► Debit - Office Supplies; Credit - Accounts Payable (Afaaq)

► Debit - Merchandise Inventory; Credit - Accounts Payable


An inventory error affects ___________ accounting periods.

► Only current

► Two (Afaaq)

► Three

► Four

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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 (Afaaq)

► 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 (Afaaq)

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

► Straight-line method (Afaaq)

► Sum-of-the-years digit method

► Double-declining balance method

► Modified Accelerated Cost Recovery System


Accelerated depreciation method is mostly used for ____________.


► Assets valuation

► Inventory valuation

► Income tax returns (Afaaq)


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

► Depreciation

► Accounts payable (Afaaq)

► Unearned revenue

► Prepaid insurance

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Assets which have NO market value are called:

► Wasting assets

► Fictitious assets (Afaaq)

► Quick assets

► Tangible assets


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

► Liabilities and expenses

► Assets and equity

► Assets and expenses (Afaaq)

► Equity and revenues


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

► Income statement

► Statement of cash flow

► Ledger (Afaaq)


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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 (Afaaq)

30 – 4 +7 = 33 million

► Rs. 27 million

► Rs. 19 million


From the given information, calculate the Cost of Goods Sold using the

weighted-average cost method:

Beginning inventory 10 units @ Rs. 10 each

On January 20, purchased 10 units @ Rs. 20 each


15 of the 25 units are sold

► Rs. 200

► Rs. 270 (Afaaq)

► Rs. 300

► Rs. 350

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Which of the following balances does the Contra-Asset account show typically?

► Credit (Afaaq)

► Debit

► Negative

► Positive

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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 (Afaaq)

200,000-50,000 = 150000 G P

150000-10000-20000 = 120000 net income

► 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?

(Afaaq)

► How much was spent for the new plants and equipment?

► How profitable the company’s current assets are?

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On 15, 2001, ABC Company sold 1,000 printers to another company.

Immediately prior to this sale, the perpetual inventory records of the company for

the printers included the following cost layers.

Purchase date Quantity Unit Cost Total Cost

Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550

Jan. 9, 2001 900 Rs. 9.50 8,550

Total on hand 1,500 Rs. 14,100

Instructions:

Prepare a separate general entry to record the cost of printers, assuming that the

company uses the following methods.

Answer:

a. FIFO (2.5) DR CR

Rs. Rs.

Cost of Printers Sold A/C 9350

Printers Inventory A/C 9350

b. LIFO (2.5) DR CR

Rs. Rs.



Question No: 42 (Marks: 5)

Hill Company adjusts its accounts at the end of each month. Prepare the

adjusting entries required at December 31 based on the following information.

a. A bank loan had been obtained on December 1. Accrued interest on

the loan at December 31 amounts to Rs. 1,050. No interest expense has

yet been recorded.

Answer

DR CR

b. Depreciation of the office equipment is based on an estimated life of

five years. The balance in the office equipment account is Rs. 24,000; no

change has occurred in the account during the year.

c. Interest revenue earned on US government bonds during December

amounts to Rs. 750. This accrued interest revenue has not been recorded

or received as of December 31.

General Entry Rs Rs

Interest Expense A/C 1050

Interest Payable A/C 1050

General Entry Rs Rs

Depreciation of Office Equip.

A/C

d. On December 31, an agreement was signed to lease a truck for 12

months beginning January 1 at a rate of 35 cents per mile. Usage is

expected to be 2,000 miles per month, and the contract specifies a

minimum payment equivalent to 18,000 miles a year.

e. The company’s policy is to pay all employees up-to-date each

Friday. Since December 31 fell on Monday, there was a liability to

employees at December 31 for one day’s pay amounting to Rs. 2,800.

Interest Receivable on Bonds

A/C

750

Interest Income on Bonds A/C 750

General Entry Rs Rs

General Entry Rs Rs

Salary Expense A/C 2800

Salary Payable A/C 2800

MIDTERM EXAMINATION

Fall 2009



Which of the following principle deals with the valuation and recording of the assets at

cost?

► Entity Principle

► Matching Principle

► Cost Principle (Afaaq)

page 3

► Stable Currency principle





► Generally Accepted Accounting Principles (Afaaq)




► Three months

► Two years

► One year (Afaaq)

► Five years


To determine the balance of a particular account, one should refer to which of the

following?

► Ledger (Afaaq)

► 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 (Afaaq)

► Accounting cycle

► Trial balance

► Liquidity position of the company




► Transferring the debits and credits to ledger (Afa aq)

Page # 14







► Adjusting entries (Afaaq)

page 14

► 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 state ment of operations (Afaaq)

► The income statement reports revenues, expenses and liabilities


Which of the following principle is used for recording an expense?

► Matching Principle (Afaaq)

Page 25

► 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 (Afaaq)

90,000 – 2700 – 1300 = 86,000

► Rs. 88,700

► Rs. 90,000


Prepaid Expense is a(n) _________ account and has a _________ normal balance.

► Revenue, credit


► Asset, debit (Afaaq)

► 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, dep reciation should increase

(Afaaq)

► Depreciation is an estimated expense to be recorded each period during the building’s

life


►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 (Afaaq)

12,500,000 - 10,100,000 + 800,000 = 3,200,000

► Rs. 2,400,000

► Rs. 1,600,000


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

► Cost of goods sold (Afaaq)

http://wps.prenhall.com/ca_ph_horngren_accounting_7/59/15164/3882016.cw/content/in

dex.html

► Rent Expense

► Amortization Expenses

► Salaries Expense


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

► Cash and equivalents

► Deferred income (Afaaq)

► Accounts receivable

► Prepaid expenses


When preparing a statement of cash flows under the indirect method, supplemental

disclosure should be made for which of the following?

► Net cash consumed by operating activities

► Cash dividend distributions

► Cash paid for interest and taxes (Afaaq)

► 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 f rom owners and providing them

with a return on their investment (Afaaq)

► Cash effects of transactions that enter into the determination of net income


ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory

increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest

expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the

year. What would be the cash payments for the purchase of the merchandise.

► Rs. 505,000

► Rs. 516,000 not sure

► Rs. 490,000

► Rs. 495,000 (Afaaq)


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 (A faaq)


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 (Afaaq)

► Describe significant accounting policies

► Describe depreciation methods employed by the company

► Describe principles and methods peculiar to the industry ( not sure )

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

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

► Inventory account is increased

► Inventory account is decreased (Afaaq)

Page # 65

► Cost of Goods Sold account is decreased

► Cost of goods available for sale decreases


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 (Afaaq)

Page # 73


In a period of rising prices, all of the following statements regarding LIFO are true

EXCEPT:

► Net income is generally higher (Afaaq)

► Ending inventory is generally undervalued (not sure )

► 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 (Afaaq)

1st 10 units at the rate of 10 each... total = 100 Rs.

2nd 5 units are rate of 20 each... total = 100 Rs.

Total cost 100 + 100 = 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 (Afaaq)

►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 (Afaaq)

380000 + 60000 - 50000 = 390000

► 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 t o expense over its useful life

(Afaaq)


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 (Afaaq)


Which of the following is NOT the part of annual report?


► Auditor’s report

► Five year summary

► Future investments report (Afaaq)

Page # 98


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 (Afaaq)


Which of the following would represent an increase in Owner's Equity?

► Increase in net income (Afaaq)

► 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 (Afaaq)

► Making adjusting entries for the relevent accounts

► Preparing Trial Balance

► Preparing financial statements


Which one of the following items is NOT generally used in preparing a statement of cash

flows?

► Adjusted trial balance (Afaaq)

•Statement of cash flows giving a picture of cash inflows (receipts) and cash outflows

(payments) over/during the accounting period. It is prepared from the two major financial

statements viz Income Statement and Balance Sheet.

•In addition to above, notes containing additional information (financial & no financial) about the

business are also attached to financial statements.

► Comparative balance sheets

► Current income statement

► Additional information


Which of the following items does NOT result in an adjustment in the merchandise

inventory account under a perpetual system?

► A return of merchandise inventory to the supplier

► Payment of freight costs for goods shipped to a cu stomer (Afaaq)

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► Payment of freight costs for goods received from a supplier

► A purchase of merchandise


From the given information, calculate the Cost of Goods Sold using the weighted-average

cost method

Beginning inventory 10 units . Rs. 10 each




► Rs. 200

► Rs. 270 (Afaaq)

Total Cost of units = (10 x 10) + (10 x 20) + (5 x 30) = 450

per unit cost = total cost / total units

450 / 25 = 18

cost of 15 units = 15 x 18 = 270

► Rs. 300

► Rs. 350


Which of the following is the most common item in adjusting entries of a merchandising

business?

► Un-earned revenue

► Pre-paid expense

► Depreciation expense (Afaaq)

► 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



► Owner's Capital account (Afaaq)


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 (Afaaq)

► Net cash flow from non-cash transactions




► Why is such a profitable company able to pay only small dividends? (Afaaq)


► How profitable the company’s current assets are?


Which of the following statements is CORRECT regarding depreciation methods?

► Accumulated depreciation represents a fund being accumulated fro the replacement of

assets

► The cost of a machine includes the cost of repairing damage to the machine during the

installation process

► A company may use different depreciation methods in its financial statements and its

income tax returns

► The use of an accelerated depreciation method caus es an asset to wear out more

quickly than does the straight line method (Afaaq)


Security Service Company adjusts its accounts at the end of the month. On November 30,

adjusting entries are prepared to record:

a. Depreciation expense for November

b. Interest expense that has accrued during November

c. Revenue earned during November that has not yet been billed to customers

d. Salaries, payable to company employees that have accrued since the last pay day in

November

e. The portion of the company’s prepaid insurance that has expired during November

Adjusting Entries For The Month Ended Nov 30

Requirement:

Indicate the effect of each of these adjusting entries on the major elements of the

company’s income statements i.e. upon revenue, expenses, net income. Organize your

answer in the table given below and use the symbols I for increase, D for decrease, and

NE for no effect.

Adjusting entry Revenue Expenses Net income

Adjusting entries Revenue Expenses Net income

a Deprecation expense

Accumulated depreciation

Decrease Increase Decrease

b Interest expense

Accrued interest


c Accrued revenue

revenue

Increase Decrease Increase

d Salaries

Accrued salaries


e Prepaid insurance Increase Decrease Increase

Insurance


Olympic Inc., had the following cash flows during the current year:

Cash received from customers Rs. 240,000

Interest and dividend received 50,000

Proceeds from the sale of the plant assets 330,000

Cash paid to suppliers and employees 127,000

Cash paid for the purchase of investments 45,000

Cash paid for the purchase of treasury stock 36,000

Cash inflow

Cash received from customers Rs. 240,000

Interest and dividend received 50,000

Proceeds from the sale of the plant assets 330,000

-------------- 620,000

Less Cash outflow

Cash paid to suppliers and employees 127,000

Cash paid for the purchase of investments 45,000

Cash paid for the purchase of treasury stock 36,000 208,000

__________

Cash flow during the year 412,000

MIDTERM EXAMINATION

Fall 2009


Time: 60 min

Marks: 50





► Generally Accepted Accounting Principles (Correct)



After recording the transactions in journal, postin g is made to which of the

following?

► Trial Balance


► Ledger (Correct)



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



► Posting the entries to the ledger (Correct)




► To prove the equality of debits and credits (Correct)





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


► Transferring the debits and credits to ledger (Correct)




Which of the following results are summarized by th e income statement of a

company?

► Operating results (Correct)









► Interest earned but not yet received (Correct)



► Revenue, credit


► Asset, debit (Correct)

► Expense, debit


Company A owns a building. Which of the following s tatements regarding

depreciation is FALSE from an accounting perspectiv e?

► As the market value of the building increases, dep reciation should increase

(Correct)

► Depreciation is an estimated expense to be recorde d each period during the

building’s life


► As depreciation is recorded, total assets are redu ced


Retained earnings change over time because of sever al factors. Which of the

following factors would explain an INCREASE in reta ined earnings?

► Net Income (Correct)



► Net Loss


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


► Fees Income – Debit; Income Summary – Credit (Correct)





► Retained earnings represent earnings not distribut ed to stockholders

► Retained earnings is increased by net income and d ecreased by a net loss

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

► Retained earnings are an asset on the balance shee t(Correct)


Current assets are those assets which management in tends to convert into cash or

consume within:


► One year

► The longer of operating cycle or one year (Correct)


http://www.principlesofaccounting.com/questions%20-%20%20multiple

%20choice/chapter%204%20-%20multiple%20choice.htm


Decision makers compare net income to net cash from operating activities. To make

these amounts more comparable, the same accounts ar e included in each. The

following accounts are used to compute both net inc ome and net cash from

operating activities EXCEPT:




► Dividends declared and paid (Correct)

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nt/index.html


If the indirect approach for the statement of cash flows is used, which of the

following items should be subtracted from accrual b asis net income to derive cash

flow from operating activities?




► Gains on the sale of long-term investments (Correct)



► The cash outflow due to loan interest payments bei ng made

► The change in the level of bank balances in the pe riod

► The cash flow from share and loan issues and repay ments (Correct)



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


► Purchase of treasury stock (Correct)




Cash flow relating to investing activities does NOT present the cash effects of which

of the following?

► Plant assets

► Intangible assets (Correct)

► Investments

► Debt financing


The indirect method shows the reconciliation from n et income to operating cash

flows. Select the adjustment that is added during t he reconciliation.




► An increase in Accounts Payable

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The indirect method shows the reconciliation from n et income to operating cash

flows. Select the adjustment that is subtracted dur ing 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-c ash current asset


► Non-cash expenses (expenses incurred but not paid) reported on the income

statement-one example is amortization expense.

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Investing activities include all of the following E XCEPT:

► Payment of debt


► Making of loans

► Sale of available for sale and held to maturity se curities


If sales on an accrual basis are Rs. 500,000 and ac counts receivables increased by

Rs. 30,000, the cash received from the customers wo uld be:

► Rs. 500,000

► Rs. 470,000(500,000-30,000) Correct

► Rs. 530,000







► Retirement of long term debt Correct


Which one of the following is NOT an inventory cost ing method?






When merchandise is purchased in a periodic invento ry system, its cost is debited to

________ account.

► Inventory


► Purchases Correct



Office supplies are purchased on account. The compa ny uses a perpetual inventory

system. What is the correct journal entry for this purchase of office supplies?


► Debit - Merchandise Inventory; Credit - Cost of Go ods Sold

► Debit - Office Supplies; Credit - Accounts Payable Correct

► Debit - Merchandise Inventory; Credit - Accounts P ayable


An inventory error affects ___________ accounting p eriods.

► Only current

► Two Correct

► Three

► Four


Equipment costing Rs. 3,000 with accumulated deprec iation 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?






Which of the following asset does NOT have a deprec iation expense?

► Furniture

► Building


► Land Correct


Which of the following is NOT an example of acceler ated depreciation method?

► Straight-line method Correct









► Income tax returns Correct


Which of the following is NOT an example of deferre d item?

► Depreciation

► Accounts payable Correct





► Wasting assets Correct

► Fictitious assets

► Quick assets

► Tangible assets


Which of the following accounts will be debited, wh en increased?



► Assets and expenses Correct



Which of the following provides the basis for the t rial balance?



► Ledger Correct



The income statement of ABL shows other operating e xpenses of Rs. 30 million;

prepaid insurance expense increased by Rs. 4 millio n; and accrued utilities payable

decreased by Rs. 7 million. How much did the compan y pay in other operating

expenses?

► Rs. 41 million (30+4+7) Correct

► Rs. 33 million

► Rs. 27 million

► Rs. 19 million

Ref:

Cash payment for operating expenses= Operating expe nses + Increase in pre-paid

insurance+discreased in accrued utilities

Cash payment for operating expenses = (30+4+7)


From the given information, calculate the Cost of G oods Sold using the weightedaverage

cost method:





► Rs. 200

► Rs. 270

► Rs. 300

► Rs. 350


Which of the following balances does the Contra-Ass et account show typically?

► Credit Correct

► Debit

► Negative

► Positive


Using the following information calculate Net Incom e: 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 (200,000-10,000-20,000-50,000) Correct

► Rs. 130,000

► Rs. 180,000



► How much cash was generated by the company’s opera tions?


► How much was spent for the new plants and equipmen t?

► How profitable the company’s current assets are? Correct


On 15, 2001, ABC Company sold 1,000 printers to ano ther company. Immediately

prior to this sale, the perpetual inventory records of the company for the printers

included the following cost layers.


Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550

Jan. 9, 2001 900 Rs. 9.50 8,550

Total on hand 1,500 Rs. 14,100

Instructions:

Prepare a separate general entry to record the cost of printers, assuming that the

company uses the following methods.

FIFO method


Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550

Jan. 9, 2001 900 Rs. 9.50 8,550

Cost of sales of 1000 printers

Sale date Quantity Unit Cost Total Cost

15,2001 600 Rs. 9.25 Rs. 5,550

15,2001 400 Rs. 9.50 3,800

------------

9,350



LIFO method


Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550

Jan. 9, 2001 900 Rs. 9.50 8,550

Cost of sales of 1000 printers

Sale date Quantity Unit Cost Total Cost

15,2001 900 Rs. 9.50 8,550

15,2001 100 Rs. 9.25 Rs. 925

------------

9475



Question No: 42 (Marks: 5)

Hill Company adjusts its accounts at the end of eac h month. Prepare the adjusting

entries required at December 31 based on the follow ing information.

a. A bank loan had been obtained on December 1. Acc rued interest on the loan at

December 31 amounts to Rs. 1,050. No interest expen se has yet been recorded.

Answer

Interest Expense A/C 1050

Accrued interest A/C 1050

b. Depreciation of the office equipment is based on an estimated life of five years.

The balance in the office equipment account is Rs. 24,000; no change has occurred

in the account during the year.

Depreciation expense 4800

To accumulated deprecation 4800

c. Interest revenue earned on US government bonds d uring December amounts to

Rs. 750. This accrued interest revenue has not been recorded or received as of

December 31.

Interest Receivable on Bonds A/C 750

Interest Income on Bonds A/C 750

OR

accrued interest 750

interest income 750

d. On December 31, an agreement was signed to lease a truck for 12 months

beginning January 1 at a rate of 35 cents per mile. Usage is expected to be 2,000

miles per month, and the contract specifies a minim um payment equivalent to

18,000 miles a year.

Accrued lease rent 630,000

Lease rent 630,000

e. The company’s policy is to pay all employees up- to-date each Friday. Since

December 31 fell on Monday, there was a liability t o employees at December 31 for

one day’s pay amounting to Rs. 2,800.

Salary Expense 2800

Salary Payable 2800

MIDTERM EXAMINATION

Spring 2010


Marks: 44



► Three months

► Two years

► One year Correct

► Five years




► Closing entries


► Accounting Equation Correct





► Adjusting entries Correct

► Closing entries





► Posting only the debit portion of a particular journal entry Correct

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






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


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 Correct

► Rs. 300

► Rs. 500

Ref:

90000/30 = 3000

3000/12 = 250




► Net Income Correct



► Net Loss




value of the accounts receivable is:

► Rs. 7,000

► Rs. 93,000 Correct

► Rs. 100,000

► Rs. 107,000

Ref:

A/C receivable = 100000

Less allowance doubtful 7000

______________

net realizable value a/c receivable 93000


Which of the following regarding retained earnings is FALSE ?


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


► Retained earnings are an asset on the balance sheet Correct



activity?


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


► A cash outflow to purchase bonds issued by another company

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► All dividends paid to voting shares in the year Correct


► All proposed dividends in the year relating to voting shares




► Operating activities Correct







Rs. 200,000. Using this information, compute cash collected from customers.

► Rs. 205,000 Correct

► Rs. 215,000

► Rs. 195,000

► Rs. 200,000

sales 200000

beginning balance 20000

__________

total 220000

less ending 15000

_____________





► Expenditure for sale of plant and equipment Correct



CASH FLOW FROM INVESTING ACTIVITIES

Principle repayment by borrowers (note the interest receipt on the loans cash

includes in operating activities )

The sale of loan (receivable) made by the firm

The sales of assets such as debt of equity securiti es of other firms (other than cash

equivalent), and property, plant, and equipment



different from the direct method?



► Cash flow from operating activities Correct






► Long term liability & stockholder’s equity Correct








► Revenue recognition policies Correct









is sold on account?

► Cost of goods sold Correct


► Sales

► Both Accounts receivable & cost of goods sold (Correct)





► An increase in cost of goods sold (Correct)




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

value as the asset ages







received





► Non operating gains (Correct)








► Payment of wages (Correct)




is:



► Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs.

1100 (Correct)



The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1,



December will be:


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

Rs.600 (Correct)






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






► Revenue account



► Owner's Capital account (Correct)





► Rs. 276, 000 (Correct)

► Rs. 280,000

► Rs. 254,000

► Rs. 246,000





A. Net Cash Flow from Operating Activities 200000Rs.

Net income 200,000

Added back

Deprecation 10,000

Increase in account receivable (15,000)

Increase in Account payable 5000

____________

net cash flow from OP activity 200,000

Same Question solved by Hira:

Cash flow from operating activities= Net income- Depreciation- Increase in


Cash flow from operating activities= 200,000-10,000-15,000-5,000

Cash flow from operating activities= =170,000 = Answer Correct


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.

Answer

During the period of inflation, prices increase. Under the FIFO method, valuation of

closing inventory is made at most recent prices or at increased prices and closing

inventory is shown at the credit side of trading & P&L account (income statement) with

increased value, as a result of which net income of the company increases because of

increase in the value of closing inventory ultimately company’s earnings increases.

Where as under the LIFO method company’s earnings decreases because of decrease in

the value of closing inventory


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.

Answer

Accelerated deprecation method will increase the earnings of stockholders

and defer the tax liability to far future years and current tax liability will be

minimum in near future.








Net income 666,000

Accounts receivable increased (50,000)

Inventory decrease d 23,000

Pre-paid expenses increased (35,000)

Accounts payable decreased (55,000)

Accrued expenses payable increased 14,000

_____________

net cash from OP activities 563,000

Alternate method

Cash flow from operating activities= Net income – Increase in A/Cs

receivable – Decrease in inventory + decrease in A/Cs payable + Increase in

per-paid expenses- Increase in accrued expenses

Cash flow from operating activities=666,000-50,000-23,000+55,000+35,000-

14,000

Cash flow from operating activities=669,000 = Answer Correct

MIDTERM EXAMINATION

Fall 2009




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 o f a particular account, one should refer to which o f the following ?

Ledger

Source document

Chart of accounts

Journal


A business has purchased a building on credit, how it would be recorded in the journal?

Building - Credit; Accounts payable - Debit

Building - Debit; Notes payable -Credit

Building - Debit; Owner’s equity- Credit

Building - Debit; Accounts payable - Credit


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

Journal entry

Compound entry (Correct)

Adjusting entry

Reversing entry


Which of the following is NOT true about the net income?

It is a calculated figure and represents actual cas h

It can be distributed among holder s of common stock as a dividend

It can be held by the firm as retained earnings

It is obtained by subtracting expenses from the revenues


What would be the adjusting entry to record depreciation if the estimated amount of

depreciation on equipment for a period is Rs. 2, 000?

Depreciation expense - Debit; Equipment - Cred it

Depreciation expense - Debit; Accumulated depreciat ion - Credit

Equip ment - Debit; Depreciation expense - Cred it

Accumu lated depreciation - Debit; Depreciation expense - Credit


The trial balance shows Supplies of Rs.1,350 and Supp lies Expense o f R s.0. If Rs.600

of supplies are on hand at the end of the period, the adjusting entry would be:

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


Supplies Expense, Rs. 750 - Debit; Supplies, Rs. 75 0 - Credit

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


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

Cash


Owner’s equity

Fees earned


After the closing entries are posted to the ledger, each expense account will have?

A debit balance

A negative balance

A credit balance

A zero balance


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

The operating cycle

One year

The longer o f operating cycle or one year

The shorter of operating cycle o r o ne year


Which of the following is NOT the most common example of cash equivalents?

Savings deposits

Certificates of Deposit (CDs)

Stocks of other companies

Money market mutual funds


In 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 o f cash flows

In the investing activities section of the statement o f cash flows

Should not to be reported


Which of the following items are NOT added back to the net income figure (which is

found on the Income Statement) to arrive at cash flows from operations?

Depreciation

Deferred tax

Amortization

Investments




Operating activities

Investing activities

Financing activities

Non cash activities


Which one o f 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



increased by Rs. 10, 000 and accounts payable increased by Rs. 15,000. The interest



Rs. 505,000

Rs. 516,000

Rs. 490,000

Rs. 495,000 Correct


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

Income statement items

Long term assets item s Correct

Long term liability & stockholder’s equity

Long term liability and long term assets


Which o f the following must be included in a company's summary of significant


Description of current year equity transactions

Summary of long -term debt outstanding

Schedule of fixed assets

Revenue recognition policies Correct

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Gross profit is:

Excess of sales over cost of goods sold Correct

Sales less Purchases

Cost o f goods sold + Opening stock

Net profit less expenses of the period



Only current

Two Correct

Three

Four


From the given data, calculate Cost of Goods Sold using the FIFO costing metho d:

Beginning inventory is 10 units @ Rs. 10 each.




Rs. 200 Correct

Rs. 150

Rs. 350

Rs. 450


Under which cost flow assumption, the ending inventory is composed of the most

recently purchased merchandise?

FIFO Correct

LIFO

Average cost

Specific identification


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 (400,000-310,000) Correct

Rs. 340,000

Rs. 400,000


Which cost flow assumption most closely matches the actual physical flow of

inventory in most retailing businesses?

FIFO

LIFO

Average cost

Specific identification Correct


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 Correct



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 Correct


Which depreciation method allocates an equal portion of depreciation expense

to each period of asset’s useful life?

Straight-line method Correct

Double-declining balance method

Sum-of-the-year digit method

Accelerated depreciation method




Sum-of-the-years digit method


Modified Accelerated Cost Recovery System


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

Capital – Debit; Drawing - Credit Correct

Drawing – Debit; Capital - Credit

Income Summary – Debit; Drawing - Crediting

Drawing – Debit; Income Summary - Crediting


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


Accounts receivable Correct

Office equipment

Land


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

Salaries

Past due expense Correct

Income tax expense

Accounts receivable



Liabilities and expenses

Assets and equity

Assets and expenses Correct

Equity and revenues


Accounting Cycle is a series of activities that begins with ___________ and ends

with ___________.

Closing of books, transactions

Transaction, After closing Trial Balance

Journal, ledger account

Transactions, financial statements Correct




payable decreased by Rs. 7 million. How much did the company pay in other operating expenses?

Rs. 41 million Correct

Rs. 33 million

Rs. 27 million

Rs. 19 million


The statement of cash flows does NOT report the:

Sources of cash in the current period

Amount of checks outstanding at the end of the peri od Correct

Uses of cash in the current period

Change in the cash balance for the current period


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

according to the revenue principle for accrual basis accounting?

The price is fixed or determinable Correct

Services have been performed

Cash that has already been collected

Evidence of an arrangement for customer payment exists

http://books.google.com.pk/books?id=WH95z-MY5LEC&pg=PA159&dq=is+NOT+normally++required++for++ revenue++to++be+

+recognized+according+to+the+revenue+principle+for+ accrual+basis+accounting?&hl=en&ei=-

6LxTNWDCYuPcd3lmLoK&sa=X&oi=book_result&ct=result&r esnum=3&ved=0CDAQ6AEwAg#v=onepage&q&f=false



Credit Correct

Debit

Negative

Positive


Which one of the following would lead to the decrease in the owner’s equity?

Purchasing a piece of land

Paying dividends to shareholders Correct

Purchasing equipment on account

Paying back the principal of a loan



Net cash flow from operating activities Correct

Net cash flow from investing activities

Net cash flow from financing activities

Net cash flow from non-cash transactions


Classify the following activities as cash flow from operating, investing and financing activities.

Payments for repurchase of company shares

Collections on loan principal and sales of other firms' debt

instruments

Tax payments

Expenditure for purchase of other firms' equity instruments

Payments to suppliers for goods and services

Answer:

Payments for repurchase of company shares:

Financing activities Correct

Collections on loan principal and sales of other fi rms' debt

instruments:

financing activities.

Investing activities Correct

Tax payments:

Operating activities Correct

Expenditure for purchase of other firms' equity ins truments:



Payments to suppliers for goods and services:



Listed below in random order are the items to be included in the balance sheet

of the Myster y Mountain Lodge at December 31, 2001:

Equipment Rs. 29,200 Buildings Rs. 450,000

Land 425,000 Owner’s capital ?

Accounts payable 54,800 Cash 21,400

Accounts receivable 10,600 Furnishings 58,700

Salaries payable 33,500 Snowmobiles 15,400

Interest payable 12,000 Notes payable 620,000

Requirement:

Prepare a Balance Sheet at December 31, 2001.

Mystery Mountain Lodge

Balance Sheet

as at December 31, 2001

Particulars Amount (Rs.)

Current Assets:

Cash 21,400

Accounts receivable 10,600

Snowmobiles 15,400

Fixed Assets:

Land 425,000

Buildings 450,000

Furnishings 58,700

Equipment 29,200

Total assets 1,010,300

Liabilities:

Interest payable 12,000

Salaries Payable 33,500

Accounts Payable 54,800

Notes Payable 620,000

Capital:

Owner’s capital 290,000

Total liabilities 1,010,300

MIDTERM EXAMINATION

Spring 2010


Time: 60 min

Marks: 44



► Three months

► Two years

► One year (Afaaq)

► Five years




► Closing entries


► Accounting Equation(Afaaq)





► Adjusting entries (Afaaq)

► Closing entries



► Recording transactions in the wrong account www.vuaskari.com


► Posting only the debit portion of a particular jou rnal entry (Afaaq)







► All the transactions have been recorded and nothin g has been omitted

(Afaaq)

www.vuaskari.com



depreciation expense of this building for one month by using straight line depreciation

method?

► Rs. 600

► Rs. 250 (Afaaq)

90,000*1/360 = 250

► Rs. 300

► Rs. 500




► Net Income (Afaaq)



► Net Loss




value of the accounts receivable is: www.vuaskari.com

► Rs. 7,000

► Rs. 93,000 (Afaaq)

100,000 – 7000 = 93,000

► Rs. 100,000

► Rs. 107,000


Which of the following regarding retained earnings is FALSE ?




► Retained earnings are an asset on the balance shee t (Afaaq)



activity?


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






► All dividends paid to voting shares in the year (A faaq)






► Operating activities (Afaaq)







Rs. 200,000. Using this information, compute cash collected from customers.

► Rs. 205,000 (Afaaq)

200,000+20,000-15,000 = 205000

► Rs. 215,000

► Rs. 195,000

► Rs. 200,000




► Expenditure for sale of plant and equipment (Afaaq )





different from the direct method?



► Cash flow from operating activities (Afaaq)






► Long term liability & stockholder’s equity (Afaaq)








► Revenue recognition policies (Afaaq)





► Specific unit cost method (Afaaq)




is sold on account?



► Sales

► Both Accounts receivable & cost of goods sold (Afa aq)





► An increase in cost of goods sold (Afaaq)




► Regular reduction of asset value to correspond to the decline in

market value as the asset ages (Afaaq)







received





► Non operating gains (Afaaq)








► Payment of wages (Afaaq)




is:




(Afaaq)



The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1,



December will be:


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

(Afaaq)






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






► Revenue account



► Owner's Capital account (Afaaq)





► Rs. 276, 000 (Afaaq)

250,000-4,000+30,000 = 276000

► Rs. 280,000

► Rs. 254,000

► Rs. 246,000







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









PAPER#01

Question No: 1




D Generally Accepted Accounting Principles


Question No: 2

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

► Trial Balance


D Ledger


Question No: 3




D Posting the entries to the ledger pg36


Question No: 4


D To prove the equality of debits and credits pg14




Question No: 5



D Transferring the debits and credits to ledger pg14



Question No: 6

Which of the following results are summarized by the income statement of a company?

D Operating results P # 24




Question No: 7





D Interest earned but not yet received

Question No: 8


► Revenue, credit


D Asset, debit

► Expense, debit

Question No: 9

Company A owns a building. Which of the following statements regarding depreciation is FALSE from an

accounting perspective?

D 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



Question No: 10

Retained earnings change over time because of several factors. Which of the following factors would

explain an INCREASE in retained earnings?

D Net Income



► Net Loss

Question No: 11



D Fees Income – Debit; Income Summary – Credit



Question No: 12





D Retained earnings are an asset on the balance sheet

Question No: 13



► One year

D The longer of operating cycle or one year pg43


Question No: 14

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:




D Dividends declared and paid

Question No: 15

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?




D Gains on the sale of long-term investments

Question No: 16




D The cash flow from share and loan issues and repayments


Question No: 17



D Purchase of treasury stock



Question No: 18

Cash flow relating to investing activities does NOT present the cash effects of which of the following?

► Plant assets

D Intangible assets

► Investments

► Debt financing

Question No: 19

The indirect method shows the reconciliation from net income to operating cash flows. Select the

adjustment that is added during the reconciliation.




D An increase in Accounts Payable

Question No: 20


adjustment that is subtracted during the reconciliation.

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

statement



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

amortization expense.

Question No: 21


D Payment of debt


► Making of loans

► Sale of available for sale and held to maturity securities

Question No: 22

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

D Rs. 530,000

5,00,000 + 30000 = 5,30,000


Question No: 23





D Retirement of long term debt

Question No: 24




D Specific unit cost method


Question No: 25

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

► Inventory


D Purchases


Question No: 26

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?



D Debit - Office Supplies; Credit - Accounts Payable


Question No: 27


► Only current

D Two

► Three

► Four

Question No: 28

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?


D A loss of Rs. 250 should be recognized



Question No: 29


► Furniture

► Building


D Land

Question No: 30


D Straight-line method




Question No: 31





D Income tax returns

Question No: 32


► Depreciation

D Accounts payable



Some deferred items for which adjusting entries would be made include:


► Prepaid rent

► Office supplies

► Depreciation


Question No: 33


► Wasting assets

D fictitious assets (correct)

► Quick assets

► Tangible assets

Question No: 34




D Assets and expenses


Question No: 35




D Ledger


Question No: 36

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

D Rs. 33 million

30 – 4 +7 = 33 million

► Rs. 27 million

► Rs. 19 million

Question No: 37

From the given information, calculate the Cost of Goods Sold using the weighted-average cost method:





► Rs. 200

D Rs. 270

► Rs. 300

► Rs. 350

Question No: 38


D Credit

► Debit

► Negative

► Positive

Question No: 39

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

D Rs. 120,000

200,000-50,000 = 150000 G P

150000-10000-20000 = 120000 net income

► Rs. 130,000

► Rs. 180,000

Question No: 40




► How much was spent for the new plants and

equipment?

D How profitable the company’s current assets are?

Question No: 41 ( Marks: 5 ) On 15, 2001, ABC Company sold 1,000 printers to another company. Immediately prior to this sale, the perpetual inventory records of the company for the printers included the following cost layers.

Purchase date Quantity Unit Cost Total Cost Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550 Jan. 9, 2001 900 Rs. 9.50 8,550 Total on hand 1,500 Rs. 14,100

Instructions: Prepare a separate general entry to record the cost of printers, assuming that the company uses the following methods.

• FIFO • LIFO

Answer: Using FIFO method:

Purchase date Quantity Unit Cost

Total Cost

Dec.12, 2000 600 Rs. 9.25 Rs. 5,550 Jan. 9, 2001 900 Rs. 9.50 8,550 Cost of sale of 1000 printers: Sale date Quantity Unit Cost Total Cost 15,2001 600 Rs. 9.25 Rs. 5,550 15,2001 400 Rs. 9.50 3800 9350

a. FIFO (2.5) DR.

Rs. CR. Rs.

Cost of Printers Sold A/C 9350 Printers Inventory A/C 9350

Using LIFO method: Cost of sale of 1000 printers:

DR. Rs.

CR. Rs.

Cost of Printers Sold A/C 9475 Printers Inventory A/C 9475

Sale date Quantity Unit Cost Total Cost 15,2001 900 Rs. 9.50 Rs. 8,550 15,2001 100 Rs. 9.25 925 9475

b. LIFO (2.5) Question No: 42 (Marks: 5) Hill Company adjusts its accounts at the end of each month. Prepare the adjusting entries required at December 31 based on the following information.

a. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to Rs. 1,050. No interest expense has yet been recorded.

Answer

b. Depreciation of the office equipment is based on an estimated life of five years. The balance in the office

equipment account is Rs. 24,000; no change has occurred in the account during the year. c. Interest revenue earned on US government bonds during

December amounts to Rs. 750. This accrued interest revenue has not been recorded or received as of December 31.

d. On December 31, an agreement was signed to lease a truck for 12 months beginning

January 1 at a rate of 35 cents per mile. Usage is expected to be 2,000 miles per month, and the contract specifies a minimum payment equivalent to 18,000 miles a year.

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

PAPER#02

Question No: 1

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 Question No: 2 Which of the following is the acronym for GAAP?

General Entry DR Rs CR Rs Interest Expense A/C 1050 Interest Payable A/C 1050

General Entry Rs Rs Depreciation of Office Equip. A/C 4800 Accumulated dep. 4800

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

General Entry Rs Rs Accrued lease rent 6,30,000

Lease rent

6,30,000

General Entry Rs Rs Salary Expense A/C 2800 Salary Payable A/C 2800

► Generally Adopted Accounting Principles ► Generally Accepted Auditing Principles ► Generally Accepted Accounting Principles ► Generally Adapted American Principles Question No: 3 How much duration does an accounting period usually have? ► Three months ► Two years ► One year ► Five years Question No: 4 To determine the balance of a particular account, one should refer to which of the following? ► Ledger ► Source document ► Chart of accounts ► Journal Question No: 5 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 ► Liquidity position of the company Question No: 6 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 Question No: 7 Which of the following is the next step after the preparation of trial balance? ► Adjusted trial balance ► Financial statements ► Adjusting entries PG36 ► Closing entries Question No: 8 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 Question No: 9 Which of the following principle is used for recording an expense? ► Matching Principle ► Cost Principle ► Realization Principle ► Objectivity Principle Question No: 10 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

90,000 – 2700 – 1300 = 86,000

► Rs. 88,700

► Rs. 90,000

Question No: 12 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 Question No: 13 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 ► Rs. 1,600,000 Change in retain earning was $2,400,000($12,500,000-$10, 00,000)therefore the net income was $3,200,000($2,400,000+$8,00,000) Question No: 14 Which of the following is the largest single expense of most merchandising firms? ► Cost of goods sold ► Rent Expense ► Amortization Expense ► Salaries Expense Question No: 15 Which of the following is NOT among the five main kinds of current assets? ► Cash and equivalents ► Deferred income ► Accounts receivable ► Prepaid expenses Question No: 16 When preparing a statement of cash flows under the indirect method, supplemental disclosure should be made for which of the following? ► Net cash consumed by operating activities ► Cash dividend distributions ► Cash paid for interest and taxes ► Cash paid for wages Question No: 17 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 Question No: 18 ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the year. What would be the cash payments for the purchase of the merchandise. ► Rs. 505,000 ► Rs. 516,000

► Rs. 490,000 ► Rs. 495,000 Question No: 19 The statement of cash flow does NOT assist investors, creditors and others in assessing: ► The company’s ability to generate positive cash flows in future periods ► The company’s ability to meet its obligations and to pay dividends ► The company’s needs for external financing ► The company’s ability to forecast future losses Question No: 20 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 Question No: 21 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 Question No: 22 Which of the following feature is shown by the income statement for a merchandising company? ► Gross profit ► Cost of goods sold ► A sales revenue section ► All of the given options Question No: 23 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 ► It can be used to manipulate net income ► Most recent inventory costs are allocated to cost of goods sold Question No: 24 From the given data, calculate Cost of Goods Sold using the FIFO costing method: Beginning inventory is 10 units . Rs. 10 each. On January 20, purchased 10 units . Rs. 20 each On January 30, purchased 5 units . Rs. 30 each 15 of the 25 units are sold. ► Rs. 200 ► Rs. 150 ► Rs. 350 ► Rs. 450 1st 10 units at the rate of 10 each... total = 100 Rs.

2nd 5 units are rate of 20 each... total = 100 Rs.

Total cost 100 + 100 = 200

Question No: 25 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

Question No: 26 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 380000 + 60000 - 50000 = 390000

► Rs. 370,000 ► Rs. 330,000 ► Rs. 420,000 Question No: 27 The purpose of recording depreciation on productive assets is to: ► Reflect the decline in the market value of the assets each period ► Reduce income when the company has an exceptionally profitable year ► Be in conformity with the revenue recognition principle ► Allocate the original cost of a productive asset to expense over its useful life Question No: 28 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 Question No: 29 Which of the following is NOT the part of annual report? ► Financial statements ► Auditor’s report ► Five year summary ► Future investments report Question No: 30 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 Question No: 31 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 Question No: 32 Which of the following steps of accounting cycle keep on occurring throughout the period? ► Journalizing and posting the entries ► Making adjusting entries for the relevant accounts ► Preparing Trial Balance ► Preparing financial statements Question No: 33 Which one of the following items is NOT generally used in preparing a statement of cash flows? ► Adjusted trial balance ► Comparative balance sheets ► Current income statement ► Additional information Question No: 34 Which of the following items does NOT result in an adjustment in the merchandise inventory account under a perpetual system?

► A return of merchandise inventory to the supplier ► Payment of freight costs for goods shipped to a customer ► Payment of freight costs for goods received from a supplier ► A purchase of merchandise Question No: 35 From the given information, calculate the Cost of Goods Sold using the weighted-average cost method: Beginning inventory 10 units . Rs. 10 each On January 20, purchased 10 units . Rs. 20 each On January 30, purchased 5 units . Rs. 30 each 15 of the 25 units are sold ► Rs. 200 ► Rs. 270 Total Cost of units = (10 x 10) + (10 x 20) + (5 x 30) = 450

Per unit cost = total cost / total units

450 / 25 = 18

Cost of 15 units = 15 x 18 = 270

► Rs. 300

► Rs. 350

Question No: 36 Which of the following is the most common item in adjusting entries of a merchandising business? ► Un-earned revenue ► Pre-paid expense ► Depreciation expense ► Accrued revenue Question No: 37 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 Question No: 38 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 Question No: 39 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? Question No: 40 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

PAPER#03

Question No: 1 How much duration does an accounting period usually have? ► Three months ► Two years ► One year ► Five years Question No: 2 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 Question No: 3 To determine the balance of a particular account, one should refer to which of the following? ► Ledger ► Source document ► Chart of accounts ► Journal Question No: 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 Question No: 5 An entry that affects more than one accounts is knows as _____________. ► Journal entry ► Compound entry pg8 ► Adjusting entry ► Reversing entry Question No: 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 Question No: 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 Question No: 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: (need review) ► 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 Question No: 9 Which of the following accounts would NOT be included in a post-closing trial balance? ► Cash ► Accumulated depreciation

► Owner’s equity ► Fees earned Question No: 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 Question No: 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 pg 43 ► The shorter of operating cycle or one year Question No: 12 Which of the following is NOT the most common example of cash equivalents? ► Savings deposits ► Certificates of Deposit (CDs) ► Stocks of other companies ► Money market mutual funds Question No: 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 ► Should not to be reported Question No: 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 Question No: 15 Which of the following activities convert the income statement items from the accrual basis of accounting to cash? ► Operating activities ► Investing activities ► Financing activities ► Non cash activities Question No: 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 Question No: 17 ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the year. What would be the cash payments for the purchase of the merchandise. ► Rs. 505,000 ► Rs. 516,000 ► Rs. 490,000 ► Rs. 495,000

Question No: 18 The cash flow from investing activities shows the cash effects of which of the following? ► Income statement items ► Long term assets items ► Long term liability & stockholder’s equity ► Long term liability and long term assets Question No: 19 Which of the following must be included in a company's summary of significant accounting policies in the notes to the financial statements? ► Description of current year equity transactions ► Summary of long-term debt outstanding ► Schedule of fixed assets ► Revenue recognition policies Question No: 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 Question No: 21 An inventory error affects ___________ accounting periods. ► Only current ► Two ► Three ► Four Question No: 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 On January 30, purchased 5 units @ Rs. 30 each 15 of the 25 units are sold. ► Rs. 200 ► Rs. 150 ► Rs. 350 ► Rs. 450 Question No: 23 Under which cost flow assumption, the ending inventory is composed of the most recently purchased merchandise? ► FIFO ► LIFO ► Average cost ► Specific identification Question No: 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 Question No: 25 Which cost flow assumption most closely matches the actual physical flow of inventory in most retailing businesses? ► FIFO ► LIFO ► Average cost ► Specific identification

Question No: 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 Question No: 27 The purpose of recording depreciation on productive assets is to: ► Reflect the decline in the market value of the assets each period ► Reduce income when the company has an exceptionally profitable year ► Be in conformity with the revenue recognition principle ► Allocate the original cost of a productive asset to expense over its useful life Question No: 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 Question No: 29 Which of the following is NOT an example of accelerated depreciation method? ► Straight-line method ► Sum-of-the-years digit method ► Double-declining balance method ► Modified Accelerated Cost Recovery System Question No: 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 Question No: 31 Which of the following account would be classified as a current asset on the balance sheet?

► Accumulated depreciation ► Accounts receivable ► Office equipment ► Land

Question No: 32 An adjusting entry would NOT be required for which of the following account? ► Salaries ► Past due expense ► Income tax expense ► Accounts receivable Question No: 33 Which of the following accounts will be debited, when increased? ► Liabilities and expenses ► Assets and equity ► Assets and expenses ► Equity and revenues Question No: 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 Question No: 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 Question No: 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 Question No: 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 Question No: 38 Which of the following balances does the Contra-Asset account show typically? ► Credit ► Debit ► Negative ► Positive Question No: 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 Question No: 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 Question No: 41 ( Marks: 5 ) Classify the following activities as cash flow from operating, investing and financing activities.

Payments for repurchase of company shares Collections on loan principal and sales of other firms' debt instruments Tax payments Expenditure for purchase of other firms' equity instruments Payments to suppliers for goods and services

Answer: Payments for repurchase of company shares: Financing activities Collections on loan principal and sales of other firms' debt instruments: Investing activities. Tax payments: Operating activities Expenditure for purchase of other firms' equity instruments: Investing activities Payments to suppliers for goods and services: Operating activities Question No: 42 ( Marks: 5 )

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

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

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

Mystery Mountain Lodge Balance Sheet as on December 31, 2001

Particulars Amount (Rs.) Current Assets: Cash 21,400 Accounts receivable 10,600 Snowmobiles 15,400 Fixed Assets: Equipment 29,200 Furnishings 58,700 Buildings 450,000 Land 425,000 1,010,300 Liabilities: Interest payable 12,000 Salaries Payable 33,500 Accounts Payable 54,800 Notes Payable 620,000 Capital: Owner’s capital 290,000 1,010,300 PAPER#04

Question No: 1


► Three months

► Two years

D One year Correct

► Five years

Question No: 2



► Closing entries


D Accounting Equation

Question No: 3




D Adjusting entries PG14 Correct

► Closing entries

Question No: 4




D Posting only the debit portion of a particular journal entry


Question No: 5





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

Question No: 6


depreciation expense of this building for one month by using straight line depreciation method?

► Rs. 600

D Rs. 250Correct

► Rs. 300

► Rs. 500

Ref:

Value of the building = 90000

Est. useful life = 30 years

Exp. For the month will be calculated as follows = 90000*1/30 = 3000

Question No: 7



D Net Income Correct



► Net Loss

Question No: 8


Allowance for Doubtful Accounts has a balance of Rs. 7,000. The expected net realizable value of the

accounts receivable is:

► Rs. 7,000

D Rs. 93,000 Correct

► Rs. 100,000

► Rs. 107,000

Ref:

A/C receivable = 100000

Less allowance doubtful = 70000

______________

net realizable value a/c receivable 93000

Question No: 9





D Retained earnings are an asset on the balance sheet

Question No: 10

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


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



Question No: 11



D All dividends paid to voting shares in the year



Question No: 12

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

to cash?

D Operating activities Correct




Question No: 13

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.

D Rs. 205,000 Correct

► Rs. 215,000

► Rs. 195,000

► Rs. 200,000

sales 200000

beginning balance 20000

total 220000

less ending 15000


Question No: 14



D Expenditure for sale of plant and equipment



Question No: 15

When cash flow statement is prepared by using indirect method, which part of it is different from the

direct method?



D Cash flow from operating activities


Question No: 16




D Long term liability & stockholder’s equity


Question No: 17

Which of the following must be included in a company's summary of significant accounting policies in the

notes to the financial statements?




D Revenue recognition policies

Question No: 18






Question No: 19

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

account?



► Sales

D Both Accounts receivable & cost of goods sold

Question No: 20




D An increase in cost of goods sold


Question No: 21


► 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

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

Question No: 22

Warner Corporation reported net income in excess of its net cash flow from operations. A possible

explanation of this difference is:


D Non operating gains



Question No: 23





D Payment of wages

Question No: 24

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:



D Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs.

1100


Question No: 25

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:


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

Rs.600



Question No: 26



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



Question No: 27

Closing entries result in net income being calculated in the income summary account and then transferred

to which of the following account?

► Revenue account



D Owner's Capital account

Question No: 28

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?

D 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.

Net income

200000

Added back Deprecation Exp.

10000

Working capital change :- 210000

Increase in account receivable

(outflow so subtract)

(15000)

Increase in Account payable

(inflow so add)

5000

Net Cash Flow from Operating

Activities

200000


Net income 200,000

Added back

Deprecation 10,000

Increase in account receivable (15,000)

Increase in Account payable 5000

____________

net cash flow from OP activity 200,000

Same Question solved by Hira:

Cash flow from operating activities= Net income- Depreciation- Increase in


Cash flow from operating activities= 200,000-10,000-15,000-5,000

Cash flow from operating activities= =170,000 =Answer Correct


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.

Answer

During the period of inflation, prices increase. Under the FIFO method, valuation of closing inventory is

made at most recent prices or at increased prices and closing inventory is shown at the credit side of

trading & P&L account (income statement) with increased value, as a result of which net income of the

company increases because of increase in the value of closing inventory ultimately company’s earnings

increases. Where as under the LIFO method company’s earnings decreases because of decrease in the

value of closing inventory


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.

Answer

Accelerated deprecation method will increase the earnings of stockholders and defer the tax liability to

far future years and current tax liability will be minimum in near future.



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.

Net income 666000

Working capital change :-

Increase in account receivable (outflow so subtract) (50000)

Inventory decrease 23000

Pre-paid expenses increased

(35000)

Decrease in Account payable

(55000)

Accrued expenses payable increased

14000

Net Cash Flow from Operating Activities

563000

Same Question Solved BY Hira:

Cash flow from operating activities= Net income – Increase in A/Cs

receivable – Decrease in inventory + decrease in A/Cs payable + Increase in

per-paid expenses- Increase in accrued expenses

Cash flow from operating activities=666,000-50,000-23,000+55,000+35,000-

14,000

Cash flow from operating activities=669,000= Answer Correct

Q.6. what is the effect of the following on the assets, liabilities and owner equity?.MARKS 5

i. borrowed money from a bank.

ii. Returned office equipment which was previously purchased on credit and payment was not made.

iii. Sold land for cash in excess the cost price.

iv. Purchase a computer on credit.

V. payment made to a creditor.

My Answer.

Please Comment

1. Asset increased, Liability Increased .. Owner equity No Change..

2. Asset kam huwa, Liability b kam huwi.. no effect on Owner equity

3. Asset kam huwa... Asset ziyada huwa... Owner equity ziyada hui

4. Asset ziyada Huwa... Liablity Ziyada huwi... No effect on owner equity

5. Liability kam huwi,, asset kam huwa... No effect on owner's equity

Kamran says

Assets Liabilities Owner equity

Increase Increase No effect

Decrease Decrease No effect

Increase No effect Increase

Increase Increase No effect

Decrease Decrease No effect

Q#4 calculate return on investment 5 marks

Net income = 40000

Interest expense = 10000

Income tax expense = 20000

Liabilities = 150000

Common share = 150000

Retained earnings = 60000

Solution:

ROI = operating income / stockholder +liabilities *100

ROI = 70000/360000*100

ROI = 19.44%

ROI = (EBIT / Capital employed) * 100

= (40+10+20 / 150 + 150 + 60) * 100

= 70,000 / 360,000 * 100 = 19.44%


Following data is taken from the ABC Corporation.

1999 (Rs.) 2000 (Rs.)

Total assets 400,000 300,000

Total liabilities 300,000 180,000

Share capital (Rs. 10 par 100,000 90,000

Total debt 120,000 140,000

Requirement:

Calculate the following.

a) Debt ratio (2.5)

b) Debt to total asset ratio (2.5)

Debt ratio = total debt / total assets

= 120000/ 400000

= .3

Debt ratio = total debt / total assets

= 140,000/300,000

= .46

Debt to total assets ratio = total debt / total assets

= 120000/400000

= .3

Debt to total assets ratio = total debt / total assets

= 140000/300000

= .46

Question No: 44 ( Marks: 3 ) Using the following information, compute the dividend yield to the nearest tenth. Income Rs. 130,000 Beginning shares outstanding 250,000 Ending shares outstanding 270,000 Current price per share Rs. 7.50 Dividend per share Rs. 1.20 Dividend yield = divi per share / market price *100 = 1.20/7.50*100 = 16% Q.7. calculate the price earning ratio from the following. Marks.5

Net income Rs.130000

Opening shares outstanding 250000

Ending shares outstanding 270000

Current price per share Rs.2.7

Dividend price per share Rs.1.2

Price-earning ratio (P/E) = Market price/share / Earning/share

= 2.7/1.2

= 2.25

Q,3. what information do you produce from ratio than through the simple

observation of the business?. Marks.3

Answer:

Observation involves the recording of actions and is performed by either a person or some mechanical or

electronic device. Observation is less versatile than communication since some attributes of a person may

not be readily observable, such as attitudes, awareness, knowledge, intentions, and motivation.

Observation also might take longer since observers may have to wait for appropriate events to occur,

though observation using scanner data or ratio might be quicker and more cost effective.

Q.1. what do you mean by the efficiency of the business? 3 marks.

Efficiency of the business means measure how effectively the firm is using its assets. Some aspects of

activity analysis are closely related to liquidity analysis. Our focus is to attention on how effectively the

firm is managing two specific asset groups receivables and inventories- and its total assets in general.

Q7: It is observed that net income decline in this year but net sales increases frm 5 % to 7% are sales

increasing. Give reasons.

Answer:

Due to increase in net sales from 5% to 7% gross profit increase on the other hand due to tax increase

net income is decline in this year.

Q10: Why it is a big financial issue to manage company’s operating cycle.

The shorter the operating cycle, the higher the quality of current assets and the greater the efficiency of

management. In case the greater the operating cycle, the lower the quality of current assets and the

lower the efficiency of management. So it is big financial issue to manage the company’s operating cycle.

Or

In operating cycle company’s manage these issues financial issues such as :

Managing cash needs♣

Setting credit policy♣

Evaluation the level of account receivable♣

Financing receivable♣

Credit losses♣




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.

What is deferred expense? 3 marks

PAPER#05

Question No: 1


• Generally Adopted Accounting Principles

• Generally Accepted Auditing Principles • Generally Accepted Accounting Principles pg3 • Generally Adapted American Principles

Question No: 2

A business has purchased machinery on credit, what will be its effect on cash?

• Increase in cash • Decrease in cash • No effect on cash • Cannot be determined from the given information

Question No: 3

Which of the following steps of accounting cycle keep on occurring throughout the period?

• Journalizing and posting the entries • Making adjusting entries for the relevant accounts • Analyzing and journalizing transactions as they occur • Preparing financial statements

Question No: 4


Adjusting entries

Closing entries

Financial position

Accounting Equation pg3

Question No: 5

Transactions are entered in the ledger account after recording in which of the following?

Trial Balance

Balance Sheet

Journal

Financial Statements

Question No: 6

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

Question No: 7

A business has purchased a building on credit, how it would be recorded in

the journal?





Question No: 8


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 No: 9

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

It is an application of matching principle

It is a closing entry

Usually includes an offsetting credit either to cash or accounts payable

It is done only at the end of financial year

Question No: 10

Which of the following expenses would normally be classified as Other or Non-operating Expense on a

Multiple-step Income Statement?

Depreciation expense

Interest expense

Insurance expense

Salaries expense

Question No: 11



Paying dividends to shareholders



Question No: 12

Which one the following is the purpose of closing entries?

To transfer the results of operations to owner's equity

To reduce the Capital account balance to zero

To adjust the ledger account balances for providing complete and accurate figures

To close all accounts in order to make the ledger ready for next accounting period

Question No: 13


Cost of goods sold

Rent Expense

Amortization Expense

Salaries Expense

Question No: 14

The components of stockholders' equity on a balance sheet for a corporation are:

Liabilities and Capital Stock

Assets and Retained Earnings

Assets and Liabilities

Capital Stock and Retained Earnings

Question No: 15

When preparing a statement of cash flows under the indirect method, supplemental disclosure should be

made for which of the following?

Net cash consumed by operating activities

Cash dividend distributions

Cash paid for interest and taxes

Cash paid for wages

Question No: 16


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

Question No: 17

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. 215,000

Rs. 195,000

Rs. 200,000

Rs. 205,000

Sales=200000

+ opening balance= 20000

220000

-Ending balance 15000

Cash receive from customer 205000

Question No: 18

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

Question No: 19

In a period of rising prices, all of the following statements regarding FIFO are true EXCEPT:

The units purchased earlier in the accounting period are allocated to cost of goods sold

Reported net income is generally higher

The lower-priced unit costs are allocated to ending inventory

Assumptions are used to allocate inventory costs between cost of goods

sold and ending inventory

Question No: 20

What will be the gross margin if sales price of merchandise sold to customers is Rs. 10,000, beginning

inventory is Rs. 1,000, inventory purchases are Rs. 4,000, and cost of inventory sold is Rs. 3,000?

Rs. 2,000

Rs. 7,000

Rs. 5,000

Rs. 3000

Sales- CGS= GP

Question No: 21

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

Question No: 22


Straight-line method




Question No: 23

Which of the following is an example of the contra-asset account?



Unearned revenue

Unrecorded revenue

Question No: 24


Salaries

Past due expense

Income tax expense

Accounts receivable

Question No: 25


Depreciation

Accounts payable

Unearned revenue

Prepaid insurance

Some deferred items for which adjusting entries would be made include:


► Prepaid rent

► Office supplies

► Depreciation


Question No: 26

Which of the following account will be credited, if land is purchased on credit?

Cash

Account Receivables

Accounts Payable

Notes Payable

Question No: 27


Income statement

Statement of cash flow

Ledger

Adjusting entries

Question No: 28

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

There are two ways to increase the owner equity account:

Private and public capital contribution

Earning profit

Question No: 29

If the supplies in hand at the end of January are totaled Rs. 200 and the supplies on hand account before

adjustment is Rs. 450, what would be the adjustment at month-end?

Reduce supplies on hand by Rs. 200; increase supplies expense by Rs.

200

Increase supplies on hand by Rs. 200; reduce supplies expense by Rs. 200

Increase supplies on hand by Rs. 250; reduce supplies expense by Rs. 250

Reduce supplies on hand by Rs. 250; increase supplies expense by Rs. 250

Question No: 30

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


NOTES PREPARED BY KAMRAN HAIDER

Which of the following statements is not consistent with GAAP relating to asset valuation:

– Assets are originally recorded in accounting records at their cost.

– Subtracting total liabilities from total assets indicate total equity under market conditions.

– Accountants assumes that such as land, building, office supplies will be used in business operations

rather than sold current market price.

– Accountants based the valuation of assets from objective verifiable evidence rather than upon appraisal

or personal opinion.

• A transaction caused Rs. 10,000 Decrease in both Total Assets and Total Liabilities. This transaction

could have been:

– Purchase of office equipment for Rs. 10,000 cash.

– An asset with a cost of Rs. 10,000 destroyed by fire.

– Repayment of Rs. 10,000 bank loan.

– Collection of Rs. 10,000 from Accounts Receivables.

• Identify one of the following statements that is incorrect as regards net income:

– Net income is computed in the income statement, appears in the statement of owners’ equity and

increase owners’ equity in the balance sheet.

– Net income = Revenue – Expenses

– Net income is computed in the income statement, appears in the statement of owners’ equity and

it increases the amount of cash shown

in the balance sheet.

– Net income can be determined using the account balances appearing in the adjusted trial balance.

• Which of the following are based upon the realization principle and the matching principle (indicate

all correct answers).

– Adjusting Entries (Matching Principle)

– Closing Entries (Matching Principle)

– Accrual Basis of Accounting

– Measurement of Net Income under GAAP (Matching Principle)

• Which of the following explains the debit and credit rules relating to recording of

Revenues and Expenses:

– Expenses appear on the left side of the balance sheet and are recorded by debits. Revenues appear on

the right side of the balance sheet and are

recorded by credits.

– Expenses appear on the left side of the income statement and are recorded by debits. Revenues appear

on the right side of the income statement and are recorded by credits.

– The effect of revenues and expenses in the owner’s equity.

– Realization and Matching Principle.

• The entry to recognize Depreciation expenses (indicate all correct answers):

– Is an application of Matching Principle. (Correct)

– Is a closing entry.

– Usually includes an offsetting credit either to cash or to Accounts payable.

– Is an adjusting entry. (Correct)

(BOTH OPTION CORRECT)

• When a business is organized as a corporation:

– Stock holders are liable for the debt of the business only in proportion to their percentage ownership in

stock. (X)

– Stock holders do not have to pay personal income tax on dividends received because the corporation is

subject to income tax on its

earnings. (X)

– Fluctuations in the market value of outstanding shares of capital stock do not affect the amount of

stock holders’ equity shown in the balance

sheet. (Correct)

– Each stock holder has the right to bind the corporation to contracts and to make other managerial

decisions. (X)

• Moosa Corporation was organized with authorization to issue 100,000 shares

of Re. 1 par value common stock. 40,000 were issued to Moosa, the company’s founder, but at a price of

Rs. 5 per share. No other shares have yet been issued.

– Moosa owns 40% of the stock holders’ equity of the corporation. (X)

– The corporation should recognize Rs. 160,000 gain in the issuance of

these shares. (X)

– If the balance sheet includes retained earnings of Rs. 50,000, total paid

in capital amounts to Rs. 250,000. (X)

– In the balance sheet, additional paid in capital account will have Rs. 160,000 balance, regardless of

the profit earned or losses incurred since the organization was organized. (Correct)

• The statement of cash flows is designed to assist users in assessing each of the following except:

– The ability of the company to remain solvent. (X)

– In assessing the company’s profitability. (Correct)

– Major source of cash receipt during the period. (X)

– The reason why net cash flows from operating activities differ from net income. (X)

Analysis of Income Statement and Balance Sheet

- Instrument panels of a business.

- Different needs of different users (outside users & internal users) identity of user is important.

- Three broad areas: solvency, stability and profitability.

- Four techniques of Financial Statements Analysis.

1. Rupee and percentage changes: From one year to the next: year-to-year.

2. Trend Percentages also called horizontal analysis

3. Component Percentages Also called Vertical Analysis

4. Analysis by Ratios

Analysis by Ratios

• Financial Ratios are like financial temperatures.

– Inter-linkages of Income Statement and Balance Sheet items.

– Ratios to be related to some predetermined standard or industry average.

Short-term solvency Ability to meet current liabilities out of current assets.

Short-Term Solvency Ratios

Current Ratio (Normal Ratio = 2:1)

• Too high ratio may indicate that capital is not being used productively and

efficiently Calls for financial reorganization.

• Current ratio measures “general liquidity”

Quick Ratio or Acid-Test Ratio (Normal Ratio = 1:1)

• Inventories and pre-paid expenses are excluded from current assets.

• Only cash, marketable securities and Receivables (called Quick Assets) are considered

• Quick ratio measures “immediate liquidity”.

Working Capital

• Difference of Current Assets and Current Liabilities.

• It depends upon size and nature of business.

• Two companies with same working capital but different current ratios.

• Two companies with same current ratio but different working capital.

Quality of Working Capital

• Liquidity of Inventory

• Inventory Turnover Ratio

• Days required to sell inventory

The higher the rate, the more quickly the company sells its inventory. However, companies selling high

markup items e.g. Jewelry Stores.

Liquidity of Receivables

Receivable Turnover Ratio (RTO): Number of times

“Receivables” are converted into cash during the year

- Ideally RTO = Net Credit Sales

Monthly Average of Receivables

The higher the RTO, the more liquid the company’s

Receivables

Analysis by Long-Term Creditors

• Solvency: Ability to meet outside liabilities from total assets.

• Indicators:- Long-term Solvency Ratios

Debt Ratio: Indicates percentage of total assets financed by debt =

Total Outside Liabilities

Total assets

Return on Common Stockholder’s equity =

Net income applicable to common stock x 100

Common stockholder’s equity

• EPS applied to common stock. Preferred shares have fixed dividends

Price-earning ratio (P/E) = Market Price/Share

Earning/Share

Dividend Yield = Dividend per share x 100

Market price per share

- Dividend Coverage Ratio (Normal Ratio: 5 to 10)

= Net Income .

Annual Preferred Dividend

Indicators of Profitability

Return on total assets = Operating Income x 100

Total Assets

Return on investment = Operating income

(ROI) Stockholders equity + fixed liabilities

Return on Sales = Net income x 100

Net sales

Assets turn over ratio = Net Sales = 50%

Average Assets

Assets turn over ratio shows relative effectiveness of assets utilization

Operating cycle = Inventory sale days (average) + Receivable Collection days (average).

The shorter the operating cycle, the higher the quality of current assets and the greater the efficiency of

management.

Total legal capital = preferred + common

Total paid-in-capital = Total legal capital + additional paid-in-capital

Book value per common share = Common stock equity / Total common share

2. Why businesses record Land at its original cost, even though its of much more value then its cost. Give

reasons. 3marks

3. Do inventory valuation methods affect profitability of the company? Give examples 3marks

4. how LIFO method help in tax saving?

5. and last one is from NET CASH FLOW

1.


►It is a calculated figure and represents actual cash

2.After the closing entries are posted to the ledger, each expense account will have?

►A zero balance REFERENCE:

3.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?

►Investments

4.Which of the following activities convert the income statement items from the accrual basis of

accounting to cash?

► Operating activities

5. Which depreciation method allocates an equal portion of depreciation expense to each period of

asset’s useful life?

►Straight-line method

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

►Net cash flow from operating activities

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

► Posting the entries to the ledger

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

► To prove the equality of debits and credits

9.Cash flow relating to investing activities does NOT present the cash effects of which of the following?

► Intangible assets

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


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

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

12.Which of the following is TRUE regarding the entry to recognize the depreciation expenses?

► It is done only at the end of financial year

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

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

14.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

15.Which of the following items is included in the financing activities section of the statement of cash

flows?

Cash effects of transactions obtaining resources from owners and providing them with a return on their

investment

16.Which of the following is added in the net income while preparing cash flow statement by indirect

method?

Decrease in accrued expenses payable

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

D Deferred income

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

D Inventory account is decreased

19.Which of the following is the most common item in adjusting entries of a merchandising business?

D Depreciation expense

20.Which of the following statements is CORRECT regarding depreciation methods?

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

the straight line method

21. Using the following information calculate Net Income: Sales Revenue Rs.200, 000, Loss on Sale of


D Rs. 120,000

200- 50= GP is 150

150- 10 - 20 = net income 120


The following cases relate to the valuation of assets. Consider each case independently

a. World Wide Travel Agency has office supplies costing Rs. 1,700 on hand at the balance sheet date.

These supplies were purchased from a supplier that does not give cash refunds. World Wide’s

management believes that the company could sell these suppliers for no more than Rs. 500 if it were to

advertise them for sale. However, the company expects to use these supplies and to purchase more when

they are gone. In its balance sheet, the supplies were valued at Rs. 500.

Answer

Cost or net realizable value which ever is less. Office supplies are current asset which should be shown at

cost or market price/ net realizable value which ever is less.

b. Nofford Corporation purchased land in 1995 for Rs. 20,000. In 2001, it purchased a similar parcel of

land for Rs. 30,000. In its 2001 balance sheet, the company presented these two parcels of land at a

combined amount of Rs. 320,000.

ANSWER

Historical cost principle has been violated by the company which depicts that all fixed assets must be

shown at purchase price/cost price less deprecation in the balance sheet.

c. At December 30, 2001, Lenier, Inc., purchased a computer system from a mailorder supplier for Rs.

14,000. The retail value of the system according to the mailorder supplier was Rs. 20,000. On January 7,

however, the system was stolen during a burglary. In its December 31, 2001, balance sheet, Lineir showed

this computer system at Rs. 14,000 and made no r eference to its retail value or to the burglary. The

December balance sheet was issued in February of 2002.

Answer

The computer system was purchased on Dec 30, 2001 and balance sheet was prepared on DEC 31, 2001

which shows the financial position as at Dec 31, 2001. The system was stolen on January 7, 2002 which

will not be reflected in the balance sheet as on Dec 31, 2001. System will be shown at cost price i.e.

Rs.14000 because this is the purchase price of the computer system.

Requirement:

In each case, indicate the appropriate balance sheet amount of the asset under generally accepted

accounting principles. If the amount assigned by the company is incorrect, briefly explain the accounting

principles that have been violated.




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.

What is deferred expense? 3 marks

CURRENT PAPER OF FIN-621 DATED 12-05-2011

QUESTION:

What is the difference between expense and expenditure? (3)

Question:

What is the principle advantage of using direct method of cash flow statement? (3)

Question:

Why should company prefer to use LIFO instead of FIFO?

QUESTION:

Complete the table :

sales Beginning inventory Net purchases Ending inventory Cost of good sold Gross profit Operating

expenses Net income

300,000 95,000 130,000 44000 ? 119,000 90000 ?

600,000 90,000 340,000 ? 330,000 ? ? 25000

Question:

Classify the following activities as cash flow from operating, investing and financing activities

1.proceed from issuing shares

2.interest received on loans

3.repayment of debt principal,capital lease

4.loans made and acquired of other firm’s debt

5.divinded received from scurities.

PAPER#06

Question No: 1

Which of the following statement shows the revenues and expenses of the business?

� Balance Sheet � Income Statement � Statement of Cash Flows � Statement of Owner’s Equity

Question No: 2


� To check the validity of accounts � To prove the equality of debits and credits � To check the balance of all assets � To prepare the balance sheet

Question No: 3


� 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

Question No: 4

Which of the following represents the main step(s) of accounting cycle?

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

Question No: 5

Which of the following principle is used for recording an expense?

� Matching Principle � Cost Principle � Realization Principle

� Objectivity Principle Question No: 6

Blankenship Company pays its employees every Friday for work rendered that week. The payroll is

typically Rs.10,000 per week. Which of the following journal entries would Blankenship ordinarily

record on the Friday payday?

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

Question No: 7

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

Question No: 8

Which one of the following type of entry is made to recognize depreciation expense?

� A reversing � A closing entry � An adjusting entry � None of the given options

Question No: 9

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(Pg73)

Question No: 10

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 � Retained Earnings account

Question No: 11

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

Question No: 12

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?

� Gains on the sale of long-term investments � Losses on the sale of long-term investments � Depreciation expense � Amortization expense

Question No: 13

Which of the following items are NOT added back to the net income figure (which is found on the

Income Statement) to arrive at cash flows from operations?

� Depreciation � Deferred tax � Amortization � Investments

Question No: 14

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

Question No: 15

Which one of the following items is not generally used in preparing a statement of cash flows?

� Adjusted trial balance � Comparative balance sheets � Current income statement � Additional information

Question No: 16

Which of the following is added in the net income while preparing cash flow statement by indirect

method?

� Increase in inventories � Decrease in inventories � Increase in prepaid expenses � Decrease in accrued expenses payable

Question No: 17


direct method?

� Cash flow from investing activities � Cash flow from financing activities � Cash flow from operating activities � All parts are same in both methods

Question No: 18


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

Question No: 19


� Sale of land for cash � Issuance of long term bonds � The sale of common stock � Retirement of long term debt

Question No: 20

All of the following regarding perpetual inventory system are true EXCEPT :

� It offers better inventory control than the periodic inventory system � A physical inventory count is not necessary � At the time of sale, the inventory account is credited � At the time of sale, cost of goods sold is debited

Question No: 21

An inventory error affects ____ accounting periods.

� Only current � Two � Three � Four

Question No: 22






� Rs. 200 � Rs. 150 � Rs. 350

� Rs. 450 Question No: 23

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

businesses?

� FIFO � LIFO � Average cost � Specific identification

Question No: 24

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?

Question No: 25

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

� Balance sheet � Income statement � Work Sheet � Ledger

Question No: 26

What will be the journal entry, if machinery is purchased on credit?

� Machinery A/c - Debit ; Accounts receivable - Credit � Machinery A/c - Debit ; Accounts payable - Credit � Machinery A/c - Debit ; cash A/c - Credit � Accounts receivable - Credit; Accounts payable - Debit

Question No: 27

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

Question No: 28

When a company should report the cost of an insurance policy as an expense?

� When the company first signs the policy � When the company pays for the policy � When the company receives the benefits from the policy over its period of coverage � When the company receives payments form the insurance company for its insurance claims

Question No: 29

Newell Company debited Prepaid Insurance of Rs. 600 on July 1, 2003 for one-year fire insurance

policy. If the company failures to make an adjusting entry on July 31 for the amount of insurance

expired, would cause:

� Assets to be overstated by Rs. 600 and expenses to be understated by Rs. 600 � Expenses to be overstated by Rs. 50 and assets to be understated by Rs. 50 � Assets to be overstated by Rs. 50 and expenses to be understated by Rs. 50 � Expenses to be overstated by Rs. 600 and assets to be understated by Rs. 600

Question No: 30


period?

� Rent expense � Revenue earned � Wages expense � Accumulated depreciation


Listed below in random order are the items to be included in the balance sheet of the

Mystery Mountain Lodge at December 31, 2001:

Equipment Rs. 29,200

Buildings Rs. 450,000

Land 425,000

Owner’s capital ?

Accounts payable 54,800

Cash 21,400

Accounts receivable 10,600

Furnishings 58,700

Salaries payable 33,500

Snowmobiles 15,400

Interest payable 12,000

Notes payable 620,000

Requirement:

Prepare a Balance Sheet at December 31, 2001.

Mystery Mountain Lodge

Balance sheet

As at Dec 31,2001

ASSETS RS. LIABILITIES RS.

Land 425000 Owner’s

capital

290000

Building 450000 current

liabilities

Furnishings 58700 account

payable

54800

Equipment 29200 salaries

payable

33500

Current

assets

interest

payable

12000

Cash 21400 notes payable 620000

A/R 10600

Snow

mobiles

15400

TOTAL 1010300 TOTAL 1010300

Fin 621 Quiz solved

Question # 1 of 15 ( Start time: 03:06:44 PM ) Total Marks: 1

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

Select correct option:

1. Paid-in-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




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




1. Financial statements

2. Auditor’s report

3. Five year summary

4. Future investments report



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


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


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

4. Investments by stockholders

1.If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:

A. . understatement of net income for the year by $7,500

B. . understatement of cost of merchandise sold for the year by $7,500

C. . overstatement of merchandise inventory for the year by $7,500

D. . overstatement of gross profit for the year by $7,500

2.The balance sheet contains the same major headings as appear in the accounting equation.

A. . False

B. . True

3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the

a amount of net income or net loss would be:

A. . $37,500 net loss

B. . $2,500 net loss

C. . $7,500 net income

D. . $45,000 net income

4. If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to

record depreciation would be:

A. . debit depreciation expense, $2,000; credit accumulated depreciation, $2,000

B. . debit equipment, $2,000; credit depreciation expense, $2,000

C. . debit depreciation expense, $$2,000; credit equipment, $2,000

D. . debit accumulated depreciation, $2,000; credit depreciation expense, $2,000

5. Liabilities result from some future transaction.

A. . False

B. . True

6. All calendar years are also fiscal years, but not all fiscal years are calendar years.

A. . True

B. . False

7. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted

from, gross sales.

A. . True

B. . False

8. The post-closing trial balance may contain revenue and expense accounts.

A. . True

B. . False

9. Overstated ending inventory results in an overstatement of cost of goods sold and an

understatement of gross profit and net income.

A. . True

B. . False

10. All accounting systems currently in use are computerized.

A. . False

B. . True

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

A. . True

B. .False

12. If all of the adjusting entries are not made, the financial statements are incorrect.

A. . False

B. . True

13. Which of the following entries closes the owner's drawing account at the end of the period.

A. . debit the owner's capital account, credit the drawing account

B. . debit the income summary account, credit the drawing account

C. . debit the drawing account, credit the owner's capital account

D. . debit the drawing account, credit income summary account

14. Which of the following accounts would not be included in a post-closing trial balance.

A. . fees earned

B. . accumulated depreciation

C. . cash

D. . owner's equity

15. Which of the following is an example of an intangible asset.

A. . Patents

B. . all possible answers

C. . copyrights

D. . goodwill

16. If total assets increased $20,000 during a period and total liabilities increased $12,000 during the

same period, the amount and direction (increase or decrease) of the change in owner's equity for that

period is:

A. . an $8,000 decrease

B. . an $8,000 increase

C. . a $32,000 increase

D. . a $32,000 decrease

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

Beginning inventory 40 units at $20

First purchase 50 units at $21

Second purchase 50 units at $22

Third purchase 50 units at $23

What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic

inventory system by the FIFO costing method.

A. . $20

B. . $23

C. . $21

D. . $22

18. The Unearned Fees account is a revenue account.

A. . True

B. . False

19. The accumulated depreciation account is an asset account that shows the amount of depreciation

for the current year only.

A. . True

B. . False

20. At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for

Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable

is:

A. . $107,000

B. . $7,000

C. . $93,000

D. . $100,000

21. The percentage-of-sales method estimates the uncollectible accounts from the ending balance in

accounts receivable.

A. . True

B. . False

22. An example of an accelerated depreciation method is:

A. . Units-of-production

B. . Straight-line

C. . Depletion

D. . Declining-balance

23. The three forms business organizations are single proprietorship, partnership, and trust

A. . False

B. . True

24. Current Liabilities are classified as clearly determinable, estimated and contingent.

A. . False

B. . True

25. The type of account with a normal credit balance is:

A. . drawing

B. . a revenue

C. . an asset

D. . an expense

26. Which of the following expenses would normally be classified as Other or Non Operating expense

on a multiple-step income statement.

A. . interest expense

B. . insurance expense

C. . depreciation expense - office equipment

D. . sales salaries expense

27. The following units of a particular item were purchased and sold during the period:




First sale 110 units


Second sale 45 units

What is the cost of the 35 units on hand at the end of the period as determined under the perpetual

inventory system by the LIFO costing method.

A. . $715

B. . $705

C. . $700

D. . $805

28. Which of the following accounts would not be closed to the income summary account at the end of

a period.

A. . fees earned

B. . rent expense

C. . wages expense

D. . accumulated depreciation

29. Revenues, liabilities and equity accounts are increased by debits.

A. . False

B. . True

30. Under the allowance method, uncollectible accounts expense is recognized when a specific

customer's account is written off.

A. . True

B. . False

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

A. . True

B. . False

32. The left side of any account is the credit side.

A. . False

B. . True

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

A. . True

B. . False

34. The income statement shows the profitability of the company and is dated as of a particular date,

such as December 31, 2010.

A. . True

B. . False

35. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5.

A. . November 4

B. . October 31

C. . November 3

D. . November 2

36. Which of the following accounts would be classified as a current asset on the balance sheet.

A. . accumulated depreciation

B. . accounts receivable

C. . office equipment

D. . land

37. Purchase discounts and purchase returns and allowances are recorded in contra accounts to the

purchases account.

A. . True

B. . False

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

A. . False

B. . True

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

A. . True

B. . False

40. If the equipment account has a balance of

$22,500 and its accumulated depreciation account has a balance of $14,000, the book value of the

equipment is:

A. . $36,500

B. . $14,000

C. . $22,500

D. . $8,500

41. A debit may signify:

A. . an increase in an asset account

B. . a decrease in an asset account

C. . an increase in a liability account

D. . an increase in the owner's capital account

42. A payment of cash for the purchases of services should be recorded in the:

A. . cash receipts journals

B. . revenue journal

C. . purchases journal

D. . cash payments journal

43. After the closing process is complete, no balance can exist in any revenue, expense, or income

summary account.

A. . True

B. . False

44. Which of the following items represents a deferral.

A. . fees earned


C. . wages payable

D. . prepaid insurance

45. The inventory costing method that is based on the assumption that costs should be charged

against revenue in the order in which they were incurred is:

A. . perpetual inventory

B. . average cost

C. . FIFO

D. . LIFO

46. The resources owned by a business are called:

A. . The accounting Equation

B. . Owner's Equity

C. . Assets

D. . Liabilities

47. A listing of a business entity's assets, liabilities, and owner's equity as of a specific date is:

A. . a statement of cash flows

B. . a statement of owner's equity

C. . a balance sheet

D. . an income statement

48. The policies and procedures used by management to protect assets from misuse, ensure accurate

business information, and ensure compliance with laws and regulations re called:

A. . systems analysis

B. . systems implementation

C. . internal controls

D. . systems design

49. If merchandise purchased on account is returned, the buyer may inform the seller of the details by

issuing:

A. . a credit memorandum

B. . a bill

C. . an invoice

D. . a debit memorandum

50. The amounts in the Adjustments columns are always added to the amounts in the Trial Balance

columns to determine the amounts in the Adjusted Trial Balance columns.

A. . True

B. . False

51. A debit balance in which of the following accounts would indicate a likely error.

A. . miscellaneous expense

B. . cash

C. . fees earned

D. . accounts receivable

52. What is the maturity value of a 90-day, 12% note for $10,000.

A. . $10,300

B. . $10,000

C. . $8,800

D. . $11,200

53. The form listing the titles and balances of the accounts in the ledger on a given date is the:

A. . balance sheet

B. . income statement

C. . trial balance

D. . statement of owner's equity

54. When a note receivable is dishonored, Accounts receivable is debited for what amount.

A. . the face value of the note

B. . the maturity value of the note plus accrued interest

C. . the maturity value of the note

D. . the maturity value of the note less accrued interest

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

A. . True

B. . False

56. All of the steps in the accounting cycle are performed only at the end of the accounting period.

A. . False

B. . True

57. On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is

called:

A. . income from operations

B. . net income

C. . operating income

D. . gross profit

58. When there are a large number of individual accounts with a common characteristic, it is common

to place them in a separate ledger called:

A. . a creditors ledger

B. . an accounts payable ledger

C. . an accounts receivable ledger

D. . a subsidiary ledger

59. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30,

and the seller prepays $50 in transportation costs, the amount of the discount for early payment would

be:

A. . $0

B. . $10.00

C. . $10.50

D. . $5.00

60. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of

costing that will yield the highest net income is:

A. . FIFO

B. . periodic

C. . LIFO

D. . average

61. The balance on the unearned rent account for Jones Co. as of 12/31 is $1,200. If Jones Co. failed to

record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and

income statement for December is:

A. . liabilities overstated $600; net income understated $600

B. . liabilities overstated $600; net income overstated $600

C. . liabilities understated $600; net income understated $600

D. . assets understated $600; net income overstated $600

62. A petty cash fund is:

A. . All of the proposed answers

B. . used to pay relatively small amounts

C. . established by estimating the amount of cash needed for disbursement of relatively small

amounts during a specified period

D. . reimbursed when the amount of money in the fund is reduced to a predetermined minimum

amount

63. Under perpetual procedure, cost of goods sold is determined as a result of the closing entries

made at the end of the period.

A. . True

B. . False

64. At the end of the accounting period, three trial balances are prepared.

A. . True

B. . False

65. The statement of equity shows both the net income for the period and the beginning and ending

balances of equity.

A. . True

B. . False

66. If a net loss occurs, it appears in the Income Statement credit column and Balance Sheet debit

column.

A. . True

B. . False

67. Which of the following accounts in the adjusted trial balance columns of the work sheet would be

extended to the balance sheet columns:

A. . Rent revenue

B. . Miscellaneous expense

C. . Utilities expense

D. . Owner Drawing

68. At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance

of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of

uncollectible accounts determined by aging the receivables is $8,500, the amount of uncollectible

accounts expense is:

A. . $2,500

B. . $11,000

C. . $6,000

D. . $8,500

69. The income statement in which the total of all expenses is deducted from the total of all revenues

is terms:

A. . multiple-step form

B. . single-step form

C. . report form

D. . account form

70. Under Lower of Cost or Market, inventory is written down to market value when the market value

is less than the cost, and inventory is written up to market value when the market value is greater than

the cost.

A. . False

B. . True

71. A profit making business operating as a separate legal entity and in which ownership is divided into

shares of stock is known as a:

A. . Proprietorship

B. . Corporation

C. . Service Business

D. . Partnership

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

A. . True

B. . False

73. In taking a physical inventory, consigned goods are usually not included in the ending inventory,

but merchandise in transit is included.

A. . True

B. . False

74. Every adjusting entry affects at lease one income statement account and one balance sheet

account.

A. . True

B. . False

75. A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is:

A. . $4,900

B. . $5,000

C. . $5,600

D. . $5,100

76. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each

purchase and credited for each sale.

A. . False

B. . True

77. If the supplies account (asset), before adjustment on May 31, indicated a balance of $2,250, and

supplies on hand at May 31 totaled $950, the adjusting entry would be:

A. . debit supplies, $950; credit supplies expense, $950

B. . debit supplies, $1,300; credit supplies expense, $1,300

C. . debit supplies expense, $1,300; credit supplies, $1,300

D. . debit supplies expense, $950; credit supplies, $950

78. The receipt of cash from customers in payment of their accounts would be recorded by a:

A. . debit to cash; credit to accounts receivable

B. . debit to accounts receivable; credit to cash

C. . debit to accounts payable; credit to cash

D. . debit to cash; credit to accounts payable

79. Which of the following expenditures incurred in connection with acquiring machinery is a proper

charge to the asset account.

A. . Neither one

B. . Installation costs

C. . Freight

D. . Both

80. The purchase price of land includes its purchase price and other related costs, including the cost of

removing an old unusable building that is on the land.

A. . True

B. . False

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

Both sides are always positive

Both sides are negative

Both sides are equal

Both sides are not linked which each other

Adjusting entries are used to:

:

Bring account balances up to date at year end

Close temporary accounts at year end

Close permanent accounts at year end

Bring account balances at zero


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




Summary of long-term debt outstanding


Revenue recognition policies

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

At face value

Below face value

Above face value

At market value

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

the following?

Strong financial position

Concept of materiality

Matching principle

Realization principle

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

Realization and matching principle

The effect of revenues and expenses in the 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


Euro Bond

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

Stable Currency principle

Objectivity Principle

Matching Principle

Cost Principle

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

purpose?



Going-concern principle

Cost Principle

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

Divided into specific points in time

Divided into irregular cycles

Divided into discrete accounting periods

Considered to be a continuous cycle

End product of the accounting cycle is known as the__________

Tax return

Financial statements

Auditor’s annual report

Annual general meeting

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

business books of account.


Separate entity principle

Matching principle

Materiality principle


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)




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


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


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




Summary of long-term debt outstanding


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





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

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


Long term assets items




period?


Rent expense

Revenue earned

Wages expense


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







Capital – Debit; Drawing - Credit




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

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


Commission earned account

Prepaid insurance

Salaries Expense account

Wages account

Question # 1

Which of the following section of cash flow statement shows the cash effects of those transactions

reported in the income statement?

Cash flow from investing activities

Cash flow from financing activities

Cash flow from operating activities

All parts show effects of different transactions of income statement

Question # 2

If we take goods for own use we should:

Debit - Drawings Account: Credit - Purchases Account

Debit - Drawings Account: Credit - Stock Account

Debit - Purchases Account: Credit - Drawings Account

Debit - Sales Account: Credit - Stock Account

Question # 3

The income statement of the UBL shows the interest revenue of Rs. 6,000, and the amount of accrued

interest receivable has increased from Rs. 3000 to Rs. 4000 during the year. Calculate the amount of

interest received.

RS. 7000

Rs. 5000

Rs. 8000

Rs. 1000

Question # 4






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






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 which of the following?




It would not affect any section

Question # 9

Primary purpose of the cash flows statement is to provide the information about:

Errors or discrepancies between cash book and income statement

Receipts and payments of cash in the period

Non cash adjustment that effect the income statement

Cash paid to the customers and creditors of the business

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

and cash payments of a business entity for the accounting period covered by the income statement.

Question # 10 Cash has been described as:

The lifebuoy of the business

The lifeboat of the business

The lifeline of the business

The lifeblood of the business

Question # 11

If a company has paid dividends on its preference shares, under which one of the cash flow statement

headings would they appear?

Returns on investments and servicing of finance

Financing

Equity dividends paid

Capital investment and financial investment

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

Question # 12

Which of the following is the third step of accounting cycle?

Preparing financial statements

Preparing trial balance

Posting

Making adjusting entries

Question # 13

which of the following term refers to each element of the Balance Sheet?

Ledger

Journal General

T- Account

Account

Page no 6

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

Question # 14

Which of the following is the most common adjusting entry?

Un-earned revenue

Pre-paid expense


Accrued revenue

Question # 15


period?

Rent expense

Revenue earned

Wages expense


Because we close the Income Summary account to Retained Earnings, by doing this, all revenues and

expenses are "corralled" in Income Summary (the net of which represents the income or loss for the

period). In turn, the income or loss is then swept to Retained Earnings along with the dividends

Question # 16

How the transactions in a journal are initially recorded?

Alphabetical order

Ascending order

Chronological order

Alphanumeric order

Question # 17

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

the following?

Strong financial position

Concept of materiality

Matching principle


Refhttp://docs.google.com/viewer?a=v&q=cache:2xia_fB5R4sJ:eprints.ouls.ox.ac.uk/archive/00001060/0

1/AUDIT_MATERIALITY.pdf+The+true+and+fair+presentation+of+the+financial+statements+depends,+am

ong+other+things,+upon+which+of+the+following%3F&hl=en&gl=pk&pid=bl&srcid=ADGEESjxMXJdJbZNe

9veq56MXH_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


Income Statement


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

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?




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


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




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


direct method?




All parts are same in both methods

Question # 28

Which of the following people and groups are NOT interested in cash flow statements of a company?


Accounting personnel

Potential customers

Potential creditors

Potential employees

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

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

the business.

Question # 29






Question # 30

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

Purchase of equipment

Purchase of treasury stock

Sale of trademarks

Income tax refund

Question # 31

Accelerated depreciation method is mostly used for __________.


Assets valuation

Inventory valuation

Income tax returns

Question # 32

Depreciation is added back to profit when arriving at the cash flow from operating activities because:

Depreciation is only an estimated amount

Depreciation does not affect profit

Depreciation does not result in a flow of cash

Depreciation only affects the balance sheet, not the profit and loss account

Question # 33

To find the value of closing stock at the end of a period we:

Deduct opening stock from cost of goods sold

Look in the stock account

Deduct cost of goods sold from sales

Do this by stocktaking

Question # 34

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

reasons?


Increased cash flows from lower taxes (not sure)



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



Long term assets items



Question # 39

Pre-paid expense is a(n) _______ type of account.

Liability

Asset

Revenue

Expense

Question # 40

Which of the following should NOT be called “Sales”?

Goods sold for cash

Office fixtures sold

Goods sold on credit

Sale of item previously included in ‘Purchases’

Question # 41

Which of the following is true about "After closing trial balance"?

It may consist of balances of only Real and Personal accounts

It may consist of balances of only Nominal and Real accounts

It may consist of balances of Nominal, Real and Personal accounts

It may consist of balances of only Nominal and Personal accounts

Question # 42

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

Adverse opinion

Unqualified opinion

Qualified opinion

Disagreement of opinion

Question # 43

Which of the following is an inventory pricing procedure in which the oldest costs incurred rarely have an

effect on the ending inventory valuation?

FIFO

LIFO


Weighted-average

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 financing activities (not sure)


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


Tax return




Question # 48

Which of the following is NOT one of the four basic financial statements?

Balance sheet

Audit report

Income statement

Statement of cash flows

Question # 49

Which of the following is NOT a cash outflow for the firm?


Dividends payments

Interest payments

Tax payments

Question # 50

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

purpose?



Going-concern principle

Cost Principle

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

resale.

Question # 51

Which of the following expenses would normally be classified as Other or Non Operating Expense on a

multiple-step income statement?

Interest expense


Insurance expense

Salaries expense

Question # 52

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

Cash outflow to the government for taxes

Cash outflow to shareholders as dividends

Cash inflow to the firm from selling new common equity shares

Cash outflow to purchase bonds issued by another company

Question # 53

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



Matching Principle

Cost Principle

Question # 54

The basic purpose of financial statements is to assist users in evaluating the______

Financial position

Profitability of an organization

Future prospects


Question # 55



Greater than cost


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




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


Only cash balances

Only bank balances



Question # 62

Which of the following principle is used for recording revenue?

Matching Principle

Cost Principle

Realization Principle


Question # 63

An entry that effects more than one accounts is knows as ___________.

Journal entry

Compound entry

Adjusting entry

Reversing entry

Question # 64

Which of the following auditor's opinion shows the inability of the auditor to audit the accounts of a

business?

Qualified Opinion

Adverse Opinion

Unqualified Opinion

Disclaimer of Opinion

Question # 65


Cost of goods sold

Rent Expense


Salaries Expense

Question # 66

Which of the following type of reports is most frequently used by external users, such as investors?

Financial Statements

Tax Forms

Management Reports

Audit reports

Question # 67

Which of the following best describes the meaning of the term “Purchases”?

Goods bought on credit

Goods paid

Goods bought for resale

Items bought

Question # 68


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?





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.

1.If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:

A. . understatement of net income for the year by $7,500

B. . understatement of cost of merchandise sold for the year by $7,500

C. . overstatement of merchandise inventory for the year by $7,500

D. . overstatement of gross profit for the year by $7,500

2.The balance sheet contains the same major headings as appear in the accounting equation.

A. . False

B. . True

3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the

a amount of net income or net loss would be:

A. . $37,500 net loss

B. . $2,500 net loss

C. . $7,500 net income

D. . $45,000 net income

4. If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to


A. . debit depreciation expense, $2,000; credit accumulated depreciation, $2,000

B. . debit equipment, $2,000; credit depreciation expense, $2,000

C. . debit depreciation expense, $$2,000; credit equipment, $2,000

D. . debit accumulated depreciation, $2,000; credit depreciation expense, $2,000

5. Liabilities result from some future transaction.

A. . False

B. . True

6. All calendar years are also fiscal years, but not all fiscal years are calendar years.

A. . True

B. . False

7. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted

from, gross sales.

A. . True

B. . False

8. The post-closing trial balance may contain revenue and expense accounts.

A. . True

B. . False

9. Overstated ending inventory results in an overstatement of cost of goods sold and an

understatement of gross profit and net income.

A. . True

B. . False

10. All accounting systems currently in use are computerized.

A. . False

B. . True

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

A. . True

B. .False

12. If all of the adjusting entries are not made, the financial statements are incorrect.

A. . False

B. . True

13. Which of the following entries closes the owner's drawing account at the end of the period.

A. . debit the owner's capital account, credit the drawing account

B. . debit the income summary account, credit the drawing account

C. . debit the drawing account, credit the owner's capital account

D. . debit the drawing account, credit income summary account

14. Which of the following accounts would not be included in a post-closing trial balance.

A. . fees earned


C. . cash

D. . owner's equity

15. Which of the following is an example of an intangible asset.

A. . Patents

B. . all possible answers

C. . copyrights

D. . goodwill

16. If total assets increased $20,000 during a period and total liabilities increased $12,000 during the

same period, the amount and direction (increase or decrease) of the change in owner's equity for that

period is:

A. . an $8,000 decrease

B. . an $8,000 increase

C. . a $32,000 increase

D. . a $32,000 decrease

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





What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic

inventory system by the FIFO costing method.

A. . $20

B. . $23

C. . $21

D. . $22

18. The Unearned Fees account is a revenue account.

A. . True

B. . False

19. The accumulated depreciation account is an asset account that shows the amount of depreciation

for the current year only.

A. . True

B. . False

20. At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for

Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable

is:

A. . $107,000

B. . $7,000

C. . $93,000

D. . $100,000

21. The percentage-of-sales method estimates the uncollectible accounts from the ending balance in

accounts receivable.

A. . True

B. . False

22. An example of an accelerated depreciation method is:

A. . Units-of-production

B. . Straight-line

C. . Depletion

D. . Declining-balance

23. The three forms business organizations are single proprietorship, partnership, and trust

A. . False

B. . True

24. Current Liabilities are classified as clearly determinable, estimated and contingent.

A. . False

B. . True

25. The type of account with a normal credit balance is:

A. . drawing

B. . a revenue

C. . an asset

D. . an expense

26. Which of the following expenses would normally be classified as Other or Non Operating expense

on a multiple-step income statement.

A. . interest expense

B. . insurance expense

C. . depreciation expense - office equipment

D. . sales salaries expense

27. The following units of a particular item were purchased and sold during the period:




First sale 110 units


Second sale 45 units

What is the cost of the 35 units on hand at the end of the period as determined under the perpetual

inventory system by the LIFO costing method.

A. . $715

B. . $705

C. . $700

D. . $805

28. Which of the following accounts would not be closed to the income summary account at the end of

a period.

A. . fees earned

B. . rent expense

C. . wages expense

D. . accumulated depreciation

29. Revenues, liabilities and equity accounts are increased by debits.

A. . False

B. . True

30. Under the allowance method, uncollectible accounts expense is recognized when a specific

customer's account is written off.

A. . True

B. . False

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

A. . True

B. . False

32. The left side of any account is the credit side.

A. . False

B. . True

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

A. . True

B. . False

34. The income statement shows the profitability of the company and is dated as of a particular date,

such as December 31, 2010.

A. . True

B. . False

35. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5.

A. . November 4

B. . October 31

C. . November 3

D. . November 2

36. Which of the following accounts would be classified as a current asset on the balance sheet.

A. . accumulated depreciation

B. . accounts receivable

C. . office equipment

D. . land

37. Purchase discounts and purchase returns and allowances are recorded in contra accounts to the

purchases account.

A. . True

B. . False

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

A. . False

B. . True

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

A. . True

B. . False

40. If the equipment account has a balance of

$22,500 and its accumulated depreciation account has a balance of $14,000, the book value of the

equipment is:

A. . $36,500

B. . $14,000

C. . $22,500

D. . $8,500

41. A debit may signify:

A. . an increase in an asset account

B. . a decrease in an asset account

C. . an increase in a liability account

D. . an increase in the owner's capital account

42. A payment of cash for the purchases of services should be recorded in the:

A. . cash receipts journals

B. . revenue journal

C. . purchases journal

D. . cash payments journal

43. After the closing process is complete, no balance can exist in any revenue, expense, or income

summary account.

A. . True

B. . False

44. Which of the following items represents a deferral.

A. . fees earned


C. . wages payable

D. . prepaid insurance

45. The inventory costing method that is based on the assumption that costs should be charged

against revenue in the order in which they were incurred is:

A. . perpetual inventory

B. . average cost

C. . FIFO

D. . LIFO

46. The resources owned by a business are called:

A. . The accounting Equation

B. . Owner's Equity

C. . Assets

D. . Liabilities

47. A listing of a business entity's assets, liabilities, and owner's equity as of a specific date is:

A. . a statement of cash flows

B. . a statement of owner's equity

C. . a balance sheet

D. . an income statement

48. The policies and procedures used by management to protect assets from misuse, ensure accurate

business information, and ensure compliance with laws and regulations re called:

A. . systems analysis

B. . systems implementation

C. . internal controls

D. . systems design

49. If merchandise purchased on account is returned, the buyer may inform the seller of the details by

issuing:

A. . a credit memorandum

B. . a bill

C. . an invoice

D. . a debit memorandum

50. The amounts in the Adjustments columns are always added to the amounts in the Trial Balance

columns to determine the amounts in the Adjusted Trial Balance columns.

A. . True

B. . False

51. A debit balance in which of the following accounts would indicate a likely error.

A. . miscellaneous expense

B. . cash

C. . fees earned

D. . accounts receivable

52. What is the maturity value of a 90-day, 12% note for $10,000.

A. . $10,300

B. . $10,000

C. . $8,800

D. . $11,200

53. The form listing the titles and balances of the accounts in the ledger on a given date is the:

A. . balance sheet

B. . income statement

C. . trial balance

D. . statement of owner's equity

54. When a note receivable is dishonored, Accounts receivable is debited for what amount.

A. . the face value of the note

B. . the maturity value of the note plus accrued interest

C. . the maturity value of the note

D. . the maturity value of the note less accrued interest

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

A. . True

B. . False

56. All of the steps in the accounting cycle are performed only at the end of the accounting period.

A. . False

B. . True

57. On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is

called:

A. . income from operations

B. . net income

C. . operating income

D. . gross profit

58. When there are a large number of individual accounts with a common characteristic, it is common

to place them in a separate ledger called:

A. . a creditors ledger

B. . an accounts payable ledger

C. . an accounts receivable ledger

D. . a subsidiary ledger

59. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30,

and the seller prepays $50 in transportation costs, the amount of the discount for early payment would

be:

A. . $0

B. . $10.00

C. . $10.50

D. . $5.00

60. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of

costing that will yield the highest net income is:

A. . FIFO

B. . periodic

C. . LIFO

D. . average

61. The balance on the unearned rent account for Jones Co. as of 12/31 is $1,200. If Jones Co. failed to

record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and

income statement for December is:

A. . liabilities overstated $600; net income understated $600

B. . liabilities overstated $600; net income overstated $600

C. . liabilities understated $600; net income understated $600

D. . assets understated $600; net income overstated $600

62. A petty cash fund is:

A. . All of the proposed answers

B. . used to pay relatively small amounts

C. . established by estimating the amount of cash needed for disbursement of relatively small

amounts during a specified period

D. . reimbursed when the amount of money in the fund is reduced to a predetermined minimum

amount

63. Under perpetual procedure, cost of goods sold is determined as a result of the closing entries

made at the end of the period.

A. . True

B. . False

64. At the end of the accounting period, three trial balances are prepared.

A. . True

B. . False

65. The statement of equity shows both the net income for the period and the beginning and ending

balances of equity.

A. . True

B. . False

66. If a net loss occurs, it appears in the Income Statement credit column and Balance Sheet debit

column.

A. . True

B. . False

67. Which of the following accounts in the adjusted trial balance columns of the work sheet would be

extended to the balance sheet columns:

A. . Rent revenue

B. . Miscellaneous expense

C. . Utilities expense

D. . Owner Drawing

68. At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance

of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of

uncollectible accounts determined by aging the receivables is $8,500, the amount of uncollectible

accounts expense is:

A. . $2,500

B. . $11,000

C. . $6,000

D. . $8,500

69. The income statement in which the total of all expenses is deducted from the total of all revenues

is terms:

A. . multiple-step form

B. . single-step form

C. . report form

D. . account form

70. Under Lower of Cost or Market, inventory is written down to market value when the market value

is less than the cost, and inventory is written up to market value when the market value is greater than

the cost.

A. . False

B. . True

71. A profit making business operating as a separate legal entity and in which ownership is divided into

shares of stock is known as a:

A. . Proprietorship

B. . Corporation

C. . Service Business

D. . Partnership

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

A. . True

B. . False

73. In taking a physical inventory, consigned goods are usually not included in the ending inventory,

but merchandise in transit is included.

A. . True

B. . False

74. Every adjusting entry affects at lease one income statement account and one balance sheet

account.

A. . True

B. . False

75. A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is:

A. . $4,900

B. . $5,000

C. . $5,600

D. . $5,100

76. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each

purchase and credited for each sale.

A. . False

B. . True

77. If the supplies account (asset), before adjustment on May 31, indicated a balance of $2,250, and

supplies on hand at May 31 totaled $950, the adjusting entry would be:

A. . debit supplies, $950; credit supplies expense, $950

B. . debit supplies, $1,300; credit supplies expense, $1,300

C. . debit supplies expense, $1,300; credit supplies, $1,300

D. . debit supplies expense, $950; credit supplies, $950

78. The receipt of cash from customers in payment of their accounts would be recorded by a:

A. . debit to cash; credit to accounts receivable

B. . debit to accounts receivable; credit to cash

C. . debit to accounts payable; credit to cash

D. . debit to cash; credit to accounts payable

79. Which of the following expenditures incurred in connection with acquiring machinery is a proper

charge to the asset account.

A. . Neither one

B. . Installation costs

C. . Freight

D. . Both

80. The purchase price of land includes its purchase price and other related costs, including the cost of

removing an old unusable building that is on the land.

A. . True

B. . False

Time: 60 min

Marks: 44



► Three months

► Two years

► One year

► Five years




► Closing entries


► Accounting Equation






► Closing entries





► Posting only the debit portion of a particular journal entry







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


Cost of a building is Rs. 90,000 and its estimated useful life is 30 years. What will be the depreciation

expense of this building for one month by using straight line depreciation method?

► Rs. 600

► Rs. 250

► Rs. 300

► Rs. 500




► Net Income



► 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






► 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 repurchase the firm's own common stock






► All dividends paid to voting shares in the year




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




► Expenditure for sale of plant and equipment





direct method?



► Cash flow from operating activities






► Long term liability & stockholder’s equity








► Revenue recognition policies


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

account?



► Sales

► Both Accounts receivable & cost of goods sold





► An increase in cost of goods sold




► 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








► 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:






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:


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






► Machinery - (Debit) ; Accounts payable - (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



► 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

MIDTERM EXAMINATION

Fall 2009




► Balance Sheet

► Statement of Owner’s Equity

► Income Statement

D Statement of Cash Flows


To determine the balance of a particular account, one should refer to which of the following?

D Ledger

► Source document

► Chart of accounts

► Journal



► Building - Credit; Accounts payable - Debit

D Building - Debit; Notes payable -Credit

► Building - Debit; Owner’s equity- Credit

► Building - Debit; Accounts payable - Credit



D Journal entry

► Compound entry

► Adjusting entry

► Reversing entry



D It is a calculated figure and represents actual cash

► It can be distributed among holders of common stock as a dividend

► It can be held by the firm as retained earnings

► It is obtained by subtracting expenses from the revenues


What would be the adjusting entry to record depreciation if the estimated amount of depreciation on

equipment for a period is Rs. 2,000?

► Depreciation expense - Debit; Equipment - Credit

D Depreciation expense - Debit; Accumulated depreciation - Credit

► Equipment - Debit; Depreciation expense - Credit

► Accumulated depreciation - Debit; Depreciation expense - Credit


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:

D 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



► Cash

► Accumulated depreciation

D Owner’s equity

► Fees earned



► A debit balance

► A negative balance

► A credit balance

D A zero balance



► Savings deposits

► Certificates of Deposit (CDs)

D Stocks of other companies

► Money market mutual funds


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

D In a separate schedule accompanying the statement of cash flows

► In the investing activities section of the statement of cash flows

► Shoud not to be reported


Which of the following items are NOT added back to the net income figure (which is found on the Income

Statement) to arrive at cash flows from operations?

► Depreciation

► Deferred tax

D Amortization

► Investments

uestion No: 40 ( Marks: 1 ) - Please choose one

Which of the following activities convert the income statement items from the accrual basis of

accounting to cash?




D Non cash activities


Which one of the following items is specifically included in the body of a statement of cash flows?

D Operating and non-operating cash flow information

► Conversion of debt to equity

► Acquiring an asset through a capital leases

► Purchasing a building by giving a mortgage to the seller


ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory increased by Rs.

10,000 and accounts payable increased by Rs. 15,000. The interest expense was Rs. 15,000 for the year

and dividend of Rs. 11,000 were paid during the year. What would be the cash payments for the purchase

of the merchandise.

► Rs. 505,000

D Rs. 516,000

► Rs. 490,000

► Rs. 495,000




D Long term assets items

► Long term liability & stockholder’s equity







D Schedule of fixed assets

► Revenue recognition policies

uestion No: 45 ( Marks: 1 ) - Please choose one

Gross profit is:

D Excess of sales over cost of goods sold

► Sales less Purchases

► Cost of goods sold + Opening stock

► Net profit less expenses of the period



► Only current

D Two

► Three

► Four







D Rs. 200

► Rs. 150

► Rs. 350

► Rs. 450


Under which cost flow assumption, the ending inventory is composed of the most recently purchased

merchandise?

D FIFO

► LIFO

► Average cost

► Specific identification


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

D Rs. 90,000

► Rs. 340,000

► Rs. 400,000


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

businesses?

► FIFO

► LIFO

D Average cost

► Specific identification



D Less than current market value

► Greater than cost

► Greater than book value

► Less than book value



► 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

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


Which depreciation method allocates an equal portion of depreciation expense to each period of asset’s

useful life?



► Sum-of-the-year digit method

► Accelerated depreciation method









► Capital – Debit; Drawing - Credit

D Drawing – Debit; Capital - Credit

► Income Summary – Debit; Drawing - Crediting

► Drawing – Debit; Income Summary - Crediting



► Accumulated depreciation

D Accounts receivable

► Office equipment

► Land



D Salaries

► Past due expense

► Income tax expense

► Accounts receivable








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

D Transactions, financial statements





► Rs. 41 million

D Rs. 33 million

► Rs. 27 million

► Rs. 19 million



► Sources of cash in the current period

D Amount of checks outstanding at the end of the period

► Uses of cash in the current period

► Change in the cash balance for the current period


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

principle for accrual basis accounting?

► The price is fixed or determinable

► Services have been performed

► Cash that has already been collected

D Evidence of an arrangement for customer payment exists



D Credit

► Debit

► Negative

► Positive



► Purchasing a piece of land

D Paying dividends to shareholders

► Purchasing equipment on account

► Paying back the principal of a loan



D 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

MIDTERM EXAMINATION

Fall 2009


Question No: 66 (Marks: 1) - Please choose one




D Generally Accepted Accounting Principles



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

► Trial Balance


D Ledger




D Recording entries in the journal


► Posting the entries to the ledger




D To prove the equality of debits and credits







D Transferring the debits and credits to ledger




Which of the following results are summarized by the income statement of a company?

D Operating results







D Book-keeping fees collected but not yet earned


► Interest earned but not yet received



► Revenue, credit

D Liability, credit

► Asset, debit

► Expense, debit


Company A owns a building. Which of the following statements regarding depreciation is FALSE from an

accounting perspective?

D 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






► Fees Income – Debit; Income Summary - Credit


D Income Summary – Debit; Fees Income - Credit




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


► Retained earnings are an asset on the balance sheet






D Dividend 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?

D Losses on the sale of long-term investments



► Gains on the sale of long-term investments





► The cash flow from share and loan issues and repayments

D Cash dividends paid to shareholders




D Purchase of treasury stock




Cash flow relating to investing activities does NOT present the cash effects of which of the following?

► Plant assets

D Intangible assets

► Investments

► Debt financing



adjustment that is added during the reconciliation.




D An increase in Accounts Payable



adjustment that is subtracted during the reconciliation.

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

statement



► Non-cash expenses (expenses incurred but not paid) reported on the income statement-one

example is amortization expense.



► Payment of debt


► Making of loans

D 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

D Rs. 530,000







D Retirement of long term debt








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

► Inventory


► Purchases

D Cost of goods sold


Office supplies are purchased on account. The company uses a perpetual inventory system. What is the

correct journal entry for this purchase of office supplies?



D Debit - Office Supplies; Credit - Accounts Payable




with a fair value of Rs. 625. The exchange has commercial substance. How much is the gain or loss on this

transaction?


D A loss of Rs. 250 should be recognized





► Furniture

► Building


► Land



D Financial statements



D Income tax returns



D Depreciation

► Accounts payable





D Wasting assets

► Fictitious assets

► Quick assets

► Tangible assets




D Assets and equity







► Ledger






► Rs. 41 million

► Rs. 33 million

D Rs. 27 million

► Rs. 19 million


From the given information, calculate the Cost of Goods Sold using the weighted-average cost method:





► Rs. 200

D Rs. 270

► Rs. 300

► Rs. 350




D Rs. 170,000

► Rs. 120,000

► Rs. 130,000

► Rs. 180,000






D How profitable the company’s current assets are?

Question101

Resources owned by a business are called:

Select correct option: Owner equity

1. Assets (page# 18)

2. Reserves

3. Liabilities

Question # 102 of 15 ( Start time: 11:26:41 AM ) Total Marks: 1

Which of the following is deducted from the net income while preparing cash flow statement by

indirect method?


1. Decrease in inventories

2. Increase in accounts payable

3. Depreciation

4. Increase in inventories

Question #10 3 of 15 ( Start time: 11:27:53 AM ) Total Marks: 1


Select correct option: Assets

1. Ownerequity

2. Liabilities

3. Capital


Under which cost flow assumption is the ending inventory composed of the most recently purchased

merchandise?

Select correct option: FIFO

1. LIFO

2. Average cost

3. 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


http://www.vustudents.net


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



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




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





1. Rs. 170,000

2. Rs. 130,000

3. Rs. 120,000

4. Rs. 180,000



Select correct option: http://www.vustudents.net

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 not be recorded in



1. Realization principle

2. Separate entity principle

3. Matching principle

4. Materiality principle




1. Paid-in-Capital


3. Gross profit




















2. One year



Question #120 of 15 ( Start time: 03:09:59 PM ) Total Marks: 1


















1. Two

2. Three

3. Four

4. Five




1. Current assets

2. Investments



Question # 1 of 15 ( Start time: 05:21:42 PM )

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

Increase

Decrease

No effect

Depends upon the situation




Accounts receivable

Office equipment

Land


Which of the following section of cash flow statement shows the cash effects of those

transactions reported in the income statement?




All parts show effects of different transactions of income statement


Which of the following would represent a cash flow from financing activities?

Receipts from sale of plant and equipment

Dividends received on equity securities

Gain on sale of plant asset

Collections on loan principle


Which of the following items are NOT added back to the net income figure (which is found on

the Income Statement) to arrive at cash flows from operations?

Depreciation

Deferred tax

Amortization

Investments


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

expenses?






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

following reasons?


Increased cash flows from lower taxes




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


Weighted-average



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


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


Mr. A purchases a piece of land for cash and debit made to machinery account. What would be

the effect of this error on the trial balance?

Debit side would be decrease with the same amount

Credit side would be increase with the same amount

Total of the trial balance would be agree in all aspect

None of the given options




Auditor’s report

Five year summary

Future investments report


Book value is of limited use to the investment analyst since it is based on:

Market value

Historical costs

Future value

Fair value



Capital – Debit; Drawing - Credit





Assets of the business are valued and recorded at cost in the financial statement as these are

not for resale purposes, according to which of the following?

Going concern assumption

Cost Principle


Objectivity principle




1. Paid-in-Capital


3. Gross profit

















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

within:



2. One year











Which of the following is the proper journal entry to record Ransom Company's billing of clients

for Rs. 500 of services rendered?









1. Two

2. Three

3. Four

4. Five




1. Current assets

2. Investments






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



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




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



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


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

4. Investments by stockholder

FIN621 CURRENT QUIZ SOLVED


Resources owned by a business are called:


4. Owner equity

5. Assets (page# 18)

6. Reserves

7. 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




4. Assets

5. Ownerequity

6. Liabilities

7. Capital


Under which cost flow assumption is the ending inventory composed of the most recently

purchased merchandise?


4. FIFO

5. LIFO

6. Average cost

7. Specific identification


The information in statement cash flows assists the investors, creditors, and others in assessing:


5. Enterprise ability to meet its obligations

6. Enterprise ability to pay dividends



http://www.vustudents.net


Which of the following should NOT be called “Sales “?


5. Goods sold for cash

6. Office fixtures sold

7. Goods sold on credit

8. 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?


5. Building - Debit; Cash - Credit

6. Cash - Debit; Building - Credit

7. Building - Debit; Owner equity - Credit

8. Building - Debit; Accounts Payable - Credit




5. Commission earned account

6. Prepaid insurance

7. Salaries Expense account

8. Wages account


In which of the following account, a credit balance would be an evidence for a mistake or an

error?


5. Mr. A Capital Account

6. Cash account

7. Notes payable account (page #6)

8. Drawings account




5. Matching Principle

6. Cost Principle

7. Realization Principle

8. Objectivity Principle




5. Errors or discrepancies between cash book and income statement

6. Receipts and payments of cash in the period

7. Non cash adjustment that effect the income statement

8. 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.


5. Rs. 170,000

6. Rs. 130,000

7. Rs. 120,000

8. Rs. 180,000



Select correct option: http://www.vustudents.net

5. Adverse opinion

6. Unqualified opinion

7. Qualified opinion

8. Disagreement of opinion


According to _______ the personal expenses paid by Mr. A from his own pocket would not be

recorded in business books of account.


5. Realization principle

6. Separate entity principle

7. Matching principle

8. Materiality principle

Quiz FIN621




Accounts are only prepared by the business entities

Account always reflects the amount of the single transaction only

Account is effected both by economic and non economic events



Which of the following is NOT one of the three items required to be shown in the

heading of a financial statement?









Tax return





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


How would an increase in owner’s equity be recorded?


Debit

Credit

No effect

Statement is wrong


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



How many parts does each account have?


Two

Four

Three

Five


Financial statements are a subset of which of the following?


Financial reporting

Financial statement analysis

Accounting information

Accounting system




Matching Principle

Cost Principle

Realization Principle



Mr. A purchases a piece of land for cash and debit made to machinery account. What

would be the effect of this error on the trial balance?


Debit side would be decrease with the same amount

Credit side would be increase with the same amount

Total of the trial balance would be agree in all aspect

None of the given options









Which of the following is/are current asset?


Rent paid for next six months

Cash at bank

Investments in stock market for two weeks

All of the given option


Which of the following is the third step of accounting cycle?


Preparing financial statements

Preparing trial balance

Posting

Making adjusting entries


ABC Company has Rs. 150,000 cash, Rs. 80,000 as accounts receivables, Rs. 20,000

as allowance for doubtful accounts, Rs. 10,000 as work in progress inventory, Rs.

55,000 as prepaid expenses, Rs. 50,000 land purchased in the current year.

Calculate the value of current assets.


Rs. 275,000

Rs. 315,000

Rs. 365,000

Rs. 220,000




Only cash balances

Only bank balances





Three months

Two years

One year

Five years



Balance Sheet


Income Statement



To determine the balance o f a particular account, one should refer to which o f the following ?

Ledger

Source document

Chart of accounts

Journal









Journal entry

Compound entry (Correct)

Adjusting entry

Reversing entry



It is a calculated figure and represents actual cash

It can be distributed among holder s of common stock as a dividend

It can be held by the firm as retained earnings

It is obtained by subtracting expenses from the revenues


What would be the adjusting entry to record depreciation if the estimated amount of

depreciation on equipment for a period is Rs. 2, 000?

Depreciation expense - Debit; Equipment - Cred it

Depreciation expense - Debit; Accumulated depreciation - Credit

Equip ment - Debit; Depreciation expense - Cred it

Accumu lated depreciation - Debit; Depreciation expense - Credit


The trial balance shows Supplies of Rs.1,350 and Supp lies Expense o f R s.0. If Rs.600

of supplies are on hand at the end of the period, the adjusting entry would be:



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

Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 – Credi



Cash


Owner’s equity

Fees earned



A debit balance

A negative balance

A credit balance

A zero balance


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

within:

The operating cycle

One year

The longer o f operating cycle or one year

The shorter of operating cycle o r o ne year



Savings deposits

Certificates of Deposit (CDs)

Stocks of other companies



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 o f cash flows

Should not to be reported


Which of the following items are NOT added back to the net income figure (which is

found on the Income Statement) to arrive at cash flows from operations?

Depreciation

Deferred tax

Amortization

Investments







Non cash activities


Which one o f 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



increased by Rs. 10, 000 and accounts payable increased by Rs. 15,000. The interest



Rs. 505,000

Rs. 516,000

Rs. 490,000

Rs. 495,000 Correct


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


Long term assets item s Correct




Which o f the following must be included in a company's summary of significant



Summary of long -term debt outstanding


Revenue recognition policies Correct


Gross profit is:

Excess of sales over cost of goods sold Correct

Sales less Purchases

Cost o f goods sold + Opening stock

Net profit less expenses of the period



Only current

Two Correct

Three

Four


From the given data, calculate Cost of Goods Sold using the FIFO costing metho d:





Rs. 200 Correct

Rs. 150

Rs. 350

Rs. 450


Under which cost flow assumption, the ending inventory is composed of the most

recently purchased merchandise?

FIFO Correct

LIFO

Average cost



If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operating

expenses are Rs. 60,000, what is the gross profit?

Rs. 30,000

Rs. 90, 000 (400,000-310,000) Correct

Rs. 340,000

Rs. 400,000


Which cost flow assumption most closely matches the actual physical flow of

inventory in most retailing businesses?

FIFO

LIFO

Average cost

Specific identification Correct




Greater than cost


Less than book value Correct






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


Which depreciation method allocates an equal portion of depreciation expense to each period

of asset’s useful life?

Straight line method…correct

Double decline balance method

Sum of the year digit method

accelerated depreciation method


Which of the following is not example of accelerated depreciation method?







Capital – Debit; Drawing - Credit Correct







Accounts receivable Correct

Office equipment

Land



Salaries

Past due expense Correct

Income tax expense

Accounts receivable



Liabilities and expenses

Assets and equity

Assets and expenses Correct

Equity and revenues


Accounting Cycle is a series of activities that begins with ___________ and ends

with ___________.

Closing of books, transactions

Transaction, After closing Trial Balance

Journal, ledger account

Transactions, financial statements Correct




payable decreased by Rs. 7 million. How much did the company pay in other operating

expenses?

Rs. 41 million Correct

Rs. 33 million

Rs. 27 million

Rs. 19 million



Sources of cash in the current period

Amount of checks outstanding at the end of the period Correct

Uses of cash in the current period

Change in the cash balance for the current period


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

according to the revenue principle for accrual basis accounting?

The price is fixed or determinable Correct

Services have been performed

Cash that has already been collected

Evidence of an arrangement for customer payment exists



Credit Correct

Debit

Negative

Positive




Paying dividends to shareholders Correct





Net cash flow from operating activities Correct


Net cash flow from financing activities



Classify the following activities as cash flow from operating, investing and financing activities.

Payments for repurchase of company shares


instruments

Tax payments

Expenditure for purchase of other firms' equity

Payments to suppliers for goods and services

Answer:

Payments for repurchase of company shares:

Financing activities Correct


instruments:

financing activities.

Solved BY Hira:


Tax payments:


Expenditure for purchase of other firms' equity instruments:


Solved BY Hira:


Payments to suppliers for goods and services:



Listed below in random order are the items to be included in the balance sheet

of the Myster y Mountain Lodge at December 31, 2001:

Equipment Rs. 29,200 Buildings Rs. 450,000

Land 425,000 Owner’s capital ?

Accounts payable 54,800 Cash 21,400

Accounts receivable 10,600 Furnishings 58,700

Salaries payable 33,500 Snowmobiles 15,400

Interest payable 12,000 Notes payable 620,000

FIN621- Financial Statement Analysis Composed By Faheem ...

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