FIN621 solved MCQsBY ADNAN AWANFINALTERM EXAMINATIONSpring 2010: 90 minMarks: 69Question No: 1 ( Marks: 1 ) - Please choose oneWhich one of the following is NOT a type of adjusting entries?► Entries to record accrued revenues► Entries to record accrued expenses► Entries to distribute un-earned revenue► Entries to record revenues page 29Question No: 2 ( Marks: 1 ) - Please choose oneWhich one of the following statements is TRUE regarding distributions tostockholders?► The payment of dividends is not directly related to the profits of a givenperiod► Shareholders can individually decide on their distributions► To receive a corporate dividend, stock must be owned on the date ofdeclaration► Corporate dividends reduce contributed capital and therefore, stockholders’equityQuestion No: 3 ( Marks: 1 ) - Please choose oneCash flow relating to investing activities does NOT present the cash effects of whichof the following?► Plant assets► Intangible assets► Investments► Debt financingQuestion No: 4 ( Marks: 1 ) - Please choose oneOffice supplies are purchased on account. The company uses a perpetual inventorysystem. What is the correct journal entry for this purchase of office supplies?► Debit - Purchases; Credit - Cash► Debit - Merchandise Inventory; Credit - Cost of Goods Sold► Debit - Office Supplies; Credit - Accounts Payable► Debit - Merchandise Inventory; Credit - Accounts PayableQuestion No: 5 ( Marks: 1 ) - Please choose oneWhich 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

www.vustudents.net► This method is very hard to use on interchangeable goods► This results in an overstated inventory account during the period ofinflationQuestion No: 6 ( Marks: 1 ) - Please choose oneIf sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operatingexpenses are Rs. 60,000, what is the gross profit?► Rs. 30,000► Rs. 90,000► Rs. 340,000► Rs. 400,000G.P= SALES – C.O.G.S = 400000-310000= 90,000Question No: 7 ( Marks: 1 ) - Please choose one

Which of the following statements best describes the nature of depreciation?► Regular reduction of asset value to correspond to the decline in market valueas the asset ages► A process of correlating the book value of an asset with its gradual decline inphysical efficiency► Allocation of the cost in a manner that will ensure that plant and equipmentitems are not carried on the balance sheet at amounts in excess of net realizablevalue► Allocation of the cost of a plant asset to the periods in which benefits arereceivedQuestion No: 8 ( Marks: 1 ) - Please choose oneWarner Corporation reported net income in excess of its net cash flow fromoperations. A possible explanation of this difference is:► Depreciation expense► Non operating gains► A decrease in income tax rates► A decrease in accounts receivable over the periodQuestion No: 9 ( Marks: 1 ) - Please choose oneIn 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 financingtransactionExamples of cash flows from investing activities are: Cash payments and receiptsfrom acquisition and disposal of other than long term assets e.g.Shares, debentures, TFC, long term loans given etc.Question No: 10 ( Marks: 1 ) - Please choose oneWhich of the following opinions state that the financial statements do not presentfairly the financial position, results of operations etc, in conformity with GAAP?► Unqualified opinion► Qualified opinion► adverse opinion► Disclaimer of opinion

www.vustudents.netQuestion No: 11 ( Marks: 1 ) - Please choose oneWhich one of the following is NOT a limitation of financial statements?► They always present past► They always present the monetary terms► They help in assessment of future profitability► They give no information about management and employee relationsQuestion No: 12 ( Marks: 1 ) - Please choose oneWhich of the follwing business owner is personally liable for its debts?► Corporations► Sole proprietorship► General partnership► Limited liability companyQuestion No: 13 ( Marks: 1 ) - Please choose oneWhich of the following characteristics is NOT generally regarded as right of commonshareholders?► Preemptive right► Voting rights► Preference in liquidation► Transferability of shares

Preferred stockholders have no voting rights. Preferred shares are callable orredeemable at higher price by the company issuing these.Question No: 14 ( Marks: 1 ) - Please choose oneWhat would be the journal entry to record the issue of 1,000 shares of Rs. 1parvaluecommon stock, which is issued for Rs. 4 per share?► Debit Cash 4,000; Credit Common Stock 4,000► Debit Cash 4,000; Credit Common Stock, 1,000, Credit Paid-in-Capital inExcess of Par 3,000► Debit Cash 4,000; Credit Common Stock, 1,000, Credit RetainedEarnings 3,000► Debit Cash 4,000, Debit Paid-in-Capital in Excess of Par 3,000; CreditCommon Stock 4,000Question No: 15 ( Marks: 1 ) - Please choose oneSuppose that an investor buys shares for Rs. 15per share from a company whosestock's par value is stated at Rs. 10 per share, then what will be the value of paid incapital for each share sold?► Rs. 25► Rs. 5► Rs. 20► Rs. 30Question No: 16 ( Marks: 1 ) - Please choose oneIn the vertical analysis of income statement, all the accounts are expressed as apercentage of which of the following?► Net sales► Gross sales► Net income

www.vustudents.net► Total expensesWhen using vertical analysis, the analyst calculates each item on a single financialstatement as apercentage of a total.. The total used by the analyst on the income statement is netsales revenue,Question No: 17 ( Marks: 1 ) - Please choose oneThe changes in the financial statement items from a base year to following years areoften expressed as which of the following?► Trend percentages► Component percentages► Common percentages► Both trend and component percentagesTrend percentages/ Horizontal Analysis/ Index Analysis: This analysisconsiders changes initems of financial statement from a base year to the following years to show thedirection of change.This is also called horizontal analysis.Question No: 18 ( Marks: 1 ) - Please choose oneWhich of the following indicates the relative size of each item included in a total?► Trend percentages► Component percentages► Common percentages► Both trend and component percentagesComponent percentages/ Vertical Analysis/ Common- Size Analysis: Thistype of analysisindicates the relative size of each item in the Financial Statements as a percentage ofthe total of that Statement i.e. Total Assets or total Liabilities & Shareholders equity

in Balance Sheet and Sales in Income Statement.Question No: 19 ( Marks: 1 ) - Please choose oneIf a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and a quick ratioequal to 1.1, what is the firm's Net Working Capital?► Rs. 0► Rs. 100► Rs. 200► Rs. 1,000Question No: 20 ( Marks: 1 ) - Please choose oneA company can improve (lower) its debt-to-total asset ratio by doing which of thefollowing?► Borrow more► Shift short-term to long-term debt► Shift long-term to short-term debt► Sell common stockQuestion No: 21 ( Marks: 1 ) - Please choose oneKrisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio?► 2%► 7%► 6%► 3%

www.vustudents.netSince the debt-to-total assets ratio is.4, then equity-to-total assets ratio is.6. Theratio of debt to equity is then .4/.6 or .667 (66.7%).Question No: 22 ( Marks: 1 ) - Please choose oneEarnings per share, return on sales, and return on equity are all examples of whichof the following?► Leverage ratios► Liquidity ratios► Turnover ratios► Profitability ratiosQuestion No: 23 ( Marks: 1 ) - Please choose oneWhich of the following could account for a company's gross profit ratio increasingfrom one period to the next?► An increase in the cost of sales which has not been accompanied by anincrease in the selling price of goods sold► An increase in the selling price of goods sold which has not beenaccompanied by an increase in the cost of sales► A change in the mix of goods sold so that lower profit margin goods take agreater proportion of total sales► A change in stock valuation method at the year end which leads to adecrease in the closing stock figureQuestion No: 24 ( Marks: 1 ) - Please choose oneWhich of the following is MOST likely to offer you the highest rate of return togetherwith the highest risk?► Cash in a building society deposit account► Preference shares► Ordinary shares► Government bondsQuestion No: 25 ( Marks: 1 ) - Please choose oneAssume that a company total paid in capital of Rs. 57,160,000, Preferred shares Rs.12,000,000 and commons tock Rs. 14,000,000. Calculate the amount of total legalcapital of the company.► Rs. 26,000,000

► Rs. 2000,000► Rs. 45,160,000► Rs. 43,160,000Question No: 26 ( Marks: 1 ) - Please choose oneABC Company has cumulative preferred stock and three years of dividends areowed. Using the following information, calculate the book value per share of thepreferred stock.9% preferred stock, Rs. 100 par, 300 sharesauthorized and issuedRs. 3,000Call price Rs. 109Retained Earnings Rs. 28,000► Rs. 109► Rs. 202► Rs. 211

www.vustudents.net► Rs. 118Question No: 27 ( Marks: 1 ) - Please choose oneA company has a cost of goods sold of Rs. 530,000; the beginning inventory is Rs.120,000, and ending inventory is Rs. 180,000. Calculate the number of days to sellthe inventory. (Round the figures to the nearest whole)► 83 days► 125 days► 104 days► 100 daysQuestion No: 28 ( Marks: 1 ) - Please choose oneWhich one of the following statement indicates the Inventory turnover ratio?► How quickly company prepared its inventory► How quickly company converts its inventory into cash► How quickly company purchases its inventory► How quickly company sells its inventoryQuestion No: 29 ( Marks: 1 ) - Please choose oneOperating cycle belongs to which group of ratios?► Leverage ratios► Liquidity ratios► Profitability ratios► Activity ratiosQuestion No: 30 ( Marks: 1 ) - Please choose oneWhich of the following is the ideal position of debt ratio?► 30%► 60%► 50%► 45%Question No: 31 ( Marks: 1 ) - Please choose oneWhat will be effect of purchase of inventory on open account on quick ratio of thecompany?► Increase► Decrease► No effect► Can not be found from the given informationQuestion No: 32 ( Marks: 1 ) - Please choose oneWhat will be the effect on the inventory turnover ratio of the company, if it changedfrom FIFO to LIFO during the period of inflation?► Increase

► Decrease► No effect► Can not be found from the given informationQuestion No: 33 ( Marks: 1 ) - Please choose oneWhat will be the effect on the EPS of the company, if it paid stock dividend oncommon stock?

www.vustudents.net► Increase► Decrease► No effect► Can not be found from the given informationQuestion No: 34 ( Marks: 1 ) - Please choose oneWhich of the following is essential to conduct business activity, particularly in timesof adversity?► Profitability► Liquidity► Stability► SolvencyQuestion No: 35 ( Marks: 1 ) - Please choose oneFailure to record the receipt of a utility bill for services already received will result inwhich of the following?► An overstatement of assets► An overstatement of liabilities► An overstatement of equity► An understatement of assetsQuestion No: 36 ( Marks: 1 ) - Please choose oneWhich of the following would be the proper journal entry to record Rs. 1,000 ofDividends paid by ABC Corporation?► Debit Dividends 1,000; Credit Cash 1,000► Debit Accounts Payable 1,000; Credit Cash 1,000► Debit Dividends Expense 1,000; Credit Cash 1,000► Debit Dividends Expense 1,000; Credit Service Revenue 1,000Question No: 37 ( Marks: 1 ) - Please choose oneHow does the acid test ratio differ from the current ratio?► It is concerned with future cash flows rather than historical cash flows► It does not differ from the current ratio► It excludes the value of stocks► It excludes the trade debtorsQuestion No: 38 ( Marks: 1 ) - Please choose oneWhich of the following provides the basis for the trial balance?► Income statement► Statement of cash flow► Ledger► Adjusting entriesQuestion No: 39 ( Marks: 1 ) - Please choose oneWhich of the following is NOT normally required for revenue to be recognizedaccording 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 existsQuestion No: 40 ( Marks: 1 ) - Please choose one

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If monthly financial statements are desired by management then:► Journalizing and posting adjusting entries must be done each month► Journalizing and posting closing entries must be done each month► Monthly financial statements can be prepared from worksheets;adjustments and closing entries need not be entered in the accountingrecords► Adjusting and closing entries must be entered in the accounting recordsbefore preparation of interim financial statementsQuestion No: 41 ( Marks: 1 ) - Please choose oneABC Company sold a plant asset that originally cost Rs. 50,000 for Rs. 22,000 cash.If the company correctly reports a Rs. 5,000 gain on this sale, the accumulateddepreciation on the asset at the date of sale must be:► Rs. 33,000► Rs. 28,000► Rs. 27,000► Rs. 23,000Question No: 42 ( Marks: 1 ) - Please choose oneWhich of the following statements is CORRECT regarding depreciation methods?► Accumulated depreciation represents a fund being accumulated fro thereplacement of assets► The cost of a machine includes the cost of repairing damage to the machineduring the installation process► A company may use different depreciation methods in its financialstatements and its income tax returns► The use of an accelerated depreciation method causes an asset to wear outmore quickly than does the straight line methodQuestion No: 43 ( Marks: 1 ) - Please choose oneThe actions taken by the management to make company appear as strong aspossible in its financial statements is termed as which of the following?► Window dressing► Understanding► Comprehensiveness► MaterialityQuestion No: 44 ( Marks: 1 ) - Please choose oneABC Company selected ‘Abdullah and Ahmad Charted Accountants’ as its auditors /accountancy firm. After audit the auditors stated company’s audit report as:We have examined the accounts of ABC Company up to the year ended 30th June,2009, and other record based on these accounts and we got all the informationrequired by us. In our opinion the financial statements and the accounts on whichthey are based have been prepared in conformity with GAAP and present a true andfair position of the affairs of ABC Company.What do you think the above case is which type of following audit reports?► Qualified Audit Opinion► Un-qualified Audit Opinion► Adverse Audit Opinion► Disclaimer Audit OpinionQuestion No: 45 ( Marks: 1 ) - Please choose one

www.vustudents.netAll of the following users are very much concerned with the ratio analysis EXCEPT?► Credit analyst, including banks who want to know the credibility ofcompany► Bond rating companies, who analyze ratios to help ascertain a company’sability to pay its debts► Customers, who want to know the designs and quality of the products offered

► Managers, to analyze, control, and thus improve their working operationsQuestion No: 46 ( Marks: 1 ) - Please choose oneIn order to know the percentage of assets financed by creditors, which of thefollowing ratio is calculated?► Debt Ratio► Equity Ratio► Operating credit Ratio► Quick RatioThe creditors' equity ratio equals total liabilities divided by total assets. Thisreflects the percentage of assets financed by creditors. In the event of corporateliquidation, creditors are paid beforeQuestion No: 47 ( Marks: 1 ) - Please choose oneWhich of the following statement is the LEAST LIKELY to be correct?► A firm that has a high degree of business risk is less likely to want to incurfinancial risk► There exists little or no negotiation with suppliers of capitalregarding the financing needs of the firm► Financial ratios are relevant for making internal comparisons► It is important to make external comparisons or financial ratiosA firm that has a high degree of business risk is much more likely to use equityfinancing because there is no contractual responsibility to make interest payments.Question No: 48 ( Marks: 1 ) - Please choose oneWhich of the following is LEAST likely to be presented in Notes to financialstatements of a firm?► Significant pending lawsuits► Methods of Cost flow assumptions► A firm’s capital resource needs and liquidity► Sales by region or business segmentThe process of recording the economic effects of business transactions in a book oforiginal entryis knows as which of the following?Double entry systemDebitJournalizingPostingAn entry that affects more than one accounts is knows as _____________.Journal entryCompound entryAdjusting entryReversing entry

www.vustudents.netIn which of the following form of Income Statement, the total of all expenses isdeducted fromthe total of all revenues?Multiple-step formAccount formReport formSingle-step formWhich one of the following statements is TRUE regarding distributions tostockholders?The payment of dividends is not directly related to the profits of a given periodShareholders can individually decide on their distributionsTo receive a corporate dividend, stock must be owned on the date ofdeclaration

Corporate dividends reduce contributed capital and therefore, stockholders equityAll of the following are true regarding the financing activity section of the cash flow statement EXCEPT:Financing activities require analysis of long-term liability and shareholders’ equityaccountsThe ability to issue large quantities of common shares usually signals investorconfidenceIn the future of the companyExcessive borrowing has been the downfall of many companiesThe declaration and payment of a large cash dividend may signal anemergencyWhich of the following would NOT be the cash inflow for the business?Sale of land for cashIssuance of long term bondsThe sale of common stockRetirement of long term debtUnder which cost flow assumption, the ending inventory is composed of the earliestpurchased Merchandise?FIFOLIFOAverage costSpecific identificationWhich of the following would affect the gross profit rate if sales remain constant?An increase in advertising expenseA decrease in depreciation expenseAn increase in cost of goods soldA decrease in insurance expenseWhich of the following is NOT an advantage of a Sole proprietorship?Easy to form and wind upDirect motivationBetter controlLimited liabilityWhich of the following is a type of preferred stock that entitles the

www.vustudents.netholder to a fixed dividend And, in addition, to the right to get any surplus profitsafter payment of agreed levels of dividends to holders of common stock?In arrears preferred sharesCall able preferred sharesCumulative preferred sharesParticipating preferred sharesI f a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and aquick ratio equal to 1.1, What is the firm's Net Working Capital?Rs. 0Rs. 100Rs. 200Rs. 1,000To financial analysts, "working capital" means the same thing as which of thefollowing?Total assetsFixed assetsCurrent assetsCurrent assets minus current liabilitiesWhich of the following could account for a company's gross profit ratio increasing from one Period to the next?

An increase in the cost of sales which has not been accompanied by an increase inthe Selling price of goods soldAn increase in the selling price of goods sold which hasnot been accompanied by an Increase in the cost of salesA change in themix of goods sold so that lower profit margin goods take a greaterProportion of total salesA change in stock valuation method at the year endwhich leads to a decrease in the Closing stock figureNestle Pakistan Limited is an example of which of the following types of businesses?ManufacturingServiceMerchandiseWhole sellerWhich of the following represents the long term debt paying ability of the company as they Become due?LiquiditySolvencyProfitabilityStabilityWhich group of ratios relates the financial charges of a firm to its ability to servicethem?Debt ratiosCoverage ratiosProfitability ratios

www.vustudents.netActivity ratiosIn isolation, which of the following is TRUE about a financial ratio?Useless piece of informationUseful piece of informationUseful only for past performanceUseful only for future predictionsHow is the accounts receivable turnover ratio calculated?Net credit sales / Average total assetsNet credit sales /Operating incomeNet credit sales /Average accounts receivablesNet credit sales /Cost of goods soldCompany A makes an operating profit margin of 5 % on sales of Rs. 2.5 million.Company B has sales that are 20% higher than Company A and achievesan operating profit margin of 3.5%. Which company makes the highest operatingprofit?Company BCompany ABoth make the same operating profitNot possible to calculateThe DuPont Approach breaks down the earning power on shareholders' equity (ROE)as which of the following?Net profit margin × Total asset turnover × Equity multiplierTotal asset turnover × Gross profit margin × Debt ratioTotal asset turnover × Net profit marginTotal asset turnover × Gross profit margin × Equity multiplierWhich of the following statement best describes the operating profit margin?It shows what portion of profits are being distributed to shareholdersIt shows what return is being made on assets employed in the business

It shows how well a company is controlling its costs, including overheadsIt shows how efficiently a company is turning profits into cashReturn on Sales is also known as which of the following?Gross profit marginOperating profit marginReturn on total assetsReturn on investmentWhich of the following is NOT a profitability measure?Accounts receivable turnover ratioReturn on total assetsReturn on salesDividend yieldWhich of the following is formula to measure the return on total assets?Average total assets by operating incomeAverage total assets by net incomeOperating income by average total assetsNet income by average total assets

www.vustudents.netWhich of the following is NOT part of additional paid-in-capital of the company?Preferred stocksCommon stocksRetained earningsDividends distributedWhich of the following options indicate how quickly accounts receivables are converted into cash?Accounts receivable turnoverDays to collect accounts receivableWorking capitalTotal assets turnoverWhich one of the following statement indicates the Inventory turnover ratio?How quickly company prepared its inventoryHow quickly company converts its inventory into cashHow quickly company purchases its inventoryHow quickly company sells its inventoryAssume that a company has current assets of Rs. 60,000, current liabilities ofRs. 5,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of thecompany?1.571.711.860.58What will be the effect on the EPS of the company, if it paid stock dividend oncommon stock?IncreaseDecreaseNo effectCan not be found from the given informationWhat will be the effect of appropriated retained earnings on the rate of return onstockholder's equity?IncreaseDecreaseNo effectCan not be found from the given informationWhich of the following is the basic purpose of an accounting system?

Develop financial statements in conformity GAAPProvide as much useful information to decision makers as possibleRecord changes in the financial position of an entityMeet an organization's need for accounting information as efficiently aspossibleA complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, EXCEPT:Balance sheet as of December 31, 1999Income statement for the year ended December 31, 1999Statement of projected cash flows for 2000

www.vustudents.netNotes containing additional information that is useful in interpreting the financial statementsWhich of the following equations properly represents a derivation of thefundamental accounting equation?Assets + liabilities = owner's equityAssets = owner's equityCash = assetsAssets - liabilities = owner's equityWhich of the following is TRUE regarding Retained Earnings?Increased by net incomeIncreased by revenuesDecreased by dividends declaredDecreased by gains and lossesWhat are the effects of an adjusting entry on the financial statements?Match revenues and expendituresIncrease net incomeIncrease the accuracy of balance sheet and income statementMatch revenues and assetsThe supplies account has a balance of Rs. 1,500 at year end. The actual amount ofsupplies in hand at the end of period is Rs. 400. The necessary adjusting entry is:Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400Which of the following principle deals with the valuation and recording of the assetsat cost?► Entity Principle► Matching Principle► Cost Principle► Stable Currency principleWhich of the following is the acronym for GAAP?► Generally Adopted Accounting Principles► Generally Accepted Auditing Principles► Generally Accepted Accounting Principles► Generally Adapted American PrinciplesHow much duration does an accounting period usually have?► Three months► Two years► One year► Five yearsTo determine the balance of a particular account, one should refer to which of thefollowing?► Ledger

► Source document► Chart of accounts► Journal

www.vustudents.netAs transactions and events related to financial resources occur, they are analyzedwith respect to their effect on which of the following?► Financial position of the company► Accounting cycle► Trial balance (doubted)► Liquidity position of the companyWhich 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 transactionsWhich of the following is the next step after the preparation of trial balance?► Adjusted trial balance► Financial statements► Adjusting entries► Closing entriesWhich of the following is TRUE regarding the income statement?► The income statement reports only revenue for which cash was received at thepoint of sale► The income statement reports the financial position of a business at a particularpoint in time► The income statement is sometimes called the statement of operations► The income statement reports revenues, expenses and liabilitiesWhich of the following principle is used for recording an expense?► Matching Principle► Cost Principle► Realization Principle► Objectivity PrincipleThe net income reported on the income statement is Rs. 90,000. However, adjustingentries have not been made at the end of the period for supplies expense of Rs.2,700 and accrued salaries of Rs. 1,300. Net income, as corrected, would be:► Rs. 87,300► Rs. 86,000► Rs. 88,700► Rs. 90,000Prepaid Expense is a(n) _________ account and has a _________ normal balance.► Revenue, credit► Liability, credit► Asset, debit► Expense, debitCompany A owns a building. Which of the following statements regardingdepreciation 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 duringthe building’s life

www.vustudents.net► As depreciation is recorded, stockholders’ equity is reduced►As depreciation is recorded, total assets are reducedA 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. 12,500,000respectively. Assuming a 40% average tax rate, what was the firm's net income (netprofit after taxes)?► Rs. 5,333,333► Rs. 3,200,000► Rs. 2,400,000(doubted)► Rs. 1,600,000Which of the following is the largest single expense of most merchandising firms?► Cost of goods sold► Rent Expense► Amortization Expense► Salaries ExpenseWhich of the following is NOT among the five main kinds of current assets?► Cash and equivalents► Deferred income► Accounts receivable► Prepaid expensesWhen preparing a statement of cash flows under the indirect method, supplementaldisclosure 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 wagesWhich of the following items is included in the financing activities section of thestatement of cash flows?► Cash effects of transactions involving making and collecting loans► Cash effects of acquiring and disposing of investments and property, plant, andequipment► Cash effects of transactions obtaining resources from owners and providing themwith a return on their investment► Cash effects of transactions that enter into the determination of net incomeABC Company has a cost of goods sold of Rs. 500,000. During the year the inventoryincreased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interestexpense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid duringthe year. What would be the cash payments for the purchase of the merchandise.► Rs. 505,000► Rs. 516,000► Rs. 490,000► Rs. 495,000Which of the following arrangement is used to maintain the accounts?► Sequentialy► Alphabaticaly► Monthly► Orderly

www.vustudents.netWhich 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 transactionsBlankenship 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 entrieswould 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 - CreditRetained earnings change over time because of several factors. Which of thefollowing factors would explain an INCREASE in retained earnings?► Net Income► Dividends payment► Investment by the stockholders► Net LossWhich one of the following statements is TRUE regarding distributions tostockholders?► The payment of dividends is not directly related to the profits of a given period► Shareholders can individually decide on their distributions► To receive a corporate dividend, stock must be owned on the date of declaration► Corporate dividends reduce contributed capital and therefore,stockholders’ equityWhich 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 fundsIn perpetual inventory system, a return of defective merchandise is recorded bycrediting __________.► Purchases► Purchase Returns► Purchase Allowance► Merchandise InventoryWhich factor would NOT affect the gross profit rate?► An increase in the cost of heating the store► An increase in the price of inventory items► An increase in the sale of luxury items► An increase in the use of “discount pricing” to sell merchandiseAssets which have NO market value are called:► Wasting assets► Fictitious assets► Quick assets► Tangible assets

www.vustudents.netAudit opinions can NOT be classified as which of the following?►Adverse opinion► Unqualified opinion► Qualified opinion► Disagreement of opinionThe audit is NOT a necessary requirement for which of the following companies?► Listed companies► Corporations► Sole proprietorship► PartnershipsWhich of the following is NOT a part of the five-year summary of a company?► Net income/Loss► Total assets► Discontinued operations► Net salesWhich of the following is NOT a feature of preferred shares?

► Distributive► Callable► In arrears► CumulativeWhich of the following is a type of preferred stock that entitles the holder to a fixeddividend and, in addition, to the right to get any surplus profits after payment ofagreed levels of dividends to holders of common stock?► In arrears preferred shares (doubted)► Call able preferred shares► Cumulative preferred shares► Participating preferred sharesWhich one of the following represents the value of shares in the market at any pointof time?► Par value► Book value► Face value► Market valueWhich one of the following represents the value of shares iive balance sheets, whichof the following can NOT be found?► The increasing items► The decreasing items► The unchanged items► The future profitable itemsWhich of the following would NOT improve the current ratio?► Issue long-term debt to buy inventory► Sell common stock to reduce current liabilities► Sell fixed assets to reduce accounts payable► Borrow short term to finance additional fixed assets (doubted)A company experiences a dramatic fall in its gross profit ratio. This could be the

www.vustudents.netresult of which of the following?► An increase in competition in the company's main product market► An increase in the incidence of bad debts► An increase in overhead expenses► An increase in demand for the company's productsNotes to financial statements are beneficial in meeting the disclosure requirements offinancial 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 industryWhich of the following feature is shown by the income statement for a merchandisingcompany?► Gross profit► Cost of goods sold► A sales revenue section► All of the given optionsIn a period of rising prices, all of the following statements regarding LIFO are trueEXCEPT:► Net income is generally higher► Ending inventory is generally undervalued(Doubted)► It can be used to manipulate net income► Most recent inventory costs are allocated to cost of goods soldFrom the given data, calculate Cost of Goods Sold using the FIFO costing method:

Beginning inventory is 10 units . Rs. 10 each.On January 20, purchased 10 units . Rs. 20 eachOn January 30, purchased 5 units . Rs. 30 each15 of the 25 units are sold.► Rs. 200► Rs. 150 `► Rs. 350► Rs. 450In which of the following inventory pricing procedure, the oldest costs incurred rarelyhave an effect on the ending inventory valuation?► FIFO►LIFO► Retail► Weighted-averageIf beginning inventory is Rs. 60,000, cost of goods purchased is Rs. 380,000, andending inventory is Rs. 50,000, what is cost of goods sold under a periodic system?► Rs. 390,000(formula : opening + purchases - ending)► Rs. 370,000► Rs. 330,000► Rs. 420,000The purpose of recording depreciation on productive assets is to:► Reflect the decline in the market value of the assets each period

www.vustudents.net► 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 usefullifeIn which of the following situations, a company should NOT record any depreciationexpense 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 eachyear► Computer Sales Company has in inventory a new type of computers, designednever to obsolete► None of the given option is right as depreciation is applied on all assetsWhich of the following is NOT the part of annual report?► Financial statements► Auditor’s report► Five year summary► Future investments reportIn a statement of cash flows, the acquisition of land by issuing capital stock:► Is not shown at all, since no cash was received or disbursed► Is shown as an investing activity► Is shown as a financing activity(Doubted)► Is shown in a supplementary schedule as a non-cash investing and financingtransactionWhich of the following would represent an increase in Owner's Equity?► Increase in net income► Increase in assets► Increase in accounts receivable► Increase in cashWhich of the following steps of accounting cycle keep on occurring throughout theperiod?

► Journalizing and posting the entries► Making adjusting entries for the relevent accounts► Preparing Trial Balance► Preparing financial statementsWhich one of the following items is NOT generally used in preparing a statement ofcash flows?► Adjusted trial balance► Comparative balance sheets(doubted)► Current income statement► Additional informationWhich of the following is the most common item in adjusting entries of amerchandising business?► Un-earned revenue► Pre-paid expense

www.vustudents.net► Depreciation expense► Accrued revenueClosing entries result in net income being calculated in the income summary accountand then transferred to which of the following account?► Revenue account► Common Stock account► Dividends account► Owner's Capital accountWhich of the following question is NOT addressed by cash flow statement?► How much cash was generated by the company’s operations?► Why is such a profitable company able to pay only small dividends?► How much was spent for the new plants and equipment?► How profitable the company’s current assets are?Which of the following statements is CORRECT regarding depreciation methods?► Accumulated depreciation represents a fund being accumulated fro thereplacement of assets► The cost of a machine includes the cost of repairing damage to the machine duringthe installation process► A company may use different depreciation methods in its financialstatements and its income tax returns► The use of an accelerated depreciation method causes an asset to wear out more quickly than does thestraight line methodHow much duration does an accounting period usually have?► Three months► Two years► One year► Five yearsWhich of the following statement shows the effects of cash inflows and outflows?► Balance Sheet► Statement of Owner’s Equity► Income Statement► Statement of Cash FlowsTo determine the balance of a particular account, one should refer to which of thefollowing?► Ledger► Source document► Chart of accounts► Journal

: 4A business has purchased a building on credit, how it would be recorded in thejournal?► Building - Credit; Accounts payable - Debit► Building - Debit; Notes payable -Credit► Building - Debit; Owner’s equity- Credit► Building - Debit; Accounts payable - Credit: 5An entry that affects more than one accounts is knows as _____________.► Journal entry► Compound entry► Adjusting entry

www.vustudents.net► Reversing entry: 6Which 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: 7What would be the adjusting entry to record depreciation if the estimated amount ofdepreciation 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: 8The trial balance shows Supplies of Rs.1,350 and Supplies Expense of Rs.0. If Rs.600of supplies are on hand at the end of the period, the adjusting entry would be:► Supplies, Rs. 600 - Debit; Supplies Expense, Rs. 600 - Credit► Supplies, Rs. 750 - Debit; Supplies Expense, Rs. 750 - Credit► Supplies Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit► Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit: 9Which of the following accounts would NOT be included in a post-closing trialbalance?► Cash► Accumulated depreciation► Owner’s equity► Fees earned: 10After 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: 11Current assets are those assets which management intends to convert into cash orconsume within:► The operating cycle► One year► The longer of operating cycle or one year► The shorter of operating cycle or one year

: 12Which 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: 13In preparing the statement of cash flows, how should non-cash investing/financingactivities 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

www.vustudents.net► Shoud not to be reported: 14Which of the following items are NOT added back to the net income figure (which isfound on the Income Statement) to arrive at cash flows from operations?► Depreciation► Deferred tax► Amortization► Investments: 15Which of the following activities convert the income statement items from the accrualbasis of accounting to cash?► Operating activities► Investing activities► Financing activities► Non cash activities: 16Which one of the following items is specifically included in the body of a statement ofcash 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: 17ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventoryincreased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interestexpense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid duringthe 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: 18The cash flow from investing activities shows the cash effects of which of thefollowing?► Income statement items► Long term assets items► Long term liability & stockholder’s equity► Long term liability and long term assets: 19Which of the following must be included in a company's summary of significantaccounting 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: 20Gross 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: 21An inventory error affects ___________ accounting periods.

www.vustudents.net► Only current► Two► Three► Four: 22From the given data, calculate Cost of Goods Sold using the FIFO costing method:Beginning inventory is 10 units @ Rs. 10 each.On January 20, purchased 10 units @ Rs. 20 eachOn January 30, purchased 5 units @ Rs. 30 each15 of the 25 units are sold.► Rs. 200► Rs. 150► Rs. 350► Rs. 450: 23Under which cost flow assumption, the ending inventory is composed of the mostrecently purchased merchandise?► FIFO► LIFO► Average cost► Specific identification: 24If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operatingexpenses are Rs. 60,000, what is the gross profit?► Rs. 30,000► Rs. 90,000► Rs. 340,000► Rs. 400,000: 25Which cost flow assumption most closely matches the actual physical flow ofinventory in most retailing businesses?► FIFO► LIFO► Average cost► Specific identification: 26The sale of a depreciable asset resulting in a loss indicates that the proceeds fromthe sale were:► Less than current market value► Greater than cost► Greater than book value

► Less than book value: 27The 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 usefullife: 28Which depreciation method allocates an equal portion of depreciation expense toeach period of asset’s useful life?► Straight-line method

www.vustudents.net► Double-declining balance method► Sum-of-the-year digit method► Accelerated depreciation method: 2Which of the following is NOT an example of accelerated depreciation method?► Straight-line method► Sum-of-the-years digit method► Double-declining balance method► Modified Accelerated Cost Recovery SystemThe 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 - CreditingWhich of the following account would be classified as a current asset on the balancesheet?► Accumulated depreciation► Accounts receivable► Office equipment► LandAn adjusting entry would NOT be required for which of the following account?► Salaries► Past due expense► Income tax expense► Accounts receivableWhich of the following accounts will be debited, when increased?► Liabilities and expenses► Assets and equity► Assets and expenses► Equity and revenuesAccounting Cycle is a series of activities that begins with ___________ and endswith ___________.► Closing of books, transactions► Transaction, After closing Trial Balance► Journal, ledger account► Transactions, financial statementsThe income statement of ABL shows other operating expenses of Rs. 30 million;prepaid insurance expense increased by Rs. 4 million; and accrued utilities payabledecreased by Rs. 7 million. How much did the company pay in other operatingexpenses?► Rs. 41 million

► Rs. 33 million► Rs. 27 million► Rs. 19 million

www.vustudents.netThe 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 periodWhich of the following is NOT normally required for revenue to be recognizedaccording 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 existsWhich of the following balances does the Contra-Asset account show typically?► Credit► Debit► Negative► PositiveWhich 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 loanThe 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

Final term MCQSIn order to know the percentage of assets financed by creditors, which of thefollowing ratio is calculated?► Debt Ratio► Equity Ratio► Operating credit Ratio► Quick Ratio

www.vustudents.netThe creditors' equity ratio equals total liabilities divided by total assets. Thisreflects the percentage of assets financed by creditors. In the event of corporateliquidation, creditors are paid beforeWhich of the following statement is the LEAST LIKELY to be correct?► A firm that has a high degree of business risk is less likely to want to incurfinancial risk► There exists little or no negotiation with suppliers of capitalregarding the financing needs of the firm► Financial ratios are relevant for making internal comparisons► It is important to make external comparisons or financial ratiosA firm that has a high degree of business risk is much more likely to use equityfinancing because there is no contractual responsibility to make interest payments.Which of the following is LEAST likely to be presented in Notes to financialstatements of a firm?► Significant pending lawsuits

► Methods of Cost flow assumptions► A firm’s capital resource needs and liquidity► Sales by region or business segmentABC Company selected ‘Abdullah and Ahmad Charted Accountants’ as its auditors /accountancy firm. After audit the auditors stated company’s audit report as:We have examined the accounts of ABC Company up to the year ended 30th June,2009, and other record based on these accounts and we got all the informationrequired by us. In our opinion the financial statements and the accounts on whichthey are based have been prepared in conformity with GAAP and present a true andfair position of the affairs of ABC Company.

www.vustudents.netWhat do you think the above case is which type of following audit reports?► Qualified Audit Opinion► Un-qualified Audit Opinion► Adverse Audit Opinion► Disclaimer Audit OpinionAll of the following users are very much concerned with the ratio analysis EXCEPT?► Credit analyst, including banks who want to know the credibility ofcompany► Bond rating companies, who analyze ratios to help ascertain a company’sability to pay its debts► Customers, who want to know the designs and quality of the products offered► Managers, to analyze, control, and thus improve their working operationsIf monthly financial statements are desired by management then:► Journalizing and posting adjusting entries must be done each month► Journalizing and posting closing entries must be done each month► Monthly financial statements can be prepared from worksheets;adjustments and closing entries need not be entered in the accountingrecords► Adjusting and closing entries must be entered in the accounting recordsbefore preparation of interim financial statementsABC Company sold a plant asset that originally cost Rs. 50,000 for Rs. 22,000 cash.If the company correctly reports a Rs. 5,000 gain on this sale, the accumulateddepreciation on the asset at the date of sale must be:► Rs. 33,000► Rs. 28,000

www.vustudents.net► Rs. 27,000► Rs. 23,000Which of the following statements is CORRECT regarding depreciation methods?► Accumulated depreciation represents a fund being accumulated fro thereplacement of assets► The cost of a machine includes the cost of repairing damage to the machineduring the installation process► A company may use different depreciation methods in its financialstatements and its income tax returns► The use of an accelerated depreciation method causes an asset to wear outmore quickly than does the straight line methodHow does the acid test ratio differ from the current ratio?► It is concerned with future cash flows rather than historical cash flows► It does not differ from the current ratio► It excludes the value of stocks► It excludes the trade debtors

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

www.vustudents.netWhich of the following is NOT normally required for revenue to be recognizedaccording 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 existsWhich of the following is essential to conduct business activity, particularly in timesof adversity?► Profitability► Liquidity► Stability► SolvencyFailure to record the receipt of a utility bill for services already received will result inwhich of the following?► An overstatement of assets► An overstatement of liabilities► An overstatement of equity► An understatement of assetsWhich of the following would be the proper journal entry to record Rs. 1,000 ofDividends paid by ABC Corporation?► Debit Dividends 1,000; Credit Cash 1,000► Debit Accounts Payable 1,000; Credit Cash 1,000

www.vustudents.net► Debit Dividends Expense 1,000; Credit Cash 1,000► Debit Dividends Expense 1,000; Credit Service Revenue 1,000Which of the following is the ideal position of debt ratio?► 30%► 60%► 50%► 45%What will be effect of purchase of inventory on open account on quick ratio of thecompany?► Increase► Decrease► No effect► Can not be found from the given informationWhat will be the effect on the inventory turnover ratio of the company, if it changedfrom FIFO to LIFO during the period of inflation?► Increase► Decrease► No effect► Can not be found from the given informationABC Company has cumulative preferred stock and three years of dividends areowed. Using the following information, calculate the book value per share of thepreferred stock.9% preferred stock, Rs. 100 par, 300 shares Rs. 3,000

www.vustudents.netauthorized and issuedCall price Rs. 109Retained Earnings Rs. 28,000► Rs. 109► Rs. 202► Rs. 211► Rs. 118Which one of the following statement indicates the Inventory turnover ratio?► How quickly company prepared its inventory► How quickly company converts its inventory into cash► How quickly company purchases its inventory► How quickly company sells its inventorySuppose that an investor buys shares for Rs. 15per share from a company whosestock's par value is stated at Rs. 10 per share, then what will be the value of paid incapital for each share sold?► Rs. 25► Rs. 5► Rs. 20► Rs. 30In the vertical analysis of income statement, all the accounts are expressed as apercentage of which of the following?► Net sales

www.vustudents.net► Gross sales► Net income► Total expensesWhen using vertical analysis, the analyst calculates each item on a single financialstatement as apercentage of a total.. The total used by the analyst on the income statement is netsales revenue,Which of the follwing business owner is personally liable for its debts?► Corporations► Sole proprietorship► General partnership► Limited liability companyWhich of the following characteristics is NOT generally regarded as right of commonshareholders?► Preemptive right► Voting rights► Preference in liquidation► Transferability of sharesPreferred stockholders have no voting rights. Preferred shares are callable orredeemable at higher price by the company issuing these.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

www.vustudents.net► Is shown as a financing activity► Is shown in a supplementary schedule as a non-cash investing and financingtransactionExamples of cash flows from investing activities are: Cash payments and receipts

from acquisition and disposal of other than long term assets e.g.Shares, debentures, TFC, long term loans given etc.Which of the following opinions state that the financial statements do not presentfairly the financial position, results of operations etc, in conformity with GAAP?► Unqualified opinion► Qualified opinion► adverse opinion► Disclaimer of opinionIf sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operatingexpenses are Rs. 60,000, what is the gross profit?► Rs. 30,000► Rs. 90,000► Rs. 340,000► Rs. 400,000G.P= SALES – C.O.G.S = 400000-310000= 90,000Which of the following statements best describes the nature of depreciation?► Regular reduction of asset value to correspond to the decline inmarket value as the asset ages

www.vustudents.net► A process of correlating the book value of an asset with its gradual decline inphysical efficiency► Allocation of the cost in a manner that will ensure that plant and equipmentitems are not carried on the balance sheet at amounts in excess of net realizablevalue► Allocation of the cost of a plant asset to the periods in which benefits arereceivedCash flow relating to investing activities does NOT present the cash effects of whichof the following?► Plant assets► Intangible assets► Investments► Debt financingOffice supplies are purchased on account. The company uses a perpetual inventorysystem. What is the correct journal entry for this purchase of office supplies?► Debit - Purchases; Credit - Cash► Debit - Merchandise Inventory; Credit - Cost of Goods Sold► Debit - Office Supplies; Credit - Accounts Payable► Debit - Merchandise Inventory; Credit - Accounts PayableWhich 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

www.vustudents.net► This method is very hard to use on interchangeable goods► This results in an overstated inventory account during the period ofinflationWhich one of the following is NOT a type of adjusting entries?► Entries to record accrued revenues► Entries to record accrued expenses► Entries to distribute un-earned revenue► Entries to record revenues page 29Which one of the following statements is TRUE regarding distributions tostockholders?► The payment of dividends is not directly related to the profits of a given

period► Shareholders can individually decide on their distributions► To receive a corporate dividend, stock must be owned on the date ofdeclaration► Corporate dividends reduce contributed capital and therefore, stockholders’equityWhat will be the effect of conversion of a portion of bonds payable into commonstock on the interest coverage ratio of the company?Increase ► Decrease ► No effect ►

www.vustudents.netCan not be found from the given information ► (marina) What will be the effect on the current ratio of the company, if company purchasedfactory supplies on open account?Increase ► Decrease ► No effect ► Can not be found from the given information ► Which of the following is NOT an example of liquid assets?Cash ► Accounts receivable ► Marketable securities ► Prepaid expenses ►It shows how quickly inventory is sold and is determined by Inventory TurnoverRatioOperating cycle belongs to which group of ratios?Leverage ratios ► Liquidity ratios ► Profitability ratios ► Activity ratios ►

www.vustudents.netThe period of time required to convert inventory into cash is known as which of thefollowing?Operating cycle ► Accounting cycle ► Cash conversion cycle ► None of the above ► Page 43: assets capable of being converted into cash within one year or operatingcycle, whichever is longer. Operating cycle is the time required to purchase ormanufacture inventory, sell the product and collect cash i.e.What will be the effect on the day’s sales in accounts receivables of a company if ituses a natural business year?Accounts receivables will be understated ► Accounts receivables will be understated for service firms ► Accounts receivables will be overstated ► Accounts receivables will be have no effect ► Which of the following is NOT a goal of analysis of financial statement?Assess the past performance ► Asses the current financial position ► Predict the future performance of the company ► Asses the working of management in the future ►

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

www.vustudents.netPositive Can not be computed NegativeWhat will be the affect of dividends paid on the book value of a company?No effect on book value ► Increase in book value ► Decrease in book value ► Depends upon the situation ► The amount of current assets that varies with seasonal requirements is referred to aswhich of the following?Permanent Working Capital ► Net Working Capital ► Temporary Working Capital ► Gross Working Capital ►The audit is NOT a necessary requirement for which of the following companies?► Listed companies► Corporations► Sole proprietorship► Partnerships

www.vustudents.netWhich of the follwing business owner is personally liable for its debts?► Corporations► Sole proprietorship► General partnership► Limited liability companyThe rules of GAAP are applicable to all types of companies EXCEPT:► Sole proprietorship► Corporations► Partnerships► None of the given optionThe process of recording the economic effects of business transactions in a book oforiginal entryis knows as which of the following?Double entry systemDebitJournalizingPostingAn entry that affects more than one accounts is knows as _____________.Journal entryCompound entryAdjusting entryReversing entryIn which of the following form of Income Statement, the total of all expenses isdeducted fromthe total of all revenues?Multiple-step formAccount form

www.vustudents.net

Report formSingle-step formWhich one of the following statements is TRUE regarding distributions tostockholders?The payment of dividends is not directly related to the profits of a given periodShareholders can individually decide on their distributionsTo receive a corporate dividend, stock must be owned on the date ofdeclarationCorporate dividends reduce contributed capital and therefore, stockholders equityAll of the following are true regarding the financing activity section of the cash flow statement EXCEPT:Financing activities require analysis of long-term liability and shareholders’ equityaccountsThe ability to issue large quantities of common shares usually signals investorconfidenceIn the future of the companyExcessive borrowing has been the downfall of many companiesThe declaration and payment of a large cash dividend may signal anemergencyWhich of the following would NOT be the cash inflow for the business?Sale of land for cashIssuance of long term bondsThe sale of common stockRetirement of long term debtUnder which cost flow assumption, the ending inventory is composed of the earliestpurchased Merchandise?FIFOLIFOAverage costSpecific identificationWhich of the following would affect the gross profit rate if sales remain constant?An increase in advertising expense

www.vustudents.netA decrease in depreciation expenseAn increase in cost of goods soldA decrease in insurance expenseWhich of the following is NOT an advantage of a Sole proprietorship?Easy to form and wind upDirect motivationBetter controlLimited liabilityWhich of the following is a type of preferred stock that entitles theholder to a fixed dividend And, in addition, to the right to get any surplus profitsafter payment of agreed levels of dividends to holders of common stock?In arrears preferred sharesCall able preferred sharesCumulative preferred sharesParticipating preferred sharesI f a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and a quick ratioequal to 1.1, What is the firm's Net Working Capital?Rs. 0Rs. 100Rs. 200Rs. 1,000

To financial analysts, "working capital" means the same thing as which of thefollowing Total assetsFixed assetsCurrent assetsCurrent assets minus current liabilitiesWhich of the following could account for a company's gross profit ratio increasing from one Period to the next?An increase in the cost of sales which has not been accompanied by an increase inthe Selling price of goods soldAn increase in the selling price of goods sold which hasnot been accompanied by an Increase in the cost of sales

www.vustudents.netA change in themix of goods sold so that lower profit margin goods take a greaterProportion of total salesA change in stock valuation method at the year endwhich leads to a decrease in the Closing stock figureNestle Pakistan Limited is an example of which of the following types of businesses?ManufacturingServiceMerchandiseWhole sellerWhich of the following represents the long term debt paying ability of the company as they Become due?LiquiditySolvencyProfitabilityStabilityWhich group of ratios relates the financial charges of a firm to its ability to servicethem?Debt ratiosCoverage ratiosProfitability ratiosActivity ratiosIn isolation, which of the following is TRUE about a financial ratio?Useless piece of informationUseful piece of informationUseful only for past performanceUseful only for future predictionsHow is the accounts receivable turnover ratio calculated?Net credit sales / Average total assetsNet credit sales /Operating incomeNet credit sales /Average accounts receivablesNet credit sales /Cost of goods sold

www.vustudents.netCompany A makes an operating profit margin of 5 % on sales of Rs. 2.5 million.Company B has sales that are 20% higher than Company A and achievesan operating profit margin of 3.5%. Which company makes the highest operatingprofit?Company BCompany ABoth make the same operating profitNot possible to calculate

The DuPont Approach breaks down the earning power on shareholders' equity (ROE)as which of the following?Net profit margin × Total asset turnover × Equity multiplierTotal asset turnover × Gross profit margin × Debt ratioTotal asset turnover × Net profit marginTotal asset turnover × Gross profit margin × Equity multiplierWhich of the following statement best describes the operating profit margin?It shows what portion of profits are being distributed to shareholdersIt shows what return is being made on assets employed in the businessIt shows how well a company is controlling its costs, including overheadsIt shows how efficiently a company is turning profits into cashReturn on Sales is also known as which of the following?Gross profit marginOperating profit marginReturn on total assetsReturn on investmentWhich of the following is NOT a profitability measure?Accounts receivable turnover ratioReturn on total assetsReturn on salesDividend yieldWhich of the following is formula to measure the return on total assets?Average total assets by operating incomeAverage total assets by net income

www.vustudents.netOperating income by average total assetsNet income by average total assetsWhich of the following is NOT part of additional paid-in-capital of the company?Preferred stocksCommon stocksRetained earningsDividends distributedWhich of the following options indicate how quickly accounts receivables are converted into cash?Accounts receivable turnoverDays to collect accounts receivableWorking capitalTotal assets turnoverWhich one of the following statement indicates the Inventory turnover ratio?How quickly company prepared its inventoryHow quickly company converts its inventory into cashHow quickly company purchases its inventoryHow quickly company sells its inventoryAssume that a company has current assets of Rs. 60,000, current liabilities ofRs. 5,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of thecompany?1.571.711.860.58What will be the effect on the EPS of the company, if it paid stock dividend oncommon stock?IncreaseDecrease

No effectCan not be found from the given information

www.vustudents.netWhat will be the effect of appropriated retained earnings on the rate of return onstockholder's equity?IncreaseDecreaseNo effectCan not be found from the given informationWhich of the following is the basic purpose of an accounting system?Develop financial statements in conformity GAAPProvide as much useful information to decision makers as possibleRecord changes in the financial position of an entityMeet an organization's need for accounting information as efficiently aspossibleA complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, EXCEPT:Balance sheet as of December 31, 1999Income statement for the year ended December 31, 1999Statement of projected cash flows for 2000Notes containing additional information that is useful in interpreting the financial statementsWhich of the following equations properly represents a derivation of the fundamentalaccounting equation?Assets + liabilities = owner's equityAssets = owner's equityCash = assetsAssets - liabilities = owner's equityWhich of the following is TRUE regarding Retained Earnings?Increased by net incomeIncreased by revenuesDecreased by dividends declaredDecreased by gains and lossesWhat are the effects of an adjusting entry on the financial statements?

www.vustudents.netMatch revenues and expendituresIncrease net incomeIncrease the accuracy of balance sheet and income statementMatch revenues and assetsThe supplies account has a balance of Rs. 1,500 at year end. The actual amount ofsupplies in hand at the end of period is Rs. 400. The necessary adjusting entry is:Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400Which of the following principle deals with the valuation and recording of the assetsat cost?► Entity Principle► Matching Principle► Cost Principle► Stable Currency principleWhich of the following is the acronym for GAAP?► Generally Adopted Accounting Principles

► Generally Accepted Auditing Principles► Generally Accepted Accounting Principles► Generally Adapted American PrinciplesHow much duration does an accounting period usually have?► Three months► Two years► One year► Five yearsTo determine the balance of a particular account, one should refer to which of thefollowing?► Ledger► Source document► Chart of accounts► Journal

www.vustudents.netAs transactions and events related to financial resources occur, they are analyzedwith respect to their effect on which of the following?► Financial position of the company► Accounting cycle► Trial balance (doubted)► Liquidity position of the companyWhich 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 transactionsWhich of the following is the next step after the preparation of trial balance?► Adjusted trial balance► Financial statements► Adjusting entries► Closing entriesWhich of the following is TRUE regarding the income statement?► The income statement reports only revenue for which cash was received at thepoint of sale► The income statement reports the financial position of a business at a particularpoint in time► The income statement is sometimes called the statement of operations► The income statement reports revenues, expenses and liabilitiesWhich of the following principle is used for recording an expense?► Matching Principle► Cost Principle► Realization Principle► Objectivity PrincipleThe net income reported on the income statement is Rs. 90,000. However, adjustingentries have not been made at the end of the period for supplies expense of Rs.2,700 and accrued salaries of Rs. 1,300. Net income, as corrected, would be:► Rs. 87,300► Rs. 86,000► Rs. 88,700► Rs. 90,000Prepaid Expense is a(n) _________ account and has a _________ normal balance.► Revenue, credit► Liability, credit► Asset, debit

► Expense, debitCompany A owns a building. Which of the following statements regardingdepreciation 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 duringthe building’s life

www.vustudents.net► As depreciation is recorded, stockholders’ equity is reduced►As depreciation is recorded, total assets are reducedA firm paid Rs. 800,000 in dividends over the last period. The beginning and endingretained earnings account balances were Rs. 10,100,000 and Rs. 12,500,000respectively. Assuming a 40% average tax rate, what was the firm's net income (netprofit after taxes)?► Rs. 5,333,333► Rs. 3,200,000► Rs. 2,400,000(doubted)► Rs. 1,600,000Which of the following is the largest single expense of most merchandising firms?► Cost of goods sold► Rent Expense► Amortization Expense► Salaries ExpenseWhich of the following is NOT among the five main kinds of current assets?► Cash and equivalents► Deferred income► Accounts receivable► Prepaid expensesWhen preparing a statement of cash flows under the indirect method, supplementaldisclosure 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 wagesWhich of the following items is included in the financing activities section of thestatement of cash flows?► Cash effects of transactions involving making and collecting loans► Cash effects of acquiring and disposing of investments and property, plant, andequipment► Cash effects of transactions obtaining resources from owners and providing themwith a return on their investment► Cash effects of transactions that enter into the determination of net incomeABC Company has a cost of goods sold of Rs. 500,000. During the year the inventoryincreased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interestexpense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid duringthe year. What would be the cash payments for the purchase of the merchandise.► Rs. 505,000► Rs. 516,000► Rs. 490,000► Rs. 495,000Which of the following arrangement is used to maintain the accounts?► Sequentialy► Alphabaticaly► Monthly

www.vustudents.net► OrderlyWhich 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 transactionsBlankenship 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 entrieswould 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 - CreditRetained earnings change over time because of several factors. Which of thefollowing factors would explain an INCREASE in retained earnings?► Net Income► Dividends payment► Investment by the stockholders► Net LossWhich one of the following statements is TRUE regarding distributions tostockholders?► The payment of dividends is not directly related to the profits of a given period► Shareholders can individually decide on their distributions► To receive a corporate dividend, stock must be owned on the date of declaration► Corporate dividends reduce contributed capital and therefore,stockholders’ equity http://www.vustudents.net/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

www.vustudents.netIn perpetual inventory system, a return of defective merchandise is recorded bycrediting __________.► Purchases► Purchase Returns► Purchase Allowance► Merchandise InventoryWhich factor would NOT affect the gross profit rate?► An increase in the cost of heating the store► An increase in the price of inventory items► An increase in the sale of luxury items► An increase in the use of “discount pricing” to sell merchandiseAssets which have NO market value are called:► Wasting assets► Fictitious assets► Quick assets► Tangible assetsAudit opinions can NOT be classified as which of the following?►Adverse opinion► Unqualified opinion► Qualified opinion

► Disagreement of opinionThe audit is NOT a necessary requirement for which of the following companies?► Listed companies► Corporations► Sole proprietorship► PartnershipsWhich of the following is NOT a part of the five-year summary of a company?► Net income/Loss► Total assets► Discontinued operations► Net sales

www.vustudents.netWhich of the following is NOT a feature of preferred shares?► Distributive► Callable► In arrears► CumulativeWhich of the following is a type of preferred stock that entitles the holder to a fixeddividend and, in addition, to the right to get any surplus profits after payment ofagreed levels of dividends to holders of common stock?► In arrears preferred shares (doubted)► Call able preferred shares► Cumulative preferred shares► Participating preferred sharesWhich one of the following represents the value of shares in the market at any pointof time?► Par value► Book value► Face value► Market valueWhich one of the following represents the value of shares iive balance sheets, whichof the following can NOT be found?► The increasing items► The decreasing items► The unchanged items► The future profitable itemsWhich of the following would NOT improve the current ratio?► Issue long-term debt to buy inventory► Sell common stock to reduce current liabilities► Sell fixed assets to reduce accounts payable► Borrow short term to finance additional fixed assets (doubted)A company experiences a dramatic fall in its gross profit ratio. This could be theresult of which of the following?► An increase in competition in the company's main product market

www.vustudents.net► An increase in the incidence of bad debts► An increase in overhead expenses► An increase in demand for the company's productsNotes to financial statements are beneficial in meeting the disclosure requirements offinancial 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 industryWhich of the following feature is shown by the income statement for a merchandisingcompany?► Gross profit► Cost of goods sold► A sales revenue section► All of the given optionsIn a period of rising prices, all of the following statements regarding LIFO are trueEXCEPT:► Net income is generally higher► Ending inventory is generally undervalued(Doubted)► It can be used to manipulate net income► Most recent inventory costs are allocated to cost of goods soldFrom the given data, calculate Cost of Goods Sold using the FIFO costing method:Beginning inventory is 10 units . Rs. 10 each.On January 20, purchased 10 units . Rs. 20 eachOn January 30, purchased 5 units . Rs. 30 each15 of the 25 units are sold.► Rs. 200► Rs. 150 `► Rs. 350► Rs. 450In which of the following inventory pricing procedure, the oldest costs incurred rarelyhave an effect on the ending inventory valuation?► FIFO►LIFO► Retail► Weighted-averageIf beginning inventory is Rs. 60,000, cost of goods purchased is Rs. 380,000, andending inventory is Rs. 50,000, what is cost of goods sold under a periodic system?► Rs. 390,000(formula : opening + purchases - ending)► Rs. 370,000► Rs. 330,000► Rs. 420,000The 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

www.vustudents.net► Be in conformity with the revenue recognition principle► Allocate the original cost of a productive asset to expense over its usefullifeIn which of the following situations, a company should NOT record any depreciationexpense 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 eachyear► Computer Sales Company has in inventory a new type of computers, designednever to obsolete► None of the given option is right as depreciation is applied on all assetsWhich of the following is NOT the part of annual report?► Financial statements► Auditor’s report► Five year summary

► Future investments reportIn a statement of cash flows, the acquisition of land by issuing capital stock:► Is not shown at all, since no cash was received or disbursed► Is shown as an investing activity► Is shown as a financing activity(Doubted)► Is shown in a supplementary schedule as a non-cash investing and financingtransactionWhich of the following would represent an increase in Owner's Equity?► Increase in net income► Increase in assets► Increase in accounts receivable► Increase in cashWhich of the following steps of accounting cycle keep on occurring throughout theperiod?► Journalizing and posting the entries► Making adjusting entries for the relevent accounts► Preparing Trial Balance► Preparing financial statementsWhich one of the following items is NOT generally used in preparing a statement ofcash flows?► Adjusted trial balance► Comparative balance sheets(doubted)► Current income statement► Additional informationFrom the given information, calculate the Cost of Goods Sold using the weightedaveragecost method:Beginning inventory 10 units . Rs. 10 eachOn January 20, purchased 10 units . Rs. 20 eachOn January 30, purchased 5 units . Rs. 30 each15 of the 25 units are sold

www.vustudents.net► Rs. 200► Rs. 270► Rs. 300► Rs. 350Which of the following is the most common item in adjusting entries of amerchandising business?► Un-earned revenue► Pre-paid expense► Depreciation expense► Accrued revenueClosing entries result in net income being calculated in the income summary accountand then transferred to which of the following account?► Revenue account► Common Stock account► Dividends account► Owner's Capital accountWhich of the following question is NOT addressed by cash flow statement?► How much cash was generated by the company’s operations?► Why is such a profitable company able to pay only small dividends?► How much was spent for the new plants and equipment?► How profitable the company’s current assets are?Which of the following statements is CORRECT regarding depreciation methods?► Accumulated depreciation represents a fund being accumulated fro the

replacement of assets► The cost of a machine includes the cost of repairing damage to the machine duringthe installation process► A company may use different depreciation methods in its financialstatements and its income tax returns1. Which one of the following is a temporary account?a. Cashb. Accounts Receivablesc. Insurance Expensed. Accounts payable2. The term used for the difference between fair value of a company and thepurchaseprice is:a. Trade Markb. Market Valuec. Good Willd. Purchase Price3. Financial statement (s) that has all temporary accounts is:a. Balance Sheetb. Income Statementc. Cash Flow Statementd. Statement of Owner’s EquityThe accounting cycle runs in the sequence

www.vustudents.neta. Analyze, journalize, post, adjust, and prepare statements, closeb. Post, journalize, analyze, prepare statements, close, adjustc. Prepare statements, journalize, post, adjust, close, analyzed. Journalize, post, close, prepare statements, adjust, analyzeWhich one is TRUE about Post-Closing trial balance?a. Be prepared before closing entries are posted to the ledgerb. Contain both income statement and balance sheet accountsc. Contain only balance sheet accountsd. Contain only income statement accountsRevenue from services is classified as:a. Investing Inflowb. Operating Inflowc. Investing Outflowd. Operating Outflow. If the cost of a building is Rs. 90, 000 and its estimated useful life is 30 years. Thedepreciation expense for one month is:a. Rs. 600b. Rs. 250c. Rs. 300d. Rs. 500d. Loss of $25,000

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