FIN621 Final Term solved MCQs
The process ofrecording the economic effects of business transactions in a book of original entry
is knows as which of the following?
Double entry system
Debit
Journalizing
Posting
An entry that affects more than one accounts is knows as ______.
Journal entry
Compound entry
Adjusting entry
Reversing entry
In which ofthefollowingform ofIncome Statement,thetotal ofall expenses is deductedfrom
the total of all revenues?
Multiple-step form
Account form
Report form
Single-step form
Which one of the following statements is TRUE regarding distributions to stockholders?
The payment of dividends is not directly related to the profits of a given period
Shareholders can individually decide on their distributions
To receive a corporate dividend, stock must be owned on the date of declaration
Corporate dividends reduce contributed capital and therefore, stockholdersequity
Allofthefollowingaretrueregardingthefinancingactivitysectionofthecashflowstatement EXCEPT:
Financing activities require analysis of long-term liability and shareholders’ equity accounts
The ability to issue large quantities of common shares usually signals investor confidence
In the future of the company
Excessive borrowing has been the downfall of many companies
The declaration and payment of a large cash dividend may signal an emergency
Which of the following would NOT be the cash inflow for the business?
Saleof land for cash
Issuance of long term bonds
The sale of common stock
Retirement of long term debt
Under which cost flow assumption, the ending inventory is composed of the earliest purchased Merchandise?
FIFO
LIFO
Average cost
Specific identification
Which of the following would affect the gross profit rate if sales remain constant?
An increase in advertising expense
A decrease in depreciation expense
An increase in cost of goods sold
A decrease in insurance expense
Which of the following is NOT an advantage of a Sole proprietorship?
Easy to form and wind up
Direct motivation
Better control
Limited liability
Whichofthefollowingis atype ofpreferredstockthatentitlesthe holdertoafixeddividendAnd, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock?
In arrears preferred shares
Call able preferred shares
Cumulative preferred shares
Participating preferred shares
I f a firm has Rs. 100ininventories, a currentratio equalto 1.2, and a quickratio equalto 1.1, What is the firm's Net Working Capital?
Rs. 0
Rs. 100
Rs. 200
Rs. 1,000
To financial analysts, "working capital" means the same thing as which of the following?
Total assets
Fixed assets
Current assets
Current assets minus current liabilities
Whichofthefollowingcouldaccountforacompany'sgrossprofitratioincreasingfromone Period to the next?
An increase in the cost of sales which has not been accompanied by an increase in theSelling price of goods sold
Anincreaseinthesellingpriceofgoodssold whichhas notbeenaccompaniedbyan Increase in the cost of sales
Achangeinthe mixofgoodssoldsothatlowerprofitmargingoodstakeagreater Proportion of total sales
A changeinstockvaluation methodattheyearend whichleadstoadecreaseinthe Closing stock figure
Nestle Pakistan Limited is an example of which of the following types of businesses?
Manufacturing
Service
Merchandise
Whole seller
Whichofthefollowingrepresentsthelongtermdebtpayingabilityofthecompanyasthey Become due?
Liquidity
Solvency
Profitability
Stability
Which group of ratios relates the financial charges of a firm to its ability to service them?
Debt ratios
Coverage ratios
Profitability ratios
Activity ratios
In isolation, which of the following is TRUE about a financial ratio?
Useless piece of information
Useful piece of information
Useful only for past performance
Useful only for future predictions
How is the accounts receivable turnover ratio calculated?
Net credit sales / Average total assets
Net credit sales /Operating income
Net credit sales /Average accounts receivables
Net credit sales /Cost of goods sold
Company A makes an operating profit margin of 5 %on sales of Rs. 2.5 million. Company B has salesthatare20%higherthanCompanyA andachieves anoperatingprofitmarginof3.5%. Which company makes the highest operating profit?
Company B
Company A
Both make the same operating profit
Not possible to calculate
The DuPont Approach breaks down the earning power on shareholders' equity (ROE) as which ofthe following?
Net profit margin × Total asset turnover × Equity multiplier
Total asset turnover × Gross profit margin × Debt ratio
Total asset turnover × Net profit margin
Total asset turnover × Gross profit margin × Equity multiplier
Which of the following statement best describes the operating profit margin?
It shows what portion of profits are being distributed to shareholders
It shows what return is being made on assets employed in the business
It shows how well a company is controlling its costs, including overheads
It shows how efficiently a company is turning profits into cash
Return on Sales is also known as which of the following?
Gross profit margin
Operating profit margin
Return on total assets
Return on investment
Which of the following is NOT a profitability measure?
Accounts receivable turnover ratio
Return on total assets
Return on sales
Dividend yield
Which of the following is formula to measure the return on total assets?
Average total assets by operating income
Average total assets by net income
Operating income by average total assets
Net income by average total assets
Which of the following is NOT part of additional paid-in-capital of the company?
Preferred stocks
Common stocks
Retained earnings
Dividends distributed
Whichofthefollowingoptionsindicatehowquicklyaccountsreceivablesareconvertedinto cash?
Accounts receivable turnover
Days to collect accounts receivable
Working capital
Total assets turnover
Which one of the following statement indicates the Inventory turnover ratio?
How quickly company prepared its inventory
How quickly company converts its inventory into cash
How quickly company purchases its inventory
How quickly company sells its inventory
Assume that a company has current assets of Rs.60,000, current liabilities of Rs.5,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the company?
1.57
1.71
1.86
0.58
What will be the effect on the EPS of the company, if it paid stock dividend on common stock?
Increase
Decrease
No effect
Can not be found from the given information
What will bethe effectofappropriatedretained earnings onthe rate ofreturn on stockholder's equity?
Increase
Decrease
No effect
Can not be found from the given information
Which of the following is the basic purpose of an accounting system?
Develop financial statements in conformity GAAP
Provide as much useful information to decision makers as possible
Record changes in the financial position of an entity
Meet an organization's need for accounting information as efficiently as possible
AcompletesetoffinancialstatementsforHartmanCompany,atDecember31,1999,would include each of the following, EXCEPT:
Balance sheet as of December 31, 1999
Income statement for the year ended December 31, 1999
Statement of projected cash flows for 2000
Notescontainingadditionalinformationthatisusefulininterpretingthefinancial statements
Which of the following equations properly represents a derivation ofthe fundamental accounting equation?
Assets + liabilities = owner's equity
Assets = owner's equity
Cash = assets
Assets - liabilities = owner's equity
Which of the following is TRUE regarding Retained Earnings?
Increased by net income
Increased by revenues
Decreased by dividends declared
Decreased by gains and losses
What are the effects of an adjusting entry on the financial statements?
Match revenues and expenditures
Increase net income
Increase the accuracy of balance sheet and income statement
Match revenues and assets
The supplies account has a balance of Rs.1,500 at year end. The actual amount of supplies in hand at the end of period is Rs. 400. The necessary adjusting entry is:
Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100
Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400
Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs. 1100
Debit Supplies on Hand Rs. 400; Credit Supplies Expense Rs. 400
Which of the following principle deals with the valuation and recording of the assets at cost?
► Entity Principle
► Matching Principle
► Cost Principle
► Stable Currency principle
Which of the following is the acronym for GAAP?
► Generally Adopted Accounting Principles
► Generally Accepted Auditing Principles
► Generally Accepted Accounting Principles
► Generally Adapted American Principles
How much duration does an accounting period usually have?
► Three months
► Two years
► One year
► Five years
To determine the balance of a particular account, one should refer to which of the following?
► Ledger
► Source document
► Chart of accounts
► Journal
As transactions and events related to financial resources occur, they are analyzed with respect to their effect on which of the following?
► Financial position of the company
► Accounting cycle
► Trial balance(doubted)
► Liquidity position of the company
Which of the following refers to the term “posting”?
► The system of giving numbers to the accounts
► Transferring the debits and credits to ledger
► Transferring the debits and credits to journal
► The recording of transactions
Which of the following is the next step after the preparation of trial balance?
► Adjusted trial balance
► Financial statements
► Adjusting entries
► Closing entries
Which of the following is TRUE regarding the income statement?
► The income statement reports only revenue for which cash was received at the point of sale
► The income statement reports the financial position of a business at a particular point in time
► The income statement is sometimes called the statement of operations
► The income statement reports revenues, expenses and liabilities
Which of the following principle is used for recording an expense?
► Matching Principle
► Cost Principle
► Realization Principle
► Objectivity Principle
The net income reported on the income statement is Rs. 90,000. However, adjusting entries have not been made at the end of the period for supplies expense of Rs. 2,700 and accrued salaries of Rs. 1,300. Net income, as corrected, would be:
► Rs. 87,300
► Rs. 86,000
► Rs. 88,700
► Rs. 90,000
Prepaid Expense is a(n) ______account and has a ______normal balance.
► Revenue, credit
► Liability, credit
► Asset, debit
► Expense, debit
Company A owns a building. Which of the following statements regarding depreciation is FALSE from an accounting perspective?
► As the market value of the building increases, depreciation should increase
► Depreciation is an estimated expense to be recorded each period during the building’s life
► As depreciation is recorded, stockholders’ equity is reduced
►As depreciation is recorded, total assets are reduced
A firm paid Rs. 800,000 in dividends over the last period. The beginning and ending retained earnings account balances were Rs. 10,100,000 and Rs. 12,500,000 respectively. Assuming a 40% average tax rate, what was the firm's net income (net profit after taxes)?
► Rs. 5,333,333
► Rs. 3,200,000
► Rs. 2,400,000(doubted)
► Rs. 1,600,000
Which of the following is the largest single expense of most merchandising firms?
► Cost of goods sold
► Rent Expense
► Amortization Expense
► Salaries Expense
Which of the following is NOT among the five main kinds of current assets?
► Cash and equivalents
► Deferred income
► Accounts receivable
► Prepaid expenses
When preparing a statement of cash flows under the indirect method, supplemental disclosure should be made for which of the following?
► Net cash consumed by operating activities
► Cash dividend distributions
► Cash paid for interest and taxes
► Cash paid for wages
Which of the following items is included in the financing activities section of the statement of cash flows?
► Cash effects of transactions involving making and collecting loans
► Cash effects of acquiring and disposing of investments and property, plant, and equipment
► Cash effects of transactions obtaining resources from owners and providing them with a return on their investment
► Cash effects of transactions that enter into the determination of net income
ABC Company has a cost of goods sold of Rs. 500,000. During the year the inventory increased by Rs. 10,000 and accounts payable increased by Rs. 15,000. The interest expense was Rs. 15,000 for the year and dividend of Rs. 11,000 were paid during the year. What would be the cash payments for the purchase of the merchandise.
► Rs. 505,000
►Rs. 516,000
► Rs. 490,000
► Rs. 495,000
Which of the following arrangement is used to maintain the accounts?
► Sequentialy
► Alphabaticaly
►Monthly
► Orderly
Which of the following represents the main step(s) of accounting cycle?
► Recording the transactions
► Classifying the transactions
►Ordering, summarizing, counting the transactions
► Recording, classifying, summarizing transactions
Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically Rs.10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday?
► Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit
► Salary expense Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit
► Salary payable Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit
► Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit
Retained earnings change over time because of several factors. Which of the following factors would explain anINCREASEin retained earnings?
► Net Income
► Dividends payment
► Investment by the stockholders
► Net Loss
Which one of the following statements isTRUEregarding distributions to stockholders?
► The payment of dividends is not directly related to the profits of a given period
►Shareholders can individually decide on their distributions
► To receive a corporate dividend, stock must be owned on the date of declaration
► Corporate dividends reduce contributed capital and therefore, stockholders’ equity
Which of the following isNOTthe most common example of cash equivalents?
►Savings deposits
►Certificates of Deposit (CDs)
► Stocks of other companies
►Money market mutual funds
In perpetual inventory system, a return of defective merchandise is recorded by crediting ______.
► Purchases
► Purchase Returns
► Purchase Allowance
► Merchandise Inventory
Which factor wouldNOTaffect the gross profit rate?
►An increase in the cost of heating the store
►An increase in the price of inventory items
►An increase in the sale of luxury items
►An increase in the use of “discount pricing” to sell merchandise
Assets which haveNOmarket value are called:
►Wasting assets
►Fictitious assets
►Quick assets
►Tangible assets
Audit opinions canNOTbe classified as which of the following?
►Adverse opinion
►Unqualified opinion
►Qualified opinion
►Disagreement of opinion
The audit isNOTa necessary requirement for which of the following companies?
►Listed companies
►Corporations
►Sole proprietorship
►Partnerships
Which of the following isNOTa part of the five-year summary of a company?
►Net income/Loss
►Total assets
►Discontinued operations
►Net sales
Which of the following isNOTa feature of preferred shares?
►Distributive
►Callable
►In arrears
►Cumulative
Which of the following is a type of preferred stock that entitles the holder to a fixed dividend and, in addition, to the right to get any surplus profits after payment of agreed levels of dividends to holders of common stock?
►In arrears preferred shares (doubted)
►Call able preferred shares
►Cumulative preferred shares
►Participating preferred shares
Which one of the following represents the value of shares in the market at any point of time?
►Par value
►Book value
►Face value
►Market value
Which one of the following represents the value of shares iive balance sheets, which of the following canNOTbe found?
►The increasing items
►The decreasing items
►The unchanged items
►The future profitable items
Which of the following wouldNOTimprove the current ratio?
►Issue long-term debt to buy inventory
►Sell common stock to reduce current liabilities
►Sell fixed assets to reduce accounts payable
►Borrow short term to finance additional fixed assets (doubted)
A company experiences a dramatic fall in its gross profit ratio. This could be the result of which of the following?
►An increase in competition in the company's main product market
►An increase in the incidence of bad debts
►An increase in overhead expenses
►An increase in demand for the company's products
Notes to financial statements are beneficial in meeting the disclosure requirements of financial reporting. The note should not be used to:
► Correct an improper presentation in the financial statements
►Describe significant accounting policies
► Describe depreciation methods employed by the company
► Describe principles and methods peculiar to the industry
Which of the following feature is shown by the income statement for a merchandising company?
► Gross profit
► Cost of goods sold
► A sales revenue section
► All of the given options
In a period of rising prices, all of the following statements regarding LIFO are true EXCEPT:
► Net income is generally higher
► Ending inventory is generally undervalued(Doubted)
► It can be used to manipulate net income
► Most recent inventory costs are allocated to cost of goods sold
From the given data, calculate Cost of Goods Sold using the FIFO costing method:
Beginning inventory is 10 units . Rs. 10 each.
On January 20, purchased 10 units . Rs. 20 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
In which of the following inventory pricing procedure, the oldest costs incurred rarely have an effect on the ending inventory valuation?
► FIFO
►LIFO
► Retail
► Weighted-average
If beginning inventory is Rs. 60,000, cost of goods purchased is Rs. 380,000, and ending inventory is Rs. 50,000, what is cost of goods sold under a periodic system?
► Rs. 390,000(formula : opening + purchases - ending)
► Rs. 370,000
► Rs. 330,000
► Rs. 420,000
The purpose of recording depreciation on productive assets is to:
► Reflect the decline in the market value of the assets each period
► Reduce income when the company has an exceptionally profitable year
► Be in conformity with the revenue recognition principle
► Allocate the original cost of a productive asset to expense over its useful life
In which of the following situations, a company should NOT record any depreciation expense on asset described?
► Computer Airline is required by law to maintain its aircraft in “as good as new” condition
► Metro Advertising owns an office building that has been increasing in value each year
► Computer Sales Company has in inventory a new type of computers, designed never to obsolete
► None of the given option is right as depreciation is applied on all assets
Which of the following is NOT the part of annual report?
► Financial statements
► Auditor’s report
► Five year summary
► Future investments report
In a statement of cash flows, the acquisition of land by issuing capital stock:
► Is not shown at all, since no cash was received or disbursed
► Is shown as an investing activity
► Is shown as a financing activity(Doubted)
► Is shown in a supplementary schedule as a non-cash investing and financing transaction
Which of the following would represent an increase in Owner's Equity?