FIN621 Final Term solved MCQs

The process of recording the economic effects of business transactions in a book of

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

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

"n which of the following form of "ncome #tatement$ the total of all e%penses is
deducted from
the total of all re!enues?
&ultiple'step form
Account orm
eport form
#ingle'step form

(hich one of the following statements is T)* regarding distributions to
stockholders?
The payment of di!idends is not directly related to the profits of a gi!en period
#hareholders can indi!idually decide on their distributions
To receive a corporate dividend! stoc" must #e o$ned on t%e date o
declaration
+orporate di!idends reduce contributed capital and therefore$ stockholders e,uity

All of the following are true regarding the financing acti!ity section of the ca
sh flow statement *-+*PT.

/inancing acti!ities re,uire analysis of long'term liability and shareholders0 e,uity
accounts
The ability to issue large ,uantities of common shares usually signals in!estor
confidence
"n the future of the company
*%cessi!e borrowing has been the downfall of many companies
T%e declaration and payment o a large cas% dividend may signal an
emergency

(hich of the following would 12T be the cash inflow for the business?
#ale of land for cash
"ssuance of long term bonds
The sale of common stock
&etirement o long term de#t

)nder which cost flow assumption$ the ending in!entory is composed of the earliest
purchased &erchandise?
FIF'
3"/2
A!erage cost
#pecific identification
$$$(vustudents(ning(com
(hich of the following would affect the gross profit rate if sales remain constant?
An increase in ad!ertising e%pense
A decrease in depreciation e%pense
An increase in cost o goods sold
A decrease in insurance e%pense

(hich of the following is 12T an ad!antage of a #ole proprietorship?
*asy to form and wind up
Direct moti!ation
4etter control
)imited lia#ility

(hich of the following is a type of preferred stock that entitles the
holder to a fi%ed di!idend And$ in addition$ to the right to get any surplus profits
after payment of agreed le!els of di!idends to holders of common stock?
"n arrears preferred shares
+all able preferred shares
+umulati!e preferred shares
*articipating preerred s%ares

" f a firm has s. 566 in in!entories$ a current ratio e,ual to 5.7$ and a ,uick ratio
e,ual to 5.5$ (hat is the firm8s 1et (orking +apital?
s. 6
s. 566
&s( 2++
s. 5$666

To financial analysts$ 9working capital9 means the same thing as which of the
following?
Total assets
/i%ed assets
+urrent assets
Current assets minus current lia#ilities

(hich of the following could account for a company8s gross profit ratio increa
sing from one Period to the ne%t?

An increase in the cost of sales which has not been accompanied by an increase in
the #elling price of goods sold
An increase in t%e selling price o goods sold $%ic% %as
not #een accompanied #y an Increase in t%e cost o sales
A change in the
mi% of goods sold so that lower profit margin goods take a greater
Proportion of total sales
A change in stock !aluation method at the year end
which leads to a decrease in the +losing stock figure

1estle Pakistan 3imited is an e%ample of which of the following types of businesses?
Manuacturing
#er!ice
&erchandise
(hole seller

(hich of the following represents the long term debt paying ability of the co
mpany as they 4ecome due?
3i,uidity
,olvency
Profitability
#tability
(hich group of ratios relates the financial charges of a firm to its ability to ser!ice
them?
Debt ratios
Coverage ratios
Profitability ratios
Acti!ity ratios
$$$(vustudents(ning(com
"n isolation$ which of the following is T)* about a financial ratio?
)seless piece of information
-seul piece o inormation
)seful only for past performance
)seful only for future predictions

:ow is the accounts recei!able turno!er ratio calculated?
1et credit sales ; A!erage total assets
1et credit sales ;2perating income
Net credit sales .Average accounts receiva#les
1et credit sales ;+ost of goods sold

+ompany A makes an operating profit margin of < = on sales of s. 7.< million.
+ompany 4 has sales that are 76= higher than +ompany A and achie!es
an operating profit margin of >.<=. (hich company makes the highest operating
profit?
+ompany 4
Company A
4oth make the same operating profit
1ot possible to calculate

The DuPont Approach breaks down the earning power on shareholders8 e,uity ?2*@
as which of the following?
Net proit margin / Total asset turnover / 01uity multiplier
Total asset turno!er A Bross profit margin A Debt ratio
Total asset turno!er A 1et profit margin
Total asset turno!er A Bross profit margin A *,uity multiplier

(hich of the following statement best describes the operating profit margin?
"t shows what portion of profits are being distributed to shareholders
"t shows what return is being made on assets employed in the business
It s%o$s %o$ $ell a company is controlling its costs! including over%eads
"t shows how efficiently a company is turning profits into cash

eturn on #ales is also known as which of the following?
Bross profit margin
'perating proit margin
eturn on total assets
eturn on in!estment

(hich of the following is 12T a profitability measure?
Accounts receiva#le turnover ratio
eturn on total assets
eturn on sales
Di!idend yield

(hich of the following is formula to measure the return on total assets?
A!erage total assets by operating income
A!erage total assets by net income
'perating income #y average total assets
1et income by a!erage total assets

(hich of the following is 12T part of additional paid'in'capital of the company?
Preferred stocks
+ommon stocks
etained earnings
2ividends distri#uted

(hich of the following options indicate how ,uickly accounts recei!ables are c
on!erted into cash?
Accounts receiva#le turnover
Days to collect accounts recei!able
(orking capital
Total assets turno!er

(hich one of the following statement indicates the "n!entory turno!er ratio?
:ow ,uickly company prepared its in!entory
:ow ,uickly company con!erts its in!entory into cash
:ow ,uickly company purchases its in!entory
3o$ 1uic"ly company sells its inventory

Assume that a company has current assets of s. C6$666$ current liabilities of
s. <$666 and prepaid e%penses of s. <$666. +alculate the ,uick ratio of the
company?
1(45
5.D5
5.EC
6.<E

(hat will be the effect on the *P# of the company$ if it paid stock di!idend on
common stock?
Increase
Decrease
1o effect
+an not be found from the gi!en information

(hat will be the effect of appropriated retained earnings on the rate of return on
stockholder8s e,uity?
Increase
Decrease
1o effect
+an not be found from the gi!en information

(hich of the following is the basic purpose of an accounting system?
De!elop financial statements in conformity BAAP
*rovide as muc% useul inormation to decision ma"ers as possi#le
ecord changes in the financial position of an entity
&eet an organiFation8s need for accounting information as efficiently as
possible

A complete set of financial statements for :artman +ompany$ at December >
5$ 5GGG$ would include each of the following$ *-+*PT.

4alance sheet as of December >5$ 5GGG
"ncome statement for the year ended December >5$ 5GGG
,tatement o pro6ected cas% lo$s or 2+++
1otes containing additional information that is useful in interpreting the financ
ial statements

(hich of the following e,uations properly represents a deri!ation of the fundamental
accounting e,uation?
Assets H liabilities I owner8s e,uity
Assets I owner8s e,uity
+ash I assets
Assets 7 lia#ilities 8 o$ner9s e1uity

(hich of the following is T)* regarding etained *arnings?
"ncreased by net income
"ncreased by re!enues
2ecreased #y dividends declared
Decreased by gains and losses

(hat are the effects of an adjusting entry on the financial statements?
&atch re!enues and e%penditures
"ncrease net income
Increase t%e accuracy o #alance s%eet and income statement
&atch re!enues and assets

The supplies account has a balance of s. 5$<66 at year end. The actual amount of
supplies in hand at the end of period is s. J66. The necessary adjusting entry is.

Debit #upplies on :and s. 5566K +redit #upplies *%pense s. 5566
Debit #upplies *%pense s. J66K +redit #upplies on :and s. J66
2e#it ,upplies 0:pense &s( 11++; Credit ,upplies on 3and &s( 11++
Debit #upplies on :and s. J66K +redit #upplies *%pense s. J66






(hich of the following principle deals with the !aluation and recording of the assets
at cost?
*ntity Principle
&atching Principle
Cost *rinciple
#table +urrency principle
(hich of the following is the acronym for BAAP?
Benerally Adopted Accounting Principles
Benerally Accepted Auditing Principles
<enerally Accepted Accounting *rinciples
Benerally Adapted American Principles
:ow much duration does an accounting period usually ha!e?
Three months
Two years
'ne year
/i!e years
To determine the balance of a particular account$ one should refer to which of the
following?
)edger
#ource document
+hart of accounts
Journal
As transactions and e!ents related to financial resources occur$ they are analyFed
with respect to their effect on which of the following?
/inancial position of the company
Accounting cycle
Trial #alance ?doubted@
3i,uidity position of the company
(hich of the following refers to the term LpostingM?
The system of gi!ing numbers to the accounts
Transerring t%e de#its and credits to ledger
Transferring the debits and credits to journal
The recording of transactions
(hich of the following is the ne%t step after the preparation of trial balance?
Adjusted trial balance
/inancial statements
Ad6usting entries
+losing entries
(hich of the following is T)* regarding the income statement?
The income statement reports only re!enue for which cash was recei!ed at the
point of sale
The income statement reports the financial position of a business at a particular
point in time
T%e income statement is sometimes called t%e statement o operations
The income statement reports re!enues$ e%penses and liabilities
(hich of the following principle is used for recording an e%pense?
Matc%ing *rinciple
+ost Principle
ealiFation Principle
2bjecti!ity Principle
The net income reported on the income statement is s. G6$666. :owe!er$ adjusting
entries ha!e not been made at the end of the period for supplies e%pense of s.
7$D66 and accrued salaries of s. 5$>66. 1et income$ as corrected$ would be.
s. ED$>66
&s( =6!+++
s. EE$D66
s. G6$666
Prepaid *%pense is a?n@ _________ account and has a _________ normal balance.
e!enue$ credit
3iability$ credit
Asset! de#it
*%pense$ debit
+ompany A owns a building. (hich of the following statements regarding
depreciation is /A3#* from an accounting perspecti!e?
As the market !alue of the building increases$ depreciation should increase
2epreciation is an estimated e:pense to #e recorded eac% period during
t%e #uilding>s lie
As depreciation is recorded$ stockholders0 e,uity is reduced
As depreciation is recorded$ total assets are reduced
A firm paid s. E66$666 in di!idends o!er the last period. The beginning and ending
retained earnings account balances were s. 56$566$666 and s. 57$<66$666
respecti!ely. Assuming a J6= a!erage ta% rate$ what was the firm8s net income ?net
profit after ta%es@?
s. <$>>>$>>>
s. >$766$666
&s( 2!?++!+++@dou#tedA
s. 5$C66$666
(hich of the following is the largest single e%pense of most merchandising firms?
Cost o goods sold
ent *%pense
AmortiFation *%pense
#alaries *%pense
(hich of the following is 12T among the fi!e main kinds of current assets?
+ash and e,ui!alents
2eerred income
Accounts recei!able
Prepaid e%penses
(hen preparing a statement of cash flows under the indirect method$ supplemental
disclosure should be made for which of the following?
Net cas% consumed #y operating activities
+ash di!idend distributions
+ash paid for interest and ta%es
+ash paid for wages
(hich of the following items is included in the financing acti!ities section of the
statement of cash flows?
Cas% eects o transactions involving ma"ing and collecting loans
+ash effects of ac,uiring and disposing of in!estments and property$ plant$ and
e,uipment
+ash effects of transactions obtaining resources from owners and pro!iding them
with a return on their in!estment
+ash effects of transactions that enter into the determination of net income
A4+ +ompany has a cost of goods sold of s. <66$666. During the year the in!entory
increased by s. 56$666 and accounts payable increased by s. 5<$666. The interest
e%pense was s. 5<$666 for the year and di!idend of s. 55$666 were paid during
the year. (hat would be the cash payments for the purchase of the merchandise.
s. <6<$666
&s( 416!+++
s. JG6$666
s. JG<$666
(hich of the following arrangement is used to maintain the accounts?
#e,uentialy
Alphabaticaly
&onthly
'rderly
(hich of the following represents the main step?s@ of accounting cycle?

ecording the transactions
+lassifying the transactions
2rdering$ summariFing$ counting the transactions
&ecording! classiying! summarizing transactions

4lankenship +ompany pays its employees e!ery /riday for work rendered that week.
The payroll is typically s.56$666 per week. (hich of the following journal entries
would 4lankenship ordinarily record on the /riday payday?
#alary e%pense s. 56$666 ' DebitK #alary payable s. 56$666 ' +redit
#alary e%pense s. 56$666 ' DebitK +ash s. 56$666 ' +redit
#alary payable s. 56$666 ' DebitK +ash s. 56$666 ' +redit
#alary payable s. 56$666 ' DebitK #alary e%pense s. 56$666 ' +redit
etained earnings change o!er time because of se!eral factors. (hich of the
following factors would e%plain an INC&0A,0 in retained earnings?

1et "ncome
Di!idends payment
Investment #y t%e stoc"%olders
1et 3oss

(hich one of the following statements is T&-0 regarding distributions to
stockholders?
The payment of di!idends is not directly related to the profits of a gi!en period
#hareholders can indi!idually decide on their distributions
To recei!e a corporate di!idend$ stock must be owned on the date of declaration
Corporate dividends reduce contri#uted capital and t%ereore!
stoc"%olders> e1uity

(hich of the following is N'T the most common e%ample of cash e,ui!alents?
#a!ings deposits
+ertificates of Deposit ?+Ds@
#tocks of other companies
Money mar"et mutual unds

"n perpetual in!entory system$ a return of defecti!e merchandise is recorded by
crediting __________.
Purchases
*urc%ase &eturns
Purchase Allowance
&erchandise "n!entory

(hich factor would N'T affect the gross profit rate?
An increase in t%e cost o %eating t%e store
An increase in the price of in!entory items
An increase in the sale of lu%ury items
An increase in the use of Ldiscount pricingM to sell merchandise
Assets which ha!e N' market !alue are called.
(asting assets
Fictitious assets
Nuick assets
Tangible assets

Audit opinions can N'T be classified as which of the following?
Ad!erse opinion
)n,ualified opinion
Nualified opinion
2isagreement o opinion

The audit is N'T a necessary re,uirement for which of the following companies?
3isted companies
+orporations
,ole proprietors%ip
Partnerships

(hich of the following is N'T a part of the fi!e'year summary of a company?
1et income;3oss
Total assets
2iscontinued operations
1et sales

(hich of the following is N'T a feature of preferred shares?
2istri#utive
+allable
"n arrears
+umulati!e

(hich of the following is a type of preferred stock that entitles the holder to a fi%ed
di!idend and$ in addition$ to the right to get any surplus profits after payment of
agreed le!els of di!idends to holders of common stock?
In arrears preerred s%ares @dou#tedA
+all able preferred shares
+umulati!e preferred shares
Participating preferred shares

(hich one of the following represents the !alue of shares in the market at any point
of time?
Par !alue
Boo" value
/ace !alue
&arket !alue

(hich one of the following represents the !alue of shares ii!e balance sheets$ which
of the following can N'T be found?
The increasing items
The decreasing items
T%e unc%anged items
The future profitable items

(hich of the following would N'T impro!e the current ratio?
"ssue long'term debt to buy in!entory
#ell common stock to reduce current liabilities
#ell fi%ed assets to reduce accounts payable
Borro$ s%ort term to inance additional i:ed assets @dou#tedA

A company e%periences a dramatic fall in its gross profit ratio. This could be the
result of which of the following?
An increase in competition in t%e company9s main product mar"et
An increase in the incidence of bad debts
An increase in o!erhead e%penses
An increase in demand for the company8s products

1otes to financial statements are beneficial in meeting the disclosure re,uirements of
financial reporting. The note should not be used to.
+orrect an improper presentation in the financial statements
2escri#e signiicant accounting policies
Describe depreciation methods employed by the company
Describe principles and methods peculiar to the industry
(hich of the following feature is shown by the income statement for a merchandising
company?
Bross profit
Cost o goods sold
A sales re!enue section
All of the gi!en options
"n a period of rising prices$ all of the following statements regarding 3"/2 are true
*-+*PT.
1et income is generally higher
0nding inventory is generally undervalued?Doubted@
"t can be used to manipulate net income
&ost recent in!entory costs are allocated to cost of goods sold
/rom the gi!en data$ calculate +ost of Boods #old using the /"/2 costing method.
4eginning in!entory is 56 units . s. 56 each.
2n January 76$ purchased 56 units . s. 76 each
2n January >6$ purchased < units . s. >6 each
5< of the 7< units are sold.
&s( 2++
s. 5<6 O
s. ><6
s. J<6
"n which of the following in!entory pricing procedure$ the oldest costs incurred rarely
ha!e an effect on the ending in!entory !aluation?
/"/2
)IF'
etail
(eighted'a!erage
"f beginning in!entory is s. C6$666$ cost of goods purchased is s. >E6$666$ and
ending in!entory is s. <6$666$ what is cost of goods sold under a periodic system?
&s( CD+!+++@ormula E opening F purc%ases 7 endingA
s. >D6$666
s. >>6$666
s. J76$666
The purpose of recording depreciation on producti!e assets is to.
eflect the decline in the market !alue of the assets each period
educe income when the company has an e%ceptionally profitable year
4e in conformity with the re!enue recognition principle
Allocate t%e original cost o a productive asset to e:pense over its useul
lie
"n which of the following situations$ a company should 12T record any depreciation
e%pense on asset described?
+omputer Airline is re,uired by law to maintain its aircraft in Las good as newM
condition
&etro Ad!ertising owns an office building that has been increasing in !alue each
year
+omputer #ales +ompany has in in!entory a new type of computers$ designed
ne!er to obsolete
None o t%e given option is rig%t as depreciation is applied on all assets
(hich of the following is 12T the part of annual report?
/inancial statements
Auditor0s report
/i!e year summary
Future investments report
"n a statement of cash flows$ the ac,uisition of land by issuing capital stock.
"s not shown at all$ since no cash was recei!ed or disbursed
"s shown as an in!esting acti!ity
Is s%o$n as a inancing activity?Doubted@
"s shown in a supplementary schedule as a non'cash in!esting and financing
transaction
(hich of the following would represent an increase in 2wner8s *,uity?
"ncrease in net income
Increase in assets
"ncrease in accounts recei!able
"ncrease in cash
(hich of the following steps of accounting cycle keep on occurring throughout the
period?
Journalizing and posting t%e entries
&aking adjusting entries for the rele!ent accounts
Preparing Trial 4alance
Preparing financial statements
(hich one of the following items is 12T generally used in preparing a statement of
cash flows?
Adjusted trial balance
Comparative #alance s%eets@dou#tedA
+urrent income statement
Additional information
/rom the gi!en information$ calculate the +ost of Boods #old using the weighted'
a!erage cost method.
4eginning in!entory 56 units . s. 56 each
2n January 76$ purchased 56 units . s. 76 each
2n January >6$ purchased < units . s. >6 each
5< of the 7< units are sold
s. 766
&s( 25+
s. >66
s. ><6
(hich of the following is the most common item in adjusting entries of a
merchandising business?
)n'earned re!enue
Pre'paid e%pense
2epreciation e:pense
Accrued re!enue
+losing entries result in net income being calculated in the income summary account
and then transferred to which of the following account?
&evenue account
+ommon #tock account
Di!idends account
2wner8s +apital account
(hich of the following ,uestion is 12T addressed by cash flow statement?
:ow much cash was generated by the company0s operations?
(hy is such a profitable company able to pay only small di!idends?
:ow much was spent for the new plants and e,uipment?
3o$ proita#le t%e company>s current assets areG
(hich of the following statements is +2*+T regarding depreciation methods?
Accumulated depreciation represents a fund being accumulated fro the
replacement of assets
The cost of a machine includes the cost of repairing damage to the machine during
the installation process
A company may use dierent depreciation met%ods in its inancial
statements and its income ta: returns
The use of an accelerated depreciation method causes an asset to wear out more quickly than does the straight
line method
$$$(vustudents(ning(com

5. (hich one of the following is a temporary account?
a. +ash
b. Accounts ecei!ables
c( Insurance 0:pense
d. Accounts payable

7. The term used for the difference between fair !alue of a company and the
purchase
price is.
a. Trade &ark
b. &arket Palue
c( <ood Hill
d. Purchase Price

>. /inancial statement ?s@ that has all temporary accounts is.
a. 4alance #heet
b. "ncome #tatement
c. +ash /low #tatement
d( ,tatement o '$ner>s 01uity

J. The accounting cycle runs in the se,uence
a( Analyze! 6ournalize! post! ad6ust! and prepare statements! close
b. Post$ journaliFe$ analyFe$ prepare statements$ close$ adjust
c. Prepare statements$ journaliFe$ post$ adjust$ close$ analyFe
d. JournaliFe$ post$ close$ prepare statements$ adjust$ analyFe

<. After all the closing entries ha!e been posted$ what will be the balance of the
income
summary account?
a. A debit if a net income has occurred
b. A debit if a net loss has occurred
c. A credit if a net loss has occurred
d. Qero

C. (hich one is T)* about Post'+losing trial balance?
a( Be prepared #eore closing entries are posted to t%e ledger
b. +ontain both income statement and balance sheet accounts
c. +ontain only balance sheet accounts
d. +ontain only income statement accounts

D. e!enue from ser!ices is classified as.
a. "n!esting "nflow
#( 'perating Inlo$
c. "n!esting 2utflow
d. 2perating 2utflow

E. "f the cost of a building is s. G6$ 666 and its estimated useful life is >6 years. The
depreciation e%pense for one month is.
a. s. C66
#( &s( 24+
c. s. >66
d. s. <66

G. The supplies on hand account ha!e a balance of s. 5<66 at year end. The actual
amount of supplies on hand at the end of period is s. J66. The necessary adjusting
entry
is.
a. Dr. #upplies on :and s. 5566
+r. #upplies *%pense s. 5566
b. Dr. #upplies *%pense s. J66
+r. #upplies on :and s. J66
c( 2r( ,upplies 0:pense &s( 11++
Cr( ,upplies on 3and &s( 11++
d. Dr. #upplies on :and s. J66
+r. #upplies *%pense s. J66

56. "f a company has
e!enue s. I J<$666$
*%penses were s. I >D$<66$
2wner0s withdrawals I s. 56$666.
+alculate the amount of net income or net loss of the company.
a. Profit of R 5<$ 66
b. 3oss of R 7<$ 66
c( *roit o I 24! ++
d. 3oss of R7<$666

:ow much duration does an accounting period usually ha!e?
Three months
Two years
'ne year
/i!e years
(hich of the following statement shows the effects of cash inflows and outflows?
4alance #heet
#tatement of 2wner0s *,uity
"ncome #tatement
,tatement o Cas% Flo$s
To determine the balance of a particular account$ one should refer to which of the
following?
)edger
#ource document
+hart of accounts
Journal
E ?
A business has purchased a building on credit$ how it would be recorded in the
journal?
4uilding ' +reditK Accounts payable ' Debit
Building 7 2e#it; Notes paya#le 7Credit
4uilding ' DebitK 2wner0s e,uity' +redit
4uilding ' DebitK Accounts payable ' +redit
E 4
An entry that affects more than one accounts is knows as _____________.
Journal entry
+ompound entry
Adjusting entry
e!ersing entry
E 6
(hich of the following is N'T true about the net income?
It is a calculated igure and represents actual cas%
"t can be distributed among holders of common stock as a di!idend
"t can be held by the firm as retained earnings
"t is obtained by subtracting e%penses from the re!enues
E 5
(hat would be the adjusting entry to record depreciation if the estimated amount of
depreciation on e,uipment for a period is s. 7$666?
Depreciation e%pense ' DebitK *,uipment ' +redit
2epreciation e:pense 7 2e#it; Accumulated depreciation 7 Credit
*,uipment ' DebitK Depreciation e%pense ' +redit
Accumulated depreciation ' DebitK Depreciation e%pense ' +redit
E =
The trial balance shows #upplies of s.5$><6 and #upplies *%pense of s.6. "f s.C66
of supplies are on hand at the end of the period$ the adjusting entry would be.
,upplies! &s( 6++ 7 2e#it; ,upplies 0:pense! &s( 6++ 7 Credit
#upplies$ s. D<6 ' DebitK #upplies *%pense$ s. D<6 ' +redit
#upplies *%pense$ s. D<6 ' DebitK #upplies$ s. D<6 ' +redit
#upplies *%pense$ s. C66 DebitK #upplies$ s. C66 ' +redit

E D
(hich of the following accounts would N'T be included in a post'closing trial
balance?
+ash
Accumulated depreciation
'$ner>s e1uity
/ees earned
E 1+
After the closing entries are posted to the ledger$ each e%pense account will ha!e?
A debit balance
A negati!e balance
A credit balance
A zero #alance
E 11
+urrent assets are those assets which management intends to con!ert into cash or
consume within.
The operating cycle
2ne year
T%e longer o operating cycle or one year
The shorter of operating cycle or one year
E 12
(hich of the following is N'T the most common e%ample of cash e,ui!alents?
#a!ings deposits
+ertificates of Deposit ?+Ds@
,toc"s o ot%er companies
&oney market mutual funds
E 1C
"n preparing the statement of cash flows$ how should non'cash in!esting;financing
acti!ities be reported?
"n the financing acti!ities section of the statement of cash flows
In a separate sc%edule accompanying t%e statement o cas% lo$s
"n the in!esting acti!ities section of the statement of cash flows
#houd not to be reported
E 1?
(hich of the following items are N'T added back to the net income figure ?which is
found on the "ncome #tatement@ to arri!e at cash flows from operations?
Depreciation
Deferred ta%
Amortization
"n!estments
E 14
(hich of the following acti!ities con!ert the income statement items from the accrual
basis of accounting to cash?
2perating acti!ities
"n!esting acti!ities
/inancing acti!ities
Non cas% activities
E 16
(hich one of the following items is specifically included in the body of a statement of
cash flows?
'perating and non7operating cas% lo$ inormation
+on!ersion of debt to e,uity
Ac,uiring an asset through a capital leases
Purchasing a building by gi!ing a mortgage to the seller
E 15
A4+ +ompany has a cost of goods sold of s. <66$666. During the year the in!entory
increased by s. 56$666 and accounts payable increased by s. 5<$666. The interest
e%pense was s. 5<$666 for the year and di!idend of s. 55$666 were paid during
the year. (hat would be the cash payments for the purchase of the merchandise.
s. <6<$666
&s( 416!+++
s. JG6$666
s. JG<$666
E 1=
The cash flow from in!esting acti!ities shows the cash effects of which of the
following?
"ncome statement items
)ong term assets items
3ong term liability S stockholder0s e,uity
3ong term liability and long term assets
E 1D
(hich of the following must be included in a company8s summary of significant
accounting policies in the notes to the financial statements?
Description of current year e,uity transactions
#ummary of long'term debt outstanding
,c%edule o i:ed assets
e!enue recognition policies
E 2+
Bross profit is.
0:cess o sales over cost o goods sold
#ales less Purchases
+ost of goods sold H 2pening stock
1et profit less e%penses of the period
E 21
An in!entory error affects ___________ accounting periods.
2nly current
T$o
Three
/our
E 22
/rom the gi!en data$ calculate +ost of Boods #old using the /"/2 costing method.
4eginning in!entory is 56 units T s. 56 each.
2n January 76$ purchased 56 units T s. 76 each
2n January >6$ purchased < units T s. >6 each
5< of the 7< units are sold.
&s( 2++
s. 5<6
s. ><6
s. J<6
E 2C
)nder which cost flow assumption$ the ending in!entory is composed of the most
recently purchased merchandise?
FIF'
3"/2
A!erage cost
#pecific identification
E 2?
"f sales re!enues are s. J66$666$ cost of goods sold is s. >56$666$ and operating
e%penses are s. C6$666$ what is the gross profit?
s. >6$666
&s( D+!+++
s. >J6$666
s. J66$666
E 24
(hich cost flow assumption most closely matches the actual physical flow of
in!entory in most retailing businesses?
/"/2
3"/2
Average cost
#pecific identification
E 26
The sale of a depreciable asset resulting in a loss indicates that the proceeds from
the sale were.
)ess t%an current mar"et value
Breater than cost
Breater than book !alue
3ess than book !alue
E 25
The purpose of recording depreciation on producti!e assets is to.
eflect the decline in the market !alue of the assets each period
educe income when the company has an e%ceptionally profitable year
4e in conformity with the re!enue recognition principle
Allocate t%e original cost o a productive asset to e:pense over its useul
lie
E 2=
(hich depreciation method allocates an e,ual portion of depreciation e%pense to
each period of asset0s useful life?
,traig%t7line met%od
Double'declining balance method
#um'of'the'year digit method
Accelerated depreciation method
E 2
(hich of the following is N'T an e%ample of accelerated depreciation method?
,traig%t7line met%od
#um'of'the'years digit method
Double'declining balance method
&odified Accelerated +ost eco!ery #ystem
E C+
The Drawing account is closed by which of the following entry?
+apital U DebitK Drawing ' +redit
2ra$ing J 2e#it; Capital 7 Credit
"ncome #ummary U DebitK Drawing ' +rediting
Drawing U DebitK "ncome #ummary ' +rediting
E C1
(hich of the following account would be classified as a current asset on the balance
sheet?
Accumulated depreciation
Accounts receiva#le
2ffice e,uipment
3and
E C2
An adjusting entry would N'T be re,uired for which of the following account?
,alaries
Past due e%pense
"ncome ta% e%pense
Accounts recei!able
E CC
(hich of the following accounts will be debited$ when increased?
3iabilities and e%penses
Assets and e,uity
Assets and e:penses
*,uity and re!enues
E C?
Accounting +ycle is a series of acti!ities that begins with ___________ and ends
with ___________.
+losing of books$ transactions
Transaction$ After closing Trial 4alance
Journal$ ledger account
Transactions! inancial statements
E C4
The income statement of A43 shows other operating e%penses of s. >6 millionK
prepaid insurance e%pense increased by s. J millionK and accrued utilities payable
decreased by s. D million. :ow much did the company pay in other operating
e%penses?
s. J5 million
&s( CC million
s. 7D million
s. 5G million
E C6
The statement of cash flows does N'T report the.
#ources of cash in the current period
Amount o c%ec"s outstanding at t%e end o t%e period
)ses of cash in the current period
+hange in the cash balance for the current period
E C5
(hich of the following is N'T normally re,uired for re!enue to be recogniFed
according to the re!enue principle for accrual basis accounting?
The price is fi%ed or determinable
#er!ices ha!e been performed
+ash that has already been collected
0vidence o an arrangement or customer payment e:ists
E C=
(hich of the following balances does the +ontra'Asset account show typically?
Credit
Debit
1egati!e
Positi!e
E CD
(hich one of the following would lead to the decrease in the owner0s e,uity?
Purchasing a piece of land
*aying dividends to s%are%olders
Purchasing e,uipment on account
Paying back the principal of a loan
E ?+
The users of a statement of cash flows are mostly interested in.
Net cas% lo$ rom operating activities
1et cash flow from in!esting acti!ities
1et cash flow from financing acti!ities
1et cash flow from non'cash transactions

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