fin621 solved mcqs finalterm mega file

5/20/2018 FIN621 Solved MCQs Finalterm Mega File

1/23

FIN621 Final Term solved MCQs

The process of recording the economic effects of business transactions in a book oforiginal 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 isdeducted 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 tostockholders?

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 odeclaration

+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 cash flow statement *-+*PT

/inancing acti!ities re,uire analysis of long'term liability and shareholders0 e,uityaccounts


2/23

The ability to issue large ,uantities of common shares usually signals in!estorconfidence

"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 anemergency

(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 earliestpurchased &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 theholder to a fi%ed di!idend And$ in addition$ to the right to get any surplus profitsafter payment of agreed le!els of di!idends to holders of common stock?

"n arrears preferred shares
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3/23

+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 ratioe,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 thefollowing?

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 increasing 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 soldAn increase in t%e selling price o goods sold $%ic% %asnot #een accompanied #y an Increase in t%e cost o sales

A change in themi% of goods sold so that lower profit margin goods take a greaterProportion of total sales

A change in stock !aluation method at the year endwhich 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 company as they 4ecome due?


4/23

3i,uidity

,olvency

Profitability

#tability

(hich group of ratios relates the financial charges of a firm to its ability to ser!icethem?

Debt ratios

Coverage ratios

Profitability ratios

Acti!ity ratios


"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!esan operating profit margin of >.


5/23

Total asset turno!er 1et profit margin

Total asset turno!er Bross profit margin *,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

ividends distri#uted

(hich of the following options indicate how ,uickly accounts recei!ables are con!erted into cash?

Accounts receiva#le turnover


6/23

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$ uic"ly company sells its inventory

Assume that a company has current assets of s. C6$666$ current liabilities ofs.


7/23

&eet an organiFation8s need for accounting information as efficiently aspossible

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 proected cas% lo$s or 2+++

1otes containing additional information that is useful in interpreting the financial statements

(hich of the following e,uations properly represents a deri!ation of the fundamentalaccounting e,uation?

Assets H liabilities I owner8s e,uity

Assets I owner8s e,uity

+ash I assets

Assets 7 lia#ilities 8 o$ner9s euity

(hich of the following is T)* regarding etained *arnings?

"ncreased by net income

"ncreased by re!enues

ecreased #y dividends declaredDecreased 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$


8/23

Debit #upplies on :and s. 66K +redit #upplies *%pense s. 66

(hich of the following principle deals with the !aluation and recording of the assetsat cost?

*ntity Principle&atching PrincipleCost *rinciple#table +urrency principle

(hich of the following is the acronym for BAAP?

Benerally Adopted Accounting PrinciplesBenerally Accepted Auditing Principles


9/23

Adusting 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 thepoint of saleThe income statement reports the financial position of a business at a particularpoint in timeT%e income statement is sometimes called t%e statement o operationsThe 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 PrincipleealiFation Principle2bjecti!ity Principle

The net income reported on the income statement is s. G6$666. :owe!er$ adjustingentries ha!e not been made at the end of the period for supplies e%pense of s.7$66 and accrued salaries of s. 5$>66. 1et income$ as corrected$ would be

s. E$>66&s( =6!+++s. EE$66s. G6$666

Prepaid *%pense is an@ _________ account and has a _________ normal balance.

e!enue$ credit3iability$ creditAsset! de#it*%pense$ debit

+ompany A owns a building. (hich of the following statements regardingdepreciation is /A3#* from an accounting perspecti!e?

As the market !alue of the building increases$ depreciation should increaseepreciation is an estimated e:pense to #e recorded eac% period duringt%e #uilding>s lieAs depreciation is recorded$ stockholders0 e,uity is reducedAs depreciation is recorded$ total assets are reduced

A firm paid s. E66$666 in di!idends o!er the last period. The beginning and endingretained earnings account balances were s. 56$566$666 and s. 57$>$>>>s. >$766$666&s( 2!?++!+++@dou#teds. 5$C66$666

(hich of the following is the largest single e%pense of most merchandising firms?Cost o goods soldent *%penseAmortiFation *%pense#alaries *%pense


10/23

(hich of the following is 12T among the fi!e main kinds of current assets?

+ash and e,ui!alentseerred incomeAccounts recei!ablePrepaid e%penses

(hen preparing a statement of cash flows under the indirect method$ supplementaldisclosure 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 thestatement 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$ ande,uipment

+ash effects of transactions obtaining resources from owners and pro!iding themwith 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.


11/23

#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 thefollowing factors would e%plain an INC&0A,0in retained earnings?

1et "ncome

Di!idends payment

Investment #y t%e stoc"%olders

1et 3oss

(hich one of the following statements is T&-0regarding 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> euity

(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 bycrediting __________.

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


12/23

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'Tbe classified as which of the following?

Ad!erse opinion

)n,ualified opinion

Nualified opinion

isagreement o opinion

The audit is N'Ta necessary re,uirement for which of the following companies?

3isted companies

+orporations

,ole proprietors%ip

Partnerships

(hich of the following is N'Ta part of the fi!e'year summary of a company?

1et income;3oss

Total assets

iscontinued operations

1et sales

(hich of the following is N'Ta feature of preferred shares?

istri#utive

+allable

"n arrears

+umulati!e

(hich of the following is a type of preferred stock that entitles the holder to a fi%eddi!idend and$ in addition$ to the right to get any surplus profits after payment ofagreed le!els of di!idends to holders of common stock?

In arrears preerred s%ares @dou#ted

+all able preferred shares


13/23

+umulati!e preferred shares

Participating preferred shares

(hich one of the following represents the !alue of shares in the market at any pointof time?

Par !alue

Boo" value

/ace !alue

&arket !alue

(hich one of the following represents the !alue of shares ii!e balance sheets$ whichof the following can N'Tbe found?

The increasing items

The decreasing items T%e unc%anged items

The future profitable items

(hich of the following would N'Timpro!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#ted

A company e%periences a dramatic fall in its gross profit ratio. This could be theresult 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 offinancial reporting. The note should not be used to

+orrect an improper presentation in the financial statementsescri#e signiicant accounting policiesDescribe depreciation methods employed by the companyDescribe principles and methods peculiar to the industry

(hich of the following feature is shown by the income statement for a merchandisingcompany?


14/23

Bross profitCost o goods soldA sales re!enue sectionAll of the gi!en options

"n a period of rising prices$ all of the following statements regarding 3"/2 are true*-+*PT1et income is generally higher0nding inventory is generally undervaluedDoubted@"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 method4eginning in!entory is 56 units . s. 56 each.2n January 76$ purchased 56 units . s. 76 each2n January >6$ purchased < units . s. >6 each5< of the 7< units are sold.

&s( 2++s. 5


15/23

/inancial statementsAuditor0s report/i!e year summaryFuture 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!ityIs s%o$n as a inancing activityDoubted@"s shown in a supplementary schedule as a non'cash in!esting and financingtransaction

(hich of the following would represent an increase in 2wner8s *,uity?

"ncrease in net incomeIncrease 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 accountsPreparing Trial 4alancePreparing financial statements

(hich one of the following items is 12T generally used in preparing a statement ofcash flows?

Adjusted trial balanceComparative #alance s%eets@dou#ted+urrent income statementAdditional information

/rom the gi!en information$ calculate the +ost of Boods #old using the weighted'a!erage cost method4eginning in!entory 56 units . s. 56 each2n January 76$ purchased 56 units . s. 76 each2n January >6$ purchased < units . s. >6 each5< of the 7< units are sold

s. 766&s( 25+s. >66s. >


16/23

+ommon #tock accountDi!idends account2wner8s +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 thereplacement of assetsThe cost of a machine includes the cost of repairing damage to the machine duringthe installation processA company may use dierent depreciation met%ods in its inancialstatements 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


5. (hich one of the following is a temporary account?a. +ashb. Accounts ecei!ablesc( Insurance 0:pensed. Accounts payable7. The term used for the difference between fair !alue of a company and thepurchaseprice isa. Trade &arkb. &arket aluec( . /inancial statement s@ that has all temporary accounts isa. 4alance #heetb. "ncome #tatementc. +ash /low #tatementd( ,tatement o '$ner>s 0uity

. The accounting cycle runs in the se,uencea( Analyze! ournalize! post! adust! and prepare statements! closeb. Post$ journaliFe$ analyFe$ prepare statements$ close$ adjustc. Prepare statements$ journaliFe$ post$ adjust$ close$ analyFed. JournaliFe$ post$ close$ prepare statements$ adjust$ analyFe


17/23

summary account?a. A debit if a net income has occurredb. A debit if a net loss has occurredc. A credit if a net loss has occurredd. Qero

C. (hich one is T)* about Post'+losing trial balance?a( Be prepared #eore closing entries are posted to t%e ledgerb. +ontain both income statement and balance sheet accountsc. +ontain only balance sheet accountsd. +ontain only income statement accounts. e!enue from ser!ices is classified asa. "n!esting "nflow#( 'perating Inlo$c. "n!esting 2utflowd. 2perating 2utflowE. "f the cost of a building is s. G6$ 666 and its estimated useful life is >6 years. Thedepreciation e%pense for one month isa. s. C66#( &s( 24+c. s. >66d. s.


18/23

/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 thefollowing?)edger#ource document+hart of accountsJournalE ?

A business has purchased a building on credit$ how it would be recorded in thejournal?4uilding ' +reditK Accounts payable ' Debit

Building 7 e#it; Notes paya#le 7Credit4uilding ' DebitK 2wner0s e,uity' +redit4uilding ' DebitK Accounts payable ' +reditE 4

An entry that affects more than one accounts is knows as _____________.Journal entry+ompound entryAdjusting entrye!ersing entryE 6

(hich of the following is N'Ttrue 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!enuesE 5

(hat would be the adjusting entry to record depreciation if the estimated amount ofdepreciation on e,uipment for a period is s. 7$666?Depreciation e%pense ' DebitK *,uipment ' +reditepreciation e:pense 7 e#it; Accumulated depreciation 7 Credit*,uipment ' DebitK Depreciation e%pense ' +reditAccumulated depreciation ' DebitK Depreciation e%pense ' +redit

E =

The trial balance shows #upplies of s.5$>


19/23

(hich of the following accounts would N'Tbe included in a post'closing trialbalance?+ashAccumulated depreciation'$ner>s euity/ees earned

E 1+

After the closing entries are posted to the ledger$ each e%pense account will ha!e?A debit balanceA negati!e balanceA credit balanceA zero #alanceE 11

+urrent assets are those assets which management intends to con!ert into cash orconsume withinThe operating cycle2ne year

T%e longer o operating cycle or one yearThe shorter of operating cycle or one yearE 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 fundsE 1

"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 flowsIn 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 reportedE 1?

(hich of the following items are N'Tadded back to the net income figure which isfound on the "ncome #tatement@ to arri!e at cash flows from operations?DepreciationDeferred ta%Amortization"n!estments

E 14

(hich of the following acti!ities con!ert the income statement items from the accrualbasis of accounting to cash?2perating acti!ities"n!esting acti!ities/inancing acti!itiesNon cas% activitiesE 16


20/23

(hich one of the following items is specifically included in the body of a statement ofcash flows?'perating and non7operating cas% lo$ inormation+on!ersion of debt to e,uityAc,uiring an asset through a capital leases

Purchasing a building by gi!ing a mortgage to the sellerE 15

A4+ +ompany has a cost of goods sold of s. 6$ purchased < units s. >6 each


21/23

5< of the 7< units are sold.&s( 2++s. 5


22/23

(hich of the following is N'Tan e%ample of accelerated depreciation method?,traig%t7line met%od#um'of'the'years digit methodDouble'declining balance method&odified Accelerated +ost eco!ery #ystemE +

The Drawing account is closed by which of the following entry?+apital U DebitK Drawing ' +reditra$ing e#it; Capital 7 Credit"ncome #ummary U DebitK Drawing ' +reditingDrawing U DebitK "ncome #ummary ' +reditingE 1(hich of the following account would be classified as a current asset on the balancesheet?Accumulated depreciationAccounts receiva#le2ffice e,uipment3andE 2An adjusting entry would N'Tbe re,uired for which of the following account?,alariesPast due e%pense"ncome ta% e%penseAccounts recei!ableE (hich of the following accounts will be debited$ when increased?3iabilities and e%pensesAssets and e,uityAssets and e:penses*,uity and re!enuesE ?

Accounting +ycle is a series of acti!ities that begins with ___________ and endswith ___________.+losing of books$ transactionsTransaction$ After closing Trial 4alanceJournal$ ledger accountTransactions! inancial statementsE 4The income statement of A43 shows other operating e%penses of s. >6 millionKprepaid insurance e%pense increased by s. millionK and accrued utilities payabledecreased by s. million. :ow much did the company pay in other operatinge%penses?s. 5 million&s( millions. 7 millions. 5G millionE 6The statement of cash flows does N'Treport the#ources of cash in the current periodAmount 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 periodE 5


23/23

(hich of the following is N'Tnormally re,uired for re!enue to be recogniFedaccording 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 collected0vidence o an arrangement or customer payment e:ists

E =(hich of the following balances does the +ontra'Asset account show typically?CreditDebit1egati!ePositi!eE D(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%oldersPurchasing e,uipment on accountPaying back the principal of a loanE ?+The users of a statement of cash flows are mostly interested inNet cas% lo$ rom operating activities1et cash flow from in!esting acti!ities1et cash flow from financing acti!ities1et cash flow from non'cash transactions

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