FINALTERM EXAMINATION
Spring 2009
FIN621- Financial Statement Analysis (Session - 2)
FIN621 Question No: 1 ( M a r k s: 1 )
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
FIN621 Question No: 2 ( M a r k s: 1 )
An entry that affects more than one accounts is knows as _____________.
۩ Journal entry
۩ Compound entry
۩ Adjusting entry
۩ Reversing entry
FIN621 Question No: 3 ( M a r k s: 1 )
In which of the following form of Income Statement, the total of all expenses is
deducted from the total of all revenues?
۩ Multiple-step form
۩ Account form
۩ Report form
۩ Single-step form
FIN621 Question No: 4 ( M a r k s: 1 )
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, stockholders Equity
FIN621 Question No: 5 ( M a r k s: 1 )
All 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' 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
FIN621 Question No: 6 ( M a r k s: 1 )
The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is subtracted during the reconciliation.
۩ Revenues earned and received in cash.
۩ Non-cash expenses (expenses incurred but not paid) reported on the income statement one example is amortization expense.
۩ Non-cash revenues (revenues earned but payment not yet received) reported on the income statement
۩ A decrease in Accounts Receivable or another non-cash current asset
FIN621 Question No: 7 ( M a r k s: 1 )
Which of the following would NOT be the cash inflow for the business?
۩ Sale of land for cash
۩ Issuance of long term bonds
۩ The sale of common stock
۩ Retirement of long term debt
FIN621 Question No: 8 ( M a r k s: 1 )
Under which cost flow assumption, the ending inventory is composed of the earliest purchased merchandise?
۩ FIFO
۩ LIFO
۩ Average cost
۩ Specific identification
FIN621 Question No: 9 ( M a r k s: 1 )
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
FIN621 Question No: 10 ( M a r k s: 1 )
Nishat Mills Ltd. is a rapidly growing company that acquires more equipment every year. The company uses straight line depreciation in its financial statements and MACRS in its tax returns.
Which of the following statements is NOT correct?
۩ Using straight line depreciation in the financial statements instead of accelerated method increases the company s reported net income
۩ Using straight line depreciation in the financial statements instead of accelerated method increases the company s annual net cash flow
۩ Using MACRS instead of straight line in income tax returns increases companys net cash flow
۩ As long as the company keeps growing, it will report more depreciation in its income tax returns each year than it does in its financial statements
FIN621 Question No: 11 ( M a r k s: 1 )
A statement of cash flows would be least useful in answering which of the
following FIN621 Questions?
۩ What was the average balance in the Cash account during the period?
۩ Did operating activities result in a positive or negative net cash flow?
۩ How much cash was provided or used by financing activities during the period?
۩ Were cash dividends paid by the company more or less than the net cash flow from operations?
FIN621 Question No: 12 ( M a r k s: 1 )
Which of the following is NOT a limitation of financial statements for an investor?
۩ It provides complete basis for the analysis of a company
۩ Past financial performance does not signify what will happen with the investor in future
۩ The financial statements are useless without the notes to the financial statements
۩ Unless the statements are audited their authenticity is under doubt
FIN621 Question No: 13 ( M a r k s: 1 )
Which of the following is NOT an advantage of a Sole proprietorship?
۩ Easy to form and wind up
۩ Direct motivation
۩ Better control
۩ Limited liability
۩
FIN621 Question No: 14 ( M a r k s: 1 )
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
۩ Call able preferred shares
۩ Cumulative preferred shares
۩ Participating preferred shares
FIN621 Question No: 15 ( M a r k s: 1 )
The current ratio will be excessively very high in which of the following inventory
costing methods?
۩ FIFO
۩ LIFO
۩ Average cost
۩ Specific identification
FIN621 Question No: 16 ( M a r k s: 1 )
If a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm's Net Working Capital?
۩ Rs. 0
۩ Rs. 100
۩ Rs. 200
۩ Rs. 1,000
FIN621 Question No: 17 ( M a r k s: 1 )
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
FIN621 Question No: 18 ( M a r k s: 1 )
Which 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 in the selling price of goods sold
۩ An increase in the selling price of goods sold which has not been accompanied by an increase in the cost of sales
۩ A change in the mix of goods sold so that lower profit margin goods take a greater proportion of total sales
۩ A change in stock valuation method at the year end which leads to a decrease in the closing stock figure
FIN621 Question No: 19 ( M a r k s: 1 )
Nestle Pakistan Limited is an example of which of the following types of businesses?
۩ Manufacturing
۩ Service
۩ Merchandise
۩ Whole seller
FIN621 Question No: 20 ( M a r k s: 1 )
Which of the following represents the long term debt paying ability of the company as they become due?
۩ Liquidity
۩ Solvency
۩ Profitability
۩ Stability
FIN621 Question No: 21 ( M a r k s: 1 )
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
FIN621 Question No: 22 ( M a r k s: 1 )
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
FIN621 Question No: 23 ( M a r k s: 1 )
Ames Corporation's net accounts receivable were Rs. 750,000 on December 31, 20X1, and Rs.1,250,000 on December 31, 20X2. Net cash sales for 20X2 were Rs. 3,300,000. The accounts receivable turnover ratio for 20X2 was 16. What were the total net sales for 20X2?
۩ Rs. 12,800,000
۩ Rs. 16,000,000
۩ Rs. 16,100,000
۩ Rs. 19,300,000
FIN621 Question No: 24 ( M a r k s: 1 )
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
FIN621 Question No: 25 ( M a r k s: 1 )
Company 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 achieves an operating profit margin of 3.5%.Which company makes the highest operating profit?
۩ Company B
۩ Company A
۩ Both make the same operating profit
۩ Not possible to calculate
FIN621 Question No: 26 ( M a r k s: 1 )
The DuPont Approach breaks down the earning power on shareholders' equity (ROE) as which of the 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
FIN621 Question No: 27 ( M a r k s: 1 )
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
FIN621 Question No: 28 ( M a r k s: 1 )
Return on Sales is also known as which of the following?
۩ Gross profit margin
۩ Operating profit margin
۩ Return on total assets
۩ Return on investment
FIN621 Question No: 29 ( M a r k s: 1 )
Which of the following is NOT a profitability measure?
۩ Accounts receivable turnover ratio
۩ Return on total assets
۩ Return on sales
۩ Dividend yield
FIN621 Question No: 30 ( M a r k s: 1 )
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
FIN621 Question No: 31 ( M a r k s: 1 )
Which of the following is NOT part of additional paid-in-capital of the company?
۩ Preferred stocks
۩ Common stocks
۩ Retained earnings
۩ Dividends distributed
FIN621 Question No: 32 ( M a r k s: 1 )
Which of the following options indicate how quickly accounts receivables are converted into cash?
۩ Accounts receivable turnover
۩ Days to collect accounts receivable
۩ Working capital
۩ Total assets turnover
FIN621 Question No: 33 ( M a r k s: 1 )
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
FIN621 Question No: 34 ( M a r k s: 1 )
Assume that a company has current assets of Rs. 60,000, current liabilities of Rs. 35,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the company?
۩ 1.57
۩ 1.71
۩ 1.86
۩ 0.58
FIN621 Question No: 35 ( M a r k s: 1 )
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
FIN621 Question No: 36 ( M a r k s: 1 )
What will be the effect of appropriated retained earnings on the rate of return on stockholder's equity?
۩ Increase
۩ Decrease
۩ No effect
۩ Can not be found from the given information
FIN621 Question No: 37 ( M a r k s: 1 )
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
FIN621 Question No: 38 ( M a r k s: 1 )
A 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, 1999
۩ Income statement for the year ended December 31, 1999
۩ Statement of projected cash flows for 2000
۩ Notes containing additional information that is useful in interpreting the financial Statements
FIN621 Question No: 39 ( M a r k s: 1 )
Which of the following equations properly represents a derivation of the fundamental accounting equation?
۩ Assets + liabilities = owner's equity
۩ Assets = owner's equity
۩ Cash = assets
۩ Assets - liabilities = owner's equity
FIN621 Question No: 40 ( M a r k s: 1 )
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
FIN621 Question No: 41 ( M a r k s: 1 )
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
FIN621 Question No: 42 ( M a r k s: 1 )
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
