MIDTERM EXAMINATION
Fall 2009
FIN621- Financial Statement Analysis
Question No: 1 ( M a r k s: 1 ) http://vuzs.net
How much duration does an accounting period usually have?
۩ Three months
۩ Two years
۩ One year
۩ Five years
Question No: 2 ( M a r k s: 1 ) http://vuzs.net
Which of the following statement shows the effects of cash inflows and outflows?
۩ Balance Sheet
۩ Statement of Owner’s Equity
۩ Income Statement
۩ Statement of Cash Flows
Question No: 3 ( M a r k s: 1 ) http://vuzs.net
To determine the balance of a particular account, one should refer to which of the following?
۩ Ledger
۩ Source document
۩ Chart of accounts
۩ Journal
Question No: 4 ( M a r k s: 1 ) http://vuzs.net
A business has purchased a building on credit, how it would be recorded in the journal?
۩ Building - Credit; Accounts payable - Debit
۩ Building - Debit; Notes payable -Credit
۩ Building - Debit; Owner’s equity- Credit
۩ Building - Debit; Accounts payable - Credit
Question No: 5 ( M a r k s: 1 ) http://vuzs.net
An entry that affects more than one accounts is knows as _____________.
۩ Journal entry
۩ Compound entry
۩ Adjusting entry
۩ Reversing entry
Question No: 6 ( M a r k s: 1 ) http://vuzs.net
Which 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
Question No: 7 ( M a r k s: 1 ) http://vuzs.net
What would be the adjusting entry to record depreciation if the estimated amount of depreciation 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
Question No: 8 ( M a r k s: 1 ) http://vuzs.net
The trial balance shows Supplies of Rs.1,350 and Supplies Expense of Rs.0. If Rs.600 of 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
Rationale: Supplies used is our expense and un-used supplies is our asset. if 1350 was at start and 600 at end it means supplies(expense) of Rs. 750 has been used during a year and supplies (asset)is reduced by Rs. 750 during a year.
Question No: 9 ( M a r k s: 1 ) http://vuzs.net
Which of the following accounts would NOT be included in a post-closing trial balance?
۩ Cash
۩ Accumulated depreciation
۩ Owner’s equity
۩ Fees earned
Ref: The
post-closing trial balance reveals the balance of accounts after the closing process, and consists of balance sheet accounts only. The post-closing trial balance is a tool to demonstrate that accounts are in balance; it is not a formal financial statement. All of the revenue, expense, and dividend accounts were zeroed away via closing, and do not appear in the post-closing trial balance.
Question No: 10 ( M a r k s: 1 ) http://vuzs.net
After 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
Question No: 11 ( M a r k s: 1 ) http://vuzs.net
Current assets are those assets which management intends to convert into cash or consume within:
۩ The operating cycle
۩ One year
۩ The longer of operating cycle or one year
۩ The shorter of operating cycle or one year
Question No: 12 ( M a r k s: 1 ) http://vuzs.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
Question No: 13 ( M a r k s: 1 ) http://vuzs.net
In preparing the statement of cash flows, how should non-cash investing/financing activities 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
۩ Shoud not to be reported
Question No: 14 ( M a r k s: 1 ) http://vuzs.net
Which of the following items are NOT added back to the net income figure (which is found on the Income Statement) to arrive at cash flows from operations?
۩ Depreciation
۩ Deferred tax
۩ Amortization
۩ Investments
Question No: 15 ( M a r k s: 1 ) http://vuzs.net
Which of the following activities convert the income statement items from the accrual basis of accounting to cash?
۩ Operating activities
۩ Investing activities
۩ Financing activities
۩ Non cash activities
Question No: 16 ( M a r k s: 1 ) http://vuzs.net
Which one of the following items is specifically included in the body of a statement of cash 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
Question No: 17 ( M a r k s: 1 ) http://vuzs.net
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
Question No: 18 ( M a r k s: 1 ) http://vuzs.net
The cash flow from investing activities shows the cash effects of which of the following?
۩ Income statement items
۩ Long term assets items
۩ Long term liability & stockholder’s equity
۩ Long term liability and long term assets
Question No: 19 ( M a r k s: 1 ) http://vuzs.net
Which of the following must be included in a company's summary of significant accounting 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
Question No: 20 ( M a r k s: 1 ) http://vuzs.net
Gross 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
Question No: 21 ( M a r k s: 1 ) http://vuzs.net vuzs
An inventory error affects ___________ accounting periods.
۩ Only current
۩ Two
۩ Three
۩ Four
Rationale: Because current year's closing inventory is next year's opening inventory.
Question No: 22 ( M a r k s: 1 ) http://vuzs.net
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
Question No: 23 ( M a r k s: 1 ) http://vuzs.net
Under which cost flow assumption, the ending inventory is composed of the most recently purchased merchandise?
۩ FIFO
۩ LIFO
۩ Average cost
۩ Specific identification
Rationale: Under FIFO method(First in-First out), we issue inventory first which comes first. So, most recently purchased inventory will be as closing inventory.
Question No: 24 ( M a r k s: 1 ) http://vuzs.net
If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operating expenses are Rs. 60,000, what is the gross profit?
۩ Rs. 30,000
۩ Rs. 90,000
۩ Rs. 340,000
۩ Rs. 400,000
Solution: Sales - Cost of goods sold = gross profit
400,000 - 3,10,000 =90,0000
Operating expenses are not deducted for calculating gross profit.
Question No: 25 ( M a r k s: 1 ) http://vuzs.net
Which cost flow assumption most closely matches the actual physical flow of inventory in most retailing businesses?
۩ FIFO
۩ LIFO
۩ Average cost
۩ Specific identification
Question No: 26 ( M a r k s: 1 ) http://vuzs.net
The sale of a depreciable asset resulting in a loss indicates that the proceeds from the sale were:
۩ Less than current market value
۩ Greater than cost
۩ Greater than book value
۩ Less than book value
Ref: A loss on the sale of a depreciable asset indicates that the proceeds received from the sale were less than the recorded book value of the asset. A gain would result if the proceeds were greater than cost or book value. Hopefully, the sale proceeds equaled market value; a loss, therefore, suggests that market value is also below book value.
Question No: 27 ( M a r k s: 1 ) http://vuzs.net
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
Question No: 28 ( M a r k s: 1 ) http://vuzs.net
Which depreciation method allocates an equal portion of depreciation expense to each period of asset’s useful life?
۩ Straight-line method
۩ Double-declining balance method
۩ Sum-of-the-year digit method
۩ Accelerated depreciation method
Question No: 29 ( M a r k s: 1 ) http://vuzs.net
Which 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 System
Rationale: In straight line method, amount of depreciation is fixed for whole life of asset.
Question No: 30 ( M a r k s: 1 ) http://vuzs.net
The 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 - Crediting
Question No: 31 ( M a r k s: 1 ) http://vuzs.net
Which of the following account would be classified as a current asset on the balance sheet?
۩ Accumulated depreciation
۩ Accounts receivable
۩ Office equipment
۩ Land
Question No: 32 ( M a r k s: 1 ) http://vuzs.net
An adjusting entry would NOT be required for which of the following account?
۩ Salaries
۩ Past due expense
۩ Income tax expense
۩ Accounts receivable
Question No: 33 ( M a r k s: 1 ) http://vuzs.net
Which of the following accounts will be debited, when increased?
۩ Liabilities and expenses
۩ Assets and equity
۩ Assets and expenses
۩ Equity and revenues
Question No: 34 ( M a r k s: 1 ) http://vuzs.net
Accounting Cycle is a series of activities that begins with ___________ and ends with ___________.
۩ Closing of books, transactions
۩ Transaction, After closing Trial Balance
۩ Journal, ledger account
۩ Transactions, financial statements
Question No: 35 ( M a r k s: 1 ) http://vuzs.net
The income statement of ABL shows other operating expenses of Rs. 30 million; prepaid insurance expense increased by Rs. 4 million; and accrued utilities payable decreased by Rs. 7 million. How much did the company pay in other operating expenses?
۩ Rs. 41 million
۩ Rs. 33 million
۩ Rs. 27 million
۩ Rs. 19 million
Question No: 36 ( M a r k s: 1 ) http://vuzs.net
The 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 period
Question No: 37 ( M a r k s: 1 ) http://vuzs.net
Which of the following is NOT normally required for revenue to be recognized according 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 exists
Fee collectability is " assured" but not " collected".
Question No: 38 ( M a r k s: 1 ) http://vuzs.net
Which of the following balances does the Contra-Asset account show typically?
۩ Credit
۩ Debit
۩ Negative
۩ Positive
Ref: Contra assets are asset accounts with credit balances. (A credit balance in an asset account is contrary—or contra—to an asset account's usual debit balance.) Examples of contra asset accounts include:
Question No: 39 ( M a r k s: 1 ) http://vuzs.net
Which 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 loan
Question No: 40 ( M a r k s: 1 ) http://vuzs.net
The 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
Question No: 41 ( M a r k s: 5 )
Classify the following activities as cash flow from operating, investing and financing activities.
· Payments for repurchase of company shares
· Collections on loan principal and sales of other firms' debt instruments
· Tax payments
· Expenditure for purchase of other firms' equity instruments
· Payments to suppliers for goods and services
Answer:
Payments for repurchase of company shares: Financing activities
Collections on loan principal and sales of other firms' debt instruments: Investing activities.
Tax payments: Operating activities
Expenditure for purchase of other firms' equity instruments: Investing activities
Payments to suppliers for goods and services: Operating activities
Question No: 42 ( M a r k s: 5 )
Listed below in random order are the items to be included in the balance sheet of the Mystery Mountain Lodge at December 31, 2001:
| Equipment | Rs. 29,200 | Buildings | Rs. 450,000 |
| Land | 425,000 | Owner’s capital | ? |
| Accounts payable | 54,800 | Cash | 21,400 |
| Accounts receivable | 10,600 | Furnishings | 58,700 |
| Salaries payable | 33,500 | Snowmobiles | 15,400 |
| Interest payable | 12,000 | Notes payable | 620,000 |
Requirement:
Prepare a Balance Sheet at December 31, 2001.
| Mystery Mountain Lodge Balance Sheet as on December 31, 2001 |
| Particulars Amount (Rs.) |
| Current Assets: Cash 21,400 Accounts receivable 10,600 Snowmobiles 15,400 Fixed Assets: Equipment 29,200 Furnishings 58,700 Buildings 450,000 Land 425,000 1,010,300 |
| Liabilities: Interest payable 12,000 Salaries Payable 33,500 Accounts Payable 54,800 Notes Payable 620,000 Capital: Owner’s capital 290,000 1,010,300 |
