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Posts Tagged ‘VU. FIN621-. Financial. Statement Analysis. (Session – 4). MIDTERM .EXAMINATION .Fall. 2009’

VU FIN621- Financial Statement Analysis (Session – 4) MIDTERM EXAMINATION Fall 2009

.

MIDTERM EXAMINATION

Fall 2009

FIN621- Financial Statement Analysis (Session – 4)

Time: 60 min

Marks: 50

Question No: 1 ( Marks: 1 ) – Please choose one

Which of the following is the acronym for GAAP?

Generally Adopted Accounting Principles

Generally Accepted Auditing Principles

Generally Accepted Accounting Principles (Correct)

Generally Adapted American Principles

Question No: 2 ( Marks: 1 ) – Please choose one

After recording the transactions in journal, posting is made to which of the

following?

Trial Balance

Financial Statements

Ledger (Correct)

After-closing Trial Balance

.

Question No: 3 ( Marks: 1 ) – Please choose one

Which one of the following is the second step in the accounting cycle?

Recording entries in the journal

Analyzing the business transaction

Posting the entries to the ledger (Correct)

Making the adjusting entries

Question No: 4 ( Marks: 1 ) – Please choose one

Which of the following is the basic function of the Trial Balance?

To prove the equality of debits and credits (Correct)

To check the balance of all assets

To prepare the balance sheet

To check the validity of accounts

Question No: 5 ( Marks: 1 ) – Please choose one

Which of the following refers to the term “posting”?

The system of giving numbers to the accounts

Transferring the debits and credits to ledger (Correct)

Transferring the debits and credits to journal

The recording of transactions

Question No: 6 ( Marks: 1 ) – Please choose one

Which of the following results are summarized by the income statement of a

company?

Operating results (Correct)

Economic results

Auditing results

Marketing results

Question No: 7 ( Marks: 1 ) – Please choose one

Which of the following is an example of an accrual?

Equipment purchased for use in the business

.

Book-keeping fees collected but not yet earned

Six months’ rent paid in advance

Interest earned but not yet received (Correct)

Question No: 8 ( Marks: 1 ) – Please choose one

Prepaid Expense is a(n) _________ account and has a _________ normal balance.

Revenue, credit

Liability, credit

Asset, debit (Correct)

Expense, debit

Question No: 9 ( Marks: 1 ) – Please choose one

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

(Correct)

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

Question No: 10 ( Marks: 1 ) – Please choose one

Retained earnings change over time because of several factors. Which of the

following factors would explain an INCREASE in retained earnings?

Net Income (Correct)

Dividends payment

Investment by the stockholders

.

Net Loss

Question No: 11 ( Marks: 1 ) – Please choose one

The revenue account “Fees Income” is closed by which of the following entry?

Cash – Debit; Fees Income – Credit

Fees Income – Debit; Income Summary – Credit (Correct)

Capital – Debit; Fees Income – Credit

Income Summary – Debit; Fees Income – Credit

Question No: 12 ( Marks: 1 ) – Please choose one

Which of the following regarding retained earnings is FALSE?

Retained earnings represent earnings not distributed to stockholders

Retained earnings is increased by net income and decreased by a net loss

Retained earnings are a component of stockholders’ equity on the balance sheet

Retained earnings are an asset on the balance sheet(Correct)

Question No: 13 ( Marks: 1 ) – Please choose one

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(Correct)

The shorter of operating cycle or one year

http://www.principlesofaccounting.com/questions%20-%20%20multiple

%20choice/chapter%204%20-%20multiple%20choice.htm

Question No: 14 ( Marks: 1 ) – Please choose one

Decision makers compare net income to net cash from operating activities. To make

these amounts more comparable, the same accounts are included in each. The

following accounts are used to compute both net income and net cash from

operating activities EXCEPT:

.

Interest expense

Dividend revenue

Interest revenue

Dividends declared and paid(Correct)

http://wps.prenhall.com/ca_ph_horngren_accounting_7/60/15481/3963284.cw/conte

Question No: 15 ( Marks: 1 ) – Please choose one

If the indirect approach for the statement of cash flows is used, which of the

following items should be subtracted from accrual basis net income to derive cash

flow from operating activities?

Losses on the sale of long-term investments

Depreciation expense

Amortization expense

Gains on the sale of long-term investments(Correct)

Question No: 16 ( Marks: 1 ) – Please choose one

The cash flow from financing activities shows:

The cash outflow due to loan interest payments being made

The change in the level of bank balances in the period

The cash flow from share and loan issues and repayments(Correct)

Cash dividends paid to shareholders

Question No: 17 ( Marks: 1 ) – Please choose one

Which of the following transaction should be classified as a financing activity?

Purchase of equipment

Purchase of treasury stock(Correct)

Sale of trademarks

Income tax refund

Question No: 18 ( Marks: 1 ) – Please choose one

Cash flow relating to investing activities does NOT present the cash effects of which

of the following?

.

Plant assets

Intangible assets(Correct)

Investments

Debt financing

Question No: 19 ( Marks: 1 ) – Please choose one

The indirect method shows the reconciliation from net income to operating cash

flows. Select the adjustment that is added during the reconciliation.

A decrease in accrued liabilities

A decrease in Salaries Payable

Payment of long-term debt

An increase in Accounts Payable

Question No: 20 ( Marks: 1 ) – Please choose one

The indirect method shows the reconciliation from net income to operating cash

flows. Select the adjustment that is subtracted during the reconciliation.

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

Revenues earned and received in cash.

Non-cash expenses (expenses incurred but not paid) reported on the income

statement-one example is amortization expense.

Question No: 21 ( Marks: 1 ) – Please choose one

Investing activities include all of the following EXCEPT:

Payment of debt

Collection of loans

Making of loans

Sale of available for sale and held to maturity securities

.

Question No: 22 ( Marks: 1 ) – Please choose one

If sales on an accrual basis are Rs. 500,000 and accounts receivables increased by

Rs. 30,000, the cash received from the customers would be:

Rs. 500,000

Rs. 470,000(500,000-30,000) Correct

Rs. 530,000

Can not be found from the given information

Question No: 23 ( Marks: 1 ) – Please choose one

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 Correct

Question No: 24 ( Marks: 1 ) – Please choose one

Which one of the following is NOT an inventory costing method?

FIFO cost method

Weighted-average cost method

Specific unit cost method Correct

LIFO cost method

Question No: 25 ( Marks: 1 ) – Please choose one

When merchandise is purchased in a periodic inventory system, its cost is debited to

________ account.

Inventory

Inventory expense

Purchases Correct

Cost of goods sold

Question No: 26 ( Marks: 1 ) – Please choose one

Office supplies are purchased on account. The company uses a perpetual inventory

system. What is the correct journal entry for this purchase of office supplies?

Debit – Purchases; Credit – Cash

Debit – Merchandise Inventory; Credit – Cost of Goods Sold

.

Debit – Office Supplies; Credit – Accounts Payable Correct

Debit – Merchandise Inventory; Credit – Accounts Payable

Question No: 27 ( Marks: 1 ) – Please choose one

An inventory error affects ___________ accounting periods.

Only current

Two Correct

Three

Four

Question No: 28 ( Marks: 1 ) – Please choose one

Equipment costing Rs. 3,000 with accumulated depreciation of Rs. 2,125 is

exchanged for another asset with a fair value of Rs. 625. The exchange has

commercial substance. How much is the gain or loss on this transaction?

A gain of Rs. 250 should be recognized

A loss of Rs. 250 should be recognized

A loss of Rs. 500 should be recognized

No gain or loss should be recognized

Question No: 29 ( Marks: 1 ) – Please choose one

Which of the following asset does NOT have a depreciation expense?

Furniture

Building

Plant & equipment

Land Correct

Question No: 30 ( Marks: 1 ) – Please choose one

Which of the following is NOT an example of accelerated depreciation method?

.

Straight-line method Correct

Sum-of-the-years digit method

Double-declining balance method

Modified Accelerated Cost Recovery System

Question No: 31 ( Marks: 1 ) – Please choose one

Accelerated depreciation method is mostly used for ____________.

Financial statements

Assets valuation

Inventory valuation

Income tax returns Correct

Question No: 32 ( Marks: 1 ) – Please choose one

Which of the following is NOT an example of deferred item?

Depreciation

Accounts payable Correct

Unearned revenue

Prepaid insurance

Question No: 33 ( Marks: 1 ) – Please choose one

Assets which have NO market value are called:

Wasting assets Correct

Fictitious assets

Quick assets

Tangible assets

Question No: 34 ( Marks: 1 ) – Please choose one

Which of the following accounts will be debited, when increased?

Liabilities and expenses

Assets and equity

.

Assets and expenses Correct

Equity and revenues

Question No: 35 ( Marks: 1 ) – Please choose one

Which of the following provides the basis for the trial balance?

Income statement

Statement of cash flow

Ledger Correct

Adjusting entries

Question No: 36 ( Marks: 1 ) – Please choose one

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 (30+4+7) Correct

Rs. 33 million

Rs. 27 million

Rs. 19 million

Ref:

Cash payment for operating expenses= Operating expenses + Increase in pre-paid

insurance+discreased in accrued utilities

Cash payment for operating expenses = (30+4+7)

Question No: 37 ( Marks: 1 ) – Please choose one

From the given information, calculate the Cost of Goods Sold using the weightedaverage

cost method:

Beginning inventory 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. 270

Rs. 300

Rs. 350

.

Question No: 38 ( Marks: 1 ) – Please choose one

Which of the following balances does the Contra-Asset account show typically?

Credit Correct

Debit

Negative

Positive

Question No: 39 ( Marks: 1 ) – Please choose one

Using the following information calculate Net Income: Sales Revenue Rs.200, 000,

Loss on Sale of Equipment Rs.10, 000, Amortization Expense Rs.20, 000 and Cost of

Goods Sold Rs.50, 000.

Rs. 170,000

Rs. 120,000 (200,000-10,000-20,000-50,000) Correct

Rs. 130,000

Rs. 180,000

Question No: 40 ( Marks: 1 ) – Please choose one

Which of the following question is NOT addressed by cash flow statement?

How much cash was generated by the company’s operations?

Why is such a profitable company able to pay only small dividends?

How much was spent for the new plants and equipment?

How profitable the company’s current assets are? Correct

Question No: 41 ( Marks: 5 )

On 15, 2001, ABC Company sold 1,000 printers to another company. Immediately

prior to this sale, the perpetual inventory records of the company for the printers

included the following cost layers.

Purchase date

Dec. 12, 2000

Jan. 9, 2001

Quantity

600

900

Unit Cost

Rs. 9.25

Rs. 9.50

Total Cost

Rs. 5,550

8,550

Total on hand 1,500 Rs. 14,100

Instructions:

Prepare a separate general entry to record the cost of printers, assuming that the

company uses the following methods.

FIFO method

Purchase date

Dec. 12, 2000

Jan. 9, 2001

Quantity

600

900

Unit Cost

Rs. 9.25

Rs. 9.50

Total Cost

Rs. 5,550

8,550

Cost of sales of 1000 printers

.

Sale date

15,2001

15,2001

Quantity

600

400

Unit Cost

Rs. 9.25

Rs. 9.50

Total Cost

Rs. 5,550

3,800

————

9,350

Cost of Printers Sold A/C

Printers Inventory A/C

LIFO method

9350

9350

Purchase date

Dec. 12, 2000

Jan. 9, 2001

Quantity

600

900

Unit Cost

Rs. 9.25

Rs. 9.50

Total Cost

Rs. 5,550

8,550

Cost of sales of 1000 printers

Sale date Quantity Unit Cost

15,2001 900 Rs. 9.50

15,2001 100 Rs. 9.25

Total Cost

8,550

Rs. 925

————

9475

Cost of Printers Sold A/C

Printers Inventory A/C

9475

9475

Question No: 42 (Marks: 5)

Hill Company adjusts its accounts at the end of each month. Prepare the adjusting

entries required at December 31 based on the following information.

a. A bank loan had been obtained on December 1. Accrued interest on the loan at

December 31 amounts to Rs. 1,050. No interest expense has yet been recorded.

Answer

Interest Expense A/C 1050

Accrued interest A/C 1050

b. Depreciation of the office equipment is based on an estimated life of five years.

The balance in the office equipment account is Rs. 24,000; no change has occurred

in the account during the year.

Depreciation expense

4800

.

To accumulated deprecation

4800

c. Interest revenue earned on US government bonds during December amounts to

Rs. 750. This accrued interest revenue has not been recorded or received as of

December 31.

Interest Receivable on Bonds A/C 750

Interest Income on Bonds A/C 750

OR

accrued interest 750

interest income 750

d. On December 31, an agreement was signed to lease a truck for 12 months

beginning January 1 at a rate of 35 cents per mile. Usage is expected to be 2,000

miles per month, and the contract specifies a minimum payment equivalent to

18,000 miles a year.

Accrued lease rent

Lease rent

630,000

630,000

e. The company’s policy is to pay all employees up-to-date each Friday.

Since

December 31 fell on Monday, there was a liability to employees at

December 31 for

one day’s pay amounting to Rs. 2,800.

Salary Expense 2800

Salary Payable 2800

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