Fin621 Online Quizzes & Papers GURU

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1 1.If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an: A.. understatement of net income for the year by $7,500 B.. understatement of cost of merchandise sold for the year by $7,500 C.. overstatement of merchandise inventory for the year by $7,500 D.. overstatement of gross profit for the year by $7,500 2.The balance sheet contains the same major headings as appear in the accounting equation. A.. False B.. True 3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the a amount of net income or net loss would be: A.. $37,500 net loss B.. $2,500 net loss C.. $7,500 net income D.. $45,000 net income 4. If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to record depreciation would be: A.. debit depreciation expense, $2,000; credit accumulated depreciation, $2,000 B.. debit equipment, $2,000; credit depreciation expense, $2,000 C.. debit depreciation expense, $$2,000; credit equipment, $2,000 D.. debit accumulated depreciation, $2,000; credit depreciation expense, $2, Liabilities result from some future transaction. A.. False B.. True 6. All calendar years are also fiscal years, but not all fiscal years are calendar years. A.. True B.. False 7. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted from, gross sales. A.. True B.. False 8. The post-closing trial balance may contain revenue and expense accounts. A.. True B.. False 9. Overstated ending inventory results in an overstatement of cost of goods sold and an understatement of gross profit and net income.

2 A.. True B.. False 10. All accounting systems currently in use are computerized. A.. False B.. True 11. In a period of rising prices, FIFO results in the lowest cost of goods sold. A.. True B..False 12. If all of the adjusting entries are not made, the financial statements are incorrect. A.. False B.. True 13. Which of the following entries closes the owner's drawing account at the end of the period. A.. debit the owner's capital account, credit the drawing account B.. debit the income summary account, credit the drawing account C.. debit the drawing account, credit the owner's capital account D.. debit the drawing account, credit income summary account 14. Which of the following accounts would not be included in a post-closing trial balance. A.. fees earned B.. accumulated depreciation C.. cash D.. owner's equity 15. Which of the following is an example of an intangible asset. A.. Patents B.. all possible answers C.. copyrights D.. goodwill 16. If total assets increased $20,000 during a period and total liabilities increased $12,000 during the same period, the amount and direction (increase or decrease) of the change in owner's equity for that period is: A.. an $8,000 decrease B.. an $8,000 increase C.. a $32,000 increase D.. a $32,000 decrease 17. The following units of a particular item were available for sale during the period: Beginning inventory 40 units at $20

3 First purchase 50 units at $21 Second purchase 50 units at $22 Third purchase 50 units at $23 What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic inventory system by the FIFO costing method. A.. $20 B.. $23 C.. $21 D.. $ The Unearned Fees account is a revenue account. A.. True B.. False 19. The accumulated depreciation account is an asset account that shows the amount of depreciation for the current year only. A.. True B.. False 20. At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable is: A.. $107,000 B.. $7,000 C.. $93,000 D.. $100, The percentage-of-sales method estimates the uncollectible accounts from the ending balance in accounts receivable. A.. True B.. False 22. An example of an accelerated depreciation method is: A.. Units-of-production B.. Straight-line C.. Depletion D.. Declining-balance 23. The three forms business organizations are single proprietorship, partnership, and trust A.. False B.. True 24. Current Liabilities are classified as clearly determinable, estimated and contingent. A.. False

4 B.. True 25. The type of account with a normal credit balance is: A.. drawing B.. a revenue C.. an asset D.. an expense 26. Which of the following expenses would normally be classified as Other or Non Operating expense on a multiple-step income statement. A.. interest expense B.. insurance expense C.. depreciation expense - office equipment D.. sales salaries expense 27. The following units of a particular item were purchased and sold during the period: Beginning inventory 40 units at $20 First purchase 50 units at $21 Second purchase 50 units at $22 First sale 110 units Third purchase 50 units at $23 Second sale 45 units What is the cost of the 35 units on hand at the end of the period as determined under the perpetual inventory system by the LIFO costing method. A.. $715 B.. $705 C.. $700 D.. $ Which of the following accounts would not be closed to the income summary account at the end of a period. A.. fees earned B.. rent expense C.. wages expense D.. accumulated depreciation 29. Revenues, liabilities and equity accounts are increased by debits. A.. False B.. True 30. Under the allowance method, uncollectible accounts expense is recognized when a specific customer's account is written off. A.. True B.. False

5 31. If the trial balance has equal debit and credit totals, it cannot contain any errors. A.. True B.. False 32. The left side of any account is the credit side. A.. False B.. True 33. The purpose of depreciation accounting is to provide the case required to replace plant assets. A.. True B.. False 34. The income statement shows the profitability of the company and is dated as of a particular date, such as December 31, A.. True B.. False 35. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5. A.. November 4 B.. October 31 C.. November 3 D.. November Which of the following accounts would be classified as a current asset on the balance sheet. A.. accumulated depreciation B.. accounts receivable C.. office equipment D.. land 37. Purchase discounts and purchase returns and allowances are recorded in contra accounts to the purchases account. A.. True B.. False 38. A transaction must be journalized in the journal before it can be posted to the ledger accounts. A.. False B.. True 39. A multi-step income statement consists of only two categories of items, revenues and expenses A.. True

6 B.. False 40. If the equipment account has a balance of $22,500 and its accumulated depreciation account has a balance of $14,000, the book value of the equipment is: A.. $36,500 B.. $14,000 C.. $22,500 D.. $8, A debit may signify: A.. an increase in an asset account B.. a decrease in an asset account C.. an increase in a liability account D.. an increase in the owner's capital account 42. A payment of cash for the purchases of services should be recorded in the: A.. cash receipts journals B.. revenue journal C.. purchases journal D.. cash payments journal 43. After the closing process is complete, no balance can exist in any revenue, expense, or income summary account. A.. True B.. False 44. Which of the following items represents a deferral. A.. fees earned B.. accumulated depreciation C.. wages payable D.. prepaid insurance 45. The inventory costing method that is based on the assumption that costs should be charged against revenue in the order in which they were incurred is: A.. perpetual inventory B.. average cost C.. FIFO D.. LIFO 46. The resources owned by a business are called: A.. The accounting Equation B.. Owner's Equity C.. Assets D.. Liabilities

7 47. A listing of a business entity's assets, liabilities, and owner's equity as of a specific date is: A.. a statement of cash flows B.. a statement of owner's equity C.. a balance sheet D.. an income statement 48. The policies and procedures used by management to protect assets from misuse, ensure accurate business information, and ensure compliance with laws and regulations re called: A.. systems analysis B.. systems implementation C.. internal controls D.. systems design 49. If merchandise purchased on account is returned, the buyer may inform the seller of the details by issuing: A.. a credit memorandum B.. a bill C.. an invoice D.. a debit memorandum 50. The amounts in the Adjustments columns are always added to the amounts in the Trial Balance columns to determine the amounts in the Adjusted Trial Balance columns. A.. True B.. False 51. A debit balance in which of the following accounts would indicate a likely error. A.. miscellaneous expense B.. cash C.. fees earned D.. accounts receivable 52. What is the maturity value of a 90-day, 12% note for $10,000. A.. $10,300 B.. $10,000 C.. $8,800 D.. $11, The form listing the titles and balances of the accounts in the ledger on a given date is the: A.. balance sheet B.. income statement C.. trial balance D.. statement of owner's equity

8 54. When a note receivable is dishonored, Accounts receivable is debited for what amount. A.. the face value of the note B.. the maturity value of the note plus accrued interest C.. the maturity value of the note D.. the maturity value of the note less accrued interest 55. Depreciation is the process of valuation of an asset to arrive at its market value. A.. True B.. False 56. All of the steps in the accounting cycle are performed only at the end of the accounting period. A.. False B.. True 57. On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is called: A.. income from operations B.. net income C.. operating income D.. gross profit 58. When there are a large number of individual accounts with a common characteristic, it is common to place them in a separate ledger called: A.. a creditors ledger B.. an accounts payable ledger C.. an accounts receivable ledger D.. a subsidiary ledger 59. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30, and the seller prepays $50 in transportation costs, the amount of the discount for early payment would be: A.. $0 B.. $10.00 C.. $10.50 D.. $ If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is: A.. FIFO B.. periodic C.. LIFO D.. average

9 61. The balance on the unearned rent account for Jones Co. as of 12/31 is $1,200. If Jones Co. failed to record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and income statement for December is: A.. liabilities overstated $600; net income understated $600 B.. liabilities overstated $600; net income overstated $600 C.. liabilities understated $600; net income understated $600 D.. assets understated $600; net income overstated $ A petty cash fund is: A.. All of the proposed answers B.. used to pay relatively small amounts C.. established by estimating the amount of cash needed for disbursement of relatively small amounts during a specified period D.. reimbursed when the amount of money in the fund is reduced to a predetermined minimum amount 63. Under perpetual procedure, cost of goods sold is determined as a result of the closing entries made at the end of the period. A.. True B.. False 64. At the end of the accounting period, three trial balances are prepared. A.. True B.. False 65. The statement of equity shows both the net income for the period and the beginning and ending balances of equity. A.. True B.. False 66. If a net loss occurs, it appears in the Income Statement credit column and Balance Sheet debit column. A.. True B.. False 67. Which of the following accounts in the adjusted trial balance columns of the work sheet would be extended to the balance sheet columns: A.. Rent revenue B.. Miscellaneous expense C.. Utilities expense D.. Owner Drawing 68. At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of uncollectible accounts determined by aging the receivables is $8,500, the amount of uncollectible accounts expense is: A.. $2,500

10 B.. $11,000 C.. $6,000 D.. $8, The income statement in which the total of all expenses is deducted from the total of all revenues is terms: A.. multiple-step form B.. single-step form C.. report form D.. account form 70. Under Lower of Cost or Market, inventory is written down to market value when the market value is less than the cost, and inventory is written up to market value when the market value is greater than the cost. A.. False B.. True 71. A profit making business operating as a separate legal entity and in which ownership is divided into shares of stock is known as a: A.. Proprietorship B.. Corporation C.. Service Business D.. Partnership 72. The three most common types of business activity are service, merchandising, and manufacturing. A.. True B.. False 73. In taking a physical inventory, consigned goods are usually not included in the ending inventory, but merchandise in transit is included. A.. True B.. False 74. Every adjusting entry affects at lease one income statement account and one balance sheet account. A.. True B.. False 75. A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is: A.. $4,900 B.. $5,000 C.. $5,600 D.. $5,100

11 76. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each purchase and credited for each sale. A.. False B.. True 77. If the supplies account (asset), before adjustment on May 31, indicated a balance of $2,250, and supplies on hand at May 31 totaled $950, the adjusting entry would be: A.. debit supplies, $950; credit supplies expense, $950 B.. debit supplies, $1,300; credit supplies expense, $1,300 C.. debit supplies expense, $1,300; credit supplies, $1,300 D.. debit supplies expense, $950; credit supplies, $ The receipt of cash from customers in payment of their accounts would be recorded by a: A.. debit to cash; credit to accounts receivable B.. debit to accounts receivable; credit to cash C.. debit to accounts payable; credit to cash D.. debit to cash; credit to accounts payable 79. Which of the following expenditures incurred in connection with acquiring machinery is a proper charge to the asset account A.. Neither one B.. Installation costs C.. Freight D.. Both 80. The purchase price of land includes its purchase price and other related costs, including the cost of removing an old unusable building that is on the land. A.. True B.. False Which of the following is TRUE about both sides of the trial balance? Both sides are always positive Both sides are negative Both sides are equal Both sides are not linked which each other Adjusting entries are used to: Bring account balances up to date at year end Close temporary accounts at year end Close permanent accounts at year end Bring account balances at zero

12 Which of the following statement is NOT true? Financial statements may be prepared soon after the adjusted trail balance The owner s equity is not up to the date until the closing entries are posted Adjusting entries are prepared before the financial statements are prepared In the accounting cycle, closing entries are made before the adjusting entries Which of the following is the second name for the journal? Book of default entries Book of original entries Book of detailed entries Book of annual entries Which of the following represents the negative future cash flows for an enterprise? Assets Owner s equity Liabilities Capital The definition of cash as used in Cash Flow Statements includes: Only cash balances Only bank balances Bank balances and bank overdrafts Cash in hand plus bank balances less bank overdrafts Accounting is called the language of business because : It communicates the financial information to the Management only In order to run a business one must have knowledge about accounting Different business accounts are involved in financial statements It helps to organize and communicate financial information to end users 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 Generally speaking, investors want to buy shares at which of the following price? At face value

13 Below face value Above face value At market value The true and fair presentation of the financial statements depends, among other things, upon which of the following? Strong financial position Concept of materiality Matching principle Realization principle Which of the following explains the debit and credit rules relating to recording revenues and expenses? Realization and matching principle The effect of revenues and expenses in the owner s equity Expenses appear on the left side of the income statement Liabilities are recorded as debit on the balance sheet Net current assets are equivalent to: Stock plus debtors plus cash Current liabilities less current assets Working capital Fixed assets plus current assets less current liabilities Which of the following is NOT an example of cash equivalents? Certificates of Deposit Money market accounts Money market mutual funds Euro Bond Which of the following principle provides the definite and factual basis for assets valuation? Stable Currency principle Objectivity Principle Matching Principle Cost Principle Which of the following principle states that the assets are purchased for the use and not for resale purpose? Stable Currency principle Objectivity Principle

14 Going-concern principle Cost Principle For purpose of measuring business income, the life of a business is divided into which of the following? Divided into specific points in time Divided into irregular cycles Divided into discrete accounting periods Considered to be a continuous cycle End product of the accounting cycle is known as the Tax return Financial statements Auditor s annual report Annual general meeting According to the personal expenses paid by Mr. A from his own pocket would not be recorded in business books of account. Realization principle Separate entity principle Matching principle Materiality principle 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 Identify the statement that is NOT true about the Incomes Account and Expenses Account: These are the temporary accounts These are closed in Income summery account These may included in closing trial balance These are also known as Nominal Accounts Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following reasons? Decreased cash flows from higher taxes Increased cash flows from lower taxes

15 Increased cash flows from higher taxes Decreased cash flows from lower taxes Which one of the following remains intact and unaffected by the continuous changes in business? Capital Stock Assets Liabilities Retained Earnings (not sure) Which of the following is the proper journal entry to record Ransom Company's billing of clients for Rs. 500 of services rendered? Select correct option: Debit Cash 500; Credit Accounts Receivable 500 Debit Accounts Receivable 500; Service Revenue 500 Debit Accounts Receivable 500; Credit Capital Stock 500 Cash 500; Credit Service Revenue 500 If a company needs extra funds then it is allowed by the Companies Ordinance 1984 to issue shares at: Face value On discount On premium Both at face value and at discount Statement of cash flows helps the investors and other stake holders to assess: The ability to generate future cash flows The liquidity of the business Ability to pay cash dividends in the future All of the given options Which of the following is NOT the part of the stockholder s equity? Paid-in-Capital Additional Paid-in-Capital Gross profit Retained Earnings Which of the following is the second name for the journal? Book of default entries Book of original entries Book of detailed entries Book of annual entries

16 Which of the following items are included in the financing activities section of the statement of cash flows? Cash effects of transactions involving making and collecting loans Cash effects of acquiring and disposing of investments and property, plant, and equipment Cash effects of transactions obtaining resources from owners and providing them with a return on their investment Cash effects of transactions that enter into the determination of net income How many basic types of adjusting entries are there? Two types Three types Four types Ten types There are five main kinds of current assets. Which of the following is NOT among them? Cash and equivalents Deferred income Accounts receivable Prepaid expenses Which of the following is NOT true about depreciation? Select correct option: Depreciation causes perpetual and gradual fall in the value of asset Depreciation does not depend upon on fluctuations in the market value of asset Depreciation is a charged in case of fixed assets only Depreciation is a charge against revenue of two or more accounting periods Which of the following would be affected by the difference between revenues and expenses? Assets Owner s equity Liabilities Capital Which of the following is the largest single expense of most merchandising firms? Cost of goods sold Rent Expense

17 Amortization Expense Salaries Expense When dividends are declared by a corporation's board of directors, what will be its journal entry on the declaration date? Debit Dividends payable; Credit Retained Earnings Debit Retained Earnings; Credit Cash Debit Retained Earnings; Credit Dividends Payable Debit Cash; Credit Retained Earnings Which of the following is TRUE regarding the entry to recognize the depreciation expense? It is an application of matching principle It is a closing entry Usually includes an offsetting credit to cash It is done only at the end of each month 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 According to the statement of cash flows; following are the examples of investing activities except: Sales of machinery Capital invested by the owners Purchase of building for the business use Cash received from the disposal of equipment Which of the following refers to the term posting? The recording of transactions The system of giving numbers to the accounts Transferring the debits and credits to ledger Transferring the debits and credits to journal 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

18 Allocate the original cost of a productive asset to expense over its useful life 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 Which of the following account would NOT be closed to the income summary account at the end of a period? Select correct option: Rent expense Revenue earned Wages expense Accumulated depreciation Which of the following explains the debit and credit rules relating to recording revenues and expenses? Select correct option: Realization and matching principle The effect of revenues and expenses in the owner s equity Expenses appear on the left side of the income statement Liabilities are recorded as debit on the balance sheet 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 Which of the following would NOT be the characteristics of current assets? Likely to change before the next accounting period is over Not bought for resale Use as part of the firm's trading operations Liquidity Which of the following is NOT one of the three items required to be shown in the heading of a financial statement? Select correct option:

19 The preparation date of the financial statement The title of the financial statement The unit of measure in the financial statement The name of the business entity The percentage change is computed by dividing the amount of the dollar change between years and which of the follwing amount? The base year The current year The average of past ten years The average of past five year Which of the following expenses would normally be classified as Other or Non Operating Expense on a multiple-step income statement? Interest expense Depreciation expense Insurance expense Salaries expense What will be the affect of dividends paid on the book value of a company? Increase Decrease No effect Depends upon the situation All of the following accounts would be closed in Income Summery Account EXCEPT: Select correct option: Commission earned account Prepaid insurance Salaries Expense account Wages account Question # 1 Which of the following section of cash flow statement shows the cash effects of those transactions reported in the income statement? Cash flow from investing activities Cash flow from financing activities Cash flow from operating activities All parts show effects of different transactions of income statement Question # 2 If we take goods for own use we should: Debit - Drawings Account: Credit - Purchases Account Debit - Drawings Account: Credit - Stock Account Debit - Purchases Account: Credit - Drawings Account Debit - Sales Account: Credit - Stock Account

20 Question # 3 The income statement of the UBL shows the interest revenue of Rs. 6,000, and the amount of accrued interest receivable has increased from Rs to Rs during the year. Calculate the amount of interest received. RS Rs Rs Rs Question # 4 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 Question # 5 Net current assets are equivalent to: Stock plus debtors plus cash Current liabilities less current assets Working capital Fixed assets plus current assets less current liabilities Working capital= Current assets minus current liabilities. Question # 6 Accounting is called the language of business because : It communicates the financial information to the Management only In order to run a business one must have knowledge about accounting Different business accounts are involved in financial statements It helps to organize and communicate financial information to end users Page 1 In the case of the business entity, accounting would deal with measuring, recording and communicating the results of business activities. That is why; Accounting is often called Language of Business. Question # 7 In which of the following account, a credit balance would be an evidence for a mistake or an error? Mr. A Capital Account Cash account Notes payable account page 6 Drawings account Which of the following represents the main step(s) of accounting cycle? Recording the transactions

21 Classifying the transactions Ordering, summarizing, counting the transactions Recording, classifying, summarizing transactions The accounting process or cycle has the following five steps. 1. Identifying the financial transaction 2. Recording Of Financial Transactions 3. Classifying Financial Transactions 4. Summarizing Financial Transactions 5. Communicating the Results of Business Question # 8 A company purchased the land in exchange for the capital stock; it would affect which of the following? Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities It would not affect any section Question # 9 Primary purpose of the cash flows statement is to provide the information about: Errors or discrepancies between cash book and income statement Receipts and payments of cash in the period Non cash adjustment that effect the income statement Cash paid to the customers and creditors of the business A primary purpose and objective of cash flow statement is to provide information about the cash receipts and cash payments of a business entity for the accounting period covered by the income statement. Question # 10 Cash has been described as: The lifebuoy of the business The lifeboat of the business The lifeline of the business The lifeblood of the business Question # 11 If a company has paid dividends on its preference shares, under which one of the cash flow statement headings would they appear? Returns on investments and servicing of finance Financing Equity dividends paid Capital investment and financial investment Ref: Question # 12 Which of the following is the third step of accounting cycle? Preparing financial statements

22 Preparing trial balance Posting Making adjusting entries Question # 13 which of the following term refers to each element of the Balance Sheet? Ledger Journal General T- Account Account Page no 6 Each element/sub-element of the balance sheet is named as Account, Question # 14 Which of the following is the most common adjusting entry? Un-earned revenue Pre-paid expense Depreciation expense Accrued revenue Question # 15 Which of the following account would NOT be closed to the income summary account at the end of a period? Rent expense Revenue earned Wages expense Accumulated depreciation Because we close the Income Summary account to Retained Earnings, by doing this, all revenues and expenses are "corralled" in Income Summary (the net of which represents the income or loss for the period). In turn, the income or loss is then swept to Retained Earnings along with the dividends Question # 16 How the transactions in a journal are initially recorded? Alphabetical order Ascending order Chronological order Alphanumeric order Question # 17 The true and fair presentation of the financial statements depends, among other things, upon which of the following? Strong financial position

23 Concept of materiality Matching principle Realization principle Refhttp://docs.google.com/viewer?a=v&q=cache:2xia_fB5R4sJ:eprints.ouls.ox.ac.u k/archive/ /01/audit_materiality.pdf+the+true+and+fair+presentatio n+of+the+financial+statements+depends,+among+other+things,+upon+which+of +the+following%3f&hl=en&gl=pk&pid=bl&srcid=adgeesjxmxjdjbzne9veq56mxh _Rr51RyAisYr3-ks31XZc0H2TRwBI4f3YIaZ_UPrUcEWqX3KzdfsxdiA5m5ZzMybhWcZb3UzrHhNfoqZx727IWzzQBH0CjYsCqG78YfFErKqfNMm&sig=AHIEtbRhuwjCLb7c3oyoed8bQzgqvGg6aw Question # 18 Use the following information to calculate net cash from investing activities: sell a capital asset for Rs. 10,000 cash and a Rs. 1,000 gain; purchase a bond investment for Rs. 16,000; receive Rs. 2,000 interest payment from the bond investment; and pay off a Rs. 3,000 mortgage payable. Rs. 6,000 net cash Rs. 4,000 net cash Rs. 5,000 net cash Rs. 9,000 net cash Question # 19 Which one 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 # 20 Journal entries are done at the end of the accounting period for which type of accounts? Assets and liabilities Office supplies and office equipment Raw material and office supplies Depreciation and expenses Page 29 Immediate recording of every event in some cases is not practical e.g. raw material, office supplies, depreciation. Journal entries of such expenses are recorded at the end of accounting period and are called adjusting entries. Question # 21 Which one of the following is usually classified as an inventory item? : Goods purchased for resale to customers Items purchased and used by the company such as office supplies

24 Items purchased for a specific customer job Items purchased and the quantity on hand does not need to be tracked PAGE 65 Inventory: This consists of items held for sale or used in manufacture of products that would be sold. Inventory in merchandising business consists of goods owned and held for sale. Question # 22 In the long run, a business must generate positive net cash flow from which of the following activities, if it is to survive? Investing activities Financing activities Operating activities Non cash activities PAGE 47 In the long run Cash flow from operations must be positive. Question # 23 If the estimated amount of depreciation on equipment for a period is Rs.2000, the adjusting entry to record depreciation would be: Depreciation expense - Debit; Equipment - Credit Depreciation expense - Debit; Accumulated depreciation - Credit Equipment - Debit; Depreciation expense - Credit Accumulated depreciation - Debit; Depreciation expense - Credit Question # 24 According to the personal expenses paid by Mr. A from his own pocket would not be recorded in business books of account. Realization principle Separate entity principle Matching principle Materiality principle Question # 25 Financial statements are a subset of which of the following? Financial reporting Financial statement analysis Accounting information Accounting system Question # 26 Which of the following account will appear in the post-closing trial balance? Owner s Capital Service Fees Earned

25 Income Summary Owner s Withdrawals Question # 27 When cash flow statement is prepared by using indirect method, which part of it is different from the direct method? Cash flow from investing activities Cash flow from financing activities Cash flow from operating activities All parts are same in both methods Question # 28 Which of the following people and groups are NOT interested in cash flow statements of a company? Select correct option: Accounting personnel Potential customers Potential creditors Potential employees People and groups interested in cash flow statements include: Accounting personnel, Potential lenders or creditors, Potential investors,, Potential employees or contractors, Shareholders of the business. Question # 29 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 Question # 30 Which one of the following transactions should be classified as a financing activity? Purchase of equipment Purchase of treasury stock Sale of trademarks Income tax refund Question # 31 Accelerated depreciation method is mostly used for. Financial statements Assets valuation Inventory valuation Income tax returns Question # 32 Depreciation is added back to profit when arriving at the cash flow from operating

26 activities because: Depreciation is only an estimated amount Depreciation does not affect profit Depreciation does not result in a flow of cash Depreciation only affects the balance sheet, not the profit and loss account Question # 33 To find the value of closing stock at the end of a period we: Deduct opening stock from cost of goods sold Look in the stock account Deduct cost of goods sold from sales Do this by stocktaking Question # 34 Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following reasons? Decreased cash flows from higher taxes Increased cash flows from lower taxes (not sure) Increased cash flows from higher taxes Decreased cash flows from lower taxes Question # 35 Identify the statement that is NOT true about the Incomes Account and Expenses Account: These are the temporary accounts These are closed in Income summery account These may included in closing trial balance These are also known as Nominal Accounts Question # 36 Which of the following terms present a cause and effect relationship with each other? Income statement and balance sheet Revenue and assets Assets and liabilities Revenues and expenses Question # 37 Which of the following company would like to use the accelerated depreciation method? A company with large tax burdens A company with low tax burdens A company that wan to report high net income A company that want to report huge assets

27 These methods provide a greater tax shield effect than straight line depreciation, and so companies with large tax burdens might like to use accelerated depreciation methods. Question # 38 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 # 39 Pre-paid expense is a(n) type of account. Liability Asset Revenue Expense Question # 40 Which of the following should NOT be called Sales? Goods sold for cash Office fixtures sold Goods sold on credit Sale of item previously included in Purchases Question # 41 Which of the following is true about "After closing trial balance"? It may consist of balances of only Real and Personal accounts It may consist of balances of only Nominal and Real accounts It may consist of balances of Nominal, Real and Personal accounts It may consist of balances of only Nominal and Personal accounts Question # 42 Audit opinions can NOT be classified as which of the following? Adverse opinion Unqualified opinion Qualified opinion Disagreement of opinion Question # 43 Which of the following is an inventory pricing procedure in which the oldest costs incurred rarely have an effect on the ending inventory valuation? FIFO LIFO Specific identification Weighted-average

28 Page 75 In the FIFO method, oldest available purchase costs are transferred to cost of goods sold. That Means the cost if goods sold has a lower value and the profitability of the organization becomes higher. Question # 44 The users of a statement of cash flows usually are interested in: Select correct option: Net cash flow from operating activities Net cash flow from investing activities Net cash flow from financing activities (not sure) Net cash flow from non-cash transactions Question # 45 Which one of the following is the most common type of opinion given by the auditor? Select correct option: Unqualified opinion Qualified opinion Adverse opinion Disclaimer of opinion Question # 46 Which of the following is a special temporary account used to close all of the revenue and expense accounts? Close-out Summary Owner s Capital Income Summary Temporary Summary Page 35 Revenue and expense accounts are closed at the end of each accounting period by transferring their balances to a summary account called income summary. Question # 47 End product of the accounting cycle is known as the Tax return Financial statements Auditor s annual report Annual general meeting Question # 48 Which of the following is NOT one of the four basic financial statements? Balance sheet Audit report

29 Income statement Statement of cash flows Question # 49 Which of the following is NOT a cash outflow for the firm? Depreciation expense Dividends payments Interest payments Tax payments Question # 50 Which of the following principle states that the assets are purchased for the use and not for resale purpose? Stable Currency principle Objectivity Principle Going-concern principle Cost Principle Page no 3 Going-concern assumptions: connected with cost principle, assets acquired for use and not for resale. Question # 51 Which of the following expenses would normally be classified as Other or Non Operating Expense on a multiple-step income statement? Interest expense Depreciation expense Insurance expense Salaries expense Question # 52 Which of the following would be considered a cash-flow item from an "operating" activity? Cash outflow to the government for taxes Cash outflow to shareholders as dividends Cash inflow to the firm from selling new common equity shares Cash outflow to purchase bonds issued by another company Question # 53 Which of the following principle provides the definite and factual basis for assets valuation? Stable Currency principle Objectivity Principle Matching Principle Cost Principle Question # 54

30 The basic purpose of financial statements is to assist users in evaluating the Financial position Profitability of an organization Future prospects All of the given options Question # 55 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 Question # 56 The appropriate journal entry to record equipment depreciation expense would consist of a debit to Depreciation Expense and a credit to which of the following accounts? Equipment Accumulated Depreciation: Equipment Retained Earnings Cash Question # 57 Which of the following truly represents expenses? Future benefits Past results Cost of doing business Past receipts Question # 58 Capital assets of Rs. 120,000 were purchased for cash. A capital asset was sold at a gain of Rs. 40,000. Amortization expense was Rs. 138,000. What amount would appear on the Cash Flow Statement as "Sale of Capital Asset?" Rs. 40,000 Rs. 130,000 Rs. 170,000 Rs. 225,000 (not sure) Question # 59 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:

31 Dividends declared and paid Dividend revenue Interest expense Interest revenue Question # 60 Which of the following refers to the term posting? The recording of transactions The system of giving numbers to the accounts Transferring the debits and credits to ledger Transferring the debits and credits to journal Question # 61 The definition of cash as used in Cash Flow Statements includes: Only cash balances Only bank balances Bank balances and bank overdrafts Cash in hand plus bank balances less bank overdrafts Question # 62 Which of the following principle is used for recording revenue? Matching Principle Cost Principle Realization Principle Objectivity Principle Question # 63 An entry that effects more than one accounts is knows as. Journal entry Compound entry Adjusting entry Reversing entry Question # 64 Which of the following auditor's opinion shows the inability of the auditor to audit the accounts of a business? Qualified Opinion Adverse Opinion Unqualified Opinion Disclaimer of Opinion Question # 65 Which of the following is the largest single expense of most merchandising firms? Cost of goods sold Rent Expense

32 Amortization Expense Salaries Expense Question # 66 Which of the following type of reports is most frequently used by external users, such as investors? Financial Statements Tax Forms Management Reports Audit reports Question # 67 Which of the following best describes the meaning of the term Purchases? Goods bought on credit Goods paid Goods bought for resale Items bought Question # 68 All of the following accounts would be closed in Income Summery Account EXCEPT: Commission earned account Prepaid insurance Salaries Expense account Wages account Question # 69 Which of the following is NOT one of the three items required to be shown in the heading of a financial statement? The preparation date of the financial statement The title of the financial statement The unit of measure in the financial statement The name of the business entity Question # 70 If a company has paid dividends on its preference shares, under which one of the cash flow statement headings would they appear? Returns on investments and servicing of finance Financing Equity dividends paid Capital investment and financial investment Which of the following arrangement is used to maintain the accounts? Sequentially Alphabetically

33 Monthly Orderly Page no 8 Orderly arrangements of Accounts is to be maintained. 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 Reversing entry 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 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 All of the following are true regarding the financing activity section of the c ash 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

34 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 Under which cost flow assumption, the ending inventory is composed of the earliest purchased Merchandise? FIFO LIFO Average cost Specific identification 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 Which of the following is NOT an advantage of a Sole proprietorship? Easy to form and wind up Direct motivation Better control Limited liability 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 I f 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 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

35 Which of the following could account for a company's gross profit ratio incr easing 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 Nestle Pakistan Limited is an example of which of the following types of businesses? Manufacturing Service Merchandise Whole seller Which of the following represents the long term debt paying ability of the c ompany as they Become due? Liquidity Solvency Profitability Stability 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 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 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 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

36 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 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 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 Return on Sales is also known as which of the following? Gross profit margin Operating profit margin Return on total assets Return on investment Which of the following is NOT a profitability measure? Accounts receivable turnover ratio Return on total assets Return on sales Dividend yield 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 Which of the following is NOT part of additional paid-in-capital of the company? Preferred stocks Common stocks Retained earnings Dividends distributed Which of the following options indicate how quickly accounts receivables are converted into cash? Accounts receivable turnover

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