MIDTERM EXAMINATION Spring 2009 FIN621- Financial Statement Analysis (Session - 3)

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1 MIDTERM EXAMINATION Spring 2009 FIN621- Financial Statement Analysis (Session - 3) Question No: 1 ( Marks: 1 ) - Please choose one Which of the following statement shows the revenues and expenses of the business? Balance Sheet Income Statement Statement of Cash Flows Statement of Owner s Equity Question No: 2 ( Marks: 1 ) - Please choose one Which of the following is the basic function of the Trial Balance? To check the validity of accounts To prove the equality of debits and credits To check the balance of all assets To prepare the balance sheet Question No: 3 ( 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 Transferring the debits and credits to journal The recording of transactions Question No: 4 ( Marks: 1 ) - Please choose one Which of the following represents the main step(s) of accounting cycle? Recording the transactions Classifying the transactions Ordering, summarizing, counting the transactions Recording, classifying, summarizing transactions Question No: 5 ( Marks: 1 ) - Please choose one Which of the following principle is used for recording an expense? Matching Principle Cost Principle Realization Principle Objectivity Principle Question No: 6 ( Marks: 1 ) - Please choose one Blankenship Company pays its employees every Friday for work rendered that week. The payroll is typically Rs.10,000 per week. Which of the following journal entries would Blankenship ordinarily record on the Friday payday? Salary expense Rs. 10,000 - Debit; Salary payable Rs. 10,000 - Credit Salary expense Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit Salary payable Rs. 10,000 - Debit; Cash Rs. 10,000 - Credit

2 Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit Question No: 7 ( Marks: 1 ) - Please choose one 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 Debit; Supplies Expense, Rs Credit Supplies, Rs Debit; Supplies Expense, Rs Credit Supplies Expense, Rs Debit; Supplies, Rs Credit Supplies Expense, Rs. 600 Debit; Supplies, Rs Credit Question No: 8 ( Marks: 1 ) - Please choose one Which one of the following type of entry is made to recognize depreciation expense? A reversing A closing entry An adjusting entry None of the given options Question No: 9 ( Marks: 1 ) - Please choose one 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 Question No: 10 ( Marks: 1 ) - Please choose one Closing entries result in net income being calculated in the income summary account and then transferred to which of the following account? Revenue account Common Stock account Dividends account Retained Earnings account Question No: 11 ( Marks: 1 ) - Please choose one ABC Co mpany has Rs. 120,000 cash, Rs. 50,000 as accounts receivables, Rs. 10,000 as allowance for doubtful accounts, Rs. 30,000 as work in progress inventory, Rs. 45,000 as finished goods, Rs. 40,000 land purchased in the current year. Calculate the value of current assets. Rs. 275,000 Rs Rs. 235,000 Rs. 210,000 Question No: 12 ( Marks: 1 ) - Please choose one If the indirect approach for the statement of cash flows is used, which of the following

3 items should be subtracted from accrual basis net income to derive cash flow from operating activities? Gains on the sale of long-term investments Losses on the sale of long-term investments Depreciation expense Amortization expense Question No: 13 ( Marks: 1 ) - Please choose one 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: 14 ( Marks: 1 ) - Please choose one Which of the following items is 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 Question No: 15 ( Marks: 1 ) - Please choose one Which one of the following items is not generally used in preparing a statement of cash flows? Adjusted trial balance Comparative balance sheets Current income statement Additional information Question No: 16 ( Marks: 1 ) - Please choose one Which of the following is added in the net income while preparing cash flow statement by indirect method? Increase in inventories Decrease in inventories Increase in prepaid expenses Decrease in accrued expenses payable Question No: 17 ( Marks: 1 ) - Please choose one When cash flow statement is prepared by using indirect method, which part of it is different from the direct method?

4 Cash flow from investing activities Cash flow from financing activities Cash flow from operating activities All parts are same in both methods Question No: 18 ( Marks: 1 ) - Please choose one The cash flow from financing activities shows the cash effects of which of the following? Long term liability and long term assets Income statement items Long term assets items Long term liability & stockholder s equity Question No: 19 ( 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 Question No: 20 ( Marks: 1 ) - Please choose one All of the following regarding perpetual inventory system are true EXCEPT : It offers better inventory control than the periodic inventory system A physical inventory count is not necessary At the time of sale, the inventory account is credited At the time of sale, cost of goods sold is debited Question No: 21 ( Marks: 1 ) - Please choose one An inventory error affects accounting periods. Only current Two Three Four Question No: 22 ( Marks: 1 ) - Please choose one From the given data, calculate Cost of Goods Sold using the FIFO costing method: Beginning inventory is 10 Rs. 10 each. On January 20, purchased 10 Rs. 20 each On January 30, purchased 5 Rs. 30 each 15 of the 25 units are sold. Rs. 200 Rs. 150 Rs. 350 Rs. 450 Question No: 23 ( Marks: 1 ) - Please choose one

5 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: 24 ( Marks: 1 ) - Please choose one A statement of cash flows would be least useful in answering which of the following 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? Question No: 25 ( Marks: 1 ) - Please choose one Which of the following is NOT affected by the adjusting entries? Balance sheet Income statement Work Sheet Ledger Question No: 26 ( Marks: 1 ) - Please choose one What will be the journal entry, if machinery is purchased on credit? Machinery A/c - Debit ; Accounts receivable - Credit Machinery A/c - Debit ; Accounts payable - Credit Machinery A/c - Debit ; cash A/c - Credit Accounts receivable - Credit; Accounts payable - Debit Question No: 27 ( Marks: 1 ) - Please choose one Which of the following should be the first step to locate an error in the trial balance? Re-calculate the balances of both sides Look for the correct location of the normal balances Verify figures transferred from the accounts to the trail balance Check foot notes and balances of financial statements Question No: 28 ( Marks: 1 ) - Please choose one When a company should report the cost of an insurance policy as an expense? When the company first signs the policy When the company pays for the policy

6 When the company receives the benefits from the policy over its period of coverage When the company receives payments form the insurance company for its insurance claims Question No: 29 ( Marks: 1 ) - Please choose one Newell Company debited Prepaid Insurance of Rs. 600 on July 1, 2003 for one-year fire insurance policy. If the company failures to make an adjusting entry on July 31 for the amount of insurance expired, would cause: Assets to be overstated by Rs. 600 and expenses to be understated by Rs. 600 Expenses to be overstated by Rs. 50 and assets to be understated by Rs. 50 Assets to be overstated by Rs. 50 and expenses to be understated by Rs. 50 Expenses to be overstated by Rs. 600 and assets to be understated by Rs. 600 Question No: 30 ( Marks: 1 ) - Please choose one 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 Question No: 31 ( Marks: 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, Question No: 32 ( Marks: 10 ) The following information was obtained from the accounts of Airlines international dated December 31, It is presented in scrambled order. Accounts Payable Rs 77,916 Accounts Receivables 67,551 Accrued interest 23,952 Accumulated Depreciation 220,541 Allowance for doubtful accounts 248 Capital in excess of par 72,913

7 Cash 28,837 Common stock (par Rs.50, authorized 20,000 shares, issued 7,152 14,304 shares Current installments of long-term debt 36,875 Deferred income tax liability (long term) 42,070 Inventory 16,643 Investments and special funds 11,901 Long-term debt, less current portion 393,808 Marketable securities 10,042 Other assets 727 Prepaid expenses 3,963 Property, plant, and equipment at cost 809,980 Retained earnings 67,361 Unearned transportation revenue (airline tickets expiring 6,808 within one year) Requirement: Prepare a classified Balance Sheet in Report Form.

Some deferred items for which adjusting entries would be made include: Prepaid insurance Prepaid rent Office supplies Depreciation Unearned revenue

Some deferred items for which adjusting entries would be made include: Prepaid insurance Prepaid rent Office supplies Depreciation Unearned revenue WWW.VUTUBE.EDU.PK Paper 1 MIDTERM EXAMINATION Spring 2009 FIN621- Financial Statement Analysis (Session - 1) Question No: 1 ( Marks: 1 ) - Please choose one Which of the following is the acronym for GAAP?