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Tag: VU. FIN621- .Financial .Statement Analysis. MIDTERM .EXAMINATION

VU FIN621- Financial Statement Analysis MIDTERM EXAMINATION

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MIDTERM EXAMINATION

FIN621- Financial Statement Analysis

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

Which of the following principle deals with the valuation and recording of the assets at

cost?

► Entity Principle

► Matching Principle

Cost Principle

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► Stable Currency principle

Question No: 2 ( 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

► Generally Adapted American Principles

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

How much duration does an accounting period usually have?

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► Three months

► Two years

One year

► Five years

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

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: 5 ( Marks: 1 ) – Please choose one

As transactions and events related to financial resources occur, they are analyzed with

respect to their effect on which of the following?

Financial position of the company

► Accounting cycle

► Trial balance

► Liquidity position of the company

Question No: 6 ( 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

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► Transferring the debits and credits to journal

► The recording of transactions

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

Which of the following is the next step after the preparation of trial balance?

► Adjusted trial balance

► Financial statements

Adjusting entries

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► Closing entries

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

Which of the following is TRUE regarding the income statement?

► The income statement reports only revenue for which cash was received at the point of

sale

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► The income statement reports the financial position of a business at a particular point

in time

The income statement is sometimes called the statement of operations

► The income statement reports revenues, expenses and liabilities

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

Which of the following principle is used for recording an expense?

Matching Principle

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► Cost Principle

► Realization Principle

► Objectivity Principle

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

The net income reported on the income statement is Rs. 90,000. However, adjusting

entries have not been made at the end of the period for supplies expense of Rs. 2,700 and

accrued salaries of Rs. 1,300. Net income, as corrected, would be:

► Rs. 87,300

Rs. 86,000

90,000 – 2700 – 1300 = 86,000

► Rs. 88,700

► Rs. 90,000

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

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

► Revenue, credit

► Liability, credit

Asset, debit

► Expense, debit

Question No: 12 ( 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

► 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: 13 ( Marks: 1 ) – Please choose one

A firm paid Rs. 800,000 in dividends over the last period. The beginning and ending

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retained earnings account balances were Rs. 10,100,000 and Rs. 12,500,000 respectively.

Assuming a 40% average tax rate, what was the firm’s net income (net profit after taxes)?

► Rs. 5,333,333

Rs. 3,200,000

12,500,000 – 10,100,000 + 800,000 = 3,200,000

► Rs. 2,400,000

► Rs. 1,600,000

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

Which of the following is the largest single expense of most merchandising firms?

Cost of goods sold

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► Rent Expense

► Amortization Expenses

► Salaries Expense

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

Which of the following is NOT among the five main kinds of current assets?

► Cash and equivalents

Deferred income

► Accounts receivable

► Prepaid expenses

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

When preparing a statement of cash flows under the indirect method, supplemental

disclosure should be made for which of the following?

► Net cash consumed by operating activities

► Cash dividend distributions

Cash paid for interest and taxes

► Cash paid for wages

Question No: 17 ( 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

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

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 not sure

► Rs. 490,000

Rs. 495,000

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

The statement of cash flow does NOT assist investors, creditors and others in assessing:

► The company’s ability to generate positive cash flows in future periods

► The company’s ability to meet its obligations and to pay dividends

► The company’s needs for external financing

The company’s ability to forecast future losses

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

Notes to financial statements are beneficial in meeting the disclosure requirements of

financial reporting. The note should not be used to:

Correct an improper presentation in the financial statements

► Describe significant accounting policies

► Describe depreciation methods employed by the company

► Describe principles and methods peculiar to the industry ( not sure )

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

When using the perpetual inventory system, each time a sale is recorded the:

► Inventory account is increased

Inventory account is decreased

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► Cost of Goods Sold account is decreased

► Cost of goods available for sale decreases

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

Which of the following feature is shown by the income statement for a merchandising

company?

► Gross profit

► Cost of goods sold

► A sales revenue section

All of the given options

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

In a period of rising prices, all of the following statements regarding LIFO are true

EXCEPT:

Net income is generally higher

► Ending inventory is generally undervalued (not sure )

► It can be used to manipulate net income

► Most recent inventory costs are allocated to cost of goods sold

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

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

1st 10 units at the rate of 10 each… total = 100 Rs.

2nd 5 units are rate of 20 each… total = 100 Rs.

Total cost 100 + 100 = 200

► Rs. 150

► Rs. 350

► Rs. 450

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

In which of the following inventory pricing procedure, the oldest costs incurred rarely

have an effect on the ending inventory valuation?

FIFO

►LIFO

► Retail

► Weighted-average

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

If beginning inventory is Rs. 60,000, cost of goods purchased is Rs. 380,000, and ending

inventory is Rs. 50,000, what is cost of goods sold under a periodic system?

Rs. 390,000

380000 + 60000 – 50000 = 390000

► Rs. 370,000

► Rs. 330,000

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► Rs. 420,000

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

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 ( Marks: 1 ) – Please choose one

In which of the following situations, a company should NOT record any depreciation

expense on asset described?

► Computer Airline is required by law to maintain its aircraft in “as good as new”

condition

► Metro Advertising owns an office building that has been increasing in value each year

► Computer Sales Company has in inventory a new type of computers, designed never

to obsolete

None of the given option is right as depreciation is applied on all assets

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

Which of the following is NOT the part of annual report?

► Financial statements

► Auditor’s report

► Five year summary

Future investments report

Page # 98

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

In a statement of cash flows, the acquisition of land by issuing capital stock:

► Is not shown at all, since no cash was received or disbursed

► Is shown as an investing activity

► Is shown as a financing activity

Is shown in a supplementary schedule as a non-cash investing and financing

transaction

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

Which of the following would represent an increase in Owner’s Equity?

Increase in net income

► Increase in assets

► Increase in accounts receivable

► Increase in cash

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

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Which of the following steps of accounting cycle keep on occurring throughout the

period?

Journalizing and posting the entries

► Making adjusting entries for the relevent accounts

► Preparing Trial Balance

► Preparing financial statements

Question No: 33 ( 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

Statement of cash flows giving a picture of cash inflows (receipts) and cash outflows

(payments) over/during the accounting period. It is prepared from the two major financial

statements viz Income Statement and Balance Sheet.

In addition to above, notes containing additional information (financial & no financial) about the

business are also attached to financial statements.

► Comparative balance sheets

► Current income statement

► Additional information

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

Which of the following items does NOT result in an adjustment in the merchandise

inventory account under a perpetual system?

► A return of merchandise inventory to the supplier

Payment of freight costs for goods shipped to a customer

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► Payment of freight costs for goods received from a supplier

► A purchase of merchandise

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

From the given information, calculate the Cost of Goods Sold using the weighted-average

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

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15 of the 25 units are sold

► Rs. 200

Rs. 270

Total Cost of units = (10 x 10) + (10 x 20) + (5 x 30) = 450

per unit cost = total cost / total units

450 / 25 = 18

cost of 15 units = 15 x 18 = 270

► Rs. 300

► Rs. 350

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

Which of the following is the most common item in adjusting entries of a merchandising

business?

► Un-earned revenue

► Pre-paid expense

Depreciation expense

► Accrued revenue

Question No: 37 ( 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

Owner’s Capital account

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

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: 39 ( 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?

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

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 Adjusting entries Revenue Expenses Net income

a Deprecation expense

Accumulated depreciation

Decrease Increase Decrease

b Interest expense

Accrued interest

Decrease Increase Decrease

c Accrued revenue

revenue

Increase Decrease Increase

d Salaries

Accrued salaries

Decrease Increase Decrease

e Prepaid insurance Increase Decrease Increase

Which of the following statements is CORRECT regarding depreciation methods?

► Accumulated depreciation represents a fund being accumulated fro the replacement of

assets

► The cost of a machine includes the cost of repairing damage to the machine during the

installation process

► A company may use different depreciation methods in its financial statements and its

income tax returns

The use of an accelerated depreciation method causes an asset to wear out more

quickly than does the straight line method

Question No: 41 ( Marks: 5 )

Security Service Company adjusts its accounts at the end of the month. On November 30,

adjusting entries are prepared to record:

a. Depreciation expense for November

b. Interest expense that has accrued during November

c. Revenue earned during November that has not yet been billed to customers

d. Salaries, payable to company employees that have accrued since the last pay day in

November

e. The portion of the company’s prepaid insurance that has expired during November

Adjusting Entries For The Month Ended Nov 30

Requirement:

Indicate the effect of each of these adjusting entries on the major elements of the

company’s income statements i.e. upon revenue, expenses, net income. Organize your

answer in the table given below and use the symbols I for increase, D for decrease, and

NE for no effect.

Adjusting entry Revenue Expenses Net income

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Insurance

Question No: 42 ( Marks: 5 )

Olympic Inc., had the following cash flows during the current year:

Cash received from customers Rs. 240,000

Interest and dividend received 50,000

Proceeds from the sale of the plant assets 330,000

Cash paid to suppliers and employees 127,000

Cash paid for the purchase of investments 45,000

Cash paid for the purchase of treasury stock 36,000

Cash inflow

Cash received from customers Rs.

Interest and dividend received

Proceeds from the sale of the plant assets

240,000

50,000

330,000

Less Cash outflow

————– 620,000

Cash paid to suppliers and employees

Cash paid for the purchase of investments

127,000

45,000

Cash paid for the purchase of treasury stock

Cash flow during the year

36,000 208,000

__________

412,000

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