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Tag: VU. FIN621-. Financial. Statement Analysis. (Session – 4). MIDTERM. EXAMINATION. Fall .2010

VU FIN621- Financial Statement Analysis (Session – 4) MIDTERM EXAMINATION Fall 2010

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MIDTERM EXAMINATION

Fall 2010

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

► 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

► 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

► 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

► To check the balance of all assets

► To prepare the balance sheet

► To check the validity of accounts

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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

► 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

P # 24

► 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

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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

► 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

► 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

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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

► Dividends payment

Investment by the stockholders

► Net Loss

.

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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

► 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

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

► The shorter of operating cycle or one year

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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

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

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

Cash dividends paid to shareholders

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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

► 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

► 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

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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

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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

Rs. 530,000

5,00,000 + 30000 = 5,30,000

► 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

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

► LIFO cost method

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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

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

► Debit – Merchandise Inventory; Credit – Accounts Payable

Question No: 27

( Marks: 1 )

– Please choose one

An inventory error affects ___________ accounting periods.

► Only current

Two

► Three

► Four

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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

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

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

Straight-line method

► Sum-of-the-years digit method

► Double-declining balance method

► Modified Accelerated Cost Recovery System

Question No: 31

( Marks: 1 )

– Please choose one

Accelerated depreciation method is mostly used for ____________.

Financial statements

► Assets valuation

► Inventory valuation

Income tax returns

Question No: 32

( Marks: 1 )

– Please choose one

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

Depreciation

Accounts payable

► Unearned revenue

► Prepaid insurance

.

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

Assets which have NO market value are called:

Wasting assets

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

► 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

► Adjusting entries

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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

Rs. 33 million

30 – 4 +7 = 33 million

Rs. 27 million

► Rs. 19 million

Question No: 37

( 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

15 of the 25 units are sold

► Rs. 200

Rs. 270

► Rs. 300

► Rs. 350

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Question No: 38

( Marks: 1 )

– Please choose one

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

Credit

Debit

► Negative

► Positive

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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

200,000-50,000 = 150000 G P

150000-10000-20000 = 120000 net income

► 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?

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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 Quantit Unit Total

Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550

Jan. 9, 2001 900 Rs. 9.50 8,550

Total on hand 1,500 Rs. 14,100

General Entry Rs Rs

Depreciation of Office Equip.

A/C

General Entry Rs Rs

Interest Expense A/C 1050

Interest Payable A/C 1050

Cost of Printers Sold A/C 9350

Printers Inventory A/C 9350

Cost of Printers Sold A/C 9475

Printers Inventory A/C 9475

Instructions:

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

company uses the following methods.

Answer:

a. FIFO (2.5) DR CR

Rs. Rs.

b.

LIFO

(2.5)

DR

CR

Rs. Rs.

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

DR

CR

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.

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.

.

General Entry Rs Rs

Interest Receivable on Bonds

A/C

750

Interest Income on Bonds A/C 750

General Entry Rs Rs

Salary Expense A/C 2800

Salary Payable A/C 2800

General Entry Rs Rs

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.

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.

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