MIDTERM EXAMINATION
Fall 2009
FIN621- Financial Statement Analysis
Question No: 1 ( Marks: 1 ) – Please choose one
How much duration does an accounting period usually have?
► Three months
► Two years
► One year
► Five years
Question No: 2 ( Marks: 1 ) – Please choose one
Which 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 No: 3 ( 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: 4 ( Marks: 1 ) – Please choose one
A business has purchased a building on credit, how it would be recorded in the journal?
► Building – Credit; Accounts payable – Debit
► Building – Debit; Notes payable -Credit
► Building – Debit; Owner’s equity- Credit
► Building – Debit; Accounts payable – Credit
Question No: 5 ( Marks: 1 ) – Please choose one
An entry that affects more than one accounts is knows as _____________.
► Journal entry
► Compound entry
► Adjusting entry
► Reversing entry
Question No: 6 ( Marks: 1 ) – Please choose one
Which of the following is NOT true about the net income?
► It is a calculated figure and represents actual cash
► It can be distributed among holders of common stock as a dividend
► It can be held by the firm as retained earnings
► It is obtained by subtracting expenses from the revenues
Question No: 7 ( Marks: 1 ) – Please choose one
What would be the adjusting entry to record depreciation if the estimated amount of depreciation on equipment for a period is Rs. 2,000?
► Depreciation expense – Debit; Equipment – Credit
► Depreciation expense – Debit; Accumulated depreciation – Credit
► Equipment – Debit; Depreciation expense – Credit
► Accumulated depreciation – Debit; Depreciation expense – Credit
Question No: 8 ( 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. 600 – Debit; Supplies Expense, Rs. 600 – Credit
► Supplies, Rs. 750 – Debit; Supplies Expense, Rs. 750 – Credit
► Supplies Expense, Rs. 750 – Debit; Supplies, Rs. 750 – Credit
► Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 – Credit
Question No: 9 ( Marks: 1 ) – Please choose one
Which of the following accounts would NOT be included in a post-closing trial balance?
► Cash
► Accumulated depreciation
► Owner’s equity
► Fees earned
Question No: 10 ( Marks: 1 ) – Please choose one
After the closing entries are posted to the ledger, each expense account will have?
► A debit balance
► A negative balance
► A credit balance
► A zero balance
Question No: 11 ( 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
Question No: 12 ( Marks: 1 ) – Please choose one
Which of the following is NOT the most common example of cash equivalents?
► Savings deposits
► Certificates of Deposit (CDs)
► Stocks of other companies
► Money market mutual funds
Question No: 13 ( Marks: 1 ) – Please choose one
In preparing the statement of cash flows, how should non-cash investing/financing activities be reported?
► In the financing activities section of the statement of cash flows
► In a separate schedule accompanying the statement of cash flows
► In the investing activities section of the statement of cash flows
► Shoud not to be reported
Question No: 14 ( 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: 15 ( Marks: 1 ) – Please choose one
Which of the following activities convert the income statement items from the accrual basis of accounting to cash?
► Operating activities
► Investing activities
► Financing activities
► Non cash activities
Question No: 16 ( Marks: 1 ) – Please choose one
Which one of the following items is specifically included in the body of a statement of cash flows?
► Operating and non-operating cash flow information
► Conversion of debt to equity
► Acquiring an asset through a capital leases
► Purchasing a building by giving a mortgage to the seller
Question No: 17 ( 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
► Rs. 490,000
► Rs. 495,000
Question No: 18 ( Marks: 1 ) – Please choose one
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 No: 19 ( Marks: 1 ) – Please choose one
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
Question No: 20 ( Marks: 1 ) – Please choose one
Gross profit is:
► Excess of sales over cost of goods sold
► Sales less Purchases
► Cost of goods sold + Opening stock
► Net profit less expenses of the period
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 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. 150
► Rs. 350
► Rs. 450
Question No: 23 ( Marks: 1 ) – Please choose one
Under which cost flow assumption, the ending inventory is composed of the most recently purchased merchandise?
► FIFO
► LIFO
► Average cost
► Specific identification
Question No: 24 ( Marks: 1 ) – Please choose one
If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operating expenses are Rs. 60,000, what is the gross profit?
► Rs. 30,000
► Rs. 90,000
► Rs. 340,000
► Rs. 400,000
Question No: 25 ( Marks: 1 ) – Please choose one
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: 26 ( Marks: 1 ) – Please choose one
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 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
Which depreciation method allocates an equal portion of depreciation expense to each period of asset’s useful life?
► Straight-line method
► Double-declining balance method
► Sum-of-the-year digit method
► Accelerated depreciation method
Question No: 29 ( 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: 30 ( Marks: 1 ) – Please choose one
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
Question No: 31 ( Marks: 1 ) – Please choose one
Which of the following account would be classified as a current asset on the balance sheet?
► Accumulated depreciation
► Accounts receivable
► Office equipment
► Land
Question No: 32 ( Marks: 1 ) – Please choose one
An adjusting entry would NOT be required for which of the following account?
► Salaries
► Past due expense
► Income tax expense
► Accounts receivable
Question No: 33 ( 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: 34 ( Marks: 1 ) – Please choose one
Accounting Cycle is a series of activities that begins with ___________ and ends with ___________.
► Closing of books, transactions
► Transaction, After closing Trial Balance
► Journal, ledger account
► Transactions, financial statements
Question No: 35 ( 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
► Rs. 27 million
► Rs. 19 million
Question No: 36 ( Marks: 1 ) – Please choose one
The statement of cash flows does NOT report the:
► Sources of cash in the current period
► Amount of checks outstanding at the end of the period
► Uses of cash in the current period
► Change in the cash balance for the current period
Question No: 37 ( Marks: 1 ) – Please choose one
Which of the following is NOT normally required for revenue to be recognized according to the revenue principle for accrual basis accounting?
► The price is fixed or determinable
► Services have been performed
► Cash that has already been collected
► Evidence of an arrangement for customer payment exists
Question No: 38 ( Marks: 1 ) – Please choose one
Which of the following balances does the Contra-Asset account show typically?
► Credit
► Debit
► Negative
► Positive
Question No: 39 ( Marks: 1 ) – Please choose one
Which one of the following would lead to the decrease in the owner’s equity?
► Purchasing a piece of land
► Paying dividends to shareholders
► Purchasing equipment on account
► Paying back the principal of a loan
Question No: 40 ( 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: 41 ( Marks: 5 )
Classify the following activities as cash flow from operating, investing and financing activities.
· Payments for repurchase of company shares
· Collections on loan principal and sales of other firms’ debt instruments
· Tax payments
· Expenditure for purchase of other firms’ equity instruments
· Payments to suppliers for goods and services
Answer:
Payments for repurchase of company shares: Financing activities
Collections on loan principal and sales of other firms’ debt instruments: Investing activities.
Tax payments: Operating activities
Expenditure for purchase of other firms’ equity instruments: Investing activities
Payments to suppliers for goods and services: Operating activities
Question No: 42 ( 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, 2001.
|
MysteryMountain Lodge Balance Sheet as on December 31, 2001 |
| Particulars Amount (Rs.) |
| Current Assets:Cash 21,400
Accounts receivable 10,600 Snowmobiles 15,400 Fixed Assets: Equipment 29,200 Furnishings 58,700 Buildings 450,000 Land 425,000 1,010,300 |
| Liabilities:Interest payable 12,000
Salaries Payable 33,500 Accounts Payable 54,800 Notes Payable 620,000 Capital: Owner’s capital 290,000 1,010,300 |
MIDTERM EXAMINATION
Fall 2009
FIN621- Financial Statement Analysis (Session – 4)
Time: 60 min
Marks: 50
Question No: 1 ( Marks: 1 ) – Please choose one
Which of the following is the acronym for GAAP?
► Generally Adopted Accounting Principles
► Generally Accepted Auditing Principles
► Generally Accepted Accounting Principles
► 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
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
► 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
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
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
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
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
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
Question No: 20 ( Marks: 1 ) – Please choose one
The indirect method shows the reconciliation from net income to operating cash flows. Select the adjustment that is subtracted during the reconciliation.
► Non-cash revenues (revenues earned but payment not yet received) reported on the income statement
► A decrease in Accounts Receivable or another non-cash current asset
► Revenues earned and received in cash.
► Non-cash expenses (expenses incurred but not paid) reported on the income statement-one example is amortization expense.
Question No: 21 ( Marks: 1 ) – Please choose one
Investing activities include all of the following EXCEPT:
► Payment of debt
► Collection of loans
► Making of loans
► Sale of available for sale and held to maturity securities
Question No: 22 ( Marks: 1 ) – Please choose one
If sales on an accrual basis are Rs. 500,000 and accounts receivables increased by Rs. 30,000, the cash received from the customers would be:
► Rs. 500,000
► Rs. 470,000
► Rs. 530,000
► Can not be found from the given information
Question No: 23 ( Marks: 1 ) – Please choose one
Which of the following would NOT be the cash inflow for the business?
► Sale of land for cash
► Issuance of long term bonds
► The sale of common stock
► Retirement of long term debt
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
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
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
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
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
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
► 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
Question No: 38 ( Marks: 1 ) – Please choose one
Which of the following balances does the Contra-Asset account show typically?
► Credit
► Debit
► Negative
► Positive
Question No: 39 ( Marks: 1 ) – Please choose one
Using the following information calculate Net Income: Sales Revenue Rs.200, 000, Loss on Sale of Equipment Rs.10, 000, Amortization Expense Rs.20, 000 and Cost of Goods Sold Rs.50, 000.
► Rs. 170,000
► Rs. 120,000
► 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?
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 |
Quantity |
Unit Cost |
Total Cost |
| 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 |
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.
| Cost of Printers Sold A/C | 9350 | |
| Printers Inventory A/C | 9350 |
b. LIFO (2.5) DR CR
Rs. Rs.
| Cost of Printers Sold A/C | 9475 | |
| Printers Inventory A/C | 9475 |
Question No: 42 (Marks: 5)
Hill Company adjusts its accounts at the end of each month. Prepare the adjusting entries required at December 31 based on the following information.
a. A bank loan had been obtained on December 1. Accrued interest on the loan at December 31 amounts to Rs. 1,050. No interest expense has yet been recorded.
Answer
DR CR
| General Entry | Rs | Rs |
| Interest Expense A/C | 1050 | |
| Interest Payable A/C | 1050 |
b. Depreciation of the office equipment is based on an estimated life of five years. The balance in the office equipment account is Rs. 24,000; no change has occurred in the account during the year.
| General Entry | Rs | Rs |
| Depreciation of Office Equip. A/C | ||
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 |
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.
| General Entry | Rs | Rs |
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.
| General Entry | Rs | Rs |
| Salary Expense A/C | 2800 | |
| Salary Payable A/C | 2800 |