FIN621 MIDTERM FALL 2010

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 (Afaaq)
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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 (Afaaq)
► Generally Adapted American Principles
Question No: 3 ( Marks: 1 ) - Please choose one
How much duration does an accounting period usually have?
► Three months
► Two years
► One year (Afaaq)
► 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 (Afaaq)
► 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 (Afaaq)
► 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 (Afaaq)
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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 (Afaaq)
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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
► 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 (Afaaq)
► 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 (Afaaq)
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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 (Afaaq)
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 (Afaaq)
► 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
(Afaaq)
► 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
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 (Afaaq)
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 (Afaaq)
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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 (Afaaq)
► 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 (Afaaq)
► 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 (Afaaq)
► Cash effects of transactions that enter into the determination of net income
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 (Afaaq)
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 (Afaaq)
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 (Afaaq)
► 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 (Afaaq)
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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 (Afaaq)
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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 (Afaaq)
► 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 (Afaaq)
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 (Afaaq)
►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 (Afaaq)
380000 + 60000 - 50000 = 390000
► Rs. 370,000
► Rs. 330,000
► 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
(Afaaq)
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 (Afaaq)
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 (Afaaq)
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 (Afaaq)
Question No: 31 ( Marks: 1 ) - Please choose one
Which of the following would represent an increase in Owner's Equity?
► Increase in net income (Afaaq)
► Increase in assets
► Increase in accounts receivable
► Increase in cash
Question No: 32 ( Marks: 1 ) - Please choose one
Which of the following steps of accounting cycle keep on occurring throughout the
period?
► Journalizing and posting the entries (Afaaq)
► 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 (Afaaq)
·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 (Afaaq)
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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
15 of the 25 units are sold
► Rs. 200
► Rs. 270 (Afaaq)
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 (Afaaq)
► 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 (Afaaq)
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 (Afaaq)
► 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? (Afaaq)
► 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
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 (Afaaq)
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
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
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. 240,000
Interest and dividend received 50,000
Proceeds from the sale of the plant assets 330,000
-------------- 620,000
Less Cash outflow
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 36,000 208,000
__________
Cash flow during the year 412,000