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FIN621- Financial Statement Analysis
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MIDTERM EXAMINATION
Spring 2010
FIN621- Financial Statement Analysis (Session - 3)
Time: 60 min
Marks: 44
Question No: 1 ( Marks: 1 ) - Please choose one
How much duration does an accounting period usually have?
► Three months
► Two years
► One year Correct
► Five years
Balance Sheet and Accounting Cycle are based on which of the following?
► Adjusting entries
► Closing entries
► Financial position
► Accounting EquationCorrect
Which of the following is the next step after the preparation of trial balance?
► Adjusted trial balance
► Financial statements
► Adjusting entriesCorrect
► Closing entries
Which of the following errors are identified during the preparation of trial balance?
► Recording transactions in the wrong account
► Duplication of a transaction in the accounting records
► Posting only the debit portion of a particular journal entryCorrect
► Recording the wrong amount for a transaction to both the accounts.
Which of the following is NOT an advantage of the Trial Balance?
► It ensures that the all accounts have identical debits and credits
► It ensures that the balance of each ledger account has been computed correctly
► The debit and the credit columns of trial balance have been added up correctly
► All the transactions have been recorded and nothing has been omittedCorrect

At the end of the fiscal year, Accounts Receivable has a balance of Rs. 100,000 and
Allowance for Doubtful Accounts has a balance of Rs. 7,000. The expected net
realizable
value of the accounts receivable is:
► Rs. 7,000
► Rs. 93,000Correct
► Rs. 100,000
► Rs. 107,000
Retained earnings change over time because of several factors. Which of the following
factors would explain an INCREASE in retained earnings?
► Net IncomeCorrect
► Dividends payment
► Investment by the stockholders
► Net Loss
Which of the following would be considered a cash-flow item from a "financing"
activity?
► A cash outflow to the government for taxes
► A cash outflow to repurchase the firm's own common stockCorrect
► A cash outflow to lenders as interest
► A cash outflow to purchase bonds isues by the other company.
'Equity dividends' shown in the cash flow statement will comprise:
► All company dividends paid during the year
► All dividends paid to voting shares in the yearCorrect

► All dividends paid and proposed in the year relating to voting shares
► All proposed dividends in the year relating to voting share.
Which of the following activities convert the income statement items from the accrual
basis of accounting to cash?
► Operating activitiesCorrect
► Investing activities
► Financing activities
► Non cash activities
The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable
and an ending balance of Rs. 15,000. The income statement reported Sales Revenue of
Rs. 200,000. Using this information
205000..correct
215000
195000
200000
Sales=200000
beginning balance=20000
total …….220000
less ending 15000
_____________
cash received from customer = 205000
Which of the following would be considered as cash flow from investing activities?
► Proceeds from issuance of long-term debt
► Expenditure for sale of plant and equipmentCorrect
► Payments to suppliers
► Receipts from sale of goods or services
CASH FLOW FROM INVESTING ACTIVITIES
Principle repayment by borrowers (note the interest receipt on the loans cash
includes in operating activities )
The sale of loan (receivable) made by the firm
The sales of assets such as debt of equity securities of other firms (other than cash
equivalent), and property, plant, and equipment
When cash flow statement is prepared by using indirect method, which part of it is
different from the direct method
► Cash flow from investing activities
► Cash flow from financing activities
► Cash flow from operating activitiesCorrect
► All parts are same in both methods

The cash flow from financing activities shows the cash effects of which of the following?
► Income statement items
► Long term assets items
► Long term liability & stockholder’s equityCorrect
► Long term liability and long term assets
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 policiesCorrect
Which one of the following is NOT an inventory costing method?
► FIFO cost method
► Weighted-average cost method
► Specific unit cost method Correct
► LIFO cost method
In a perpetual inventory system, which of the following would be debited when inventory
is sold on account?
► Cost of goods soldCorrect
► Merchandise inventory
Sales
► Both Accounts receivable & cost of goods sold(Correct)
Which of the following would affect the gross profit rate if sales remain constant?
► An increase in advertising expense
► A decrease in depreciation expense
► An increase in cost of goods sold
(Correct)
► A decrease in insurance expense
Which of the following statements best describes the nature of depreciation?
► Regular reduction of asset value to correspond to the decline in market
value as the asset ages
► A process of correlating the book value of an asset with its gradual decline
in physical efficiency
► Allocation of the cost in a manner that will ensure that plant and
equipment items are not carried on the balance sheet at amounts in excess of
net realizable value
► Allocation of the cost of a plant asset to the periods in which benefits are
received
Warner Corporation reported net income in excess of its net cash flow from
operations. A possible explanation of this difference is:
► Depreciation expense
Non operating gains(Correct)

► A decrease in income tax rates
► A decrease in accounts receivable over the period
Question No: 20( Marks: 1 ) - Please choose one
Which of the following transaction have an effect on expense account?
► Purchase of office equipment on credit
► Payment on accounts payable
► Repayment of principle of bank loan
► Payment of wages(Correct)
The supplies account has a balance of Rs. 1,500 at year end. The actual amount
of supplies in hand at the end of period is Rs. 400. The necessary adjusting entry
is:
► Debit Supplies on Hand Rs. 1100; Credit Supplies Expense Rs. 1100
► Debit Supplies Expense Rs. 400; Credit Supplies on Hand Rs. 400
► Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs.
1100(Correct)
The balance of the unearned rent account for jones co .as on dec31 is Rs.1
200. If Jones Co. failed to record the adjusting entry for Rs.600 of rent earned
during December, the effect on the Balance Sheet and Income Statement for
December will be:
► Assets understated by Rs.600; net income overstated by Rs.600

► Liabilities overstated by Rs.600; net income understated by
Rs.600(Correct)
► Liabilities understated by Rs.600; net income understated by Rs.600
► Liabilities overstated by Rs.600; net income overstated by Rs.600
A business has purchased machinery on credit, what will be its journal entry?
► Cash - (Debit); Machinery - (Credit)
► Machinery - (Debit) ; Accounts payable - (Credit) (Correct)
► Accounts payable - (Debit) ; Machinery - (Credit)
► Machinery - (Debit) ;Cash - (Credit)
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(correct)
Assuming that net purchases cost Rs 250,000 during the year. The closing
inventory was of Rs 4,000, and opening inventory was of Rs 30,000, how much
was the cost of goods sold?
► Rs. 276, 000 (Correct)
► Rs. 280,000
► Rs. 254,000
► Rs. 246,000
Question No: 26 ( Marks: 3 )

Assume that net income was Rs. 200,000, depreciation expense was Rs. 10,000,
accounts receivable increased by Rs. 15,000, and accounts payable increased
by Rs. 5,000. Calculate the cash flow from operating activities.
A.
Net Cash Flow from Operating Activities 200000Rs.
Net income200,000
Added back
Deprecation10000
Increase in account receivable(15,000)
Increase in Account payable5000
net cash flow from OP activity200,000
Same Question solved
Cash flow from operating activities= Net income- Depreciation- Increase in
A/Cs receivable- Increase in A/Cs payable
Cash flow from operating activities= 200,000-10,000-15,000-5,000
Cash flow from operating activities= =170,000 =Answer Correct
Explain how the adoptions of FIFO method rather than LIFO will tend to
raise or lower the quality of a company’s earnings? Assume the
continuance of the inflation.

Answer
During the period of inflation, prices increase. Under the FIFO method, valuation of
closing inventory is made at most recent prices or at increased prices and closing
inventory is shown at the credit side of trading & P&L account (income statement) with
increased value, as a result of which net income of the company increases because of
increase in the value of closing inventory ultimately company’s earnings increases.
Where as under the LIFO method company’s earnings decreases because of decrease in
the value of closing inventory
Nestle Pakistan has two conflicting objectives. Management wants to report
the highest possible earnings to stockholders in the near future yet also wants
to minimize the taxable income. Indicate the depreciation method that the
company will probably use in its financial statements and its federal income
tax return. Explain your answer with the reasons.
Answer
Accelerated deprecation method will increase the earnings of stockholders
and defer the tax liability to far future years and current tax liability will be
minimum in near future.
Patterson Company reported net income for the current year of Rs. 666,000.
During the year the company’s accounts receivable increased by Rs. 50,000,
inventory decreased by Rs. 23,000, accounts payable decreased by Rs. 55,000,
pre-paid expenses increased by Rs. 35,000, and accrued expenses payable

increased by Rs. 14,000. Determine the amount of cash provided by or used for
operating activities by the indirect method.
Net income 666,000
Accounts receivable increased (50,000)
MIDTERM EXAMINATION
Fall 2009
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
After recording the transactions in journal, posting is made to which of the
following?
► Trial Balance
► Financial Statements
► Ledger (Afaaq)
► After-closing Trial Balance
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 (Afaaq)
► Making the adjusting entries
Which of the following is the basic function of the Trial Balance?
► To prove the equality of debits and credits (Afaaq)
► To check the balance of all assets
► To prepare the balance sheet
► To check the validity of accounts
Afaaq_tariq@yahoo.com
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)
► Transferring the debits and credits to journal
► The recording of transactions
Which of the following results are summarized by the income statement of a
company?
► Operating results (Afaaq)
P # 24
► Economic results
► Auditing results
► Marketing results
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 (Afaaq)
Prepaid Expense is a(n) _________ account and has a _________ normal
balance.
► Revenue, credit
► Liability, credit
► Asset, debit (Afaaq)
► Expense, debit
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
Retained earnings change over time because of several factors. Which of the
following factors would explain an INCREASE in retained earnings?
► Net Income (Afaaq)
► Net Loss
The revenue account “Fees Income” is closed by which of the following entry?
► Cash – Debit; Fees Income - Credit
► Fees Income – Debit; Income Summary – Credit (Afaaq)
► Capital – Debit; Fees Income - Credit
► Income Summary – Debit; Fees Income - Credit
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 (Afaaq)
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 (Afaaq)
► The shorter of operating cycle or one year
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 (Afaaq)
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
► Amortization expense
► Gains on the sale of long-term investments (Afaaq)
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 (Afaaq)
► Cash dividends paid to shareholders
Which of the following transaction should be classified as a financing activity?
► Purchase of equipment
► Purchase of treasury stock (Afaaq)
► Sale of trademarks
► Income tax refund
Cash flow relating to investing activities does NOT present the cash effects of
which of the following?
► Plant assets
► Intangible assets
► Investments
► Debt financing (Afaaq)
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 (Afaaq)
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 (Afaaq)
► 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.
Investing activities include all of the following EXCEPT:
► Payment of debt (Afaaq)
► Collection of loans
► Making of loans
► Sale of available for sale and held to maturity securities
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 (Afaaq)
5,00,000 + 30000 = 5,30,000
► Can not be found from the given information
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 (Afaaq)
► Specific unit cost method (Afaaq)
When merchandise is purchased in a periodic inventory system, its cost is
debited to ________ account.
► Inventory
► Inventory expense
► Purchases (Afaaq)
► Cost of goods sold
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 (Afaaq)
► Debit - Merchandise Inventory; Credit - Accounts Payable
An inventory error affects ___________ accounting periods.
► Only current
► Two (Afaaq)
► Three
► Four
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 (Afaaq)
► A loss of Rs. 500 should be recognized
► No gain or loss should be recognized
Which of the following asset does NOT have a depreciation expense?
► Furniture
► Building
► Plant & equipment
► Land (Afaaq)
Which of the following is NOT an example of accelerated depreciation method?
► Straight-line method (Afaaq)
► Sum-of-the-years digit method
► Double-declining balance method
► Modified Accelerated Cost Recovery System

Accelerated depreciation method is mostly used for ____________.
► Assets valuation
► Inventory valuation
► Income tax returns (Afaaq)
Which of the following is NOT an example of deferred item?
► Depreciation
► Accounts payable (Afaaq)
► Unearned revenue
► Prepaid insurance
Assets which have NO market value are called:
► Wasting assets
► Fictitious assets (Afaaq)
► Quick assets
► Tangible assets
Which of the following accounts will be debited, when increased?
► Liabilities and expenses
► Assets and equity
► Assets and expenses (Afaaq)
► Equity and revenues
Which of the following provides the basis for the trial balance?
► Income statement
► Statement of cash flow
► Ledger (Afaaq)
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 (Afaaq)
30 – 4 +7 = 33 million
► Rs. 27 million
► Rs. 19 million
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
15 of the 25 units are sold
► Rs. 200
► Rs. 270 (Afaaq)
► Rs. 300
► Rs. 350
Which of the following balances does the Contra-Asset account show typically?
► Credit (Afaaq)
► Debit
► Negative
► Positive
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 (Afaaq)
200,000-50,000 = 150000 G P
150000-10000-20000 = 120000 net income
► Rs. 130,000
► Rs. 180,000
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?
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.
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 Expense A/C 1050
Interest Payable A/C 1050
General Entry Rs Rs
Depreciation of Office Equip.
A/C
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.
Interest Receivable on Bonds
A/C
750
Interest Income on Bonds A/C 750
General Entry Rs Rs
General Entry Rs Rs
Salary Expense A/C 2800
Salary Payable A/C 2800
MIDTERM EXAMINATION
Fall 2009
Which of the following principle deals with the valuation and recording of the assets at
cost?
► Entity Principle
► Matching Principle
► Cost Principle (Afaaq)
page 3
► Stable Currency principle
► Generally Accepted Accounting Principles (Afaaq)
► Three months
► Two years
► One year (Afaaq)
► Five years
To determine the balance of a particular account, one should refer to which of the
following?
► Ledger (Afaaq)
► Source document
► Chart of accounts
► Journal
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
► Transferring the debits and credits to ledger (Afaaq)
Page # 14

► Adjusting entries (Afaaq)
page 14
► Closing entries
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
Which of the following principle is used for recording an expense?
► Matching Principle (Afaaq)
Page 25
► Cost Principle
► Realization Principle
► Objectivity Principle
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
Prepaid Expense is a(n) _________ account and has a _________ normal balance.
► Revenue, credit
► Asset, debit (Afaaq)
► Expense, debit
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, total assets are reduced
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
Which of the following is the largest single expense of most merchandising firms?
► Cost of goods sold (Afaaq)
http://wps.prenhall.com/ca_ph_horngren_accounting_7/59/15164/3882016.cw/content/in
dex.html
► Rent Expense
► Amortization Expenses
► Salaries Expense
Which of the following is NOT among the five main kinds of current assets?
► Cash and equivalents
► Deferred income (Afaaq)
► Accounts receivable
► Prepaid expenses
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
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
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)
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)
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)
Page # 65
► Cost of Goods Sold account is decreased
► Cost of goods available for sale decreases
Which of the following feature is shown by the income statement for a merchandising
company?
► Gross profit
► A sales revenue section
► All of the given options (Afaaq)
Page # 73
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

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
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
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
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
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)
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)
Which of the following is NOT the part of annual report?
► Auditor’s report
► Five year summary
► Future investments report (Afaaq)
Page # 98
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)
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
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
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
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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q=cache:qBtmRjcH2MoJ:higheredbcs.wiley.com/legacy/college/kimmel/0470087447/sel
f_study/ch05.rtf+Which+of+the+following+items+does+NOT+result+in+an+adjustment
+in+the+merchandise+inventory+account+under+a+perpetual+system
%3F&cd=2&hl=en&ct=clnk&gl=pk
► Payment of freight costs for goods received from a supplier
► A purchase of merchandise
From the given information, calculate the Cost of Goods Sold using the weighted-
average
cost method
Beginning inventory 10 units . Rs. 10 each
► 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
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
Closing entries result in net income being calculated in the income summary account
and
then transferred to which of the following account?
► Revenue account
► Owner's Capital account (Afaaq)
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

► Why is such a profitable company able to pay only small dividends? (Afaaq)
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)
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
c Accrued revenue
revenue
Increase Decrease Increase
d Salaries
Accrued salaries
e Prepaid insurance Increase Decrease Increase
Insurance
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
MIDTERM EXAMINATION
Fall 2009
Time: 60 min
Marks: 50

► Generally Accepted Accounting Principles (Correct)
After recording the transactions in journal, posting is made to which of the
following?
► Trial Balance
► Ledger (Correct)
► Posting the entries to the ledger (Correct)
► To prove the equality of debits and credits (Correct)
► Transferring the debits and credits to ledger (Correct)

Which of the following results are summarized by the income statement of a
company?
► Operating results (Correct)
► Interest earned but not yet received (Correct)
► Revenue, credit
► Asset, debit (Correct)
► Expense, debit
Company A owns a building. Which of the following statements regarding
depreciation is FALSE from an accounting perspective?
(Correct)
► Depreciation is an estimated expense to be recorded each period during the

building’s life
Retained earnings change over time because of several factors. Which of the
following factors would explain an INCREASE in retained earnings?
► Net Income (Correct)
► Net Loss
► Fees Income – Debit; Income Summary – Credit (Correct)
► 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(Correct)
Current assets are those assets which management intends to convert into cash
or
consume within:
► One year
► The longer of operating cycle or one year(Correct)
http://www.principlesofaccounting.com/questions%20-%20%20multiple
%20choice/chapter%204%20-%20multiple%20choice.htm
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:
► Dividends declared and paid(Correct)
http://wps.prenhall.com/
ca_ph_horngren_accounting_7/60/15481/3963284.cw/conte
nt/index.html
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?
► Gains on the sale of long-term investments(Correct)

► The cash flow from share and loan issues and repayments(Correct)
► Purchase of treasury stock(Correct)
Cash flow relating to investing activities does NOT present the cash effects of
which
of the following?
► Plant assets
► Intangible assets(Correct)
► Investments
► Debt financing
flows. Select the adjustment that is added during the reconciliation.
► An increase in Accounts Payable

http://wps.prenhall.com/ca_ph_horngren_accounting_7/60/15481/3963284.cw/cont
e
nt/index.html
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
► Non-cash expenses (expenses incurred but not paid) reported on the income
statement-one example is amortization expense.
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e
nt/index.html
► Payment of debt
► Making of loans
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(500,000-30,000) Correct

► Rs. 530,000
► Retirement of long term debt Correct
When merchandise is purchased in a periodic inventory system, its cost is

debited to
________ account.
► Inventory
► Purchases Correct
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 - Office Supplies; Credit - Accounts Payable Correct
► Only current
► Two Correct
► Three
► Four
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?
► Furniture
► Building
► Land Correct
► Straight-line method Correct

► Income tax returns Correct
► Depreciation
► Accounts payable Correct
► Wasting assets Correct
► Fictitious assets
► Quick assets
► Tangible assets
► Assets and expenses Correct

► Ledger Correct

payable
decreased by Rs. 7 million. How much did the company pay in other operating
expenses?
► Rs. 41 million (30+4+7) Correct
► Rs. 33 million
► Rs. 27 million
► Rs. 19 million
Ref:
Cash payment for operating expenses= Operating expenses + Increase in pre-paid
insurance+discreased in accrued utilities
Cash payment for operating expenses = (30+4+7)
From the given information, calculate the Cost of Goods Sold using the
weightedaverage
cost method:

► Rs. 200
► Rs. 270
► Rs. 300
► Rs. 350
► Credit Correct
► Debit
► Negative
► Positive
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 (200,000-10,000-20,000-50,000) Correct
► Rs. 130,000
► Rs. 180,000
► How profitable the company’s current assets are? Correct

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.
Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550
Jan. 9, 2001 900 Rs. 9.50 8,550
Instructions:
Prepare a separate general entry to record the cost of printers, assuming that the
company uses the following methods.
FIFO method
Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550
Jan. 9, 2001 900 Rs. 9.50 8,550
Cost of sales of 1000 printers
Sale date Quantity Unit Cost Total Cost
15,2001 600 Rs. 9.25 Rs. 5,550
15,2001 400 Rs. 9.50 3,800
------------
9,350
LIFO method
Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550

Jan. 9, 2001 900 Rs. 9.50 8,550
Cost of sales of 1000 printers
15,2001 900 Rs. 9.50 8,550
15,2001 100 Rs. 9.25 Rs. 925
------------
9475
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
Interest Expense A/C 1050
Accrued interest 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.
Depreciation expense 4800
To accumulated deprecation 4800
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.
Interest Receivable on Bonds A/C 750

Interest Income on Bonds A/C 750
OR
accrued interest 750
interest income 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.
Accrued lease rent 630,000
Lease rent 630,000
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.
Salary Expense 2800
Salary Payable 2800
MIDTERM EXAMINATION
Spring 2010
Marks: 44
► Three months
► Two years
► One year Correct

► Five years
► Closing entries
► Accounting Equation Correct
► Adjusting entries Correct
► Closing entries
► Posting only the debit portion of a particular journal entry Correct
► Recording the wrong amount for a transaction to both the accounts
► All the transactions have been recorded and nothing has been omitted Correct

Cost of a building is Rs. 90,000 and its estimated useful life is 30 years. What will be the
depreciation expense of this building for one month by using straight line depreciation
method?
► Rs. 600
► Rs. 250 Correct
► Rs. 300
► Rs. 500
Ref:
90000/30 = 3000
3000/12 = 250
► Net Income Correct
► Net Loss
realizable
value of the accounts receivable is:
► Rs. 7,000
► Rs. 93,000 Correct
► Rs. 100,000
► Rs. 107,000
Ref:
A/C receivable = 100000
Less allowance doubtful 7000
______________
net realizable value a/c receivable 93000
Which of the following regarding retained earnings is FALSE ?
► Retained earnings are a component of stockholders’ equity on the balance sheet
► Retained earnings are an asset on the balance sheet Correct
activity?
► A cash outflow to repurchase the firm's own common stock Correct
► A cash outflow to purchase bonds issued by another company
http://wps.pearsoned.co.uk/ema_uk_he_wachowicz_fundfinman_12/26/6679/1709885 .
cw/content/index.html
► All dividends paid to voting shares in the year Correct
► All proposed dividends in the year relating to voting shares

► Operating activities Correct
Rs. 200,000. Using this information, compute cash collected from customers.
► Rs. 205,000 Correct
► Rs. 215,000
► Rs. 195,000
► Rs. 200,000
sales 200000
beginning balance 20000
__________
total 220000
less ending 15000
_____________
► Expenditure for sale of plant and equipment Correct
CASH FLOW FROM INVESTING ACTIVITIES
Principle repayment by borrowers (note the interest receipt on the loans cash
includes in operating activities )
The sale of loan (receivable) made by the firm
The sales of assets such as debt of equity securities of other firms (other than
cash
equivalent), and property, plant, and equipment
different from the direct method?
► Cash flow from operating activities Correct
► Long term liability & stockholder’s equity Correct

► Revenue recognition policies Correct
is sold on account?
► Cost of goods sold Correct
► Sales
► Both Accounts receivable & cost of goods sold (Correct)
► An increase in cost of goods sold (Correct)
► Regular reduction of asset value to correspond to the decline in market
value as the asset ages
received
► Non operating gains (Correct)
► Payment of wages (Correct)
is:
► Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs.
1100 (Correct)
The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1,
December will be:
► Liabilities overstated by Rs.600; net income understated by
Rs.600 (Correct)
► Machinery - (Debit) ; Accounts payable - (Credit) (Correct)
► Revenue account
► Owner's Capital account (Correct)
► Rs. 276, 000 (Correct)
► Rs. 280,000
► Rs. 254,000
► Rs. 246,000
A. Net Cash Flow from Operating Activities 200000Rs.
Net income 200,000
Added back
Deprecation 10,000
Increase in account receivable (15,000)
Increase in Account payable 5000
____________
net cash flow from OP activity 200,000
Same Question solved by Hira:
Cash flow from operating activities= =170,000 = Answer Correct
Explain how the adoptions of FIFO method rather than LIFO will tend to
raise or lower the quality of a company’s earnings? Assume the

continuance of the inflation.
Answer
During the period of inflation, prices increase. Under the FIFO method, valuation of
closing inventory is made at most recent prices or at increased prices and closing
inventory is shown at the credit side of trading & P&L account (income statement) with
increased value, as a result of which net income of the company increases because of
increase in the value of closing inventory ultimately company’s earnings increases.
Where as under the LIFO method company’s earnings decreases because of decrease
in
the value of closing inventory
Nestle Pakistan has two conflicting objectives. Management wants to report
the highest possible earnings to stockholders in the near future yet also wants
to minimize the taxable income. Indicate the depreciation method that the
company will probably use in its financial statements and its federal income
tax return. Explain your answer with the reasons.
Answer
Accelerated deprecation method will increase the earnings of stockholders
and defer the tax liability to far future years and current tax liability will be
minimum in near future.

Net income 666,000
Accounts receivable increased (50,000)
Inventory decrease d 23,000
Pre-paid expenses increased (35,000)
Accounts payable decreased (55,000)
Accrued expenses payable increased 14,000
_____________
net cash from OP activities 563,000
Alternate method
Cash flow from operating activities= Net income – Increase in A/Cs
receivable – Decrease in inventory + decrease in A/Cs payable + Increase in
per-paid expenses- Increase in accrued expenses
Cash flow from operating activities=666,000-50,000-23,000+55,000+35,000-
14,000
Cash flow from operating activities=669,000 = Answer Correct
MIDTERM EXAMINATION
Fall 2009
Three months
Two years
One year
Five years

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
To determine the balance o f a particular account, one should refer to which o f the
following ?
Ledger
Source document
Chart of accounts
Journal
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
An entry that affects more than one accounts is knows as _____________.
Journal entry
Compound entry (Correct)
Adjusting entry
Reversing entry
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 holder s 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
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 - Cred it
Depreciation expense - Debit; Accumulated depreciation - Credit
Equip ment - Debit; Depreciation expense - Cred it
Accumu lated depreciation - Debit; Depreciation expense - Credit
The trial balance shows Supplies of Rs.1,350 and Supp lies Expense o f R s.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 Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit
Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit
Which of the following accounts would NOT be included in a post-closing trial balance?
Cash
Owner’s equity
Fees earned
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
Current assets are those assets which management intends to convert into cash or
consume within:
The operating cycle
One year
The longer o f operating cycle or one year
The shorter of operating cycle o r o ne year
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
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 o f cash flows
Should not to be reported
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
Operating activities
Investing activities
Financing activities
Non cash activities
Which one o f 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
increased by Rs. 10, 000 and accounts payable increased by Rs. 15,000. The interest
Rs. 505,000
Rs. 516,000
Rs. 490,000
Rs. 495,000 Correct

The cash flow from investing activities shows the cash effects o f which of the following?
Income statement items
Long term assets item s Correct
Long term liability & stockholder’s equity
Long term liability and long term assets
Which o f the following must be included in a company's summary of significant
Description of current year equity transactions
Summary of long -term debt outstanding
Schedule of fixed assets
Revenue recognition policies Correct
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of+
+significant+accounting+policies+in+the+notes+to+the+financial+statements&hl=
en&ei=bJ7xTPPABYu9cd_ooYoK&sa=X&oi=book_result&ct=result
&resnum=3&ved=0CDIQ6AEwAg#v=onepage&q=summary%20%20of%20%20signi
ficant%20accounting%20policies%20in%20the%20notes%20to
%20the%20financial%20statements&f=false
Gross profit is:
Excess of sales over cost of goods sold Correct
Sales less Purchases
Cost o f goods sold + Opening stock
Net profit less expenses of the period
Only current
Two Correct
Three
Four
From the given data, calculate Cost of Goods Sold using the FIFO costing metho d:
Beginning inventory is 10 units @ Rs. 10 each.
Rs. 200 Correct
Rs. 150
Rs. 350
Rs. 450
Under which cost flow assumption, the ending inventory is composed of the most
recently purchased merchandise?
FIFO Correct
LIFO
Average cost
Specific identification
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 (400,000-310,000) Correct
Rs. 340,000
Rs. 400,000
Which cost flow assumption most closely matches the actual physical flow of
inventory in most retailing businesses?
FIFO
LIFO
Average cost
Specific identification Correct
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 Correct
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
Correct
Which depreciation method allocates an equal portion of depreciation expense
to each period of asset’s useful life?
Straight-line method Correct
Double-declining balance method

Sum-of-the-year digit method
Accelerated depreciation method
Sum-of-the-years digit method
Modified Accelerated Cost Recovery System
The Drawing account is closed by which of the following entry?
Capital – Debit; Drawing - Credit Correct
Drawing – Debit; Capital - Credit
Income Summary – Debit; Drawing - Crediting
Drawing – Debit; Income Summary - Crediting
Which of the following account would be classified as a current asset on the balance
sheet?
Accounts receivable Correct
Office equipment
Land
An adjusting entry would NOT be required for which of the following account?
Salaries
Past due expense Correct
Income tax expense
Accounts receivable
Liabilities and expenses
Assets and equity
Assets and expenses Correct
Equity and revenues
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 Correct
payable decreased by Rs. 7 million. How much did the company pay in other operating
expenses?
Rs. 41 million Correct
Rs. 33 million
Rs. 27 million
Rs. 19 million
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 Correct
Uses of cash in the current period

Change in the cash balance for the current period
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 Correct
Services have been performed
Cash that has already been collected
Evidence of an arrangement for customer payment exists
http://books.google.com.pk/books?id=WH95z-
MY5LEC&pg=PA159&dq=is+NOT+normally++required++for++revenue++to++be+
+recognized+according+to+the+revenue+principle+for+accrual+basis+accounting
?&hl=en&ei=-
6LxTNWDCYuPcd3lmLoK&sa=X&oi=book_result&ct=result&resnum=3&ved=0CD
AQ6AEwAg#v=onepage&q&f=false
Credit Correct
Debit
Negative
Positive
Which one of the following would lead to the decrease in the owner’s equity?
Purchasing a piece of land
Paying dividends to shareholders Correct
Purchasing equipment on account
Paying back the principal of a loan

Net cash flow from operating activities Correct
Net cash flow from investing activities
Net cash flow from financing activities
Net cash flow from non-cash transactions
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 Correct
instruments:
financing activities.
Investing activities Correct
Tax payments:
Operating activities Correct
Expenditure for purchase of other firms' equity instruments:
Payments to suppliers for goods and services:

Listed below in random order are the items to be included in the balance sheet
of the Myster y 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.
Mystery Mountain Lodge
Balance Sheet
as at December 31, 2001
Particulars Amount (Rs.)
Current Assets:
Cash 21,400
Accounts receivable 10,600
Snowmobiles 15,400
Fixed Assets:
Land 425,000
Buildings 450,000
Furnishings 58,700
Equipment 29,200
Total assets 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
Total liabilities 1,010,300
MIDTERM EXAMINATION
Spring 2010
Time: 60 min
Marks: 44
► Three months
► Two years
► One year (Afaaq)
► Five years
► Closing entries
► Accounting Equation(Afaaq)

► Adjusting entries (Afaaq)
► Closing entries
► Recording transactions in the wrong account www.vuaskari.com
► Posting only the debit portion of a particular journal entry (Afaaq)
► All the transactions have been recorded and nothing has been omitted
(Afaaq)
www.vuaskari.com
depreciation expense of this building for one month by using straight line depreciation
method?
► Rs. 600
► Rs. 250 (Afaaq)
90,000*1/360 = 250
► Rs. 300
► Rs. 500
► Net Income (Afaaq)
► Net Loss
realizable
value of the accounts receivable is: www.vuaskari.com
► Rs. 7,000
► Rs. 93,000 (Afaaq)
100,000 – 7000 = 93,000
► Rs. 100,000
► Rs. 107,000
Which of the following regarding retained earnings is FALSE ?
► Retained earnings are an asset on the balance sheet (Afaaq)

activity?
► A cash outflow to repurchase the firm's own common stock (Afaaq)
► All dividends paid to voting shares in the year (Afaaq)
► Operating activities (Afaaq)
Rs. 200,000. Using this information, compute cash collected from customers.
► Rs. 205,000 (Afaaq)
200,000+20,000-15,000 = 205000
► Rs. 215,000
► Rs. 195,000
► Rs. 200,000
► Expenditure for sale of plant and equipment (Afaaq)
different from the direct method?
► Cash flow from operating activities (Afaaq)
► Long term liability & stockholder’s equity (Afaaq)

► Revenue recognition policies (Afaaq)
► Specific unit cost method (Afaaq)
is sold on account?
► Sales
► Both Accounts receivable & cost of goods sold (Afaaq)
► An increase in cost of goods sold (Afaaq)
► Regular reduction of asset value to correspond to the decline in
market value as the asset ages (Afaaq)
received
► Non operating gains (Afaaq)
► Payment of wages (Afaaq)
is:
(Afaaq)
The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1,
December will be:
► Liabilities overstated by Rs.600; net income understated by Rs.600
(Afaaq)
► Machinery - (Debit) ; Accounts payable - (Credit) (Afaaq)
► Revenue account
► Owner's Capital account (Afaaq)
► Rs. 276, 000 (Afaaq)
250,000-4,000+30,000 = 276000
► Rs. 280,000
► Rs. 254,000
► Rs. 246,000
Explain how the adoptions of FIFO method rather than LIFO will tend to raise or
lower the quality of a company’s earnings? Assume the continuance of the
inflation.
A. During Inflation, FIFO shows less expense on income statement and
higher inventory valuation on balance sheet and values ending
inventory at current cost, whereas LIFO shows higher expenses on
income statement and lower inventory valuation on balance sheet.
Nestle Pakistan has two conflicting objectives. Management wants to report the
highest possible earnings to stockholders in the near future yet also wants to
minimize the taxable income. Indicate the depreciation method that the company
will probably use in its financial statements and its federal income tax return.
Explain your answer with the reasons.

A. We will use fixed depreciation Method
PAPER#01
Question No: 1
D Generally Accepted Accounting Principles
Question No: 2
After recording the transactions in journal, posting is made to which of the following?
► Trial Balance
D Ledger
Question No: 3
D Posting the entries to the ledger pg36
Question No: 4
D To prove the equality of debits and credits pg14
Question No: 5
D Transferring the debits and credits to ledger pg14
Question No: 6
Which of the following results are summarized by the income statement of a company?
D Operating results P # 24
Question No: 7

D Interest earned but not yet received
Question No: 8
► Revenue, credit
D Asset, debit
► Expense, debit
Question No: 9
Company A owns a building. Which of the following statements regarding depreciation is FALSE from an
accounting perspective?
D 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
Question No: 10
Retained earnings change over time because of several factors. Which of the following factors would
explain an INCREASE in retained earnings?
D Net Income
► Net Loss
Question No: 11
D Fees Income – Debit; Income Summary – Credit
Question No: 12
D Retained earnings are an asset on the balance sheet
Question No: 13
Current assets are those assets which management intends to convert into cash or consume within:
► One year
D The longer of operating cycle or one year pg43
Question No: 14
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:
D Dividends declared and paid
Question No: 15
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?
D Gains on the sale of long-term investments
Question No: 16

D The cash flow from share and loan issues and repayments
Question No: 17
D Purchase of treasury stock
Question No: 18
Cash flow relating to investing activities does NOT present the cash effects of which of the following?
► Plant assets
D Intangible assets
► Investments
► Debt financing
Question No: 19
The indirect method shows the reconciliation from net income to operating cash flows. Select the
adjustment that is added during the reconciliation.
D An increase in Accounts Payable
Question No: 20
adjustment that is subtracted during the reconciliation.
D Non-cash revenues (revenues earned but payment not yet received) reported on the income
statement
► Non-cash expenses (expenses incurred but not paid) reported on the income statement-one example is
amortization expense.
Question No: 21
D Payment of debt
► Making of loans
Question No: 22
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
D Rs. 530,000
5,00,000 + 30000 = 5,30,000
Question No: 23
D Retirement of long term debt
Question No: 24

D Specific unit cost method
Question No: 25
When merchandise is purchased in a periodic inventory system, its cost is debited to ________ account.
► Inventory
D Purchases
Question No: 26
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?
D Debit - Office Supplies; Credit - Accounts Payable
Question No: 27
► Only current
D Two
► Three
► Four
Question No: 28
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?
D A loss of Rs. 250 should be recognized

Question No: 29
► Furniture
► Building
D Land
Question No: 30
D Straight-line method
Question No: 31
D Income tax returns
Question No: 32
► Depreciation
D Accounts payable
Some deferred items for which adjusting entries would be made include:
► Prepaid rent
► Office supplies
► Depreciation
Question No: 33
► Wasting assets
D fictitious assets (correct)
► Quick assets
► Tangible assets
Question No: 34
D Assets and expenses
Question No: 35
D Ledger
Question No: 36
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
D Rs. 33 million
30 – 4 +7 = 33 million
► Rs. 27 million
► Rs. 19 million
Question No: 37
From the given information, calculate the Cost of Goods Sold using the weighted-average cost method:
► Rs. 200
D Rs. 270
► Rs. 300
► Rs. 350
Question No: 38
D Credit
► Debit
► Negative
► Positive
Question No: 39
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
D 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
► How much was spent for the new plants and

equipment? DR. CR.
Rs. Rs.
D How profitable the company’s current assets are? Cost of Printers Sold A/C 9475
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.

Dec. 12, 2000 600 Rs. 9.25 Rs. 5,550
Jan. 9, 2001 900 Rs. 9.50 8,550
Instructions:
Prepare a separate general entry to record the cost of printers, assuming that the company uses the
following methods.
• FIFO
• LIFO
Answer:
Using FIFO method:
Purchase date Quantity Unit Total

Cost Cost
Dec.12, 2000 600 Rs. 9.25 Rs. 5,550
Jan. 9, 2001 900 Rs. 9.50 8,550
Cost of sale of 1000 printers:

15,2001 600 Rs. 9.25 Rs. 5,550
15,2001 400 Rs. 9.50 3800
9350
a. FIFO (2.5)
DR. CR.
Rs. Rs.
Using LIFO method:

Cost of sale of 1000 printers:
15,2001 900 Rs. 9.50 Rs. 8,550
15,2001 100 Rs. 9.25 925
9475
b. LIFO (2.5)

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
General Entry DR Rs CR Rs
Interest Expense A/C 1050 b. Depreciation of the office
Interest Payable A/C 1050 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 4800
Accumulated dep. 4800 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 d. On December 31, an
Interest Income on Bonds A/C 750 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

Accrued lease rent 6,30,000 employees up-to-date each Friday. Since
December 31 fell on Monday, there was a
Lease rent 6,30,000 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
PAPER#02
Salary Payable A/C 2800
Question No: 1
Which of the following principle deals with the valuation and recording of the assets at cost?
► Entity Principle
► Cost Principle
► Stable Currency principle
Question No: 2
► Generally Accepted Accounting Principles
Question No: 3
► Three months
► Two years
► One year
► Five years
Question No: 4
To determine the balance of a particular account, one should refer to which of the following?
► Ledger
► Source document
► Journal
Question No: 5
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
► Transferring the debits and credits to ledger
Question No: 7
► Adjusting entries PG36
► Closing entries
Question No: 8
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
► The income statement reports revenues, expenses and liabilities
Question No: 9
► Cost Principle
► Realization Principle
► Objectivity Principle
Question No: 10
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: 12
►As depreciation is recorded, total assets are reduced
Question No: 13
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
► Rs. 2,400,000
► Rs. 1,600,000
Change in retain earning was $2,400,000($12,500,000-$10, 00,000)therefore the net income was
$3,200,000($2,400,000+$8,00,000)
Question No: 14
► Rent Expense
► Amortization Expense
► Salaries Expense
Question No: 15
Which of the following is NOT among the five main kinds of current assets?
► Cash and equivalents
► Deferred income
► Prepaid expenses
Question No: 16
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
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: 18
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: 19
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
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
Question No: 21
When using the perpetual inventory system, each time a sale is recorded the:
► Inventory account is increased
► Inventory account is decreased
► Cost of Goods Sold account is decreased
► Cost of goods available for sale decreases
Question No: 22
Which of the following feature is shown by the income statement for a merchandising company?
► Gross profit
► A sales revenue section
► All of the given options
Question No: 23
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
► It can be used to manipulate net income
► Most recent inventory costs are allocated to cost of goods sold
Question No: 24
Beginning inventory is 10 units . Rs. 10 each.
► Rs. 200
► Rs. 150
► Rs. 350
► Rs. 450
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
Question No: 25
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
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
► Rs. 420,000
Question No: 27
Question No: 28
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
► Auditor’s report
► Five year summary
► Future investments report
Question No: 30
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
► Increase in net income
► Increase in assets
► Increase in accounts receivable
► Increase in cash
Question No: 32
Which of the following steps of accounting cycle keep on occurring throughout the period?
► Journalizing and posting the entries
► Making adjusting entries for the relevant accounts
► Preparing Trial Balance
► Preparing financial statements
Question No: 33
Which one of the following items is NOT generally used in preparing a statement of cash flows?
► Comparative balance sheets
► Current income statement
► Additional information
Question No: 34
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
► Payment of freight costs for goods received from a supplier
► A purchase of merchandise
Question No: 35
Beginning inventory 10 units . Rs. 10 each
► 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
Which of the following is the most common item in adjusting entries of a merchandising business?
► Un-earned revenue
► Pre-paid expense
► Accrued revenue
Question No: 37
Closing entries result in net income being calculated in the income summary account and then transferred
to which of the following account?
► Revenue account
► Owner's Capital account
Question No: 38
► Net cash flow from financing activities
Question No: 39
Question No: 40
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
PAPER#03
Question No: 1
► Three months
► Two years
► One year
► Five years
Question No: 2
► Balance Sheet
► Statement of Owner’s Equity
► Income Statement
► Statement of Cash Flows
Question No: 3
► Ledger
► Source document
► Journal
Question No: 4
► Building - Credit; Accounts payable - Debit
► Building - Debit; Notes payable -Credit
► Building - Debit; Owner’s equity- Credit
► Building - Debit; Accounts payable - Credit
Question No: 5
► Journal entry
► Compound entry pg8
► Adjusting entry
► Reversing entry
Question No: 6
► 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
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
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: (need review)
► Supplies, Rs. 600 - Debit; Supplies Expense, Rs. 600 - Credit
► Supplies Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit
► Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit
Question No: 9
► Cash
► Accumulated depreciation
► Owner’s equity
► Fees earned
Question No: 10
► A debit balance
► A negative balance
► A credit balance
► A zero balance
Question No: 11
► One year
► The longer of operating cycle or one year pg 43
Question No: 12
► Savings deposits
► Certificates of Deposit (CDs)
► Stocks of other companies
► Money market mutual funds
Question No: 13
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
► Should not to be reported
Question No: 14
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
Which of the following activities convert the income statement items from the accrual basis of accounting
to cash?
► Operating activities
Question No: 16
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
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
The cash flow from investing activities shows the cash effects of which of the following?
► Long term liability & stockholder’s equity
Question No: 19
Which of the following must be included in a company's summary of significant accounting policies in the
notes to the financial statements?
► Revenue recognition policies
Question No: 20
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
► Only current
► Two
► Three
► Four
Question No: 22
► Rs. 200
► Rs. 150
► Rs. 350
► Rs. 450
Question No: 23
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
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
Which cost flow assumption most closely matches the actual physical flow of inventory in most retailing
businesses?
► FIFO
► LIFO
► Average cost
Question No: 26
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
Question No: 28
Which depreciation method allocates an equal portion of depreciation expense to each period of asset’s
useful life?
► Straight-line method
► Sum-of-the-year digit method
► Accelerated depreciation method
Question No: 29
► Straight-line method
Question No: 30
► Capital – Debit; Drawing - Credit
► Drawing – Debit; Capital - Credit
► Income Summary – Debit; Drawing - Crediting
► Drawing – Debit; Income Summary - Crediting
Question No: 31
Which of the following account would be classified as a current asset on the balance sheet?
► Office equipment
► Land
Question No: 32
► Salaries
► Past due expense
► Income tax expense
Question No: 33
► Assets and expenses
Question No: 34
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
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
► 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
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
► Credit
► Debit
► Negative
► Positive
Question No: 39
► Purchasing a piece of land
► Paying dividends to shareholders
► Purchasing equipment on account
► Paying back the principal of a loan
Question No: 40

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
Listed below in random order are the items to be included in the balance sheet of the Mystery Mountain
Lodge at December 31, 2001:

Requirement:

Balance Sheet as on December 31, 2001
Particulars Amount (Rs.)
Current Assets:
Cash 21,400
Snowmobiles 15,400
Fixed Assets:
Equipment 29,200
Furnishings 58,700
Buildings 450,000
Land 425,000
1,010,300
Liabilities:
Salaries Payable 33,500
Accounts Payable 54,800
Notes Payable 620,000
Capital:
Owner’s capital 290,000
1,010,300
PAPER#04
Question No: 1
► Three months
► Two years
D One year Correct
► Five years
Question No: 2
► Closing entries
D Accounting Equation
Question No: 3
D Adjusting entries PG14 Correct
► Closing entries
Question No: 4
D Posting only the debit portion of a particular journal entry
Question No: 5
D All the transactions have been recorded and nothing has been omitted
Question No: 6
depreciation expense of this building for one month by using straight line depreciation method?
► Rs. 600
D Rs. 250Correct
► Rs. 300
► Rs. 500
Ref:
Value of the building = 90000
Est. useful life = 30 years
Exp. For the month will be calculated as follows = 90000*1/30 = 3000
Question No: 7
D Net Income Correct
► Net Loss
Question No: 8
Allowance for Doubtful Accounts has a balance of Rs. 7,000. The expected net realizable value of the
accounts receivable is:
► Rs. 7,000
D Rs. 93,000 Correct
► Rs. 100,000
► Rs. 107,000
Ref:
A/C receivable = 100000
Less allowance doubtful = 70000
______________
net realizable value a/c receivable 93000
Question No: 9

D Retained earnings are an asset on the balance sheet
Question No: 10
Which of the following would be considered a cash-flow item from a "financing" activity?
D A cash outflow to repurchase the firm's own common stock
Question No: 11
D All dividends paid to voting shares in the year
Question No: 12
to cash?
D Operating activities Correct
Question No: 13
The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable and an ending
balance of Rs. 15,000. The income statement reported Sales Revenue of Rs. 200,000. Using this
information, compute cash collected from customers.
D Rs. 205,000 Correct

► Rs. 215,000
► Rs. 195,000
► Rs. 200,000
sales 200000
beginning balance 20000
total 220000
less ending 15000
Question No: 14
D Expenditure for sale of plant and equipment
Question No: 15
When cash flow statement is prepared by using indirect method, which part of it is different from the
direct method?
D Cash flow from operating activities
Question No: 16
D Long term liability & stockholder’s equity

Question No: 17
D Revenue recognition policies
Question No: 18
Question No: 19
In a perpetual inventory system, which of the following would be debited when inventory is sold on
account?
► Sales
D Both Accounts receivable & cost of goods sold
Question No: 20
D An increase in cost of goods sold
Question No: 21

► Regular reduction of asset value to correspond to the decline in market value as the asset ages
► A process of correlating the book value of an asset with its gradual decline in physical efficiency
► Allocation of the cost in a manner that will ensure that plant and equipment items are not carried on
the balance sheet at amounts in excess of net realizable value
D Allocation of the cost of a plant asset to the periods in which benefits are received
Question No: 22
Warner Corporation reported net income in excess of its net cash flow from operations. A possible
explanation of this difference is:
D Non operating gains
Question No: 23
D Payment of wages
Question No: 24
The supplies account has a balance of Rs. 1,500 at year end. The actual amount of supplies in hand at the
end of period is Rs. 400. The necessary adjusting entry is:
D Debit Supplies Expense Rs. 1100; Credit Supplies on Hand Rs.
1100
Question No: 25
The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1,200. If Jones Co. failed to
record the adjusting entry for Rs.600 of rent earned during December, the effect on the Balance Sheet
and Income Statement for December will be:
D Liabilities overstated by Rs.600; net income understated by
Rs.600
Question No: 26
D Machinery - (Debit) ; Accounts payable - (Credit)
Question No: 27
► Revenue account
D Owner's Capital account
Question No: 28
Assuming that net purchases cost Rs 250,000 during the year. The closing inventory was of Rs 4,000, and
opening inventory was of Rs 30,000, how much was the cost of goods sold?
D Rs. 276, 000
► Rs. 280,000
► Rs. 254,000
► Rs. 246,000

Assume that net income was Rs. 200,000, depreciation expense was Rs. 10,000, accounts receivable
increased by Rs. 15,000, and accounts payable increased by Rs. 5,000. Calculate the cash flow from
operating activities.
Net income 200000
Added back Deprecation Exp. 10000
Working capital change :- 210000
Increase in account receivable (15000)

(outflow so subtract)
(inflow so add)
Net Cash Flow from Operating 200000

Activities
Net income 200,000
Added back
Deprecation 10,000
Increase in account receivable (15,000)
____________
net cash flow from OP activity 200,000
Same Question solved by Hira:

Cash flow from operating activities= =170,000 =Answer Correct
Explain how the adoptions of FIFO method rather than LIFO will tend to raise or lower the quality of a
company’s earnings? Assume the continuance of the inflation.
Answer
During the period of inflation, prices increase. Under the FIFO method, valuation of closing inventory is
made at most recent prices or at increased prices and closing inventory is shown at the credit side of
trading & P&L account (income statement) with increased value, as a result of which net income of the
company increases because of increase in the value of closing inventory ultimately company’s earnings
increases. Where as under the LIFO method company’s earnings decreases because of decrease in the
value of closing inventory
Nestle Pakistan has two conflicting objectives. Management wants to report the highest possible
earnings to stockholders in the near future yet also wants to minimize the taxable income. Indicate the
depreciation method that the company will probably use in its financial statements and its federal
income tax return. Explain your answer with the reasons.
Answer
Accelerated deprecation method will increase the earnings of stockholders and defer the tax liability to
far future years and current tax liability will be minimum in near future.
During the year the company’s accounts receivable increased by Rs. 50,000, inventory decreased by Rs.
23,000, accounts payable decreased by Rs. 55,000, pre-paid expenses increased by Rs. 35,000, and
accrued expenses payable increased by Rs. 14,000. Determine the amount of cash provided by or used
for operating activities by the indirect method.
Net income 666000

Working capital change :-
Increase in account receivable (outflow so subtract) (50000)
Inventory decrease 23000
Pre-paid expenses increased (35000)
Decrease in Account payable (55000)
Accrued expenses payable increased 14000
563000
Net Cash Flow from Operating Activities
Same Question Solved BY Hira:
Cash flow from operating activities= Net income – Increase in A/Cs
receivable – Decrease in inventory + decrease in A/Cs payable + Increase in
per-paid expenses- Increase in accrued expenses
Cash flow from operating activities=666,000-50,000-23,000+55,000+35,000-
14,000
Cash flow from operating activities=669,000= Answer Correct
Q.6. what is the effect of the following on the assets, liabilities and owner equity?.MARKS 5
i. borrowed money from a bank.
ii. Returned office equipment which was previously purchased on credit and payment was not made.
iii. Sold land for cash in excess the cost price.
iv. Purchase a computer on credit.
V. payment made to a creditor.
My Answer.
Please Comment
1. Asset increased, Liability Increased .. Owner equity No Change..
2. Asset kam huwa, Liability b kam huwi.. no effect on Owner equity
3. Asset kam huwa... Asset ziyada huwa... Owner equity ziyada hui
4. Asset ziyada Huwa... Liablity Ziyada huwi... No effect on owner equity
5. Liability kam huwi,, asset kam huwa... No effect on owner's equity
Kamran says
Assets Liabilities Owner equity
Increase Increase No effect
Decrease Decrease No effect
Increase No effect Increase
Increase Increase No effect
Decrease Decrease No effect
Q#4 calculate return on investment 5 marks
Net income = 40000
Interest expense = 10000
Income tax expense = 20000
Liabilities = 150000
Common share = 150000
Retained earnings = 60000
Solution:
ROI = operating income / stockholder +liabilities *100
ROI = 70000/360000*100
ROI = 19.44%
ROI = (EBIT / Capital employed) * 100

= (40+10+20 / 150 + 150 + 60) * 100
= 70,000 / 360,000 * 100 = 19.44%

Following data is taken from the ABC Corporation.
1999 (Rs.) 2000 (Rs.)
Total assets 400,000 300,000
Total liabilities 300,000 180,000
Share capital (Rs. 10 par 100,000 90,000
Total debt 120,000 140,000
Requirement:
Calculate the following.
a) Debt ratio (2.5)
b) Debt to total asset ratio (2.5)
Debt ratio = total debt / total assets
= 120000/ 400000
= .3
Debt ratio = total debt / total assets
= 140,000/300,000
= .46
Debt to total assets ratio = total debt / total assets
= 120000/400000
= .3
Debt to total assets ratio = total debt / total assets
= 140000/300000
= .46
Using the following information, compute the dividend yield to the nearest tenth.
Income Rs. 130,000
Beginning shares outstanding 250,000
Ending shares outstanding 270,000
Current price per share Rs. 7.50
Dividend per share Rs. 1.20
Dividend yield = divi per share / market price *100

= 1.20/7.50*100
= 16%
Q.7. calculate the price earning ratio from the following. Marks.5
Net income Rs.130000
Opening shares outstanding 250000
Ending shares outstanding 270000
Current price per share Rs.2.7
Dividend price per share Rs.1.2
Price-earning ratio (P/E) = Market price/share / Earning/share
= 2.7/1.2
= 2.25
Q,3. what information do you produce from ratio than through the simple
observation of the business?. Marks.3
Answer:
Observation involves the recording of actions and is performed by either a person or some mechanical or
electronic device. Observation is less versatile than communication since some attributes of a person may
not be readily observable, such as attitudes, awareness, knowledge, intentions, and motivation.
Observation also might take longer since observers may have to wait for appropriate events to occur,
though observation using scanner data or ratio might be quicker and more cost effective.
Q.1. what do you mean by the efficiency of the business? 3 marks.
Efficiency of the business means measure how effectively the firm is using its assets. Some aspects of
activity analysis are closely related to liquidity analysis. Our focus is to attention on how effectively the
firm is managing two specific asset groups receivables and inventories- and its total assets in general.
Q7: It is observed that net income decline in this year but net sales increases frm 5 % to 7% are sales
increasing. Give reasons.
Answer:
Due to increase in net sales from 5% to 7% gross profit increase on the other hand due to tax increase
net income is decline in this year.
Q10: Why it is a big financial issue to manage company’s operating cycle.
The shorter the operating cycle, the higher the quality of current assets and the greater the efficiency of
management. In case the greater the operating cycle, the lower the quality of current assets and the
lower the efficiency of management. So it is big financial issue to manage the company’s operating cycle.
Or
In operating cycle company’s manage these issues financial issues such as :

Managing cash needs♣
Setting credit policy♣
Evaluation the level of account receivable♣
Financing receivable♣
Credit losses♣
During Inflation, FIFO shows less expense on income statement and higher inventory valuation on balance
sheet and values ending inventory at current cost, whereas LIFO shows higher expenses on income
statement and lower inventory valuation on balance sheet.
What is deferred expense? 3 marks
PAPER#05
Question No: 1
• Generally Adopted Accounting Principles

• Generally Accepted Auditing Principles
• Generally Accepted Accounting Principles pg3
• Generally Adapted American Principles
Question No: 2
A business has purchased machinery on credit, what will be its effect on cash?
• Increase in cash
• Decrease in cash
• No effect on cash
• Cannot be determined from the given information
Question No: 3
Which of the following steps of accounting cycle keep on occurring throughout the period?
• Journalizing and posting the entries

• Making adjusting entries for the relevant accounts
• Analyzing and journalizing transactions as they occur
• Preparing financial statements
Question No: 4
Adjusting entries
Closing entries
Financial position
Accounting Equation pg3
Question No: 5
Transactions are entered in the ledger account after recording in which of the following?
Trial Balance
Balance Sheet
Journal
Financial Statements
Question No: 6
The process of recording the economic effects of business transactions in a book of original entry is knows
as which of the following?
Double entry system
Debit
Journalizing
Posting
Question No: 7
A business has purchased a building on credit, how it would be recorded in
the journal?
Question No: 8
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: 9
Which of the following is TRUE regarding the entry to recognize the depreciation expenses?
It is an application of matching principle
It is a closing entry
Usually includes an offsetting credit either to cash or accounts payable
It is done only at the end of financial year
Question No: 10
Which of the following expenses would normally be classified as Other or Non-operating Expense on a
Multiple-step Income Statement?
Depreciation expense
Interest expense
Insurance expense
Salaries expense
Question No: 11
Paying dividends to shareholders
Question No: 12
Which one the following is the purpose of closing entries?
To transfer the results of operations to owner's equity
To reduce the Capital account balance to zero
To adjust the ledger account balances for providing complete and accurate figures
To close all accounts in order to make the ledger ready for next accounting period
Question No: 13
Cost of goods sold
Rent Expense
Amortization Expense
Salaries Expense
Question No: 14
The components of stockholders' equity on a balance sheet for a corporation are:
Liabilities and Capital Stock
Assets and Retained Earnings
Assets and Liabilities
Capital Stock and Retained Earnings
Question No: 15
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: 16
All company dividends paid during the year
All dividends paid to voting shares in the year
All dividends paid and proposed in the year relating to voting shares
All proposed dividends in the year relating to voting shares
Question No: 17
The balance sheet reported a beginning balance of Rs. 20,000 in Accounts
Receivable and an ending balance of Rs. 15,000. The income statement reported Sales Revenue of Rs.
200,000. Using this information, compute cash collected from customers.
Rs. 215,000
Rs. 195,000
Rs. 200,000
Rs. 205,000
Sales=200000
+ opening balance= 20000
220000
-Ending balance 15000
Cash receive from customer 205000
Question No: 18
Which of the following is NOT true about the specific identification method?
It requires a very detailed physical count
This method allows management to easily manipulate ending inventory cost

This method is very hard to use on interchangeable goods
This results in an overstated inventory account during the period of inflation
Question No: 19
In a period of rising prices, all of the following statements regarding FIFO are true EXCEPT:
The units purchased earlier in the accounting period are allocated to cost of goods sold
Reported net income is generally higher
The lower-priced unit costs are allocated to ending inventory
Assumptions are used to allocate inventory costs between cost of goods
sold and ending inventory
Question No: 20
What will be the gross margin if sales price of merchandise sold to customers is Rs. 10,000, beginning
inventory is Rs. 1,000, inventory purchases are Rs. 4,000, and cost of inventory sold is Rs. 3,000?
Rs. 2,000
Rs. 7,000
Rs. 5,000
Rs. 3000
Sales- CGS= GP
Question No: 21
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: 22
Straight-line method

Question No: 23
Which of the following is an example of the contra-asset account?
Unearned revenue
Unrecorded revenue
Question No: 24
Salaries
Past due expense
Income tax expense
Accounts receivable
Question No: 25
Depreciation
Accounts payable
Unearned revenue
Prepaid insurance
Some deferred items for which adjusting entries would be made include:
► Prepaid rent
► Office supplies
► Depreciation
Question No: 26
Which of the following account will be credited, if land is purchased on credit?
Cash
Account Receivables
Accounts Payable
Notes Payable
Question No: 27
Income statement
Statement of cash flow
Ledger
Adjusting entries
Question No: 28
Increase in net income
Increase in assets
Increase in accounts receivable
Increase in cash
There are two ways to increase the owner equity account:
Private and public capital contribution
Earning profit
Question No: 29
If the supplies in hand at the end of January are totaled Rs. 200 and the supplies on hand account before
adjustment is Rs. 450, what would be the adjustment at month-end?
Reduce supplies on hand by Rs. 200; increase supplies expense by Rs.
200
Increase supplies on hand by Rs. 200; reduce supplies expense by Rs. 200
Increase supplies on hand by Rs. 250; reduce supplies expense by Rs. 250
Reduce supplies on hand by Rs. 250; increase supplies expense by Rs. 250
Question No: 30
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
NOTES PREPARED BY KAMRAN HAIDER
Which of the following statements is not consistent with GAAP relating to asset valuation:
– Assets are originally recorded in accounting records at their cost.
– Subtracting total liabilities from total assets indicate total equity under market conditions.
– Accountants assumes that such as land, building, office supplies will be used in business operations
rather than sold current market price.
– Accountants based the valuation of assets from objective verifiable evidence rather than upon appraisal
or personal opinion.
• A transaction caused Rs. 10,000 Decrease in both Total Assets and Total Liabilities. This transaction
could have been:
– Purchase of office equipment for Rs. 10,000 cash.
– An asset with a cost of Rs. 10,000 destroyed by fire.
– Repayment of Rs. 10,000 bank loan.
– Collection of Rs. 10,000 from Accounts Receivables.
• Identify one of the following statements that is incorrect as regards net income:
– Net income is computed in the income statement, appears in the statement of owners’ equity and
increase owners’ equity in the balance sheet.
– Net income = Revenue – Expenses
– Net income is computed in the income statement, appears in the statement of owners’ equity and
it increases the amount of cash shown
in the balance sheet.
– Net income can be determined using the account balances appearing in the adjusted trial balance.
• Which of the following are based upon the realization principle and the matching principle (indicate
all correct answers).
– Adjusting Entries (Matching Principle)
– Closing Entries (Matching Principle)
– Accrual Basis of Accounting
– Measurement of Net Income under GAAP (Matching Principle)
• Which of the following explains the debit and credit rules relating to recording of
Revenues and Expenses:
– Expenses appear on the left side of the balance sheet and are recorded by debits. Revenues appear on
the right side of the balance sheet and are
recorded by credits.
– Expenses appear on the left side of the income statement and are recorded by debits. Revenues appear
on the right side of the income statement and are recorded by credits.
– The effect of revenues and expenses in the owner’s equity.
– Realization and Matching Principle.
• The entry to recognize Depreciation expenses (indicate all correct answers):
– Is an application of Matching Principle. (Correct)
– Is a closing entry.
– Usually includes an offsetting credit either to cash or to Accounts payable.
– Is an adjusting entry. (Correct)

(BOTH OPTION CORRECT)
• When a business is organized as a corporation:
– Stock holders are liable for the debt of the business only in proportion to their percentage ownership in
stock. (X)
– Stock holders do not have to pay personal income tax on dividends received because the corporation is
subject to income tax on its
earnings. (X)
– Fluctuations in the market value of outstanding shares of capital stock do not affect the amount of
stock holders’ equity shown in the balance
sheet. (Correct)
– Each stock holder has the right to bind the corporation to contracts and to make other managerial
decisions. (X)
• Moosa Corporation was organized with authorization to issue 100,000 shares
of Re. 1 par value common stock. 40,000 were issued to Moosa, the company’s founder, but at a price of
Rs. 5 per share. No other shares have yet been issued.
– Moosa owns 40% of the stock holders’ equity of the corporation. (X)
– The corporation should recognize Rs. 160,000 gain in the issuance of
these shares. (X)
– If the balance sheet includes retained earnings of Rs. 50,000, total paid
in capital amounts to Rs. 250,000. (X)
– In the balance sheet, additional paid in capital account will have Rs. 160,000 balance, regardless of
the profit earned or losses incurred since the organization was organized. (Correct)
• The statement of cash flows is designed to assist users in assessing each of the following except:
– The ability of the company to remain solvent. (X)
– In assessing the company’s profitability. (Correct)
– Major source of cash receipt during the period. (X)

– The reason why net cash flows from operating activities differ from net income. (X)
Analysis of Income Statement and Balance Sheet
- Instrument panels of a business.
- Different needs of different users (outside users & internal users) identity of user is important.
- Three broad areas: solvency, stability and profitability.
- Four techniques of Financial Statements Analysis.
1. Rupee and percentage changes: From one year to the next: year-to-year.
2. Trend Percentages also called horizontal analysis
3. Component Percentages Also called Vertical Analysis
4. Analysis by Ratios
Analysis by Ratios
• Financial Ratios are like financial temperatures.
– Inter-linkages of Income Statement and Balance Sheet items.
– Ratios to be related to some predetermined standard or industry average.
Short-term solvency Ability to meet current liabilities out of current assets.
Short-Term Solvency Ratios
Current Ratio (Normal Ratio = 2:1)
• Too high ratio may indicate that capital is not being used productively and
efficiently Calls for financial reorganization.

• Current ratio measures “general liquidity”
Quick Ratio or Acid-Test Ratio (Normal Ratio = 1:1)
• Inventories and pre-paid expenses are excluded from current assets.
• Only cash, marketable securities and Receivables (called Quick Assets) are considered
• Quick ratio measures “immediate liquidity”.
Working Capital
• Difference of Current Assets and Current Liabilities.
• It depends upon size and nature of business.
• Two companies with same working capital but different current ratios.
• Two companies with same current ratio but different working capital.
Quality of Working Capital
• Liquidity of Inventory
• Inventory Turnover Ratio
• Days required to sell inventory
The higher the rate, the more quickly the company sells its inventory. However, companies selling high
markup items e.g. Jewelry Stores.
Liquidity of Receivables
Receivable Turnover Ratio (RTO): Number of times

“Receivables” are converted into cash during the year
- Ideally RTO = Net Credit Sales
Monthly Average of Receivables
The higher the RTO, the more liquid the company’s
Receivables
Analysis by Long-Term Creditors
• Solvency: Ability to meet outside liabilities from total assets.
• Indicators:- Long-term Solvency Ratios
Debt Ratio: Indicates percentage of total assets financed by debt =
Total Outside Liabilities
Total assets
Return on Common Stockholder’s equity =
Net income applicable to common stock x 100
Common stockholder’s equity
• EPS applied to common stock. Preferred shares have fixed dividends
Price-earning ratio (P/E) = Market Price/Share
Earning/Share
Dividend Yield = Dividend per share x 100
Market price per share
- Dividend Coverage Ratio (Normal Ratio: 5 to 10)
= Net Income .
Annual Preferred Dividend

Indicators of Profitability
Return on total assets = Operating Income x 100
Total Assets
Return on investment = Operating income
(ROI) Stockholders equity + fixed liabilities
Return on Sales = Net income x 100
Net sales
Assets turn over ratio = Net Sales = 50%
Average Assets
Assets turn over ratio shows relative effectiveness of assets utilization
Operating cycle = Inventory sale days (average) + Receivable Collection days (average).
The shorter the operating cycle, the higher the quality of current assets and the greater the efficiency of
management.
Total legal capital = preferred + common
Total paid-in-capital = Total legal capital + additional paid-in-capital
Book value per common share = Common stock equity / Total common share
2. Why businesses record Land at its original cost, even though its of much more value then its cost. Give
reasons. 3marks
3. Do inventory valuation methods affect profitability of the company? Give examples 3marks
4. how LIFO method help in tax saving?
5. and last one is from NET CASH FLOW
1.Which of the following is NOT true about the net income?

►It is a calculated figure and represents actual cash
2.After the closing entries are posted to the ledger, each expense account will have?
►A zero balance REFERENCE:
3.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?
►Investments
4.Which of the following activities convert the income statement items from the accrual basis of
accounting to cash?
5. Which depreciation method allocates an equal portion of depreciation expense to each period of
asset’s useful life?
►Straight-line method
6.The users of a statement of cash flows are mostly interested in:
►Net cash flow from operating activities

7.Which one of the following is the second step in the accounting cycle?
► Posting the entries to the ledger
8.Which of the following is the basic function of the Trial Balance?

► To prove the equality of debits and credits
9.Cash flow relating to investing activities does NOT present the cash effects of which of the following?
► Intangible assets
10.Which of the following is the next step after the preparation of trial balance?
11.Which of the following statements best describes the nature of depreciation?
► Allocation of the cost of a plant asset to the periods in which benefits are received
12.Which of the following is TRUE regarding the entry to recognize the depreciation expenses?
► It is done only at the end of financial year
13.Which of the following is NOT true about the specific identification method?
► This results in an overstated inventory account during the period of inflation
14.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
15.Which of the following items is included in the financing activities section of the statement of cash
flows?
Cash effects of transactions obtaining resources from owners and providing them with a return on their
investment
16.Which of the following is added in the net income while preparing cash flow statement by indirect
method?
Decrease in accrued expenses payable
17.Which of the following is NOT among the five main kinds of current assets?
D Deferred income
18.When using the perpetual inventory system, each time a sale is recorded the:
D Inventory account is decreased
19.Which of the following is the most common item in adjusting entries of a merchandising business?
D Depreciation expense
20.Which of the following statements is CORRECT regarding depreciation methods?
D The use of an accelerated depreciation method causes an asset to wear out more quickly than does
the straight line method
21. Using the following information calculate Net Income: Sales Revenue Rs.200, 000, Loss on Sale of
D Rs. 120,000
200- 50= GP is 150
150- 10 - 20 = net income 120

The following cases relate to the valuation of assets. Consider each case independently
a. World Wide Travel Agency has office supplies costing Rs. 1,700 on hand at the balance sheet date.
These supplies were purchased from a supplier that does not give cash refunds. World Wide’s
management believes that the company could sell these suppliers for no more than Rs. 500 if it were to
advertise them for sale. However, the company expects to use these supplies and to purchase more when
they are gone. In its balance sheet, the supplies were valued at Rs. 500.
Answer
Cost or net realizable value which ever is less. Office supplies are current asset which should be shown at
cost or market price/ net realizable value which ever is less.
b. Nofford Corporation purchased land in 1995 for Rs. 20,000. In 2001, it purchased a similar parcel of
land for Rs. 30,000. In its 2001 balance sheet, the company presented these two parcels of land at a
combined amount of Rs. 320,000.
ANSWER
Historical cost principle has been violated by the company which depicts that all fixed assets must be
shown at purchase price/cost price less deprecation in the balance sheet.
c. At December 30, 2001, Lenier, Inc., purchased a computer system from a mailorder supplier for Rs.
14,000. The retail value of the system according to the mailorder supplier was Rs. 20,000. On January 7,
however, the system was stolen during a burglary. In its December 31, 2001, balance sheet, Lineir showed
this computer system at Rs. 14,000 and made no r eference to its retail value or to the burglary. The
December balance sheet was issued in February of 2002.
Answer
The computer system was purchased on Dec 30, 2001 and balance sheet was prepared on DEC 31, 2001
which shows the financial position as at Dec 31, 2001. The system was stolen on January 7, 2002 which
will not be reflected in the balance sheet as on Dec 31, 2001. System will be shown at cost price i.e.
Rs.14000 because this is the purchase price of the computer system.
Requirement:
In each case, indicate the appropriate balance sheet amount of the asset under generally accepted
accounting principles. If the amount assigned by the company is incorrect, briefly explain the accounting
principles that have been violated.

A. During Inflation, FIFO shows less expense on income statement and higher inventory valuation
on balance sheet and values ending inventory at current cost, whereas LIFO shows higher
expenses on income statement and lower inventory valuation on balance sheet.
What is deferred expense? 3 marks
CURRENT PAPER OF FIN-621 DATED 12-05-2011
QUESTION:
What is the difference between expense and expenditure? (3)
Question:
What is the principle advantage of using direct method of cash flow statement? (3)
Question:
Why should company prefer to use LIFO instead of FIFO?
QUESTION:
Complete the table :
sales Beginning inventory Net purchases Ending inventory Cost of good sold Gross profit Operating
expenses Net income
300,000 95,000 130,000 44000 ? 119,000 90000 ?
600,000 90,000 340,000 ? 330,000 ? ? 25000
Question:
Classify the following activities as cash flow from operating, investing and financing activities
1.proceed from issuing shares

2.interest received on loans
3.repayment of debt principal,capital lease
4.loans made and acquired of other firm’s debt
5.divinded received from scurities.
PAPER#06
Question No: 1
Which of the following statement shows the revenues and expenses of the business?
Balance Sheet
Income Statement
Question No: 2
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
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
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
Matching Principle
Cost Principle
Realization Principle
Objectivity Principle
Question No: 6
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
Salary payable Rs. 10,000 - Debit; Salary expense Rs. 10,000 - Credit
Question No: 7
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 Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit
Question No: 8
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
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(Pg73)
Question No: 10
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
ABC Company 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. 285000
Rs. 235,000
Rs. 210,000
Question No: 12
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?
Gains on the sale of long-term investments

Losses on the sale of long-term investments
Amortization expense
Question No: 13
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
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
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
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
direct method?
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

Long term assets items
Question No: 19
Sale of land for cash

Issuance of long term bonds
The sale of common stock
Retirement of long term debt
Question No: 20
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
An inventory error affects ____ accounting periods.
Only current
Two
Three
Four
Question No: 22
Rs. 200
Rs. 150
Rs. 350
Rs. 450
Question No: 23
businesses?
FIFO
LIFO
Average cost
Question No: 24
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
Which of the following is NOT affected by the adjusting entries?
Balance sheet
Income statement
Work Sheet
Ledger
Question No: 26
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
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
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
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
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
period?
Rent expense
Revenue earned
Wages expense
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
Furnishings 58,700
Salaries payable 33,500
Snowmobiles 15,400
Notes payable 620,000
Requirement:

Balance sheet
As at Dec 31,2001
ASSETS RS. LIABILITIES RS.
Land 425000 Owner’s 290000

capital
Building 450000 current

liabilities
Furnishings 58700 account 54800

payable
Equipment 29200 salaries 33500

payable
Current interest 12000

assets payable
Cash 21400 notes payable 620000
A/R 10600
Snow 15400
mobiles
TOTAL 1010300 TOTAL 1010300
Fin 621 Quiz solved
Question # 1 of 15 ( Start time: 03:06:44 PM ) Total Marks: 1
Which of the following is NOT the part of the stockholder’s equity?
Select correct option:

1. Paid-in-Capital
2. Additional Paid-in-Capital
3. Gross profit
4. Retained Earnings
Which of the following would NOT represent the cash outflows for the business?
1. Purchase of building for cash
2. The sale of land for cash
3. Retirement of long term debt
4. The payment of cash for dividends
Which of the following statement is NOT true?
1. Financial statements may be prepared soon after the adjusted trail balance
2. The owner’s equity is not up to the date until the closing entries are posted
3. Adjusting entries are prepared before the financial statements are prepared
4. In the accounting cycle, closing entries are made before the adjusting entries page#36
1. The operating cycle
2. One year
3. The longer of operating cycle or one year

4. The shorter of operating cycle or one year
Adjusting entries are required for which of the following accounts?
1. Income Summary accounts
2. Revenue and expense accounts
3. All types of accounts
4. Assets and liabilities accounts
Which of the following is the proper journal entry to record Ransom Company's billing of clients for Rs.
500 of services rendered?
1. Debit Cash 500; Credit Accounts Receivable 500
2. Debit Accounts Receivable 500; Service Revenue 500
3. Debit Accounts Receivable 500; Credit Capital Stock 500
4. Cash 500; Credit Service Revenue 500
How many types of audit certificate are there?
1. Two
2. Three
3. Four
4. Five
Inventory accounts should be classified in which section of a balance sheet?
1. Current assets
2. Investments
3. Property, plant, and equipment
4. Intangible assets
Which of the following is not true about the “Account”?
1. Accounts are only prepared by the business entities
2. Account always reflects the amount of the single transaction only
3. Account is effected both by economic and non economic events
4. All of the given options
In simple words book value would be the amount of money that a holder of a common share would get if
a company were to:
1. Consolidate
2. Merged with another company
3. Acquired by another company
4. Liquidate

1. Financial statements
2. Auditor’s report
3. Five year summary
4. Future investments report
with a fair value of Rs. 625. The exchange has commercial
substance. How much is the gain or loss on this transaction?
1. A gain of Rs. 250 should be recognized
2. A loss of Rs. 250 should be recognized
4. No gain or loss should be recognized.
Which of the following is NOT a financial asset?
1. Marketable securities
2. Receivables
3. Inventory
4. Short-term investments
The basic purpose of financial statements is to assist users in evaluating the________

1. Financial position
2. Profitability of an organization
3. Future prospects
Question # 15 Total Marks: 1
Retained earnings will change over time because of several factors. Which of the following factors would
explain an increase in retained earnings?
1. Net loss
2. Net income
3. Dividends
4. Investments by stockholders
1.If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:
A. . understatement of net income for the year by $7,500

B. . understatement of cost of merchandise sold for the year by $7,500
C. . overstatement of merchandise inventory for the year by $7,500
D. . overstatement of gross profit for the year by $7,500
2.The balance sheet contains the same major headings as appear in the accounting equation.
A. . False
B. . True
3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the
a amount of net income or net loss would be:
A. . $37,500 net loss
B. . $2,500 net loss
C. . $7,500 net income
D. . $45,000 net income

4. If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to
record depreciation would be:
A. . debit depreciation expense, $2,000; credit accumulated depreciation, $2,000
B. . debit equipment, $2,000; credit depreciation expense, $2,000
C. . debit depreciation expense, $$2,000; credit equipment, $2,000
D. . debit accumulated depreciation, $2,000; credit depreciation expense, $2,000
5. Liabilities result from some future transaction.
A. . False
B. . True
6. All calendar years are also fiscal years, but not all fiscal years are calendar years.
A. . True
B. . False
7. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted
from, gross sales.
A. . True
B. . False
8. The post-closing trial balance may contain revenue and expense accounts.
A. . True
B. . False
9. Overstated ending inventory results in an overstatement of cost of goods sold and an

understatement of gross profit and net income.
A. . True
B. . False
10. All accounting systems currently in use are computerized.
A. . False
B. . True
11. In a period of rising prices, FIFO results in the lowest cost of goods sold.
A. . True
B. .False
12. If all of the adjusting entries are not made, the financial statements are incorrect.
A. . False
B. . True
13. Which of the following entries closes the owner's drawing account at the end of the period.
A. . debit the owner's capital account, credit the drawing account
B. . debit the income summary account, credit the drawing account
C. . debit the drawing account, credit the owner's capital account
D. . debit the drawing account, credit income summary account
14. Which of the following accounts would not be included in a post-closing trial balance.
A. . fees earned
B. . accumulated depreciation
C. . cash
D. . owner's equity
15. Which of the following is an example of an intangible asset.
A. . Patents
B. . all possible answers
C. . copyrights
D. . goodwill
16. If total assets increased $20,000 during a period and total liabilities increased $12,000 during the
same period, the amount and direction (increase or decrease) of the change in owner's equity for that
period is:
A. . an $8,000 decrease
B. . an $8,000 increase
C. . a $32,000 increase
D. . a $32,000 decrease
17. The following units of a particular item were available for sale during the period:
Beginning inventory 40 units at $20
First purchase 50 units at $21
Second purchase 50 units at $22
Third purchase 50 units at $23
What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic
inventory system by the FIFO costing method.
A. . $20
B. . $23
C. . $21
D. . $22
18. The Unearned Fees account is a revenue account.
A. . True
B. . False
19. The accumulated depreciation account is an asset account that shows the amount of depreciation
for the current year only.
A. . True
B. . False
20. At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for
Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable
is:
A. . $107,000
B. . $7,000
C. . $93,000
D. . $100,000
21. The percentage-of-sales method estimates the uncollectible accounts from the ending balance in
accounts receivable.
A. . True
B. . False
22. An example of an accelerated depreciation method is:
A. . Units-of-production
B. . Straight-line
C. . Depletion
D. . Declining-balance
23. The three forms business organizations are single proprietorship, partnership, and trust
A. . False
B. . True
24. Current Liabilities are classified as clearly determinable, estimated and contingent.
A. . False
B. . True
25. The type of account with a normal credit balance is:
A. . drawing
B. . a revenue
C. . an asset
D. . an expense
26. Which of the following expenses would normally be classified as Other or Non Operating expense
on a multiple-step income statement.
A. . interest expense
B. . insurance expense
C. . depreciation expense - office equipment
D. . sales salaries expense
27. The following units of a particular item were purchased and sold during the period:
First sale 110 units
Second sale 45 units
What is the cost of the 35 units on hand at the end of the period as determined under the perpetual
inventory system by the LIFO costing method.
A. . $715
B. . $705
C. . $700
D. . $805
28. Which of the following accounts would not be closed to the income summary account at the end of
a period.
A. . fees earned
B. . rent expense
C. . wages expense
D. . accumulated depreciation
29. Revenues, liabilities and equity accounts are increased by debits.
A. . False
B. . True
30. Under the allowance method, uncollectible accounts expense is recognized when a specific
customer's account is written off.
A. . True
B. . False
31. If the trial balance has equal debit and credit totals, it cannot contain any errors.
A. . True
B. . False
32. The left side of any account is the credit side.
A. . False
B. . True
33. The purpose of depreciation accounting is to provide the case required to replace plant assets.
A. . True
B. . False
34. The income statement shows the profitability of the company and is dated as of a particular date,
such as December 31, 2010.
A. . True
B. . False
35. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5.
A. . November 4
B. . October 31
C. . November 3
D. . November 2
36. Which of the following accounts would be classified as a current asset on the balance sheet.
A. . accumulated depreciation
B. . accounts receivable
C. . office equipment
D. . land
37. Purchase discounts and purchase returns and allowances are recorded in contra accounts to the
purchases account.
A. . True
B. . False
38. A transaction must be journalized in the journal before it can be posted to the ledger accounts.
A. . False
B. . True
39. A multi-step income statement consists of only two categories of items, revenues and expenses
A. . True
B. . False
40. If the equipment account has a balance of
$22,500 and its accumulated depreciation account has a balance of $14,000, the book value of the
equipment is:
A. . $36,500
B. . $14,000
C. . $22,500
D. . $8,500
41. A debit may signify:
A. . an increase in an asset account
B. . a decrease in an asset account
C. . an increase in a liability account
D. . an increase in the owner's capital account
42. A payment of cash for the purchases of services should be recorded in the:
A. . cash receipts journals
B. . revenue journal
C. . purchases journal
D. . cash payments journal

43. After the closing process is complete, no balance can exist in any revenue, expense, or income
summary account.
A. . True
B. . False
44. Which of the following items represents a deferral.
A. . fees earned
C. . wages payable
D. . prepaid insurance
45. The inventory costing method that is based on the assumption that costs should be charged
against revenue in the order in which they were incurred is:
A. . perpetual inventory
B. . average cost
C. . FIFO
D. . LIFO
46. The resources owned by a business are called:
A. . The accounting Equation
B. . Owner's Equity
C. . Assets
D. . Liabilities
47. A listing of a business entity's assets, liabilities, and owner's equity as of a specific date is:
A. . a statement of cash flows
B. . a statement of owner's equity
C. . a balance sheet
D. . an income statement
48. The policies and procedures used by management to protect assets from misuse, ensure accurate
business information, and ensure compliance with laws and regulations re called:
A. . systems analysis
B. . systems implementation
C. . internal controls
D. . systems design
49. If merchandise purchased on account is returned, the buyer may inform the seller of the details by
issuing:
A. . a credit memorandum
B. . a bill
C. . an invoice
D. . a debit memorandum
50. The amounts in the Adjustments columns are always added to the amounts in the Trial Balance
columns to determine the amounts in the Adjusted Trial Balance columns.
A. . True
B. . False
51. A debit balance in which of the following accounts would indicate a likely error.
A. . miscellaneous expense
B. . cash
C. . fees earned
D. . accounts receivable
52. What is the maturity value of a 90-day, 12% note for $10,000.
A. . $10,300
B. . $10,000
C. . $8,800
D. . $11,200
53. The form listing the titles and balances of the accounts in the ledger on a given date is the:
A. . balance sheet
B. . income statement
C. . trial balance
D. . statement of owner's equity
54. When a note receivable is dishonored, Accounts receivable is debited for what amount.
A. . the face value of the note
B. . the maturity value of the note plus accrued interest
C. . the maturity value of the note
D. . the maturity value of the note less accrued interest
55. Depreciation is the process of valuation of an asset to arrive at its market value.
A. . True
B. . False
56. All of the steps in the accounting cycle are performed only at the end of the accounting period.
A. . False
B. . True
57. On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is
called:
A. . income from operations

B. . net income
C. . operating income
D. . gross profit
58. When there are a large number of individual accounts with a common characteristic, it is common
to place them in a separate ledger called:
A. . a creditors ledger
B. . an accounts payable ledger
C. . an accounts receivable ledger
D. . a subsidiary ledger
59. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30,
and the seller prepays $50 in transportation costs, the amount of the discount for early payment would
be:
A. . $0
B. . $10.00
C. . $10.50
D. . $5.00
60. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of
costing that will yield the highest net income is:
A. . FIFO
B. . periodic
C. . LIFO
D. . average
61. The balance on the unearned rent account for Jones Co. as of 12/31 is $1,200. If Jones Co. failed to
record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and
income statement for December is:
A. . liabilities overstated $600; net income understated $600
B. . liabilities overstated $600; net income overstated $600
C. . liabilities understated $600; net income understated $600
D. . assets understated $600; net income overstated $600
62. A petty cash fund is:
A. . All of the proposed answers
B. . used to pay relatively small amounts
C. . established by estimating the amount of cash needed for disbursement of relatively small
amounts during a specified period
D. . reimbursed when the amount of money in the fund is reduced to a predetermined minimum
amount
63. Under perpetual procedure, cost of goods sold is determined as a result of the closing entries
made at the end of the period.
A. . True
B. . False
64. At the end of the accounting period, three trial balances are prepared.
A. . True
B. . False
65. The statement of equity shows both the net income for the period and the beginning and ending
balances of equity.
A. . True
B. . False
66. If a net loss occurs, it appears in the Income Statement credit column and Balance Sheet debit
column.
A. . True
B. . False
67. Which of the following accounts in the adjusted trial balance columns of the work sheet would be
extended to the balance sheet columns:
A. . Rent revenue
B. . Miscellaneous expense
C. . Utilities expense
D. . Owner Drawing
68. At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance
of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of
uncollectible accounts determined by aging the receivables is $8,500, the amount of uncollectible
accounts expense is:
A. . $2,500
B. . $11,000
C. . $6,000
D. . $8,500
69. The income statement in which the total of all expenses is deducted from the total of all revenues
is terms:
A. . multiple-step form
B. . single-step form
C. . report form
D. . account form
70. Under Lower of Cost or Market, inventory is written down to market value when the market value
is less than the cost, and inventory is written up to market value when the market value is greater than
the cost.
A. . False
B. . True
71. A profit making business operating as a separate legal entity and in which ownership is divided into
shares of stock is known as a:
A. . Proprietorship
B. . Corporation
C. . Service Business
D. . Partnership
72. The three most common types of business activity are service, merchandising, and manufacturing.
A. . True
B. . False
73. In taking a physical inventory, consigned goods are usually not included in the ending inventory,
but merchandise in transit is included.
A. . True
B. . False
74. Every adjusting entry affects at lease one income statement account and one balance sheet
account.
A. . True
B. . False
75. A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is:
A. . $4,900
B. . $5,000
C. . $5,600
D. . $5,100
76. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each
purchase and credited for each sale.
A. . False
B. . True
77. If the supplies account (asset), before adjustment on May 31, indicated a balance of $2,250, and
supplies on hand at May 31 totaled $950, the adjusting entry would be:
A. . debit supplies, $950; credit supplies expense, $950
B. . debit supplies, $1,300; credit supplies expense, $1,300
C. . debit supplies expense, $1,300; credit supplies, $1,300
D. . debit supplies expense, $950; credit supplies, $950
78. The receipt of cash from customers in payment of their accounts would be recorded by a:
A. . debit to cash; credit to accounts receivable
B. . debit to accounts receivable; credit to cash
C. . debit to accounts payable; credit to cash
D. . debit to cash; credit to accounts payable
79. Which of the following expenditures incurred in connection with acquiring machinery is a proper
charge to the asset account.
A. . Neither one
B. . Installation costs
C. . Freight
D. . Both
80. The purchase price of land includes its purchase price and other related costs, including the cost of
removing an old unusable building that is on the land.
A. . True
B. . False
Which of the following is TRUE about both sides of the trial balance?
Both sides are always positive

Both sides are negative
Both sides are equal
Both sides are not linked which each other
Adjusting entries are used to:
:
Bring account balances up to date at year end
Close temporary accounts at year end
Close permanent accounts at year end
Bring account balances at zero
Financial statements may be prepared soon after the adjusted trail balance
The owner’s equity is not up to the date until the closing entries are posted
Adjusting entries are prepared before the financial statements are prepared
In the accounting cycle, closing entries are made before the adjusting entries
Which of the following is the second name for the journal?
Book of default entries

Book of original entries
Book of detailed entries
Book of annual entries
Which of the following represents the negative future cash flows for an enterprise?
Assets
Owner’s equity
Liabilities
Capital
The definition of cash as used in “Cash Flow Statements” includes:
Only cash balances

Only bank balances
Bank balances and bank overdrafts
Cash in hand plus bank balances less bank overdrafts
Accounting is called the “language of business” because__________:
It communicates the financial information to the Management only

In order to run a business one must have knowledge about accounting
Different business accounts are involved in financial statements
It helps to organize and communicate financial information to end users

Summary of long-term debt outstanding
Revenue recognition policies
Generally speaking, investors want to buy shares at which of the following price?
At face value
Below face value
Above face value
At market value
The true and fair presentation of the financial statements depends, among other things, upon which of
the following?
Strong financial position

Concept of materiality
Matching principle
Realization principle
Which of the following explains the debit and credit rules relating to recording revenues and expenses?
Realization and matching principle

The effect of revenues and expenses in the owner’s equity
Expenses appear on the left side of the income statement
Liabilities are recorded as debit on the balance sheet
Net current assets are equivalent to:
Stock plus debtors plus cash

Current liabilities less current assets
Working capital
Fixed assets plus current assets less current liabilities
Which of the following is NOT an example of cash equivalents?
Certificates of Deposit
Money market accounts
Euro Bond
Which of the following principle provides the definite and factual basis for assets valuation?
Stable Currency principle

Matching Principle
Cost Principle
Which of the following principle states that the assets are purchased for the use and not for resale
purpose?

Going-concern principle
Cost Principle
For purpose of measuring business income, the life of a business is divided into which of the following?
Divided into specific points in time

Divided into irregular cycles
Divided into discrete accounting periods
Considered to be a continuous cycle
End product of the accounting cycle is known as the__________
Tax return
Financial statements
Auditor’s annual report
Annual general meeting
According to _____ the personal expenses paid by Mr. A from his own pocket would not be recorded in
business books of account.
Separate entity principle
Matching principle
Materiality principle
The operating cycle

One year
The longer of operating cycle or one year
The shorter of operating cycle or one year
Identify the statement that is NOT true about the Incomes Account and Expenses Account:
These are the temporary accounts

These are closed in Income summery account
These may included in closing trial balance
These are also known as Nominal Accounts
Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following
reasons?
Decreased cash flows from higher taxes

Increased cash flows from lower taxes
Increased cash flows from higher taxes
Decreased cash flows from lower taxes
Which one of the following remains intact and unaffected by the continuous changes in business?
Capital Stock
Assets
Liabilities
Retained Earnings (not sure)
Debit Cash 500; Credit Accounts Receivable 500
Debit Accounts Receivable 500; Service Revenue 500
Debit Accounts Receivable 500; Credit Capital Stock 500
Cash 500; Credit Service Revenue 500
If a company needs extra funds then it is allowed by the Companies Ordinance 1984 to issue shares at:
Face value
On discount
On premium
Both at face value and at discount
Statement of cash flows helps the investors and other stake holders to assess:
The ability to generate future cash flows

The liquidity of the business
Ability to pay cash dividends in the future
All of the given options
Paid-in-Capital
Additional Paid-in-Capital
Gross profit
Retained Earnings
Which of the following is the second name for the journal?
Book of default entries

Book of original entries
Book of detailed entries
Book of annual entries
Which of the following items are 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
How many basic types of adjusting entries are there?
Two types
Three types
Four types
Ten types
There are five main kinds of current assets. Which of the following is NOT among them?
Cash and equivalents

Deferred income
Accounts receivable
Prepaid expenses
Which of the following is NOT true about depreciation?

Depreciation causes perpetual and gradual fall in the value of asset
Depreciation does not depend upon on fluctuations in the market value of asset
Depreciation is a charged in case of fixed assets only
Depreciation is a charge against revenue of two or more accounting periods
Which of the following would be affected by the difference between revenues and expenses?
Assets
Owner’s equity
Liabilities
Capital
Cost of goods sold

Rent Expense
Salaries Expense
When dividends are declared by a corporation's board of directors, what will be its journal entry on the
declaration date?
Debit Dividends payable; Credit Retained Earnings

Debit Retained Earnings; Credit Cash
Debit Retained Earnings; Credit Dividends Payable
Debit Cash; Credit Retained Earnings
Which of the following is TRUE regarding the entry to recognize the depreciation expense?
It is an application of matching principle

It is a closing entry
Usually includes an offsetting credit to cash
It is done only at the end of each month

Summary of long-term debt outstanding
Revenue recognition policies
According to the statement of cash flows; following are the examples of investing activities except:
Sales of machinery
Capital invested by the owners
Purchase of building for the business use
Cash received from the disposal of equipment

Allocate the original cost of a productive asset to expense over its useful life

period?
Rent expense
Revenue earned
Wages expense
Which of the following explains the debit and credit rules relating to recording revenues and expenses?

Capital – Debit; Drawing - Credit

Which of the following would NOT be the characteristics of current assets?
Likely to change before the next accounting period is over

Not bought for resale
Use as part of the firm's trading operations
Liquidity
Which of the following is NOT one of the three items required to be shown in the heading of a financial
statement?
The preparation date of the financial statement

The title of the financial statement
The unit of measure in the financial statement
The name of the business entity
The percentage change is computed by dividing the amount of the dollar change between years and
which of the follwing amount?
The base year

The current year
The average of past ten years
The average of past five year
Which of the following expenses would normally be classified as Other or Non Operating Expense on a
multiple-step income statement?
Interest expense
Insurance expense
Salaries expense
What will be the affect of dividends paid on the book value of a company?
Increase
Decrease
No effect
Depends upon the situation
All of the following accounts would be closed in Income Summery Account EXCEPT:
Commission earned account

Prepaid insurance
Salaries Expense account
Wages account
Question # 1
Which of the following section of cash flow statement shows the cash effects of those transactions
reported in the income statement?
All parts show effects of different transactions of income statement
Question # 2
If we take goods for own use we should:
Debit - Drawings Account: Credit - Purchases Account
Debit - Drawings Account: Credit - Stock Account
Debit - Purchases Account: Credit - Drawings Account
Debit - Sales Account: Credit - Stock Account
Question # 3
The income statement of the UBL shows the interest revenue of Rs. 6,000, and the amount of accrued
interest receivable has increased from Rs. 3000 to Rs. 4000 during the year. Calculate the amount of
interest received.
RS. 7000
Rs. 5000
Rs. 8000
Rs. 1000
Question # 4
Question # 5
Net current assets are equivalent to:
Stock plus debtors plus cash
Current liabilities less current assets
Working capital
Fixed assets plus current assets less current liabilities
Working capital= Current assets minus current liabilities.
Question # 6

Page 1 In the case of the business entity, accounting would deal with measuring, recording and
communicating the results of business activities. That is why; Accounting is often called “Language of
Business”.
Question # 7
In which of the following account, a credit balance would be an evidence for a mistake or an error?
Mr. A Capital Account
Cash account
Notes payable account page 6
Drawings account
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
The accounting process or cycle has the following five steps.
1. Identifying the financial transaction 2. Recording Of Financial Transactions 3. Classifying Financial
Transactions 4. Summarizing Financial Transactions 5. Communicating the Results of Business
Question # 8
A company purchased the land in exchange for the capital stock; it would affect which of the following?
It would not affect any section
Question # 9
Primary purpose of the cash flows statement is to provide the information about:
Errors or discrepancies between cash book and income statement
Receipts and payments of cash in the period
Non cash adjustment that effect the income statement
Cash paid to the customers and creditors of the business
A primary purpose and objective of cash flow statement is to provide information about the cash receipts
and cash payments of a business entity for the accounting period covered by the income statement.
Question # 10 Cash has been described as:

The lifebuoy of the business
The lifeboat of the business
The lifeline of the business
The lifeblood of the business
Question # 11
If a company has paid dividends on its preference shares, under which one of the cash flow statement
headings would they appear?
Returns on investments and servicing of finance
Financing
Equity dividends paid
Capital investment and financial investment
Ref: http://www.oup.com/uk/orc/bin/9780199264711/01student/mcqs/ch09/
Question # 12
Which of the following is the third step of accounting cycle?
Preparing financial statements
Preparing trial balance
Posting
Making adjusting entries
Question # 13
which of the following term refers to each element of the Balance Sheet?
Ledger
Journal General
T- Account
Account
Page no 6
Each element/sub-element of the balance sheet is named as “Account”,
Question # 14
Which of the following is the most common adjusting entry?
Un-earned revenue
Pre-paid expense
Accrued revenue
Question # 15
period?
Rent expense
Revenue earned
Wages expense
Because we close the Income Summary account to Retained Earnings, by doing this, all revenues and
expenses are "corralled" in Income Summary (the net of which represents the income or loss for the
period). In turn, the income or loss is then swept to Retained Earnings along with the dividends
Question # 16
How the transactions in a journal are initially recorded?
Alphabetical order
Ascending order
Chronological order
Alphanumeric order
Question # 17
The true and fair presentation of the financial statements depends, among other things, upon which of
the following?
Strong financial position
Concept of materiality
Matching principle
Refhttp://docs.google.com/viewer?a=v&q=cache:2xia_fB5R4sJ:eprints.ouls.ox.ac.uk/archive/00001060/0
1/AUDIT_MATERIALITY.pdf+The+true+and+fair+presentation+of+the+financial+statements+depends,+am
ong+other+things,+upon+which+of+the+following%3F&hl=en&gl=pk&pid=bl&srcid=ADGEESjxMXJdJbZNe
9veq56MXH_Rr51RyAisYr3-ks31XZc0H2TRwBI4f3YIaZ_UPrUcEWqX3KzdfsxdiA5m5ZzMybhWcZ-
b3UzrHhNfoqZx727IWz-zQBH0CjYsCqG78YfFErKqfNMm&sig=AHIEtbRhuwjCLb7c3oyoed8bQzgqvGg6aw
Question # 18
Use the following information to calculate net cash from investing activities: sell a capital asset for Rs.
10,000 cash and a Rs. 1,000 gain; purchase a bond investment for Rs. 16,000; receive Rs. 2,000 interest
payment from the bond investment; and pay off a Rs. 3,000 mortgage payable.
Rs. 6,000 net cash
Rs. 4,000 net cash
Rs. 5,000 net cash
Rs. 9,000 net cash
Question # 19
Which one of the following statement shows the effects of cash inflows and outflows?
Balance Sheet
Income Statement
Question # 20
Journal entries are done at the end of the accounting period for which type of accounts?
Assets and liabilities
Office supplies and office equipment
Raw material and office supplies
Depreciation and expenses
Page 29
Immediate recording of every event in some cases is not practical e.g. raw material, office supplies,
depreciation. Journal entries of such expenses are recorded at the end of accounting period and are called
adjusting entries.
Question # 21
Which one of the following is usually classified as an inventory item? :
Goods purchased for resale to customers
Items purchased and used by the company such as office supplies
Items purchased for a specific customer job
Items purchased and the quantity on hand does not need to be tracked
PAGE 65
Inventory: This consists of items held for sale or used in manufacture of products that would be sold.
Inventory in merchandising business consists of goods owned and held for sale.
Question # 22
In the long run, a business must generate positive net cash flow from which of the following activities, if it
is to survive?
Non cash activities
PAGE 47
In the long run Cash flow from operations must be positive.
Question # 23
If the estimated amount of depreciation on equipment for a period is Rs.2000, the adjusting entry to
Depreciation expense - Debit; Equipment - Credit
Equipment - Debit; Depreciation expense - Credit
Accumulated depreciation - Debit; Depreciation expense - Credit
Question # 24
According to _____ the personal expenses paid by Mr. A from his own pocket would not be recorded in
Matching principle
Materiality principle
Question # 25
Financial statements are a subset of which of the following?
Financial reporting
Financial statement analysis
Accounting information
Accounting system
Question # 26
Which of the following account will appear in the post-closing trial balance?
Owner’s Capital
Service Fees Earned
Income Summary
Owner’s Withdrawals
Question # 27
direct method?
All parts are same in both methods
Question # 28
Which of the following people and groups are NOT interested in cash flow statements of a company?
Accounting personnel
Potential customers
Potential creditors
Potential employees
People and groups interested in cash flow statements include: Accounting personnel,
Potential lenders or creditors, Potential investors, , Potential employees or contractors, Shareholders of
the business.
Question # 29
Question # 30
Which one of the following transactions should be classified as a financing activity?
Purchase of equipment
Purchase of treasury stock
Sale of trademarks
Income tax refund
Question # 31
Accelerated depreciation method is mostly used for __________.
Assets valuation
Inventory valuation
Income tax returns
Question # 32
Depreciation is added back to profit when arriving at the cash flow from operating activities because:
Depreciation is only an estimated amount
Depreciation does not affect profit
Depreciation does not result in a flow of cash
Depreciation only affects the balance sheet, not the profit and loss account
Question # 33
To find the value of closing stock at the end of a period we:
Deduct opening stock from cost of goods sold
Look in the stock account
Deduct cost of goods sold from sales
Do this by stocktaking
Question # 34
Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the following
reasons?
Increased cash flows from lower taxes (not sure)
Question # 35
Identify the statement that is NOT true about the Incomes Account and Expenses Account:
These are the temporary accounts
These are closed in Income summery account
These may included in closing trial balance
These are also known as Nominal Accounts
Question # 36
Which of the following terms present a cause and effect relationship with each other?
Income statement and balance sheet
Revenue and assets
Assets and liabilities
Revenues and expenses
Question # 37
Which of the following company would like to use the accelerated depreciation method?
A company with large tax burdens
A company with low tax burdens
A company that wan to report high net income
A company that want to report huge assets
These methods provide a greater tax shield effect than straight line depreciation, and so companies with
large tax burdens might like to use accelerated depreciation methods.
Question # 38
Question # 39
Pre-paid expense is a(n) _______ type of account.
Liability
Asset
Revenue
Expense
Question # 40
Which of the following should NOT be called “Sales”?

Goods sold for cash
Office fixtures sold
Goods sold on credit
Sale of item previously included in ‘Purchases’
Question # 41
Which of the following is true about "After closing trial balance"?
It may consist of balances of only Real and Personal accounts
It may consist of balances of only Nominal and Real accounts
It may consist of balances of Nominal, Real and Personal accounts
It may consist of balances of only Nominal and Personal accounts
Question # 42
Audit opinions can NOT be classified as which of the following?
Adverse opinion
Unqualified opinion
Qualified opinion
Disagreement of opinion
Question # 43
Which of the following is an inventory pricing procedure in which the oldest costs incurred rarely have an
effect on the ending inventory valuation?
FIFO
LIFO
Weighted-average
Page 75
In the FIFO method, oldest available purchase costs are transferred to cost of goods sold. That
Means the cost if goods sold has a lower value and the profitability of the organization becomes higher.
Question # 44
The users of a statement of cash flows usually are interested in:
Net cash flow from operating activities
Net cash flow from financing activities (not sure)
Question # 45
Which one of the following is the most common type of opinion given by the auditor?
Unqualified opinion
Qualified opinion
Adverse opinion
Disclaimer of opinion
Question # 46
Which of the following is a special temporary account used to close all of the revenue and expense
accounts?
Close-out Summary
Owner’s Capital
Income Summary
Temporary Summary
Page 35 Revenue and expense accounts are closed at the end of each accounting period by transferring
their balances to a summary account called income summary.
Question # 47
Tax return
Question # 48
Which of the following is NOT one of the four basic financial statements?
Balance sheet
Audit report
Income statement
Statement of cash flows
Question # 49
Which of the following is NOT a cash outflow for the firm?
Dividends payments
Interest payments
Tax payments
Question # 50
Which of the following principle states that the assets are purchased for the use and not for resale
purpose?
Going-concern principle
Cost Principle
Page no 3 Going-concern assumptions: connected with cost principle, assets acquired for use and not for
resale.
Question # 51
Which of the following expenses would normally be classified as Other or Non Operating Expense on a
multiple-step income statement?
Interest expense
Insurance expense
Salaries expense
Question # 52
Which of the following would be considered a cash-flow item from an "operating" activity?
Cash outflow to the government for taxes
Cash outflow to shareholders as dividends
Cash inflow to the firm from selling new common equity shares
Cash outflow to purchase bonds issued by another company
Question # 53
Which of the following principle provides the definite and factual basis for assets valuation?
Matching Principle
Cost Principle
Question # 54
The basic purpose of financial statements is to assist users in evaluating the______

Financial position
Profitability of an organization
Future prospects
Question # 55
Greater than cost
Less than book value
Question # 56
The appropriate journal entry to record equipment depreciation expense would consist of a debit to
Depreciation Expense and a credit to which of the following accounts?
Equipment
Accumulated Depreciation: Equipment
Retained Earnings
Cash
Question # 57
Which of the following truly represents expenses?
Future benefits
Past results
Cost of doing business
Past receipts
Question # 58
Capital assets of Rs. 120,000 were purchased for cash. A capital asset was sold at a gain of Rs. 40,000.
Amortization expense was Rs. 138,000. What amount would appear on the Cash Flow Statement as "Sale
of Capital Asset?"
Rs. 40,000 (not sure)

Rs. 130,000
Rs. 170,000
Rs. 225,000
Question # 59
Dividends declared and paid

Dividend revenue
Interest expense
Interest revenue
Question # 60

Question # 61

Only cash balances
Only bank balances
Question # 62
Which of the following principle is used for recording revenue?

Matching Principle
Cost Principle
Question # 63
An entry that effects more than one accounts is knows as ___________.

Journal entry
Compound entry
Adjusting entry
Reversing entry
Question # 64
Which of the following auditor's opinion shows the inability of the auditor to audit the accounts of a
business?
Qualified Opinion
Adverse Opinion
Unqualified Opinion
Disclaimer of Opinion
Question # 65
Cost of goods sold
Rent Expense
Salaries Expense
Question # 66
Which of the following type of reports is most frequently used by external users, such as investors?
Financial Statements
Tax Forms
Management Reports
Audit reports
Question # 67
Which of the following best describes the meaning of the term “Purchases”?
Goods bought on credit
Goods paid
Goods bought for resale
Items bought
Question # 68
Commission earned account
Prepaid insurance
Salaries Expense account
Wages account
Question # 69
Which of the following is NOT one of the three items required to be shown in the heading of a financial
statement?
Question # 70
If a company has paid dividends on its preference shares, under which one of the cash flow statement
headings would they appear?
Returns on investments and servicing of finance
Financing
Equity dividends paid
Capital investment and financial investment
Which of the following arrangement is used to maintain the accounts?

Sequentially
Alphabetically
Monthly
Orderly
Page no 8 Orderly arrangements of Accounts is to be maintained.
1.If the inventory shrinkage at the end of the year is overstated by $7,500, the error will cause an:
A. . understatement of net income for the year by $7,500

B. . understatement of cost of merchandise sold for the year by $7,500
C. . overstatement of merchandise inventory for the year by $7,500
D. . overstatement of gross profit for the year by $7,500
2.The balance sheet contains the same major headings as appear in the accounting equation.
A. . False
B. . True
3. If revenue was $45,000, expenses were $37,500, and the owner's withdrawals were $10,000, the
a amount of net income or net loss would be:
A. . $37,500 net loss
B. . $2,500 net loss
C. . $7,500 net income
D. . $45,000 net income
4. If the estimated amount of depreciation on equipment for a period is $2,000, the adjusting entry to
A. . debit depreciation expense, $2,000; credit accumulated depreciation, $2,000
B. . debit equipment, $2,000; credit depreciation expense, $2,000
C. . debit depreciation expense, $$2,000; credit equipment, $2,000
D. . debit accumulated depreciation, $2,000; credit depreciation expense, $2,000
5. Liabilities result from some future transaction.
A. . False
B. . True
6. All calendar years are also fiscal years, but not all fiscal years are calendar years.
A. . True
B. . False
7. To compute net sales, sales discounts are added to, and sales returns and allowances are deducted
from, gross sales.
A. . True
B. . False
8. The post-closing trial balance may contain revenue and expense accounts.
A. . True
B. . False
9. Overstated ending inventory results in an overstatement of cost of goods sold and an

understatement of gross profit and net income.
A. . True
B. . False
10. All accounting systems currently in use are computerized.
A. . False
B. . True
11. In a period of rising prices, FIFO results in the lowest cost of goods sold.
A. . True
B. .False
12. If all of the adjusting entries are not made, the financial statements are incorrect.
A. . False
B. . True
13. Which of the following entries closes the owner's drawing account at the end of the period.
A. . debit the owner's capital account, credit the drawing account
B. . debit the income summary account, credit the drawing account
C. . debit the drawing account, credit the owner's capital account
D. . debit the drawing account, credit income summary account
14. Which of the following accounts would not be included in a post-closing trial balance.
A. . fees earned
C. . cash
D. . owner's equity
15. Which of the following is an example of an intangible asset.
A. . Patents
B. . all possible answers
C. . copyrights
D. . goodwill
16. If total assets increased $20,000 during a period and total liabilities increased $12,000 during the
same period, the amount and direction (increase or decrease) of the change in owner's equity for that
period is:
A. . an $8,000 decrease
B. . an $8,000 increase
C. . a $32,000 increase
D. . a $32,000 decrease
17. The following units of a particular item were available for sale during the period:
What is the unit cost of the 35 units on hand at the end of the period as determined under the periodic
inventory system by the FIFO costing method.
A. . $20
B. . $23
C. . $21
D. . $22
18. The Unearned Fees account is a revenue account.
A. . True
B. . False
19. The accumulated depreciation account is an asset account that shows the amount of depreciation
for the current year only.
A. . True
B. . False
20. At the end of the fiscal year, Accounts Receivable has a balance of $100,000 and Allowance for
Doubtful Accounts has a balance of $7,000. The expected net realizable value of the accounts receivable
is:
A. . $107,000
B. . $7,000
C. . $93,000
D. . $100,000
21. The percentage-of-sales method estimates the uncollectible accounts from the ending balance in
accounts receivable.
A. . True
B. . False
22. An example of an accelerated depreciation method is:
A. . Units-of-production
B. . Straight-line
C. . Depletion
D. . Declining-balance
23. The three forms business organizations are single proprietorship, partnership, and trust
A. . False
B. . True
24. Current Liabilities are classified as clearly determinable, estimated and contingent.
A. . False
B. . True
25. The type of account with a normal credit balance is:
A. . drawing
B. . a revenue
C. . an asset
D. . an expense
26. Which of the following expenses would normally be classified as Other or Non Operating expense
on a multiple-step income statement.
A. . interest expense
B. . insurance expense
C. . depreciation expense - office equipment
D. . sales salaries expense
27. The following units of a particular item were purchased and sold during the period:
First sale 110 units
Second sale 45 units
What is the cost of the 35 units on hand at the end of the period as determined under the perpetual
inventory system by the LIFO costing method.
A. . $715
B. . $705
C. . $700
D. . $805
28. Which of the following accounts would not be closed to the income summary account at the end of
a period.
A. . fees earned
B. . rent expense
C. . wages expense
D. . accumulated depreciation
29. Revenues, liabilities and equity accounts are increased by debits.

A. . False
B. . True
30. Under the allowance method, uncollectible accounts expense is recognized when a specific
customer's account is written off.
A. . True
B. . False
31. If the trial balance has equal debit and credit totals, it cannot contain any errors.
A. . True
B. . False
32. The left side of any account is the credit side.
A. . False
B. . True
33. The purpose of depreciation accounting is to provide the case required to replace plant assets.
A. . True
B. . False
34. The income statement shows the profitability of the company and is dated as of a particular date,
such as December 31, 2010.
A. . True
B. . False
35. What is the due date of a $12,000, 90-day, 8% note receivable dated August 5.
A. . November 4
B. . October 31
C. . November 3
D. . November 2
36. Which of the following accounts would be classified as a current asset on the balance sheet.
A. . accumulated depreciation
B. . accounts receivable
C. . office equipment
D. . land
37. Purchase discounts and purchase returns and allowances are recorded in contra accounts to the
purchases account.
A. . True
B. . False
38. A transaction must be journalized in the journal before it can be posted to the ledger accounts.
A. . False
B. . True
39. A multi-step income statement consists of only two categories of items, revenues and expenses
A. . True
B. . False
40. If the equipment account has a balance of
$22,500 and its accumulated depreciation account has a balance of $14,000, the book value of the
equipment is:
A. . $36,500
B. . $14,000
C. . $22,500
D. . $8,500
41. A debit may signify:
A. . an increase in an asset account
B. . a decrease in an asset account
C. . an increase in a liability account
D. . an increase in the owner's capital account
42. A payment of cash for the purchases of services should be recorded in the:
A. . cash receipts journals
B. . revenue journal
C. . purchases journal
D. . cash payments journal
43. After the closing process is complete, no balance can exist in any revenue, expense, or income
summary account.
A. . True
B. . False
44. Which of the following items represents a deferral.
A. . fees earned
C. . wages payable
D. . prepaid insurance
45. The inventory costing method that is based on the assumption that costs should be charged
against revenue in the order in which they were incurred is:
A. . perpetual inventory
B. . average cost
C. . FIFO
D. . LIFO
46. The resources owned by a business are called:
A. . The accounting Equation
B. . Owner's Equity
C. . Assets
D. . Liabilities
47. A listing of a business entity's assets, liabilities, and owner's equity as of a specific date is:
A. . a statement of cash flows
B. . a statement of owner's equity
C. . a balance sheet
D. . an income statement
48. The policies and procedures used by management to protect assets from misuse, ensure accurate
business information, and ensure compliance with laws and regulations re called:
A. . systems analysis
B. . systems implementation
C. . internal controls
D. . systems design
49. If merchandise purchased on account is returned, the buyer may inform the seller of the details by
issuing:
A. . a credit memorandum
B. . a bill
C. . an invoice
D. . a debit memorandum
50. The amounts in the Adjustments columns are always added to the amounts in the Trial Balance
columns to determine the amounts in the Adjusted Trial Balance columns.
A. . True
B. . False
51. A debit balance in which of the following accounts would indicate a likely error.
A. . miscellaneous expense
B. . cash
C. . fees earned
D. . accounts receivable
52. What is the maturity value of a 90-day, 12% note for $10,000.
A. . $10,300
B. . $10,000
C. . $8,800
D. . $11,200
53. The form listing the titles and balances of the accounts in the ledger on a given date is the:
A. . balance sheet
B. . income statement
C. . trial balance
D. . statement of owner's equity
54. When a note receivable is dishonored, Accounts receivable is debited for what amount.
A. . the face value of the note
B. . the maturity value of the note plus accrued interest

C. . the maturity value of the note
D. . the maturity value of the note less accrued interest
55. Depreciation is the process of valuation of an asset to arrive at its market value.
A. . True
B. . False
56. All of the steps in the accounting cycle are performed only at the end of the accounting period.
A. . False
B. . True
57. On a multiple-step income statement, the excess of net sales over the cost of merchandise sold is
called:
A. . income from operations
B. . net income
C. . operating income
D. . gross profit
58. When there are a large number of individual accounts with a common characteristic, it is common
to place them in a separate ledger called:
A. . a creditors ledger
B. . an accounts payable ledger
C. . an accounts receivable ledger
D. . a subsidiary ledger
59. If merchandise is sold on account to a customer for $1,000, terms FOB shipping point, 1/10, n/30,
and the seller prepays $50 in transportation costs, the amount of the discount for early payment would
be:
A. . $0
B. . $10.00
C. . $10.50
D. . $5.00
60. If merchandise inventory is being valued at cost and the price level is steadily rising, the method of
costing that will yield the highest net income is:
A. . FIFO
B. . periodic
C. . LIFO
D. . average
61. The balance on the unearned rent account for Jones Co. as of 12/31 is $1,200. If Jones Co. failed to
record the adjusting entry for $600 of rent earned during December, the effect on the balance sheet and
income statement for December is:
A. . liabilities overstated $600; net income understated $600
B. . liabilities overstated $600; net income overstated $600
C. . liabilities understated $600; net income understated $600
D. . assets understated $600; net income overstated $600
62. A petty cash fund is:
A. . All of the proposed answers
B. . used to pay relatively small amounts
C. . established by estimating the amount of cash needed for disbursement of relatively small
amounts during a specified period
D. . reimbursed when the amount of money in the fund is reduced to a predetermined minimum
amount
63. Under perpetual procedure, cost of goods sold is determined as a result of the closing entries
made at the end of the period.
A. . True
B. . False
64. At the end of the accounting period, three trial balances are prepared.
A. . True
B. . False
65. The statement of equity shows both the net income for the period and the beginning and ending
balances of equity.
A. . True
B. . False
66. If a net loss occurs, it appears in the Income Statement credit column and Balance Sheet debit
column.
A. . True
B. . False
67. Which of the following accounts in the adjusted trial balance columns of the work sheet would be
extended to the balance sheet columns:
A. . Rent revenue
B. . Miscellaneous expense
C. . Utilities expense
D. . Owner Drawing
68. At the end of the fiscal year, before the accounts are adjusted, Accounts Receivable has a balance
of $200,000 and Allowance for Doubtful Accounts has a credit balance of $2,500. If the estimate of
uncollectible accounts determined by aging the receivables is $8,500, the amount of uncollectible
accounts expense is:
A. . $2,500
B. . $11,000
C. . $6,000
D. . $8,500
69. The income statement in which the total of all expenses is deducted from the total of all revenues
is terms:
A. . multiple-step form
B. . single-step form
C. . report form
D. . account form
70. Under Lower of Cost or Market, inventory is written down to market value when the market value
is less than the cost, and inventory is written up to market value when the market value is greater than
the cost.
A. . False
B. . True
71. A profit making business operating as a separate legal entity and in which ownership is divided into
shares of stock is known as a:
A. . Proprietorship
B. . Corporation
C. . Service Business
D. . Partnership
72. The three most common types of business activity are service, merchandising, and manufacturing.
A. . True
B. . False
73. In taking a physical inventory, consigned goods are usually not included in the ending inventory,
but merchandise in transit is included.
A. . True
B. . False
74. Every adjusting entry affects at lease one income statement account and one balance sheet
account.
A. . True
B. . False
75. A business issued a $5,000, 60-day, 12% note to the bank. The amount due at maturity is:
A. . $4,900
B. . $5,000
C. . $5,600
D. . $5,100
76. Under perpetual inventory procedure, the Merchandise Inventory account is debited for each
purchase and credited for each sale.
A. . False
B. . True
77. If the supplies account (asset), before adjustment on May 31, indicated a balance of $2,250, and
supplies on hand at May 31 totaled $950, the adjusting entry would be:
A. . debit supplies, $950; credit supplies expense, $950
B. . debit supplies, $1,300; credit supplies expense, $1,300
C. . debit supplies expense, $1,300; credit supplies, $1,300
D. . debit supplies expense, $950; credit supplies, $950
78. The receipt of cash from customers in payment of their accounts would be recorded by a:
A. . debit to cash; credit to accounts receivable

B. . debit to accounts receivable; credit to cash
C. . debit to accounts payable; credit to cash
D. . debit to cash; credit to accounts payable
79. Which of the following expenditures incurred in connection with acquiring machinery is a proper
charge to the asset account.
A. . Neither one
B. . Installation costs
C. . Freight
D. . Both
80. The purchase price of land includes its purchase price and other related costs, including the cost of
removing an old unusable building that is on the land.
A. . True
B. . False
Time: 60 min
Marks: 44
► Three months
► Two years
► One year
► Five years
► Closing entries
► Accounting Equation
► Closing entries
► Posting only the debit portion of a particular journal entry
► All the transactions have been recorded and nothing has been omitted
Cost of a building is Rs. 90,000 and its estimated useful life is 30 years. What will be the depreciation
expense of this building for one month by using straight line depreciation method?
► Rs. 600
► Rs. 250
► Rs. 300
► Rs. 500

► Net Income
► Net Loss
At the end of the fiscal year, Accounts Receivable has a balance of Rs. 100,000 and Allowance for Doubtful
Accounts has a balance of Rs. 7,000. The expected net realizable value of the accounts receivable is:
► Rs. 7,000
► Rs. 93,000
► Rs. 100,000
► Rs. 107,000
► Retained earnings are an asset on the balance sheet
Which of the following would be considered a cash-flow item from a "financing" activity?
► A cash outflow to repurchase the firm's own common stock

► All dividends paid to voting shares in the year
to cash?
The balance sheet reported a beginning balance of Rs. 20,000 in Accounts Receivable and an ending
balance of Rs. 15,000. The income statement reported Sales Revenue of Rs. 200,000. Using this
information, compute cash collected from customers.
► Rs. 205,000
► Rs. 215,000
► Rs. 195,000
► Rs. 200,000
► Expenditure for sale of plant and equipment
direct method?

► Cash flow from operating activities
In a perpetual inventory system, which of the following would be debited when inventory is sold on
account?
► Sales
► Both Accounts receivable & cost of goods sold
► An increase in cost of goods sold

► Regular reduction of asset value to correspond to the decline in market value as the asset ages
► A process of correlating the book value of an asset with its gradual decline in physical efficiency
► Allocation of the cost in a manner that will ensure that plant and equipment items are not carried on
the balance sheet at amounts in excess of net realizable value
► Allocation of the cost of a plant asset to the periods in which benefits are received
Warner Corporation reported net income in excess of its net cash flow from operations. A possible
explanation of this difference is:
► Non operating gains
► Payment of wages
The supplies account has a balance of Rs. 1,500 at year end. The actual amount of supplies in hand at the
end of period is Rs. 400. The necessary adjusting entry is:

The balance of the Unearned Rent Account for Jones Co. as on Dec 31 is Rs.1, 200. If Jones Co. failed to
record the adjusting entry for Rs.600 of rent earned during December, the effect on the Balance Sheet
and Income Statement for December will be:
► Liabilities overstated by Rs.600; net income understated by Rs.600
► Machinery - (Debit) ; Accounts payable - (Credit)
► Revenue account
► Owner's Capital account
Assuming that net purchases cost Rs 250,000 during the year. The closing inventory was of Rs 4,000, and
opening inventory was of Rs 30,000, how much was the cost of goods sold?
► Rs. 276, 000
► Rs. 280,000
► Rs. 254,000
► Rs. 246,000
MIDTERM EXAMINATION
Fall 2009
► Balance Sheet
► Statement of Owner’s Equity
► Income Statement
D Statement of Cash Flows
D Ledger
► Source document
► Journal
► Building - Credit; Accounts payable - Debit
D Building - Debit; Notes payable -Credit
► Building - Debit; Owner’s equity- Credit
► Building - Debit; Accounts payable - Credit
D Journal entry
► Compound entry
► Adjusting entry
► Reversing entry

D 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
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
D Depreciation expense - Debit; Accumulated depreciation - Credit
► Equipment - Debit; Depreciation expense - Credit
► Accumulated depreciation - Debit; Depreciation expense - Credit
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:
D Supplies, Rs. 600 - Debit; Supplies Expense, Rs. 600 - Credit
► Supplies Expense, Rs. 750 - Debit; Supplies, Rs. 750 - Credit
► Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 - Credit
► Cash
D Owner’s equity
► Fees earned
► A debit balance
► A negative balance
► A credit balance
D A zero balance
► Savings deposits
► Certificates of Deposit (CDs)
D Stocks of other companies
► Money market mutual funds
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
D 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
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
D Amortization
► Investments
uestion No: 40 ( Marks: 1 ) - Please choose one
Which of the following activities convert the income statement items from the accrual basis of
accounting to cash?
D Non cash activities
Which one of the following items is specifically included in the body of a statement of cash flows?
D 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
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
D Rs. 516,000
► Rs. 490,000
► Rs. 495,000
D Long term assets items
D Schedule of fixed assets

uestion No: 45 ( Marks: 1 ) - Please choose one
Gross profit is:
D Excess of sales over cost of goods sold
► Sales less Purchases
► Cost of goods sold + Opening stock
► Net profit less expenses of the period
► Only current
D Two
► Three
► Four
D Rs. 200
► Rs. 150
► Rs. 350
► Rs. 450
Under which cost flow assumption, the ending inventory is composed of the most recently purchased
merchandise?
D FIFO
► LIFO
► Average cost
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
D Rs. 90,000
► Rs. 340,000
► Rs. 400,000
businesses?
► FIFO
► LIFO
D Average cost
D Less than current market value
► Greater than cost
► Greater than book value
► Less than book value
D Allocate the original cost of a productive asset to expense over its useful life
Which depreciation method allocates an equal portion of depreciation expense to each period of asset’s
useful life?
► Sum-of-the-year digit method
► Accelerated depreciation method
► Capital – Debit; Drawing - Credit
D Drawing – Debit; Capital - Credit
► Income Summary – Debit; Drawing - Crediting
► Drawing – Debit; Income Summary - Crediting
D Accounts receivable
► Office equipment
► Land
D Salaries
► Past due expense
► Income tax expense
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
D Transactions, financial statements
► Rs. 41 million
D Rs. 33 million
► Rs. 27 million
► Rs. 19 million
► Sources of cash in the current period
D 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
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
D Evidence of an arrangement for customer payment exists
D Credit
► Debit
► Negative
► Positive
► Purchasing a piece of land
D Paying dividends to shareholders
► Purchasing equipment on account
► Paying back the principal of a loan
D Net cash flow from operating activities

MIDTERM EXAMINATION
Fall 2009
Question No: 66 (Marks: 1) - Please choose one
D Generally Accepted Accounting Principles
After recording the transactions in journal, posting is made to which of the following?
► Trial Balance
D Ledger
D Recording entries in the journal
► Posting the entries to the ledger
D To prove the equality of debits and credits

D Transferring the debits and credits to ledger
Which of the following results are summarized by the income statement of a company?
D Operating results
D Book-keeping fees collected but not yet earned
► Interest earned but not yet received
► Revenue, credit
D Liability, credit
► Asset, debit
► Expense, debit

D As the market value of the building increases, depreciation should increase
► Fees Income – Debit; Income Summary - Credit
D Income Summary – Debit; Fees Income - Credit
D Retained earnings is increased by net income and decreased by a net loss
► Retained earnings are an asset on the balance sheet
D Dividend revenue
► Dividends declared and paid
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?
D Losses on the sale of long-term investments
► Gains on the sale of long-term investments
► The cash flow from share and loan issues and repayments
D Cash dividends paid to shareholders
D Purchase of treasury stock
Cash flow relating to investing activities does NOT present the cash effects of which of the following?
► Plant assets
D Intangible assets
► Investments
► Debt financing
adjustment that is added during the reconciliation.

D An increase in Accounts Payable
adjustment that is subtracted during the reconciliation.
D Non-cash revenues (revenues earned but payment not yet received) reported on the income
statement
► Non-cash expenses (expenses incurred but not paid) reported on the income statement-one
example is amortization expense.
► Payment of debt
► Making of loans
D Sale of available for sale and held to maturity securities
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
D Rs. 530,000

D Retirement of long term debt
When merchandise is purchased in a periodic inventory system, its cost is debited to ________ account.
► Inventory
► Purchases
D Cost of goods sold
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?
D Debit - Office Supplies; Credit - Accounts Payable
with a fair value of Rs. 625. The exchange has commercial substance. How much is the gain or loss on this
transaction?
D A loss of Rs. 250 should be recognized

► Furniture
► Building
► Land
D Financial statements
D Income tax returns
D Depreciation
► Accounts payable
D Wasting assets
► Fictitious assets
► Quick assets
► Tangible assets

D Assets and equity
► Ledger
► Rs. 41 million
► Rs. 33 million
D Rs. 27 million
► Rs. 19 million
► Rs. 200
D Rs. 270
► Rs. 300
► Rs. 350

D Rs. 170,000
► Rs. 120,000
► Rs. 130,000
► Rs. 180,000
D How profitable the company’s current assets are?
Question101
Resources owned by a business are called:
Select correct option: Owner equity
1. Assets (page# 18)
2. Reserves
3. Liabilities
Question # 102 of 15 ( Start time: 11:26:41 AM ) Total Marks: 1
Which of the following is deducted from the net income while preparing cash flow statement by
indirect method?
1. Decrease in inventories
2. Increase in accounts payable
3. Depreciation
4. Increase in inventories
Question #10 3 of 15 ( Start time: 11:27:53 AM ) Total Marks: 1
Select correct option: Assets
1. Ownerequity
2. Liabilities
3. Capital
Under which cost flow assumption is the ending inventory composed of the most recently purchased
merchandise?
Select correct option: FIFO
1. LIFO
2. Average cost
3. Specific identification
The information in statement cash flows assists the investors, creditors, and others in assessing:
1. Enterprise ability to meet its obligations
2. Enterprise ability to pay dividends
3. Enterprise needs for external financing
http://www.vustudents.net
Which of the following should NOT be called “Sales “?
1. Goods sold for cash
2. Office fixtures sold

3. Goods sold on credit
4. Sale of item previously included in Purchasese
period?
Rent expense
Revenue earned
Wages expense
A business has purchased a building on cash, how it would be recorded in the journal?
1. Building - Debit; Cash - Credit
2. Cash - Debit; Building - Credit
3. Building - Debit; Owner equity - Credit
4. Building - Debit; Accounts Payable - Credit
1. Commission earned account
2. Prepaid insurance
3. Salaries Expense account
4. Wages account
In which of the following account, a credit balance would be an evidence for a mistake or an error?
1. Mr. A Capital Account
2. Cash account
3. Notes payable account (page #6)
4. Drawings account
Which of the following principle is used for recording a revenue?
1. Matching Principle
2. Cost Principle
3. Realization Principle
4. Objectivity Principle
1. Errors or discrepancies between cash book and income statement
2. Receipts and payments of cash in the period
3. Non cash adjustment that effect the income statement
4. Cash paid to the customers and creditors of the business

1. Rs. 170,000
2. Rs. 130,000
3. Rs. 120,000
4. Rs. 180,000
Select correct option: http://www.vustudents.net
1. Adverse opinion
2. Unqualified opinion
3. Qualified opinion
4. Disagreement of opinion
According to _______ the personal expenses paid by Mr. A from his own pocket would not be recorded in
1. Realization principle
2. Separate entity principle
3. Matching principle
4. Materiality principle

1. Paid-in-Capital
3. Gross profit
2. One year

Question #120 of 15 ( Start time: 03:09:59 PM ) Total Marks: 1
1. Two
2. Three
3. Four
4. Five
1. Current assets
2. Investments
Question # 1 of 15 ( Start time: 05:21:42 PM )
What will be the affect of dividends paid on the book value of a company?
Increase
Decrease
No effect
Depends upon the situation
Accounts receivable
Office equipment
Land
Which of the following section of cash flow statement shows the cash effects of those
transactions reported in the income statement?
All parts show effects of different transactions of income statement
Which of the following would represent a cash flow from financing activities?
Receipts from sale of plant and equipment
Dividends received on equity securities
Gain on sale of plant asset
Collections on loan principle
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
Which of the following explains the debit and credit rules relating to recording revenues and
expenses?
Even though LIFO generally results in lower reported earnings, firms will use LIFO which of the
following reasons?
Increased cash flows from lower taxes
Which of the following is an inventory pricing procedure in which the oldest costs incurred
rarely have an effect on the ending inventory valuation?
FIFO
LIFO
Weighted-average
Errors or discrepancies between cash book and income statement
Receipts and payments of cash in the period
Non cash adjustment that effect the income statement
Cash paid to the customers and creditors of the business
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
Mr. A purchases a piece of land for cash and debit made to machinery account. What would be
the effect of this error on the trial balance?
Debit side would be decrease with the same amount
Credit side would be increase with the same amount
Total of the trial balance would be agree in all aspect

Auditor’s report
Five year summary
Future investments report
Book value is of limited use to the investment analyst since it is based on:
Market value
Historical costs
Future value
Fair value
Capital – Debit; Drawing - Credit
Assets of the business are valued and recorded at cost in the financial statement as these are
not for resale purposes, according to which of the following?
Going concern assumption
Cost Principle
Objectivity principle
1. Paid-in-Capital
3. Gross profit
Current assets are those assets which management intends to convert into cash or consume
within:
2. One year
Which of the following is the proper journal entry to record Ransom Company's billing of clients
for Rs. 500 of services rendered?

1. Two
2. Three
3. Four
4. Five
1. Current assets
2. Investments
1. Accounts are only prepared by the business entities
2. Account always reflects the amount of the single transaction only
3. Account is effected both by economic and non economic events

In simple words book value would be the amount of money that a holder of a common share
would get if a company were to:
1. Consolidate
2. Merged with another company
3. Acquired by another company
4. Liquidate
1. Financial statements
2. Auditor’s report
3. Five year summary
4. Future investments report
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?
1. A gain of Rs. 250 should be recognized
4. No gain or loss should be recognized.

Which of the following is NOT a financial asset?
1. Marketable securities
2. Receivables
3. Inventory
4. Short-term investments
The basic purpose of financial statements is to assist users in evaluating the________
1. Financial position
2. Profitability of an organization
3. Future prospects
Question # 15 Total Marks: 1
Retained earnings will change over time because of several factors. Which of the following
factors would explain an increase in retained earnings?
1. Net loss
2. Net income
3. Dividends
4. Investments by stockholder
FIN621 CURRENT QUIZ SOLVED

Resources owned by a business are called:
4. Owner equity
5. Assets (page# 18)
6. Reserves
7. Liabilities
Which of the following is deducted from the net income while preparing cash flow statement by
indirect method?
1. Decrease in inventories
2. Increase in accounts payable (not shure)
3. Depreciation
4. Increase in inventories
4. Assets
5. Ownerequity
6. Liabilities
7. Capital

Under which cost flow assumption is the ending inventory composed of the most recently
purchased merchandise?
4. FIFO
5. LIFO
6. Average cost
7. Specific identification
The information in statement cash flows assists the investors, creditors, and others in assessing:
5. Enterprise ability to meet its obligations
6. Enterprise ability to pay dividends
http://www.vustudents.net
Which of the following should NOT be called “Sales “?
5. Goods sold for cash
6. Office fixtures sold
7. Goods sold on credit
8. Sale of item previously included in Purchasese

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
A business has purchased a building on cash, how it would be recorded in the journal?
5. Building - Debit; Cash - Credit
6. Cash - Debit; Building - Credit
7. Building - Debit; Owner equity - Credit
8. Building - Debit; Accounts Payable - Credit
5. Commission earned account
6. Prepaid insurance
7. Salaries Expense account
8. Wages account
In which of the following account, a credit balance would be an evidence for a mistake or an
error?
5. Mr. A Capital Account
6. Cash account
7. Notes payable account (page #6)
8. Drawings account
5. Matching Principle
6. Cost Principle
7. Realization Principle
8. Objectivity Principle
5. Errors or discrepancies between cash book and income statement
6. Receipts and payments of cash in the period
7. Non cash adjustment that effect the income statement
8. Cash paid to the customers and creditors of the business

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.
5. Rs. 170,000
6. Rs. 130,000
7. Rs. 120,000
8. Rs. 180,000
Select correct option: http://www.vustudents.net
5. Adverse opinion
6. Unqualified opinion
7. Qualified opinion
8. Disagreement of opinion
According to _______ the personal expenses paid by Mr. A from his own pocket would not be
recorded in business books of account.
5. Realization principle
6. Separate entity principle
7. Matching principle
8. Materiality principle
Quiz FIN621
Accounts are only prepared by the business entities
Account always reflects the amount of the single transaction only
Account is effected both by economic and non economic events

Which of the following is NOT one of the three items required to be shown in the
heading of a financial statement?

Tax return

Which of the following is TRUE about both sides of the trial balance?
Both sides are always positive
Both sides are negative
Both sides are equal
Both sides are not linked which each other

How would an increase in owner’s equity be recorded?
Debit
Credit
No effect
Statement is wrong

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

How many parts does each account have?
Two
Four
Three
Five

Financial statements are a subset of which of the following?
Financial reporting
Financial statement analysis
Accounting information
Accounting system

Matching Principle
Cost Principle

Mr. A purchases a piece of land for cash and debit made to machinery account. What
would be the effect of this error on the trial balance?
Debit side would be decrease with the same amount
Credit side would be increase with the same amount
Total of the trial balance would be agree in all aspect


Which of the following is/are current asset?
Rent paid for next six months
Cash at bank
Investments in stock market for two weeks
All of the given option

Which of the following is the third step of accounting cycle?
Preparing financial statements
Preparing trial balance
Posting
Making adjusting entries

ABC Company has Rs. 150,000 cash, Rs. 80,000 as accounts receivables, Rs. 20,000
as allowance for doubtful accounts, Rs. 10,000 as work in progress inventory, Rs.
55,000 as prepaid expenses, Rs. 50,000 land purchased in the current year.
Calculate the value of current assets.
Rs. 275,000
Rs. 315,000
Rs. 365,000
Rs. 220,000

Only cash balances
Only bank balances
Three months
Two years
One year
Five years
Balance Sheet
Income Statement
To determine the balance o f a particular account, one should refer to which o f the following ?
Ledger
Source document
Chart of accounts
Journal

Journal entry
Compound entry (Correct)
Adjusting entry
Reversing entry
It is a calculated figure and represents actual cash
It can be distributed among holder s 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
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 - Cred it
Equip ment - Debit; Depreciation expense - Cred it
Accumu lated depreciation - Debit; Depreciation expense - Credit
The trial balance shows Supplies of Rs.1,350 and Supp lies Expense o f R s.0. If Rs.600
of supplies are on hand at the end of the period, the adjusting entry would be:

Supplies Expense, Rs. 600 Debit; Supplies, Rs. 600 – Credi
Cash
Owner’s equity
Fees earned
A debit balance
A negative balance
A credit balance
A zero balance
Current assets are those assets which management intends to convert into cash or consume
within:
The operating cycle
One year
The longer o f operating cycle or one year
The shorter of operating cycle o r o ne year
Savings deposits
Certificates of Deposit (CDs)
Stocks of other companies

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 o f cash flows
Should not to be reported
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
Non cash activities
Which one o f 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
increased by Rs. 10, 000 and accounts payable increased by Rs. 15,000. The interest
Rs. 505,000
Rs. 516,000
Rs. 490,000
Rs. 495,000 Correct
The cash flow from investing activities shows the cash effects o f which of the following?
Long term assets item s Correct
Which o f the following must be included in a company's summary of significant
Summary of long -term debt outstanding
Revenue recognition policies Correct

Gross profit is:
Excess of sales over cost of goods sold Correct
Sales less Purchases
Cost o f goods sold + Opening stock
Net profit less expenses of the period
Only current
Two Correct
Three
Four
From the given data, calculate Cost of Goods Sold using the FIFO costing metho d:
Rs. 200 Correct
Rs. 150
Rs. 350
Rs. 450
Under which cost flow assumption, the ending inventory is composed of the most
recently purchased merchandise?
FIFO Correct
LIFO
Average cost
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 (400,000-310,000) Correct
Rs. 340,000
Rs. 400,000
Which cost flow assumption most closely matches the actual physical flow of
inventory in most retailing businesses?
FIFO
LIFO
Average cost
Specific identification Correct
Greater than cost
Less than book value Correct

Allocate the original cost of a productive asset to expense over its useful life Correct
Which depreciation method allocates an equal portion of depreciation expense to each period
of asset’s useful life?
Straight line method…correct
Double decline balance method
Sum of the year digit method
accelerated depreciation method
Which of the following is not example of accelerated depreciation method?
Capital – Debit; Drawing - Credit Correct

Accounts receivable Correct
Office equipment
Land
Salaries
Past due expense Correct
Income tax expense
Accounts receivable
Liabilities and expenses
Assets and equity
Assets and expenses Correct
Equity and revenues
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 Correct
payable decreased by Rs. 7 million. How much did the company pay in other operating
expenses?
Rs. 41 million Correct
Rs. 33 million
Rs. 27 million
Rs. 19 million
Sources of cash in the current period
Amount of checks outstanding at the end of the period Correct
Uses of cash in the current period
Change in the cash balance for the current period
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 Correct
Services have been performed
Cash that has already been collected
Evidence of an arrangement for customer payment exists
Credit Correct
Debit
Negative
Positive
Paying dividends to shareholders Correct
Net cash flow from operating activities Correct
Net cash flow from financing activities
Classify the following activities as cash flow from operating, investing and financing activities.
Payments for repurchase of company shares
instruments
Tax payments
Expenditure for purchase of other firms' equity
Payments to suppliers for goods and services
Answer:
Payments for repurchase of company shares:
Financing activities Correct
instruments:
financing activities.
Solved BY Hira:
Tax payments:
Expenditure for purchase of other firms' equity instruments:
Solved BY Hira:
Payments to suppliers for goods and services:
Listed below in random order are the items to be included in the balance sheet
of the Myster y Mountain Lodge at December 31, 2001:

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FIN621- Financial Statement Analysis

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FIN621- Financial Statement Analysis (Session - 3)

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

How much duration does an accounting period usually have?

► One year Correct

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

► Adjusted trial balance

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

► Recording transactions in the wrong account

► Duplication of a transaction in the accounting records

► Posting only the debit portion of a particular journal entryCorrect

► Recording the wrong amount for a transaction to both the accounts.

Question No: 5 ( Marks: 1 ) - Please choose one

Which of the following is NOT an advantage of the Trial Balance?

Question No: 6 ( Marks: 1 ) - Please choose one

value of the accounts receivable is:

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

factors would explain an INCREASE in retained earnings?

► Investment by the stockholders

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

Which of the following would be considered a cash-flow item from a "financing"

► A cash outflow to the government for taxes

► A cash outflow to repurchase the firm's own common stockCorrect

► A cash outflow to lenders as interest

► A cash outflow to purchase bonds isues by the other company.

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

'Equity dividends' shown in the cash flow statement will comprise:

► All company dividends paid during the year

► All dividends paid to voting shares in the yearCorrect

► All proposed dividends in the year relating to voting share.

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

basis of accounting to cash?

► Non cash activities

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

Rs. 200,000. Using this information

less ending 15000

cash received from customer = 205000

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

► Proceeds from issuance of long-term debt

► Expenditure for sale of plant and equipmentCorrect

► Receipts from sale of goods or services

CASH FLOW FROM INVESTING ACTIVITIES

includes in operating activities )

The sale of loan (receivable) made by the firm

equivalent), and property, plant, and equipment

Question No: 12 ( Marks: 1 ) - Please choose one

different from the direct method

► Cash flow from investing activities

► Cash flow from financing activities

► Cash flow from operating activitiesCorrect

► All parts are same in both methods

► Income statement items

► Long term assets items

► Long term liability & stockholder’s equityCorrect

► Long term liability and long term assets

Question No: 14 ( 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