FINAL TERM EXAMINATION
Spring 2010
FIN621- Financial Statement Analysis (Session - 1)
: 90 min
Marks: 69
Question No: 1 ( Marks: 1 ) - Please choose one
Which one of the following is NOT a type of adjusting entries?
► Entries to record accrued revenues
► Entries to record accrued expenses
► Entries to distribute un-earned revenue
► Entries to record revenues page 29
Question No: 2 ( Marks: 1 ) - Please choose one
Which one of the following statements is TRUE regarding distributions to stockholders?
► The payment of dividends is not directly related to the profits of a given period
► Shareholders can individually decide on their distributions
► To receive a corporate dividend, stock must be owned on the date of declaration
► Corporate dividends reduce contributed capital and therefore, stockholders’ equity
Question No: 3 ( Marks: 1 ) - Please choose one
Cash flow relating to investing activities does NOT present the cash effects of which of the following?
► Plant assets
► Intangible assets
► Investments
► Debt financing
Question No: 4 ( Marks: 1 ) - Please choose one
Office supplies are purchased on account. The company uses a perpetual inventory system. What is the correct journal entry for this purchase of office supplies?
► Debit - Purchases; Credit - Cash
► Debit - Merchandise Inventory; Credit - Cost of Goods Sold
► Debit - Office Supplies; Credit - Accounts Payable
► Debit - Merchandise Inventory; Credit - Accounts Payable
Question No: 5 ( Marks: 1 ) - Please choose one
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: 6 ( Marks: 1 ) - Please choose one
If sales revenues are Rs. 400,000, cost of goods sold is Rs. 310,000, and operating expenses are Rs. 60,000, what is the gross profit?
► Rs. 30,000
► Rs. 90,000
► Rs. 340,000
► Rs. 400,000
G.P= SALES – C.O.G.S = 400000-310000= 90,000
Question No: 7 ( Marks: 1 ) - Please choose one
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
Question No: 8 ( Marks: 1 ) - Please choose one
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
► A decrease in income tax rates
► A decrease in accounts receivable over the period
Question No: 9 ( Marks: 1 ) - Please choose one
In a statement of cash flows, the acquisition of land by issuing capital stock:
► Is not shown at all, since no cash was received or disbursed
► Is shown as an investing activity
► Is shown as a financing activity
► Is shown in a supplementary schedule as a non-cash investing and financing transaction
Examples of cash flows from investing activities are: Cash payments and receipts from acquisition and disposal of other than long term assets e.g.
Shares, debentures, TFC, long term loans given etc.
Question No: 10 ( Marks: 1 ) - Please choose one
Which of the following opinions state that the financial statements do not present fairly the financial position, results of operations etc, in conformity with GAAP?
► Unqualified opinion
► Qualified opinion
► adverse opinion
► Disclaimer of opinion
Question No: 11 ( Marks: 1 ) - Please choose one
Which one of the following is NOT a limitation of financial statements?
► They always present past
► They always present the monetary terms
► They help in assessment of future profitability
► They give no information about management and employee relations
Question No: 12 ( Marks: 1 ) - Please choose one
Which of the follwing business owner is personally liable for its debts?
► Corporations
► Sole proprietorship
► General partnership
► Limited liability company
Question No: 13 ( Marks: 1 ) - Please choose one
Which of the following characteristics is NOT generally regarded as right of common shareholders?
► Preemptive right
► Voting rights
► Preference in liquidation
► Transferability of shares
Preferred stockholders have no voting rights. Preferred shares are callable or redeemable at higher price by the company issuing these.
Question No: 14 ( Marks: 1 ) - Please choose one
What would be the journal entry to record the issue of 1,000 shares of Rs. 1 par-value common stock, which is issued for Rs. 4 per share?
► Debit Cash 4,000; Credit Common Stock 4,000
► Debit Cash 4,000; Credit Common Stock, 1,000, Credit Paid-in-Capital in Excess of Par 3,000
► Debit Cash 4,000; Credit Common Stock, 1,000, Credit Retained Earnings 3,000
► Debit Cash 4,000, Debit Paid-in-Capital in Excess of Par 3,000; Credit Common Stock 4,000
Question No: 15 ( Marks: 1 ) - Please choose one
Suppose that an investor buys shares for Rs. 15per share from a company whose stock's par value is stated at Rs. 10 per share, then what will be the value of paid in capital for each share sold?
► Rs. 25
► Rs. 5
► Rs. 20
► Rs. 30
Question No: 16 ( Marks: 1 ) - Please choose one
In the vertical analysis of income statement, all the accounts are expressed as a percentage of which of the following?
► Net sales
► Gross sales
► Net income
► Total expenses
When using vertical analysis, the analyst calculates each item on a single financial statement as a
percentage of a total.. The total used by the analyst on the income statement is net sales revenue,
Question No: 17 ( Marks: 1 ) - Please choose one
The changes in the financial statement items from a base year to following years are often expressed as which of the following?
► Trend percentages
► Component percentages
► Common percentages
► Both trend and component percentages
Trend percentages/ Horizontal Analysis/ Index Analysis: This analysis considers changes in
items of financial statement from a base year to the following years to show the direction of change.This is also called horizontal analysis.
Question No: 18 ( Marks: 1 ) - Please choose one
Which of the following indicates the relative size of each item included in a total?
► Trend percentages
► Component percentages
► Common percentages
► Both trend and component percentages
Component percentages/ Vertical Analysis/ Common- Size Analysis: This type of analysis
indicates the relative size of each item in the Financial Statements as a percentage of the total of that Statement i.e. Total Assets or total Liabilities & Shareholders equity in Balance Sheet and Sales in Income Statement.
Question No: 19 ( Marks: 1 ) - Please choose one
If a firm has Rs. 100 in inventories, a current ratio equal to 1.2, and a quick ratio equal to 1.1, what is the firm's Net Working Capital?
► Rs. 0
► Rs. 100
► Rs. 200
► Rs. 1,000
Question No: 20 ( Marks: 1 ) - Please choose one
A company can improve (lower) its debt-to-total asset ratio by doing which of the following?
► Borrow more
► Shift short-term to long-term debt
► Shift long-term to short-term debt
► Sell common stock
REF http://web.utk.edu/~jwachowi/mcquiz/mc6.html
Question No: 21 ( Marks: 1 ) - Please choose one
Krisle and Kringle's debt-to-total assets ratio is 4%. What is its debt-to-equity ratio?
► 2%
► 7%
► 6%
► 3%
Since the debt-to-total assets ratio is.4, then equity-to-total assets ratio is.6. The ratio of debt to equity is then .4/.6 or .667 (66.7%).
Question No: 22 ( Marks: 1 ) - Please choose one
Earnings per share, return on sales, and return on equity are all examples of which of the following?
► Leverage ratios
► Liquidity ratios
► Turnover ratios
► Profitability ratios
