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My paper of FIN 621 MIDTERM 2011
SOLVED & COMPOSED BY MUZAMMIL OZA
22 MCQS
SOME MCQS ARE GIVEN BELOW WITH SOLUTION
80% PAPER IS FROM PAST PAPERS
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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?
► Operating activities
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?
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► Adjusting entries
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?
13.Which of the following is NOT true about the specific identification method?
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?
► Deferred income
18.When using the perpetual inventory system, each time a sale is recorded the:
► Inventory account is decreased
19.Which of the following is the most common item in adjusting entries of a
merchandising business?
► Depreciation expense
20.Which of the following statements is CORRECT regarding depreciation methods?
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► 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 Equipment Rs.10, 000, Amortization Expense Rs.20, 000 and Cost
of Goods Sold Rs.50, 000.
► Rs. 120,000
200- 50= GP is 150
150- 10 - 20 = net income 120
Question No: 31 ( Marks: 5 )
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.
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Question No: 30 ( Marks: 3 )
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.
What is deferred expense? 3 marks