MS5040:

MS50 40:Financial
FinancialAc
Ac
Duration 2 Hours
Quiz
End term
1 examination
Max Marks 70

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5040:
50 40:Financial
FinancialAccounting
Accounting
Roll No MS21A020
1erm examination
Name Gowthaman K

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e point.

ake reasonable &valid assumptions wherever necessary and

1 to 6. Input your answers in the space provided.

at using your registraiton number <registrationnumber.xls>

l.com>

knowledge the receipt of the answer sheet.

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 PART - 1
Questions Marks (25*1=25)
Q No.
Choose the appropriate answer from the choice given
Which of the following is false regarding the balance sheet?
a. The accounts shown on a balance sheet represent the basic accounting equation for a partic
b. The retained earnings balance shown on the balance sheet must agree with the ending retai
balance shown on the statement of stockholders' equity
1 c. The balance sheet reports the changes in specific account balances over a period of time
d. The balance sheet reports the amount of assets, liabilities, and stockholders' equity of an acc
point in time

Which of the following statements regarding the statement of cash flows is true?
a. The total increase or decrease in cash shown on the statement of cash flows must agree with
(net income or net loss) reported on the income statement
b. The statement of cash flows separates cash inflows and outflows into three
operating, investing, and financing
2 c. The ending cash balance shown on the statement of cash flows must agree with the amount
balance sheet for the same fiscal period
d. Both (b) and (c) are true

The ABC, Inc., reported total assets of $7,422 million, current assets of $4,309 million, total liab
current liabilities of $2,128 million, and stockholders' equity of $2,755 million. What is its curre
does this suggest about the company?
a. The ratio of 1.59 suggests that The Gap has greater current assets than current liabilities
3 b. The ratio of 2.02 suggests that The Gap is not able to pay its short-term obligations with curr
c. The ratio of 1.59 suggests that The Gap has liquidity problems
d. The ratio of 2.02 suggests that The Gap has sufficient liquidity

Which of the following describes how assets are listed on the balance sheet?
a. From most liquid to least liquid
b. In alphabetical order
4 c. In order of magnitude, lowest value to highest value
d. From least liquid to most liquid

This period a company collects $100 cash on an account receivable from a customer for a sale l
would the receipt of cash impact the following two financial statements this period?

5
 If a company reported the following items on its income statement (cost of goods sold $6,000,
expense $2,000, interest expense $500, operating expenses $3,500, sales revenue $14,000), w
be reported for the subtotal "income from operations"?
a. $8,000
6 b. $2,000
c. $4,500
d. $4,000

A company has been successful in reducing the amount of sales returns and allowances. At the
card company reduced the credit card discount from 3 percent to 2 percent. What effect will th
on the company's net sales, all other things equal?
a. Net sales will not change
b. Net sales will increase
7 c. Net sales will decrease
d. Either (b) or (c)

If the ending balance in accounts payable decreases from one period to the next, which of the
a. Cash payments to suppliers exceeded current period purchases
b. Cash payments to suppliers were less than current period purchases
8 c. Cash receipts from customers exceeded cash payments to suppliers
d. Cash receipts from customers exceeded current period purchases

An increasing inventory turnover ratio

a. Indicates a longer time span between the ordering and receiving of inventory
b. Indicates a shorter time span between the ordering and receiving of inventory
9 c. Indicates a shorter time span between the purchase and sale of inventory
d. Indicates a longer time span between the purchase and sale of inventory

Beta Industries purchased a machine for $65,000 and is depreciating it with the straight-line m
10 years, using a residual value of $3,000. At the beginning of the sixth year, a major overhaul w
$5,000, and the total estimated useful life extended to 13 years with a residual value of $3,000
expense for Year 6 is:
a. $1,885
10 b. $2,000
c. $3,250
d. $4,500

Cash payments for salaries are reported in what section of the statement of cash flows?
a. Operating
b. Investing
11 c. Financing
d. None of the above
 You have observed that the net profit margin ratio for a retail chain has increased steadily over
years. The most likely explanation is which of the following?
a. Salaries for upper management as a percentage of total expenses have decreased over the la
b. New stores were added throughout the last three years, and sales increased as a result of th
locations
12 c. The company began construction of a new, larger main office location three years ago that w
the end of the second year
d. A successful advertising campaign increased sales companywide, but with no increases in
expenses

If a company is successful in acquiring several large buildings at the end of the year, what is the
asset turnover ratio?
a. The ratio will decrease
13 b. Either (a) or (c)
c. The ratio will increase
d. The ratio will not change

XY Company owns a building. Which of the following statements regarding depreciation as use
false?
a. As depreciation is recorded, stockholders' equity is reduced
14 b. As the value of the building decreases over time, it "depreciates"
c. Depreciation is an estimated expense to be recorded over the building's estimated useful life
d. As depreciation is recorded, the gross book value of the asset is reduced

Net income was $850,000. Beginning and ending assets were $8,500,000 and $9,600,000, resp
the return on assets (ROA)?
a. 9.39%
b. 10.59%
15 c. 9.94%
d. 10.41%

Which of the following items would not appear in the financing section of the statement of cas
a. The repurchase of the company's own stock.
b. The receipt of dividends.
16 c. The repayment of debt.
d. The payment of dividends.

A decrease in selling and administrative expenses would impact what ratio?

a. Fixed asset turnover ratio.
b. Times interest earned ratio.
17 c. Debt-to-equity ratio,
d. Current ratio.

The inventory turnover ratio for PQ Foods Ltd. is 14.6. The company reported cost of goods so
$1,500,000 and total sales of $2,500,000. What is the average amount of inventory for PQ Foo
a. $102,740
18 b. $171,233
c. $100,000
d. $60,000
 A company has quick assets of $300,000 and current liabilities of $150,000. The company purch
inventory on credit. After the purchase, the quick ratio would be
a. 2.0
19 b. 2.3
c. 1.5
d. 1.75

If a potential investor is analyzing three companies in the same industry and wishes to invest in
ratio is likely to affect the investor’s decisions.
a. Earnings per share
20 b. Price/earnings ratio
c. Dividend yield ratio
d. All of the above will likely affect the investor's decision

When recording depreciation, which of the following statements is true?

a. Total assets increase and stockholders' equity increases
b. Total assets decrease and total liabilities increase
21 c. Total assets decrease and stockholders' equity increases
d. None of the above are true

Company X is going to retire equipment that is fully depreciated with no residual value. The eq
be disposed of, not sold. Which of the following statement is true?
a. Total assets will not change as a result of his transaction
22 b. Net income will not be impacted as a result of this transaction.
c. This transaction will not impact cash flow
d. All of the above statements are true

A company is facing a lawsuit from a customer. It is possible, but not probable, that the compa
a settlement that management estimates to be $2,000,000. How would this fact be reported in
statements to be issued at the end of the current month?
a. $2,000,000 in the Current Liability section
23 b. $2,000,000 in the Long-Term Liability section
c. In a descriptive narrative in the footnote section
d. None because disclosure is not required

Issued common stock for $18,000, sold office equipment for $1,200, paid cash dividends of $4,
investments for $2,000, purchased new equipment for $4,000.What was the net cash inflow (o
investing activities?
a. ($4,800)
24 b. $20,200
c. ($2,800)
d. ($10,800)
 Consider the following: Issued common stock for $18,000, sold office equipment for $1,200, pa
of $4,000, purchased investments for $2,000, paid accounts payable of $4,000. What was the n
(outflow) from financing activities?
a. $20,000
25 b. $14,000
c. ($20,000)
d. ($14,000)
ART - 1
=25)
Your Answer
hoice given

g equation for a particular business entity

with the ending retained earnings

r a period of time c
olders' equity of an accounting entity at a

s is true?
flows must agree with the “bottom line"
nd outflows into three major categories:

gree with the amount shown on the d

4,309 million, total liabilities of $4,667,

llion. What is its current ratio and what

current liabilities
m obligations with current assets d

eet?

a customer for a sale last period. How

his period?
of goods sold $6,000, income tax
revenue $14,000), what amount would

nd allowances. At the same time, a credit

ent. What effect will these changes have

he next, which of the following is true?

entory
ventory
ory c
ry

ith the straight-line method over a life of

ear, a major overhaul was made costing
sidual value of $3,000. Depreciation

of cash flows?

a
ncreased steadily over the last three
decreased over the last three years
eased as a result of the additional new

three years ago that was put into use at d

ut with no increases in operating

f the year, what is the effect on the total

ng depreciation as used by accountants is

b
s estimated useful life
ed

and $9,600,000, respectively. What was

f the statement of cash flows?

o?

orted cost of goods sold in the amount of

inventory for PQ Foods Ltd?

d
0. The company purchased $50,000 in

and wishes to invest in only one, which

residual value. The equipment will simply

bable, that the company will have to pay

his fact be reported in the financial

cash dividends of $4,000, purchased

the net cash inflow (outflow) from

a
 ipment for $1,200, paid Cash dividends
4,000. What was the net cash inflow

b
 PART- 2
Alpha Corporation is a manufacturer of furniture. In a recent year, it reported the following activities:
Based on the below information, present the cash flows from investing and financing activities sections o

Net income $ 5,135

Purchase of property, plant, and equipment $ 2,081
Borrowings under line of credit (bank) $ 1,117
Proceeds from issuance of stock $ 11
Cash received from customers $ 37,164
Payments to reduce long-term debt $ 46
Sale of marketable securities $ 219
Proceeds from sale of property and equipment $ 7,586
Dividends paid $ 333
Interest paid $ 90
Purchase of treasury stock (stock repurchase) $ 2,583
 PART- 2
d the following activities:
nancing activities sections of the cash flow statement.

Cash flows from Financing activities Marks: 8

Proceeds from issuance of stock 11
Dividends paid -333
Purchase of treasury stock (stock repurchase)
-2583
Payments to reduce long-term debt -46
Borrowings under line of credit (bank) 1117

Cash flows from Investing activities

Purchase of property, plant, and equipment
$ (2,081)
Proceeds from sale of property and equipment7586
 PART- 3
For each of the following transactions of LM Inc., for the month of January, indicate the accounts, the am

a. Borrowed $30,000 from a local bank

b. Lent $10,000 to an affiliate: accepted a note due in one year.
c. Sold to investors 100 additional shares of stock with a par value of $0.10 per share and a market price o
d. Purchased $15,000 of equipment, paying $5,000 cash and signing a note for the rest due in one year.
e Declared a $2,000 in dividends to stockholders but not paid.

Assets = Liabilities +
a Cash = 30000
b Acc recivables=10000
c Cash = 30500
d Assets = 15000, Cash =25500 CL = 10000
e
 PART- 3
e the accounts, the amounts, and the direction of the effects on the accounting equation.

re and a market price of $5 per share, received cash.

rest due in one year.

Stockholder's equity Mraks(5*2=10)

Debt = 30000

500

No effect
quation.
 PART - 4
High Technology, a computer company based in Dubai, developed the modern standard for computer sou
products to directly compete with Apple's iPod. Presented here is a recent income statement (dollars in m

Net sales $ 232

Costs and expenses:
Cost of sales $ 182
Research and development $ 66
Selling, general, and administrative $ 62
Operating income (loss) $ (80)
Interest and other income (expenses), net $ 27
Income (loss) before provision (benefit) for income taxes $ (53)
Provision (benefit) for income taxes $ (8)
Net income (loss) $ (45)

The company's beginning and ending assets were $403 and $342, respectively

Listed here are hypothetical additional transactions. Assuming that they also occurred during the fiscal
additional transaction ('+' for increase, '-' for decrease, and 'NE' for no effect). Consider each item indep

a. Recorded sales on account of $400 and related cost of goods sold of $300.
b. Incurred additional research and development expense of $100, which was paid in cash.
c. Issued additional shares of common stock for $260 cash.
d. Declared and paid dividends of $90.
 PART - 4
ern standard for computer sound cards in the early 1990s. The company has released a line of portable audio
ncome statement (dollars in millions)

Your Answer
Transaction Gross profit Operating Income
a. "+"100
b. NE -100
c.
d.

ely

lso occurred during the fiscal year, complete the following tabulation, indicating the sign of the effect of each
ect). Consider each item independently and ignore taxes.

0.
as paid in cash.
y has released a line of portable audio

Marks(3*4=12)

Return on Assets

NE
"+"260
-90

indicating the sign of the effect of each

 PART- 5
As of December 31, Gama Company had the following account balances:

Accounts payable $ 6,000

Accounts receivable 7,000 Current ratio
Bonds payable 8,000 Interpretation
Cash 2,000
Current portion of bonds payable 2,000 CA
Long-term investments 2,500 CL
Marketable securities 3,500
Plant and equipment 8,500 CR
Wages payable 1,500

a. Calculate current ratio Marks( 2.5)

b.What the current ratio measures Marks( 2.5)
PART- 5

Your answer
Company abilities to pay short term obligation ot thouse due within one year is in worst situation for this gama
company, perfect CR is 2: 1, also we don’t0.543478260869565
know the gamma industry we cant say surely anthing about it
performance only using current ratio

12500
23000

0.543478261
uation for this gama
anthing about it
 PART - 6

1
F

I c

N l a l o

A a p F I X

N u i e

C r t q

E a u

c l i

g a i n t

e n t t t y

11

Solve the above crossword puzzle using following clues:

Across:
1) Book value is used for fixed assets because accounting follows ____________
3) Discounts received is a/an ___________ (6)
4) ______ from sale of fixed asset is a non-cash income (4)
5) The organization and its owners are different. This is called __________ conce
8) Equipment is a/an __________ asset (5)
9) Deferred tax is a/an ___________ liability (8)
11) Goodwill usually reflects the ___________ paid during acquisition (7)
12) Revenues are also referred to as ___________ (5)
14) Reduction in _____ increases profit (4)
17) Debt has ______ benefit (3)
Down:
2) Dividend paid is a cash flow due to ____________ activity (9)
7) Long term Debt and Equity are referred together as _________ (7)
9) Obligation of a company is referred to as _____________ (9)
10) ______ is one of the main sources of funds (6)
15) Calculating financial _________ is the first step of financial statement
16) ____________ is paid on debt (8)
18) Net income over revenues is known as profit _______ (6)
Up:
6) Profit is not cash. This is mainly because of _________ concept (7)
12) The proceeds from a sale of completely depreciated asset is known as
13) ____________ is the second stage of preparing accounting statements (6)
 PART - 6 Marks: 10

r a N

e T A X

n g t E r m

E D i R a

e o E r

l s S g

T i

c o s t n

S A L E S

lues:

follows _____________ principle (12)

4)
alled __________ concept. (6)

during acquisition (7)

vity (9)
________ (7)
_______ (9)

of financial statement analysis (6)

_ (6)

concept (7)
ated asset is known as ___________ value (7)
unting statements (6)