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FRA Mock Final Exam 21

mock exam

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0% found this document useful (0 votes)
61 views8 pages

FRA Mock Final Exam 21

mock exam

Uploaded by

Miriam Paradell
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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FINANCIAL REPORTING AND ANALYSIS

FINAL EXAM

MULTIPLE CHOICE QUESTIONS

1. Which one of the following is not an external user of accounting information?


a. Regulatory agencies.
b. Customers.
c. Investors.
d. All of the above are external users of accounting information.

Ans: d

2. A long term asset is depreciated over its useful life. Earnings before interest and tax
after the first year of depreciation is lower if the company uses:
a. The double declining depreciation.
b. The straight line depreciation.
c. Operating income is not affected by depreciation.
d. None of the above is correct.

Ans: A

3. If total liabilities decreased by ¥45,000 and equity decreased by ¥10,000 during a period
of time, then total assets must change by what amount and direction during that same
period?
a. ¥55,000 increase
b. ¥35,000 increase
c. ¥55,000 decrease
d. ¥35,000 decrease

Ans: c

4. Ron's Hot Rod Shop follows the revenue recognition principle. Ron services a car on
July 31. The customer picks up the vehicle on August 1 and mails the payment to Ron
on August 5. Ron receives the check in the mail on August 6. When should Ron show
that the revenue was earned?
a. July 31
b. August 1
c. August 5
d. August 6

Ans: a

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5. Consolidated financial statements are prepared when a company owns _________ of
the ordinary shares of another company.
a. less than 20%
b. more than 50%
c. less than 50%
d. between 20% and 50%

Ans: B

6. Which of the following adjustments would require decreasing the liabilities already
reported on the balance sheet?
a. A company uses $400 worth of supplies during the year.
b. A company records $400 worth of depreciation on equipment.
c. A company has earned $400 of revenue collected at the beginning of the year.
d. A company records $400 of wages earned by employees that will be paid next year.

Ans: c

7. Adjusting entries
a. ensure that the revenue recognition and expense recognition principles are
followed.
b. are necessary to enable the financial statements to conform to financial standards
(IFRS and US GAAP).
c. include both accruals and deferrals.
d. all of these answer choices are correct.
Ans: d

8. At the beginning of September, 2020, GLF Company reported Inventory of $8,000.


During the month, the company made purchases of $28,400. At September 30, 2020, a
physical count of inventory reported $9,600 on hand. Cost of goods sold for the month
is
a. $1,600.
b. $28,400.
c. $26,800.
d. $36,400.

Ans: C
9. The following data is available for Skyline Corporation at December 31, 2019:
Issued shares, par €10 (authorized 80,000 shares) € 600,000
Treasury shares (at cost €15 per share) € 1,800
Based on the data, how many ordinary shares are outstanding?
a. 80,000
b. 59,880
c. 79,880
d. 60,000

Ans: b

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10. In periods of rising prices, the inventory method which results in the inventory value
on the balance sheet that is closest to current cost is the
a. FIFO method.
b. LIFO method.
c. average-cost method.
d. all of the above methods.

Ans: A

11. The net amount expected to be received in cash from receivables is called the
a. gross realizable value.
b. gross cash value.
c. allowance value.
d. cash(net) realizable value.

Ans: D

12. Sales revenue


a. may be recorded before cash is collected.
b. will always equal cash collections in a month.
c. only results from credit sales.
d. is only recorded after cash is collected.

Ans: A

13. If an expenditure related to a depreciable asset is incorrectly treated as a capital


expenditure, instead of as repairs and maintenance expense, which of the following
statements is true?
a. The current year's net income will be lower and future depreciation expense will
be higher.
b. The current year's net income will be higher and future depreciation expense will
be lower.
c. The current year's net income will be higher and future depreciation expense will
be higher.
d. The current year's net income will be lower and future depreciation expense will
be lower.

Ans. C

Capitalizing an expenditure for a depreciable asset means that the expenditure is added to the
depreciable asset account rather than being immediately expensed. The asset account would
be too high and depreciation expense will be higher than it should be. The expenditure is not
expensed and net income will be higher than it should be.

14. A $600,000 bond was retired at 98 when the book value of the bond was $590,000. The
entry to record the retirement would include a
a. gain on bond redemption of $10,000.
b. gain on bond redemption of $2,000.
c. loss on bond redemption of $2,000.
d. loss on bond redemption of $10,000.

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Ans: b

15. When a company sells an asset at a gain, which of the following is true?
a. Proceeds from the sale exceeded the historical cost of the asset on the balance sheet.
b. Proceeds from the sale were less than the book value of the asset on the balance
sheet.
c. Proceeds from the sale exceeded the book value of the asset on the balance sheet.
d. Proceeds from the sale are equal to the historical cost of the asset on the balance
sheet.

Ans: C

16. On July 1, 2020, Hale Kennels sells equipment for $80,000. The equipment originally
cost $300,000, had an estimated 5-year life and an expected residual value of $50,000.
The accumulated depreciation account had a balance of $225,000 on January 1, 2020,
using the straight-line method. The gain or loss on disposal is
a. $45,000 gain.
b. $30,000 loss.
c. $45,000 loss.
d. $30,000 gain.

Ans: D

17. Which one of the following would not be recorded as an intangible asset?
a. Patents
b. Copyrights
c. Internally generated goodwill
d. Franchises

Ans: C

18. Unearned Rent Revenue is


a. a contra account to Rent Revenue.
b. reported as a current liability.
c. a revenue account.
d. debited when rent is received in advance.

Ans: b

19. Mouns Company owns 40% of the shares of Darian Corporation. During the year,
Darian pays $20,000 in dividends to Mouns, and reports $100,000 in net income.
Mouns Company’s investment in Darian will increase Mouns’ net income by
a. $20,000.
b. $40,000.
c. $32,000.
d. $8,000.
Ans: b

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20. Under the indirect method used to determine operating cash flows, a gain on disposal
of long term assets should be:
a. Deducted from Net Income because it is a result of an investment activity and
should therefore be reported in the Investing Cash Flow Section.
b. Added because it represents and additional source of operating revenue.
c. Neither added, nor deducted.
d. Added because it increases cash from operating activities.
Ans: A

CALCULATED ANSWERS
1. Morgan Corporation has an accrual basis net income for the period of 50,000 euros. It
is known that during the period:

Accounts receivable increase = 6,000 euros


Accounts payable decrease = 4,000 euros
Deferred/ Unearned revenues increase = 1,000 euros
PPE acquisition made in cash = 10,000 euros
PPE depreciation = 7,000 euros

Compute net cash flow from operating activities.

Solution: 48,000 euros

2. Donald Plastics PLC is preparing its Cash Flow Statement for 2019. Compute net
cash flow from investing activities knowing that:

A building was been acquired in cash for 200,000 euros


A machinery was been acquired for 10,000 euros signing a promissory note
Dividend payment to shareholders amounted 20,000 euros
Donald Plastics has bought shares of a competitor paying 30,000 euros in cash
Land has been sold by 40,000 euros in cash
PPE depreciation for the period is 9,000 euros

Solution: -190,000 euros

3. If a company has a cash conversion cycle of 100 days, the company does not have
inventory and also its DPO is 50 days, what is its DSO?

Solution: 150 days

4. A company has 1,000,000 outstanding shares (par value = 2€). For the period the
company has reported 12,000,000 euros of net income and 3,000,000 euros of
dividends paid. If the price per share in the stock market is 108 euros, compute the
Price-Earnings-Ratio.

Solution: 9

5
5. Selected balance sheet and income statement information for PG & Company for
fiscal year 2016 follows (millions):

Average Average
Current Net Interest Total Shareholders’
Assets Income Expense Assets Equity

2016 $18,782 $12,846 $946 $131,503 $62,269

Compute the return on financial leverage 2016.


Answer:
ROE = Net income / Average shareholders’ equity
2014: $12,846 / $62,269 = 20.6%

ROA = Earnings without interest (EWI) / Average total assets


2014: $12,846 / $131,503 = 9.7%

Return on financial leverage = ROE ‒ ROA


2014: 20.6% - 10.2% = 10.9%

6. Ranger, Inc. reported the following amounts during 2015 and 2014:

Dec. 31, 2015 Dec. 31, 2014


Net cash provided (used) by operating
activities $52,000 ($22,000)
Net cash provided (used) by financing
activities (10,000) 90,000
Net cash provided (used) by investing
activities (130,000) (32,000)
Cash balance ? 150,000
Net income 72,000 80,000

How much is the net increase or decrease in cash during 2015?


Answer:
Net cash provided by operating activities $52,000
Net cash (used) by financing activities (10,000)
Net cash (used) by investing activities (130,000)
Net decrease in cash during 20 13 $(88,000)

Row Boats, Inc. provided the following information for 2015 and 2014:

Retained earnings, December 31,


$76,000
2015
Retained earnings, December 31,
80,000
2014
Long term loan, December 31, 2015 42,000
Long term loan, December 31, 2014 49,000

6
Net income—2015 64,000

No new loans were taken out during 2015. Cash flow from financing activities for 2015
is:
-75,000

Answer:
Dividends paid = Beginning retained earnings + net income ‒ ending retained earnings
= $80,000 + $64,000 - $76,000 = $68,000

Cash paid on loans = Beginning note payable + new loans ‒ ending note payable
= $49,000 + $0 - $42,000 = $7,000

Cash flows from financing activities:


Cash paid for dividends $(68,000)
Cash paid for note payable (7,000)
Cash flows used for financing
activities $(75,000)

7. Flynn Corporation had net income of €6,000,000 in 2019. Using 2019 as the base
year, net income decreased by 70% in 2020.

Compute the net income reported by Flynn Corporation for 2020.

Answer: X ÷ €6,000,000 = 70%


X = €6,000,000 × .70 = €4,200,000
The decrease is €4,200,000; therefore net income for 2020 is €1,800,000.

8. Selected information from the comparative financial statements of Fryman Company


for the year ended December 31, appears below:
2020
Inventory € 140,000
Accounts receivable (net) 180,000
Total assets 1,200,000
Non-current liabilities 340,000
Current liabilities 140,000
Net credit sales 1,520,000
Cost of goods sold 750,000
Interest expense 40,000
Income tax expense 60,000
Net income 160,000

Times interest earned in 2020 is: 6.5 times.


Answer: TIE= (160,000+60,000+40,000)/40,000= 6.5

7
9. Yonge’s 2015 financial statements show interest expense of $435 million, net income
of $602 million, sales of $90,374 million, and average total assets of $23,491 million.
Assume that the statutory tax rate is 35%.

How much is Yonge’s profit margin for the year?


Answer: 602/90374= 0.6%= 0.006

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