FRA Mock Final Exam 21
FRA Mock Final Exam 21
FINAL EXAM
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
1
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
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
Ans: A
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
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:
2. Donald Plastics PLC is preparing its Cash Flow Statement for 2019. Compute net
cash flow from investing activities knowing that:
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?
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
6. Ranger, Inc. reported the following amounts during 2015 and 2014:
Row Boats, Inc. provided the following information for 2015 and 2014:
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
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.
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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%.