Financial Statement Analysis Multiple Choice Questions

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NOTE: Attempt all Questions to see the Result at the bottom of this page.

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1. 1)
   
   If current assets are Rs. 15.6 million, current liabilities Rs. 11.2 million and stocks Rs. 1.8 million, what is the acid test ratio?
   
   
   • A) 1.39
   • B) 1.23
   • C) 1.65
   • D) 0.89


2. 2)
   
   What will be the effect of conversion of a portion of bonds payable into common stock on the interest coverage ratio of the company?
   
   
   • A) Increase
   • B) Decrease
   • C) No effect
   • D) Can not be found from the given information


3. 3)
   
   What will be the effect on the inventory turnover ratio of the company, if it changed from FIFO to LIFO during the period of inflation?
   
   
   • A) Increase
   • B) Decrease
   • C) No effect
   • D) Can not be found from the given information


4. 4)
   
   Assume that a company has current assets of Rs. 60,000, current liabilities of Rs. 35,000 and prepaid expenses of Rs. 5,000. Calculate the quick ratio of the company?
   
   
   • A) 1.57
   • B) 1.71
   • C) 1.86
   • D) 0.58


5. 5)
   
   A complete set of financial statements for Hartman Company, at December 31, 1999, would include each of the following, EXCEPT:
   
   
   • A) Balance sheet as of December 31, 1999
   • B) Income statement for the year ended December 31, 1999
   • C) Statement of projected cash flows for 2000
   • D) Notes containing additional information that is useful in interpreting the financial statements


6. 6)
   
   Failure to record the receipt of a utility bill for services already received will result in which of the following?
   
   
   • A) An overstatement of assets
   • B) An overstatement of liabilities
   • C) An overstatement of equity
   • D) An understatement of assets


7. 7)
   
   Which of the following is the proper journal entry to record Ransom Company's billing of clients for Rs. 500 of services rendered?
   
   
   • A) Debit Cash 500; Credit Accounts Receivable 500
   • B) Debit Accounts Receivable 500; Service Revenue 500
   • C) Debit Accounts Receivable 500; Credit Capital Stock 500
   • D) Cash 500; Credit Service Revenue 500


8. 8)
   
   Which of the following transaction have an effect on expense account?
   
   
   • A) Purchase of office equipment on credit
   • B) Payment on accounts payable
   • C) Repayment of principle of bank loan
   • D) Payment of wages


9. 9)
   
   A business has purchased machinery on credit, what will be its journal entry?
   
   
   • A) Cash - (Debit); Machinery - (Credit)
   • B) Machinery - (Debit) ; Accounts payable - (Credit)
   • C) Accounts payable - (Debit) ; Machinery - (Credit)
   • D) Machinery - (Debit) ;Cash - (Credit)


10. 10)
    
    Which of the following is NOT normally required for revenue to be recognized according to the revenue principle for accrual basis accounting?
    
    
    • A) The price is fixed or determinable
    • B) Services have been performed
    • C) Cash that has already been collected
    • D) Evidence of an arrangement for customer payment exists