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Accounting For Equities Question Paper
Accounting For Equities
Course:Bachelor Of Commerce
Institution: University Of Nairobi question papers
Exam Year:2011
Choose the correct answer by writing the letter ( A to D) describing the answer
1.The major elements of the income statement are
a.revenue, cost of goods sold, selling expenses, and general expense.
b.operating section, non-operating section, discontinued operations, extraordinary items, and cumulative effect.
c.revenues, expenses, gains, and losses.
d.all of these.
2.Information in the income statement helps users to
a.evaluate the past performance of the enterprise.
b.provide a basis for predicting future performance.
c.help assess the risk or uncertainty of achieving future cash flows.
d.all of these.
3.Limitations of the income statement include all of the following except
a.items that cannot be measured reliably are not reported.
b.only actual amounts are reported in determining net income.
c.income measurement involves judgment.
d.income numbers are affected by the accounting methods employed.
4.Which of the following would represent the least likely use of an income statement prepared for a business enterprise?
a.Use by customers to determine a company's ability to provide needed goods and services.
b.Use by labor unions to examine earnings closely as a basis for salary discussions.
c.Use by government agencies to formulate tax and economic policy.
d.Use by investors interested in the financial position of the entity.
5.The income statement reveals
a.resources and equities of a firm at a point in time.
b.resources and equities of a firm for a period of time.
c.net earnings (net income) of a firm at a point in time.
d.net earnings (net income) of a firm for a period of time.
6.The income statement information would help in which of the following tasks?
a.Evaluate the liquidity of a company.
b.Evaluate the solvency of a company
c.Estimate future cash flows
d.Estimate future financial flexibility
7.Which of the following is an example of managing earnings down?
a.Changing estimated bad debts from 3 percent to 2.5 percent of sales.
b.Revising the estimated life of equipment from 10 years to 8 years.
c.Not writing off obsolete inventory.
d.Reducing research and development expenditures.
8.Which of the following is an example of managing earnings up?
a.Decreasing estimated salvage value of equipment.
b.Writing off obsolete inventory.
c.Underestimating warranty claims.
d.Accruing a contingent liability for an ongoing lawsuit.
9.What might a manager do during the last quarter of a fiscal year if she wanted to improve current annual net income?
a.Increase research and development activities.
b.Relax credit policies for customers.
c.Delay shipments to customers until after the end of the fiscal year.
d.Delay purchases from suppliers until after the end of the fiscal year.
10.What might a manager do during the last quarter of a fiscal year if she wanted to decrease current annual net income?
a.Delay shipments to customers until after the end of the fiscal year.
b.Relax credit policies for customers.
c.Pay suppliers all amounts owed.
d.Delay purchases from suppliers until after the end of the fiscal year.
11.Which of the following is an advantage of the single-step income statement over the multiple-step income statement?
a.It reports gross profit for the year.
b.Expenses are classified by function.
c.It matches costs and expenses with related revenues.
d.It does not imply that one type of revenue or expense has priority over another.
12.The single-step income statement emphasizes
a.the gross profit figure.
b.total revenues and total expenses.
c.extraordinary items and accounting changes more than these are emphasized in the multiple-step income statement.
d.the various components of income from continuing operations.
13.Which of the following is an acceptable method of presenting the income statement?
a.A single-step income statement
b.A multiple-step income statement
c.A consolidated statement of income
d.All of these
14.Which of the following is not a generally practiced method of presenting the income statement?
a.Including prior period adjustments in determining net income
b.The single-step income statement
c.The consolidated statement of income
d.Including gains and losses from discontinued operations of a component of a business in determining net income
15.The occurrence which most likely would have no effect on 2010 net income (assuming that all amounts involved are material) is the
a.sale in 2010 of an office building contributed by a stockholder in 1983.
b.collection in 2010 of a receivable from a customer whose account was written off in 2009 by a charge to the allowance account.
c.settlement based on litigation in 2010 of previously unrecognized damages from a serious accident which occurred in 2008.
d.worthlessness determined in 2010 of stock purchased on a speculative basis in 2006.
16.The occurrence that most likely would have no effect on 2010 net income is the
a.sale in 2010 of an office building contributed by a stockholder in 1961.
b.collection in 2010 of a dividend from an investment.
c.correction of an error in the financial statements of a prior period discovered subsequent to their issuance.
d.stock purchased in 1996 deemed worthless in 2010.
17.Which of the following is not a selling expense?
a.Advertising expense
b.Office salaries expense
c.Freight-out
d.Store supplies consumed
18.The accountant for the BC Sales Company is preparing the income statement for 2010 and the balance sheet at December 31, 2010. The January 1, 2010 merchandise inventory balance will appear
a.only as an asset on the balance sheet.
b.only in the cost of goods sold section of the income statement.
c.as a deduction in the cost of goods sold section of the income statement and as a current asset on the balance sheet.
d.as an addition in the cost of goods sold section of the income statement and as a current asset on the balance sheet.
19.In order to be classified as an exceptional item in the income statement, an event or transaction should be
a.unusual in nature, infrequent, and material in amount.
b.unusual in nature and infrequent, but it need not be material.
c.infrequent and material in amount, but it need not be unusual in nature.
d.unusual in nature and material, but it need not be infrequent.
20.Classification as an exceptional item on the income statement would be appropriate for the
a.gain or loss on disposal of a component of the business.
b.substantial write-off of obsolete inventories.
c.loss from a strike.
d.none of these.
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