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Strengths and Improvement Opportunities

FADM II End Term Exam
Course: Financial Accounting for Decision Making II - OL (GMBA Jan 17 Tri - I) ‡Instructor: Suraj Gupta ‡Questions: 41

70.00% My Score
(35/50)

QUESTION POINTS
CORRECT INCORRECT PARTIAL CREDIT
The stock of Zamona was trading at $890 per share on April 10. When the company announced that it had
1 recently discovered a new technology for smart retail stores. The stock price immediately went up to $910 per 1/1
share. The company had 10,000,000 shares outstanding. Indicate the effects of this discovery on Zamona's
financial statements. (1 Mark)
ᅞA:
ᅞB:
ᅞC:
ᅚD:
On January 1, 2016 SEA Company issued $200,000 in bonds payable. The bonds were issued at face value and
2 carried 5-year term to maturity. They had a 8% stated rate of interest that was payable in cash on January 10th of 1/1
each year beginning January 10, 2017. Based on this information, the amount of total liabilities appearing on the
December 31, 2016 balance sheet would be: (1 Mark)
ᅞA: $200,000
ᅚB: $216,000
ᅞC: $16,000.
ᅞD: $232,000.
Paya Lebar Company has a line of credit with the East Asia State Bank. Paya Lebar agreed to pay interest at an
3 annual rate equal to 2% above the bank's prime rate. Funds are borrowed or repaid on the first day of each month 0/2
and interest is paid in cash on the last day of each month. Borrowing is shown as a positive amount, and
repayments are shown as negative amounts indicated by parentheses. Activity to date is given as follows: (2
Marks) The total interest paid for the three months period is:
ᅞA: 2000
ᅚB: 2375
ᅞC: 1565
ᅞD: 1734
You are considering an investment in Wal-Mart stock and wish to assess the firm's long-term debt-paying ability
4 and its use of debt financing. All of the following ratios can be used to assess solvency except: (1 Mark) 1/1
ᅞA: Number of times interest is earned.
ᅞB: Debt to equity ratio.
ᅞC: Debt to assets ratio.
ᅚD: Net margin.
The following balance sheet information is provided for Hard Rock Company: (1 Mark) Assuming 2015 cost of
5 goods sold is $120,000, what is the company's inventory turnover for 2015? 1/1
ᅞA: 3.15 times
ᅚB: 3.4 times
ᅞC: 4.5 times
ᅞD: 2.75 times
Gleneagles Company has cash of $60,000, accounts receivable of $80,000, inventory of $50,000, and equipment of
6 $200,000. Assuming current liabilities of $50,000, and long-term liabilities of $100,000 this company's net working 1/1
capital is: (1Mark)
ᅞA: 120,000
ᅚB: 140,000
ᅞC: 190,000
ᅞD: 160,000
 Jurong Company collected $10,000 on account. What impact will this transaction have on the firm's current ratio?
7 (1 Mark) 1/1
ᅞA: Increase it
ᅞB: Decrease it
ᅞC: Requires more information
ᅚD: No impact
The study of an individual financial statement item over several accounting periods is called: (1 Mark)
8 1/1
ᅚA: Horizontal analysis
ᅞB: Vertical analysis.
ᅞC: Ratio analysis.
ᅞD: Time and motion analysis.
Financial statement analysis involves forms of comparison including: (1 Mark)
9 1/1
ᅞA: Comparing changes in the same item over a number of periods.
ᅞB: Comparing key relationships within the same year.
ᅞC: Comparing key items to industry averages.
ᅚD: All of these answer choices are correct.
Labrador Company has a Debt -Equity Ratio of 1.5. The total liabilities for Labrador were $300. The company had
10 earned a net income of $ 25 million for the year 2016. The return on equity (ROE) for the company is: (2 Marks) 0/2
ᅞA: 15%
ᅚB: 12.5%
ᅞC: 20%
ᅞD: 10%
Common methods of financial statement analysis include all of the following except: (1Mark)
11 1/1
ᅞA: Horizontal analysis
ᅞB: Vertical analysis
ᅞC: Ratio analysis
ᅚD: Incremental analysis
Amazon has reported the following Sales and average account receivables for the period 2012 to 2016. (2 Marks)
12 What is the Average days to collect receivables in the year 2015? Use 365 days in a year 0/2
ᅚA: 212
ᅞB: 150
ᅞC: 195
ᅞD: 237
Planman Consulting wants to have minimum net working capital of $ 5 million and a minimum current ratio of 1.5.
13 The required amount of current assets and current liabilities of Planman would be: (2 Marks) 2/2
ᅚA:
ᅞB:
ᅞC:
ᅞD:
Alexandra Company is seeking a short-term loan from its local bank. The banker needs assurance that the
14 company will be able to repay the loan. Which of the following ratios will be more useful to the bank to assess the 1/1
payment capability of Alexandra. (1 Mark)
ᅞA: Earnings per share
ᅞB: Dividend Yield
ᅚC: Times interest earned
ᅞD: Days to pay the accounts payables
Boeing Company reported the following revenue (USD billion) for the period 2012 to 2016. (2 Mark) Which of the
15 following statements is incorrect? 2/2
ᅞA: The growth in sales from 2012 to 2013 is more than the growth in sales from 2013 to 2014
ᅞB: The growth in sales from 2014 to 2015 is the highest during the period
ᅞC: The growth in sales from 2015 5o 2016 is the least during the period
ᅚD: The growth in sales from 2013 to 2014 is 8%
 On the statement of cash flows, the sum of the three major components (operating activities, investing activities,
16 financing activities) adds up to (1 Mark) 0/1
ᅞA: Net income for the period.
ᅚB: Net change in the cash and cash equivalents
ᅞC: Closing cash balance for the period
ᅞD: Income before taxes
Which of the following items would be used to compute "Net Cash Flow from Investing Activities" on a Statement
17 of Cash Flows? (1 Mark) One - Issue common stock Two - payment of principal on note payable Three - 1/1
depreciation expense Four - sale of equipment for cash
ᅞA: One and Four
ᅞB: One, Two, Three, and Four
ᅚC: Four only
ᅞD: Three only
On June 1, 2016, the Promenade Company purchased equipment for $80,000 making a down payment of $30,000
18 cash and signing a one-year note payable on the balance. The note carried an interest rate of 10%, and all interest 0/2
was to be paid on the maturity date. Which of the following correctly shows the combined effect of the purchase
as well as the accrual of interest on December 31, 2017? (Note: Ignore depreciation. Direct method is used) (2
Marks)
ᅚA:
ᅞB:
ᅞC:
ᅞD:
On October 1, 2016, the Tanah Merah Company purchased equipment for $50,000 making a down payment of
19 $25,000 cash and signing a one-year note payable on the balance. The note carried an interest rate of 10%, and all 2/2
interest was to be paid on the maturity date. Which of the following correctly shows the combined effect of the
purchase as well as the accrual of interest on December 31, 2016? (Note: Ignore depreciation; Direct method is
used).(2 Marks)
ᅚA:
ᅞB:
ᅞC:
ᅞD:
On December 31, 2016, Red Hill Company signed a contract to perform $55,000 worth of services for the Orchard
20 Company over the next three years. Which of the following indicates the effects of this event on the income 0/1
statement and statement of cash flows of Red Hill on December 31, 2016. (1 Mark)
ᅞA:
ᅞB:
ᅚC:
ᅞD:
On January 1, 2016, the Outram Company purchased equipment for $60,000 cash. The equipment will be
21 depreciated on a straight-line basis for 10 years without any salvage value. On December 31, 2016, depreciation 1/1
was recorded. Which of the following correctly shows the combined effect of these two events on the income
statement and statement of cash flows? Outram uses the Direct Method. (1 Mark)
ᅚA:
ᅞB:
ᅞC:
ᅞD:
During 2016 Resorts World Sentosa Company had the following changes in account balances. Use this
22 information to determine the Cash Flow from financing activities and Cash Flow from Investing Activities (2 0/2
Marks) Statement 1) The Accumulated Depreciation account had a beginning balance of $35,000 and an ending
balance of $45,000. The increase was due to depreciation expense. Statement 2) The Long-Term Notes Payable
account had a beginning balance of $60,000 and an ending balance of $75,000. The increase was due to issue of
debt. Statement 3) The Equipment Account had a beginning balance of $20,000 and an ending balance of $80,000.
The increase was due to the purchase of equipment. Statement 4) The Long Term Investments Account
(Marketable Securities) had a beginning balance of $15,000 and an ending balance of $10,000. The decrease was
due to the sale of investments at cost. Statement 5) The Dividends Payable account had a beginning balance of
$15,000 and an ending balance of $10,000. There was $30,000 of dividends declared during the period. Statement
6) The Interest Payable account had a beginning balance of $5,250 and an ending balance of $1,250. The
difference was due to the payment of interest.
ᅚA:
ᅞB:
ᅞC:
ᅞD:
 Clarke Quay Company sold land that had cost $50,000 for $70,000 cash. Which of the following is the correct
23 statement (1 Mark) 1/1
ᅞA: The $20,000 gain would be subtracted from net income in the operating activities section using the indirect method.
ᅞB: 50,000 would appear as a cash inflow from investing activities and $20,000 would be added in the operating activities section
using the indirect method.
ᅚC: The $20,000 gain would be subtracted from net income in the operating activities section using the indirect method and
$70,000 would appear as a cash inflow from investing activities.
ᅞD: $70,000 would appear as a cash inflow from investing activities.
Which of the following statements is not true for Operating Activities section of a cash flow statement (1 Mark)
24 1/1
ᅞA: FASB recommended the direct method to prepare the Operating activities section of the cash flow statement
ᅞB: Most companies follow indirect method to prepare the Operating activities section
ᅚC: Depreciation is not to be adjusted under the indirect method to prepare the Operating Activities section
ᅞD: Total Cash Flow from Operating activities should be the same under Direct and Indirect Methods
Which of the following is a Non-cash Investing and Non-cash financing activity (1 Mark)
25 1/1
ᅚA: Purchased equipment from a vendor for $ 1million and issued stock of the company in return
ᅞB: Issue of Common stock for $100 million to buy the new technology
ᅞC: Borrowed $100 million from FNB Bank to construct new facility
ᅞD: Issued $5 million preferred stock to the supplier to purchase raw material
Amazon has done the stock split for three times as shown in the following table. If you were holding 100 shares
26 before the first stock split in 1998, how many shares would you be having after the last stock split in 1999. You 2/2
did not make any additional purchase or sale of Amazon's stock during this period. (2 Marks)
ᅞA: 900
ᅞB: 1500
ᅞC: 700
ᅚD: 1200
Which of the following is not a valid reason for Stock-Split (1 Mark)
27 1/1
ᅞA: A corporation may split its stock in order to reduce the market value of stock.
ᅞB: A lower price will make the shares more affordable to investors
ᅚC: A stock split is used to increase the earnings per share
ᅞD: A stock split increases the trading of the stock in the stock market
PSA Corporation had 40,000 shares of $20 par value common stock outstanding and declared a four-for-one
28 stock dividend. How many new shares of stock would then be outstanding and what would be the par value of the 1/1
new stock? (1 Mark)
ᅞA: 10,000 shares, and 5 par value
ᅚB: 200,000 shares, and 20 par value
ᅞC: 10,000 shares, and 20 par value
ᅞD: 100,000 shares and 10 par value
Which of the following is the correct explanation for Par Value of a stock (1 Mark)
29 1/1
ᅚA: "Par value" is an arbitrary value assigned to stock when it is authorized.
ᅞB: ಯPar valueರis arrived at after adding the retained earnings to paid-in capital
ᅞC: ಯPar valueರis the value of stock repurchased
ᅞD: ಯPar valueರis always above the market price of the stock
Which of the following statement is not correct for Cumulative Preferred Stock? (1 Mark)
30 0/1
ᅞA: Cumulative preferred stock is stock whose dividends accumulate from year to year when dividends are not declared.
ᅚB: Preferred Stock holders are granted 10 votes for every one preferred share held
ᅞC: If dividends are declared, the preferred shareholders must first be paid both current year and any dividends in arrears before
the common shareholders can be paid dividends.
ᅞD: Preferred Stock dividend is a fixed rate on par value
Harper Co. declared a 2-for-1 stock split. Before that announcement, Harper had 10,000,000 shares of outstanding
31 common stock. The number of shares outstanding after the stock-split is implemented: (1 Mark) 1/1
ᅞA: 5,000,000
ᅞB: 10,000,000
ᅞC: 15,000,000
ᅚD: 20,000,000
 On January 1, 2017 the Pasir Company borrowed $500,000 cash from SN Bank by issuing a five-year 10% term
32 note. The principal and interest are repaid by making annual payments beginning on December 31, 2017. The 1/1
annual installment on the loan would be $131,899. The amount of principal repayment included in the December
31, 2017 payment is: (1 Mark)
ᅚA: 81, 899
ᅞB: 92,362
ᅞC: 100,000
ᅞD: 85,321
The Hort Corporation issues a 10-year note payable on January 1, 2016 for $5,000. The interest rate is 6% and the
33 annual payment of $1,156, due each December 31, includes both interest and principal. Which of the following 1/1
answers correctly shows the effect of the issuance of the note on Hort's financial statements at the time of issue?
(1 Mark)
ᅞA:
ᅞB:
ᅚC:
ᅞD:
Which of the following correctly describes an installment note? (1 Mark)
34 0/1
ᅞA: An installment note requires equal interest payments with the entire principal balance paid at maturity.
ᅞB: An installment note requires equal payments of interest and principal in which the amount of interest increases over the life of
the note.
ᅚC: An installment note requires equal payments of interest and principal in which the amount of interest decreases over the life of
the note.
ᅞD: The installment note requires decreasing payments of interest and principal in which the amount of interest remains constant
over the life of the note.
Which of the following is not a feature of Line of Credit (1 Mark)
35 1/1
ᅞA: A line of credit enables firms to borrow a limited amount of funds on an as-needed basis.
ᅞB: Applications need only be completed once; repayments and borrowings can be accomplished whenever the borrower desires
ᅞC: The borrower has greater flexibility when a line of credit is established prior to the actual need
ᅚD: The borrower has to take the approval from SEC to create a line of credit
Which of the following repayment structures maintains the same interest payment every year? (1 Mark)
36 1/1
ᅚA: Bullet Structure
ᅞB: Amortization Structure
ᅞC: Sinking Fund Structure
ᅞD: None of the above
On January 1, 2016, Florence Co. issued $200,000 of bonds at the face value. Interest is paid in cash on December
37 31 of each year. Indicate the effects of the payment of interest on 31/12/2016. (1 Mark) 1/1
ᅞA:
ᅚB:
ᅞC:
ᅞD:
On January 1, 2015, Buono Vista Co. issued 8%, $200,000 of bonds payable at the face value. When the bonds
38 matured on December 31, 2022, Buono repaid the bonds at face value. The interest was paid on 31st December 1/1
every year. The effect of this transaction on the cash flow statement prepared on 31st December 2020 will be: (1
Mark)
ᅞA: $200,000 outflow in Operating Activities
ᅞB: $200, 000 inflow in Financing Activities
ᅞC: $216,000 outflow in Financing Activities
ᅚD: $ 16,000 outflow in Operating Activities
On January 1, 2015, Kent Ridge Co. issued 10%, $100,000 of bonds payable at the face value. When the bonds
39 matured on December 31, 2022, the total cash outflow on December 31, 2022 will be: (1 Mark) 1/1
ᅞA: $100,000
ᅞB: $90,000
ᅚC: $110,000
ᅞD: $ 10,000
 Bogle Company has 5 million equity shares outstanding on 31.12.2016. The company has declared a 2-for-1 stock
40 dividend. The number of shares outstanding after the stock dividend is completed would be (1 Mark) 0/1
ᅞA: 2.5 million
ᅞB: 5 million
ᅚC: 15 million
ᅞD: 10 million
On January 1, 2016, Marina Bay Co. issued $300,000 of bonds with an interest rate of 10% p.a. paid at the end of
41 each year. The following financial statements will be effected on December 31, 2016 (1 Mark) 1/1
ᅞA: Income Statement and Balance Sheet
ᅞB: Income Statement Alone
ᅞC: Balance Sheet Alone
ᅚD: Income Statement, Balance Sheet and Cash Flow Statement

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