S. P.

JAIN INSTITUTE OF MANAGEMENT & RESEARCH

PGEMP Batch _____ Pre Foundation Phase

Financial Accounting Marks: 50
Time: 60 min Date: 00/00/0000

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INSTRUCTIONS

 The examination shall be conducted on ‘Examsoft’ on your Laptop.

 Closed Book Exam.
 The students will not be allowed to carry their mobile phones and/ or tablets in the
Examination Hall.
 Calculators are allowed.

I. CHOOSE THE MOST APPROPRIATE ANSWER AND CIRCLE: (20 Marks)

1. An income statement communicates information regarding revenues and expenses:

a. For a period of time.
b. At a given point in time.
c. For some point of time in the future.
d. At the beginning of the fiscal year.

2. Which of the following best describes the balance sheet?

a. It includes a listing of assets at their market values.
b. It includes a listing of assets, liabilities, and shareholders' equity at their market values.
c. It provides information pertaining to a company's assets and the providers of the assets.
d. It provides information pertaining to a company's liabilities for a period of time

3. ABC Company owns land which cost $100,000. If a "quick sale" of the land was necessary to generate cash,
the company feels it would receive only $80,000. The company continues to report the asset on the balance
sheet at $100,000. This is justified under which of the following concepts?
a. The historical-cost principle.
b. Market value principle
c. Fair value principle
d. Materiality principle

4. Which of the following transactions would have no impact on shareholders’ equity (in our equation format)?
a. Purchase of land from the proceeds of a bank loan.
b. Dividends to stockholders.
c. Net loss.
d. Issue of fresh shares

5. Office equipment was purchased by issuing a check for $5,000 and a note payable for the balance of
$45,000. What effect did this transaction have on the financial position of the company?
a. Assets, no change; Liabilities, no change; Owners' Equity, no change

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 b. Assets, decrease; Liabilities, increase; Owners' Equity, no change
c. Assets, decrease; Liabilities, no change; Owners' Equity, decrease
d. Assets, increase; Liabilities, increase; Owners' Equity, no change
e. Assets, no change; Liabilities, no change; Owners' Equity, increase

6. An asset costing $6,000 was sold for $1,300 when its accumulated depreciation was $4,500. The transaction
entry to record the sale would have included
a. a $4,700 loss.
b. a $1,300 gain.
c. a $200 loss.
d. a $4,500 gain.
e. a $100 gain.

7. Unearned rent revenue would be listed under which of the following categories on a balance sheet?
a. current assets
b. long-term investments
c. current liabilities
d. stockholders' equity
e. Unearned rent revenue would not appear on the balance sheet

8. If the amount of Capital WIP is large, what is this telling you ?

a. That a huge expansion is in the pipeline.
b. That the asset cannot be depreciated until then.
c. The asset is not earning the company any profits
d. All of the above

9. If I follow the Written Down Value method -My profit (in the initial years) will be lower, because my
depreciation expense is _______
a. Higher
b. lower

10. Is it acceptable that some of the expenses reported on the income statement be estimates?
a. Yes
b. no

II. Raj Corporation had a gross profit of $40,000 which was one-third of its total sales. Raj's net
income (PAT) for the period was one-eighth of its cost of goods sold. Raj's selling expenses totaled
$10,000. Its interest expense was three times its tax expense and $1,000 more than its general and
administrative expenses.(5 Marks)

Required:
Determine the following only:(PLS DO NOT PREPARE THE INCOME STAT)
1. Sales
2. Cost of goods sold
3. Net income (PAT)
4. Income taxes
5. Interest expenses
6. General and operative expenses

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III. The accounts of the Capitan Company are shown below: (15 Marks)

Capitan Company
List of Accounts as on
December 31
Accounts payable $20,000
Accounts receivable 18,000
Accumulated depreciation 11,000
Equity shares 75,000
Cash 85,000
Building and equipment 81,000
Inventory 15,000
Long-Term investment 30,000
Land 27,000
Marketable securities 3,000
Mortgage payable 89,000
Patents 4,000
Prepaid rent 6,000
Retained earnings ?
Supplies 6,000
Taxes payable 11,000
Unearned revenue 19,000

Required: Prepare in corporate format( vertical or horizontal) a balance sheet at December 31 for the Capitan
Company. Assume that no dividends were declared during the year.

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IV. Respond to the statements below: (10 Marks)

i. Reserves are not equal to cash balance ,they are a function of Profitability
Ans:

ii. Financial statements are aimed at external users. Briefly explain how a companys internal managers in
different functional areas(marketing, purchasing,HR) might use financial statement information from their
own and other companies.
Ans:

iii. Accountants are criticized for knowing the cost of everything and the value of nothing
Ans:

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iv. Preference Shares have a preference over Equity on (a) dividends (b) return of capital
Ans:

v. Why does our company’s balance sheet report its land at cost when it is so much more valuable?
Ans:

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