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Multiple Choice Questions on Financial Accounting

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Q1.A Company has decided to redeem its preference shares at a premium of
$ 0.25. The preference shares were originally issued at $ 1.15 each.

Prior to the redemption the company's Balance Sheet showed the following
$000

Ordinary shares of $1.00 1000
8% redeemable preference shares of $1.00 600
Share premium 100
Retained Profit 750
2450

How will the reserves appear in the Balance Sheet after the preference shares
Have been redeemed?

Q2 Y ltd purchases the business of J Brown by issuing $1 shares at a premium
Of $0.20. Y ltd agrees to take over J Browns assets and liabilities at the date
Of the acquisition as follows
Fixed assets $150,000
Current assets $ 75000
Creditors $ 5000
Bank loan $20,000

Goodwill is valued at $10,000

How many shares will J Brown receive from Y ltd?

A 158000 B 175000 C 200,000 D 210,000

Q3. The following data is available for XYZ plc

Issued Ordinary shares $1000,000
Nominal value per share $ 1.00
Market value per share $ 2.30
Net profit after taxation $200,000
Retained earnings % of
Net profit after 50

What is the net dividend yield?

A 4.35% B 8.7% C 10% D 20%

Q4.The table shows the capital structure of a company
$

100,000 Ordinary shares of $ 1 each 100,000

10% debentures 50,000
Reserves 100,000

It increases the debentures by $50,000 and makes a bonus issue of one share for
Every two held. It then makes a rights issue of a further 100,000 shares at $ 1.00

How will these transactions affect the Balance sheet?

Gearing reserves bank
A decrease decrease decrease
B Increase decrease decrease
C increase decrease increase
D decrease increase increase

Q5 A Company's debtors total $27000. There is a collection period of 30 days.

The budget for the coming year provides for an increased turnover of
50% with the relevant collection period being increased to 60 days.

What will the year-end debtors be?
A$ 13500 B 27000 C 40500 D 81000

Q6 The standard time for a job is set at 50 hours. The standard direct labor rate
Is $8.00 per hour? The job was completed in 65 hours at a direct lab our
Cost of $455.

What is the direct lab our rate variance?

A. $55 Adverse B $55 favorable C $65 adverse D $65 favorable

Q7 A project has the following net present values

Discount factor 30% 50%
NPV $52000 -$16000

What is the approximate internal rate of return for the project?

A 35% B 38% C 40% D 45%

Q8 A company's published profit and loss account fives the following
Information.
$Million
Operating profit $ 4000
Interest expense 200
Taxation 1150
Preference dividends 300
Ordinary dividends 1200

What is the profit figure to be used in the calculation of earnings per ordinary
Share?

A $1150 Million B $2350 million C$ 2650 Million D $ 3800 Million

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Q1.A Company has decided to redeem its preference shares at a premium of
$ 0.25. The preference shares were originally issued at $ 1.15 each.

Prior to the redemption the company's Balance Sheet showed the following
$000

Ordinary shares of $1.00 1000
8% redeemable preference shares of $1.00 600
Share premium 100
Retained Profit 750
2450

How will the reserves appear in the Balance Sheet after the preference shares
Have been redeemed?

Capital Redemption Reserves Share Premium Retained Profit
000 000 000

A 600 100 nil
B 600 10 90
C 750 nil 100
D 750 10 150

Premium for preference shares will be 600 X $ 0.25= $ 150
Share premium is 100 initially. This will reduce to zero as premium is initially paid from this account.
Answer C

Q2 Y ltd purchases the business of J Brown by issuing $1 shares at a premium
Of $0.20. Y ltd agrees to take over J Browns assets and liabilities at the date
Of the acquisition as follows
Fixed assets $150,000
Current assets $ 75000
Creditors $ 5000
Bank loan $20,000

Goodwill is valued at $10,000

How many shares will J Brown receive from Y ltd?

A 158000 ...

Solution Summary

The solution answers 8 Multiple choice questions on redemption of preference shares, reserves, issue of shares at a premium, Goodwill, debentures, collection period, rate variance, NPV, earnings per ordinary shares.

$2.19
See Also This Related BrainMass Solution

Several Accounting Problems

Question 1

Which of the following is shown on both a multiple-step and a single-step income statement?

a. Gross profit.
b. Net sales.
c. Income from operations.
d. Other expenses and losses.
e. None of the above

Save answer

Question 2

The records for Uptown Pet Shop showed the following:Sales $225,000 Beginning merchandise inventory $ 30,000
Purchases 135,000 Cost of goods sold 150,000
What was the ending merchandise inventory?

a. $120,000
b. $ 75,000
c. $ 45,000
d. $ 15,000
e. None of the above

Question 3

Under a perpetual inventory system merchandise is purchased for cash. Which is the correct journal entry to record this purchase?

a. Debit to Purchases and a credit to Cash
b. Debit to Merchandise Inventory and a credit to Accounts Payable
c. Debit to Merchandise Inventory and a credit to Cash
d. Debit to Purchases Returns and Allowances and a credit to Cost of Goods Sold
e. None of the above

Question 4

An item of merchandise with a list price of $200 was purchased with a trade discount of 40% and credit terms of 3/10, n/30. The vendor was paid within the discount period. Which is the correct journal entry to record the payment?

a. Accounts Payable, debit, $200.00; Purchases Discount, credit, $86.00; Cash, credit, $114.00
b. Accounts Payable, debit, $80.00; Merchandise Inventory, credit, $2.40; Cash, credit, $77.60
c. Accounts Payable, debit, $120.00; Merchandise Inventory, credit, $3.60; Cash, credit, $116.40
d. Purchases, debit, $200.00; Purchase Discount, credit, $86.00; Cash, credit, $114.00
e. None of the above

Question 5

The buyer received an invoice from the seller for merchandise with a list price of $400 and credit terms of 2/10, n/60. The term 'n/60' in the credit terms is which of the following?

a. Credit period
b. Trade discount
c. Cash discount allowed for early payment of the invoice
d. Discount period
e. None of the above

Question 6

Part of the merchandise purchased for cash at an earlier time is now being returned. Which of the following is the correct journal entry for this return, assuming the seller grants cash refunds and a perpetual inventory system is used?

a. A debit to Cash and a credit to Purchases
b. A debit to Cash and a credit to Merchandise Inventory
c. A debit to Purchases Returns and Allowances and a credit to Cost of Goods Sold
d. A debit to Merchandise Inventory and a credit to Cash
e. None of the above

Question 7

Net sales is Sales less

a. Sales returns.
b. Sales discounts.
c. Sales returns and allowances.
d. Sales returns and allowances and sales discounts.
e. None of the above

Question 8

Office supplies are purchased on account. The company uses a perpetual inventory system. What is the correct journal entry for this purchase of office supplies?

a. A debit to Purchases and a credit to Cash
b. A debit to Merchandise Inventory and a credit to Cost of Goods Sold
c. A debit to Office Supplies and credit Accounts Payable
d. A debit to Merchandise Inventory and a credit to Accounts Payable
e. A debit to Office Supplies and a credit to Cash

Question 9

Gross margin (gross profit) from sales is the difference between which of the following?

a. Net sales and the cost of goods sold plus all the expenses
b. Net sales and operating expenses
c. Gross sales less the sales discounts and sales returns and allowances
d. Net sales and the cost of goods sold
e. None of the above

Question 10

A retailer who uses a perpetual inventory system purchased $8,000 of merchandise on credit. The credit terms were 2/10, n/30, FOB destination. The freight costs were $130. What was the journal entry to record the purchase?

a. Merchandise Inventory, debit, $8,000; Freight-In, debit, $130; Accounts Payable, credit, $8,130
b. Merchandise Inventory, debit, $8,130; Accounts Payable, credit, $8,130
c. Merchandise Inventory, debit, $8,000; Accounts Payable, credit, $8,000
d. Merchandise Inventory, debit, $7,870; Freight-In, debit, $130; Accounts Payable, credit, $8,000
e. None of the above

Question 11

Overland purchased $3,000 of merchandise from Overseas. The credit terms were 2/10, n/30. The freight terms were FOB shipping point. Freight costs of $60 were included in the invoice. What journal entry should Overland record, assuming Overland uses a perpetual inventory system?

a. Merchandise Inventory, debit, $3,000; Freight-In, debit, $60; Accounts Payable, credit, $3,060
b. Merchandise Inventory, debit, $3,000; Accounts Payable, credit, $3,000
c. Merchandise Inventory, debit, $2,940; Accounts Payable, credit, $2,940
d. Merchandise Inventory, debit, $2998.80; Accounts Payable, credit, $2,998.80
e. Merchandise Inventory, debit, $3,060; and Accounts Payable, credit, $3,060.

Question 12

In a perpetual inventory system, which of the following would be debited when inventory is sold on account?

a. Cost of goods sold.
b. Merchandise inventory
c. Sales
d. Accounts receivable
e. A & D

Question 13

FOB Shipping Point means that the

a. Good are placed free on board to the buyer's place of business
b. Buyer pays the freight
c. Seller pays the freight
d. The trucking company pays the freight
e. None of the above

Question 14

In a perpetual inventory system. A return of defective merchandise is recorded by crediting

a. Purchases
b. Purchase Returns
c. Purchase Allowance
d. Merchandise Inventory
e. None of the above

Question 15

In a perpetual inventory system, which of the following is not part of the series of journal entries made when merchandise is sold on credit?

a. Credit the Cost of Goods Sold account
b. Credit the Sales account
c. Credit the Merchandise Inventory account
d. Debit the Accounts Receivable account
e. None of the above

Question 16

The records for Roberta's Bridal Shoppe showed the following:Cash $115,000 Current Liabilities $ 45,000
Net Receivables 27,000 Revenues 170,000
Merchandise Inventory 95,000 Operating Expenses 119,000
Short-term Investments 20,000
What is the acid-test ratio?

a. 3.16:1
b. 3.60:1
c. 5.71:1
d. 2.56:1
e. None of the above

Question 17

The net sales of the business totals $200,000 and the Cost of Goods Sold for the same period totals $146,000. What is the gross margin ratio?

a. 0.22
b. 0.25
c. 0.27
d. 0.33
e. None of the above

Question 18

Under the periodic inventory system, which of the following is the Purchases account not used to record?

a. Cash purchases of merchandise inventory
b. Purchases of any asset on account or note payable
c. Purchases of merchandise inventory on account
d. A and C
e. None of the above

Question 19

Under the periodic inventory system, which of the following is a correct closing entry?

a. Income Summary, debit; Sales, credit
b. Income Summary, credit; Purchase Returns and Allowances, debit
c. Income Summary, debit; Merchandise Inventory (ending balance), credit
d. Purchases, debit; Income Summary, credit
e. All of the entries shown are correct closing entries

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