Class Test MBA 2019 Maximum marks: 20

Time Allowed: 1 hr Student Code#............................

Note: Question 1-30 carries 1/2 mark

Circle the appropriate answer for questions 1-30 (15 marks)

1. An advantage of a sole trader is that the owner has:

a. limited liability
b. a variety of skills available to tap into
c. Effective control over his or her business strategy
d. Department of small and cottage industries to help when in financial trouble

2. Which of the following would appear in the income statement of a sole trader?
a. Accumulated depreciation of computer
b. Sales revenue
c. Retained earnings
d. Motor vehicle

3. Retained earnings in a company’s statement usually reflect:

a. Profit before tax retained in the company
b. Profit after tax added on to previous loss
c. The after-tax profit retained in the company, perhaps accumulated after years of
trading after dividends have been deducted
d. Profit earmarked for a future takeover by a multinational company

4. Business transactions are recognized in accounting only when:

a. Goods are sold on credit
b. Cash and credit transactions have occurred between two public companies
c. A cheque is written for the owner’s personal spending
d. There has been an external exchange of resources between the entity and another
entity or individual
Class Test MBA 2019 Maximum marks: 20
Time Allowed: 1 hr Student Code#............................

5. What will the effect be on total assets for a business purchasing a computer for cash?
a. An increase in equity
b. Absolutely no change
c. An increase in both cash and computer account by the same amount
d. Cash going down and computer going up by different amounts

6. Which of these is not a current liability?

a. Trade creditor
b. Wages owing
c. Finance company loan repayable in five years
d. Bank overdraft

7. The income statement reflects the:

a. Current and non-current assets of an entity over a period of time
b. Accounting return (profit)for an entity for a specified time period
c. Gross profit for an entity
d. Total amount of equity of shareholders

8. Which of the following statements is NOT correct about accrual basis of accounting:
a. Recognizing income without receiving cash
b. Receiving cash but not recognizing income
c. Recognizing an expense when cash paid
d. Paying cash but not recognizing an expense

9. Management accounting:
a. Is more formal than financial accounting
b. Provides information for external users
c. Provides less formal, more timely information for decision making
d. Is bound by the accounting standards
Class Test MBA 2019 Maximum marks: 20
Time Allowed: 1 hr Student Code#............................

10. ‘Inflows or other enhancements of assets, or decreases of liabilities that result in an

increase in equity other than those relating to contributions from equity participants’ is
the definition of income.
a. True
b. False

11. The term which describes the overall direction, control and management of an entity is:
a. Triple bottom line
b. corporate governance
c. sustainable business
d. business entity

12. If the owner pays his home heating bill for $450 from the business bank account, the
$450 will:
a. increase the asset cash and expense on the business income statement
b. reduce the asset cash and a reduce owner’s equity
c. Reduce the asset cash and increase revenue.
d. Increase income and a decrease asset cash.

13. A present obligation of the entity arising from past events, the settlement of which is
expected to result in an outflow from the entity of resources embodying economic
benefits’ is a definition of asset.
a. True
b. False

14. The qualitative characteristics of financial reports which imply that information should
bewithout bias and undue error is
a. faithful representation
b. Relevance
c. Completeness
d. Comparability
Class Test MBA 2019 Maximum marks: 20
Time Allowed: 1 hr Student Code#............................

15. Profit results of an entity can be used to evaluate past decisions but no useful in making
future predictions.
a. True
b. False

16. Which of the following would be recorded as income for the current accounting period?
a. A customer pays a deposit for services to be provided in the following accounting
period.
b. Cash is received for a credit sale made in the previous accounting period.
c. The owner contributes cash to the business.
d. A sale is made on credit.

17. The first activity of the accounting process is

a. Communication.
b. Identification.
c. Processing.
d. Recording.

18. The historical cost principle states that

a. Assets should be initially recorded at cost and adjusted when the fair value
changes.
b. Activities of an entity are to be kept separate and distinct from its owner.
c. Assets should be recorded at their cost.
d. Only transaction data capable of being expressed in terms of money be included
in the accounting records.

19. Owner’s equity is equal to

a. Assets plus liabilities.
b. Assets minus revenues.
c. Revenues minus expenses.
d. Assets minus liabilities.
Class Test MBA 2019 Maximum marks: 20
Time Allowed: 1 hr Student Code#............................

20. The financial statement that reports assets, liabilities, and owner’s equity is the
a. Income statement.
b. Owner’s equity statement.
c. Balance sheet.
d. Statement of cash flow.

21. The revenue recognition principle dictates that companies recognize revenue in the
accounting period
a. Before services are performed.
b. After services are performed.
c. In which services are performed.
d. In which it is collected.

22. The statement of cash flows classifies cash receipts and cash payments by these activities
a. Operating and non-operating.
b. Investing, financing, and operating.
c. Financing, operating, and non-operating.
d. Investing, financing, and non-operating.
23. Which of the following items is reported on a statement of cash flows prepared by the
direct method?
a. Loss on sale of building
b. Increase in accounts receivable
c. Depreciation expense
d. Cash payments to suppliers
24. In vertical analysis, the base amount for depreciation expense is generally:
a. Net sales.
b. Depreciation expense in a previous year.
c. Gross profit.
d. Fixed assets.
Class Test MBA 2019 Maximum marks: 20
Time Allowed: 1 hr Student Code#............................

25. Net income is $132,000, accounts payable increased $10,000 during the year, inventory
decreased $6,000 during the year, and accounts receivable increased $12,000 during the
year. Under the indirect method, what is net cash provided by operating activities?
a. $102,000
b. $112,000
c. $124,000
d. $136,000

26. In horizontal analysis, each item is expressed as a percentage of the

a. Net income amount.
b. Stockholders’ equity amount.
c. Total assets amount.
d. Base year amount.

27. Ratios that measure short-term ability of the company to pay its maturing obligations are
a. Liquidity ratios.
b. Profitability ratios.
c. Solvency ratios.
d. Trend ratios.

28. Cash dividends paid to stockholders are classified on the statement of cash flows as:
a. Operating activities.
b. Investing activities.
c. A combination of (a) and (b).
d. Financing activities.
29. Free cash flow provides an indication of a company’s ability to:
a. Generate net income.
b. Generate cash to pay dividends.
c. Generate cash to invest in new capital expenditures.
d. Both (b) and (c).
Class Test MBA 2019 Maximum marks: 20
Time Allowed: 1 hr Student Code#............................

30. A measure useful in evaluating the efficiency in managing inventories is:

e. Inventory turnover.
f. Average days to sell inventory.
g. Both (a) and (b).
h. None of the above.

31. Business primarily exists to maximize investor value. However, they also have a bigger
responsibility towards society and environment. Do you agree? Give reasons by making
reference to relevant theories and principles. (5 marks)