KARACHI INSTITUTE OF MANAGEMENT STUDIES

Affiliated with

UNIVERSITY OF KARACHI
Paper: FINANCIAL ACCOUNTING II
Class : MBA II

Teacher Name:Rahmat Ullah

Q1:

Date: 18th May 2016

Max. Marks: 30
Max. Time: 45 Minutes

Encircle the correct possible answer

1. ____________highlights the relative importance of debt financing to the firm by

showing the percentage of the firms assets that is supported by debt financing.
a. Total Debts To Total Assets Ratio
b. Debt To Equity Ratio
c. Assets Turnover Ratio
d. Return On Assets
2. What is the formula for interest coverage ratio (Times Interest Earned)
a. Earning before interest and taxes(EBIT)/interest expenses
b. Interest/ operating income
c. Operating income/interest expenses
d. Both a and c
3. ___________the length of time from the commitment of cash for purchases until the
collection of receivables resulting from the sale of goods or services.
a. Operating Cycle
b. Cash Cycle
c. Receivable Cycle
d. Both a And b
4. Barnaby Cartage Company has current assets of $800,000 and current liabilities of
$500,000. What effect would the following transactions have on the firms current
ratio?
The company borrows $100,000 short term to carry an increase in receivables of the
same amount.
a. Current assets decline, and there is no change in current liabilities.
b. Current assets and current liabilities each increase by the same amount.
c. Neither current assets nor current liabilities are affected.
d. Current assets decline and current liabilities increase by the same amount.
5. ABC Company made net sales of 6million dollars in the year 2015. Its total assets
turnover was 6. How much were the total assets.
a. 1 million dollars
b. 6 million dollars

c. 12 million dollars
d. 36 million dollars
6. ______________ indicates the relative size of each item included in a TOTAL(e.g. : total
assets, total liabilities in case of balance sheet and net sales in case of income
statement).
a. Dollar and Percentage Changes
b. Ratios
c. Trend Percentages
d. Component Percentages
7. Which one of the following does not belong to the income statement?
a. Interest Expenses
b. Prepaid Expenses
c. Cost of Goods Sold
d. Income Taxes
8. If the Current Ratio of a company is 3:1, then it means that the __________
a. Current Assets>Current Liabilities and its position is strong.
b. Current Liabilities>Current Assets and its position is strong.
c. Current Liabilities<Current Assets and its position is weak.
d. Current Assets > Current Liabilities and its position is weak.
9. A ___________ Debt Ratio indicates a ________ proportion of financing provided by
creditors.
a. Low, Small
b. High, Large
c. High, Small
d. Low, Large
10. ___________ is a measure of the productivity of assets, regardless of how the assets are
financed.
a. Return On Equity
b. Earnings Per Share
c. Debt To Assets Ratio
d. Return on Assets.
11. Quick Ratio is also known as ___________.
a. Fast Ratio
b. Current Ratio
c. Acid- Test Ratio
d. Cash Ratio
12. From the view point of a stock holder, which of the following relationships do you
consider of least significance?

a. The Return On Assets consistently is higher than the industry average

b. The Return on Equity has increased in each of the past five years.
c. Net Income is greater than the amount of Working Capital.
d. The Return on Assets is greater than the rate of interest being paid to creditors.
13. If a companys current ratio declined in a year during which its quick ratio improved,
which of the following is the most likely explanation.
a. Inventory is increasing
b. Inventory is decreasing
c. Receivables are being collected more quickly than in the past.
d. Receivables are being collected more slowly than in the past.
14. Which of the following usually is least important measure of short-term liquidity?
a. Quick Ratio
b. Current Ratio
c. Debt Ratio
d. Working Capital
15. A company is having Quick Ratio of __________ if Current Assets = Rs 10,000, Inventory
=Rs 2,000 and Current Liabilities=Rs 8,000.
a. 3:2
b. 9:1
c. 1:1
d. 2:1
16. In _________ financial statements, similar items are grouped together to produce
subtotals which may assist users in their analyses.
a. Consolidated
b. Classified
c. Comparative
d. Composite
17. _____________ are used to show the increase or decrease in a financial statement
amount over a period of years by comparing the amount in each year with the base-year
amount.
a. Trend Percentages
b. Component Percentage
c. Both a and b
d. None of the above
18. Determine a firm's Total Asset Turnover (TAT) if its Net Profit Margin (NPM) is 5 percent,
Total Assets are $8 million, and ROI is 8 percent.
a. 1.60
b. 2.05
c. 2.50

d. 4.00
19. The Gross Profit Margin is unchanged, but the Net Profit Margin declined over the same
period. This could have happened if
a. Cost of Goods Sold increased relative to sales.
b. Sales increased relative to expenses.
c. The Pakistani Government increased the Tax rate.
d. Dividends were decreased.
20.Revenues of Shangrilla Company in 2015 were Rs 520,000,000 and net income was Rs
17,500,000. So the component percentage is___________.
a. 0.34 %
b. 0.43 %
c. 3.4 %
d. 34.0 %

Q2:

Write T for true and F for false statements in the boxes

21. A company can improve (lower) its debt-to-total assets ratio by selling common stock.
22. The lower the Total Debt-To-Equity Ratio, the greater the financial risk for a firm.
23. A low Receivables Turnover is desirable.
24. A firm's operating cycle is equal to its inventory turnover in days (ITD) plus its
receivable turnover in days (RTD).
25. The comparison of financial data over several time periods is called vertical analysis.
26. Unearned revenue belongs to the income statement.
27. When current ratio = 2, current assets = Rs 50,000, then the current liabilities will be
Rs 25,000.
28. Long-term creditors are mostly interested in liquidity ratios.
29. If the beginning assets of a company are Rs 300,000 and ending assets are Rs 346,390
whereas the return on assets (ROA) is 16.61%, then its operating income is approx. Rs
53683.
30. Current ratio= Quick Assets+Inventory+Prepayments / Current Liabilities.

T
F
F
T
F
F
T
F
T
T