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1. Within the EU, accountancy standard setting evolved largely as a consequence of:
(a) A lack of public confidence in the accounts after the accounting scandals
(b) The Eastern European countries joining the EU
(c) Company directors wanting to provide information consistent with their competitors
(d) The formation of the International Accounting Standards Committee
3. The European Commission announced that International Financial Reporting Standards (IFRSs)
had to be adopted by 2005 by:
4. The body that has superseded the International Accounting Standards Committee is the:
5. According to the IASB Framework, the main purpose of financial reporting is to:
8. The charging of depreciation expense over the life of an asset rather than the immediate full
expensing of its costs is an example of:
(a) Consistency
(b) Reliability
(c) Matching
(d) Prudence
9. Which of the following statements best describes the term 'going concern'?
(a) The ability of the entity to continue in operation for the foreseeable future
(b) The income less expenses of an entity are negative
(c) The potential to contribute to the flow of cash and cash equivalents to the entity
(d) When current assets less current liabilities become negative
10. Which of the following statements is true of the qualitative characteristics of 'understandability'
in relation to information in financial statements?
11. Which of the following terms best describes information in financial statements that is neutral?
(a) Relevant
(b) Understandable
(c) Reliable
(d) Unbiased
12. Which of the following terms best describes financial statements whose basis of accounting
recognizes transactions and other events when they occur?
(a) Accrual basis of accounting
(b) Cash basis of accounting
(c) Invoice basis of accounting
(d) Going concern basis of accounting
13. Which of the following is the best description of 'reliability' in relation to information in financial
statements?
14. Which of the following terms best describes information that influences the economic decisions
of users?
(a) Reliable
(b) Relevant
(c) Prospective
(d) Understandable
15. Which two of the following are listed in the IASB Framework as 'underlying assumptions'
regarding financial statements?
16. Financial statements include a balance sheet, an income statement and a statement of changes in
equity. Which two of the following are also included within the financial statements?
17. According to the IASB Framework, which two of the following characteristics are described as
principal qualitative characteristics that make the information provided in financial statements
useful to users?
(a) Understandability
(b) Accrual
(c) Going concern
(d) Relevance
18. 'A series of reports that are time-consuming and expensive to prepare is presented to the board
of directors each month even though the reports are never used'. Which of the following qualitative
characteristics or constraints is violated by this statement?
(a) Prudence
(b) Materiality
(c) Balance between benefit and cost
(d) Completeness
19. In preparing accounting statements accountants adopt a number of basic rules. These rules can
be classified into three categories: boundary, measurement and ethical. Which one of the following is
not a measurement rule?
20. Which accounting rule requires that if there is some doubt over the treatment of a particular
transaction, income should be under-estimated and expenditure over-estimated?
(a) Matching
(b) Consistency
(c) Reliability
(d) Going concern
1. The accounting cycle consists of which of the following number of specific steps?
a. Three
b. Four
c. Five
d. Eight
a. Establishing accountability
b. Obtaining detailed information about a particular transaction
c. Evaluating efficiency and performance of various departments
d. All of the above
a. journal, only.
b. ledger, only.
c. trial balance, only.
d. both the journal and the ledger.
a. T account.
b. modified account.
c. ledger account.
d. none of the above.
6. Which of the following is not true about the normal balance of the accounts or account categories
shown below?
a. Assets normally have a debit balance.
b. Liabilities normally have a credit balance.
c. Owners' equity accounts normally have a credit balance.
d. Accounts receivable normally has a credit balance.
7. Which of the following is a correct statement of the rules of debit and credit?
9. Which of the following provides a system of recording every business transaction with equal
dollar amounts of both debit and credit entries?
a. Matching principle
b. Realization principle
c. Double-entry accounting
d. Accrual basis of accounting
10. Economic events (transactions) that affect the accounting equation are initially recorded in which
of the following?
a. Ledger
b. T account
c. Journal
d. Trial balance
11. The process of transferring information from the journal to the ledger, in order to update the
ledger, is called which of the following?
a. Posting
b. Recording
c. Journalizing
d. Accounting
12. Recording a $100,000 investment by owners on January 1 for capital stock of the company will
result in which of the following?
14. The January 1 purchase of $50,000 of office equipment by issuing a check for $5,000 and a note
payable for the balance will cause an overall effect of:
15. If an asset is debited, which of the following might also have occurred?
16. On March 1 you paid the non-interest-bearing $45,000 note payable dated and issued on January
1. The payment of the note will result in which of the following?
17. The collection of an account receivable of $3,000 on January 15 will result in which of the
following?
a. An increase in revenue.
b. An increase in cash, only
c. A decrease in accounts receivable, only.
d. No increase in total assets, total liabilities, or total owners' equity.
a. The company can have a cash shortage and still have net income.
b. Net income represents an asset.
c. Net income is the result of revenues exceeding expenses.
d. Net income represents an increase in owners' equity.
20. To provide the users of financial statements with timely information, net income is measured for
relatively short accounting periods of equal length as called for by which of the following?
a. Matching principle
b. Realization principle
c. Time period principle
d. Accrual basis of accounting
a. Balance sheet
b. Income Statement
c. Statement of Cash Flows
d. Statement of Owners' Equity
2. Which of the following refers to the relationship of one financial statement to another?
a. Articulation.
b. Association.
c. Relative compliance.
d. An accounting principle.
a. Two
b. Three
c. Four
d. Varying number
4. If assets total $400,000 and owners' equity totals $250,000, then total liabilities must be
a. $450,000
b. $550,000
c. $150,000
d. $250,000
a. Two
b. Three
c. Four
d. Five
6. Consider the following:
Assets $300,000
Liabilities $90,000
a. $210,000
b. $30,000
c. $180,000
d. $90,000
Cash $30,000
Buildings $900,000
Supplies $5,000
Which item and its balance would be shown first in the balance sheet?
a. Capital stock
b. Accounts payable
c. Cash
d. Buildings
8. Which accounting concept, principle, or assumption is based in the notion that the owners are
separate and distinct from the business?
a. Cost principle
b. Business entity principle
c. Going-concern assumption
d. Objectivity principle
9. Which accounting concept, principle, or assumption is based in the notion that the enterprise has
an indefinite life span?
a. Cost principle
b. Business entity principle
c. Going-concern assumption
d. Objectivity principle
10. When a company purchases for $50,000 cash an asset with a market value of $52,000, which
accounting concept, principle, or assumption specifically requires that the asset be reported at
$50,000 in the balance sheet?
a. Cost principle
b. Business entity principle
c. Going-concern assumption
d. Objectivity principle
11. Some liquid assets are reported in the balance sheet at the amount that is expected when the
assets are converted into cash. This valuation is known as which of the following?
12. Reporting assets at historical cost even during periods of inflation or deflation is adherence to
which of the following?
a. Cost principle
b. Objectivity principle
c. Going-concern assumption
d. Stable-dollar assumption.
13. In which order are liabilities usually listed in the balance sheet
19. Office equipment was purchased for cash. What effect did this transaction have in the financial
position of the company?
20. Office equipment was purchased by issuing a check for $10,000 and a note payable for the
balance of $60,000. What effect did this transaction have in the financial position of the company?
1. According to the accounting profession, which of the following would be considered a cash-flow
item from a "financing" activity?
a. balance sheets.
b. income statements.
c. income tax and depreciation data.
d. None of the above answers are
a. a forecasting technique.
b. a funds flow analysis.
c. a ratio analysis.
d. calculations for preparing the balance sheet.
a. Depreciation.
b. Dividends.
c. Interest payments.
d. Taxes.
7. According to the accounting profession, which of the following would be considered a cash-flow
item from an "investing" activity?
a. the percentage change in retained earnings assuming a steady state model where the
retention rate is held constant.
b. being positively related to the firm's target return on equity and negatively related to
its target retention rate.
c. the maximum annual percentage increase in sales that can be achieved based on
target operating, debt, and dividend-payout ratios.
d. being negatively related to the firm's target return on equity and positively related to
its retention rate.
11. A firm receives cash for 30% of its sales with the remaining 70% being credit sales. Of the credit
sales, 20% are collected in the month of sale, 60% in the month following the sale, and 20% in the
second month following the sale. Forecasted sales for January through April are $400,000, $500,000,
$600,000, and $400,000 respectively. What are total cash receipts in the month of April?
a. $120,000
b. $400,000
c. $498,000
d. $530,000
12. A firm makes all purchases on credit. Cash payment on this trade credit is required in the month
following purchase on 70% of all purchases. The firm takes a 2% cash discount and makes payment
for the remaining 30% of all purchases in the month of purchase. Forecasted purchases for January
through April are $300,000, $375,000, $450,000, and $300,000 respectively. In the month of March,
what is the total cash disbursement for purchases?
a. $132,300
b. $394,800
c. $403,200
d. $450,000
13. Assume that total cash receipts for January through June are $100, $120, $80, $60, $120, and $190
respectively. Also assume that total cash disbursements for January through June are $80, $100, $80,
$150, $150, and $70 respectively. Your firm has a beginning cash balance at the beginning of January
of $55. At the end of what month is the firm forecasting a negative cash balance?
a. June.
b. May.
c. April.
d. March.
14. Assume that total cash receipts for January through June are $100, $120, $80, $60, $120, and $190
respectively. Also assume that total cash disbursements for January through June are $80, $100, $80,
$150, $150, and $70 respectively. Your firm has a beginning cash balance at the beginning of January
of $20 and requires a minimum cash balance of $30. At the end of what month is the firm forecasting
a cash balance below the minimum?
a. January.
b. February.
c. March.
d. April.
15. Which of the following statements regarding forecasted ending cash balances?
a. The cash balance is simply a forecast and the ending cash balance can be more
correctly viewed via a probability distribution of possible ending cash balances.
b. The forecasted ending cash balance reveals the firm's actual profits.
c. From an internal management standpoint, a range of possible cash balances is much
less useful to managers than a single most-likely ending cash balance.
d. If the forecasted ending cash balance is below a minimum required level, then the
firm will have to borrow funds.
16. Information that goes into __________ can be used to help prepare __________.
17. In preparing a forecast balance sheet, it is likely that either cash or __________ will serve as a
"plug figure" or balancing factor to ensure that assets equal liabilities plus shareholders' equity.
a. retained earnings
b. accounts receivable
c. shareholders' equity
d. Notes payable (short-term borrowings)
18. The accounting statement of cash flows reports a firm's cash flows segregated into what
categorical order?
19. The firm paid $800,000 in dividends over the last period. The beginning and ending retained
earnings account balances were $10,100,000 and $12,500,000 respectively. Assuming a 40% average
tax rate, what was the firm's net income (net profit after taxes)?
a. $1,600,000
b. $2,400,000
c. $3,200,000
d. $5,333,333
20. The firm had a net increase of $800,000 in net fixed assets over the last period. The beginning and
ending net fixed asset account balances were $9,100,000 and $9,900,000 respectively. If the firm
purchased $2,000,000 in additional fixed assets and sold $100,000 of fixed assets at book value, what
was the firm's depreciation expense over the period?
a. $800,000
b. $1,100,000
c. $1,900,000
d. $2,700,000
(a) 1 (b) 2
(c) 3 (d) 4
4 In case of application for transfer Debenture Certificate is to be issued within _________ months
(a) 1 (b) 2
(c) 3 (d) 4
a) Interest b) dividend
a) Share holders
b) Debenture holder
d) None of these
a) Interest
b) Dividend
c) Commission
d) None of these
a) Bearer
b) Unregistered
c) Secured
13. Debentures payable to person whose name appears both on Debenture Certificate and
a) Bearer
b) Unregistered
c) Registered
d) None of these
14. Debentures which have the charge on the property of the company is ________
a) Secured
b) Unsecured
c) Registered
d) None of these
15. Debenture which are repayable only on the happening of an event of winding up is called
a) Redeemable
b) Irredeemable
c) Perpetual
16. For the purpose of debt equity ratio Fully Convertible Debentures are classified as
___________
a) Debt
b) Equity
d) None of these
a) Debt
b) Equity
d) None of these
a) 13.12.2000
b) 13.12.2001
c) 13.12.2002
d) 13.12.03
19. Amount due on redemption including interest should be claimed with in ________ years.
a)10
b)9
c)8
d)7
b) Children welfare
d) None of these
1. A credit rating assesses the ………. worthiness of an individual, corporation, or even a country.
a. Credit
b. Debit
c. Financial
d. None of these
2. Credit ratings are calculated from financial history and current ……….. and liabilities.
a. Money
b. Assets
c. Investor
d. All of these
3. A credit rating tells a lender or investor the …………. of the subject being able to payback a loan.
a. Probability
b. Finance
c. Management
d. Assets
4. ………….. is important since individuals and corporations with poor credit will have difficulty finding
financing, and will most likely have to pay more due to the risk of default.
a. Debit
b. Credit
c. Assets
d. liabilities
a. Information
b. Report
c. Status
d. All of these
7. The credit reporting agencies will ………………. this information to those same lenders for the
purpose of determining credit worthiness.
a. Backward
b. Forward
c. Different
d. None of these
a. public markets
b. global markets
c. markets
d. agencies
9. The Rating Committee, which assigns the final rating, consists of specialized ……………. and
credit analysts.
a. management
b. financial
c. creditworthiness
d. None of these
10. A …………. is an opinion given on the basis of information available at particular point of time.
a. Rating
b. Debit
c. Assets
d. agencies
11. ……….. are undertaken only at the request of the issuers and only those ratings which are
accepted by the issuers are published.
a. Debit
b. Credit
c. Ratings
d. liabilities
a. financial analysis
b. rating
c. assets
d. None of these
13. Credit rating agencies may evaluate the financial instruments offered by ………………..
a. different groups
b. same groups
c. liabilities
d. assets
a. credit agencies
b. ratings
c. debit
d. None of these
15. Ratings are considered to be an objective evaluation of the probability that a borrower will
default on a given security issue, by the …………………...
a. credit
b. Investors
c. Accountant
d. All of these
16. ………….. measure the risk of default of a microfinance institution’s obligations.
a. Credit ratings
b. Investors
c. Rating
d. Credit
17. Credit rating gives an idea in advance to the investors about the degree of …………… strength of
the issuer company.
a. Financial
b. Ratings
c. Credit
d. None of these
18. …………… need not seek advice from the stock brokers, merchant bankers or the portfolio
managers before making investments.
a. Rating
b. Investors
c. Credit
d. financial
19. ……………..by professional and specialized analysts reposes confidence in investors to rely upon
the credit symbols for taking investment decisions.
a. Credit rating
b. Investors
c. Agencies
d. None of these
20. …………………. with highly rated instrument enjoy better goodwill and corporate image in the
eyes of customers, shareholders, investors Credit Rating and creditors.
a. Companies
b. Investors
c. Financial
d. Management
Answers of Self Assessment Questions
1. (a) 2.(b) 3.(a) 4.(b) 5.(c)
1. What is a legal agreement, also called the deed of trust, between the corporation issuing bonds
and the bondholders that establish the terms of the bond issue?
a. Indenture.
b. Debenture.
c. Bond.
d. Bond trustee.
2. __________ is a high-risk, high-yield bond rated below investment grade; while a/(an) __________
bond has its interest payment contingent on sufficient earnings of the firm.
3. To acquire rail engines or similar equipment, a railroad might issue __________, which is a lease
type of financing.
a. only one form -- the corporation purchases bonds in the open market and delivers a
given number of bonds to the trustee.
b. only one form -- the corporation pays cash to the trustee, who in turn calls the bonds
for redemption.
c. only one form -- bonds mature periodically and the corporation retires them in the
order that they mature.
d. two forms -- (1) the corporation purchases bonds in the open market and delivers a
given number of bonds to the trustee; or (2) the corporation pays cash to the trustee,
who in turn calls the bonds for redemption.
5. Which of the following statements is correct in distinguishing between serial bonds and sinking-
fund bonds?
a. Serial bonds mature at a variety of dates, but sinking-fund bonds mature at a single
date.
b. Serial bonds provide for the deliberate retirement of bonds prior to maturity, but
sinking-fund bonds do not provide for the deliberate retirement of bonds prior to
maturity.
c. Serial bonds do not provide for the deliberate retirement of bonds prior to maturity,
but sinking-fund bonds do provide for the deliberate retirement of bonds prior to
maturity.
d. None of the above are correct since a serial bond is identical to a sinking fund bond.
6. A 12% coupon rate, $1,000 par bond currently trades at 90 one year after issuance. Which of the
following is the most likely call price?
a. 87
b. 90
c. 102
d. 112
7. An issue of preferred stock has __________ feature that requires all cumulative unpaid dividends
on preferred stock to be paid prior to paying any dividends on common stock.
a. an arrearage
b. a cumulative dividends
c. a preceding condition
d. a participation
8. What type of long-term financing most likely has the following features: 1) it has an infinite life, 2)
it pays dividends, and 3) its cash flows are expected to be a constant annuity stream?
a. Long-term debt.
b. Preferred stock.
c. Common stock.
d. Both the second and third answers are
9. What type of long-term financing most likely has the following features: 1) it has a finite life, 2)
failure to pay the cash flows could lead to bankruptcy, and 3) its cash flows are expected to be a
constant annuity stream?
a. Long-term debt.
b. Preferred stock.
c. Common stock.
d. Both the second and third answers are
10. What is the book value of common equity per share of common equity outstanding for the
following firm? The firm has 20,000 common shares authorized of which 15,000 are outstanding at a
par value of $1. Additional paid-in-capital represents $300,000 and retained earnings are an
additional $300,000.
a. $1
b. $20
c. $21
d. $41
11. The firm has 20,000 common shares authorized, 15,000 shares outstanding, and 3,000 shares of
treasury stock. How many common equity shares are issued?
a. 2,000
b. 5,000
c. 17,000
d. 18,000
12. Which of the following statements is correct regarding common stock and its features?
13. Which of the following statements concerning the rights of common shareholders is correct, or
most accurate?
14. What is the maximum number of directors can you guarantee electing under the following
conditions? You own 500,001 voting shares and the firm has 1,000,000 voting shares and will be
electing 9 directors under a majority voting system?
a. 9
b. 5
c. 4
d. 0
a. a unique voting system that allows minority shareholders to elect at least one
director.
b. a protective agreement that allows shareholder the ability to purchase new shares in
the same percentage as their current ownership proportion.
c. a legal document giving one entity or person the authority to vote for another.
d. All of the above answers are in
16. A firm has two classes of common stock outstanding. The first class is nonvoting; while the
second class, owned by the original founders, has voting rights. This is usually referred to as
__________.
17. What is the main reason for a firm to engage in a refunding of an existing 30-year bond issue that
still has 25 years until maturity when it has no sinking fund requirements?
a. To raise additional funds for the firm to use with new capital budgeting projects.
b. To drastically lower the firm's debt (and debt ratio) when there is no sinking fund
requirement.
c. To lower the interest cost of long-term debt.
d. All of the above answers are
18. Who or what is a person or institution designated by a bond issuer as the official representative
of the bondholders?
a. Indenture.
b. Debenture.
c. Bond.
d. Bond trustee.
19. __________ is a long-term, unsecured debt instrument with a lower claim on assets and income
than other classes of debt; while a/(an) __________ bond issue is secured by the issuer's property.
20. A special purpose vehicle (SPV) raises money by selling __________ where interest and principal
payments are provided by cash flows from a discrete pool of assets.
a. Variable costs of products are allocated to products and the unsold stock is measured
at total variable cost of production
b. All production costs are absorbed into products and the unsold stock is measured at
total cost of production
c. All production costs are absorbed into products and the unsold stock is measured at
direct cost of production
d. All direct costs of production are absorbed into products and the unsold stock is
measured at direct cost of production
a. £4,200
b. £1,300
c. £2,900
d. £2,100
3. Comparing the profit of Period 1 under absorption costing with that under marginal costing, the
difference is explained by:
a. The increase or decrease in volume of stock over the period multiplied by the total
cost per unit
b. The increase or decrease in volume of stock over the period multiplied by the selling
price per unit
c. The increase or decrease in volume of stock over the period multiplied by the
variable cost per unit
d. The increase or decrease in volume of stock over the period multiplied by the
production overhead cost per unit
4. Using absorption costing, the value of closing stock at the end of Period 1 is:
a. £560
b. Nil
c. £420
d. £400
5. Using marginal costing, the value of closing stock at the end of Period 1 is:
a. £400
b. £420
c. £560
d. Nil
a. variable costing.
b. total costing.
c. marginal costing.
d. activity based costing.
9. Which one of the following bases would be most appropriate for apportioning a company's
general advertising costs?
10. A company's service centre costs totalled £95,000, and are reapportioned to three production
departments (A, B and C) in the ratio 33:25:17 respectively. What is the total amount (to the nearest
pound) apportioned to departments C?
a. £41,800.
b. £1,267.
c. £31,667.
d. £21,533.
11. A business absorbs overheads on the basis of hours worked on a specific job. If the overhead
absorption rate has been calculated at £30 per hour, and a job is estimated to take 20 hours, what
price would be charged to the customer if the company's mark-up is 50%?
a. £300.
b. £1,200.
c. £900.
d. £600.
13. Under marginal costing, the break even point is found by the following formula:
14. A retail company sells computers, each of which is sold for £250 and bought from the
manufacturer for £100. The retailer’s fixed costs are £150,000. Maximum possible sales are 3,000.
How many computers must be sold to break-even?
a. 1,000.
b. 3,000.
c. 750.
d. 2,000.
15. Using the information in question 8, how much profit or loss would be made if 2,700 computers
were sold?
a. £150,000 loss.
b. £450,000 profit.
c. £162,000 profit.
d. £255,000 profit.
16. Using the information in question 8, how many computers would have to be sold for the
company two and a profit of £180,000?
a. 720.
b. 2,200.
c. 1,000.
d. 1,200.
a. Direct costing.
b. Indirect costing.
c. Marginal costing.
d. Both (a) and (c).
a. True
b. False
2. If revenues received from …………remain roughly unchanged but the size of assets has
decreased, this will lead to an increase in the return on equity ratio.
a. debit
b. assets
c. both (a) and (b)
d. None of these
3. The level of capital required to support the balance sheet will be reduced.
c. True
d. False
4. Fundamental benefit of a true sale, i.e., freeing up the capital of the originator would apply in the
case of all securitization…………….
a. deventures
b. transactions
c. credit
d. All of these
5. ………transfers much of the credit risk in the portfolio to the ABS investors and helps to quantify
the residual credit risk.
a. Thalamus
b. Materials
c. Securitization
d. None of these
6. Specialist handling of various functional components, such as origination, funding, risk
management and administration.
a. True
b. False
7. The Servicer, who bears all administrative responsibilities relating to the securitization
transaction.
a. True
b. False
8. The Regulators, whose principal concerns relate to capital adequacy, liquidity, and ………….of the
ABS.
a. offer
b. credit quality
c. consideration
d. None of these
9. Investors are the ultimate judges of any securitization effort.
a. True
b. False
10. Essential features of a securitization transaction are:
a. Creation of Asset Pool and Its Sale
b. Issuance of the Securitized Paper
c. Pool Selection
d. All of these
11. Real assets in the economy include all but which one of the following?
a. Land
b. Buildings
c. Consumer durables
d. Common stock
12. Net worth represents _____ of the liabilities and net worth of commercial banks.
a. about 50%
b. about 90%
c. about 10%
d. about 30%
13. According to the Flow of Funds Accounts of the United States, the largest single asset of U.S.
households is ___.
a. mutual fund shares
b. real estate
c. pension reserves
d. corporate equity
14. Other things being equal, an increase in money's 'own rate' of interest should lead to:
a. An increase in saving
b. A fall in income velocity of circulation
c. A fall in the demand for money
d. None of these
15. Which of the following might be regarded as a volatility-induced innovation?
a. Interest rate futures
b. Interest bearing sight deposits
c. Automated teller machines
d. Securitisation
16. Which of the following might be regarded as a technology-induced innovation?
a. Negotiable certificates of deposit
b. Electronic payment at point of sale
c. Interest bearing sight deposits
d. Eurodollars
17. If technology lowers the cost of financial intermediation, other things being equal we might
expect:
a. Higher velocity of circulation
b. Higher interest rates
c. More lending and borrowing
d. Lower interest rates
18. Securitizing its loans is one way in which a bank can:
a. Reduce its costs
b. Increase its income
c. Avoid cash withdrawals
d. Improve its risk-capital ratio
19. A country's money stock consists of £10bn in notes and coin, £40bn in sight deposits and £100bn
in time deposits. Time deposits alone pay interest, at an average rate of 4 per cent p.a. Competition
then lead to sight deposits paying interest at 2 per cent p.a. As a result, money's 'own rate' of
interest:
a. Increases from 4% to 5%
b. Increases from 2.67% to 3%
c. Increases from 2.67% to 3.2%
d. Falls from 4% to 2,67%
20. If all market interest rates are linked to central bank rate, the authorities find it difficult to:
a. Change nominal interest rates
b. Change real interest rates
c. Change relative interest rates
d. Control inflation
1. Which one of the following statements regarding open-end mutual funds is false?
2. Which one of the following statements regarding closed-end mutual funds is false?
3. Century fund had average daily assets of $3.0 billion in 2007. The fund sold $750 million worth of
stock and purchased $850 million worth of stock during the year. Century fund's turnover ratio is
a. 27.5%.
b. 12%.
c. 15%.
d. 25%.
4. Which of the following functions do mutual fund companies perform for their investors?
5. Large amounts of money invested in a portfolio that is fixed for the life of the fund are called
a. closed-end funds.
b. unit investment trusts.
c. REITS.
d. open-end funds.
7. Ultra Fund had year-end assets of $862,000,000 and liabilities of $12,000,000. There were 32,675,254
shares in the fund at year-end. What was Ultra Fund's Net Asset Value?
a. $28.17
b. $25.24
c. $19.62
d. $26.01
8. Premier Fund had year-end assets of $825,000,000 and liabilities of $25,000,000. If Premier's NAV
was $32.18, how many shares must have been held in the fund?
a. 21,619,346,92
b. 22,930,546.28
c. 24,860,161.59
d. 25,693,645.25
e. None of the above.
9. Most actively managed mutual funds, when compared to a market index such as the Wilshire
5000,
10. You purchased shares of a mutual fund at a price of $17 per share at the beginning of the year
and paid a front-end load of 5.0%. If the securities in which the find invested increased in value by
12% during the year, and the funds expense ratio was 1.0%, your return if you sold the fund at the
end of the year would be ____________.
a. 4.75
b. 5.45
c. 5.65
d. 4.39
11. A major difference between load and no-load funds is
12. The Frank fund trades on the NYSE. Its recent price is $10, but its NAV is $12. We know then
13. If your investment goal is simply to match the market, should buy a(n)
14. You are evaluating a fund. What activity would you typically not undertake in this effort?
15. The Grim Fund's rate of return was 9%, while the market return was 15%. Grim's beta was 0.5.
16. A unit investment trust differs from most mutual funds in that
17. Which item below would not be a characteristic of an exchange-traded fund (ETF)?
20. Your employer has a 401(K) plan. Which item below is correct and/or good advice?
a. Don't join the plan; most have very poor performance histories.
b. Join the plan and trade frequently since gains are not taxable.
c. Join the plan and allocate your funds among broad asset groups.
d. All of these
2. In normal trading circumstances, which of the following would not be found in a partner’s current
account?
a. Interest on drawings
b. Drawings
c. Goodwill
d. Salaries
3. Haslem and Stringer are in partnership sharing profits in a 3:2 ratio. Net profit for the year ended
31.12.20X5 was £12,000. Interest on capital was allocated as £400 to Haslem and £250 to Stringer.
Stringer received a partnership salary of £5,000. How much was Haslem’s share of profit?
a. £3,810
b. £4,950
c. £3,060
d. £2,540
4. If a partner cannot clear his debts on dissolution, the other partners must clear these debts in the
following manner:
Debit Credit
a. A
b. B
c. C
d. D
6. The main account for dealing with partnership dissolution would be:
a. Dissolution
b. Revaluation
c. Realisation
d. Appropriation
7. Yates & Wells were in partnership sharing profit and losses equally. They admit Sparks as a
partner and decide to share profits equally between the three partners. Goodwill is valued at £60,000
but is to be immediately written off. The effect of this on Yates’ capital would be to:
a. Increase it by £30,000
b. Decrease it by £20,000
c. Increase it by £10,000
d. Decrease it by £10,000
Debit Credit
a. A
b. B
c. C
d. D
10. Which of the following would not be found in a partnership appropriation account?
a. Interest on drawings
b. Salaries
c. Interest on capital
d. Interest on loan by partner to partnership
11. On the admission of a new partner, it is believed that the assets have changed in value. To record
a decrease in the value of an asset the double entry should be:
Debit Credit
A Asset Capital
B Asset Revaluation
C Revaluation Capital
D Revaluation Asset
a. A
b. B
c. C
d. D
12. On partnership dissolution, the profit or loss made should be recorded as follows:
Debit Credit
a. A
b. B
c. C
d. D
13. If partners maintain both fixed capital and current accounts, which of the following would
normally be credited to a partner’s capital account?
a. Interest on capital
b. Losses on revaluation
c. Goodwill being written off
d. Profits on revaluation
a. They have withdrawn more than they have earned in the partnership
b. They have a credit balance on their capital account
c. They are insolvent
d. Drawings are higher than the profit share for that year
15. If goodwill is to be created and then immediately written off, the correct method of entering this
in the accounts would be:
Debit Credit
A Capital (in previous profit ratio) Current (in new profit ratio)
B Capital (in previous profit ratio) Capital (in new profit ratio)
C Current (in new profit ratio) Current (in previous profit ratio)
D Capital (in new profit ratio) Capital (in previous profit ratio)
a. A
b. B
c. C
d. D
16. Which of the following would not appear in a limited company’s appropriation account?
a. Proposed taxation
b. Transfer to revaluation reserve
c. Interim dividends
d. Transfer to general reserve
18. The double entry required to record proposed dividends on ordinary shares would be:
Debit Credit
a. A
b. B
c. C
d. D
19. Which of the following is not a requirement made on a firm becoming a public limited company?
a. It must have the words ‘public limited company’ or the abbreviation ‘plc’ after its
name
b. Shares must be offered for sale on the Stock exchange
c. At least two members
d. An authorised capital of at least £50,000
20. A company has issued 50,000, £1 ordinary shares and 60,000 5% preference shares of £1 each. If
profits available for dividends are £5,000 and the firm wishes to give out all available profits as
dividends then the amount given out per ordinary share would be:
a. £0.04
b. £0.06
c. £0.10
d. £0.40