6. CPA Financial Accounting & Reporting Module 6
Authored by Rachel Collins
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25 questions
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1.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
An entity wishes to increase its return on investment (ROI). Which of the following courses of action will help to achieve this in the short term?
A Increase sales
Issue ordinary shares
Revalue land and buildings
Increase the level of dividends paid to equity shareholders
2.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
The following information relates to M at 31 December 20X3: Trade receivables 80,000 Current asset investments (cash on deposit) 10,000 Trade payables 75,000 Bank overdraft 100,000 The entity has decided to take the following steps to reduce the overdraft. 1. Inventory with a book value of $8000 will be sold at a loss of $2000. 2. Customers will be offered a cash discount of 10 per cent for immediate payment. Customers owing amounts with a total book value of $20 000 are expected to take advantage of this offer. In return, the entity's bankers have agreed to make a loan of $40 000, which will be used immediately to purchase new machinery. The loan will be repayable in five equal instalments, the first of which falls due on 31 December 20X4. Assuming that all the above transactions take place on 31 December 20X3, what is the revised quick (acid test) ratio on that date?
0.39:1
0.44:1
0.46:1
0.51:1
3.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
Z has a current ratio of 1.5, a quick ratio of 0.4 and a positive cash balance. If it purchases inventory on credit, what is the effect on these ratios?
Current ratio: Increase - Quick ratio: Increase
Current ratio: Decrease - Quick ratio: Increase
Current ratio: Increase - Quick ratio: decrease
Current ratio: decrease - Quick ratio: decrease
4.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
KL has the following capital and reserves at 31 December 20X9: Ordinary shares 300,000 8% irredeemable preference shares 100,000 Retained earnings 150,000 Total 550,000 KL also had $200 000 10 per cent loan notes on issue throughout the year. Retained profit for the year was $20 000 after paying the preferred dividend and an ordinary dividend of $7500. What was the return on equity for the year ended 31 December 20X9?
5.0 per cent
6.1 per cent
6.7 per cent
9.2 per cent
5.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
The accounting ratios of ABC are very similar to the average ratios for the industry in which it operates. ABC has an average operating profit margin of 24 per cent and an average asset turnover of 0.9. This entity is likely to be:
A an architect.
a food retailer.
a manufacturer.
an insurance broker.
6.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
An entity has the following capital structure. Ordinary shares 100 000 10% Redeemable preference shares 50 000 Retained earnings 80 000 TOTAL: 230 000 12% loan notes 100 000 TOTAL: 330 000 What is the gearing ratio?
A 30.3 per cent
43.5 per cent
45.5 per cent
83.3 per cent
7.
MULTIPLE CHOICE QUESTION
5 mins • 1 pt
X's asset turnover is very low compared with that of its main competitor. What could be the reason for this?
A X has a smaller proportion of productive assets than its competitor.
X has recruited a number of additional production staff during the year.
X embarked on a major program of capital investment towards the end of the previous year.
X carries its non-current assets at historic cost, while its competitor carries them at current value.
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