Document 30

SECTION A: MULTIPLE CHOICE QUESTIONS
1. Which of the following is the objectives of financial statement analysis?
A. To identify the weaknesses and strength of a business.

B. To enable the business to take the appropriate steps or actions to overcome any
weaknesses.
C. To help business to improve its overall financial situation in the future.
D. All the above.
(1 mark)
2. Which of the following the internal users of financial statement?
A. Government.
B. Creditors
C. Investors
D. Employees.
(1 mark)
3. Which of the following is true regarding the going concern concept?
A. Any foreseeable losses should be recorded in the current year, whereas profit will
be recorded when it realized.
B. Every transaction has two aspects of accounting.
C. A business will continue to operate in the foreseeable future.
D. Expenses incurred during the accounting period will be matched against income
earned during the same accounting period.
(1 mark)
4. Which of the following is the fundamental qualitative characteristics of financial
statement.
I. Verifiability III. Understandability

II. Relevance IV. Faithful representation
A I and III
B. III and IV
C. II and IV
D. I and II
(1 mark)
5. Who is responsible for the preparation and integrity of financial statements?
A. Accountant.
B. Management.
C. Auditor.
D. Bookkeeper.
(1 mark)
6. Ownership of debt instruments of the government and other companies that can be
readily converted to cash are best reported as:
A. Long-term investment
B. Marketable securities
C. Cash.
D. Intangibles.
(1 mark)
7. Which of the following is NOT a common characteristic of preferred share?
A. Voting rights
B. Preference as to dividends after bondholders.
C. Preference in liquidation
D. Callability by the corporation.
(1 mark)
8. Treasury stock is best classified as:
A. A reduction of shareholders’ equity.

B. A current asset.
C. A long-term investment.
D. A liability.
(1 mark)
9. Which of the following is a current liability?
A. Prepaid insurance expenses.
B. Unearned rent revenue.
C. Prepaid advertisement.
D. Account receivables.
(1 mark)
10. Which of the following will NOT affect retained earnings?
A. Declaration of a stock dividend.

B. Payment of a cash dividend previously disclosed.
C. Net profit.
D. Adjustment for an error of a prior period.
(1 mark)
11. Which of the following would be classified as an extraordinary item on the income
statement?
A. Loss on disposal of a segment of business

B. A sale of land
C. A loss from a flood in a location that would not be expected to flood
D. Change in accounting principle
(1 mark)
12. Which of the following is the effect of the stock splits?
A. The quantities of stock do not change.

B. Effect on retained earnings.
C. The par value is halved.
D. Required additional paid-in capital.
(1 mark)
13. When a company discontinues and disposes of a component segment of its operations,
the gain or loss from disposal should be reported as:
A. an adjustment to retained earnings.

B. an extraordinary item.
C. an accounting changes.
D. a special item after continuing operations and before extraordinary items.
(1 mark)
14. If Investor Company owns 20% of the stock of Investee Company and Investee
Company reports profits of RM100,000, then Investor Company reports equity income
of:
A. RM80,000.
B. RM60,000.
C. RM40,000.
D. RM20,000.
(2 marks)
(Total: 15 marks)
SECTION B: TRUE/FALSE
1. Financial statement analysis is complicated because many assets are recorded at cost
rather than fair value.
(1 mark)
2. Qualified auditor opinion carries the highest degree of readability of financial statement
to the users.
(1 mark)
3. Franchises is the legal right to operate under a particular corporate name and subject
for amortization over the life of the franchise.
(1 mark)
4. Comparability permits the financial statement to be comparable between years.
(1 mark)
5. A corporation is considered to be a legal entity separate and distinct from the
stockholders.
(1 mark)
(Total: 5 marks)
END OF QUESTIONS

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SECTION A: MULTIPLE CHOICE QUESTIONS

1. Which of the following is the objectives of financial statement analysis?

A. To identify the weaknesses and strength of a business.

I. Verifiability III. Understandability

A. A reduction of shareholders’ equity.

A. Declaration of a stock dividend.

A. Loss on disposal of a segment of business

A. The quantities of stock do not change.

A. an adjustment to retained earnings.

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