Question

28. A company has realized that it will not be able to collect an amount of SR 5,500 from Mr. X, one of its credit customer. Which one of the following entry will be recorded by the company?

	a.	Bad Debts Expense                                                             5,500 Account Receivable – Mr. X                                      5,500
	b.	Cash                                                                            5,500             Bad Debts Expenses                                                               5,500
	c.	Account Receivables – Mr. X                                                5,500 Sales                                                                                        5,500
	d.	Account Receivable – Mr. X                                      5,500 Bad Debts Expenses                                                               5,500

29. Treasury stock purchases are:

	a.	Non-Operating activity.
	b.	Financing activity.
	c.	Operating activity.
	d.	Investing activity.

30.Days ‘sales uncollected ratio is

	a.	Accounts receivable/ total average assets.
	b.	Accounts receivable/ net credit sales* 365 days
	c.	Credit sales/ average receivable
	d.	Average receivable/ credit sales

33. Under periodic inventory system

	a.	Cost of goods sold and ending inventory can be determined when making physical counting.
	b.	Neither cost of goods sold nor ending inventory can be determined when making physical counting.
	c.	Cost of goods sold can be determined for each sale transaction.
	d.	Ending inventory can be determined at any time without physical counting.

26.Which one of the following ratio is used to evaluate the company’s efficiency in use of assets to generate sales?

Total asset turnover ratio
	b.	Gross Margin ratio
	c.	Current ratio
	d.	Debt equity ratio

27.Assume that a company’s Net income is SR 10,000, Depreciation SR 3,000, A/R increased by SR 2,000, A/P increased by 4,000, Sale of Machinery SR 5,000, Purchase of Equipment SR 3,000, Common stock issued SR 15,000 and dividends paid SR 1,000.

What would be the net cash from Investing and financing activities

	a.	SR 10,000 and SR 8,000 respectively
	b.	SR 21,000 and SR 2,000 respectively
	c.	SR 13,000 and SR 2,000 respectively
	d.	SR 2,000 and SR 14,000 respectively

28.A company has realized that it will not be able to collect an amount of SR 5,500 from Mr. X, one of its credit customer. Which one of the following entry will be recorded by the company?

	a.	Bad Debts Expense                                                             5,500 Account Receivable – Mr. X                                      5,500
	b.	Cash                                                                            5,500             Bad Debts Expenses                                                               5,500
	c.	Account Receivables – Mr. X                                                5,500 Sales                                                                                        5,500
	d.	Account Receivable – Mr. X                                      5,500 Bad Debts Expenses                                                               5,500

Answer 1

28) A) Bad debt expense 5,500

Accounts receivable - Mr. X 5,500

Explanation : When there is no possibility of collection from customers or debtors , then such event is considered as a loss , called bad debts. Losses are always debit ,so baddebt expense is debited. No possibility of collection from debtors , reduce the balance of account receivables ( asset ) and thus account receivables ( Mr. X) get credited . Cash can't be debited because it has not been increased and also bad debts expense never been credited, because it has been increased .

29) B) Financing activitiy

Explanation : Treasury stock purchase reduce number of outstanding shares, which comes under financing activities , which make outflows of cash .

30) B) Accounts receivable / credit sales * 365

Explanation : To calculate days sales uncollected ratio , multiplication with 365 is mandatory. Ratio without multiplication of 365 doesn't show any meaningful days for collection outstanding.

33) A) Cost of goods sold and ending inventory can be determined when making physical counting

Explanation : Cost of goods sold and ending inventory can be determined at the month end or period end when ultimately physical counting performed . Under perpetual inventory system after every transaction or without having physical counting , COGS or ending inventory can be determined. Under every inventory valuation method COGS and ending inventory can be determined .

26) A) Total assets to turn over ratio

Explanation : Total assets to turn over ratio = Total assets / net sales. This ratio specks about how assets are used to generate sale. Rest of the ratios doesn't have, both of the given elements( sales , total assets ) to structure any valid relationship .

27) D) SR 2,000 and SR 14,000 respectively

Explanation : cash flow from investing activities :

Sale of machinery = SR 5,000

Purchase of equipment = SR (3,000)

Cash flow from investing activities = SR 2,000

cash flow from financing activities :

Issue of common stock = SR 15,000

Dividend paid = SR(1,000)

cash flow from financing activities = SR 14,000