PRACTICE QUIZ (Multiple Choice)

Preferred stock

Which of the following is an example of an equity instrument?

1. Treasury bond

2. Corporate bond

3. Preferred stock

4. Certificate of deposit

Ownership in a company

What does ownership of an equity instrument typically represent?

1. A loan to a company

2. A legal claim over a company's physical assets

3. Ownership in a company

4. A fixed Interest obligation

Fixed interest payments

Which of the following is a key characteristic of debt instruments?

1. Voting rights

2. Ownership in a firm

3. Fixed Interest payments

4. Dividends based on profits

Fixed and predictable returns

Which of the following is a benefit to investors of holding debt Instruments over equity instruments?

1. Higher potential for capital gains

2. Fixed and predictable returns

3. Voting rights in the company

4. Unlimited profit-sharing potential

Obligation to pay dividends

Which of the following is a disadvantage of equity financing from the company's perspective?

1. High interest expense

2. Obligation to repay at maturity

3. Obligation to pay dividends

4. Obligation to pay interest

Weighted average method

Which of the following is not used to value an equity or a debt instrument?

1. Face value through profit or loss

2. Face value through other comprehensive income

3. Financial asset at amortized cost

4. Weighted average method

Lowest priority in asset distribution

What is the primary risk for shareholders in the event of company liquidation?

1. First claim on company assets

2. Guaranteed repayment of principal

3. Lowest priority in asset distribution

4. Fixed interest income loss

Combine features of both equity and debt

Bonds convertible to stocks are a type of hybrid instrument because they:

1. Can only be used by private companies

2. Offer no interest to the investor

3. Combine features of both equity and debt

4. Are always backed by government guarantees

Interest on debt is tax-deductible; dividends are not

Which of the following statements best distinguishes debt from equity instrum terms of financial reporting?

1. Debt instruments appear under shareholders' equity

2. Equity instruments require amortization

3. Interest on debt is tax-deductible; dividends are not

4. Equity instruments are repaid before debt instruments

Goods held for sale or use in production

Which of the following best defines inventory?

1. Buildings used for manufacturing

2. Money owed by customers

3. Goods held for sale or use in production

4. Office equipment and furniture

Land and buildings

Which of the following is not a type of inventory for a manufacturing company?

1. Raw materials

2. Work-in-progress

3. Finished goods

4. Land and buildings

Current asset

Inventory is typically classified as which type of asset on the statement of financial position?

1. Intangible asset

2. Current asset

3. Non-current asset

4. Fixed asset

FIFO

Which inventory valuation method results in the lowest cost of goods sold?

1. FIFO

2. Moving average

3. Specific identification

4. Weighted average

Inventory purchased first

Under the FIFO method, which inventory is assumed to be sold first?

1. Inventory purchased most recently

2. Inventory purchased at the lowest cost

3. Inventory purchased first

4. Inventory with the highest value

Import duties and handling costs

Which of the following is included in the cost of inventory under PAS 2?

1. Abnormal waste

2. Advertising costs

3. Import duties and handling costs

4. Administrative overheads