Chapter-1: Overview of Accounting Self Assessment Questions 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 2. International Accounting Standards (IAS) have been developed by: (a) The International Organization of Securities Commission (IOSCO) (b) The European Commission (c) The International Accounting Standards Committee (d) The Financial Reporting Council 3. The European Commission announced that International Financial Reporting Standards (IFRSs) had to be adopted by 2005 by: (a) All companies in the EU (b) All enterprises in the EU (c) All listed companies in the EU preparing their consolidated accounts (d) All listed companies in the EU 4. The body that has superseded the International Accounting Standards Committee is the: (a) International Accounting Standards Board (b) International Financial Reporting Council (c) International Accounting Standards Commission (d) International Financial Reporting Board 5. According to the IASB Framework, the main purpose of financial reporting is to: (a) Help the managers to run the business (b) Enable investors to make economic decisions (c) Calculate taxable income (d) None of the above is correct 6. According to the IASB Framework: (a) Reliability overrides relevance
(b) The relative importance of the characteristics in different cases is a matter of professional judgement (c) Relevance overrides reliability (d) Prudence overrides relevance 7. The convention of consistency refers to consistent use of accounting principles: (a) Within industries (b) Throughout the accounting period (c) Among enterprises belonging to different industries (d) Across accounting periods 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? (a) Financial statements should exclude complex matters (b) Financial statements should be free form material error (c) Users are expected to have significant business knowledge (d) Users should be willing to study the information with reasonable diligence 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? (a) Influence on the economic decisions of users (b) Including a degree of caution (c) Freedom from material error (d) Comprehensibility to users 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? (a) The financial statements are reliable (b) The enterprise can be viewed as a going concern (c) Any changes of accounting policy are neutral (d) The financial statements are prepared under the accrual basis 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? (a) Accounting policies (b) A cash flow statement (c) A directors' report (d) An auditor's report 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? (a) Historic cost (b) Comparability (c) Matching (d) Dual aspect 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
Answers of Self Assessment Questions 1. (d)
2.(c)
3.(c)
4.(a)
5.(d)
6.(b)
7.(d)
8.(c)
9.(a)
10.(d)
11(d)
12.(a)
13.(c)
14.(b)
15.(b)
16.(b)
17.(a)
18.(c)
19.(b)
20.(c)
Chapter-2: Mechanics of Accounting Self Assessment Questions 1. The accounting cycle consists of which of the following number of specific steps? a. Three b. Four c.
Five
d. Eight 2. Which is the first step in the accounting cycle? a. Preparing a trial balance b. Journalizing transactions c.
Posting
d. Preparing financial statements 3. The role of the accounting records includes which of the following? a. Establishing accountability b. Obtaining detailed information about a particular transaction c.
Evaluating efficiency and performance of various departments
d. All of the above 4. The collection of all of the accounts is kept together in the: a. journal, only. b. ledger, only. c.
trial balance, only.
d. both the journal and the ledger.
5. The simplest form of an account is called a 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? a. Debits increase assets and decrease liabilities. b. Debits increase assets and increase owners' equity. c.
Credits decrease assets and decrease liabilities.
d. Credits increase assets and increase owners' equity.
8. Which of the following is not true? a. Increases in assets are recorded as debits. b. Increases in liabilities are recorded as debits. c.
Decreases in owners' equity are recorded as debits.
d. Increases in expenses are recorded as debits.
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? a. Increase an asset and decrease owner's equity b. Increase an asset and increase a liability c.
Increase an asset and increase owners' equity
d. Increase an asset and decrease a liability
13. The purchase of a building for $200,000 cash on January 1 will: a. increase an asset and decrease owner's equity. b. increase an asset and increase a liability. c.
increase an asset and increase owners' equity.
d. increase one asset and decrease another.
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: a. Increasing total assets and decreasing owner's equity b. Increasing total assets and increasing liabilities c.
Increasing total assets and increasing owners' equity
d. Decreasing total assets and increasing liabilities
15. If an asset is debited, which of the following might also have occurred? a. A credit to owners' equity. b. A credit to another asset. c.
A credit to a liability.
d. All of the above.
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? a. Decrease an asset and decrease a liability b. Increase an asset and increase a liability c.
Increase an asset and increase owners' equity
d. Decrease an asset and decrease owners' equity
17. The collection of an account receivable of $3,000 on January 15 will result in which of the following? a. A decrease an asset and decrease a liability b. An increase one asset and decrease another c.
An increase an asset and increase owners' equity
d. A decrease an asset and decrease owners' equity
18. A collection of an account receivable 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.
19. Which of the following is not true about net income? 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
Answers of Self Assessment Questions 1. (d)
2.(b)
3.(d)
4.(b)
5.(a)
6.(d)
7.(a)
8.(b)
9.(c)
10.(c)
11(a)
12.(c)
13.(d)
14.(b)
15.(d)
16.(a)
17.(b)
18.(d)
19.(b)
20.(c)
Chapter-3: Analysis of Financial Statement Self Assessment Questions 1. Which of the following is often called the statement of financial position? 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.
3. The body of a balance sheet consists how many distinct sections? 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
5. Owners' equity is divided into how many parts? a. Two b. Three c.
Four
d. Five
6. Consider the following: Assets
$300,000
Liabilities
$90,000
Capital stock
$120,000
What is the dollar amount of retained earnings?
a.
$210,000
b.
$30,000
c.
$180,000
d.
$90,000
7. Consider the following items shown randomly: Cash
$30,000
Buildings
$900,000
Accounts receivable
$120,000
Supplies
$5,000
Notes payable
$40,000
Accounts payable
$15,000
Capital stock
$1,000
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? a. Discounted value of the assets b. Net realizable value of the assets c.
Depreciated value of the assets
d. Established value of the assets 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 a.
The order in which they were incurred
b.
The order of smallest to largest
c.
Alphabetical order
d.
The order in which they are expected to be repaid
14. In accounting, the word accrued refers to the payment of expenses: a. that has been deferred. b. that has occurred. c.
that will not be made.
d. at the time of payment.
15. Owners' equity in a business comes from which of the following? a. Investments in cash by the owners b. Investments in assets other than cash by the owners c.
Earnings from profitable operations of the business
d. All of the above
16. Which of the following decreases owners' equity? a. Payments of cash to the owners b. Payments of assets other than cash to the owners c.
Losses from unprofitable operations of the business
d. All of the above
17. The accounting equation can be expressed as which of the following? a. Assets plus liabilities equal owners' equity b. Assets plus owners' equity equals liabilities c.
Assets equal liabilities plus owners' equity
d. Either (a) or (c)
18. A cash investment in the business in exchange for capital stock results in which of the following? a. An increase in assets and an increase in owners' equity b. An increase in assets and a decrease in owners' equity c.
A decrease in assets and an increase in owners' equity
d. A decrease in assets and a decrease in owners' equity
19. Office equipment was purchased for cash. What effect did this transaction have in the financial position of the company? a. Assets, decrease; Liabilities, no change; Owners' Equity, decrease. b. Assets, decrease; Liabilities, increase; Owners' Equity, no change. c.
Assets, no change; Liabilities, no change; Owners' Equity, no change.
d. Assets, increase; Liabilities, increase; Owners' Equity, no change.
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? a. Assets, no change; Liabilities, no change; Owners' Equity, no change. b. Assets, decrease; Liabilities, increase; Owners' Equity, no change. c.
Assets, decrease; Liabilities, no change; Owners' Equity, decrease.
d. Assets, increase; Liabilities, increase; Owners' Equity, no change.
Answers of Self Assessment Questions 1. (a)
2.(a)
3.(b)
4.(c)
5.(a)
6.(d)
7.(c)
8.(b)
9.(c)
10.(a)
11(b)
12.(d)
13.(d)
14.(a)
15.(d)
16.(d)
17.(c)
18.(a)
19.(c)
20.(d)
Chapter-4: Funds Flow Statement Self Assessment Questions 1. According to the accounting profession, which of the following would be considered a cash-flow item from a "financing" activity? a. A cash outflow to the government for taxes. b. A cash outflow to repurchase the firm's own common stock. c.
A cash outflow to lenders as interest.
d. A cash outflow to purchase bonds issued by another company. 2. If the following are the balance sheet changes: $ 5,005 decrease in accounts receivable $12,012 decrease in notes payable $10,001 increase in accounts payable $ 8,950 decrease in net fixed assets a "use" of funds would be: a. $8,950 decrease in net fixed assets. b. $5,005 decrease in accounts receivable. c.
$10,001 increase in accounts payable.
d. $12,012 decrease in notes payable. 3. Cash budgets are prepared from past: a. balance sheets. b. income statements. c.
income tax and depreciation data.
d. None of the above answers are 4. An examination of the sources and uses of funds is part of: a. a forecasting technique. b. a funds flow analysis. c.
a ratio analysis.
d. calculations for preparing the balance sheet. 5. Which of the following is not a cash outflow for the firm? a. Depreciation.
b. Dividends. c.
Interest payments.
d. Taxes. 6. If the following are balance sheet changes: $ 5,005 decrease in accounts receivable $ 7,000 increase in cash $12,012 decrease in notes payable $ 9,850 increase in inventories a "source" of funds would be: a. $9,850 increase in inventories. b. $5,005 decrease in accounts receivable. c.
$7,000 increase in cash.
d. $12,012 decrease in notes payable. 7. According to the accounting profession, which of the following would be considered a cash-flow item from an "investing" activity? a. Cash outflow to the government for taxes. b. Cash outflow to shareholders as dividends. c.
Cash outflow to lenders as interest.
d. Cash outflow to purchase bonds issued by another company. 8. If the following are balance sheet changes: $ 7,000 decrease in cash $12,012 increase in notes payable $ 9,850 increase in inventories $10,001 increase in accounts payable a "use" of funds would be: a. $9,850 increase in inventories. b. $7,000 decrease in cash. c.
$10,001 increase in accounts payable.
d. $12,012 increase in notes payable.
9. According to the accounting profession, which of the following would be considered a cash-flow item from an "operating" activity? a. Cash outflow to the government for taxes. b. Cash outflow to shareholders as dividends. c.
Cash inflow to the firm from selling new common equity shares.
d. Cash outflow to purchase bonds issued by another company. 10. The sustainable growth rate (SGR) can be expressed as: 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 __________. a. a forecast balance sheet; a forecast income statement b. forecast financial statements; a cash budget c.
a cash budget; forecast financial statements
d. a forecast income statement; a cash budget 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? a. Operating, investing, and financing. b. Investing, operating, and financing. c.
Financing, operating and investing.
d. Financing, investing, and operating. 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
Answers of Self Assessment Questions 1. (b)
2.(d)
3.(d)
4.(b)
5.(a)
6.(b)
7.(d)
8.(a)
9.(a)
10.(c)
11(c)
12.(b)
13.(b)
14.(d)
15.(a)
16.(c)
17.(d)
18.(a)
19.(c)
20.(b)
Chapter-5: Issue of Shares and Debentures Self Assessment Questions
1 ________ is issued in acknowledgement of any indebtedness (a) Debenture certificate
(b) Share certificate
(c) Share warrant
(d) None of these
2 Own funds are called _______ (a) Debenture capital
(b) Share capital
(c) Loan capital
(d) None of these
3 In case of allotment Debenture Certificate is to be issued within ___________ months (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
5 Debenture forms part of _________ (a) Capital
(b) Loan
(c) Fund
(d) None of these
6 Share holders are _________ (a) Owners
(b) Creditors
(c) Debtors
(d) None of these
7 Debenture holders are ________ (a) Owners
(b) Creditors
(c) Debtors
(d) None of these
8 Return paid on shares is ________
(a) Interest
(b) Dividend
(c) Commission
(d) None of these
9. Return paid on debentures is _________ a) Interest
b) dividend
(c) Commission
(d) Tax
10. Which of the following have voting rights _______ a) Share holders b) Debenture holder c) Both (a) & (b) d) None of these 11. ________ is payable even if there are no profits a) Interest b) Dividend c) Commission d) None of these 12. Debentures payable to a holder of certificate is called ________ a) Bearer b) Unregistered c) Secured d) Both (a) & (b) 13. Debentures payable to person whose name appears both on Debenture Certificate and company’s register is called _______ 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 d) Both (b) & (c) 16. For the purpose of debt equity ratio Fully Convertible Debentures are classified as ___________ a) Debt b) Equity c) Both (a) & (b) d) None of these 17. In case of Partly Convertible Debentures nonconvertible portion is classified as ________ a) Debt b) Equity c) Both (a) & (b) d) None of these 18. DRR is required to be created for debentures issued prior to _________ 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 20. The amount unclaimed on redemption is transferred to ________fund. a) Investor education & protection b) Children welfare c) Workmen compensation fund d) None of these Answers of Self Assessment Questions 1. (a) 2.(b) 3.(c)
4.(b)
5.(b)
6.(a)
7.(b)
8.(b)
9.(a)
10.(a)
11(a)
12.(a)
13.(c)
14.(a)
15.(d)
16.(b)
17.(a)
18.(a)
19.(d)
20.(a)
Chapter-6: Credit Rating Self Assessment Questions 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
5. …………. is used primarily in order to obtain loans. a. Debit b. Assets c.
Credit
d. None of these
6. Credit reporting agencies compile …………… regarding consumer credit files, which are forwarded to the agencies by a number of lenders. 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 8. Rating agencies, or credit rating agencies, evaluate the creditworthiness of organizations that issue debt in …………………. 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
12. Credit rating is much broader concept than ……………………. 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
14. A major function of …………….. is to create consumer credit ratings. 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)
6.(a)
7.(b)
8.(a)
9.(b)
10.(a)
11(c)
12.(a)
13.(a)
14.(a)
15.(b)
16.(a)
17.(a)
18.(b)
19.(a)
20.(a)
Chapter-7: Debentures Trustees Self Assessment Questions
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. a. A subordinated debenture; mortgage b. A debenture; subordinated debenture c.
A junk bond; income
d. An income bond; mortgage 3. To acquire rail engines or similar equipment, a railroad might issue __________, which is a lease type of financing. a. equipment trust certificates b. special purpose securities c.
pooled certificates
d. asset-backed securities 4. The sinking fund retirement of a bond issue takes __________. 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 sinkingfund 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? a. For most firms, book value exceeds liquidation value. b. Firms usually prefer to have more shares authorized than are currently issued. c.
When shares of common stock are initially issued, they generally are sold to investors at par value.
d. All of the above are 13. Which of the following statements concerning the rights of common shareholders is correct, or most accurate? a. Common shareholders are entitled to a share of the company's current earnings in cash.
b. Common shareholders are entitled to elect the board of directors under a majorityrule voting system. c.
Because of their preemptive right, common shareholders are entitled to always subscribe to new common stock so that they can maintain their pro rata interest in the company.
d. Voting by common shareholders can be done either in person at the shareholders' annual meeting or by proxy.
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
15. A proxy is __________. 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 __________. a. two-tier common stock b. dual-class common stock c.
multi-class common stock
d. not possible in the U.S. because this system of ownership is not allowed under current SEC legislation 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. a. A subordinated debenture; mortgage b. A debenture; subordinated debenture c.
A junk bond; income
d. An income bond; junk
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. equipment trust certificates b. special purpose securities c.
pooled certificates
d. asset-backed securities
Answers of Self Assessment Questions 1. (a) 2.(c) 3.(a)
4.(d)
5.(a)
6.(d)
7.(b)
8.(b)
9.(a)
10.(d)
11(d)
12.(b)
13.(d)
14.(a)
15.(c)
16.(b)
17.(c)
18.(d)
19.(a)
20.(d)
Chapter-8: Cost Management Self Assessment Questions 1. Which of the following is a correct description of absorption costing? 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 2. Using marginal costing, the profit of Period 2 is: 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 6. Which of the following is a variable overhead cost? a. The wages of a production employee paid on the basis of output achieved b. The wages of a cleaner whose working hours vary with the level of output achieved c.
A constant annual bonus paid to the storeman
d. Annual rent payable for the factory
7. Absorption costing is also called: a. variable costing. b. total costing. c.
marginal costing.
d. activity based costing. 8. Which of the following types of costs are allocated to cost centres? a. Direct and indirect costs. b. Only semi variable costs. c.
Only direct costs.
d. Only indirect costs. 9. Which one of the following bases would be most appropriate for apportioning a company's general advertising costs? a. Number of customers in each division. b. Stock levels in each division. c.
Sales in each division (£).
d. Purchases in each division. 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. 12. Activity based costing relates costs to: a. the hours spent on manufacturing products. b. the total indirect costs of a product. c.
the amount of raw materials used within a product.
d. the activities which generate costs on products. 13. Under marginal costing, the break even point is found by the following formula:
a. fixed costs per unit divided by the total contribution. b. total fixed costs divided by the contribution per unit. c.
total sales divided by the contribution per unit.
d. total variable costs divided by the contribution per unit. 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. 17. Variable costing is also known as: a.
Direct costing.
b.
Indirect costing.
c.
Marginal costing.
d.
Both (a) and (c).
18. Using absorption costing, a unit of product includes what costs? a.
Direct materials and direct labor.
b.
Direct materials, direct labor, and fixed overhead.
c.
Direct materials, direct labor, and variable overhead.
d.
Direct materials, direct labor, variable overhead, and fixed overhead.
19. Using variable costing, a unit of product includes which costs? a. Only direct materials and direct labor. b. Direct materials, direct labor, and fixed overhead. c.
Direct materials, direct labor, and variable overhead.
d. Direct materials, direct labor, variable overhead, and fixed overhead 20. Product cost under absorption costing is characteristically: a. Higher than under variable costing. b. Lower than under variable costing. c.
Equal to variable costing.
d. Higher sometimes and lower sometimes than variable costing.
Answers of Self Assessment Questions 1. (b) 2.(b) 3.(d)
4.(a)
5.(a)
6.(b)
7.(b)
8.(a)
9.(c)
10.(d)
11(c)
12.(d)
13.(b)
14.(a)
15.(d)
16.(b)
17.(d)
18.(d)
19.(c)
20.(a)
Chapter-9: Credit Rating and Securitization of Debts Self Assessment Questions 1. Securitization is a well established practice in the global debt capital markets. 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
Answers of Self Assessment Questions 1. (a) 2.(b) 3.(c)
4.(b)
5.(c)
6.(a)
7.(a)
8.(b)
9.(a)
10.(d)
11(d)
12.(c)
13.(b)
14.(b)
15.(a)
16.(b)
17.(c)
18.(d)
19.(c)
20.(c)
Chapter-10: Depository Service and Mutual Funds Self Assessment Questions 1. Which one of the following statements regarding open-end mutual funds is false? a.
The funds redeem shares at net asset value.
b.
The funds offer investors professional management.
c.
The funds offer investors a guaranteed rate of return.
d.
None of these
2. Which one of the following statements regarding closed-end mutual funds is false? a. The funds always trade at a discount from NAV. b. The funds redeem shares at their net asset value. c.
The funds offer investors diversification.
d. Both a & b. 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? a. Record keeping and administration b. Professional management c.
Diversification and divisibility
d. All of the above
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.
6. At issue, offering prices of open-end funds will typically be
a. less than NAV due to limited demand. b. greater than NAV due to greater demand. c.
less than NAV due to loads and commissions.
d. NAV or greater due to loads and commissions.
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, a. beat the market return in all years. b. beat the market return in most years. c.
exceed the return on index funds.
d. do not outperform the market.
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 a. performance: load funds do better. b. marketability: no-load funds can be traded more readily. c.
acquisition cost: load funds cost more than their NAVs.
d. None of these 12. The Frank fund trades on the NYSE. Its recent price is $10, but its NAV is $12. We know then a. the fund is open-end, selling at a premium. b. the fund is closed-end, selling at a premium. c.
the fund is closed-end, selling at a discount.
d. None of these 13. If your investment goal is simply to match the market, should buy a(n) a. money market fund. b. growth fund. c.
index fund.
d. None of these
14. You are evaluating a fund. What activity would you typically not undertake in this effort? a. Review the fund's turnover ratio and administrative expenses-to-assets ratio. b. Calculate or find the fund's rate of return. c.
Calculate the fund's NAV.
d. None of these
15. The Grim Fund's rate of return was 9%, while the market return was 15%. Grim's beta was 0.5. a. Grim's RAROR was 11.5%. b. Grim's management under-performed the market on a risk-adjusted basis. c.
Grim's management out-performed the market on a risk-adjusted basis.
d. None of these
16. A unit investment trust differs from most mutual funds in that a. its operating costs are considerably greater. b. investors can sell trust units back to the originator at their original purchase price. c.
its investment portfolio is virtually fixed until the trust's termination.
d. None of these
17. Which item below would not be a characteristic of an exchange-traded fund (ETF)? a. They are easily bought and sold. b. They have very low expense ratios. c.
They have a tax disadvantage in that all gains are taxable, even if shares are not sold.
d. None of these
18. An equity trust is a(n) a. REIT that invests in real property, such as office buildings. b. ETF that invests in stock market indexes, such as the S & P 500. c.
limited partnership that invests in real property.
d. None of these 19. In portfolio management, a constant ratio plan is one that a. pays out dividends in a constant ratio to the portfolio's asset values. b. buys different kinds of securities in a fixed proportion. c.
restores asset holdings at the end of a period to target weights.
d. None of these 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
Answers of Self Assessment Questions 1. (c) 2.(d) 3.(d)
4.(d)
5.(b)
6.(d)
7.(d)
8.(c)
9.(d)
10.(b)
11(c)
12.(c)
13.(c)
14.(c)
15.(c)
16.(c)
17.(c)
18.(a)
19.(c)
20.(c)
Chapter-11: Valuation of Goodwill Self Assessment Questions 1. One advantage of operating as a partnership would include: a. Being able to raise capital through share issues b. Limited liability for all partners c.
Access to a larger amount of initial capital
d. Greater power than a sole trader for decision making 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: a. Debts should not be cleared by other partners b. Partnership profit/loss sharing ratio c.
In the ratio of their last agreed capital balance
d. Debts are shared equally 5. The correct entry for recording losses on revaluation would be:
A
Debit
Credit
Revaluation
Partners’ capital accounts
B
Partners’ current accounts
Revaluation
C
Partners’ capital accounts
Revaluation
D
Revaluation
Partners’ current accounts
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 8. The rule in Garner v. Murray deals with: a. Writing goodwill off against reserves b. How the debts of insolvent partners are to be cleared c.
Rules for align the admittance of new partners
d. How profits are to be divided if no prior partner hip agreement exists 9. The correct double entry to record interest on drawings is: Debit
Credit
A
capital account
profit and loss appropriation account
B
profit and loss appropriation account
current account
C
current account
profit and loss appropriation account
D
profit and loss appropriation account current account 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
Current account
Realisation account
B
Realisation account
Capital account
C
Capital account
Realisation account
D
Realisation account
Current account
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 14. A debit balance on a partner’s current account must indicate that: 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 17. Which of the following statement is not true?
a. The partnership agreement will override the 1890 Partnership Act b. Not all partners can have limited liability in a limited partnership c.
Capital contributions do not have to be equal from each partner
d. Interest on capital is a reward for the different amounts of work partners may perform 18. The double entry required to record proposed dividends on ordinary shares would be: Debit
Credit
A
Profit & Loss
Proposed dividend
B
Proposed dividend
Profit & Loss
C
Appropriation
Proposed dividend
D
Proposed dividend
Appropriation
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 Answers of Self Assessment Questions 1. (c) 2.(c) 3.(a)
4.(c)
5.(c)
6.(c)
9.(c)
10.(d)
7.(c)
8.(b)
11(d)
12.(b)
13.(d)
14.(a)
15.(d)
16.(b)
17.(d)
18.(c)
19.(b)
20.(a )
