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IIA CIA Exam
Certified Internal Auditor Exam (Page 35 )

Updated On: 12-Jan-2026
Page 35 of 342
PDF with 1702 Questions

The following transactions + occurred during a company's first year of operations:

I). Purchased a delivery van for cash
II). Borrowed money by issuance of short-term debt
III Purchased treasury stock

Which of the items above caused a change in the amount of working capital?

  1. I only
  2. I and II only
  3. II and III only
  4. I and III only.

Answer(s): D

Explanation:

Working capital is computed by deducting total current liabilities from total current assets. The purchase of a delivery van for cash reduces current assets and has no effect on current liabilities_ The borrowing of cash by incurring short-term debt increases current assets by the same amount as it increases current liabilities, hence, it will have no effect on working capital. The purchase of treasury stock decreases current assets but has no effect on current liabilities. Thus, the purchases of the van and treasury stock affect working capital.



Given an acid-test ratio of 2.0, current assets of US $5, 000, and inventory of US $2, 000, the value of current liabilities is

  1. US $1, 500
  2. US $2, 500
  3. US $3, 500
  4. US $6, 000

Answer(s): A

Explanation:

The acid-test or quick ratio equals the ratio of the quick assets cash, net accounts receivable, and marketable securities) divided by current liabilities Current assets equal the quick assets plus inventory and prepaid expenses. This question assumes that the entity has no prepaid expenses. Given current assets of US $5, 001.i, inventory of US $2, 000 and no prepaid expenses, the quick assets must be US $3, 000. Because the acid- test ratio is 2, .0 the quick assets are double the current liabilities. Current liabilities therefore are dual to $1, 500 ($3, 000 quick assets - 2.0).



An entity has US $400 of current assets, composed of US $200 of cash, US $100 of accounts receivable, and US $100 of inventory. The entity has US $200 of long-term debt, US $100 of accounts payable, and US $75 of notes payable. The notes payable are due in 6 months. The acid-test ratio, to two decimal places, is

  1. 0.80
  2. 1.29
  3. 1.71
  4. 2.29

Answer(s): C

Explanation:

The acid-test ratio equals current assets US $400) minus inventories US $100), divided by current liabilities US $100 + $75 = US $175), or 1.71.



An entity has total asset turnover of 3.5 times and a total debt to total assets ratio of 70%. If the entity has total debt of US $1, 000, 000, it has a sales level of

  1. US $5, 000, 000.00
  2. US $2, 450, 000.00
  3. US $408, 163.26
  4. US $200, 000.00

Answer(s): A

Explanation:

If the debt-to-total assets ratio is 70% and debt is US $1, 000, 000, total assets must be US $1, 428, 571.4 $1, 000, 000 ÷ 7). Given total asset turnover sales - total assets) of 3.5, sales must be US $5, 000, 000 (3.5 x $1, 423, 571.4).



The number of shares the entity had outstanding for the year, for the purpose of computing basic earnings per share (BEPS), is

  1. 65, 000
  2. 70, 000
  3. 76, 000
  4. 79, 000

Answer(s): C

Explanation:

The weighted-average number of shares outstanding for the year 76, 000 shares) is used in the BEPS calculation.



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