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IIA CIA Exam
Certified Internal Auditor Exam (Page 36 )

Updated On: 12-Jan-2026
Page 36 of 342
PDF with 1702 Questions

A has a times-interest-earned ratio of

  1. Pour times.
  2. Five times.
  3. 10 times.
  4. 15 times.

Answer(s): B

Explanation:

The times-interest-earned rata for A equals profit before interest and tax divided by interest expense. Profit before interest and tax is US $100 $40 profit + $20 interest + $40 tax expense). Hence, interest was earned five times US $100 ÷ $20. An entity had the following number of shat -s outstanding during the year:

During the year, the entity of US $600, 00. It paid US $100, 000 in preference dividends, declared and paid US $250, 000 or ordinary share dividends, and paid US $50, 000 of interest to debt holders.



An analysis of inventory turnover in a store's clothing department indicated extremely low turnover. Which of the following would most likely increase the turnover rate?

  1. Increase inventories.
  2. Increase sales incentives.
  3. Increase selling prices.
  4. Decrease the frequency of purchases but maintain the same level of inventory.

Answer(s): B

Explanation:

Inventory turnover equals cost of sales divided by average inventory. Reducing inventory therefore increases turnover. Sales incentives to improve sales should lower inventory levels. Presented below are partial year-end financial statement data for entities A and B.



Which group of ratios would be useful in evaluating the effectiveness of working capital
management?

  1. Profit margin, acid-test ratio, and return on assets.
  2. Acid-test ratio, inventory turnover ratio, and average collection period ratio
  3. Inventory turnover ratio, times interest earned, and debt-to-equity ratio.
  4. Acid-test ratio, current ratio, and return on equity.

Answer(s): B

Explanation:

Working capital equals current assets minus current liabilities. The acid-test ratio equals quick assets current assets - inventory - prepaid expenses) divided by current liabilities. Inventory a current asset) turnover equals cost of goods sold divided by divided inventory. The average collection period number of days' sales in accounts receivable, a current asset) equals the number of days in a year divided by the accounts receivable turnover net credit sales ÷ average receivables). The foregoing are some of the many ratios that can be used to evaluate working capital management.



An entity purchased a new machine for US $' III 610100 by borrowing the required funds from a bank for 180 days What will be the direct impact of this transaction?

  1. Decrease the current ratio and increase the debt ratio.
  2. Increase the current ratio and decrease the debt ratio.
  3. Increase the current ratio and increase the debt ratio.
  4. Decrease the current ratio and decrease the debt ratio.

Answer(s): A

Explanation:

The borrowing of funds for 180 days constitutes short-term borrowing. The new machine is a fixed asset. Current liabilities have increased, and current assets have remained constant. Consequently, the current ratio current assets + current liabilities) has decreased. Total debt and total assets increased by the same absolute amount, and the debt ratio total debt - total assets) should have increased. assuming total debt is less than total asset.



Which of the outcomes represented in the following table would result from an entity's retirement of debt with excess cash?

  1. Option A
  2. Option B
  3. Option C
  4. Option D

Answer(s): A

Explanation:

Because total assets will decline without any impact on sales, the total assets turnover ratio [sales +total assets) will increase. In addition, a reduced debt level should cause a reduction in annual interest payments, so the times-interest-Darned ratio [(profit+ interest + taxes) - interest] should increase.



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