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IIA CIA Exam
Certified Internal Auditor Exam (Page 37 )

Updated On: 12-Jan-2026
Page 37 of 342
PDF with 1702 Questions

Based on the balance sheet shown in Exhibit A, the debt ratio is

  1. 20%
  2. 40%
  3. 50%
  4. 100%

Answer(s): C

Explanation:

The debt ratio equals total debt divided by total assets, or .50 [(US $3, 000, 000, 000 total debt and equity - $500, 000, 000 ordinary equity - $1, 000, 000, 000 retained earnings) + $3, 000, 000, 000 total assets].



Based on a comparison of RST's quick ratios in Year 5 and Year 6, what is a likely conclusion?

  1. RST has improved its management of long-term investments in Year 6.
  2. RST has written off obsolete inventory in Year 6.
  3. RST's ability to meet short-term financing needs has declined since Year 5.
  4. RST's ability to meet short-term financing needs has improved since Year 5.

Answer(s): C

Explanation:

RST's quick ratio decreased from 2.5 in Year 5 [(US $4, 000 cash + $2, 000 financial
assets held for trading + $14, 000 net AIR] + $8, 000] to 2.0 in Year 6 [(US $5, 000 + $3, 000 + $16, 000) $12, 000]. RST has fewer assets that are easily convertible to cash available to meet current liabilities. Thus, its ability to meet short-term financing needs has declined. RST Corporation's Income Statement for Year 5 and Year 6



What is RST's acid-test or quick) ratio at the end of Year 6?

  1. 2.40 to 1
  2. 2.18 to 1
  3. 2.00 to 1
  4. 1.50 to 1

Answer(s): C

Explanation:

Liquidity ratios measure the ability to meet short-term obligations. A commonly used liquidity ratio is the acid-test or quick ratio, which equals the sum of the quick assets net accounts receivable, financial assets held for trading. and cash) divided by current liabilities. This ratio at the end of Year 1. is 2.0 [(US $5, 000 + $3, 000 + $16, 000) -
$12, 000].
RST Corporation's Income Statement for Year 5 and Year 6



What is RST's current ratio at the end of Year 6?

  1. 4.5 to 1
  2. 2.4 to 1
  3. 2.0 to 1
  4. 1.5 to 1

Answer(s): A

Explanation:

The current ratio equals current assets divided by current liabilities. At the end of Year 6, it was 4.5 54, 000 - 12.000). RST Corporation's Income Statement for Year 5 and Year 6



What is RST's accounts receivable turnover for Year 6?

  1. 19 times.
  2. 16 times.
  3. 10 times.
  4. 6 times.

Answer(s): A

Explanation:

The accounts receivable turnover equals net credit sales divided by average trade receivables net). In Year 6, the accounts receivable turned over 19 times {285.000 - [(16, 000 ending AIR + 14, 000 beginning AIR) ÷ 2]}.



The market value of RST's ordinary stock at the end of Year 6 was US $100.00 per share.



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