1. A company's balance sheet shows a bank loan of $100,000, which is due to be repaid in the next financial year. How should this loan be classified? a) Long-term liability b) Current liability c) Equity d) Non-current asset Answer: b) Current liability Rationale: Current liabilities are debts that are due within one year, and since the loan is due in the next financial year, it is classified as a current liability. 2. When preparing a cash flow statement, which of the following activities would be classified as an investing activity? a) Sale of company shares b) Payment of dividends c) Purchase of equipment d) Receipt of interest on loans Answer: c) Purchase of equipment Rationale: Investing activities include transactions involving the acquisition or disposal of non-current assets, such as equipment. 3. In managerial accounting, the contribution margin is calculated as: a) Sales - Variable Costs b) Sales - Fixed Costs c) Sales - Total Costs d) Fixed Costs - Variable Costs Answer: a) Sales - Variable Costs Rationale: The contribution margin represents the portion of sales revenue that is not consumed by variable costs and therefore contributes to the coverage of fixed costs. 4. Which of the following is a true statement about absorption costing? a) It treats all manufacturing costs as product costs. b) It only includes direct materials in product costs. c) It is the only method allowed for external reporting. d) It does not allocate fixed manufacturing overhead to products. Answer: a) It treats all manufacturing costs as product costs.