Accounting and Financial Reporting
Question Bank
Course Introduction
Accounting and Financial Reporting introduces students to the foundational principles and practices of accounting with an emphasis on the preparation and analysis of financial statements. The course covers the accounting cycle, recognition and measurement of assets and liabilities, revenue and expense accounting, and the interpretation of financial information for decision-making. Students will gain practical skills in recording business transactions, understanding accounting regulations, and utilizing financial reports for managerial and external stakeholder purposes. This course serves as the basis for further studies in accounting, finance, and related business disciplines.
Recommended Textbook
Financial Accounting and Reporting A Global Perspective 5th Edition by Herv Stolowy
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Page 2
Chapter 1: Accounting: the Language of Business
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Sample Questions
Q1) Limited liability companies must periodically file financial statements with a regulatory organization.
A)True
B)False
Answer: True
Q2) Those who use financial statements base their opinion about an economic entity on the:
A) Financial situation.
B) Cash generation.
C) Sales performance.
D) All of these.
Answer: D
Q3) Financially,lenders are rewarded by:
A) Dividends.
B) Interest.
C) Profits.
D) None of the above.
Answer: B
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Page 3
Chapter 2: Introduction to Financial Statements
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Sample Questions
Q1) (Beginning retained earnings balance)+ (Income from the period)- (____)= (Ending retained earnings balance)
A) Expenses
B) Dividends
C) Revenue
D) Interest
Answer: B
Q2) Which of the following transactions has an impact on the bank's cash balance but not on retained earnings?
A) Purchase of equipment
B) Sales of goods
C) Payment of wages
D) Payment of financial interest
Answer: A
Q3) Acquired equipment is valued at its historical cost.
A)True
B)False
Answer: True
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Chapter 3: Financial Statements: Interrelations and Construction
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Sample Questions
Q1) All over the world,the overall structure of the accounts code is left entirely up to company management.
A)True
B)False
Answer: False
Q2) Repaying the principal of a debt will generate a cash outflow.
A)True
B)False
Answer: True
Q3) What is the trial balance used to verify?
A) Sum of debit entries = Sum of credit entries
B) Sum of debit entries < Sum of credit entries
C) Sum of debit entries > Sum of credit entries
D) None of these.
Answer: A
Q4) The accounting process relies only on the use of technical tools and does not require human intervention and interpretation.
A)True
B)False
Answer: False
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Chapter 4: Accounting Principles and End-Of-Period Adjustments
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Sample Questions
Q1) A business has two bank accounts: one has a positive balance of 50 CU and the second has a negative balance of 70 CU.What should be reported in the balance sheet?
A) A net negative balance of 20 CU on the assets side.
B) A net negative balance of 20 CU on the liabilities side.
C) A balance of 70 CU on the assets side and a balance of 50 CU on the liabilities side.
D) A balance of 50 CU on the assets side and a balance of 70 CU on the liabilities side.
Q2) The IASB (IAS 16)defines fixed or tangible assets as assets held by an entity for which purpose(s)?
A) Use in the production or supply of goods or services
B) Administrative purposes
C) Rental to others
D) All of these
Q3) A 'contra asset' account is listed in the balance sheet on the assets side but with a negative (credit)balance.
A)True
B)False
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Chapter 5: Regulation of Accounting and Financial Reporting
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Sample Questions
Q1) Accounting terminology differs from one country to another.Which terms deal with the same concept respectively in US,UK and IASB terminology?
A) Long-term/Fixed/Non-current Assets
B) Short-term/Fixed/Non-current Assets
C) Long-term/Fixed/Non-operating Assets
D) Long-term/Tangible/Non-current Assets
Q2) Which of the following is a financial liability?
A) Bank overdraft
B) Debt to tax authorities
C) Advance payment received from customers
D) Accounts payable
Q3) IAS 1 specifies that: 'an entity shall disclose the amount expected to be recovered or settled after more than ____ months for each asset and liability line item that combines amounts expected to be recovered or settled: (a)no more than ____ months after the reporting period,and (b)more than ____ months after the reporting period'
A) Three
B) Six
C) Twelve
D) Twenty-four
Page 7
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Chapter 6: Revenue Recognition Issues
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Sample Questions
Q1) According to IAS 18,revenue is 'the gross inflow of economic benefits during the period arising in the course of the ordinary activities of an entity when those inflows result in increases in equity,other than increases relating to contributions from equity participants'.(IAS 18)
A)True
B)False
Q2) Which of the following methods is not used to determine the percentage of completion of a transaction?
A) Cost allocation method.
B) Quantity of services performed to date as a percentage of total services to be performed.
C) Actual measurement of work performed.
D) The proportion that costs incurred to date represented as a percentage of the re-estimated total cost of the transaction at completion.
Q3) The basic principle of deferred taxation is that the difference is not expected to be reversed in future periods.
A)True
B)False
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8
Chapter 7: Tangible Fixed Assets
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Sample Questions
Q1) Which of the following equations is correct?
A) Gross value at the beginning of the period + Acquisitions of the period - Disposals of the period = Gross value at the end of the period
B) Gross value at the beginning of the period - Acquisitions of the period - Disposals of the period = Gross value at the end of the period
C) Gross value at the beginning of the period + Acquisitions of the period + Disposals of the period = Gross value at the end of the period
D) Gross value at the beginning of the period - Acquisitions of the period + Disposals of the period = Gross value at the end of the period
Q2) For which class of assets is the productive output method particularly appropriate?
A) Land
B) Buildings
C) Office furniture
D) Manufacturing equipment
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9
Chapter 8: Intangible Assets
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Sample Questions
Q1) Internally generated software cannot be capitalized and must therefore be expensed.
A)True
B)False
Q2) The R&D intensity can also be computed as R&D expenses/operating expenses.
A)True
B)False
Q3) What is a trademark?
A) It is a document granted by a government or an official authority bestowing on the inventor of a product or manufacturing process the exclusive right to use or sell the invention or rights to it.
B) It is a contractual agreement that allows the holder to sell certain products or services.
C) It is the exclusive right to the publication,production and sale of the rights for an intellectual creation.
D) It is a distinctive identification of a manufactured product or of a service.
Q4) The acquisition value of soccer players is always expensed.
A)True
B)False
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Chapter 9: Inventories
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Sample Questions
Q1) According to IAS 2,what should the cost of inventories comprise?
A) Costs of purchase
B) Costs of conversion
C) Costs incurred in bringing the inventories to their present condition and location
D) All of the previous costs
Q2) According to IAS 2,which of the following pieces of information should be given in the notes of the financial statements?
A) Accounting policies adopted in measuring inventories,including the cost formula used.
B) Circumstances or events that led to the reversal of a write-down of inventories.
C) Carrying amount of inventories pledged as security for liabilities.
D) All of these
Q3) Which of the following procedures does not exist for the valuation of inventory outflows?
A) First-In,First-Out (FIFO)
B) Weighted average cost method (WAC)
C) First-In,Last-Out (FILO)
D) Specific identification method
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11
Chapter 10: Financial Instruments in the Statement of
Financial Position and Fair Value Accounting
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Sample Questions
Q1) What does the credit policy of a firm impact?
A) Sales revenue
B) The level of receivables
C) The length of the cash collection cycle
D) All of these
Q2) It is necessary to know the amount of discounted notes in order to compute the average days of sale in a financial statement analysis.
A)True
B)False
Q3) How is the figure for 'average days of sales' calculated?
A) (Average net accounts receivable/Net sales)× 365 days
B) (Average net accounts receivable × Net sales)/365 days
C) (Average net accounts receivable/Net sales)/180 days
D) (Average net accounts receivable/Net sales)× 180 days
Q4) Which of the following items is not a type of accounts receivable reported in the financial statements?
A) Doubtful accounts receivable
B) Disputed accounts receivable
C) Uncollectible accounts receivable
D) Overdue accounts receivable
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Chapter 11: Shareholders Equity
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Sample Questions
Q1) Which of the following equations is correct?
A) Outstanding shares Authorized shares Issued shares
B) Outstanding shares Issued shares Authorized shares
C) Authorized shares Issued shares Outstanding shares
D) Issued shares Outstanding shares Authorized shares
Q2) Incorporating a corporation or increasing its capital are operations that incur significant costs.These costs include legal costs,auditors' fees,bankers' commissions,etc.How are the costs handled?
A) They are considered to be a period cost and recognized in the corresponding income statement
B) They are capitalized as an intangible asset and amortized.
C) They are written off against the total accumulated share premium.
D) All of these.
Q3) Which of the following statements about partnerships is not correct?
A) In many countries,a partnership is not incorporated.
B) Each of the partners is fully responsible for all the consequences of the actions of the business.
C) A partnership is a business with one or more owners
D) Partnership is best suited for a limited number of partners.
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Page 13
Chapter 12: Liabilities and Provisions
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Sample Questions
Q1) Which of the following items is not part of working capital?
A) Trade payables
B) Cash
C) Trade receivables
D) Accruals for employee
Q2) Which of the following statements is not correct?
A) Employers pay salaries or wages to their employees in exchange for their labor.
B) Salaries are paid on a periodic basis as a fixed installment of an agreed upon total amount defined as the remuneration for the person making her or his services available to the employer for an agreed upon annual number of hours.
C) Salaries are dependent on the level of occupation the employer will be able to provide.
D) Wages refer to the payment of an amount defined by an agreed hourly rate or piecework applied to the actual number of units of labor provided during the period for which the wages are calculated.
Q3) In accounting terms,wages and salaries are handled differently.
A)True
B)False
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Chapter 13: Business Combinations
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Sample Questions
Q1) When applying the full consolidation mechanism,the financial statements of the parent and its subsidiaries are combined on a line-by-line basis by adding together like items of assets,liabilities,equity,income and expenses.
A)True
B)False
Q2) The nature of the relation existing between the parent company and the different group entities is a determinant of the way the financial statements of each of the individual group entities will be taken into account in the consolidation process to create the group financial statements.
A)True
B)False
Q3) According to IAS 31,a jointly controlled entity is a corporation,partnership,or other entity in which two or more venturers have an interest.Which type of arrangement establishes joint control over the entity?
A) Commercial arrangement
B) Contractual arrangement
C) Tacit arrangement
D) Supply arrangement
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15
Chapter 14: Income Statement Analysis
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Sample Questions
Q1) How is the EBITDA calculated?
A) EBITDA = Value Added + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowances
B) EBITDA = Commercial margin + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowances
C) EBITDA = Total production for the period + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowances
D) EBITDA = Value Added + Operating subsidies - Taxes and similar expenses (excluding income tax)- Wages and salaries - Social security and other welfare allowancesDepreciation expenses
Q2) Trend analysis and common-size analysis can give sufficient or final answers to the decision maker.
A)True
B)False
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Chapter 15: Balance Sheet Analysis
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Sample Questions
Q1) How is the working capital need calculated?
A) Working capital + Net cash
B) Fixed assets - Current liabilities
C) Current assets (except cash)- Current liabilities
D) Long-term debt - Current assets
Q2) Firms who fear their capital structure indicates too high a risk level to get an advantageous cost of funding can use financial leases to hide their indebtedness.This way they replace debt they would use to acquire a resource (reported on the balance sheet on both sides,and in the income statement through depreciation and interest expense)by paying a monthly or yearly rental fee for the resource they 'leased' with an impact only on the income statement (and,incidentally,reimbursing as an 'expense' the equivalent of the principal of the debt they would have otherwise had to take on).
A)True
B)False
Q3) How is the working capital calculated?
A) Working capital need - Net cash
B) Fixed assets - Equity and Long-term liabilities
C) Current assets (except cash)- Current liabilities
D) Equity and Long-term liabilities - Fixed assets
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Chapter 16: Statement of Cash Flows Construction
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Sample Questions
Q1) Which of the following equations is not correct?
A) Potential cash flow = Net income - Non-cash revenues + Non-cash expenses
B) Potential cash flow = Cash revenues - Cash expenses
C) Potential cash flow = Net income + Non-cash revenues - Non-cash expenses
D) Cash flows from operating activities = Net income + Depreciation expense + Amortization expense + Depletion expense + Provision expense - Reversal of provisionGain on sale of fixed assets + Loss on sale of fixed assets +/- Changes in inventories,receivables,and payables
Q2) The majority of activities or transactions that affect the income statement are included in which section of the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Managing activities
Q3) Which of the following equations is correct?
A) Purchases + Change in accounts payable = Cash paid out for purchases
B) Purchases = Change in accounts payable + Cash paid out for purchases
C) Purchases + Cash paid out for purchases = Change in accounts payable
D) Purchases + Cost of merchandise sold + Change in inventory = 0
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Page 18
Chapter 17: Statement of Cash Flows Analysis and Earnings
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Sample Questions
Q1) What ratio is used to calculate 'cash flow yield'?
A) Operating cash flow/Net sales
B) Operating cash flow/Interest paid
C) Operating cash flow/Net income
D) Operating cash flow/Average current liabilities
Q2) Generally,the operating cash flow is expected to be positive.
A)True
B)False
Q3) Of the 4 strategies described below,which one is most likely to lead to the highest increase of the ratio of cash flow from operations to income from operations?
A) Reduce credit terms to customers,increase inventory levels,increase payables
B) Increase credit terms to customers,increase inventory turnover,negotiate longer credit terms with suppliers
C) Reduce credit terms to customers,keep inventory level steady,increase payables
D) Increase sales revenue by extending longer credit terms to customers,reduce inventory levels,and reduce payables faster than inventories are reduced
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Chapter 18: Ratio Analysis, financial Analysis and Beyond
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Sample Questions
Q1) If a business entity shows a high asset turnover ratio,it means that
A) It requires a high level of fixed assets to sustain is sales revenue year on year.
B) The profit generated year after year represents a high percentage of assets.
C) It always buys state of the art assets and discards older assets before they are fully obsolete.
D) It uses a small amount of assets to generate relatively large amounts of sales revenue.
Q2) Segment reporting consists in:
A) Breaking down the earnings of the firm into the various functional components of its generation process.
B) Breaking down the earnings of a firm into the elements traceable to identifiable components of the business entity defined around markets,technologies or regions.
C) Reporting the three consolidated financial statements of a group plus,separately,those of each of its key subsidiaries.
D) Reporting the accrual-based earnings and the cash flows by structuring them by term.
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