Accounting and Financial Reporting Test Bank
Course Introduction
This course provides a comprehensive introduction to the principles and practices of accounting and financial reporting, emphasizing how businesses record, classify, and communicate financial information. Students will learn about the preparation and interpretation of financial statements, the accounting cycle, and critical concepts such as accruals, revenue recognition, and asset valuation. The course covers the regulatory framework for external reporting, including Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), and discusses the role of ethics and internal controls in ensuring accurate financial disclosure. By the end of the course, students will be able to analyze financial statements and understand their impact on decision-making processes in various organizational settings.
Recommended Textbook
Fundamental Financial Accounting Concepts 9th Edition by Thomas P Edmonds
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13 Chapters
1874 Verified Questions
1874 Flashcards
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Page 2
Chapter 1: An Introduction to Accounting
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Which of the following items appears in the investing activities section of the statement of cash flows?
A)Cash inflow from interest revenue.
B)Cash inflow from the issuance of common stock.
C)Cash outflow for the payment of dividends.
D)Cash outflow for the purchase of land.
Answer: D
Q2) If Ballard Company reported assets of $500 and liabilities of $200,Ballard's stockholders' equity totaled
A)$300.
B)$500.
C)$700.
D)Can not be determined.
Answer: A
Q3) The value created by a business may be called assets.
A)True
B)False
Answer: False
Q4) What is meant by the term double-entry bookkeeping?
Answer: All transactions affect the accounting equation in at least two places.
Page 3
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Chapter 2: Understanding the Accounting Cycle
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) Recognition of revenue may be accompanied by which of the following?
A)A decrease in a liability.
B)An increase in a liability.
C)An increase in an asset.
D)An increase in an asset or a decrease in a liability.
Answer: D
Q2) The ethical standards for certified public accountants only require that such accountants comply with applicable laws and regulations.
A)True
B)False
Answer: False
Q3) In uncertain circumstances,the conservatism principle guides accountants to
A)accelerate revenue recognition and delay expense recognition.
B)accelerate expense recognition and delay revenue recognition.
C)recognize expense of prepaid items when payment is made.
D)delay both expense recognition and revenue recognition.
Answer: B
Q4) What is the effect on the accounting equation of a cash payment to creditors?
Answer: Assets decrease;liabilities decrease
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Chapter 3: The Double-Entry Accounting System
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) The T-account format is also called the chart of accounts.
A)True
B)False
Answer: False
Q2) Source documents provide information that serves as the basis for entries into the accounting system.Examples of source documents include invoices and deposit tickets.
A)True
B)False
Answer: True
Q3) What is financial leverage? What financial ratio can be increased by using financial leverage?
Answer: Financial leverage is the use of borrowed money to increase return on stockholders' investment.If a company can borrow money at 8% and invest it at 10%,it can increase return on equity.
Q4) A trial balance can be in balance,even if there are errors in the accounting system.
A)True
B)False
Answer: True
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Chapter 4: Accounting for Merchandising Businesses
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) Indicate whether each of the following statements is true or false.(Assume a perpetual inventory system. )
_____ a)The freight terms FOB shipping point increase the cost of inventory to the buyer.
_____ b)The term FOB means that goods are shipped free of charge to buyer and seller.
_____ c)FOB shipping point means that purchaser's responsibility ends at shipping point.
_____ d)FOB destination means that seller's responsibility ends at destination.
_____ e)When the seller of merchandise records freight under the terms FOB shipping point,the seller records an expense.
Q2) The balance in the inventory account shown at December 31,2016 is:
A)$2,400.
B)$12,800.
C)$61,600.
D)$28,800.
Q3) When merchandise inventory is purchased on account,how is the accounting equation affected? (Assume a perpetual inventory system is in use. )
Q4) How do gains and losses differ from revenues and expenses? How are they similar?
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Chapter 5: Accounting for Inventories
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) Under the perpetual inventory system,the best estimate of the amount of inventory is:
A)shown on the previous period's financial statements.
B)the book balance in the inventory account.
C)provided by application of the gross margin method.
D)the beginning inventory balance minus sales for the period.
Q2) Indicate whether each of the following statements is true or false.
_____ a)The FIFO cost flow method assumes that the company physically rotates inventory so that the oldest inventory is sold first.
_____ b)In a period of rising prices,FIFO gives higher cost of goods sold than LIFO.
_____ c)Under the weighted average cost flow method,the cost per unit of ending inventory is equal to the cost per unit of inventory sold.
_____ d)In a period of declining prices,LIFO will result in higher income tax expense than FIFO.
_____ e)In a period of rising prices,FIFO gives higher ending inventory than LIFO does.
Q3) In relation to inventory,differentiate between the flow of cost and the physical flow of goods.
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Page 7
Chapter 6: Internal Control and Accounting for Cash
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) At March 31,Cummins Co.had a balance in its cash account of $10,400.At the end of March the company determined that it had outstanding checks of $900,deposits in transit of $600,a bank service charge of $20,and an NSF check from a customer for $200.The true cash balance at March 31 is:
A)$10,100
B)$10,180
C)$10,380
D)$9,880
Q2) An audit is useful to financial statement users because it
A)Guarantees that the financial statements are accurate and correct.
B)Guarantees that management has not been involved in misappropriation of assets.
C)Provides reasonable assurance that the financial statements do not have material misstatements.
D)Assures users that confidentiality is maintained.
Q3) In preparing a bank reconciliation,typical adjustments to the bank balance are deposits in transit and outstanding checks.
A)True
B)False
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Chapter 7: Accounting for Receivables
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) For a company that uses the allowance method,the write-off of an uncollectible account receivable is an asset use transaction.
A)True
B)False
Q2) After the accounts are adjusted at the end of the year,Accounts Receivable has a balance of $225,000,Uncollectible Accounts Expense for the year was $17,500,and Allowance for Doubtful Accounts has a balance of $12,500.What is the net realizable value of the accounts receivable?
Q3) The net effect of the entries to recognize the receipt of a previously written-off account under the allowance method is to:
A)have no effect on total assets or total equity.
B)increase total equity only.
C)decrease total assets.
D)increase total assets and total equity.
Q4) With the direct write-off method,writing off an account receivable is an asset use transaction.
A)True
B)False
Q5) Explain the computation of the length of the operating cycle.
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Chapter 8: Accounting for Long-Term Operational Assets
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) What value will be recorded for the building?
A)$175,000
B)$950,000
C)$800,000
D)$1,100,000
Q2) Indicate whether each of the following statements is true or false.
_____ a)Plant assets are classified as long-term assets,while intangible assets are treated as current assets.
_____ b)Intangible assets include patents,copyrights,and natural resources.
_____ c)Intangible assets with indefinite useful lives will be not be amortized.
_____ d)The cost of land should be depleted over its useful life.
_____ e)The cost of a natural resource should be expensed (depleted)over its useful life.
Q3) Why do some say that the GAAP treatment of research and development puts the US at a competitive disadvantage compared to businesses in other countries?
Q4) For what types of assets is the recognition of expense called "amortization?"
Q5) Explain the meaning of the terms "tangible" and "intangible" and discuss how these terms are used in describing assets.
Q6) Name three examples of property,plant and equipment.
Page 10
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Chapter 9: Accounting for Current Liabilities and Payroll
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) When do the effects of product warranties appear on the statement of cash flows?
A)When the sale of merchandise is made.
B)When the warranty obligation is recognized.
C)When there is a settlement of a warranty claim made by a customer.
D)None of these answer choices are correct.
Q2) In September of 2016,Hansen Company issued a note payable to borrow money from its bank.Principal and interest on the note would come due in June 2017.Interest expense on this note must be accrued at the end of 2016 for the period from issuance of the note to the last day of the accounting period.
A)True
B)False
Q3) The current ratio is a measure of:
A)Solvency.
B)Liquidity.
C)Equity.
D)Profitability.
Q4) Wiggins Company issued a $66,000,8% note payable,with a one year term on September 1,2015.What amount of interest expense will be recognized on the income statement for 2015? 2016?
Q5) Why does the recording of a taxable sale increase a company's liabilities?
Page 11
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Chapter 10: Accounting for Long-Term Debt
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157 Verified Questions
157 Flashcards
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Sample
Questions
Q1) Does United States tax law encourage debt financing or equity financing of a corporation? Why?
Q2) If the stated interest rate for bonds is the same as the effective interest rate,the bonds will be issued at their face value.
A)True
B)False
Q3) If bonds with a face value of $200,000 are issued at 98,the amount of cash received from issuing the bonds is $204,082.
A)True
B)False
Q4) If $200,000 of 12% bonds are issued at 101 ½,what amount of cash will be received by the corporation?
Q5) The amount of interest expense appearing on the December 31,2018 income statement would be:
A)$17,500.
B)$12,500.
C)$14,250.
D)$15,000.
Q6) Explain the concept of financial leverage.
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Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) Where is treasury stock reported on a corporation's balance sheet?
A)As an addition to total paid-in capital
B)As a deduction from total stockholders' equity,following Retained Earnings
C)As a deduction from total paid-in capital
D)As a deduction from Retained Earnings
Q2) Calculate the number of shares outstanding after the stock dividend is issued.
A)57,750 shares
B)55,000 shares
C)52,250 shares
D)525,000 shares
Q3) The declaration and issuance of a stock dividend will
A)decrease the current ratio
B)have an effect on the current ratio that depends on the market price of the stock at the time the dividend is declared
C)increase the current ratio
D)have no effect on the current ratio
Q4) Liability is a significant disadvantage of the partnership form of business organization.
A)True
B)False
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Chapter 12: Statement of Cash Flows
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129 Flashcards
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Sample Questions
Q1) Which of the following transactions would be disclosed on a schedule of noncash investing and financing activities?
A)A mortgage liability accepted in exchange for title to a building.
B)Writing off an uncollectible account receivable.
C)The issuance of bonds for cash.
D)A mortgage liability accepted in exchange for title to a building and also writing off an uncollectible account receivable.
Q2) Which section of a statement of cash flows resembles an income statement?
Q3) The amount of cash flow from financing activities on the December 31,2016 statement of cash flows would be:
A)$0.
B)$80,000 inflow.
C)$83,000 inflow.
D)($87,200)outflow.
Q4) FASB requires that companies report cash flow per share in their audited financial statements.
A)True
B)False
Q5) Why are financial analysts interested in the statement of cash flows?
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Chapter 13: Financial Statement Analysis
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129 Flashcards
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Sample Questions
Q1) On January 1,2015,Gatewood purchased merchandise on account for $6,000.Which of the following statements is true?
A)Gatewood's current ratio will increase and its quick ratio will decrease.
B)Gatewood's quick ratio will increase.
C)Gatewood's current ratio will decrease.
D)Gatewood's current ratio will increase and its quick ratio will increase.
Q2) Accrual accounting requires the use of many estimates,including:
A)Uncollectible accounts expense.
B)Warranty costs.
C)Assets' useful lives.
D)All of these answer choices are correct.
Q3) You are considering an investment in Freedom Airlines stock and wish to assess the firm's earnings performance.All of the following ratios can be used to assess profitability except:
A)Net margin.
B)Average days to collect receivables.
C)Return on investment.
D)Asset turnover.
Q4) Discuss the limitations that affect financial statement analysis.
Q5) Describe the factors involved in communicating useful financial information.
Page 15
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