Accounting and Financial Statements
Practice Questions
Course Introduction
This course provides an in-depth introduction to the principles of accounting and the preparation and interpretation of financial statements. Students will explore fundamental accounting concepts, the accounting cycle, and the roles of financial statements such as the balance sheet, income statement, and cash flow statement in business decision-making. Emphasis is placed on understanding how financial transactions are recorded, summarized, and reported, as well as analyzing the financial health of organizations through ratio analysis and other tools. By the end of the course, students will be equipped with the essential skills to interpret financial data and apply accounting information to real-world scenarios.
Recommended Textbook
Financial Accounting 10th Edition by Walter T. Harrison
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Chapter 1: The Financial Statements
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Sample Questions
Q1) The entity assumption does NOT apply to a:
A)proprietorship.
B)limited liability partnership.
C)limited-liability company.
D)The entity assumption applies to all the above.
Answer: D
Q2) The two types of accounting are:
A)profit and nonprofit.
B)financial and managerial.
C)internal and external.
D)bookkeeping and decision-oriented.
Answer: B
Q3) Current assets listed in the order of liquidity are:
A)accounts receivable,inventory,cash and cash equivalents.
B)cash and cash equivalents,accounts receivable,short-term investments,inventory.
C)cash and cash equivalents,short-term investments,accounts receivable,inventory.
D)marketable securities,cash and cash equivalents,accounts receivable,inventory.
Answer: C
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3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) A journal entry that debits Cash and credits Accounts Receivable indicates that:
A)payment was received on account.
B)payment was made on account.
C)revenue increased.
D)revenue decreased.
Answer: A
Q2) A business purchased office supplies of $10,000 on account.The business would:
A)debit Accounts Receivable for $10,000 and credit Supplies for $10,000.
B)debit Supplies for $10,000 and credit Cash for $10,000.
C)debit Accounts Payable for $10,000 and credit Supplies for $10,000.
D)debit Supplies for $10,000 and credit Accounts Payable for $10,000.
Answer: D
Q3) When services are performed on account:
A)cash is increased.
B)revenue will not be recorded until the cash is received from the customer.
C)accounts receivable is increased.
D)accounts payable is increased.
Answer: C
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Cash-basis accounting does NOT record:
A)receipt of cash from interest earned on note receivable.
B)payment of salaries to employees.
C)expiration of prepaid rent.
D)borrowing money from the local bank.
Answer: C
Q2) To obtain a new customer,a business sells merchandise to the customer for $50.Normally,the merchandise sells for $100.For this sale,the business should record revenue of:
A)$50.
B)$100.
C)either amount.
D)an average of the two amounts.
Answer: A
Q3) The revenue principle determines when to record revenue and the amount of revenue to record.
A)True
B)False
Answer: True
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) E-commerce pitfalls include all of the following EXCEPT:
A)stolen credit card numbers.
B)phishing expedition.
C)encryption.
D)trojan horses.
Q2) The type of fraud committed by company managers who make false and misleading entries in the books in order to improve a company's financial statements is called:
A)misappropriation of assets.
B)fraudulent financial reporting.
C)embezzlement.
D)collusion.
Q3) Lori's Company has the following items: cash in a checking account,$1,000; cash in a savings account,$4,000; high-grade government securities due in one month,$3,586; accounts receivable,$3,000; cash in a compensating balance agreement,$3,200.How much should appear as Cash and Cash Equivalents on the balance sheet?
A)$4,000
B)$8,586
C)$11,558
D)$11,786
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) Investment in Available-for-Sale Securities is reported on the:
A)income statement at cost.
B)income statement at fair value.
C)balance sheet at cost.
D)balance sheet at fair value.
Q2) Accepting credit cards can increase revenue for a company,but the added revenue comes at a cost.
A)True
B)False
Q3) Factoring accounts receivable is used by:
A)start-up companies.
B)companies with a weak or no credit history.
C)companies with a significant amount of debt.
D)all of the above.
Q4) An unrealized gain on a trading security:
A)is recorded when a trading security is sold for more than its cost.
B)is recorded when a trading security is sold for less than its cost.
C)is recorded when the fair value of the trading security is more than its cost.
D)is recorded when the fair value of the trading security is less than its cost.
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) The weighted-average cost per unit is calculated as the cost of goods available for sale divided by the number of units sold.
A)True
B)False
Q2) When inventory costs are rising,a company using the LIFO costing method will generally pay less taxes than if the company had been using the FIFO method.
A)True
B)False
Q3) A company purchased inventory for $800 per unit.The company later sold one unit of the inventory for cash of $1,500.Under the perpetual inventory system,which accounts will be debited to record the sale?
A)Cash,$1,500; Inventory,$800
B)Cash,$1,500; Cost of Goods Sold,$800
C)Cash,$1,500; Cost of Goods Sold,$700
D)Cash,$1,500; Inventory,$700
Q4) A purchase discount decreases the cost of the inventory.
A)True
B)False
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Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) Martin Company paid $500,000 for a piece of equipment.Martin uses straight-line depreciation.Currently the equipment has a balance in the accumulated depreciation account of $200,000.If the asset has no residual value and an estimated life of 10 years,how many years has the asset been depreciated?
A)1
B)2
C)4
D)6
Q2) A purchaser is willing to pay for goodwill when they feel the company they are buying has abnormal earning power.
A)True
B)False
Q3) At the end of its useful life,the book value of an asset must be zero. A)True
B)False
Q4) The useful lives of many franchises are indefinite and therefore are not amortized. A)True
B)False
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Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) Which method is used when one company owns less than 20% of the shares of another company?
A)consolidation method
B)fair value method
C)equity method
D)amortized cost
Q2) A consolidated balance sheet excludes:
A)a subsidiary's stockholders' equity.
B)a parent company's Investment in Subsidiary account.
C)intercompany note receivable and note payable.
D)all of the above.
Q3) Interest is the difference between the amount borrowed and the principal on a note payable.
A)True
B)False
Q4) Under the equity method,when the investee reports net income,the Equity-Method Investment account increases.
A)True
B)False
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Chapter 9: Liabilities
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Sample Questions
Q1) A contingent liability should be disclosed in the notes to the financial statements if there is a reasonable possibility that a loss (or expense)will occur.
A)True
B)False
Q2) Bonds that the issuer may pay off at a prearranged price whenever the issuer chooses before the maturity date are:
A)serial bonds.
B)callable bonds.
C)convertible bonds.
D)debenture bonds.
Q3) A disadvantage of issuing stock instead of debt is that stock:
A)creates no interest expense which must be paid.
B)is less risky to the issuing corporation.
C)creates no liabilities for the corporation.
D)generally results in lower earnings per share.
Q4) Operating leases are preferred over capital leases because capital leases increase a company's debt ratio.
A)True B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) The purchase of treasury stock by a corporation increases total assets and stockholders' equity.
A)True
B)False
Q2) Peter's Computers purchased 4,000 shares of its own $10 par value common stock for $92,000.As a result of this transaction:
A)Peter's stockholders' equity increased $52,000.
B)Peter's stockholders' equity increased $40,000.
C)Peter's stockholders' equity decreased $92,000.
D)Peter's stockholders' equity increased $92,000.
Q3) When treasury stock is purchased,accountants record treasury stock at:
A)the stock's par value.
B)the stock's original selling price.
C)the stock's current market value.
D)the difference between the original selling price and the par value.
Q4) A new corporation forms every time there is a change in ownership in the shares of common stock.
A)True
B)False
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the Income Statement, the Statement of Comprehensive Income
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Sample Questions
Q1) Income tax payable is the amount of tax to be paid to the government based on the income tax return.
A)True
B)False
Q2) It is NOT the independent auditor's responsibility to determine whether the audited company's financial statements comply with GAAP.
A)True
B)False
Q3) Padowski Corporation's net income for the current year is $500,000.At year end,the corporation had outstanding 4,500 shares of 15%,$100 par value nonconvertible preferred stock and 15,000 shares of $10 par value common stock.No shares were issued or retired during the year.What is basic earnings per share?
A)$22.18
B)$25.64
C)$28.83
D)$33.33
Page 13
Q4) Taxable income should always match pretax accounting income. A)True B)False
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Collections on a loan are reported as investing activities on the statement of cash flows.
A)True B)False
Q2) The statement of cash flows shows why the cash balance changed over a period of time.
A)True B)False
Q3) Zimbalist Corporation reports a decrease in Salaries Payable of $5,000.If Salaries Expense totaled $187,000 for the year,the cash paid to employees is:
A)$177,000.
B)$182,000.
C)$187,000.
D)$192,000.
Q4) Financing activities on a statement of cash flows relate to:
A)current liabilities and long-term liabilities.
B)current assets and long-term assets.
C)long-term assets.
D)long-term liabilities and stockholders' equity.
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) To compute the gross profit percentage,divide:
A)sales by cost of goods sold.
B)gross profit by net sales.
C)net income by stockholders' equity.
D)operating income by net sales.
Q2) Expressing cash and cash equivalents as a percentage of total assets is an example of:
A)horizontal analysis.
B)economic value added.
C)ratio analysis.
D)vertical analysis.
Q3) A financial statement line item expressed as a percentage of a base amount is a result of:
A)horizontal analysis.
B)economic value added.
C)vertical analysis.
D)comparative analysis.
Q4) An efficient capital market is one in which market prices are above stated cost. A)True
B)False
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