Basic Financial Accounting
Exam Bank
Course Introduction
Basic Financial Accounting introduces students to the fundamental principles and concepts of financial accounting, including the recording, summarizing, and reporting of business transactions. The course covers essential topics such as the accounting cycle, preparation of financial statements, and the analysis of financial information for decision-making. Students will learn about assets, liabilities, equity, revenues, and expenses, as well as generally accepted accounting principles (GAAP). By the end of the course, students will have a solid understanding of how to interpret and use financial statements, providing a strong foundation for further study in accounting and business.
Recommended Textbook
Financial Accounting 1st Canadian Edition by Jeffrey Waybright
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12 Chapters
1471 Verified Questions
1471 Flashcards
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Page 2
Chapter 1: Business, Accounting, and You
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Sample Questions
Q1) The net income figure is needed to prepare a financial statement. Name the financial statement.
Answer: A statement of retained earnings.
Q2) The following are the assets, liability, and equity of Anil's Animation.
Cash
Retained Earnings
Accounts Payable
Accounts Receivable
Office Equipment
Common Shares
Notes Payable
Art Supplies
a) What type of business organization is Anil's Animation?
b) Identify the accounts according to the accounting equation.
Answer: a) Corporation. Common shares/retained earnings identifies Anil's Animation as a corporation.
b)
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Q3) What is the most difficult type of business to form?
Answer: Corporation
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) Accounts that decrease on the credit side are liabilities, common shares, revenues, and retained earnings.
A)True
B)False
Answer: False
Q2) The general journal is used to record only the revenue transactions of a business.
A)True
B)False
Answer: False
Q3) Obligations owed by a company to banks, for instance, are called __________. Answer: notes payable
Q4) Chronological order dictates the order in which transactions are journalized. A)True
B)False
Answer: True
Q5) Net income and dividends are part of __________.
Answer: shareholders' equity
Q6) The __________ keeps a running balance of an individual account. Answer: general ledger
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Chapter 3: Adjusting and Closing Entries
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Sample Questions
Q1) A worksheet is a useful tool in closing an accounting period. A)True
B)False
Answer: True
Q2) Net income or net loss can be determined by the adjusted trial balance figures. A)True
B)False Answer: True
Q3) Prepaid rent would be an example of a(n) __________. Answer: deferred expense
Q4) Accounting for revenue on an accrual basis means that no entry of revenue is made until the cash is actually received.
A)True
B)False
Answer: False
Q5) The adjusted trial balance is the basis for the preparation of the __________. Answer: financial statements.
Q6) The difference between the cost of office equipment and accumulated depreciation-office equipment is called __________. Answer: book value
Page 5
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Chapter 4: Ethics, Internal Control, and Cash
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Sample Questions
Q1) Having security measures, proper authorization channels, and restricted access to assets is an example of what element of internal control?
Q2) Embezzlement usually involves the misappropriation of business:
A) equity by an employee.
B) liabilities by an employee.
C) assets by an employee.
D) information by an employee.
E) equity by non-employees.
Q3) Under SOX, the external auditors must now report to __________.
Q4) Persons who report unethical behavior are known as __________.
Q5) Under SOX, the Chief Executive Officer and Chief Financial Officer must sign off on:
A) all annual reports by the company.
B) all quarterly reports by the company.
C) all annual or quarterly reports by the company.
D) the external auditor's opinion.
E) monthly expenses.
Q6) Small companies' internal control is always inferior.
A)True
B)False
Page 6
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Chapter 5: Accounting for a Merchandising Business
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Sample Questions
Q1) How often are physical inventory counts performed?
Q2) A journal entry that involves more than two accounts is called a compound journal entry.
A)True
B)False
Q3) Purchase returns reduce the cost of inventory.
A)True
B)False
Q4) If an invoice reads n/15, what does this mean?
Q5) Calculate Net Sales with the following information: Sales of $400,000, Sales Returns and Allowances of $45,000, and Sales Discounts of $38,000
Q6) Journalize the following transactions using the periodic inventory method.
Nov. 1. Sold $3,400 of inventory for $4,500 to Jany Smith with terms 2/10, n/3.0
Nov. 10 Sold $4,700 of inventory for $6,100 for Owen Corp. with terms 2/15, n/30.
Nov. 12 Received payment in full from Jany Smith for the Nov. 1 sale.
Nov. 15 Granted Owen Corp. an allowance of $800 for Nov. 10 transaction for minor defects in the goods shipped.
Nov. 20 Received payment in full from Owen Corp. for the Nov. 10 sale.
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Chapter 6: Inventory
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Sample Questions
Q1) If the replacement cost of inventory is less than its historical cost, the company will write down the inventory. What is the journal entry required?
Q2) In order to attract investors and borrow on attractive terms, what method would a company use in times when inventory costs are rising?
Q3) When inventory prices are rising, what is the effect on Inventory, Cost of Goods Sold, and Net Income under the FIFO method?
Q4) Cost of goods available for sale minus estimated cost of goods sold yields the estimated __________.
Q5) Net sales minus estimated gross profit yields the estimated __________.
Q6) Manufacturers generally purchase large amounts of products from wholesalers and resell them to retailers. A)True B)False
Q7) Prepare the journal entries to record the cost of an item for $28 that sold for $40 cash under the perpetual inventory method.
Q8) Which method of valuing inventory is based on the average of units?
Page 8
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Chapter 7: Sales and Receivables
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Sample Questions
Q1) The aging method of calculating uncollectible accounts considers the existing balance in the Allowance for Doubtful Accounts.
A)True
B)False
Q2) On September 1, 2012, Kelly Company lent $2,400 to Tim on a 6-month 8% promissory note. The journal entry to record the note for Kelly would be __________.
Q3) Accounts receivable are more formal and usually longer in terms than notes receivable.
A)True
B)False
Q4) On March 1, 2012, Kelly Company lent $3,500 to Tim on a 1-year 6% promissory note. The amount of interest to be accrued on December 31 will be:
A) $210.00.
B) $175.00.
C) $157.50.
D) $140.00.
E) $176.00
Q5) What is the maturity date of a 4-month promissory note dated on July 17?
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Chapter 8: Long-Term Assets
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Sample Questions
Q1) Jimmie Company made a basket purchase involving four assets. Their market values were A: $45,000; B: $37,500; C: $41,000; and D: $53,000. The price Jimmie paid for the four assets was $145,000. To the nearest dollar, what final price will Jimmie record for asset D?
Q2) Brandon Corporation purchased a vein of mineral ore for $3,250,000. It is estimated that 15,000,000 tons of ore are available to be extracted. The residual value is determined to be $400,000. What is the depletion expense for this year's extraction of 1,760,000 tons of ore (rounded to the nearest dollar)? What is the journal entry?
Q3) A company pays $98,000 for a copyright and it is estimated that the useful life is ten years. What is the journal entry to record its amortization at year end?
Q4) What type of marketable securities are reported at market value on the balance sheet date?
Q5) Plant assets can be called fixed assets or physical assets. A)True B)False
Q6) What needs to be recorded before the disposal of the asset can be recorded?
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Page 10
Chapter 9: Current Liabilities and Long-Term Debt
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Sample Questions
Q1) Bonds are interest-bearing notes that are issued to a single lender.
A)True
B)False
Q2) ABC Co. has a $100,000 pending lawsuit which is expected to be settled in the next 18 months. The company's lawyers are virtually certain that ABC Co. will lose the case. Identify the category of the liability and explain how it should be classified.
Q3) Leases that are treated as financed purchases are called:
A) capital leases.
B) operating leases.
C) expense leases.
D) revenue leases.
E) non-financial leases.
Q4) If the bond's stated rate of interest is greater than the market rate of interest, the bond will be issued at __________.
Q5) What effect will there be on reported liabilities and net income if a company does NOT accrue warranty expense?
Q6) A past transaction or event must have occurred for a __________ to exist.
Q7) A liability, such as warranties payable, would be an example of a(n) __________.
Page 11
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Chapter 10: Corporations: Share Capital and Retained Earnings
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Sample Questions
Q1) The components of Shareholders' Equity include the following two major categories:
A) Contributed Capital and Accumulated Other Comprehensive Income.
B) Earned Capital and Contributed Surplus.
C) Contributed Capital and Earned Capital.
D) Share Capital and Retained Earnings.
E) Contributed Surplus and Earned Capital.
Q2) A corporation in Canada can only incorporate through the federal government.
A)True
B)False
Q3) If a corporation has both common and preferred shares, the preferred shareholders will receive their dividends first, if the money is available.
A)True
B)False
Q4) What are the three dates associated with a stock dividend?
Q5) Preferred shares are considered a voting "class" of shares.
A)True
B)False
Q6) The process of becoming a corporation is known as __________.
Q7) What is the difference between a stock split and stock dividend?
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Chapter 11: The Cash Flow Statement
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Sample Questions
Q1) Operating cash flows affect:
A) current assets and current liabilities.
B) long-term asset accounts.
C) equity accounts.
D) long-term liability accounts.
E) current assets.
Q2) Making a loan to another company is an example of a cash outflow from __________ activities.
Q3) Activities that increase and decrease as a result of selling a company's shares are __________ activities.
Q4) The section of the cash flow statement from investing activities does NOT include:
A) the sale of common shares.
B) buying shares of other companies.
C) the cash purchases of equipment.
D) collecting the principal on loans.
E) the proceeds from the sale of equipment.
Q5) Acquisitions and sales of long-term assets belong in the __________ section of a cash flow statement using the indirect method.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) The lower the times interest earned ratio, the more likely:
A) a default in payment will occur.
B) a business needs to borrow money.
C) a business will suffer a loss.
D) interest payments can be made.
E) a business can pay its debt.
Q2) The ratio that indicated how many days it takes to turn accounts receivable into cash is the:
A) accounts receivable turnover ratio.
B) average turnover ratio.
C) average collection period.
D) quick assets turnover ratio.
E) accounts receivable ratio.
Q3) A solvency ratio is defined as a way to evaluate a company's stock performance.
A)True
B)False
Q4) Net income was $45,000 in 2009 and $60,000 in 2010. The percentage increase or decrease in net income from 2009 to 2010 was __________.
Q5) For vertical analysis purposes, the base item on the balance sheet is __________.
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