Basics of Financial Accounting Solved
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Course Introduction
Basics of Financial Accounting provides an introduction to the fundamental principles and concepts of financial accounting. Students will learn how to record, classify, and summarize business transactions through the use of double-entry bookkeeping. The course covers the preparation and interpretation of essential financial statements, such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding the accounting cycle, the roles of different financial accounts, and the application of generally accepted accounting principles (GAAP). By the end of the course, students will be equipped with the foundational knowledge necessary to analyze financial information and support business decision-making.
Recommended Textbook Financial Accounting 10th Edition by Walter T. Harrison
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2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Liabilities are:
A)a form of paid-in capital.
B)future economic benefits to which a company is entitled.
C)debts payable to outsiders called creditors.
D)the outflow of resources that decrease common stock.
Answer: C
Q2) The net income shown on the income statement also appears on the:
A)balance sheet and operations statement.
B)statement of retained earnings.
C)statement of cash flows,using the indirect method.
D)B and C.
Answer: D
Q3) An entity's equity consists of two accounts,Amy Jones,Capital,and Mindy Lenz,Capital.This indicates the entity is a:
A)proprietorship.
B)corporation.
C)not-for-profit.
D)partnership.
Answer: D
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Page 3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) The trial balance is used to determine if:
A)total assets equal total liabilities.
B)total debits of all the accounts equal total credits of all the accounts.
C)total debits of the income statement accounts equal the total credits of the income statement accounts.
D)total debits of the balance sheet accounts equal the total credits of the balance sheet accounts.
Answer: B
Q2) An important rule of debits and credits is:
A)credits increase a revenue account.
B)debits decrease an asset account
C)revenues are increased by a debit.
D)expenses are increased by a credit.
Answer: A
Q3) Common Stock and Retained Earnings are increased by debits.
A)True
B)False
Answer: False
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4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) On a multiple-step income statement,several indicators of profitability are reported that include:
A)operating income,income before taxes,and net income.
B)selling expenses and general expenses.
C)cost of goods sold and operating expenses.
D)investment income and interest income.
Answer: A
Q2) Assume the balance in the Retained Earnings account at January 1,2015 is zero,and no dividends are declared in 2015.If a debit balance of $5,000 exists in Retained Earnings after closing out revenues and expenses at the end of 2015,this indicates:
A)that the company had net income of $5,000.
B)an increase in cash of $5,000.
C)the company had a net loss of $5,000.
D)a decrease in cash of $5,000.
Answer: C
Q3) The accumulated depreciation account decreases over the life of the asset.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) The Public Company Oversight Board was created to oversee the: A)SEC.
B)management of public companies.
C)audits of public companies.
D)American Institute of Certified Public Accountants.
Q2) What journal entry is prepared for a check with insufficient funds for payment?
A)No entry is prepared.
B)Debit Cash and credit Accounts Payable.
C)Debit Cash and credit Notes Payable.
D)Debit Accounts Receivable and debit Cash.
Q3) The objectives of internal control do NOT include: A)safeguard assets.
B)encourage employees to follow company policy.
C)ensure accurate,reliable accounting records.
D)strong control environment.
Q4) Fraud is a major problem in many businesses throughout the world.
A)True
B)False
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) In order to effectively evaluate the days' sales in receivables,it should be compared to the company's credit terms.
A)True
B)False
Q2) The maturity value of a $50,000 note at 11% for 5 months is (round to nearest dollar):
A)$50,000.
B)$52,292.
C)$53,208.
D)$55,500.
Q3) The Daisy Company had net credit sales of $830,000 for the year.Cash sales for the year were $1,120,000.Its receivables at the beginning of the year were $47,000 and at the end of the year they had increased to $82,000.The Daisy Company has credit terms of net 30 days.Compute the days' sales in receivables and evaluate the ratio as strong or weak.(Round all calculations to the nearest dollar or whole day.)
A)Days' sales in receivables 28 days; strong
B)Days' sales in receivables 28 days; weak
C)Days' sales in receivables 12 days; strong
D)Days' sales in receivables 12 days; weak
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7
Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Slowinski Corporation reported net income of $425,000 for the current year.After the financial statements had been prepared,it was discovered that ending inventory had been overstated by $25,000 and beginning inventory was understated by $1,000.The correct net income was:
A)$399,000.
B)$401,000.
C)$424,000.
D)$426,000.
Q2) The inventory turnover ratio:
A)is determined by dividing cost of goods sold by net sales.
B)shows how many times the company sold its average level of inventory.
C)should be high for a company that sells high-priced inventory items.
D)will be lower for companies that have many low-priced items in their inventory.
Q3) Under the periodic inventory system,the journal entry to record the cost of ending inventory determined by a physical count is:
A)debit Inventory and credit Cost of Goods Sold.
B)debit Inventory and credit Sales Revenue.
C)debit Purchases and credit Inventory.
D)debit Cost of Goods Sold and credit Inventory.
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Page 8
Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) Return on assets measures:
A)how much the entity earned for each dollar of assets invested.
B)return on sales times total asset turnover.
C)profitability of a company's core business operations.
D)A and B.
Q2) Obsolescence may cause an asset's useful life to be longer than the asset's physical life.
A)True
B)False
Q3) Weaver Motors purchased a machine that will help diagnose problems with engines.The machine cost $300,000 on January 3,2014 and had a residual value of $30,000,with a useful life of 6 years.
Required:
Calculate the depreciation expense and book value as of December 31,2014 under both the straight-line and double-declining-balance methods.
Q4) Natural resources are reported in the Intangible Assets section of the balance sheet.
A)True
B)False
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9
Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) An investor receives a cash dividend from a long-term available-for-sale investment.Which journal entry is required?
A)a debit to Cash and a credit to Dividend Revenue
B)a debit to Cash and a credit to Interest Revenue
C)a debit to Cash and credit to Investment in Available-for-Sale Securities
D)a debit to Cash and credit to Interest Receivable
Q2) Investments are classified as available-for-sale securities,trading securities or held-to-maturity securities.
A)True
B)False
Q3) On January 1,2015,Barry Corporation paid $800,000 for 100,000 shares of Oak Company's common stock,which represents 40% of Oak's outstanding common stock.For the year ending December 31,2015,Oak reported net income of $200,000 and paid cash dividends of $60,000.Barry should report the investment in Oak Company on its balance sheet at December 31,2015 at:
A)$800,000.
B)$744,000.
C)$824,000.
D)$856,000.
Page 10
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Chapter 9: Liabilities
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Sample Questions
Q1) On January 1,2015,Anthony Corporation issued $800,000 of 6%,5-year bonds at 98,with interest paid annually.Using the straight-line amortization method,what is the carrying value of the bonds one year later on January 1,2016?
A)$784,000
B)$785,600
C)$787,200
D)$790,400
Q2) Secured bonds are:
A)also called mortgage bonds.
B)also called serial bonds.
C)bonds that give the holder the right to take specified assets of the issuer in the event the issuer fails to pay interest or principal.
D)A and C.
Q3) 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.
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) To record a 10% stock dividend,accountants use ________.To record a 40% stock dividend,accountants use ________.
A)market price per share; market price per share
B)par value per share; par value per share
C)par value per share; market price per share
D)market price per share; par value per share
Q2) Burkert Company has 50,000 shares of $1 par value common stock issued and outstanding.The company also has 2,000 shares of $100 par value,5% cumulative preferred stock outstanding.Burkert did not pay the preferred dividends in 2014 and 2015.What amount of dividends must the company declare in 2016 for the common stockholders to receive a dividend of $1?
A)$10,001
B)$20,001
C)$30,001
D)$40,001
Q3) The purchase of treasury stock decreases the number of shares outstanding. A)True B)False
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the Income Statement, the Statement of Comprehensive Income
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Q1) A U.S.-based company sells merchandise on account to a company in Mexico.The Mexican company wants to pay for the merchandise in pesos.If the peso decreases in value relative to the dollar,the seller will record a ________.We say the peso ________ relative to the dollar.
A)Foreign Currency Transaction Gain; weakens
B)Foreign Currency Transaction Gain; strengthens
C)Foreign Currency Transaction Loss; weakens
D)Foreign Currency Transaction Loss; strengthens
Q2) The estimated value of a company is $18 million.The company has 2 million shares outstanding at a market price of $10 per share.You already own 1,000 shares of the stock.Should you buy,sell or hold the stock?
A)You should buy more shares of the stock.
B)You should hold the stock for now.
C)You should sell the stock.
D)There is not enough information to make a decision.
Q3) Common stock should be purchased if the estimated value of a company exceeds its current market value.
A)True
B)False
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Chapter 12: The Statement of Cash Flows
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Q1) The sale of land for cash would be classified as a cash inflow from an operating activity on the statement of cash flows.
A)True
B)False
Q2) Under the direct method of preparing the statement of cash flows,all of the following would be reported under operating activities EXCEPT:
A)collections from customers.
B)interest received on notes receivable.
C)dividends received on investments in stock.
D)cash proceeds on sale of long-term investments.
Q3) Highly liquid short-term investments that are easily convertible into cash are called:
A)trading securities.
B)cash equivalents.
C)current assets.
D)accounts receivable.
Q4) The statement of cash flows is an optional statement.
A)True
B)False
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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) Analyzing the statement of cash flows may help analysts determine the financial health of a company.Which of the following signs below is NOT an indicator of a financially healthy company?
A)The company's operations are a major source (not a use)of cash.
B)The company's operations result in Net Cash Used by Operating Activities.
C)The company's investing activities include more purchases than sales of long-term assets.
D)The company's financing activities are not dominated by borrowing.
Q3) The cost of capital is a weighted average of the returns demanded by the company's stockholders and lenders.
A)True
B)False
Q4) Usually new companies have a lower cost of capital.
A)True
B)False
Page 15
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