Corporate Financial Reporting Exam Review
Course Introduction
Corporate Financial Reporting examines the principles, standards, and processes involved in the preparation and analysis of financial statements for corporations. The course covers key topics such as Generally Accepted Accounting Principles (GAAP), International Financial Reporting Standards (IFRS), the structure and content of balance sheets, income statements, and cash flow statements, as well as the role of financial statements in corporate governance and decision-making. Students learn to interpret and evaluate financial reports, understand issues related to disclosure and transparency, and appreciate the impact of regulatory environments on financial reporting practices in both national and global contexts.
Recommended Textbook
Financial Accounting 2nd Edition by J. David Spiceland
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15 Chapters
1948 Verified Questions
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Page 2
Chapter 1: Accounting Information and Decision Making
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Sample Questions
Q1) Today,financial accounting and reporting standards in the United States are established primarily by the:
A)Securities and Exchange Commission.
B)International Accounting Standards Board.
C)Financial Accounting Standards Board.
D)U.S.Congress.
Answer: C
Q2) If a company has stockholders' equity of $60,000 at the end of the year,which of the following statements must be true?
A)The company's assets exceed liabilities by $60,000.
B)The company has issued $60,000 of common stock.
C)Net income for the year equals $60,000.
D)Total revenues earned during the year equal $60,000.
Answer: A
Q3) Limited liability means the stockholders are not held personally responsible for the financial obligations of the corporation.
A)True
B)False
Answer: True
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Page 3
Chapter 2: The Accounting Information System
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Sample Questions
Q1) Incurring employees' salaries but not paying them causes no change to stockholders' equity.
A)True
B)False
Answer: False
Q2) On July 7,2012,Saints Inc.received $10,000 in cash from a customer for services to be provided on October 10,2012.Which of the following describes how the transaction should be recorded on July 7,2012?
A)Debit Cash $10,000,credit Service Revenue $10,000.
B)Debit Accounts Receivable $10,000,credit Service Revenue $10,000.
C)Debit Cash $10,000,credit Unearned Revenue $10,000.
D)Debit Unearned Revenue $10,000,credit Cash $10,000.
Answer: C
Q3) Receiving cash from an account receivable:
A)Increases a revenue and decreases an asset.
B)Decreases a liability and increases an asset.
C)Increases an asset and increases a revenue.
D)Increases one asset and decreases another asset.
Answer: D
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Page 4
Chapter 3: The Financial Reporting Process
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Sample Questions
Q1) The adjusting entry for a prepaid expense has the effect of reducing total assets and reducing net income.
A)True
B)False
Answer: True
Q2) Current assets are assets that provide a benefit to a company over more than one year.
A)True
B)False
Answer: False
Q3) Which of the following regarding adjusting entries is correct?
A)Adjusting entries are recorded for all external transactions.
B)Adjusting entries are recorded to make sure all cash inflows and outflows are recorded in the current period.
C)Adjusting entries are needed because we use accrual-basis accounting.
D)After adjusting entries,all temporary accounts should have a balance of zero.
Answer: C
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Page 5
Chapter 4: Cash and Internal Controls
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Sample Questions
Q1) The balance shown in the August bank statement of Colt Company was $23,200.After examining the August bank statement and items included with it,the company's accountant found: \(\begin{array}{lr}
\text { Checks outstanding } & \$ 4,300 \\
\text { NSF check } & 140 \\
\text { Note collected by bank for the Colt Company } & 1,200 \\
\text { Deposits outstanding } & 1,800 \\
\text { Bank service fees } & 60 \end{array}\)
What is the amount of cash that should be reported in the balance sheet as of August 31?
A)$20,700.
B)$17,200.
C)$18,700.
D)$22,200.
Q2) A framework for designing an internal control system is provided by the Financial Accounting Standards Board (FASB).
A)True B)False
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Chapter 5: Receivables and Sales
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Sample Questions
Q1) The adjustment to account for future bad debts has the effect of (1)reducing assets and (2)increasing liabilities.
A)True
B)False
Q2) Toppleson Manufacturing reports a receivables turnover ratio of 14.5.The industry average is 10.7.What most likely is causing this difference?
A)Toppleson is selling to high-risk customers.
B)Toppleson has effective procedures related to selling goods on account.
C)Toppleson provides superior products and services.
D)Toppleson allows customers too long to pay.
Q3) At the time of a credit sale,a company would record an increase in assets and an increase in revenues.
A)True B)False
Q4) The Allowance for Uncollectible Accounts is a contra asset account representing the amount of accounts receivable that we do not expect to collect.
A)True
B)False
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) Ending inventory is equal to the cost of items on hand plus:
A)Items in transit sold FOB shipping point.
B)Sales discounts.
C)Items in transit sold FOB destination.
D)Advertising expense.
Q2) When the value of inventory falls below its cost,companies have the option of recording the inventory at cost or the lower market value.
A)True
B)False
Q3) When the market value of inventory falls below its cost,no adjustment to the accounting records is needed.
A)True
B)False
Q4) A periodic inventory system does not continually modify inventory amounts,but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.
A)True
B)False
Q5) __________ is commonly referred to as the income statement approach.
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Chapter 7: Long-Term Assets
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Sample Questions
Q1) Book value is equal to the original cost of the asset minus the current balance in Accumulated Depreciation.
A)True
B)False
Q2) Most of the costs associated with internally developed intangible assets are recorded as intangible assets on the balance sheet. We expense most of the costs for internally developed intangible assets to the income statement as we incur them.
A)True
B)False
Q3) Contrast the effects of the straight-line,declining-balance,and activity-based depreciation methods on annual depreciation expense.
Q4) The service life of an asset is always equal to the full life of the asset. The service life is how long the company expects to receive benefits from the asset before disposing of it.
A)True
B)False
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Chapter 8: Current Liabilities
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Sample Questions
Q1) Companies are required by law to withhold federal and state income taxes from employees' paychecks and remit these taxes to the government.
A)True
B)False
Q2) Explain why we record interest in the period in which we incur it rather than in the period we pay it.
Q3) Accurate Reports has 50 employees each working 40 hours per week and earning $25 an hour.Federal income taxes are withheld at 15% and state income taxes at 6%.FICA taxes are 7.65% of the first $106,800 earned per employee and 1.45% thereafter.Unemployment taxes are 3.8% of the first $7,000 earned per employee.
1.Compute the total salaries expense,the total withholdings from employee salaries,and the actual direct deposit of payroll for the first week of January.
2.Compute the total payroll tax expense Accurate Reports will pay for the first week of January.
Q4) On April 1,2012,the Electronic Superstore borrows $22 million of which $4 million is due in 2013.Show how the company would report the $22 million debt on its December 31,2012 balance sheet.
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Page 10
Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) Megginson,Inc.issued a five-year corporate bond of $300,000 with a 5% interest rate for $330,000.What effect would the bond issuance have on Megginson,Inc.'s accounting equation?
A)Increase assets and liabilities.
B)Increase and decrease assets.
C)Increase assets and stockholders' equity.
D)Increase and decrease liabilities.
Q2) THA issued the bonds for:
A)$200,000.
B)$194,758.
C)$242,000.
D)Cannot be determined from the given information.
Q3) Which of the following statements is correct?
A)Bonds are always issued at their face value.
B)Bonds issued at more than their face value are said to be issued at a discount.
C)Bondholders must hold their bonds until maturity to receive cash for their investment.
D)None of the other answers are correct
Q4) Why do some companies issue bonds rather than borrow money directly from a bank?
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) California Adventures issues 5,000 shares of 8%,$100 par value preferred stock at the beginning of 2011.All remaining shares are common stock.The company was not able to pay dividends in 2011,but plans to pay dividends of $100,000 in 2012.Assuming the preferred stock is cumulative,how much of the $100,000 dividend will be paid to preferred stockholders and how much will be paid to common stockholders in 2012?
A)$6,000 to preferred stockholders and $12,000 to common stockholders.
B)$18,000 to preferred stockholders and $0 to common stockholders.
C)$12,000 to preferred stockholders and $6,000 to common stockholders.
D)$9,000 to preferred stockholders and $9,000 to common stockholders.
Q2) The financial statements of Heatwave Athletic Wear include the following selected data ($ in millions): Sales,$22,502; Net income $875; Beginning stockholders' equity $3,567; Ending stockholders' equity,$4,102.Calculate the return on equity.
Q3) Prom Night Formal Wear has the following stockholders' equity accounts at December 31,2012: Common Stock,$1 par value,2,000,000 shares; Additional Paid-in Capital,$22 million; Retained Earnings,$15 million; and Treasury Stock,50,000 shares,$1.25 million.Prepare the stockholders' equity section of the balance sheet.
Q4) Explain the difference between authorized,issued,and outstanding shares.
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Chapter 11: Statement of Cash Flows
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Sample Questions
Q1) Wilson Electric reports income tax expense of $150,000.Income tax payable at the beginning and end of the year are $20,000 and $25,000,respectively.What is the cash paid for income taxes during the year?
Q2) Financing activities include cash receipts and cash payments for transactions relating to revenue and expense activities.
A)True
B)False
Q3) Cash paid for financing activities would include cash paid for:
A)the stock of another company.
B)dividends to stockholders.
C)the purchase of treasury stock.
D)b and c.
Q4) Cash flows from financing activities include:
A)Interest received.
B)Interest paid.
C)Dividends received.
D)Dividends paid.
Q5) Identify and briefly describe the three categories of cash flows reported in the statement of cash flows.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Which of the following is not a common type of comparison in accounting?
A)Comparisons of sales growth between companies.
B)Comparisons of earnings per share between companies.
C)Comparisons over time.
D)Comparisons to industry.
Q2) Stealth Company's 2013 debt to equity ratio is:
A)77.1%.
B)80.0%.
C)40.0%.
D)60.0%.
Q3) We use vertical analysis for income statement accounts,but not balance sheet accounts.
A)True B)False
Q4) Stealth Company's 2013 average days in inventory is:
A)60.5 days.
B)92.2 days.
C)100.8 days.
D)89.7 days.
Q5) Explain the difference between vertical and horizontal analysis.
Page 14
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Chapter 13: Time Value of Money
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Sample Questions
Q1) Michaela would like to have $10,000 for a European vacation in four years.Currently,she has saved $8,000.If she puts $8,000 in an account that earns 6% interest,compounded annually,will she be able to take the vacation in four years?
Q2) Samson Inc.is contemplating the purchase of a machine that will provide it with net after-tax cash savings of $100,000 per year for 8 years.Assuming a 10% discount rate,calculate the present value of the cash savings.
Q3) Davenport Inc.offers a new employee a lump-sum signing bonus at the date of employment.Alternatively,the employee can take $30,000 at the date of employment and another $50,000 two years later.Assuming the employee's time value of money is 8% annually,what lump-sum at employment date would make her indifferent between the two options?
A)$60,000.
B)$62,867.
C)$72,867.
D)$80,000.
Q4) Briefly describe the difference between simple interest and compound interest.
Q5) An annuity is a series of equal cash payments over equal time intervals.
A)True
B)False
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Chapter 14: Investments
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Sample Questions
Q1) Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share.The investment is properly classified as an available-for-sale security.By the end of the year,the stock price has increased to $32 per share.How would the change in stock price affect Sports Spectacular's net income?
A)Increase net income by $32,000.
B)Increase net income by $30,000.
C)Increase net income by $2,000.
D)No effect.
Q2) Investments are reported at fair value when a company has an insignificant influence over another company in which it invests.
A)True
B)False
Q3) One of the primary reasons for investing in equity securities includes:
A)Acquiring debt of competing companies.
B)Appreciation in the value of the stock.
C)Earning interest revenue.
D)Deducting dividend payments for tax purposes.
Q4) How can an investor benefit from an equity investment that does not pay dividends?
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Page 16
Chapter 15: International Financial Reporting Standards
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Sample Questions
Q1) Under U.S.GAAP,development expenditures are capitalized,while under IFRS,these expenditures must be expensed immediately.
A)True
B)False
Q2) When preparing a statement of cash flows,IFRS allows companies to report cash inflows from interest and dividends as either operating or investing cash flows,while U.S.GAAP requires these inflows to be reported as only operating activities.
A)True
B)False
Q3) Which of the following is not a reason why accounting differs across countries?
A)Culture.
B)Population.
C)Tax laws.
D)Sources of financing.
Q4) How is preferred stock reported differently under U.S.GAAP and IFRS? Do you think preferred stock is a liability or an equity item? Why?
Q5) What does it mean to revalue a long-term asset? How do U.S.GAAP and IFRS differ regarding revaluation of long-term assets?
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