Corporate Financial Reporting Practice Exam
Course Introduction
Corporate Financial Reporting focuses on the principles, standards, and practices involved in preparing and analyzing financial statements for corporations. The course covers key topics such as the regulatory framework of financial reporting, accounting for assets and liabilities, revenue recognition, equity transactions, and cash flows. Students will learn how to interpret balance sheets, income statements, and statements of cash flows, and understand how financial information is used by various stakeholders for decision-making. Emphasis is placed on understanding recent developments in accounting standards, ethical considerations, and the implications of financial reporting in a global business environment.
Recommended Textbook Financial Accounting 2nd Edition by
J. David Spiceland
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Page 2
Chapter 1: Accounting Information and Decision Making
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Q1) Any transaction that affects the income statement ultimately affects the balance sheet through the balance of retained earnings.
A)True
B)False
Answer: True
Q2) McGill purchases additional office equipment to better serves its customers.This purchase is classified as what type of activity?
A)Company activity.
B)Financing activity.
C)Investing activity.
D)Operating activity.
Answer: C
Q3) If total change in cash = $44,000,net operating cash flows = $22,000,and net investing cash flows = ($13,000); then net financing cash flows =
A)$15,000.
B)$25,000.
C)$35,000.
D)$45,000.
Answer: C
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Chapter 2: The Accounting Information System
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Q1) Common Stock increases with a credit and decreases with a debit.
A)True
B)False
Answer: True
Q2) Consider the following list of accounts: Accounts Payable Cash
Prepaid Rent Common Stock
Salaries Payable
Equipment Supplies Rent Expense
How many of these accounts have a normal credit balance?
A)Two. B)Three.
C)Four.
D)Five. Answer: B
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Chapter 3: The Financial Reporting Process
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Q1) Which of the following is a permanent account?
A)Dividends
B)Service Revenue
C)Advertising Expense
D)Retained Earnings
Answer: D
Q2) The closing entry for revenue accounts includes a debit to Retained Earnings and a credit to all revenue accounts.
A)True
B)False Answer: False
Q3) The post-closing trial balance is a list of all accounts and their balances at a particular date after the account balances have been updated for closing entries.
A)True
B)False Answer: True
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Chapter 4: Cash and Internal Controls
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Q1) During the current year,a company provides services on account for $100,000.By the end of the year,$60,000 of this amount had been received.In addition,cash payments for the year were employees' salaries,$50,000; office supplies,$10,000; and utilities $20,000.Determine the amount of operating cash flows the company will report in the current year.
Q2) After preparing a bank reconciliation,the service fee charged by the bank would be recorded with:
A)A credit to Service Fees Expense.
B)A debit to Cash.
C)A credit to Service Fees Revenue.
D)A debit to Service Fees Expense.
Q3) During the current year,a company purchases equipment for $250,000,paying $50,000 immediately and promising to pay the remainder within 30 days after the end of the year.Determine the amount of investing cash flows the company will report in the current year.
Q4) Which of the following is considered cash for financial reporting purposes?
A)Accounts receivable.
B)Investments with maturity dates greater than three months.
C)Checks received from customers.
D)Accounts payable.
Page 6
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Chapter 5: Receivables and Sales
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Q1) Which method is not allowed under Generally Accepted Accounting Principles for the purpose of accounting for uncollectible accounts?
A)Allowance method.
B)Direct write-off method.
C)Aging method.
D)Percentage-of-receivables method.
Q2) The adjustment to account for future bad debts has the effect of (1)reducing assets and (2)increasing liabilities.
A)True
B)False
Q3) On July 1,2012,a company loans one of its employees $20,000 and accepts a nine-month,8% note receivable.Calculate the amount of interest revenue the company will recognize in 2012 and 2013.
Q4) The receivables turnover ratio equals average accounts receivable divided by net credit sales.
A)True
B)False
Q5) Explain how companies account for uncollectible accounts receivable (bad debts).
Q6) What does it mean to report accounts receivable at their net realizable value.
Page 7
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Chapter 6: Inventory and Cost of Goods Sold
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Q1) In a perpetual inventory system,at the time of a sale the cost of inventory sold is:
A)Debited to Accounts Receivable.
B)Credited to Cost of Goods Sold.
C)Debited to Cost of Goods Sold.
D)Not recorded at the time.
Q2) The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following accounting principles?
A)Matching principle.
B)Revenue recognition.
C)Conservatism.
D)Materiality.
Q3) The following information pertains to Julia & Company: What is the cost of goods sold for Julia & Company assuming it uses LIFO?
A)$125.
B)$100.
C)$110.
D)$85.Cost of goods sold = (15 x $4)+ (10 x $5)= $110.
Q4) __________ is commonly referred to as the income statement approach.
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Chapter 7: Long-Term Assets
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Q1) The exclusive right to benefit from a creative work,such as a film,is a:
A)Patent.
B)Copyright.
C)Trademark.
D)Franchise.
Q2) Alliance Products purchased equipment that cost $120,000.It had an estimated useful life of four years and no residual value.The equipment was depreciated by the straight-line method and was sold at the end of the third year of use for $25,000 cash.Alliance should record:
A)a gain of $5,000.
B)a loss of $5,000.
C)neither a gain or a loss since the computer was sold at its book value.
D)neither a gain nor a loss since the gain would not be recognizeD.$120,000/4 = depreciation of $30,000 per year.After three years,the book value would be [$120,000($30,000 x 3 years)] = $30,000.The asset was sold for $25,000 or a $5,000 loss below book value.
Q3) Explain how the accounting treatment differs between purchased and internally developed intangible assets.
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9
Chapter 8: Current Liabilities
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Sample Questions
Q1) When a company borrows cash from a bank promising to repay the amount borrowed plus interest,the borrower reports its liability as notes payable.
A)True
B)False
Q2) The current ratio is
A)Current assets divided by current liabilities.
B)Cash and short-term investments divided by current liabilities.
C)Cash,short-term investments,and accounts receivable divided by current liabilities.
D)Cash,short-term investments,accounts receivable,and inventory divided by current liabilities.
Q3) The Pita Pit borrowed $100,000 on November 1,2012,and signed a six-month note bearing interest at 12%.Principal and interest are payable in full at maturity on May 1,2013.In connection with this note,The Pita Pit should report interest expense in 2013 for the amount of:
A)$0.
B)$4,000.
C)$2,000.
D)$6,000.
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Page 10
Chapter 9: Long-Term Liabilities
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Q1) The debt to equity ratio measures a company's risk and is calculated as total liabilities divided by stockholders' equity.
A)True
B)False
Q2) Which of the following is not a reason why some companies lease rather than buy?
A)Leasing may allow you to borrow with little or no down payment.
B)Leasing can improve the balance sheet by reducing long-term debt.
C)Leasing can lower income taxes.
D)Leasing transfers the title to the lessee at the beginning of the lease.
Q3) In each succeeding payment on an installment note:
A)The amount of interest expense increases.
B)The amount of interest expense decreases.
C)The amount of interest expense is unchanged.
D)The amounts paid for both interest and principal increase proportionately.
Q4) What is the interest expense on the bonds in 2012?
A)$693,103.
B)$600,000.
C)$345,639.
D)$347,464.
Q5) 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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Q1) The Surf's Up issues 1,000 shares of 6%,$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 $18,000 in 2012.Assuming the preferred stock is cumulative,how much of the $18,000 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) Over the first four years of the company's life,it earned the following net income (loss): $6,000; $3,000; $6,000,and ($2,000).If the company's ending retained earnings is $10,000 after year 4,what is the average amount of dividends paid per year?
A)$3,000.
B)$7,000.
C)$0.
D)$750.
Q3) Explain why preferred stock often is said to have a mixture of attributes somewhere between common stock and bonds.
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Chapter 11: Statement of Cash Flows
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Q1) In 2012,Hope Company incurred sales on account of $100,000.The company also has the following information:
\[\begin{array} { | l | c | c | }
\hline & \text { December 31, 2011 } & \text { December 31, 2012 } \\
\hline \text { Accounts Receivable } & \$ 50,000 & \$ 20,000 \\
\hline \text { Accounts Payable } & \$ 65,000 & \$ 40,000 \\
\hline
\end{array}\]
What is the amount of cash received from customers for Hope Company in 2012?
A)$100,000.
B)$45,000.
C)$130,000.
D)$70,000.
Q2) The purchase of long-term assets by issuing debt is recorded as both an investing activity and a financing activity.
A)True
B)False
Q3) Identify and briefly describe the three categories of cash flows reported in the statement of cash flows.
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Page 13
Chapter 12: Financial Statement Analysis
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Q1) Return on equity is calculated by dividing the stock return by average stockholders' equity.
A)True
B)False
Q2) Stealth Company's 2013 receivables turnover ratio is:
A)2.85.
B)4.70.
C)5.00.
D)10.63.
Q3) The location where a loss is reported in the income statement does not really matter as long as the loss is reported.
A)True
B)False
Q4) If an item meets one but not both criteria for extraordinary item treatment,it is correctly excluded from extraordinary items and included with other revenue and expenses.
A)True
B)False
Q5) Explain the difference between vertical and horizontal analysis.
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Chapter 13: Time Value of Money
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Q1) Hillsdale is considering two options for comparable computer software.Option A will cost $25,000 plus annual license renewals of $1,000 for three years,which includes technical support.Option B will cost $20,000 with technical support being an add-on charge.The estimated cost of technical support is $4,000 the first year,$3,000 the second year,and $2,000 the third year.Assume the software is purchased and paid for at the beginning of year one,but that technical support is paid for at the end of each year.The discount rate is 8%.Ignore income taxes.Determine which option should be chosen based on present value considerations.
Q2) LeAnn wishes to know how much she should set aside now at 7% interest in order to accumulate a sum of $5,000 in four years.She should use a table for the:
A)Future value of $1.
B)Present value of $1.
C)Future value of an annuity of $1.
D)Present value of an annuity of $1.
Q3) The value of $1 today is worth more than $1 one year from now.
A)True
B)False
Q4) Explain the difference between present value and future value.
Q5) Briefly describe the difference between simple interest and compound interest.
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Chapter 14: Investments
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Q1) When the investor has insignificant influence,the receipt of cash dividends is recorded as dividend revenue.
A)True
B)False
Q2) The equity method of accounting for investments in voting common stock is appropriate when:
A)The investor can significantly influence the investee.
B)The investor has voting control over the investee.
C)The investor intends to hold the common stock indefinitely.
D)The investor is assured of a continued supply of a valuable raw material.
Q3) Bond investments are long-term assets that earn interest revenue,while bonds payable are long-term liabilities that incur interest expense.
A)True
B)False
Q4) Investments are reported at fair value when a company has a significant influence over another company in which it invests.
A)True
B)False
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Page 16
Chapter 15: International Financial Reporting Standards
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Q1) In common law countries (such as the U.S.,the U.K.,and Canada),greater emphasis is placed on public information than in code law countries (such as France and Germany).
A)True
B)False
Q2) Which of the following is not a reason why accounting differs across countries?
A)Culture.
B)Population.
C)Tax laws.
D)Sources of financing.
Q3) The Norwalk Agreement:
A)Allows foreign companies listed on U.S.stock exchanges to prepare financial statements in accordance with IFRS.
B)Formalizes the commitment between the FASB and IASB to converge U.S.GAAP and IFRS.
C)Eliminates the requirement that U.S.firms report under U.S.GAAP.
D)Gives authority to the IASB to set accounting standards for U.S.companies.
Q4) The FIFO inventory method is not allowed under IFRS.
A)True
B)False
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