Financial Accounting and Reporting
Mock Exam
Course Introduction
Financial Accounting and Reporting introduces students to the fundamental concepts and principles of financial accounting, including the preparation, analysis, and interpretation of financial statements. The course covers the accounting cycle, recognition and measurement of assets, liabilities, equity, revenues, and expenses, and the regulatory framework governing financial reporting. Students will develop skills in preparing balance sheets, income statements, and cash flow statements while exploring the role of ethics and professional standards in accounting. Emphasis is placed on the use of financial information for decision-making by external stakeholders such as investors, creditors, and regulatory bodies.
Recommended Textbook
Financial Accounting 12th Edition by C.
William Thomas
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14 Chapters
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Information must be sufficiently transparent so that it makes sense to reasonably informed users of the financial statements,such as creditors.This qualitative characteristic of information is called:
A)verifiability.
B)faithful representative.
C)relevant.
D)understandability.
Answer: D
Q2) Which of the following is a TRUE statement about the characteristics of partnerships?
A)In a limited liability partnership,all partners have limited liability for the partnership's debts.
B)General partners in a general partnership have mutual agency and limited liability for the partnership's debts.
C)Income and losses of the partnership "flow through" to the partners.
D)The partnership agreement must be in writing.
Answer: C
Q3) Four ways a business can be organized include:
Answer: Proprietorship,Partnership,Limited-liability company,and Corporation
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3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) When listing the accounts on the trial balance,list the ________ accounts first and then the ________ accounts.
A)income statement;cash flow statement
B)asset;liability
C)income statement;balance sheet
D)revenues;stockholders' equity
Answer: B
Q2) If a company performs services on account,the revenue is not earned until the cash is collected.
A)True
B)False
Answer: False
Q3) The total debits to an account must equal the total credits to the account.
A)True
B)False
Answer: False
Q4) Every business transaction involves at least one debit and at least one credit.
A)True
B)False
Answer: True
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) When preparing the financial statements of a company:
A)liabilities are not classified on the balance sheet.
B)current assets are the most liquid assets.
C)the balance sheet must be prepared using the account format.
D)the income statement can be prepared using the multistep or report format.
Answer: B
Q2) On November 1,2018,a company using accrual accounting,pays $900,000 for a television advertising campaign.Commercials will run evenly over six months beginning on November 1,2018.How much Advertising Expense will be reported on an income statement prepared for the year ended December 31,2018?
A)$300,000
B)$450,000
C)$600,000
D)$900,000
Answer: C
Q3) Under cash-basis accounting,no journal entry is recorded when a sale is made on account.
A)True
B)False Answer: True
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) The following pertains to Carlisle Company:
1.Balance per bank statement,dated March 31,$4,450.
2.Balance of Cash account on company's books at March 31,$4,459.
3.The $1,300 deposit of March 31 was not included in the bank statement.
4.Of the checks recorded as cash disbursements in March,checks totaling $1,050 have not cleared the bank.
5.Service charges for the month,$10.
6.The bank erroneously charged the company's account for a $200 check of another company with a similar name.
7.The bank credited the company's account with the $1,000 proceeds of a noninterest-bearing note that it collected for the company.
8.NSF check of $75 was returned with the bank statement.
9.The bank paid and charged to the company's account a $507 EFT insurance premium for the company.The payment has not been recorded by the company.
10.The bookkeeper recorded a customer's check of $148 as $135.
11.The bank credited the company's account for $20 interest earned. Prepare the bank reconciliation as of March 31.
Q2) List the five internal control procedures.
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Chapter 5: Receivables and Revenue
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Q1) Robin's Nest had net credit sales for the current period of $580,000 and average net receivables were $45,000.What is Robin's Nest's average daily sales? (Use a 365-day year for your calculations.Round your final answer to the nearest dollar. )
A)$13
B)$28
C)$123
D)$1,589
Q2) One way the risk of not collecting receivables can be managed is:
A)have all customers pay by check.
B)separate cash-handling duties from record-keeping duties.
C)separate cash-handling from the mailroom.
D)have an imprest petty cash fund.
Q3) Companies are not required to estimate expected future returns as part of the end-of-period adjusting entry process.
A)True
B)False
Q4) Interest rates are always for an annual period unless stated otherwise.
A)True
B)False
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Chapter 6: Inventory Cost of Goods Sold
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Q1) On June 1,Neighbor Company purchased inventory on account with a cost of $3,000.The credit terms were 3/10,net 30.On June 2,Neighbor returned 50 percent of the inventory.Neighbor uses the perpetual inventory system.On June 8,Neighbor paid for the inventory.What journal entry did Neighbor Company prepare on June 8?
A)debit Purchase Discount for $45,debit Cash for $1,455 and credit Accounts Payable for $1,500
B)debit Accounts Payable for $1,500 and credit Cash for $1,500
C)debit Accounts Payable for $1,500 credit Purchase Discount for $45 and credit Cash for $1,455
D)debit Accounts Payable for $1,500,credit Inventory for $45 and credit Cash for $1,455
Q2) If ending inventory for the year ended December 31,2019,is understated,this error will cause owners' equity to be:
A)overstated at the end of 2019 and understated at the end of 2020.
B)understated at the end of 2019 and overstated at the end of 2020.
C)overstated at the end of 2019 and correctly stated at the end of 2020.
D)understated at the end of 2019 and correctly stated at the end of 2020.
Q3) List three ways in which the gross profit method can be used by a retailer.
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Chapter 7: Plant Assets, natural Resources, Intangibles
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Q1) The computation of depletion expense is most closely related to which method for computing depreciation?
A)straight-line
B)units-of-production
C)double-declining balance
D)modified accelerated cost recovery system
Q2) Double-declining-balance depreciation:
A)is an accelerated depreciation method.
B)ignores the residual value in computing depreciation,except during the last year.
C)is based on the book value of the plant asset.
D)is all of the above.
Q3) Which of the following should be included in the cost of land improvements?
A)fencing
B)sprinkler system for the landscaping
C)driveways
D)all of the above
Q4) a.What does the net profit margin ratio measure?
b.List three ways in which this ratio can be increased.
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9
Chapter 8: Current and Contingent Liabilities
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Q1) The journal entry to record accrued interest on a short-term note payable includes a debit to:
A)Interest Payable and a credit to Cash.
B)Interest Expense and a credit to Cash.
C)Interest Expense and a credit to Interest Payable.
D)Interest Payable and a credit to Notes Payable.
Q2) Large companies,like Amazon,typically pay most of their financing expenses through accounts payable.
A)True
B)False
Q3) Sales taxes collected from customers are sent to the state at the end of each month.What journal entry is prepared?
A)debit Accounts Receivable and credit Sales
B)debit Sales Tax Payable and credit Sales
C)debit Accounts Payable and credit Cash
D)debit Sales Taxes Payable and credit Cash
Q4) A bonus is an amount over and above regular compensation.
A)True B)False
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) Unsecured bonds are called ________.Secured bonds are called ________.
A)convertible bonds;callable bonds
B)term bonds;serial bonds
C)debentures;mortgage bonds
D)regular bonds;special bonds
Q2) If the market interest rate is greater than the stated interest rate,the bonds will sell at a discount.
A)True
B)False
Q3) For operating leases,the lessee obtains the risks and rewards of owning the leased asset.
A)True
B)False
Q4) Maturities of long-term debt due within one year of the balance sheet date are reported separately from long-term debt.
A)True
B)False
Q5) The account Premium on Bonds Payable increases the issuer's liabilities.
A)True
B)False
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Chapter 10: Stockholders Equity
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Q1) When 200 shares of $1 par value Common Stock are issued at $28 per share,Paid-in Capital in Excess of Par-Common will:
A)increase $200.
B)decrease $5600.
C)increase $5400.
D)stay the same.
Q2) A corporation acts under its own name and not the name of its stockholders. A)True B)False
Q3) Preferred stock is NOT similar to debt because:
A)preferred dividends are not tax-deductible whereas interest expense is tax-deductible.
B)preferred dividends do not have to be paid whereas interest expense must be paid. C)preferred stock does not have a maturity date whereas debt usually has a maturity date.
D)all of the above.
Q4) A company can issue common stock in exchange for assets other than cash. A)True B)False
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Chapter 11: The Statement of Cash Flows
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Q1) The only financial statement used to prepare the statement of cash flows is the balance sheet.
A)True
B)False
Q2) Under the indirect method of preparing a statement of cash flows,amortization expense for the current period is:
A)added in the investing activities section.
B)subtracted in the investing activities section.
C)added in the financing activities section.
D)added in the operating activities section.
Q3) Under the direct method of preparing the statement of cash flows,cash payments from operating activities do NOT include:
A)payments to suppliers.
B)payments to employees.
C)payment of dividends.
D)payment of interest.
Q4) Cash equivalents do NOT include highly liquid short-term investments.
A)True B)False
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Chapter 12: Financial Statement Analysis
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Q1) In performing vertical analysis,the base for income before taxes is:
A)net income.
B)gross sales.
C)gross profit.
D)net sales.
Q2) American Furniture Company has an accounts receivable turnover ratio of 20 while the industry average is 10.What can be said about American Furniture Company's accounts receivable turnover ratio?
A)American Furniture Company collects accounts receivable slower than the industry average.
B)American Furniture Company collects accounts receivable faster than the industry average.
C)American Furniture Company may have a credit policy that is too lenient in granting credit to new customers.
D)American Furniture Company may have a lax credit department.
Q3) Horizontal analysis compares a financial statement line item in the current year with the same line item in the prior year.
A)True
B)False
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Page 14
Chapter 13: Investments
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Questions
Q1) Consolidated financial statements:
A)are prepared if the parent owns more than 20% of the investee's voting stock.
B)do not include a consolidated statement of cash flows because investors need to understand the separate cash flows of the parent and each individual subsidiary.
C)allow investors to gain a better perspective on total operations than they could by examining the reports of the parent and each individual subsidiary.
D)do not identify the amount of noncontrolling interest in subsidiaries' stock because investors do not focus on that information.
Q2) Milton Company owns a 26% interest in the stock of Darcy Corporation.During the year,Darcy declares and pays $23,000 in dividends to Milton,and reports $110,000 in net income.Milton Company will report Equity-method Investment Revenue of:
A)$5980.
B)$22,620.
C)$28,600.
D)$34,580.
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15
Chapter 14: Time Value of Money
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Q1) A single amount of $10,500 is to be received in 3 years.If the single amount is discounted at 8% for 3 periods,the present value is ________.The present value of $1 for 3 periods at 8% is 0.794.The present value of an ordinary annuity of $1 for 3 periods at 8% is 2.577.(Round your final answer to the nearest dollar. )
A)$8,316
B)$10,500
C)$8,337
D)$27,059
Q2) The principal,when investing in a bond,is a single amount to be received by the investor and paid by the debtor at maturity.
A)True
B)False
Q3) The time value of money plays a key role in measuring the value of certain long-term investments as well as long-term debt.
A)True
B)False
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