Financial Accounting
Chapter Exam Questions
Course Introduction
Financial Accounting introduces the principles and concepts necessary to prepare, understand, and analyze financial statements for business entities. The course covers the accounting cycle, including recording transactions, adjusting entries, and preparing balance sheets, income statements, and cash flow statements. Emphasis is placed on generally accepted accounting principles (GAAP), ethical considerations, and the use of accounting information for decision-making by internal and external stakeholders. Students will develop foundational skills for evaluating a companys financial health and reporting requirements, providing a basis for further study in finance, auditing, and managerial accounting.
Recommended Textbook
Fundamental Financial Accounting Concepts 9th Edition by Thomas P Edmonds
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13 Chapters
1874 Verified Questions
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Page 2
Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) As of December 31,2016,Bristol Company had $100,000 of assets,$40,000 of liabilities and $25,000 of retained earnings.What percentage of Bristol's assets were obtained through investors?
A)60%
B)25%
C)40%
D)35%
Answer: D
Q2) Chow Company earned $1,500 of cash revenue,paid $1,200 for cash expenses,and paid a $200 cash dividend to its owners.Which of the following statements is true?
A)The net cash inflow from operating activities was $100.
B)The net cash outflow for investing activities was $200.
C)The net cash inflow from operating activities was $300.
D)The net cash outflow for investing activities was $100.
Answer: C
Q3) What does a company's statement of cash flows tell you about the company?
Answer: The statement of cash flows tells how a company obtained and used cash during the accounting period.
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Chapter 2: Understanding the Accounting Cycle
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Sample Questions
Q1) Indicate whether each of the following statements regarding the four types of accounting events is true or false.
_____ a)Asset exchange transactions involve an increase in one asset and a decrease in another asset.
_____ b)An asset source transaction involves an increase in assets and an increase in a corresponding claims account.
_____ c)An asset use transaction cannot result in an increase in equity.
_____ d)Asset exchange transactions cannot affect cash flows.
_____ e)Some claims exchange transactions involve an increase in a liability account and a decrease in an equity account.
Answer: a)False b)True c)True d)True e)False
Q2) Describe the difference between temporary and permanent accounts,and state which ones are closed.
Answer: Temporary accounts (revenues,expenses and dividends)collect information about a single period only;they are closed at the end of that period.Permanent accounts include the balance sheet accounts (assets,liabilities,common stock and retained earnings),and their balances roll forward each year rather than being closed out.
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Page 4
Chapter 3: The Double-Entry Accounting System
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Sample Questions
Q1) Journals are sometimes called books of original entry because transactions are recorded in journals before amounts are entered into the ledger.
A)True
B)False
Answer: True
Q2) What effect do credits have on asset accounts? On equity accounts?
Answer: Credits decrease asset accounts.Credits increase equity accounts.
Q3) The balance in Retained Earnings is decreased by debiting the account.
A)True
B)False
Answer: True
Q4) The employees of Able Company have worked the last two weeks of 2016,but the employees' wages have not been paid or recorded as of December 31,2016.The adjusting entry that Able should make for these unpaid wages on December 31,2016 is:
A)debit to Wages Expense and credit to Cash.
B)debit to Wages Expense and credit to Wages Payable.
C)debit to Wages Payable and credit to Wages Expense.
D)no entry is required until the employee is paid next period.
Answer: B
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Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) On April 6,2016,Gringot Company purchased $140,000 of merchandise inventory.Terms of the purchase included a discount of 3/20,n/30 and the freight terms were FOB destination.Freight costs amounted to $4,600.Gringot paid the account payable on April 24.Gringot sold all inventory for $189,500. Required: Determine the amount of gross margin Gringot would report on the income statement.
Q2) Costs charged to the Merchandise Inventory account are product costs.
A)True
B)False
Q3) Which accounts would affect operating income?
A)Account numbers 2,4,and 9.
B)Account numbers 3,5,7,and 9.
C)Account numbers 3,4,7,and 9.
D)Account numbers 3,4,7,8 and 9.
Q4) A perpetual inventory system updates the Merchandise Inventory account for all purchases of inventory,as well as returns of inventory to suppliers.
A)True
B)False
Q5) If goods are shipped FOB destination,who is responsible for the shipping costs?
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) Explain the computation of and the significance of inventory turnover.
Q2) Determine the amount of gross margin assuming the weighted average cost flow method.
A)$3,015
B)$2,412
C)$1,314
D)$2,970
Q3) When using the gross margin method to estimate inventory,which of the following is a step in the computation?
A)Add the amount goods available for sale to estimated cost of goods sold.
B)Add estimated gross margin to sales.
C)Subtract estimated goods available for sale from beginning inventory.
D)Subtract estimated cost of goods sold from the amount of goods available for sale.
Q4) A company's gross margin reported on the income statement is not affected by the inventory cost flow method it uses.
A)True
B)False
Q5) Discuss the significance of the average number of days to sell inventory.
Q6) Define the terms FIFO and LIFO.
Page 7
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Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) What documentation issued by a bank increases a company's checking account balance at the bank?
A)Credit memo
B)Debit memo
C)Balance sheet
D)Certified check
Q2) Most companies strive to receive an unqualified audit opinion.
A)True
B)False
Q3) What are the primary roles of the independent auditor? What professional license is required of an independent auditor?
Q4) What is a fidelity bond and what is its purpose?
Q5) The primary focus of financial statement audits is the discovery of fraud.
A)True
B)False
Q6) Requiring separation of duties in a business eliminates the need for the work of one employee to serve as a check on the work of other employees.
A)True
B)False
Page 8
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) Indicate whether each of the following statements is true or false.
_____ a)Other things being equal,an operating cycle of 49 days is more desirable than an operating cycle of 120 days.
_____ b)The operating cycle is longer for a winery than a fast-food restaurant.
_____ c)The length of an operating cycle is not relevant to the profitability of a business.
_____ d)The length of an operating cycle equals the average days to collect accounts receivable.
_____ e)The length of an operating cycle is computed by adding the sum of the average days in inventory and the average number of days to collect accounts receivable.
Q2) The amount of accounts receivable that is actually expected to be collected is known as:
A)Allowance for doubtful accounts.
B)Uncollectible accounts expense.
C)The present value of accounts receivable.
D)Net realizable value.
Q3) Collection of a credit card receivable is an asset source transaction.
A)True
B)False
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) Assume that Jing Company earned $30,000 cash revenue and incurred $19,000 in cash expenses in 2018.Using straight-line depreciation and assuming that the office equipment was sold on December 31,2018 for $16,000,the amount of net income or (loss)appearing on the December 31,2018 income statement would be:
A)($6,600).
B)$6,600.
C)$600.
D)$5,400.
Q2) Assume that Harding uses the units of production method when depreciating its equipment.Harding estimates that the purchased equipment will produce 1,000,000 units over its 5-year useful life and has salvage value of $34,000.Harding produced 265,000 units with the equipment by the end of the first year of purchase.
Which amount below is closest to the amount Harding will record for depreciation expense for the equipment in the first year?
A)$193,450
B)$125,200
C)$157,145
D)$165,890
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Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) Broward Company estimated that its warranty expense would be $6,250 for the current year.During the year Broward paid $3,920 to repair merchandise that was returned by customers.
a)What is the amount of warranty expense for the current year?
b)If this is the first year of operations,what is the amount of warranty liability that will be shown on the balance sheet at the end of the year?
Q2) Joseph Company is preparing to repay a one-year note on May 1,2016.The first step in this process is to accrue eight months of interest expense.
A)True
B)False
Q3) Greer Company pays Jamal Perry a salary of $3,000 per week.How much FICA tax must Greer pay on Jamal's behalf,including both the employee and employer portions?
A)$225.
B)$360.
C)$0.00 Jamal is responsible for making his own payments.
D)$450.
Q4) What is the effect of the recognition of warranty expense on the statement of cash flows?
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Page 11
Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) Indicate whether each of the following statements is true or false.
_____ a)Interest expense on long-term installment notes increases each year.
_____ b)Cash for machinery or buildings is often obtained by issuing long-term debt.
_____ c)Short-term notes payable normally mature within a year.
_____ d)Long-term installment notes are repaid all at once two to five years after the issue date.
_____ e)Most long-term loans are obtained from the corporation's stockholders.
Q2) Straight-line interest amortization of a premium or discount on bonds payable:
A)assigns variable amounts of interest over the term of the liability.
B)uses compound interest principles.
C)assigns the same amount of interest to each interest period over the term of the liability.
D)is required for U.S.income tax reporting.
Q3) Based on the above,how much interest expense will Hanover report on its income statement on December 31,2016?
A)$423
B)$2,115
C)$5,640
D)$6,063
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Page 12
Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) Indicate whether each of the following statements is true or false.
_____ a)An appropriation of retained earnings limits the amount available for dividends.
_____ b)Appropriating retained earnings is considered an asset exchange transaction.
_____ c)An appropriation is recorded as a debit to the appropriated retained earnings account and a credit to retained earnings.
_____ d)One reason for an appropriation of retained earnings is that there may be restrictive covenants in credit agreements.
_____ e)An appropriation has no effect on the accounting equation.
Q2) All corporations are subject to extensive government regulation.
A)True
B)False
Q3) Which of the following is not a reason why a corporation may choose to not pay dividends?
A)The board and management prefer to reinvest all net income for future growth.
B)The corporation does not have adequate cash.
C)The corporation does not have adequate retained earnings.
D)All of these are valid reasons to not pay dividends.
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Page 13
Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows,what is the proper disposition of a loss on disposal of equipment?
A)Disregard the loss because it relates to an investing activity.
B)Disregard the loss because it relates to a financing activity.
C)Add the loss to net income.
D)Subtract the loss from net income.
Q2) On January 1,2016,the balance of Jacobs Corporation's Accounts Receivable was $40,000.Sales on account for 2016 amounted to $320,000 and the ending balance of Accounts Receivable was $64,000.What is the amount of cash collected from customers?
A)$296,000
B)$256,000
C)$344,000
D)$360,000
Q3) Why are financial analysts interested in the statement of cash flows?
Q4) Describe where on the Statement of Cash Flows one would find a noncash purchase of equipment.
Q5) Give an example of a noncash financing and investing activity.
Q6) Prepare the financing activities section of Moreno's statement of cash flows.
Page 14
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) When debt is used to finance purchase of assets,the term or time span of the debt should be similar to the lifespan of the assets.
A)True
B)False
Q2) Select the incorrect statement regarding ratio analysis.
A)Ratio analysis involves making comparisons between different accounts in the same set of financial statements.
B)There are many different ratios available for evaluating a firm's performance.
C)Some ratios involve an account from the balance sheet and one from the income statement.
D)Ratio analysis is a specific form of horizontal analysis.
Q3) The Monticello Company reported gross sales of $800,000,sales returns and allowances of $5,000 and sales discounts of $10,000.The company has total average assets of $500,000,of which $250,000 is property,plant,and equipment.What is the company's asset turnover ratio?
A)3,14 times
B)1.57 times
C)1.60 times
D)0.64 times
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Page 15