Financial Accounting
Chapter Exam Questions
Course Introduction
Financial Accounting introduces students to the foundational principles and practices of accounting used in modern business. The course covers topics such as recording financial transactions, preparing and interpreting financial statements, understanding accrual and cash accounting, and analyzing the impact of financial information on business decision-making. Emphasis is placed on the accounting cycle, the preparation of balance sheets, income statements, and cash flow statements, as well as the ethical and regulatory environment surrounding financial reporting. By the end of the course, students will be able to critically evaluate financial information and understand its role in communicating the financial health of an organization.
Recommended Textbook
Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition by Gary
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Chapter 1: Accounting As a Form of Communication
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Sample Questions
Q1) All of the following are different expressions for net income except A)capital.
B)excess of revenues over expenses.
C)profits.
D)earnings.
Answer: A
Q2) Which one of the following items does not accurately describe stockholders' equity?
A)Stockholders' equity is created when a company issues stock to an investor.
B)Total stockholders' equity should be equal to assets in a publicly held entity.
C)Stockholders' equity represents amounts contributed by the owners to the company.
D)As owners of shares in a corporation,stockholders have claims on the assets of a business when it is profitable.
Answer: B
Q3) Under Armour is an example of a service provider.
A)True
B)False
Answer: False
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Chapter 2: Financial Statements and the Annual Report
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Sample Questions
Q1) One significant difference between a classified and a non-classified balance sheet is the distinction between which of the following items?
A)Assets and liabilities
B)Current and noncurrent (or long-term)items
C)Liabilities and owners' equity
D)Resources invested by the owners and amounts borrowed from creditors
Answer: B
Q2) Read the information about Moore Industries.The company's dividends for the year
A)reduce the amount of capital stock reported by the company.
B)are part of Moore Industries' operating costs.
C)are reported on the statement of retained earnings.
D)are an expense of Moore Industries.
Answer: C
Q3) The excess of current assets over current liabilities is referred to as working capital.
A)True
B)False
Answer: True
Q4) .____________________ is the impact of information to change decision-making.
Answer: Relevance
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Chapter 3: Processing Accounting Information
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Sample Questions
Q1) An external event involves interaction between an entity and its environment.
A)True
B)False
Answer: True
Q2) Which of the following statements best describes one effect of recognizing expenses incurred by a business entity?
A)Stockholders' equity will decrease.
B)Liabilities will decrease.
C)Stockholders' equity will increase.
D)Assets will increase.
Answer: A
Q3) All of the following events (transactions)would be identified from standard source documents except for
A)freight charges for merchandise purchased from suppliers.
B)the amount to be paid to settle a lawsuit for discrimination in hiring employees.
C)wages to be paid to hourly employees.
D)commissions earned by sales employees.
Answer: B
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Chapter 4: Income Measurement and Accrual Accounting
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Sample Questions
Q1) Statements prepared monthly,quarterly,or at other intervals are called
A)trial balance statements.
B)closing statements.
C)interim statements.
D)temporary statements.
Q2) Describe the benefit(s)of using the accrual process as compared to the cash basis.
Q3) Why is the use of the U.S.dollar as a unit of measure for financial statement data in the United States widely accepted?
A)The U.S.dollar remains stable over a long period of time.
B)The U.S.dollar is universally recognized as a reliable financial measure.
C)The U.S.dollar is the medium of monetary exchange in the United States.
D)The U.S.dollar is required for financial statement presentation by the FASB and SEC.
Q4) What is the significance of the timing in which cash is paid or received as it relates to the adjusting process?
Q5) According to the revenue recognition principle,revenues are recognized when they are __________________ and __________________.
Q6) Temporary accounts are also known as _________________ accounts.
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Page 6
Chapter 5: Inventories and Cost of Goods Sold
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Q1) Selected data for Sorenta,Inc.and New World Corp. ,two companies in the same industry,are presented below: Based on this data,which of the following statements is true?
\[\begin{array} { l r r } & \text { Sorenta, Inc. } & \text { New World Corp. } \\
\text { Sales }& \$ 50,000 & \$ 80,000 \\
\text { Cost of goods sold } & 30,000 & 50,000 \\
\text { Average inventory balance } & 5,000 & 5,000 \end{array}\]
A)Sorenta,Inc.has a lower gross profit ratio than New World Corp.
B)New World Corp.has a higher net income than Sorenta,Inc.
C)New World Corp.sells its inventory faster than Sorenta,Inc.
D)Sorenta,Inc.has lower storage costs and a lower investment in inventory than New World Corp.
Q2) Refer to the information for Grappa,Inc.
How much is cost of goods sold for 2018?
Q3) Describe how the inventories of manufacturers differ from the inventories of retailers.
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Page 7
Chapter 6: Cash and Internal Control
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Sample Questions
Q1) __________ describes a form used by the accountant to reconcile or resolve any differences between the balance shown on the bank statement for a particular account with the balance shown in the accounting records.
Q2) Administrative controls are
A)concerned with efficient operations and adherence to managerial policies.
B)concerned with the reliability of the financial statements.
C)the responsibility of the company's auditors.
D)concerned primarily with safeguarding assets.
Q3) __________ controls within a company are more concerned with the efficient operation of the business and adherence to management policies than with the accurate reporting of financial information.
Q4) When reconciling a bank account,the company must prepare an adjusting entry for deposits in transit. A)True
B)False
Q5) The key to the classification of an amount as cash is that it be available to pay debts within a three-month period of time. A)True B)False
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Chapter 7: Receivables and Investments
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Sample Questions
Q1) The following data concern Wang Corporation for 2017: ?
\[\begin{array} { l r }
\text { Credit sales during the year } & \$ 1,600,000 \\
\text { Accounts receivable-December } 31,2017 & 235,000 \\
\text { Allowance for doubtful accounts-December 31,2017 } & 18,000 \\
\text { Bad debts expense for the year } & 11,000
\end{array}\] What amount will Wang show on its year-end balance sheet for the net realizable value of its accounts receivable?
A)$253,000
B)$235,000
C)$224,000
D)$217,000
Q2) What is the impact on the cash flow statement from an increase in short-term notes receivable,assuming the indirect method is used?
A)A decrease in the cash flow from operating activities
B)An increase in the cash flow from operating activities
C)An increase in the cash flow from financing activities
D)An increase in the cash flow from investing activities
Q3) Identify two methods of accelerating cash from sales.
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Page 9
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
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Sample Questions
Q1) Double-declining-balance depreciation is most commonly used by businesses for financial reporting purposes.
A)True
B)False
Q2) Goodwill can be recorded as an asset when a(n)
A)business has above normal profitability compared to other businesses in its industry.
B)business can determine that it has created customer goodwill and name recognition.
C)offer is received to purchase the business at a price in excess of the value of the assets.
D)business is purchased and payment is made in excess of the value of the net assets.
Q3) Depreciation is
A)an effort to achieve proper matching of the cost of operating assets.
B)an accumulation of funds to replace the related plant asset.
C)the difference between the original cost and salvage value of an asset.
D)the cash allocated each period to maintain a plant asset.
Q4) _____________ is(are)the right to produce or sell a published work.
Q5) Distinguish between tangible and intangible operating assets.
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Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
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Sample Questions
Q1) If a company purchases $3,200 worth of inventory with terms of 2/10,n/30 on March 3 and pays April 2,then the amount paid to the seller would be
A)$3,136.
B)$3,150.
C)$3,168.
D)$3,200.
Q2) If current assets amount to $150,total assets $350,current liabilities $65,and total liabilities $100,then the current ratio is
A)2.12 to 1.
B)2.31 to 1.
C)3.03 to 1.
D)3.50 to 1.
Q3) The present value is the value today of a single amount to be paid or received at a specific date in the future.
A)True
B)False
Q4) If the present and future values are known along with the number of periods,then the __________ can be determined.
Page 11
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Chapter 10: Long-Term Liabilities
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Q1) A(n)__________ lease is recorded on the lessee's balance sheet as an asset and related liability.
Q2) The change in the Deferred Taxes account is reflected in the Operating Activities category of the statement of cash flows.
A)True
B)False
Q3) All of the following statements are true except
A)the criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under U.S.GAAP than IFRS.
B)the criteria to determine whether a lease contract should be considered a capital lease are applied in a more rigid way under IFRS than U.S.GAAP.
C)the lease criteria under IFRS are to be used as guidelines rather than rules.
D)IFRS require more accounting judgment than U.S.GAAP in the determination of whether a lease is classified as an operating lease or a capital lease.
Q4) Bonds are generally issued in denominations of $1,000.
A)True
B)False
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Chapter 11: Stockholders Equity
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Sample Questions
Q1) Assume that Milo Company's Stockholders' Equity category of the balance sheet appears as follows as of January 1,2017:\(\begin{array}{lr}
\text { Common stock, } \$ 15 \text { par, } 7,000 \text { shares issued and outstanding } & \$ 105,000 \\
\text { Additional paid-in capital common } & 70,000 \\
\text { Retained earnings } & \underline{30,000} \\
\text { Total stockholders' equity } & \underline{ \$ 205,000} \end{array}\)
Assume that Milo's common stock is selling at $35 per share on that date. Required
What is the effect on the Stockholders' Equity section of Milo's balance sheet if the company issues a 3-for-1 stock split on January 2,2017?
Q2) An arbitrary amount that is stated on the face of the stock certificate is
Q3) Comprehensive income is the increase in net assets resulting from all transactions occurring during an accounting period except stockholders' investments and dividends. A)True B)False
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Chapter 12: The Statement of Cash Flows
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Q1) Which of the following statements is false?
A)Cash equivalents are included in cash on the balance sheet and on the statement of cash flows.
B)Investments in cash equivalents and investments in stock have the same economic effect-assets increase and decrease by the same amount.
C)An investment is a cash equivalent if it is convertible into a known amount of cash and has an original maturity of three months or less when purchased.
D)Investments in stock are reported as a financing activity on the statement of cash flows.
Q2) The Financial Accounting Standards Board (FASB)has expressed a strong preference for the indirect method,but allows companies to use the direct method in calculating the cash flow from operating activities.
A)True
B)False
Q3) It is not possible for Cash to decrease from Year 1 to Year 2 if income rises over this period.
A)True
B)False
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Moonbeam Gift Shop's inventory turned over six times during the year.Similar gift shops have an inventory turnover equal to 12 times per year.What might explain Moonbeam's state of inventory management?
A)Moonbeam sold too much inventory during the year.
B)Moonbeam needs to increase sales and decrease the amount of inventory on hand.
C)Moonbeam is performing twice as well as its competitors.
D)Moonbeam should increase the amount of goods on hand to accommodate the additional inventory demand.
Q2) Refer to the financial statements for Culinary Delights Company.
Required
(A)Calculate Culinary Delights' return on sales ratio for 2018 and 2017.Assume that the income tax rate is 30%.What information is provided by this ratio?
(B)Calculate the return on common stockholders' equity ratio for 2018 and 2017.Stockholders' equity at December 31,2016,was $897,431 (in thousands).Why is the denominator an average instead of a single amount?
Q3) What three specific ratios are especially useful for creditors and lenders?
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Chapter 14: International Financial Reporting Standards
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Q1) Both U.S.GAAP and IFRS apply the lower-of-cost-or-market rule in a similar manner to inventory.
A)True
B)False
Q2) Summarize some of the common differences between U.S.GAAP and IFRS.
Q3) All of the following statements are true regarding international legal systems except A)the common law system has its roots in the United Kingdom.
B)in common law countries,there are generally fewer statutes written into the laws.
C)in code law countries,there is more reliance on interpretations by the courts than in common law countries.
D)divergence in accounting standards is linked to differences in legal systems around the world.
Q4) Which of the following inventory costing methods is prohibited under IFRS?
A)FIFO
B)Weighted average
C)LIFO
D)Perpetual
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