Financial Accounting
Exam Bank
Course Introduction
Financial Accounting provides a comprehensive introduction to the principles and practices used in preparing and interpreting financial statements. The course covers the accounting cycle, including transaction analysis, journal entries, preparation of balance sheets, income statements, and cash flow statements, with an emphasis on generally accepted accounting principles (GAAP). Students learn how to analyze financial information to support decision-making, understand the ethical considerations in financial reporting, and communicate results effectively to internal and external stakeholders. The course lays a solid foundation for advanced studies in accounting and finance, and equips students with essential skills for a career in business or accounting.
Recommended Textbook
Financial Accounting An Integrated Approach 5th Australia Edition by Trotman
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Chapter 1: Introduction to Financial Accounting
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Sample Questions
Q1) A user's main demand is for credible periodic reporting of an enterprise's financial position and performance.Credible means:
A) 100% accurate
B) easily understandable by users of financial statements
C) sufficiently trustworthy and competently prepared for it to be used to make decisions
D) relevant to the needs of decision-makers.
Answer: C
Q2) Which of the following may be an asset of a business enterprise?
A) retained profits
B) inventory
C) provision for warranty repairs
D) shareholders' equity.
Answer: B
Q3) Which of the following may be a liability of a business enterprise?
A) share capital
B) wages payable
C) retained profits
D) marketable security.
Answer: B
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Page 3
Chapter 2: Measuring and Evaluating Financial Position and
Financial Performance
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Q1) Which of the following is NOT a revenue of a company?
A) cash sales
B) credit sales
C) interest on investments
D) borrowing from a bank.
Answer: D
Q2) Which of the following is an expense?
A) prepaid insurance
B) dividends paid
C) purchase of inventory
D) wages owing but not paid at the end of the accounting period.
Answer: D
Q3) Which of the following statements about accumulated depreciation is true?
A) Accumulated depreciation is the amount of depreciation recognised at the date of disposal of the asset.
B) Cost less accumulated depreciation gives net book value.
C) Accumulated depreciation represents the depreciation charge for the current period.
D) Accumulated depreciation is ignored when an asset is sold.
Answer: B
Page 4
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Chapter 3: The Double-Entry System
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Q1) What was Livermore's net profit for the year ended 30 June 2012?
A) $1750
B) $2000
C) $3250
D) $7450.
Answer: C
Q2) A company's first transaction in 2012 was to pay $7500 cash for wages earned and recognised as an expense in 2011.Which of the following changes took place as a consequence of that transaction?
A) Revenue decreased by $7500.
B) Liabilities decreased by $7500.
C) Profit decreased by $7500.
D) Assets increased by $7500.
Answer: B
Q3) Which of the following items would decrease profit for the year?
A) purchase of equipment for cash
B) payment of a dividend
C) declaration of a dividend
D) none of the above.
Answer: D
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Chapter 4: Record-Keeping
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Q1) Which of the following is NOT true of journal entries?
A) The sum of the debits equals the sum of the credits.
B) Journal entries are posted to the general ledger.
C) A trial balance of all journal entries and their balances is prepared periodically.
D) Journal entries are considered books of original entry.
Q2) Which of the following is NOT a source document?
A) invoice
B) cheque butt
C) goods received advice
D) journal entry.
Q3) Supplies purchased on account were incorrectly recorded as office equipment.The correct entry would be:
A. DR Supplies \(\quad \)\(\quad \) \(\quad \) CR Office equipment
B. DR Accounts payable \(\quad \) CR Supplies
C. DR Office equipment \(\quad \) CR Supplies
D. DR Supplies \(\quad \) \(\quad \) \(\quad \) CR Accounts payable
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Page 6
Chapter 5: Accrual Accounting Adjustments
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Q1) If a company neglects to make an adjustment for accrued expenses:
A) profit will be overstated and liabilities understated
B) profit will be overstated and liabilities overstated
C) profit will be overstated and assets understated
D) profit will be understated and liabilities overstated.
Q2) Which of the following cash flows involve revenues or expenses?
A) payment of dividend
B) cash purchase of building
C) issue of shares for cash
D) net profit.
Q3) What is the journal entry made by the client on 30 June 2012?
A) DR Accounts payable \(\quad\)\(\quad\)CR Accounting expenses
B) DR Accounting expenses \(\quad\)CR Accounts payable
C) DR Accounting expenses\(\quad\) CR Cash
D) DR Accounts payable\(\quad\) \(\quad\) CR Cash
Q4) Which of the following is NOT an example of accrued revenue?
A) unbilled revenue
B) customer deposits
C) interest receivable on loans
D) dividends receivable
Page 7
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Chapter 6: Financial Reporting Principles, accounting
Standards
and Auditing
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Q1) Which of the following is NOT true? The external auditor's report provides the auditor's opinion that:
A) the financial statements give a true and fair view
B) the financial statements are in accordance with the provisions of the Corporations Act 2001
C) the financial statements are in accordance with applicable accounting standards
D) the financial statements are accurate.
Q2) Information should have predictive value and/or feedback value.
A) relevance
B) reliability
C) materiality
D) prudence.
Q3) Which of the following is NOT included in the corporate governance statement required under stock exchange regulations?
A) composition of audit committee
B) audit report
C) remuneration policy for directors
D) statement of ethical standards.
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Chapter 7: Sustainability Reporting
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Q1) The measurement of energy requires:
A) understanding how much fuel has been consumed or produced and how much energy is stored in that fuel
B) understanding how much fuel has been consumed
C) measuring the energy stored in that fuel
D) evaluating the energy content of a particular fuel.
Q2) Energy and greenhouse gas disclosure involves the reporting of:
A) greenhouse gas emissions
B) the organisation's commitment to managing the environment
C) energy greenhouse gas emissions and climate change information
D) climate change information.
Q3) For which item is the Global Reporting Initiative not useful?
A) demonstrating how the organisation is influenced by expectations about sustainable development
B) sustaining the level of dividends to shareholders
C) comparing performance within an organisation
D) assessing sustainability performance.
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Chapter 8: Internal Control and Cash
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Q1) What was the bank balance in Tell Ltd's books at 30 November 2012 before the adjustments?
A) $7800 DR
B) $7900 CR
C) $8600 CR
D) $9400 DR.
Q2) Accompanying the bank statement was a debit memorandum for an NSF (not sufficient funds)cheque received from a customer.What entry is required in the company's accounts?
A) DR Other revenue\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) CR Cash
B) DR Cash\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\q uad\) CR Other revenue
C) DR Cash\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\q uad\) CR Accounts receivable
D) DR Accounts receivable\(\quad\)\(\quad\)\(\quad\) CR Cash
Q3) The debit recorded in the journal to reimburse the petty cash fund is to:
A) petty cash
B) accounts receivable
C) cash
D) various accounts for which the petty cash was disbursed.
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Chapter 9: Inventory
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Q1) Which,if any,of the following cost flow assumptions is NOT affected by the inventory control method employed,i.e.periodic or perpetual?
A) LIFO
B) FIFO
C) weighted average cost
D) moving weighted average cost.
Q2) What was the value of cost of goods sold of Algo,using the LIFO assumption in a perpetual inventory system?
A) $2600
B) $2700
C) $2720
D) $1400.
Q3) During year ended 30 June 2012,Rugger Ltd had net sales of $256 000.Inventory at 1 July 2011 was $25 000,and at 30 June 2012 it was $18 000.Purchases were $115 000.What was the gross profit for year ended 30 June 2012?
A) $141 000
B) $134 000
C) $12 000
D) none of the above.
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Chapter 10: Noncurrent Assets
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Q1) What was the net book value at 31 December 2012?
A) $42 000
B) $22 500
C) $12 500
D) $43 500.
Q2) Assuming Norman Ltd used the straight-line method of depreciation,the accumulated depreciation at 30 June 2011 was:
A) $8000
B) $16 000
C) $22 500
D) $24 000.
Q3) If the machine was sold for $60 000,what was the gain or loss on disposal?
A) loss of $20 000
B) loss of $40 000
C) gain of $60 000
D) gain of $20 000.
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Chapter 11: Liabilities
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Q1) Which of the following items would NOT be recognised as a liability?
A) advances from customers for goods and services to be delivered later
B) warranty on products sold during the year
C) final dividend recommended by directors,prior to the annual meeting
D) a dispute with a customer where there is some possibility that the company could lose the dispute.
Q2) Which of the following is a liability?
A) revenue received in advance
B) accrued revenue
C) prepayments
D) none of the above.
Q3) Which of the following is NOT a liability?
A) provision for warranty
B) reserves
C) accrued expenses
D) revenue received in advance.
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Chapter 12: Completing the Balance Sheet
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Q1) XYZ buys a 24% share in ABC for $80m.ABC's total net profit is $50m and it pays $4m in dividends to XYZ.Using the cost method,what would be the revenue and investment amounts at year-end for this investment?
A) $4m,$80m
B) $4m,$84m
C) $12m,$80m
D) $12m,$92m.
Q2) LMN Ltd declared an interim dividend on 12 February 2012 of 5 cents per share (500 000 issued shares)and paid it on 3 March 2012.The journal entry on 3 March 2012 would include:
A) DR Interim dividend declared,$25 000
B) CR Cash,$25 000
C) CR Interim dividend payable,$25 000
D) CR Retained profits,$25 000.
Q3) A debit balance in the retained profits account indicates that the company has:
A) made a loss in the current period
B) made a loss in at least one period
C) never made a profit
D) paid a dividend.
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Page 14
Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Q1) What profit was earned during the third year if the completion of production method was used?
A) $360 000
B) $440 000
C) $800 000
D) $400 000.
Q2) At what point would you expect the Red Cross to recognise revenue from donations? There are no special conditions attached to the donations.
A) during production
B) on completion of production
C) at point of sale or delivery
D) when cash is received.
Q3) What difference would there be in profit for year 2 if the completion of production method were used?
A) Profit would be $200 000 higher.
B) Profit would be $200 000 lower.
C) Profit would be $220 000 higher.
D) Profit would be $420 000 higher.
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Chapter 14: The Statement of Cash Flows
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Q1) What were the payments to suppliers and employees of Staple Ltd?
A) $45 000
B) $55 000
C) $80 000
D) $30 000.
Q2) What were the proceeds from the sale of plant?
A) $9000
B) $19 000
C) $29 000
D) $47 000.
Q3) The wages payable account showed an opening balance of $27 000 and a closing balance of $42 000.Wages expense was $590 000.What was the cash payment for wages?
A) $575 000
B) $590 000
C) $605 000
D) $632 000.
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Page 16
Chapter 15: Financial Statement Analysis
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Q1) A high debt-to-equity ratio does NOT indicate that the company:
A) is highly geared
B) is heavily in debt relative to its equity
C) may be vulnerable to interest rate increases D) has a high current ratio
Q2) Which of the following statements concerning the price-to-earnings (PE)ratio is NOT true?
A) The PE ratio is calculated as: (current market price per share)/ (dividend payout ratio).
B) High-PE companies are those that are popular.
C) The PE ratio compares present performance with expectations of future performance.
D) A company with a low price PE ratio is expected to show reduced future performance.
Q3) A company declares and pays an interim dividend.The effect of this transaction is to:
A) decrease CR,but not affect ROA and ROE
B) decrease CR,but increase ROA and ROE
C) decrease CR,increase ROA,and not affect ROE
D) have no effect.
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Chapter 16: Accounting Policy Choices
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Questions
Q1) Swing Ltd uses FIFO for its inventory,which is valued at $21 000.It is considering a change to moving weighted average,which would change the valuation of inventory to $22 500.Which of the following would be decreased by the change?
A) cost of goods sold
B) sales
C) liabilities
D) retained profits.
Q2) What would be the effect on the net book value of assets if the reducing balance method were used rather than the straight-line method?
A) There would be a $375 000 reduction.
B) There would be a $225 000 reduction.
C) There would be a $150 000 reduction.
D) There would be no effect.
Q3) Changing the rate of depreciation does NOT affect:
A) the net book value of noncurrent assets
B) cash
C) net profit
D) retained profits.
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Chapter 17: Appendix: Special Journals, subsidiary Ledgers and
Control Accounts
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Q1) What was the balance of the allowance for doubtful debts account at 30 June 2012?
A) $400
B) $300
C) $200
D) $450.
Q2) Which of the following statements about trade discount is NOT true?
A) Trade discount is an incentive for prompt payment.
B) The amount allowed usually depends on the category of the customer or their normal volume of business.
C) Most enterprises record only the net amount of the transaction.
D) The actual price charged is adjusted by the amount of the trade discount.
Q3) Which of these items is the source document for the purchase journal?
A) cheque duplicate
B) invoice from supplier
C) duplicate of invoice sent to customer
D) copy of receipt sent to customer.
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