Financial Accounting
Exam Materials
Course Introduction
Financial Accounting introduces students to the fundamental principles and practices of accounting, with an emphasis on the preparation, analysis, and interpretation of financial statements. The course covers the accounting cycle, generally accepted accounting principles (GAAP), measurement of assets and liabilities, revenue recognition, and the presentation of financial information for external stakeholders such as investors, creditors, and regulatory agencies. Through case studies and practical exercises, students learn how financial information supports business decision-making and gain insight into the ethical responsibilities of accountants.
Recommended Textbook
Financial and Managerial Accounting 12th Edition by
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Page 2
Carl S. Warren
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Which of the following would not normally operate as a service business?
A) pet groomer
B) supermarket
C) lawn care company
D) styling salon
Answer: B
Q2) The role of accounting is to provide many different users with financial information to make economic decisions.
A)True
B)False
Answer: True
Q3) All financial statements are identified by the name of the business, the title of the statement, and the date or period of time.
A)True
B)False
Answer: True
Q4) What information does the income statement give to business users?
Answer: The income statement reports the revenues and expenses for a period of time. The result is either a net income or a net loss.
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) The erroneous moving of an entire number one or more spaces to the right or left, such as writing $85 as $850, is called a transposition.
A)True
B)False
Answer: False
Q2) The classification and normal balance of the dividends account is
A) an expense with a credit balance
B) an expense with a debit balance
C) a liability with a credit balance
D) a stockholders' equity item with a debit balance
Answer: D
Q3) A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a balance sheet.
A)True
B)False
Answer: False
Q4) On October 30th, JumpStart paid its only stockholder, Damien Lawson, a $3,300 cash dividend. Journalize this event.
Answer: 11ea8de9_2d13_ccdb_b636_9dee2bd68049_TB2083_00
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) On March 1, a business paid $3,600 for a twelve month liability insurance policy. On April 1 the same business entered into a two-year rental contract for equipment at a total cost of $18,000. Determine the following amounts:
(a) insurance expense for the month of March
(b) prepaid insurance as of March 31
(c) equipment rent expense for the month of April
(d) prepaid equipment rental as of April 30
Answer: 11ea8de9_2c95_4da4_b636_7fe4b58b5fab_TB2083_00
Q2) Under accrual accounting, revenues and expenses should be recorded in the same period to which they relate.
A)True
B)False
Answer: True
Q3) A company pays $6,500 for two season tickets on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is debit Cash, $2,500 and credit Ticket Revenue, $2,500.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Balance sheet accounts
A) represent amounts accumulated during a specific period of time
B) are called real accounts
C) have zero balances after the closing entries have been posted
D) are equal to assets and liabilities
Q2) Cash, Accounts Payable, and Capital Stock are real accounts and do not get closed at the end of the period.
A)True
B)False
Q3) After net income is entered on the work sheet, the Balance Sheet Debit and Credit columns must
A) be the same amount as the total amount of the Income Statement Debit and Credit columns
B) equal each other
C) be the same amount as the total amount in the Adjusted Trial Balance Debit and Credit columns
D) not be equal to each other and need not be the same total amounts as any other pair of columns on the work sheet
Q4) Explain how net income or loss is determined by using the work sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) On March 15th Monroe Sales sells $9,525.00 on account to Garrison Brewer with terms of 2/10, n/30. The cost of merchandise sold was $6,905.00.
(a) Journalize the sale and the recognition of the cost of the sale.
(b) On March 20th a $125.00 credit memo is given to Garrison Brewer due to merchandise that was the wrong color. Journalize this event. The cost of the returned merchandise was $65.
(c) On March 25th Garrison Brewer submits payment in full. Journalize this event.
Q2) Which account will be included in both service and merchandising companies closing entries?
A) Sales
B) Cost of Merchandise Sold
C) Purchase Discounts
D) Sales Returns and Allowances
Q3) Closing entries for a merchandising business are not similar to those for a service business.
A)True
B)False
Q4) Discuss the following statement:
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Chapter 6: Inventories
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Sample Questions
Q1) The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory.
A)True
B)False
Q2) Stevens Company started the year with an inventory cost of $145,000. During the month of January they purchased inventory that cost of $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated ending inventory as of January 31 is
A) $58,000
B) $91,000
C) $107,000
D) $69,300
Q3) The method of computing inventory that uses records of the selling prices of the merchandise is called
A) retail method
B) last-in, first-out
C) first-in, first-out
D) average cost
Q4) List three different security measures taken by stores to safeguard inventory.
Page 8
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Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) A $100 petty cash fund contains $91 in petty cash receipts, and $4.75 in currency and coins. The journal entry to record the replenishment of the fund would include a
A) credit to Petty Cash for $95.75.
B) credit to Cash for $90.
C) debit to Cash Short and Over for $4.25.
D) credit to Cash Short and Over for $4.25.
Q2) Which of the following items that appeared on the bank reconciliation did not require an adjusting entry?
A) bank service charges
B) deposits in transit
C) NSF checks
D) A check for $630, recorded in the check register for $360.
Q3) The bank reconciles its statement to the company's records.
A)True
B)False
Q4) A voucher is a written authorization to make a cash payment.
A)True
B)False
Q5) List the principal advantage of Electronic Funds Transfers.
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Chapter 8: Receivables
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Sample Questions
Q1) At the end of the current year, Accounts Receivable has a balance of $90,000; Allowance for Doubtful Accounts has a credit balance of $850; and net sales for the year total $300,000. Bad debt expense is estimated at 2.5% of net sales.
Determine (a) the amount of the adjusting entry for uncollectible accounts; (b) the adjusted balances of Accounts Receivable, Allowance of Doubtful Accounts; and Bad Debt Expense; and (c) the net realizable value of accounts receivable.
Q2) At the end of the current year, Accounts Receivable has a balance of $700,000; Allowance for Doubtful Accounts has a credit balance of $5,500; and net sales for the year total $3,500,000. Bad debt expense is estimated at 1/2 of 1% of net sales.
Determine (a) the amount of the adjusting entry for bad debt expense; (b) the adjusted balances of Accounts Receivable, Allowance of Doubtful Accounts; and Bad Debt Expense; and (c) the net realizable value of accounts receivable.
Q3) When a company receives an interest-bearing note receivable, it will
A) debit Notes Receivable for the maturity value of the note.
B) debit Notes Receivable for the face value of the note.
C) credit Notes Receivable for the maturity value of the note.
D) credit Notes Receivable for the face value of the note.
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Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) When exchanging equipment, if the trade-in allowance is greater than the book value a loss results.
A)True
B)False
Q2) On the first day of the fiscal year, a new walk-in cooler with a list price of $58,000 was acquired in exchange for an old cooler and $44,000 cash. The old cooler had a cost of $25,000 and accumulated depreciation of $16,000.
Assume the transaction has commercial substance.
a) Determine the gain to be recorded on the exchange.
b)Journalize the entry to record the exchange.
Q3) Expected useful life is
A) calculated when the asset is sold.
B) estimated at the time that the asset is placed in service.
C) determined each year that the depreciation calculation is made.
D) none of the answers are correct.
Q4) Patents are exclusive rights to manufacture, use, or sell a particular product or process.
A)True
B)False
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Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) The accounting for defined benefit plans is usually very easy and straight forward.
A)True
B)False
Q2) During the first year of operations, employees earned vacation pay of $35,000. The vacations will be taken during the second year. The vacation pay expense should be recorded in the second year as the vacations are taken by the employees.
A)True
B)False
Q3) Carmen Flores' weekly gross earnings for the week ending Dec. 7th were $2,500, and her federal income tax withholding was $525. Prior to this week Flores had earned $98,000 for the year. Assuming the social security rate is 6% on the first $100,000 of annual earnings and Medicare is 1.5% of all earnings, what is Flores' net pay?
Q4) The borrower is the one who issues a note payable to a creditor.
A)True
B)False
Q5) List five internal controls that relate directly to payroll.
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Page 12
Chapter 11: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) On February 1 of the current year, Motor, Inc. issued 700 shares of $2 par common stock to an attorney in return for preparing and filing the Articles of Incorporation. The value of the services is $9,600. Journalize this transaction.
Q2) The main source of paid-in-capital is from issuing stock.
A)True
B)False
Q3) The term deficit is used to refer to a debit balance in which of the following accounts of a corporation?
A) Retained Earnings
B) Treasury Stock
C) Organizational Expenses
D) Common Stock
Q4) On April 10, Maranda Corporation issued for cash 11,000 shares of no-par common stock at $25. On May 5, Maranda issued at par 1,000 shares of 4%, $50 par preferred stock for cash. On May 25, Maranda issued for cash 15,000 shares of 4%, $50 par preferred stock at $55.
Journalize the entries to record the April 10, May 5, and May 25 transactions.
Q5) Match the value to the appropriate account. For the year ended 2012 ABC had the following transactions:
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Bonds Payable has a balance of $900,000 and Premium on Bonds Payable has a balance of $10,000. If the issuing corporation redeems the bonds at 103, what is the amount of gain or loss on redemption?
A) $1,200 loss
B) $1,200 gain
C) $17,000 loss
D) $17,000 gain
Q2) When the maturities of a bond issue are spread over several dates, the bonds are called
A) serial bonds
B) bearer bonds
C) debenture bonds
D) term bonds
Q3) The present value of $40,000 to be received in one year, at 6% compounded annually, is (rounded to nearest dollar)
A) $37,736
B) $42,400
C) $40,000
D) $2,400
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Page 14
Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a
A) Credit to cash for $9,000
B) Debit to the investment account for $9,000
C) Credit to the investment account for $9,000
D) Credit to a loss account for $9,000
Q2) Held-to-Maturity securities
A) are reported at their fair market value on the balance sheet date
B) include both stocks and bonds
C) are primarily purchased to earn interest revenue
D) all of the above
Q3) Which of the following is not a reason to invest excess cash in temporary investments?
A) earn interest revenue
B) influence the operations of another company
C) receive dividends
D) realize gains from the increase in market value of the securities
Q4) (1) Discuss factors contributing to the trend to fair value accounting. (2) What are some of the disadvantages associated with using fair value?
Page 15
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Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under
A) investing activities
B) financing activities
C) noncash investing and financing activities
D) operating activities
Q2) Which of the following is not one of the four basic financial statements?
A) balance sheet
B) statement of cash flows
C) statement of changes in financial position
D) income statement
Q3) Which of the following is a noncash investing and financing activity?
A) payment of a cash dividend
B) payment of a six-month note payable
C) purchase of merchandise inventory on account
D) issuance of common stock to acquire land
Q4) Cost of merchandise sold reported on the income statement was $155,000. The accounts payable balance increased $5,000, and the inventory balance increased by $11,000 over the year. Determine the amount of cash paid for merchandise.
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) An analysis in which all the components of an income statement are expressed as a percentage of net sales is called
A) vertical analysis
B) horizontal analysis
C) liquidity analysis
D) solvency analysis
Q2) The dividend yield rate is equal to the dividends per share divided by the par value per share of common stock.
A)True
B)False
Q3) Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
A)True
B)False
Q4) Corporate annual reports typically do not contain which of the following?
A) management discussion and analysis
B) SEC statement expressing an opinion
C) accompanying foot notes
D) auditor's report
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Chapter 16: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Rent expense on a factory building would be treated as a(n):
A) period cost
B) product cost
C) direct cost
D) both A and C are correct
Q2) Indirect labor and indirect materials are classified as:
A) factory overhead and product costs
B) factory overhead and period costs
C) operating costs and period costs
D) operating costs and product costs
Q3) Compute conversion costs given the following data: Direct Materials, $347,500; Direct Labor, $186,300; Factory Overhead, $187,900; and Selling Expenses, $45,290.
A) $533,800
B) $187,900
C) $721,700
D) $374,200
Q4) Managerial accounting provides useful information to managers on product costs.
A)True
B)False
18
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Chapter 17: Job Order Costing
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Sample Questions
Q1) In a job order cost accounting system, the entry to record the flow of direct materials into production is:
A) debit Work in Process, credit Materials
B) debit Materials, credit Work in Process
C) debit Factory Overhead, credit Materials
D) debit Work in Process, credit Supplies
Q2) The Cavy Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 40,000 hours. The machine hours for the month of April for all of the jobs was 4,780. If the actual factory overhead totaled $141,800, determine the over or under applied amount for the month.
Q3) A receiving report is prepared when purchased materials are first received by the manufacturing department.
A)True
B)False
Q4) Discuss the use of job order costing for professional services businesses. What are the similarities and differences between service and manufacturing business job order costing?
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Page 19
Chapter 18: Process Cost Systems
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Sample Questions
Q1) Yield measures the ratio of the materials output quantity to the materials input quantity.
A)True
B)False
Q2) Department A had 4,000 units in work in process that were 60% completed as to labor and overhead at the beginning of the period, 29,000 units of direct materials were added during the period, 31,000 units were completed during the period, and 2,000 units were 80% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. The first-in, first-out method is used to cost inventories. The number of equivalent units of production for material costs for the period was:
A) 33,000
B) 29,800
C) 29,000
D) 32,000
Q3) All costs of the processes in a process costing system ultimately pass through the Cost of Goods Sold account.
A)True
B)False
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Page 20
Chapter 19: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) Given the following:
Variable cost as a percentage of sales = 60%
Unit Variable cost = $30
Fixed costs = $200,000
What is the break-even point in units?
Q2) A mixed cost has characteristics of both a variable and a fixed cost.
A)True
B)False
Q3) If fixed costs are $700,000 and the unit contribution margin is $17, what amount of units must be sold in order to realize an operating income of $100,000?
A) 5,000
B) 41,176
C) 47,059
D) 58,882
Q4) If the unit selling price is $40, the volume of sales is $3,000,000, sales at the break-even point amount to $2,500,000, and the maximum possible sales are $3,300,000, the margin of safety is 11,500 units.
A)True
B)False
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Chapter 20: Variable Costing for Management Analysis
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Sample Questions
Q1) Property taxes on a factory building would be included as part of the cost of products manufactured under the absorption costing concept.
A)True
B)False
Q2) Management should focus its sales and production efforts on the product or products that will provide
A) the highest sales revenue
B) the lowest product costs
C) the maximum contribution margin
D) the lowest direct labor hours
Q3) Under absorption costing, the cost of finished goods includes direct materials, direct labor, and all factory overhead.
A)True
B)False
Q4) On the variable costing income statement, deduction of the variable cost of goods sold from sales yields gross profit.
A)True
B)False
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Chapter 21: Budgeting
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Q1) A sporting goods store purchased $7,000 of ski boots in October. The store had $3,000 of ski boots in inventory at the beginning of October, and expects to have $2,000 of ski boots in inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?
A) $10,000
B) $5,700
C) $8,000
D) $9,500
Q2) Which of the following budgets is not directly associated with the production budget?
A) Direct materials purchases budget
B) Factory overhead cost budget
C) Capital Expenditures budget
D) Direct labor cost budget
Q3) The task of preparing a budget should be the sole task of the most important department in an organization.
A)True
B)False
Q4) Why is the sales budget usually prepared first?
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Chapter 22: Performance Evaluation Using Variances From
Standard Costs
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Q1) If the standard to produce a given amount of product is 1,000 units of direct materials at $11 and the actual was 800 units at $12, the direct materials quantity variance was $1,000 unfavorable.
A)True
B)False
Q2) Standard costs can be used with both the process cost and job order cost systems.
A)True
B)False
Q3) Assuming that the standard fixed overhead rate is based on full capacity, the cost of available but unused productive capacity is indicated by the:
A) factory overhead cost volume variance
B) direct labor cost time variance
C) direct labor cost rate variance
D) factory overhead cost controllable variance
Q4) Standard cost variances are usually not reported in reports to stockholders.
A)True B)False
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Chapter 23: Performance Evaluation for Decentralized Operations
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Q1) If income from operations for a division is $6,000, invested assets are $25,000, and sales are $30,000, the profit margin is 20%.
A)True
B)False
Q2) It is beneficial for divisions in a company to negotiate a transfer price when the supplying division has unused capacity in its plant.
A)True
B)False
Q3) Division X of O'Blarney Company has sales of $300,000, cost of goods sold of $120,000, operating expenses of $58,000, and invested assets of $150,000. What is the rate of return on investment for Division X?
A) 9.15%
B) 81.3%
C) 40.7%
D) 200%
Q4) Office salaries expense for a department store is an indirect expense.
A)True
B)False
25
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Chapter 24: Differential Analysis and Product Pricing
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Q1) The amount of increase or decrease in cost that is expected from a particular course of action as compared with an alternative is termed:
A) period cost
B) product cost
C) differential cost
D) discretionary cost
Q2) Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales take 7 hours, and Wales take 1 hour. What is the contribution margin per machine hour for Tales?
A) $4
B) $7
C) $28
D) $35
Q3) Make or buy decisions should be made only with related parties.
A)True
B)False
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Chapter 25: Capital Investment Analysis
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Q1) All of the following qualitative considerations may impact upon capital investment analysis except:
A) time value of money
B) employee morale
C) the impact on product quality
D) manufacturing flexibility
Q2) All of the following are factors that may complicate capital investment analysis except:
A) possible leasing alternatives.
B) changes in price levels.
C) sunk costs.
D) federal income tax ramifications.
Q3) The method of analyzing capital investment proposals in which the estimated average annual income is divided by the average investment is the average rate of return method.
A)True
B)False
Q4) A series of equal cash flows at fixed intervals is termed an annuity.
A)True
B)False
Page 27
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Chapter 26: Cost Allocation and Activity-Based Costing
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Q1) The Sawtooth Leather Company manufactures leather handbags and moccasins. For simplicity reasons, they have decided to use the single plantwide factory overhead rate method to allocate factory overhead. Calculate the amount of factory overhead to be allocated to each unit using direct labor hours.
Q2) When production departments differ significantly in their manufacturing process, it is recommended that the single plantwide factory overhead rate be used for allocating factory overhead.
A)True
B)False
Q3) Activity cost pools are assigned to products, using factory overhead rates for each activity.
A)True
B)False
Q4) Using multiple department factory overhead rates instead of a single plantwide factory overhead rate:
A) results in more accurate product costs
B) results in distorted product costs
C) is simpler and less expensive than a plantwide rate
D) applies overhead costs to all departments equally
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Chapter 27: Cost Management for Just-In-Time
Environments
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Sample Questions
Q1) Sifton Electronics Corporation manufactures and assembles electronic motor drives for video cameras. The company assembles the motor drives for several accounts. The process consists of a just-in-time cell for each customer. The following information relates only to one customer's just-in-time cell for the coming year. Projected labor and overhead, $7,370,000; materials costs, $28 per unit. Planned production included 4,000 hours to produce 27,500 motor drives. Actual production for August was 1,600 units, and motor drives shipped amounted to 1,380 units. From the foregoing information, determine the amount of the conversion costs charged to Raw and In Process Inventory during August.
A) $369,840
B) $408,480
C) $428,800
D) $473,600
Q2) Maximum effectiveness and efficiency are reached when the just-in-time (JIT) philosophy is used only by manufacturers.
A)True
B)False
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