Financial Accounting Exam Practice Tests
Course Introduction
Financial Accounting introduces students to the fundamental principles and practices involved in recording, summarizing, and reporting an organizations financial transactions. The course explores the preparation and analysis of financial statements, including the balance sheet, income statement, and cash flow statement, with an emphasis on their use as key tools for decision-making by external stakeholders such as investors, creditors, and regulators. Students will develop an understanding of the accounting cycle, learn about the regulatory environment surrounding financial reporting, and gain proficiency in interpreting and applying accounting standards to real-world business scenarios.
Recommended Textbook
Financial Accounting 12th Edition by
C. William Thomas
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14 Chapters
2062 Verified Questions
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) The business records of a sole proprietorship should include the proprietor's personal finances.
A)True
B)False
Answer: False
Q2) Which financial statement answers the following question: What is the company's financial position at fiscal year end?
A)statement of cash flows
B)income statement
C)statement of retained earnings
D)balance sheet
Answer: D
Q3) The assets of a company:
A)must equal the liabilities of the company.
B)include property,plant,and equipment and accounts payable.
C)represent economic resources that are expected to produce a future benefit.
D)include short-term investments and notes payable.
Answer: C
Q4) Four ways a business can be organized include:
Answer: Proprietorship,Partnership,Limited-liability company,and Corporation
Page 3
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) In order to determine the balance in an account,you must look at the:
A)source documents.
B)journals.
C)ledger.
D)book of original entry.
Answer: C
Q2) A company declared and paid dividends of $1,300.How does this transaction affect the accounting equation?
A)Add $1,300 to Revenue and add $1,300 to Cash.
B)Add $1,300 to Dividends and add $1,300 to Accounts Receivable.
C)Subtract $1,300 from Retained Earnings and subtract $1,300 from Cash.
D)Add $1,300 to Dividend Expense and subtract $1,300 from Cash.
Answer: C
Q3) Which of the following transactions would decrease an asset and decrease stockholders' equity?
A)payment of an accounts payable
B)performance of a service for a client on account
C)borrowing money from the bank for thirty days
D)declaration and payment of a dividend to the shareholders
Answer: D
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Journalize the adjusting entries needed on December 31,2019 for Kaimann Industries using the following data.Explanations are not required.
A.The balance in the Supplies account before adjustment is $5,000.A physical count reveals $2,750 of supplies on hand at December 31.
B.A computer was purchased on January 1,2019 for $15,000.The computer has a useful life of 3 years and is depreciated using the straight-line method.The computer has no residual value.
C.A one-year insurance policy costing $6,000 was purchased on November 1,2019.The insurance begins on November 1.
D.Employee salaries are owed for 4 days of a regular 5-day work week.Weekly payroll is $15,000.
E.Unearned Maintenance Revenue has a balance of $22,000 before adjustment.Records show that $14,000 of that amount has been earned by December 31.
Answer: 11ea8a76_c36d_fa6a_8acc_0dd21cc5e14f_TB6907_00
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) Small companies cannot have internal controls since they do not have enough employees to segregate duties.
A)True
B)False
Q2) The bookkeeper recorded a deposit of $100 as $10.On the bank reconciliation,this will be a(n):
A)addition of $90 to the balance per bank.
B)subtraction of $90 from the balance per bank.
C)addition of $90 to the balance per books.
D)subtraction of $90 to the balance per books.
Q3) Internal control procedures do NOT include:
A)smart hiring practices.
B)adequate records.
C)limited access.
D)control environment.
Q4) Fraudulent financial reporting is also called:
A)the fraud triangle.
B)a misappropriation of assets.
C)cooking the books.
D)investigative reporting.
Page 6
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Chapter 5: Receivables and Revenue
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Sample Questions
Q1) For each of the following ratios, (a)provide the formula for computing the ratio, (b)state what the ratio measures and (c)discuss how the ratio is interpreted.
1.Quick Ratio
2.Accounts Receivable Turnover
3.Days' Sales Outstanding
Q2) The multiple subsidiary ledgers for accounts receivable shows the separate accounts for each individual customer.
A)True
B)False
Q3) The income statement approach to estimating uncollectible accounts is called the ________ method.The balance sheet approach to estimating uncollectible accounts is called the ________ method.
A)direct write-off;allowance
B)allowance;direct write-off
C)percent-of-sales;aging-of-receivables
D)aging-of-receivables;percent-of-sales
Q4) A trade discount is not considered in the transaction price.
A)True
B)False
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Two accounts that appear on the financial statements of a merchandising company but are NOT needed by a service company are:
A)cost of goods sold and depreciation.
B)cost of goods sold and net income.
C)cost of goods sold and inventory.
D)inventory and depreciation.
Q2) For discount retailers such as Walmart,inventory turnover equals:
A)sales divided by average inventory.
B)cost of goods sold divided by average inventory.
C)sales discounts divided by average receivables.
D)sales divided by average receivables.
Q3) How does the disclosure principle help financial statements users compare the financial statements of retailers,with regard to inventories?
Q4) The inventory method used by a company affects:
A)net income on the income statement.
B)the income taxes to be paid.
C)the ending inventory on the balance sheet.
D)all of the above.
Q5) 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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Sample Questions
Q1) First Company purchased Second Company for $20,000,000 cash.At the time of purchase,Second Company's assets had a market value of $30,000,000 and the liabilities had a market value of $14,000,000.At the time of purchase,Second Company's assets had a book value of $14,000,000 and the liabilities had a book value of $7,000,000.What amount of goodwill is recorded?
A)$4,000,000
B)$16,000,000
C)$10,000,000
D)$14,000,000
Q2) Most intangible assets have a residual value.
A)True
B)False
Q3) A machine is purchased for $80,000.The transportation cost from the seller was $3,000,installation costs were $2,000 and taxes on the purchase price were $700.Testing runs of the new machine cost $3,000.What is the cost of the machine?
A)$80,000
B)$85,000
C)$85,700
D)$88,700
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Page 9
Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) An example of a contingent liability may be a lawsuit.
A)True
B)False
Q2) According to FASB,when should a contingent liability be disclosed?
A)If it is reasonably possible you will lose the lawsuit.
B)Only if the amount can be estimated and the loss is remote.
C)If it is probable that the loss will occur,and the amount of the loss can be reasonably estimated.
D)A contingent liability should never be disclosed.
Q3) A company has a pending lawsuit that has a remote possibility of being settled in favor of the plaintiff who is a former employee.What should the company do?
A)Nothing.
B)Make a disclosure in a financial statement footnote.
C)Prepare a journal entry.
D)Make a note to the financial statements and prepare a journal entry.
Q4) Most long-term debt agreements are structured to be paid in installments.
A)True
B)False
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Page 10
Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) Solderman Company issued $510,000,7%,10-year bonds for $422,800 with a market rate of 9%.The effective interest method of amortization is used and interest is paid annually.The journal entry on the first interest payment date would include a:
A)credit to Interest Expense of $35,700.
B)credit to Cash of $38,052.
C)credit to Cash of $35,700.
D)credit to Interest Expense of $38,052.
Q2) Operating leases are preferred over finance leases because operating leases that exceed one year do not increase a company's debt ratio.
A)True B)False
Q3) Callable bonds allow the issuer to pay off the bonds whenever the issuer chooses. A)True B)False
Q4) If net income is positive,the times-interest earned ratio is always negative. A)True B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) The payment of dividends will be reported on the statement of cash flows as a:
A)positive amount in the investing activities section.
B)negative amount in the investing activities section.
C)positive amount in the financing activities section.
D)negative amount in the financing activities section.
Q2) Zeman,Inc.declares and distributes a 10% common stock dividend when it has 30,000 shares of $10 par value common stock outstanding.If the market value of the common stock is $30,the journal entry to record the stock dividend would include a:
A)credit to Common Stock $120,000.
B)credit to Common Stock $60,000.
C)credit to Paid-in Capital in Excess of Par-Common $60,000.
D)credit to Paid-in Capital in Excess of Par-Common $30,000.
Q3) The purchase of treasury stock by a corporation increases total assets and stockholders' equity.
A)True
B)False
Q4) Only stockholders holding stock on the record date will receive a dividend.
A)True
B)False
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) During the year,Chappel Engineering Corporation has operating expenses of $50,000.There was an increase in prepaid expenses of $4000 and an increase in accrued liabilities of $6000.What were Chappel's cash payments for operating expenses?
A)$44,000
B)$48,000
C)$54,000
D)$56,000
Q2) On the statement of cash flows,investing activities include:
A)obtaining cash from creditors.
B)collecting cash on long-term loans.
C)selling stock to stockholders.
D)repaying borrowed money.
Q3) On a statement of cash flows prepared with the indirect method,adjustments to reconcile net income to net cash provided by operating activities do NOT include:
A)gain on sale of equipment.
B)patent amortization expense.
C)depletion expense.
D)changes in all of the current assets.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) In performing vertical analysis,the base for income tax expense is:
A)net sales.
B)gross revenues.
C)net income.
D)gross profit.
Q2) The description section of a company's business in an annual report does NOT generally include information about:
A)income taxes.
B)the company's products.
C)sales and distribution strategies.
D)product design and development.
Q3) The percentage change in a financial statement line item over two years is computed by dividing the dollar amount of the line item in the most recent year by the prior year dollar amount of the line item.
A)True
B)False
Q4) Trend percentages are a form of horizontal analysis.
A)True
B)False
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Chapter 13: Investments
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Sample Questions
Q1) Consolidated financial statements combine the financial statements of the parent company and its subsidiaries.
A)True
B)False
Q2) When a company receives a cash dividend from equity securities with insignificant influence,the journal entry is:
A)debit to Investment in Equity Securities and credit Cash.
B)debit to Cash and credit to Dividend Revenue.
C)debit to Dividend Revenue and credit to Cash.
D)debit to Cash and credit to Investment in Equity Securities.
Q3) Acme Company owns 35% of Superior Company.Superior Company declared and paid $33,000 cash dividends for the year.Acme Company's journal entry to record the dividends includes a:
A)credit to Equity-method Investment for $11,550.
B)credit to Equity-method Investment for $33,000.
C)credit to Dividend Revenue for $11,550.
D)credit to Dividend Revenue for $33,000.
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Chapter 14: Time Value of Money
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Sample Questions
Q1) 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
Q2) A single amount of $4700 is to be received in 3 years.If the single amount is discounted at 6% for 3 periods,the present value is ________.The present value of $1 for 3 periods at 6% is 0.840.The present value of an ordinary annuity of $1 for 3 periods at 6% is 2.673.(Round your final answer to the nearest dollar. )
A)$3948
B)$4418
C)$4700
D)$12,563
Q3) The term present value means today's value of a future payment or a series of future payments,assuming that those payments include interest at the current market rate.
A)True
B)False
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