Financial Accounting Exam Preparation Guide

Course Introduction

Financial Accounting offers a comprehensive introduction to the principles and practices of recording, summarizing, and reporting financial transactions for business entities. Students learn how to prepare and interpret key financial statements such as the balance sheet, income statement, and cash flow statement, and develop an understanding of the regulatory frameworks and ethical considerations that govern accounting practices. The course emphasizes the use of accounting information for decision-making, enabling students to analyze financial data and communicate financial insights to stakeholders effectively.

Recommended Textbook

Survey of Accounting 5th Edition by Carl S. Warren

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15 Chapters

1711 Verified Questions

1711 Flashcards

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Chapter 1: The Role of Accounting in Business

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Sample Questions

Q1) The popularity of the sole proprietorship is due to the ease and low cost of organizing.

A)True

B)False

Answer: True

Q2) The purchase of factory equipment would be an example of which type of business activity?

A)Financing

B)Investing

C)Operating

D)All of these

Answer: B

Q3) __________ is the increase in assets from selling products and services.

A)Revenue

B)Liabilities

C)Products

D)Stockholders' Equity

Answer: A

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Chapter 2: Basic Accounting Concepts

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Sample Questions

Q1) For EFG Co. ,the transaction "Payment of quarterly taxes" would

A)increase total assets.

B)decrease total assets.

C)have no effect on total assets.

D)increase stockholders' equity.

Answer: B

Q2) Rush Corporation borrowed $25,000 from the bank.Which of the following accurately shows the effects of the transaction?

A)Increase cash $25,000 and decrease notes payable $25,000

B)Increase cash $25,000 and increase notes payable $25,000

C)Decrease cash $25,000 and decrease notes payable $25,000

D)Decrease cash $25,000 and increase notes payable $25,000

Answer: B

Q3) Declaring and paying cash dividends affects which accounts?

A)Cash only

B)Capital stock only

C)Cash and retained earnings

D)Cash and capital stock

Answer: C

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Chapter 3: Accrual Accounting Concepts

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Sample Questions

Q1) Accounts receivable arising from trade transactions amounted to $50,000 and $56,000 at the beginning and end of the year,respectively.Net income reported on the income statement for the year was $105,000.Exclusive of the effect of other adjustments,the cash flows from operating activities to be reported on the statement of cash flows prepared by the indirect method are

A)$105,000.

B)$111,000.

C)$99,000.

D)$156,000.

Answer: C

Q2) Describe deferrals and accruals.

Answer: Deferrals are created by recording a transaction that delays the recognition of an expense or revenue.An example of a deferral is prepaid insurance.The expense recognition is "deferred" until time has passed. Accruals are created when a revenue/expense has not been recorded at the end of the accounting period.An example of an accrual is interest income earned but not yet recorded.

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Page 5

Chapter 4: Accounting for Merchandising Businesses

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142 Flashcards

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Sample Questions

Q1) The sales discount account is a contra account to Sales.

A)True

B)False

Q2) Operating expenses are subtracted from fees earned for a service business and from gross profit for a merchandising business.

A)True

B)False

Q3) To determine cash payments for operating expenses for the cash flow statement using the direct method,a decrease in prepaid expenses is added to operating expenses other than depreciation.

A)True

B)False

Q4) What is one criticism of the single-step income statement?

A)It is too complex.

B)It has too many subsections.

C)Gross profit and income from operations are not available for analysis.

D)Income taxes are given too much weight.

Q5) Sales Discounts is used in accounting for transactions with customers.

A)True

B)False

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Chapter 5: Sarbanes-Oxley,internal Control,and Cash

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109 Flashcards

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Sample Questions

Q1) Information and communication are essential elements of an organization's internal control.

A)True

B)False

Q2) If a business has several bank accounts,it has a separate record for each of them.

A)True

B)False

Q3) Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the customer.What adjustment is required in the depositor's accounts?

A)Increase Notes Receivable;decrease Cash

B)Increase Cash;increase Miscellaneous Income

C)Increase Cash;decrease Notes Receivable

D)Increase Accounts Receivable;decrease Cash

Q4) Outstanding checks are checks that have been issued but have NOT cleared the bank.

A)True

B)False

Q5) List the principal advantage of Electronic Funds Transfers.

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Chapter 6: Receivables and Inventories

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Sample Questions

Q1) Cost is a method of inventory valuation.

A)True

B)False

Q2) Both accounts receivable and notes receivable represent claims that are expected to be collected in cash.

A)True

B)False

Q3) The maturity value of a 12%,60-day note for $5,000 is $5,100.

A)True

B)False

Q4) When merchandise sold is assumed to be in the order in which the expenditures were made,the inventory method is called

A)first-in,last-out.

B)last-in,first-out.

C)first-in,first-out.

D)average cost.

Q5) The lower of cost or market is a method of inventory valuation.

A)True

B)False

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Chapter 7: Fixed Assets and Intangible Assets

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Sample Questions

Q1) Goodwill is

A)amortized similar to other intangibles.

B)only written down if an impairment in value occurs.

C)charged to expense immediately.

D)amortized over 40 years or its economic life,whichever is shorter.

Q2) Other descriptive titles for fixed assets would include

A)plant assets.

B)property,plant,and equipment.

C)other long-term assets

D)both plant assets and property,plant,and equipment.

Q3) Depletion is the process of transferring the cost of intangible assets to an expense account.

A)True

B)False

Q4) Recording depreciation

A)decreases net income and cash flows.

B)decreases net income and has no effect on cash flows.

C)decreases net income,assets,and cash flows.

D)decreases net income and has no effect on assets and cash flows.

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Chapter 8: Liabilities and Stockholders Equity

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Sample Questions

Q1) Most employers are required to withhold federal unemployment taxes from employee earnings.

A)True

B)False

Q2) Which of the following is characteristic of deferred income tax payable?

A)Deferred income tax payable is often generated due to timing differences.

B)Deferred income tax payable may be either a current or long-term liability

C)Deferred income tax payable represents the deferred payment of taxes to later years through tax planning techniques.

D)All of these are characteristics of deferred income tax payable.

Q3) If the market rate of interest is 6% and a corporation's bonds bear interest at 7%,the bonds will sell at a discount.

A)True B)False

Q4) The prices of bonds are quoted as a percentage of the bonds' face value. A)True

B)False

Q5) On April 1,10,000 shares of $20 par common stock were issued at $24.Illustrate the effects on the accounts and the financial statements.

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Chapter 9: Financial Statement Analysis

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Sample Questions

Q1) Which of the following ratios provides a solvency measure that shows the margin of safety of noteholders or bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?

A)Ratio of fixed assets to long-term liabilities

B)Ratio of net sales to assets

C)Number of days' sales in receivables

D)Rate earned on stockholders' equity

Q2) The percentage analysis of increases and decreases in individual items in comparative financial statements is called

A)vertical analysis.

B)solvency analysis.

C)profitability analysis.

D)horizontal analysis.

Q3) Using vertical analysis of the income statement,a company's net income as a percentage of net sales is 10%;therefore,the operating expenses as a percentage of sales must be 90%.

A)True

B)False

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Chapter 10: Accounting Systems for Manufacturing

Businesses

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Sample Questions

Q1) Which of the following products probably would be manufactured using a job order costing system?

A)Number 2 pencils

B)Computer monitors

C)Wedding invitations

D)Paper

Q2) The recording of the factory labor incurred for general factory use would increase

A)Factory Overhead.

B)Wages Payable.

C)Wages Expense.

D)Cost of Goods Sold.

Q3) Increases in the Work in Process account occur when

A)materials are received into the storeroom.

B)factory overhead costs are incurred.

C)direct labor is recorded from the time sheets.

D)All of these increase work in process.

Q4) Factory overhead is applied to production using a predetermined overhead rate.

A)True

B)False

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Chapter

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Sample Questions

Q1) Direct materials cost that varies with the number of units produced is an example of a fixed cost of production.

A)True

B)False

Q2) If the volume of sales is $4,000,000 and sales at the break-even point amount to $3,200,000,the margin of safety is 20%.

A)True

B)False

Q3) Which of the following is an example of a cost that varies in total as the number of units produced changes?

A)Electricity per KWH to operate factory equipment

B)Monthly rent on a factory building

C)Straight-line depreciation on factory equipment

D)Salary of a production supervisor

Q4) What was Kennedy Co.'s overall enterprise product's unit selling price?

A)$97.60

B)$100.00

C)$102.40

D)$94.40

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Chapter 12: Differential Analysis and Product Pricing

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Sample Questions

Q1) A business is considering a cash outlay of $500,000 for the purchase of land,which it intends to lease for $90,000 per year.If alternative investments are available that yield a 12% return,the opportunity cost of the purchase of the land is

A)$60,000.

B)$49,200.

C)$90,000.

D)$30,000.

Q2) Pull Company is considering the disposal of equipment that is no longer needed for operations.The equipment originally cost $600,000,and accumulated depreciation to date totals $460,000.An offer has been received to lease the machine for its remaining useful life for a total of $300,000,after which the equipment will have no salvage value.The repair,insurance,and property tax expenses during the period of the lease are estimated at $75,800.Alternatively,the equipment can be sold through a broker for $230,000 less a 10% commission.

Prepare a differential analysis report,dated June 15 of the current year,on whether the equipment should be leased or sold.

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Page 14

Chapter 13: Budgeting and Standard Cost Systems

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170 Flashcards

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Sample Questions

Q1) The cash collections from accounts receivable in October are

A)$270,000.

B)$272,500.

C)$210,000.

D)$218,000.

Q2) The use of standards for nonmanufacturing expenses is A)not as common as it is for manufacturing costs.

B)as common as it is for manufacturing costs.

C)not useful.

D)impossible.

Q3) The standard cost is how much a product should cost to manufacture. A)True

B)False

Q4) The most effective means of presenting standard factory overhead cost variance data is through a factory overhead cost variance report. A)True

B)False

Q5) The cash budget summarizes future plans for acquisition of fixed assets. A)True

B)False

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Chapter 14: Performance Evaluation for Decentralized Operations

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137 Flashcards

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Sample Questions

Q1) In large businesses,decentralization is often advantageous because

A)it allows top management to make all decisions,thus ensuring that overall operational goals are met.

B)it prevents decisions from one unit to negatively affect the profitability of the entire company.

C)it allows departmental managers to focus on acquiring expertise in their areas of responsibility.

D)all of these are advantages of decentralization.

Q2) Which transfer price approach is used when the transfer price is set at the amount sold to outside buyers?

A)Market price

B)Cost price

C)Negotiated price

D)Variable price

Q3) If income from operations for a division is $6,000,invested assets are $25,000,and sales are $30,000,the investment turnover is 5.0.

A)True

B)False

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Chapter 15: Capital Investment Analysis

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Sample Questions

Q1) Qualitative considerations in capital investment decisions are most appropriate for strategic investments or those that are designed to affect a company's long-term ability to generate profits.

A)True

B)False

Q2) By converting dollars to be received in the future into current dollars,the present value methods take into consideration that money

A)has an international rate of exchange.

B)is the language of business.

C)is the measure of assets,liabilities,and stockholders' equity on financial statements.

D)has a time value.

Q3) The process by which management allocates available investment funds among competing capital investment proposals is termed capital rationing.

A)True

B)False

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