Financial Accounting
Exam Questions
Course Introduction
Financial Accounting introduces students to the fundamental principles and practices of accounting as they apply to the preparation, interpretation, and analysis of financial statements. The course covers essential topics such as the accounting cycle, the preparation of balance sheets, income statements, and cash flow statements, as well as the measurement and reporting of assets, liabilities, equity, revenues, and expenses. Students will develop skills in recording transactions, understanding financial disclosures, and utilizing accounting information for decision-making. The course provides a strong foundation for further study in accounting and a solid understanding of how financial information is used by managers, investors, and other stakeholders.
Recommended Textbook
Financial Accounting 5th Canadian Edition by Walter T. Harrison
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1520 Flashcards
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Chapter 1: The Financial Statements
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Sample Questions
Q1) Telus Corporation is a publicly owned corporation. How does it differ from a privately owned corporation?
Answer: The shares of Telus can be bought or sold on the Toronto Stock Exchange without asking the permission of the other shareholders, which is not True of a private corporation. The ownership of the shares of private corporations is limited. Shares of private corporations can only be purchased with the agreement of the existing shareholders.
Private corporations are not necessarily small. For instance, The Jim Pattison Group is Canada's third largest privately held company and has 31,000 employees and annual sales of more than $6 billion.
Q2) Purchases and sales of non-current assets are examples of:
A) investing activities
B) dividend activities
C) financing activities
D) operating activities
Answer: A
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Total debits must always equal total credits in order for a trial balance to balance.
A)True
B)False
Answer: True
Q2) Prepare a Statement of Retained Earnings for the year ended June 30, 2014. Chedacorn was incorporated on July 1, 2012 by 10 shareholders who each invested $100,000 in cash in exchange for common shares. Chedacorn's year end is June 30th. In its first year of business Chedacorn had a net income of $243,750. For its years ended June 30, 2013 and 2014, its second and third years of operation, Chedacorn reported net income of $472,500 and $560,000 respectively. In its first year Chedacorn did not pay any dividends, but in fiscal 2013 it paid $62,500 in dividends and in 2014 it paid $100,000 in dividends.
Answer:
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Note:
To solve the exercise, retained earnings on July 1, 2013 must be calculated. This amount is $243,750 + $472,500 - $62,500.
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Chapter 3: Accrual Accounting and the Financial Statements
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Sample Questions
Q1) To obtain a new customer, a business sells merchandise to the customer for $100. Normally, the merchandise sells for $120. For this sale, the business should record revenue of $100, not $120.
A)True
B)False
Answer: True
Q2) Which of the following is not one of the three basic categories of adjusting entries?
A) accruals
B) depreciation
C) deferrals
D) expiration
Answer: D
Q3) Non-current assets are those debts payable in longer than 1 year or the entity's operating cycle which ever is longer.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Internal Control and Cash
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Sample Questions
Q1) Outstanding cheques are deposits you have recorded but the bank has not.
A)True
B)False
Q2) Managers must control the operations of their business. A plan of internal control is designed to help management maintain control of a business and its operations. What are the key elements of a plan of internal control?
Q3) In a bank reconciliation, an EFT cash payment is:
A) deducted from the bank balance in the general ledger
B) added to the bank balance in the general ledger
C) deducted from the bank balance on the bank statement
D) added to the bank balance on the bank statement
Q4) In a bank reconciliation, items recorded by the bank but not yet recorded by the company include:
A) bank collections
B) deposits in transit
C) outstanding cheques
D) deposits in transit and outstanding cheques
Q5) The person to whom a cheque is drawn is referred to as the payer.
A)True
B)False
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Chapter 5: Short-Term Investments and Receivables
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Sample Questions
Q1) Using the aging-of-accounts-receivable method to estimate uncollectible receivables, Records Management Corp. estimates that $8,000 of its accounts receivable will be uncollectible. Prior to adjustment, the Allowance for Uncollectible Accounts has a debit balance of $2,000. Bad debt expense to be reported on the income statement is:
A) $10,000
B) $8,000
C) $6,000
D) $2,000
Q2) Which of the following accounts is a contra-account to Accounts Receivable?
A) Sales Discounts
B) Sales Returns and Allowances
C) Allowance for Uncollectible Accounts
D) Bad Debt Expense
Q3) Receivables are monetary claims against others.
A)True
B)False
Q4) The acceptable acid-test ratio varies by industry.
A)True
B)False
7
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) An error in the ending inventory for the year ended December 31, 2013:
A) automatically creates errors in cost of goods in the 2013 and 2014 financial statements
B) has no effect on the 2013 financial statements but will create an error in the 2014 financial statements
C) automatically creates errors in the ending inventory balance in the 2013 and 2014 financial statements
D) affects only the 2013 financial statements
Q2) A purchase allowance is a decrease in the cost of purchases because the purchaser returned goods to the supplier.
A)True
B)False
Q3) FIFO tends to decrease cost of goods sold when:
A) costs are constant
B) costs are decreasing
C) costs are increasing
D) FIFO will always yield the lowest possible taxes
Q4) What is the most important asset of a merchandising business?
Q5) State some methods retailers might use to increase the gross margin on sales.
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Chapter 7: Property, Plant, and Equipment, and Intangible Assets
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Sample Questions
Q1) Which of the following is not an intangible asset?
A) accounts receivable
B) patent
C) copyright
D) goodwill
Q2) Amortization is not recorded on intangible assets.
A)True
B)False
Q3) Amortization for intangibles decreases both assets and liabilities.
A)True
B)False
Q4) Victory Stables purchased new equipment for their barn on January 1, 2012. The new equipment had a cost of $100,000, estimated salvage of $20,000 and an expected useful life of 10 years. On January 1, 2013 the equipment is not working out to be as durable as first thought so management has now revised its useful life down to 5 years. Prepare the journal entry for the December 31, 2013 amortization.
Q5) Costs of land improvements are not included in the Land account.
A)True
B)False
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Chapter 8: Long-Term Investments and the Time Value of Money
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Sample Questions
Q1) When preparing a consolidated balance sheet:
A) the shareholders' equity of the parent will be eliminated but investment in subsidiary will be presented
B) both investment in subsidiary and the shareholders' equity of the parent will be eliminated
C) neither investment in subsidiary nor the subsidiary's shareholders' equity will be presented
D) investment in subsidiary will be presented but the shareholders' equity of the subsidiary will be eliminated
Q2) If a company owns between 20 and 50% of the voting share of an investee it must normally use the equity method to account for its investment. A)True B)False
Q3) An investor owns 40% of the voting common shares in an investee and has the ability to exercise significant influence over the investee. How should the investor account for the investment?
Q4) How does a company such as ATCO Ltd. report the results of its diverse worldwide lines of business?
10
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Chapter 9: Liabilities
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Sample Questions
Q1) Current liabilities fall into two categories, which are referred to as:
A) contra liabilities and contingent liabilities
B) contingent liabilities and non contingent liabilities
C) liabilities of a known amount and liabilities whose amount must be estimated
D) liabilities of a known amount and contingent liabilities
Q2) The premium on bonds payable:
A) reduces interest expense on the income statement
B) increases interest expense on the income statement
C) increases the amount of cash paid to bondholders over the stated rate of interest
D) decreases the amount of cash paid to bondholders over the stated rate of interest
Q3) When using the effective-interest method of amortizing a discount or premium, interest expense is calculated by multiplying the:
A) contract interest rate by the face value of the bonds
B) effective-interest rate by the face value of the bonds
C) contract interest rate by the carrying value of the bonds
D) effective-interest rate by the carrying value of the bonds
Q4) Describe the two interest rates included in setting the price of a bond.
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Chapter 10: Shareholders Equity
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Sample Questions
Q1) Name several accounts that would appear in the shareholders' equity section of a balance sheet.
Q2) Redemption value is the amount of owners' equity on the books for each share.
A)True
B)False
Q3) In a corporation, the two basic sources of shareholders' equity are:
A) share capital and operating capital
B) share capital and retained earnings
C) donated capital and share capital
D) donated capital and retained earnings
Q4) Stock dividends result in a reduction in the balance of the contributed capital account.
A)True
B)False
Q5) If a corporation issues only one class of shares, it must be:
A) par value
B) preferred
C) common
D) common or preferred
Q6) Describe the rights typically enjoyed by common shareholders.
Page 12
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Equity
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Sample Questions
Q1) Gail. Inc. has 100,000 common shares outstanding at the beginning of 2013. The company issued an additional 50,000 common shares on July 1, 2013. Gail Inc.'s net income for the year ended December 31, 2013 was $300,000; its comprehensive income was $450,000. Gail Inc. paid dividends of $50,000 during the year. What was Gail Inc.'s basic EPS for 2013?
A) $2.00
B) $2.40
C) $3.00
D) $3.60
Q2) Under ASPE, when pretax accounting income exceeds taxable income:
A) Prepaid Income Tax is debited
B) Prepaid Income Tax is credited
C) Future Tax Liability is credited
D) Future Tax Asset is debited
Q3) A statement of shareholders' equity would not include which type of transaction?
A) repurchased shares reacquired by the corporation
B) land exchanged for machinery and equipment
C) cumulative translation adjustment
D) cash dividends declared by the board of directors
Q4) Explain what is meant by the phrase "the quality of earnings." Page 13
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Page 14
Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) The indirect method of computing cash flows from operating activities begins with net income and reconciles net income to operating cash flows.
A)True
B)False
Q2) Non cash activities such as an exchange of shares for a piece of equipment do not need to be disclosed.
A)True
B)False
Q3) Under ASPE the receipt of interest on loans would be reported on a statement of cash flows under the:
A) operating activities
B) investing activities
C) financing activities
D) no activities because interest received on loans would not be reported on a statement of cash flows
Q4) The majority of organizations use the indirect method when preparing their statement of cash flows.
A)True B)False
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) If all else is held equal, an increase in the current ratio of a company is generally considered to be:
A) an indication that current assets have decreased
B) an indication that current liabilities have increased
C) an indication that the company will have increased difficulty meeting short-term obligations
D) an indication that the company will be better able to meet short-term debt obligations
Q2) Horizontal analysis is the study of percentage changes in financial statement balances from one year to the next.
A)True
B)False
Q3) Of the items listed below, the one most helpful in the comparison of different size companies is:
A) horizontal analysis
B) comparison of their net incomes
C) preparation of common-size financial statements
D) comparison of their working capital balances
Q4) Identify three cash flow signs of a healthy company.
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