Financial Accounting Exam Review
Course Introduction
Financial Accounting is an essential course that introduces students to the foundational principles and practices of recording, summarizing, and reporting financial transactions for business entities. The course covers key concepts such as the accounting cycle, preparation and analysis of financial statements, understanding assets, liabilities, equity, revenues, and expenses, as well as the application of generally accepted accounting principles (GAAP). Through practical exercises and case studies, students develop the skills needed to interpret financial information, make informed economic decisions, and communicate financial results to stakeholders. This course provides a vital basis for further study in accounting and related business disciplines.
Recommended Textbook
Financial Accounting 5th Canadian Edition by Walter T. Harrison
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13 Chapters
1520 Verified Questions
1520 Flashcards
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Chapter 1: The Financial Statements
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) Net earnings are calculated by taking a company's earnings less their dividends paid out.
A)True
B)False
Answer: False
Q2) The cash flow statement is divided into three categories relating to cash flows from operating, investing, and:
A) management planning activities
B) financing activities
C) strategic positioning activities
D) marketing activities
Answer: B
Q3) What is the purpose of a cash flow statement?
Answer: A cash flow statement reports how the company generates and uses its cash. Wise use of cash generates revenues and additional cash. Operating activities should be the main source of cash. The cash flow statement provides information that would be difficult to obtain from analyzing the other financial statements.
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Chapter 2: Recording Business Transactions
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164 Verified Questions
164 Flashcards
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Sample Questions
Q1) The account credited when supplies are purchased on account is:
A) Cash
B) Supplies
C) Supplies Expense
D) Accounts Payable Answer: D
Q2) Every accounting transaction involves an increase in at least one account and a decrease in at least one other account.
A)True
B)False Answer: False
Q3) When the trial balance is out of balance due to a transposition error, the difference between total debits and total credits will be evenly divisible by 9.
A)True
B)False
Answer: True
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Chapter 3: Accrual Accounting and the Financial Statements
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) What will be the result if the adjusting entry to record the current period's depreciation on equipment is not recorded?
A) The net income for the period will be understated.
B) The net income for the period will be overstated.
C) The net income for the period will not be affected.
D) The assets for the period will be understated.
Answer: B
Q2) The adjusting entry to record salaries owed to employees but not paid until the next accounting period involves a credit to:
A) Salary Expense
B) Unearned Salaries
C) Salary Payable
D) Deferred Salary
Answer: C
Q3) Depreciation is every bit as much an expense as the salary that a business pays its employees.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Internal Control and Cash
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) In a bank reconciliation, a deposit in transit is:
A) added to the bank balance in the general ledger
B) added to the bank balance on the bank statement
C) deducted from the bank balance in the general ledger
D) deducted from the bank balance on the bank statement
Q2) Which characteristic will not be found in an effective system of internal control?
A) a combination of duties
B) a separation of duties
C) competent, reliable, and ethical personnel
D) documents and records
Q3) In a bank reconciliation, a bank collection is:
A) added to the bank balance on the bank statement
B) deducted from the bank balance on the bank statement
C) added to the bank balance in the general ledger
D) deducted from the bank balance in the general ledger
Q4) When preparing a bank reconciliation, deposits in transit are added to the balance shown on the bank statement.
A)True
B)False
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Chapter 5: Short-Term Investments and Receivables
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Investments held by a corporation are always classified as current assets.
A)True
B)False
Q2) IXOS Ltd. accepted an eighteen-month, $15,000, 8% note from ECM Corporation on June 1, 2014. The amount of interest to be accrued on December 31, 2014, is:
A) $1,800
B) $1,200
C) $700
D) $600
Q3) Cash collected from accounts receivable is shown on the cash flow statement as a(n):
A) operating activity
B) investing activity
C) financing activity
D) either as an operating activity or as a financing activity
Q4) Short-term investments are investments that a company plans to hold for one year or less.
A)True B)False
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Chapter 6: Inventory and Cost of Goods Sold
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) In a merchandising business, gross margin is equal to sales revenue minus:
A) the sum of cost of goods sold, operating expenses, and prepaid expenses
B) the sum of cost of goods sold and operating expenses
C) cost of goods sold
D) the sum of cost of goods sold and sales commissions
Q2) Smart-T Incorporated had sales and cost of sales of $1,850,000 and $1,100,000 respectively in 2014. The company had shareholders equity of $925,000, liabilities of $775,000 and assets of $1,700,000. Included in Smart-T's assets was inventory valued at $100,000 which was a $50,000 increase from the previous year's holdings.
Calculate Smart-T's gross profit percentage and inventory turn over for 2014.
Q3) The disclosure principle requires that management prepare financial reports that disclose all of the following types of information except:
A) the method of inventory costing used
B) forecasts of expected future earnings to help investors decide whether to invest in the company
C) information that facilitates comparison with other companies' financial reports
D) information that is relevant to decision making
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Chapter 7: Property, Plant, and Equipment, and Intangible Assets
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) Which of the following is not a long-lived asset?
A) supplies
B) furniture
C) buildings
D) land
Q2) All of the following are intangible assets except:
A) trademarks
B) natural gas
C) goodwill
D) copyrights
Q3) An example of an intangible asset is a franchise.
A)True
B)False
Q4) When property, plant, and equipment is sold:
A) depreciation should be recorded through the date of sale
B) the book value of the asset should be credited to the asset account
C) no gain or loss should be recognized if depreciation was taken on the asset
D) a loss should be recognized but not a gain if depreciation was taken on the asset
Page 9
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Chapter 8: Long-Term Investments and the Time Value of Money
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97 Verified Questions
97 Flashcards
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Sample Questions
Q1) Non-controlling interest occurs when a company owns only 90% of a company they control.
A)True
B)False
Q2) Retail Energy Corporation paid $1,300,000 on January 1, 2015, to purchase 32% of the outstanding shares of Natural Gas Limited. In 2015 Natural Gas Limited reported $450,000 of net income and paid $100,000 in dividends. If this investment is accounted for using the equity method of accounting, what will be the impact on the books of Retail Energy Corporation?
A) income of $32,000 will be recorded
B) income of $144,000 will be recorded
C) the Investment account will be increased by $144,000
D) the Investment account will be decreased by $144,000
Q3) The Gain/Loss on Investment account may appear on which financial statement?
A) the balance sheet under the "liabilities" section
B) the balance sheet as part of the shareholders' equity
C) the balance sheet under the "assets" section as a contra asset
D) the income statement under the "other income/expense" section
Q4) Briefly explain the meaning of the term "present value."
Q5) How does an investor account for a long-term investment in bonds?
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Chapter 9: Liabilities
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96 Verified Questions
96 Flashcards
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Sample Questions
Q1) The account Sales Tax Payable represents a company's liability to the government for sales taxes collected.
A)True
B)False
Q2) R. Milton Products Inc. generated sales for the current month of 200 units at $225 each, subject to sales tax of 7.5%. All sales are on account. Each unit carries a 6-month warranty. R. Milton Products Inc. promises to repair the unit should it become defective. The estimated cost to the company to honour the warranty is $60 and past experience has shown that approximately 7% of all units will have to be repaired during the warranty period.
Prepare journal entries for the following transactions:
a. Record sales for the current month including the taxes collected in the revenue account.
b. Record the estimated warranty liability associated with the current month's sales.
c. Adjust the revenue account for the proper amount of sales tax payable.
Q3) Explain the accounting process for warranties. Be specific and include in your discussion the principle that governs the accounting method.
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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110 Flashcards
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Sample Questions
Q1) The declaration of a cash dividend:
A) increases shareholders' equity and reduces liabilities
B) increases liabilities and increases shareholders' equity
C) increases liabilities and decreases shareholders' equity
D) reduces assets and increases liabilities
Q2) The president of the corporation can declare dividends.
A)True
B)False
Q3) When a cash dividend is declared:
A) the Cash account is debited.
B) the Cash account is credited.
C) the Retained Earnings account is debited.
D) the Retained Earnings account is credited.
Q4) Stock dividends result in a reduction in the balance of the contributed capital account.
A)True
B)False
Q5) Explain the fundamental difference between retained earnings and share capital.
Q6) What type of shares would an investor purchase if he or she were primarily interested in steady dividends?
Page 12
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Chapter
Statement, the Statement of Comprehensive Income, and the Statement of Shareholders Equity
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71 Flashcards
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Sample Questions
Q1) Under IFRS for a given year if income taxes payable is less than income tax expenses, a deferred tax liability is recorded.
A)True
B)False
Q2) On January 1, 2014, Balises Corporation's Retained Earnings account has a balance of $300,000. During 2014, cash dividends of $20,000 were declared and stock dividends with a market value of $40,000 were declared. Net income for 2014 amounted to $90,000. On June 30, 2014, Balises Corporation issued 5,000 shares of common shares at $10 per share. What is the balance in Retained Earnings appearing on the statement of shareholders' equity on December 31, 2014?
A) $420,000
B) $380,000
C) $330,000
D) $440,000
Q3) Pretax accounting income is found on the:
A) income statement
B) balance sheet
C) tax return
D) retained earnings statement
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Chapter 12: The Statement of Cash Flows
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Match these sections off of the balance sheet with their typical cash flow activity category.
Use O for operating, I for investing and F for financing. Owners' Equity
Current Assets
Non-current Liabilities
Current Liabilities
Non-current Assets
Q2) Your best friend just lost his job because the company he was working for went bankrupt. He was complaining to you that even though the company had been profitable for three years in a row, it still went out of business. He asks you how this can happen.
Explain the most likely reason for the company declaring bankruptcy. Could your best friend have seen it coming? How?
Q3) The sale of repurchased shares would be reported on a statement of cash flows as a:
A) cash inflow under the operating activities
B) cash outflow under the financing activities
C) cash inflow under the financing activities
D) cash inflow under the investment activities
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Chapter 13: Financial Statement Analysis
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) Which of the following would be most likely to reveal that cost of goods sold is 125% of the amount shown for a base year?
A) trend analysis
B) ratio analysis
C) vertical analysis
D) horizontal analysis
Q2) It is generally considered more useful to know the absolute dollar amount of change in financial statement amounts from year to year than to know the percentage change.
A)True
B)False
Q3) Yukon Company has total current liabilities equal to $600,000 and working capital of $30,000. North Company has the same amount of working capital, but it has total current liabilities of $40,000. The company with the better working capital position is:
A) North Company
B) Yukon Company
C) They both have exactly the same working capital position.
D) indeterminable with the information given
Q4) Identify three cash flow signs of a healthy company.
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