Financial Accounting Exam Solutions
Course Introduction
Financial Accounting is a foundational course that introduces students to the principles and practices of accounting, focusing on the systematic recording, reporting, and analysis of financial transactions. The course covers key concepts such as the accounting cycle, preparation of financial statements, and the use of accounting information for decision-making. Students will learn how to interpret balance sheets, income statements, and cash flow statements, gaining insight into how organizations measure and communicate their financial performance to stakeholders. Through case studies and practical exercises, students develop the skills necessary to analyze financial data and understand the regulatory and ethical frameworks governing financial reporting.
Recommended Textbook
Fundamentals of Financial Accounting 5th Canadian Edition by Fred Phillips
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Page 2
Chapter 1: Business Decisions and Financial Accounting
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Sample Questions
Q1) Which of the following would be reported on the income statement for 2005?
A)Supplies that were purchased and used in 2004 but paid for in 2005.
B)Dividends that were paid in 2005.
C)Supplies that were purchased and used in 2005 but paid for in 2004.
D)All of the choices are correct.
Answer: C
Q2) You paid $10,000 to buy 1% of the stock in a corporation that has now gone bankrupt.The company owes $10 million dollars to creditors.As a result of the bankruptcy,you will lose $100,000.
A)True
B)False
Answer: False
Q3) A investor might look at a company's financial statements to determine if the:
A)company is likely to have the resources to repay its debts.
B)company's stock is likely to fall,signalling a good time to sell.
C)company's stock is likely to rise,signalling a good time to buy.
D)company is likely to pay a good dividend.
Answer: A
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3
Chapter 2: The Balance Sheet
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Sample Questions
Q1) Facebook issues new stock worth $40 million for cash.This would not affect the shareholders' equity on the balance sheet because as new shares are sold the value of existing shares will decline by the same amount.
A)True
B)False
Answer: False
Q2) Which of the following describes the classification and normal balance of the retained earnings account?
A)Asset,debit
B)Shareholders' equity,credit
C)Liability,credit
D)Shareholders' equity,debit
Answer: B
Q3) If total assets increase,then either liabilities or shareholders' equity also must increase.
A)True
B)False
Answer: True
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Chapter 3: The Income Statement
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Sample Questions
Q1) The expense recognition principle requires:
A)that expenses should be recognized on periodic basis.
B)that expenses should be split between Cost of Goods Sold (sometimes called Cost of Sales)and Selling Expenses.
C)that current assets and current liabilities are stated in a certain order on the balance sheet.
D)that costs are recognized as expenses in the same period as the revenues they generate.
Answer: D
Q2) WestJet Corporation issued a $1,000 gift certificate.What journal entry will WestJet Corporation record?
A)Debit Cash,credit Sales Revenue.
B)Debit Cash,credit Deferred Revenue.
C)Debit Deferred Revenues,credit Cash.
D)Debit Accounts Receivable,credit Cash.
Answer: B
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5
Chapter 4: Adjustments, financial Statements, and Financial Results
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Sample Questions
Q1) Declared dividends:
A)are an expense of doing business.
B)are not a legal obligation that a company must pay.
C)are a way to distribute the company's profits to its shareholders.
D)are not recorded as a liability because they are not an expense of doing business.
Q2) When the future benefits of existing assets are used up in the ordinary course of business:
A)an expense is recorded.
B)a loss is recorded.
C)a credit to a liability is recorded.
D)a debit to assets is recorded.
Q3) Recording an adjusting journal entry to recognize depreciation would cause which of the following?
A)An increase in liabilities and expenses,and a decrease in shareholders' equity.
B)A decrease in assets,and an increase in expenses.
C)A decrease in assets,an increase in liabilities,and an increase in expenses.
D)None of the answers are acceptable.
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Page 6
Chapter 5: Fraud, internal Control, and Cash
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Sample Questions
Q1) Those who willfully misrepresent financial results now face fines of up to $10 million and maximum jail sentences of 25 years.
A)True
B)False
Q2) Internal control will always detect fraud.
A)True
B)False
Q3) Five common principles of internal control are: establish responsibility,segregate duties,restricted access,document procedures,and independently verify.
A)True
B)False
Q4) Cash reported on the balance sheet includes cash deposited in the bank but not cash equivalents.
A)True
B)False
Q5) The three elements of the fraud triangle are: means,opportunity,and incentives
A)True
B)False
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Chapter 6: Merchandising Operations and the Multi-Step
Income Statement
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Sample Questions
Q1) Companies using a perpetual inventory system:
A)never physically count their inventory.
B)must physically count their inventory at least once a week.
C)still need to count the physical inventory occasionally.
D)always know the actual amount in inventory from their accounting records.
Q2) A company buys footwear and clothing from manufacturers,which it resells to discount stores in a large urban area.This company is an example of a:
A)wholesale merchandising company.
B)service company.
C)retail merchandising company.
D)secondary service company.
Q3) If a company achieves a small increase in its gross profit percentage from one year to the next,the company:
A)will always have a higher net income.
B)must be obtaining products at a lower cost per unit.
C)must have increased its sales revenue.
D)none of the answers are acceptable.
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Page 8
Chapter 7: Inventory and Cost of Goods Sold
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Sample Questions
Q1) Which of the following statements is/are true with regards to all inventory costing methods?
A)The ending inventory balance and cost of goods sold move in the same direction.
B)The ending inventory balance and the cost of total assets move in the opposite direction.
C)The ending inventory balance and net income move in the same direction.
D)All of the answers are true.
Q2) Alphabet Company buys different letters for resale.It buys A thru J on January 1 at $4 per letter,and sells C on January 15.On February 1,it buys K thru L at $6 per letter and sells
A and K on February 9.It then buys M thru O on March 1 at $7 per letter and sells F,L,M,N,and O on March 19.If the company uses the LIFO method on a perpetual basis,what is the cost of goods sold?
A)$32
B)$41
C)$45
D)$56
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Chapter 8: Receivables, bad Debt Expense, and Interest
Revenue
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Sample Questions
Q1) Your company has averaged about 26% of its accounts receivable in the "over 90 days past due" category and now forecasts 18% in this category.You use the aging of accounts receivable method of estimating bad debt expense.If the total of credit sales remains unchanged from previous months and no write offs are made,the estimate of bad expense based on the new forecast will:
A)increase over the estimate for previous months.
B)decrease over the estimate for previous months.
C)not change.
D)will depend on the percentage of credit sales deemed un-collectible.
Q2) When a customer's balance is known to be uncollectible and a write off has occurred
A)The net effect on the income statement is zero.
B)Accounts receivable decrease and there is no impact on revenues.
C)Contra-Asset accounts decrease and there is no impact on expenses.
D)All of the choices are correct.
Q3) Companies do not need to explain to financial statement users how uncollectable receivables are accounted for because they do not need this information.
A)True
B)False
Page 10
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Chapter 9: Long-Lived Tangible and Intangible Assets
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Sample Questions
Q1) Identify the category to which each of the following assets belongs.
T - tangible long-lived asset
I - intangible long-lived asset
N - not a long-lived asset
______ Warehouse ______ Licensing rights ______ Supplies ______ Patents
______ Production equipment ______ Goodwill ______ Land
______ Office computer
Q2) A piece of equipment was acquired on January 1,2018,at a cost of $22,000,with an estimated residual value of $2,000 and an estimated useful life of four years.The company uses the double-declining-balance method.What is its book value at December 31,2019?
A)$5,500
B)$10,000
C)$11,000
D)$12,000
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Page 11
Chapter 10: Liabilities
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Sample Questions
Q1) Your company issued bonds at a premium.Which of the following statements is true?
A)The contra account,premium on bonds payable,is amortized each year by adding part of its balance to interest expense.
B)On the date of issuance,the stated interest rate of the bond was less than the market interest rate.
C)As the current date approaches the maturity date,the carrying value of the bond approaches the face value of the bond.
D)All of the answers are acceptable.
Q2) Publicly issued debt certificates are also known as bonds.
A)True
B)False
Q3) A company's current liabilities are the total amount it currently owes at a single point in time.
A)True
B)False
Q4) Straight line method of amortization for Bonds is accepted under IFRS.
A)True
B)False
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Page 12
Chapter 11: Shareholders Equity
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Sample Questions
Q1) When a company records a stock repurchase,it is tracking a shareholder's sale of shares to another investor.
A)True B)False
Q2) Contributed Capital reports the amount of capital the company received from investors' contributions,in exchange for the company's shares.
A)True B)False
Q3) All other things equal,the higher the Return on Equity ratio the better the financial performance of the company.
A)True
B)False
Q4) Accumulated Other Comprehensive Loss reports unrealized gains and losses,which are permanent changes in the value of certain assets and liabilities the company holds. A)True B)False
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Page 13
Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) An overall increase in accounts receivable implies that cash collections were less than sales on account.
A)True
B)False
Q2) When a company uses the direct method to determine the net cash flow from operating activities,cash flows from operating activities will:
A)be identical to the amount reported using the indirect method.
B)be larger if there is a net cash inflow and smaller if there is a net cash outflow compared to the amount reported using the indirect method.
C)always be larger than the amount reported using the indirect method.
D)be larger if there is a net cash outflow and smaller if there is a net cash inflow compared to the amount reported using the indirect method.
Q3) When the indirect method is used,Depreciation expense is added to net income in order to calculate net cash flow from operating activities.
A)True
B)False
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14
Chapter 13: Measuring and Evaluating Financial Performance
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Sample Questions
Q1) It is usually better to compare the ratio data from one company with the average of the industry rather than to compare the data with specific competitors.
A)True
B)False
Q2) Horizontal analysis is identical to trend analysis.
A)True
B)False
Q3) Industries differ greatly in terms of the percentage of sales made on credit.This means some measures of liquidity are less relevant to companies in some industries than in others.
A)True
B)False
Q4) Which financial factor in the following list is most likely to be a cause of a going-concern problem?
A)Excessive reliance on debt financing.
B)A high inventory turnover ratio.
C)A high current ratio.
D)Stable net income growth.
Page 15
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