Financial Accounting Exam Solutions
Course Introduction
Financial Accounting introduces students to the fundamental principles and practices used in the preparation, interpretation, and analysis of financial statements for business entities. The course covers key concepts such as the accounting cycle, accrual versus cash accounting, the recording and reporting of assets, liabilities, equity, revenues, and expenses, as well as the regulatory environment governing financial reporting. Students will learn how to use financial information to make informed decisions, understand the role of ethics in accounting, and gain practical skills in using accounting systems to communicate financial performance to internal and external stakeholders.
Recommended Textbook
Corporate Financial Accounting 15th Edition by Carl S. Warren
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15 Chapters
3080 Verified Questions
3080 Flashcards
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Page 2
Chapter 1: Accounting and Business
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244 Verified Questions
244 Flashcards
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Sample Questions
Q1) Which of the following would not normally operate as a service business?
A) pet groomer
B) grocer
C) lawn care company
D) styling salon
Answer: B
Q2) Financial accounting provides information to all users, while the main focus for managerial accounting is to provide information to the management.
A)True
B)False Answer: True
Q3) The monetary unit assumption requires that economic data be recorded in dollars for companies in the United States.
A)True
B)False Answer: True
Q4) What information does the income statement give to business users?
Answer: The income statement reports the revenues and expenses for a period of time. The result is either a net income or a net loss.
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Chapter 2: Double-Entry Accounting
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216 Verified Questions
216 Flashcards
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Sample Questions
Q1) Which of the following will increase stockholders' equity?
A) expenses > revenues
B) the company pays dividends
C) revenues > expenses
D) cash is received from customers on account
Answer: C
Q2) In which of the following types of accounts are decreases recorded by credits?
A) liabilities
B) stockholders' equity
C) assets
D) revenues
Answer: C
Q3) Net income will result when
A) revenues (credits) > expenses (debits)
B) revenues (debits) > expenses (credits)
C) expenses (credits) = revenues (debits)
D) revenues (credits) = expenses (debits)
Answer: A
Q4) Prepare an unadjusted trial balance, listing the accounts in their proper order.
Answer: 11ea84e6_b039_e56a_9a63_1b5f6860b9cc_TB2281_00_TB2281_00
Page 4
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Chapter 3: Adjustments: Accruals and Deferrals
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204 Verified Questions
204 Flashcards
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Sample Questions
Q1) The unexpired insurance at the end of the fiscal period represents
A) an accrued asset
B) an accrued liability
C) an accrued expense
D) a deferred expense
Answer: D
Q2) Generally accepted accounting principles require accrual-basis accounting.
A)True
B)False
Answer: True
Q3) Which of the following is an example of an accrued expense?
A) salary owed but not yet paid
B) fees received but not yet earned
C) supplies on hand
D) a two-year premium paid on a fire insurance policy
Answer: A
Q4) The company determines that the interest expense on a note payable for the period ending December 31 is $775. This amount is payable on January 1. Prepare the journal entries required on December 31 and January 1.
Answer: 11ea84e6_b030_47e0_9a63_578b0245ed20_TB2281_00_TB2281_00
Page 5
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Chapter 4: The Accounting Cycle
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Sample Questions
Q1) Which one of the fixed asset accounts listed below will not have a related contra asset account?
A) Office Equipment
B) Land
C) Delivery Equipment
D) Building
Q2) The usual presentation of the retained earnings statement is (1) Beginning balance, (2) Net income or loss, (3) Dividends, (4) Stockholders' contributions, (5) Ending balance.
A)True
B)False
Q3) An end-of-period spreadsheet includes columns for
A) adjusting entries
B) closing entries
C) reversing entries
D) adjusting and closing entries
Q4) The unadjusted, adjusted, and final trial balances are prepared during the accounting cycle of a period.
A)True
B)False
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Chapter 5: Accounting for Retail Businesses
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272 Verified Questions
272 Flashcards
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Sample Questions
Q1) Under a periodic inventory system, closing entries will include
A) debits to Sales, Purchases Returns and Allowances, and Purchases Discounts
B) credits to the Allowance for Doubtful Accounts
C) adjustments to the inventory account to match physical inventory
D) all of these
Q2) Alt Tile Company uses a perpetual inventory system. Journalize the December 31 adjusting entries based on the following information:
a. The inventory account has a balance of $133,150, while the physical inventory indicates that $130,900 of merchandise is on hand. Assume any shrinkage is a normal amount.
b. Sales returns of $11,000 and merchandise returns of $8,000 are estimated for the current year's sales.
Q3) Freight-in is considered a cost of purchasing inventory.
A)True
B)False
Q4) A sales discount encourages customers to pay accounts more quickly than if a discount were not available.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) If a fire destroys the inventory, the gross profit method can be used to estimate the cost of merchandise destroyed.
A)True
B)False
Q2) Inventory errors, if not discovered, will self-correct within two years.
A)True
B)False
Q3) If a company mistakenly counts more items during a physical inventory than actually exist, how will the error affect their bottom line?
A) no change to net income
B) net income will be overstated
C) net income will be understated
D) only gross profit will be affected
Q4) One of the two internal control procedures over inventory is to properly report inventory on the financial statements.
A)True
B)False
Q5) List three different security measures taken to safeguard inventory.
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Chapter 7: Internal Control and Cash
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197 Flashcards
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Sample Questions
Q1) A petty cash fund is used to pay relatively large amounts.
A)True
B)False
Q2) bank service charge
A)added to the company's books
B)subtracted from the company's books
C)added to the bank statement balance
D)subtracted from the bank statement balance
Q3) What entry is required in the company's accounts to record outstanding checks?
A) debit Accounts Receivable; credit Cash
B) debit Cash; credit Accounts Receivable
C) debit Cash; credit Accounts Payable
D) no entry is required
Q4) Accompanying the bank statement was a debit memo for an NSF check received from a customer. This item would be included on the bank reconciliation as a(n)
A) deduction from the balance per company's records
B) addition to the balance per bank statement
C) deduction from the balance per bank statement
D) addition to the balance per company's records
Q5) Why would a bank require a company to maintain a compensating balance?
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.
A)True
B)False
Q2) Interest on a note can be calculated without knowledge of the
A) fair value of the note
B) rate of interest
C) term of note
D) face amount
Q3) At the beginning of the year, the balance in Allowance for Doubtful Accounts is a credit of $760. During the year, $120 of previously written off accounts are reinstated and accounts totaling $740 are written off as uncollectible. The end-of-year balance (before adjustment) in Allowance for Doubtful Accounts should be
A) $760
B) $120
C) $140
D) $740
Q4) What is the effect on the accounting equation when a company receives payment on a note receivable, including interest?
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Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) The calculation for annual depreciation using the straight-line depreciation method is
A) Initial cost / Estimated useful life
B) Depreciable cost / Estimated useful life
C) Depreciable cost × Estimated useful life
D) Initial cost × Estimated useful life
Q2) The process of transferring the cost of metal ores and other minerals removed from the earth to an expense account is called
A) depletion
B) deferral
C) amortization
D) depreciation
Q3) Costs of government permits required to develop land for a new business location
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements
Q4) Losses on the discarding of fixed assets are reported in the income statement.
A)True
B)False
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Chapter 10: Liabilities: Current, Installment Notes, and Contingencies
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179 Flashcards
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Sample Questions
Q1) Zennia Company provides its employees with varying amounts of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation cost is $135,000. On December 31, the end of the current year, the current month's accrued vacation pay is
A) $135,000
B) $67,500
C) $0
D) $11,250
Q2) Which of the following are included in the employer's payroll taxes?
A) SUTA taxes
B) FUTA taxes
C) social security taxes
D) all are included in employer taxes
Q3) An employee's take-home pay is equal to gross pay less all voluntary deductions.
A)True
B)False
Q4) The payroll register of Seaside Architecture Company indicates $970 of social security and $257 of Medicare tax withheld on total salaries of $16,500 for the period. Federal withholding for the period totaled $4,235. Prepare the journal entry for the period's payroll.
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) Both callable and noncallable bonds can be purchased by the issuing corporation in the open market.
A)True
B)False
Q2) On the first day of the fiscal year, a company issues a $500,000, 8%, 10-year bond that pays semiannual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $520,000. Journalize the entry to record the first interest payment and amortization of premium using the straight-line method.
Q3) A form of an interest-bearing note
A)contract rate
B)effective rate
C)bond discount
D)bond premium
E)bond
F)bond indenture
G)principal
Q4) A bond is usually divided into a number of individual bonds of $500 each.
A)True
B)False
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Chapter 12: Corporations: Organization, Stock Transactions, and Dividends
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190 Flashcards
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Sample Questions
Q1) If common stock is issued for an amount greater than par value, the excess should be credited to
A) Retained Earnings
B) Cash
C) Legal Capital
D) Paid-In Capital in Excess of Par
Q2) Which of the following statements is not true about a 2-for-1 split?
A) Par value per share is reduced to half of what it was before the split.
B) Total contributed capital increases.
C) The market price will probably decrease.
D) A stockholder with ten shares before the split owns twenty shares after the split.
Q3) The entry to record the issuance of 150 shares of $5 par common stock at par to an attorney in payment of legal fees for organizing the corporation includes a credit to
A) Organizational Expenses
B) Goodwill
C) Common Stock
D) Cash
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Page 14
Chapter 13: Statement of Cash Flows
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186 Flashcards
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Sample Questions
Q1) The current period statement of cash flows includes the following: \(\begin{array}{lr}
\text { Cash balance at the beginining of the period } & \$ 310,000 \\
\text { Net cash flow from operating activities } & 185,000 \\
\text { Net cash flow used for investing activities } & 43,000 \\
\text { Net cash flow used for financing activities } & 97,000 \end{array}\)
The cash balance at the end of the period is
A) $45,000
B) $635,000
C) $355,000
D) $125,000
Q2) In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the net decrease in inventories from the beginning to the end of the period is added to net income for the period.
A)True
B)False
Q3) A cash flow per share amount should be reported on the statement of cash flows. A)True B)False
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Chapter 14: Financial Statement Analysis
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206 Flashcards
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Sample Questions
Q1) Selected data from the Carmen Company at year end are presented below: \(\begin{array}{lr}
\text { Total assets } & \$ 2,000,000 \\
\text { Average total assets } & 2,200,000 \\
\text { Net income } & 250,000 \\
\text { Sales } & 1,300,000 \\
\text { Average common stockholders' equity } & 1,000,000 \\
\text { Net cash provided by operating activities } & 275,000 \\
\text { Shares of common stock outstanding } & 10,000 \\
\text { Long-term investments } & 400,000 \end{array}\)
Calculate: (a) asset turnover ratio; (b) return on total assets; (c) return on common stockholders'
equity; and (d) earnings per share on common stock. Assume the company had no preferred stock or interest expense. Round dollar values to two decimal places and other final answers to one decimal place.
Q2) What information is generally included in the Management Discussion and Analysis (MD&A) section of a corporate annual report?
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Page 16
Chapter 15:Investments
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Sample Questions
Q1) Ruben Company purchased $100,000 of Evans Company bonds at 100. Ruben later sold the bonds at $104,500 plus $500 in accrued interest. The journal entry to record the sale of the bonds would be
A) debit Cash, $105,000; credit Investment-Evans Company Bonds, $104,500, and Interest Revenue, $500
B) debit Cash, $105,000; credit Investment-Evans Company Bonds, $100,000, and Gain on Sale of Investments, $5,000
C) debit Cash, $104,500, and Interest Receivable, $500; credit Investment-Evans Company Bonds, $100,000, Gain on Sale of Investments, $4,500, and Interest Revenue, $500
D) debit Cash, $105,000; credit Investment-Evans Company Bonds, $100,000, Gain on Sale of Investments, $4,500, and Interest Revenue, $500
Q2) Long-term investments are held for all of the listed reasons below except
A) to earn the interest or dividend income
B) for their long-term gain potential
C) to have influence over another business entity
D) to meet current cash needs
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