Financial Accounting
Exam Solutions
Course Introduction
Financial Accounting introduces students to the fundamental concepts and principles of accounting as they relate to the preparation, analysis, and interpretation of financial statements for both external and internal users. The course covers topics such as the accounting cycle, accrual versus cash accounting, revenue recognition, and the measurement and reporting of assets, liabilities, and equity. Emphasis is placed on understanding the role of accounting information in decision-making, the regulatory environment, and ethical considerations in financial reporting. Students will develop practical skills in recording transactions, preparing financial statements, and analyzing the financial health of various organizations.
Recommended Textbook
Financial Accounting 15th Edition by Carl Warren
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17 Chapters
3465 Verified Questions
3465 Flashcards
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
A)True
B)False
Answer: True
Q2) Received payment from a customer on account
A)Increase assets, increase liabilities
B)Increase liabilities, decrease owner's equity
C)Increase assets, increase owner's equity
D)No effect
E)Decrease assets, decrease liabilities
F)Decrease assets, decrease owner's equity
Answer: D
Q3) A book publisher
A)Service business
B)Manufacturing business
C)Merchandising business
Answer: B
Q4) What are the three sections of the statement of cash flows?
Answer: operating activities,investing activities,and financing activities
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Assume that you are creating a chart of accounts for a company.Each account number will have two digits.The first digit indicates the major account group to which the account belongs.Which of the following correctly identifies the major account groups typically represented by the numbers 1 through 5?
A)1-Assets, 2-Liabilities, 3-Owner's Equity, 4-Expenses, 5-Revenues
B)1-Assets, 2-Liabilities, 3-Owner's Equity, 4-Revenues, 5-Expenses
C)1-Assets, 2-Owner's Equity, 3-Revenues, 4-Expenses, 5-Drawing
D)1-Owner's Equity, 2-Drawing, 3-Revenues, 4-Expenses
Answer: B
Q2) A trial balance is prepared to
A)prove that there were no errors made in recording transactions into the journal B)prove that no errors were made in posting to the ledger
C)prove that each account balance is correct
D)discover errors that affect the equality of debits and credits
Answer: D
Q3) The normal balance of revenue accounts is a credit.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable.This error will be detected when the adjusted trial balance is prepared.
A)True
B)False Answer: False
Q2) For most large businesses,the cash basis of accounting will provide accurate financial statements for user needs.
A)True
B)False Answer: False
Q3) Depreciation Expense is reported on the balance sheet as an addition to the related asset.
A)True
B)False Answer: False
Q4) The systematic allocation of land's cost to expense is called depreciation.
A)True
B)False Answer: False
Page 5
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Real accounts are not permanent accounts.
A)True
B)False
Q2) When preparing the statement of owner's equity,the beginning capital balance can always be found
A)in the Income Statement columns of the work sheet
B)in the statement of cash flows
C)in the general ledger
D)in the Balance Sheet columns of the work sheet
Q3) The chart of accounts,the journal,and the ledger are essential parts of the accounting system.
A)True
B)False
Q4) On September 1,the company pays rent for 12 months in advance and debits an asset account.At year-end,the adjusting entry on the work sheet would
A)increase an expense account
B)decrease a liability account
C)increase an asset account
D)decrease an expense account
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Chapter 5: Accounting Systems
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Sample Questions
Q1) Computerized accounting systems
A)are only used by medium- and large-sized companies
B)are generally not as accurate as manual systems
C)record and post transactions at the same time
D)must make use of special journals
Q2) Which of the following is not a special journal?
A)cash receipts journal
B)purchases journal
C)accounts receivable journal
D)cash payments journal
Q3) If a company uses special journals,
A)it must have one for cash, receivables, and payables
B)it may have no more than four
C)the quantity and design depend on the needs of the company
D)the design must comply with the FASB requirements
Q4) In which journal would adjusting entries be found?
A)cash receipts journal
B)cash payments journal
C)general journal
D)purchases journal
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) Sales is equal to the cost of merchandise sold less the gross profit.
A)True
B)False
Q2) Under the periodic inventory system,the cost of merchandise sold is equal to the beginning merchandise inventory plus the cost of merchandise purchased plus the ending merchandise inventory.
A)True
B)False
Q3) Account where returned merchandise or price adjustments are recorded by the buyer under the periodic inventory system.
A)Freight
B)Delivery Expense
C)Merchandise Inventory
D)Sales discount
E)Purchases Returns and Allowances
F)Debit memo
G)Purchase discount
H)Trade discount
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8
Chapter 7: Inventories
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Sample Questions
Q1) When using the FIFO inventory costing method,the most recent costs are assigned to the cost of merchandise sold.
A)True
B)False
Q2) Merchandise that was sold and shipped FOB shipping point on the last day of the year was not included in the seller's ending inventory.
A)Net income for the current year will be overstated.
B)Net income for the current year will be understated.
C)There will be no error effect on net income.
Q3) During the taking of its physical inventory on December 31,Almond Supplies Company incorrectly counted its inventory as $545,000 instead of the correct amount of $554,000.Indicate the effects of the misstatement on Almond Supplies Company's balance sheet and income statement for the year ended December 31.
Q4) FIFO is the inventory costing method that follows the physical flow of the goods.
A)True
B)False
Q5) List three different security measures taken to safeguard inventory.
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Page 9
Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following would be subtracted from the balance per bank on a bank reconciliation?
A)outstanding checks
B)deposits in transit
C)notes collected by the bank
D)service charges
Q2) Which of the following reflects a weak internal control system?
A)All employees are well supervised.
B)A single employee is responsible for comparing a receiving report to an invoice.
C)All employees must take their vacations.
D)A single employee is responsible for collecting and recording cash.
Q3) A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430.What entry is required in the company's accounts?
A)debit Accounts Payable; credit Cash
B)debit Cash; credit Accounts Receivable
C)debit Cash; credit Accounts Payable
D)debit Accounts Receivable; credit Cash
Q4) Why would a bank require a company to maintain a compensating balance?
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Chapter 9: Receivables
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Sample Questions
Q1) The maturity value of a note receivable is always the same as its face value.
A)True
B)False
Q2) A note that is not paid when it is due
A)Face amount
B)Term
C)Interest
D)Maturity value
E)Dishonored note
F)Maker
G)Notes receivable
H)Interest rate
Q3) When a note is received from a customer on account,it is recorded by debiting Notes Receivable and crediting Accounts Receivable.
A)True
B)False
Q4) The balance of Allowance for Doubtful Accounts is added to Accounts Receivable on the balance sheet.
A)True
B)False
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Chapter 10: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) The cost of a patent with a remaining legal life of 10 years and an estimated useful life of seven years is amortized over 10 years.
A)True
B)False
Q2) The cost of new equipment is called a revenue expenditure because it will help generate revenues in the future.
A)True
B)False
Q3) Nike swoosh
A)Patent
B)Copyright
C)Trademark
D)Goodwill
Q4) When a company establishes an outstanding reputation and has a competitive advantage because of it,the company should record goodwill on its financial statements.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Blast sells portable CD players,and each unit carries a one-year replacement warranty.The cost of repair defects under the warranty is estimated at 10% of the sales price.During May,Blast sells 650 portable CD players for $50 each.For what amount in May would Blast debit Product Warranty Expense?
A)$3,250
B)$1,625
C)$650
D)$1,300
Q2) On June 8,Williams Company issued an $80,000,5%,120-day note payable to Brown Industries.Assuming a 360-day year,what is the maturity value of the note?
A)$82,600
B)$84,000
C)$81,333
D)$88,200
Q3) The journal entry to record the cost of warranty repairs that were incurred during the current period,but related to sales made in prior years,includes a debit to Warranty Expense.
A)True
B)False
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Page 13
Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) Amazon invested $128,000 in the Jungle and River Partnership for ownership equity of $128,000.Prior to the investment,equipment was revalued to a market value of $90,000 from a book value of $72,000.Jungle and River share net income in a 2:1 ratio.Required (a)Provide the journal entry for the revaluation of equipment. (b)Provide the journal entry to admit Amazon.
Q2) Used to divide the excess of allowances over loss when net losses occur
A)Deficiency
B)Realization
C)Proprietorship
D)Partnership
E)Mutual agency
F)Liquidation
G)Income-sharing ratio
H)Statement of partnership equity
Q3) A partnership's asset accounts should be changed from cost to fair market value when a new partner is admitted to a firm or an existing partner withdraws or dies.
A)True
B)False
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Chapter 13: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) The declaration and issuance of a stock dividend do not affect the total amount of a corporation's assets,liabilities,or stockholders' equity.
A)True
B)False
Q2) For accounting purposes,stated value is treated the same way as par value.
A)True
B)False
Q3) When a corporation issues stock at a premium,it reports the premium as an Other income item on the income statement.
A)True
B)False
Q4) Twenty percent of all businesses in the United States are corporations,and they account for 80% of the total business dollars generated.
A)True
B)False
Q5) Treasury Stock is listed in the Stockholders' equity section on the balance sheet.
A)True
B)False
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) The amount of interest expense reported on the income statement will be more than the interest paid to bondholders if the bonds were originally sold at a discount.
A)True
B)False
Q2) The interest rate specified in the bond indenture is called the A)discount rate
B)contract rate
C)market rate
D)effective rate
Q3) On the first day of the fiscal year,a company issues an $800,000,6%,five-year bond that pays semiannual interest of $24,000
($800,000 × 6% × 1/2),receiving cash of $690,960.Journalize the entry to record the first interest payment and the amortization of the related bond discount using the straight-line method.
Q4) The face value of a term bond is payable at a single specific date in the future. A)True
B)False
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16
Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.
Q2) LM,Inc.reported net income for the year ending December 31 of $483,500.Dividends paid during the year totaled $52,900.The company holds available-for-sale securities with an original cost of $162,000 and a fair value of $181,000 at the end of the year.It also holds trading securities with an original cost of $150,000 and a fair value of $147,000. Retained earnings on January 1 was $736,400,and accumulated other comprehensive income on January 1 was $16,200.Calculate the following balances to be reported in the financial statements dated December 31:
(a)Valuation allowance for available-for-sale securities
(b)Comprehensive income
(c)Retained earnings
(d)Accumulated other comprehensive income
Q3) Investments in stocks that are expected to be held for the long term are listed in the Stockholders' equity section of the balance sheet.
A)True
B)False
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Page 17
Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Cash paid to purchase long-term investments would be reported on the statement of cash flows in
A)the Cash flows from operating activities section
B)the Cash flows from financing activities section
C)the Cash flows from investing activities section
D)a separate schedule
Q2) Payment of dividends
A)Increase cash from operating activities
B)Decrease cash from operating activities
C)Increase cash from investing activities
D)Decrease cash from investing activities
E)Increase cash from financing activities
F)Decrease cash from financing activities
G)Noncash investing and financing supplement
Q3) Free cash flow is cash flow from operations less cash used to purchase fixed assets to maintain productive capacity.
A)True
B)False
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) The return on total assets measures the profitability of total assets,without considering how the assets are financed.
A)True
B)False
Q2) Define solvency and profitability.How are they alike?
Q3) A loss due to a discontinued operation should be reported on the income statement
A)above income from continuing operations
B)without related tax effect
C)below income from continuing operations
D)as an operating expense
Q4) When computing the return on common stockholders' equity,preferred stock dividends are subtracted from net income.
A)True
B)False
Q5) Which of the following is not a characteristic evaluated in ratio analysis?
A)liquidity
B)profitability
C)solvency
D)marketability
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