Financial Accounting
Final Exam Questions
Course Introduction
Financial Accounting introduces students to the foundational principles and practices of accounting within a business context. The course covers key concepts such as the accounting cycle, preparation and analysis of financial statements, and the application of accounting standards. Students will learn how to systematically record, classify, and summarize financial transactions, and how to interpret financial information for decision-making by internal and external stakeholders. Emphasis is placed on understanding the role of financial accounting in ethical business practices and effective communication of financial data.
Recommended Textbook
Fundamental Accounting Principles 23rd Edition by John Wild
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Chapter 1: Accounting in Business
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Q1) An example of a financing activity is:
A) Buying office supplies.
B) Buying land.
C) Obtaining a long-term loan.
D) Buying office equipment.
E) Selling inventory.
Answer: C
Q2) All of the following are classified as liabilities except:
A) Wages Payable.
B) Accounts Payable.
C) Taxes Payable.
D) Notes Payable.
E) Accounts Receivable.
Answer: E
Q3) Unlimited liability and separate taxation of the business are advantages of a sole proprietorship.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Analyzing and Recording Transactions
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Q1) Asset accounts are decreased by debits.
A)True
B)False
Answer: False
Q2) A ________ gives a complete record of each transaction in one place, and shows debits and credits for each transaction.
Answer: journal
Q3) If cash is received from customers in payment for products or services that have not yet been delivered to the customers, the business would record the cash receipt as:
A) A debit to a prepaid expense account.
B) A debit to an unearned revenue account.
C) No entry is required at the time of collection.
D) A credit to a prepaid expense account.
E) A credit to an unearned revenue account.
Answer: E
Q4) Credits always increase account balances.
A)True
B)False Answer: False
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Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Q1) A trial balance prepared before any adjustments have been recorded is:
A) An unadjusted trial balance.
B) Only prepared once a year.
C) Used to prepare financial statements.
D) An adjusted trial balance.
E) Correct with respect to proper balance sheet and income statement amounts.
Answer: A
Q2) The length of time covered by a set of periodic financial statements, primarily a year for most companies, is referred to as the:
A) Calendar year.
B) Accounting period.
C) Business cycle.
D) Fiscal year.
E) Natural business year.
Answer: B
Q3) If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be ________ and equity would be ________.
Answer: overstated; overstated
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Chapter 4: Completing the Accounting Cycle
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Q1) All necessary amounts to prepare the balance sheet, including ending owner's capital, can be found in the Balance Sheet columns of the work sheet.
A)True
B)False
Q2) The Net Income for the year is:
A) $185,000
B) $63,300
C) $360,300
D) $378,300
E) $81,300
Q3) Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period.
A)True
B)False
Q4) Trekker Bikes' current assets are $300 million and its current liabilities are $125 million. Its current ratio is 0.417.
A)True
B)False
Q5) What is the purpose of a post-closing trial balance?
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Chapter 5: Accounting for Merchandising Operations
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Q1) Under a periodic inventory system, purchases, purchases returns and allowances, purchase discounts, and transportation in transactions are recorded in the Merchandise Inventory account.
A)True
B)False
Q2) On July 28, it paid the full amount due. Assuming the company uses a perpetual inventory system, and records purchases using the gross method, the correct journal entry to record the payment on July 28 is:
A) Debit Accounts Payable $1,800; credit Cash $1,800.
B) Debit Cash $1,600; credit Accounts Payable $1,600.
C) Debit Merchandise Inventory $1,600; credit Cash $1,600.
D) Debit Accounts Payable $1,600; credit Cash $1,600.
E) Debit Accounts Payable $1,600; credit Merchandise Inventory $32; credit Cash $1,568.
Q3) Describe why tracking inventory activities are necessary for a merchandising company.
Q4) A period's beginning inventory is equal to the prior period's ________.
Q5) Describe the difference between wholesalers and retailers.
Q6) Beginning inventory plus the net cost of purchases is the ________.
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Chapter 6: Inventories and Cost of Sales
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Q1) Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses FIFO inventory valuation and a perpetual inventory system. \[\begin{array} { | l | l | }
\hline \text { January 1: } & \text { Purchased } 100 \text { units at \$10 per unit. } \\
\hline \text { February 5: } & \text { Purchased } 60 \text { units at \$12 per unit. } \\
\hline \text { March 16: } & \text { Sold } 40 \text { units for \$16 per unit. } \\
\hline \end{array}\]
Q2) FIFO is preferred when purchase costs are rising and managers have incentives to report higher income for reasons such as bonus plans, job security, and reputation.
A)True
B)False
Q3) Goods that are in transit and were shipped FOB shipping point should be included in the inventory records of the ________.
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Output devices include journal entries, keyboards and scanners.
A)True
B)False
Q2) A company records its transactions and events in four special journals and a general journal. The company completed the following transactions a through j. Identify the journal in which each transaction should be recorded.
a. Sold merchandise for cash. ________
b. Collected on a customer's account. ________
c. Paid the monthly electric bill. ________
d. Purchased office supplies on credit. ________
e. Sold merchandise on credit. ________
f. Paid a creditor on account. ________
g. Received returned merchandise for credit. ________
h. Purchased merchandise on account. ________
i. Received proceeds from a note issued to the bank. ________
j. Returned damaged merchandise to the supplier. ________
Q3) ______________consist of people, records, methods, and equipment that collect and process data from transactions and events, organize them in useful reports and communicate results to decision makers.
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Page 9
Chapter 8: Cash and Internal Controls
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Q1) During the month of July, Clanton Industries issued a check in the amount of $845 to a supplier on account. The check did not clear the bank during July. In preparing the July 31 bank reconciliation, the company should:
A) Add the check amount to the bank balance.
B) Deduct the check amount from the book balance of cash.
C) Add the check amount to the book balance of cash.
D) Make a journal entry in the company records for an error.
E) Deduct the check amount from the bank balance.
Q2) A ________ is an internal document (or file) that is used to accumulate information to control cash disbursements.
Q3) Internal control systems are:
A) Developed by the Securities and Exchange Commission for public companies.
B) Developed by the Small Business Administration for non-public companies.
C) Required only if a company plans to engage in interstate commerce.
D) Developed by the Internal Revenue Service for all U.S. companies.
E) Required by Sarbanes-Oxley (SOX) to be documented and certified if the company's stock is traded on an exchange (a public company).
Q4) Describe a bank reconciliation and discuss its purpose.
Q5) Explain the difference between cash and cash equivalents.
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Chapter 9: Accounting for Receivables
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Q1) The person to whom a note is payable is known as the __________.
Q2) A ________ is a signed agreement to pay a specified amount of money either on demand or at a definite future date.
Q3) What entry should be made on the maturity date assuming the maker pays in full, and no adjusting entries have been made related to the note? (Use 360 days a year.)
A) Debit Cash $8,670; credit Interest Revenue $170; credit Notes Receivable $8,500.
B) Debit Cash $8,613; credit Interest Revenue $113; credit Notes Receivable $8,500.
C) Debit Cash $8,500; credit Notes Receivable $8,500.
D) Debit Notes Receivable $8,500; debit Interest Receivable $170; credit Sales $8,670.
E) Debit Cash $8,628; credit Interest Revenue $128; credit Notes Receivable $8,500.
Q4) If a 60-day note receivable is dated September 22, what is the maturity date of the note?
Q5) What is the accounts receivable turnover ratio? How is it calculated and how is it used to assess financial condition?
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11
Chapter 10: Plant Assets Natural Resoures and Intangibles
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Q1) Depreciation expense is calculated using its cost, estimates of an asset's salvage value, and an estimated useful life.
A)True
B)False
Q2) Owning a patent:
A) Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.
B) Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
C) Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.
D) Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.
E) Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately.
Q3) What is depreciation of plant assets? What are the factors necessary in computing depreciation?
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Page 12
Chapter 11: Current Liabilities and Payroll Accounting
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Q1) A company's income before interest expense and income taxes in 2014 and 2015 is $487,500 and $427,000, respectively. Its fixed interest expense was $125,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.
Q2) In order to be reported, liabilities must:
A) Involve an outflow of cash.
B) Always have a definite date for payment.
C) Be for a specific amount.
D) Sometimes be estimated.
E) Be certain.
Q3) Times interest earned is computed by dividing income before interest expense and income taxes by ________.
Q4) Companies with many employees rarely use a special payroll bank account from which to pay employees.
A)True
B)False
Q5) The difference between the amount borrowed and the amount repaid is referred to as ________.
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Chapter 12: Accounting for Partnerships
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Q1) When partners invest in a partnership, their capital accounts are debited for the amount invested.
A)True B)False
Q2) When a partnership is liquidated:
A) Any gain or loss on liquidation is allocated to the partner with the highest capital account balance.
B) The business may continue to operate.
C) Liabilities are paid or settled.
D) Any remaining cash is distributed to the partners equally.
E) Noncash assets are distributed to partners.
Q3) Total partnership income is reported to the IRS on Form 1065.
A)True B)False
Q4) What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.
Q5) When a partner invests in a partnership, his/her capital account is ________ for the invested amount.
Q6) The life of a partnership is ________ in duration.
Page 14
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Chapter 13: Accounting for Corporations
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Q1) What is a corporation? Identify the key advantages and disadvantages of corporations.
Q2) Paid and declared preferred dividends are called dividends in arrears.
A)True
B)False
Q3) Common Stock Dividend Distributable is an equity account.
A)True
B)False
Q4) A proxy is a document that gives a designated agent the right to vote a shareholder's stock.
A)True
B)False
Q5) The price-earnings ratio is computed by dividing earnings per share by the market price per share.
A)True
B)False
Q6) Changes in accounting estimates are accounted for in current and future periods. A)True
B)False
Q7) What is a stock split? How is a stock split different from a stock dividend?
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Chapter 14: Long-Term Liabilities
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Q1) The market rate is 8% and the bonds are sold for $383,793. The journal entry to record the second interest payment using the effective interest method of amortization is:
A) Debit Interest Expense $12,648.28; debit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00.
B) Debit Interest Expense $15,405.79; credit Discount on Bonds Payable $1,405.79; credit Cash $14,000.00.
C) Debit Interest Payable $14,000.00; credit Cash $14,000.00.
D) Debit Interest Expense $12,648.28; debit Premium on Bonds Payable $1,351.72; credit Cash $14,000.00.
E) Debit Interest Expense $15,351.72; credit Discount on Bonds Payable $1,351.72; credit Cash $14,000.00.
Q2) The carrying (book) value of a bond payable is the par value of the bonds plus any discount or minus any premium. A)True B)False
Q3) _________bonds reduce a bondholder's risk by requiring the issuer to create a fund of assets set aside as specified amounts and dates to repay the bonds.
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Chapter 15: Investments
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Q1) The investee company in a long term investment with controlling interest is called the:
A) Subsidiary.
B) Parent.
C) Senior entity.
D) Owner.
E) Creditor.
Q2) Available-for-sale debt securities are:
A) Intended to be held to maturity.
B) Always classified as Long-Term Investments.
C) Reported at fair value on the balance sheet.
D) Reported at historical cost, adjusted for the amortized amount of any difference between cost and maturity value.
E) Recorded at cost and remain at cost over the life of the investment.
Q3) A company holds $40,000 of 7% bonds as a held-to-maturity security. The journal entry to record receipt of a semiannual interest payment includes a debit to Cash for $2,800 and a credit to Interest Revenue for $2,800.
A)True
B)False
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Page 17
Chapter 16: Reporting the Statement of Cash Flows
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Q1) Use the following information about the current year's operations of a company to calculate the cash paid for merchandise. \[\begin{array} { l l | l }
\text { Cost d goods sold } \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & \$ 226,000 \\
\hline \text { Merchandise inventory. January } 1 \ldots \ldots \ldots \ldots \ldots \ldots & 54,800 \\
\hline \text { Mer chandise inventory. December } 31 \ldots \ldots \ldots \ldots \ldots & 57,400 \\
\hline \text { Accounts payable, January } 1 \ldots \ldots \ldots \ldots \ldots \ldots \ldots \ldots & 54,400 \\
\hline \text { Accounts payable, December } 31 \ldots \ldots \ldots \ldots \ldots \ldots & 59,800 \end{array}\]
A) $234,000.
B) $220,000.
C) $223,200.
D) $218,000.
E) $228,800.
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Chapter 17: Analysis of Financial Statements
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Q1) Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.
A)True
B)False
Q2) Use the following selected information from Wheeler, LLC to determine the 2017 and 2016 common size percentages for cost of goods sold using Net sales as the base.
\[\begin{array} { | l | r | r | }
\hline & { \mathbf { 2 0 1 7 } } &{ \mathbf { 2 0 1 6 } } \\
\hline \text { Net sales } & \$ 276,200 & \$ 231,400 \\
\hline \text { Cost of goods sold } & 151,900 & 129,590 \\
\hline \text { Operating expenses } & 55,240 & 53,240 \\
\hline \text { Net earnings } & 27,820 & 19,820 \\
\hline
\end{array}\]
A) 119.4% for 2017 and 100.0% for 2016.
B) 65.1% for 2017 and 56.0% for 2016.
C) 36.4% for 2017 and 41.1% for 2016.
D) 55.0% for 2017 and 56.0% for 2016.
E) 117.2% for 2017 and 100.0% for 2016.
Q3) Identify and describe three common tools of financial statement analysis.
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Chapter 18: Managerial Accounting Concepts and Principles
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Q1) The Institute of Management Accountants (IMA) Statement of Ethical Professional Practice requires that management accountants be competent and act with integrity. A)True
B)False
Q2) Its prime costs total:
A) $8,000,000.
B) $15,000,000.
C) $10,000,000.
D) $5,000,000.
E) $12,000,000.
Q3) The focus of managerial accounting information is on the organization as a whole. A)True
B)False
Q4) The process of identifying costs as direct or indirect is referred to as classifying costs by________________ .
Q5) For a manufacturer, the cost of goods sold can be computed by adding the beginning finished goods inventory to ________ and then subtracting the ending finished goods inventory.
20
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Chapter 19: Job Order Costing
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Q1) A source document that an employee uses to report how much time was spent working on a job or on overhead activities and that is used to determine the amount of direct labor to charge to the job or to determine the amount of indirect labor to charge to factory overhead is called a:
A) Factory Overhead Ledger.
B) Payroll Register.
C) Time ticket.
D) General Ledger.
E) Factory payroll record.
Q2) Compute the amount of overhead applied to jobs during the year.
A) $403,200.
B) $413,200.
C) $424,450.
D) $413,190.
E) $396,000.
Q3) There are two basic types of cost accounting systems: job order costing and process costing.
A)True
B)False
Q4) When factory payroll for indirect labor is assigned, ________ is debited.
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Chapter 20: Process Costing
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Q1) Calculate the cost per equivalent unit of materials.
A) $1.74
B) $2.05
C) $2.36
D) $2.00
E) $2.61
Q2) A process costing system records all factory overhead costs directly in the Work in Process Inventory accounts.
A)True
B)False
Q3) A process cost summary involves computations and analysis at four sequential steps. These are (1) ________ (2) ________, (3) ________, and (4) ________.
Q4) If a department that uses process costing starts the reporting period with 100,000 physical units that were 20% complete with respect to direct labor, the equivalent units of direct labor in beginning Work in Process are 20,000.
A)True
B)False
Q5) A ________ contains features of both process and job order costing systems.
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Fuschia Company's contribution margin per unit is $12. Total fixed costs are $84,000. What is Fuschia's break-even point in units?
A) 5,760.
B) 7,000.
C) 26,520.
D) 70,000.
E) 57,600.
Q2) The following information describes a product expected to be produced and sold by Garrison Company:
\(\begin{array}{llr}
\text { Selling price } & \text { \$ 80 per unit } \\
\text { Variable costs } & \text { \$ 32 per unit } \\
\text { Total fixed costs } &\$ 630,000
\end{array}\)
Required:
(a) Calculate the contribution margin ratio.
(b) Calculate the break-even point in dollar sales.
(c) What dollar amount of sales would be necessary to achieve a pretax income of $120,000?
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Chapter 22: Master Budgets and Planning
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Q1) What is a cash budget? How can management use a cash budget?
Q2) The budgeted cost of direct material B during May should be:
A) $552.
B) $2,844.
C) $2,016.
D) $3,708.
E) $576.
Q3) Total August sales are anticipated to be:
A) $67,500.
B) $64,260.
C) $61,250.
D) $60,000.
E) $63,000.
Q4) Personnel who will have performance evaluated according to the budget standards should not be consulted and involved in preparing the budget.
A)True
B)False
Q5) Describe at least five benefits of budgeting.
Q6) What is a production budget?
Q7) What is activity-based budgeting?
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) The following information relating to a company's overhead costs is available. \(\begin{array}{llr}
\text { Actual total variable overhead } &\$ 73,000\\
\text {Actual total fixed overhead } &\$ 17,000\\
\text { Budgeted variable overhead rate per machine hour } &\$ 2.50\\
\text { Budgeted total fixed overhead } &\$ 15,000\\
\text { Budgeted machine hours allowed for actual output } &30,000\\ \end{array}\)
Based on this information, the total variable overhead variance is:
A) $6,000 unfavorable.
B) $2,000 unfavorable.
C) $6,000 favorable.
D) $1,000 favorable.
E) $2,000 favorable.
Q2) Lavoie Company planned to use 18,500 pounds of material costing $2.50 per pound to make 4,000 units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost $2.54 per pound. Calculate the direct materials price variance.
Q3) The difference between the flexible budget sales and the fixed budget sales is called the ________ variance.
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) Investment center is another name for profit center.
A)True
B)False
Q2) The amount of depreciation that should be allocated to Drilling for the current period is:
A) $12,500.
B) $ 7,500.
C) $40,000.
D) $25,000.
E) $20,000.
Q3) Expenses that are not easily associated with a specific department, and which are incurred for the joint benefit of more than one department, are:
A) Fixed expenses.
B) Direct expenses.
C) Variable expenses.
D) Indirect expenses.
E) Uncontrollable expenses.
Q4) A ________ helps control costs and expenses and evaluates managers' performance by assigning costs and expenses to the managers responsible for controlling them.
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) Tressor Company is considering a 5-year project. The company plans to invest $90,000 now and it forecasts cash flows for each year of $27,000. The company requires that investments yield a discount rate of at least 14%. Selected factors for a present value of an annuity of 1 for five years are shown below: Interest rate
Present value of an annuity of $1 factor for year 5
10 % 3.7908
12 % 3.6048
14 % 3.4331
Calculate the internal rate of return to determine whether it should accept this project.
A) The project should be accepted because it will earn more than 14%.
B) The project will earn more than 12% but less than 14%. At a hurdle rate of 14%, the project should be rejected.
C) The project should be rejected because it will earn less than 14%.
D) The project should be accepted because it will earn more than 10%.
E) The project should be rejected because it will not earn exactly 14%.
Q2) Good management accounting indicates that projects be evaluated using relevant data. In choosing among alternatives, what factors (considerations) are relevant?
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Page 27
Chapter 26: Present and Future Values in Accounting
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Q1) If we want to know the value of present-day assets at a future date, we can use:
A) Annuity computations.
B) Future value computations.
C) Interest computations.
D) Earnings computations.
E) Present value computations.
Q2) Present and future value computations enable companies to measure or estimate the interest component of holding assets or liabilities over time.
A)True
B)False
Q3) Protocol Company has acquired equipment from a dealer that requires equal payments of $12,000 at the end of each of the next five years. This transaction includes interest at 9%, compounded annually. What is the value of the machine today?
Q4) Giuliani Co. lends $524,210 to Craig Corporation. The terms of the loan require that Craig make six semiannual period-end payments of $100,000 each. What semiannual interest rate is Craig paying on the loan?
Q5) The interest rate is also called the ________ rate.
Q6) Explain the concept of the present value of a single amount.
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Chapter 27: Activity-Based Costing
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Sample Questions
Q1) Stormer Corporation has provided the following data from its activity-based costing accounting system:
Indirect factory wages $27,000
Factory equipment depreciation $243,000
Distribution of resource consumption across Activity Cost Pools: \[\begin{array} { l l l l l }
& \text { Customer } & \text { Product } & \\ & \text { Orders } & \text { Processing } & \text { Other } & \text { Total } \\ \hline \text { Indirect factor wages } & 27 \% & 68 \% & 5 \% & 100 \% \\ \text { Factory equipment depreciation } & 20 \% & 67 \% & 13 \% & 100 \%
\end{array}\] The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining costs that are not assigned to products.
Required:
a. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would be allocated to the Product Processing activity cost pool. Show your work!
b. Determine the total amount of indirect factory wages and factory equipment depreciation costs that would NOT be assigned to products. Show your work!
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