Financial Accounting
Final Test Solutions
Course Introduction
Financial Accounting is a foundational course that introduces students to the principles and concepts underlying the preparation, interpretation, and analysis of financial statements. The course covers essential topics such as the accounting cycle, accrual and cash accounting, the double-entry system, and the structure and content of balance sheets, income statements, and cash flow statements. Students learn how financial information is recorded, summarized, and reported for external users including investors, creditors, and regulatory agencies. Through practical exercises and real-world examples, the course equips students with the skills to use financial data for informed decision-making and to understand the regulatory framework governing financial reporting.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) International Financial Reporting Standards (IFRS) allows periodic revaluation of certain assets and liabilities to restate them to market value.
A)True
B)False
Answer: True
Q2) The Public Company Accounting Oversight Board is a watchdog agency that monitors the work of independent accountants who audit public companies.
A)True
B)False
Answer: True
Q3) The Sarbanes-Oxley Act (SOX) ________.
A) requires independent accountants to take responsibility for the accuracy and completeness of the financial reports
B) created the SEC
C) ensures that financial scandals will no longer occur
D) requires companies to take responsibility for the accuracy and completeness of their financial reports
Answer: D
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A chart of accounts is a list of all of a company's accounts with their account numbers.
A)True
B)False
Answer: True
Q2) A bank deposit slip is a source document that shows the total of all checks written by a company.
A)True
B)False
Answer: False
Q3) A business buys $300 of office supplies on account. Which of the following accounts is debited?
A) Cash
B) Accounts Payable
C) Office Supplies
D) Accounts Receivable
Answer: C
Q4) What are two ways in which a company can improve its debt ratio?
Answer: Increase assets
Reduce debt
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) For accounting purposes, depreciation refers to the process of ________.
A) allocating the cost of a plant asset to expense over its useful life
B) recording the decline in the market value of an asset to its book value
C) estimating an asset's current market value
D) determining the selling price of an asset
Answer: A
Q2) The sum of all the depreciation expense recorded to date for a depreciable asset is called ________.
A) book value
B) residual value
C) depreciation expense
D) accumulated depreciation
Answer: D
Q3) Unearned Revenue is a(n) ________ account and carries a normal ________ balance.
A) liability; credit
B) asset; credit
C) revenue; debit
D) asset; debit
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) An account that is not closed at the end of the period is called a(n) ________.
A) expense account
B) temporary account
C) permanent account
D) revenue account
Q2) The Office Supplies account is a temporary account.
A)True
B)False
Q3) Adjusting journal entries are prepared ________.
A) after preparing the adjusted trial balance
B) after preparing the unadjusted trial balance
C) after posting the closing entries
D) after preparing the financial statements
Q4) The Interest Expense in the worksheet's unadjusted trial balance column is $1,000. Interest Expense in the income statement column is $12,000. Which of the following entries would have caused this difference?
A) a $12,000 credit to Interest Expense in the worksheet's adjustments column
B) a $12,000 credit to Interest Payable in the worksheet's adjustments column
C) a $11,000 debit to Interest Expense in the worksheet's adjustments column
D) a $11,000 credit to Interest Expense in the worksheet's adjustments column
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) For each of the following statements, state whether it applies to a periodic inventory system (periodic) or a perpetual inventory system (perpetual).
\[\begin{array} {| l | l| }
\hline \text { Statement } & \text { Periodic or Perpetual } \\
\hline \text { Merchandise inventory and purchasing } & \\
\text { pystems are integrated with the records } & \\
\text { for Accounts Receivable and Sales } & \\
\text { Revenue. } & \\
\hline \text { This system is often used by restaurants } & \\
\text { and small retail stores. } & \\
\hline \text { The physical count captures inventory } & \\
\text { transactions that are not recorded by the } & \\
\text { electronic system. }\\
\hline
\end{array}\]
Q2) A merchandiser adjusts and closes accounts differently than a service entity does.
A)True
B)False
Q3) What does the gross profit percentage measure? How is it computed?
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Page 7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) A company purchased 400 units for $50 each on January 31. It purchased 200 units for $35 each on February 28. It sold a total of 250 units for $50 each from March 1 through December 31. If the company uses the weighted-average inventory costing method, calculate the cost of ending inventory on December 31. (Assume that the company uses a perpetual inventory system. Round any intermediate calculations two decimal places, and your final answer to the nearest dollar.)
A) $27,000
B) $15,750
C) $11,250
D) $14,875
Q2) The last-in, first-out (LIFO) costing system is permitted under International Financial Reporting Standards (IFRS).
A)True
B)False
Q3) When using the LIFO inventory costing method, ending merchandise inventory will be the lowest, as compared to FIFO and weighted-average inventory costing methods, when costs are increasing.
A)True
B)False
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) The two common methods of processing credit and debit card transactions are gross and net.
A)True B)False
Q2) Having a cash ratio above 1.0 implies that a company has enough cash and cash equivalents to pay current liabilities.
A)True B)False
Q3) List the five components of internal control.
Q4) Which of the following is the basic internal control procedure with respect to cash receipts?
A) depositing all cash receipts in the bank shortly after the cash is received
B) requiring customers to pay with debit or credit cards
C) requiring the accountants to make the bank deposits
D) preventing collusion
Q5) The bank's routing number ________.
A) contains 10 digits
B) identifies the bank upon which the payment is drawn
C) includes the account number of the business
D) is not shown on the check
9
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Chapter 8: Receivables
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Sample Questions
Q1) Use the following to calculate the acid-test ratio. (Round your answer to two decimal places.) \[\begin{array} { | l | r | }
\hline \text { Cash } & \$ 130,000 \\
\hline \text { Short-term investments } & 15,000 \\
\hline \text { Net current receivables } & 280,000 \\
\hline \text { Inventory } & 280,000 \\
\hline \text { Total current liabilities } & 790,000 \\
\hline \end{array}\]
A) 0.73
B) 8.67
C) 0.89
D) 0.54
Q2) If the maker of the note does not pay at maturity, the note has expired and is no longer in force.
A)True
B)False
Q3) Define net realizable value. How is net realizable value affected when a receivable is written off under the allowance method?
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Page 10
Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) During 2018, Landers Corp. had net sales of $17,000,000. The beginning total assets were $8,300,000. The asset turnover ratio was 1.6 times. Calculate the ending total assets of Landers. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $12,950,000
B) $8,300,000
C) $14,675,000
D) $6,375,000
Q2) Which of the following is NOT included as furniture and fixtures?
A) file cabinets
B) shelving
C) display racks
D) computers
Q3) When a business uses the straight-line method of depreciation, the amount of depreciation is reduced from year to year.
A)True
B)False
Q4) Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash. Omit explanation.
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Chapter 10: Investments
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Sample Questions
Q1) An equity security does not represent an ownership interest in a corporation, although it pays dividends.
A)True
B)False
Q2) When a company receives interest revenue on a bond investment, total stockholders' equity remains unchanged.
A)True
B)False
Q3) Which of the following statements regarding debt securities is incorrect?
A) Debt securities include Held-to-Maturity Debt Investments, Trading Debt Investments, and Available-for-Sale Debt Investments.
B) When recording the receipt of interest revenue on Trading Debt Investments, Interest Revenue is credited.
C) If a Held-to-Maturity Debt Investment is purchased at a discount or premium, the discount/premium must be amortized when the interest revenue is earned.
D) All investments in debt securities are categorized as long-term assets.
Q4) List and discuss two common reasons why companies invest in debt or equity securities.
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) On August 31, 2018, Allright Services received $3,500 in advance of performing the service. Which journal entry is needed to record the receipt of cash?
A) Debit Unearned Revenue $3,500, and credit Cash $3,500.
B) Debit Cash $3,500, and credit Service Revenue $3,500.
C) Debit Unearned Revenue $3,500, and credit Service Revenue $3,500.
D) Debit Cash $3,500, and credit Unearned Revenue $3,500.
Q2) Since a company usually does not know the amount of the year-end bonus at year-end, the company estimates the amount of the bonus based on a percentage.
A)True
B)False
Q3) The matching principle requires businesses to report Warranty Expense ________.
A) in the same period that the company records the revenue related to that warranty
B) in the period prior to which the company records the revenue related to that warranty
C) in the period after the related revenue is recorded
D) in the long-term assets section of the balance sheet
Q4) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) The fact that invested cash earns interest over time is called the time value of money.
A)True
B)False
Q2) When computing the present value of a bond, which interest rate is used? Why?
Q3) On July 1, 2019, Reliable Services issued $39,000 of 15% bonds that mature in five years for $64,000. The bonds pay semiannual interest payments on June 30 and December 31 of each year. On December 31, 2019, what is the total amount paid to bondholders?
A) $2925
B) $5850
C) $4800
D) $9600
Q4) Which of the following describes a serial bond?
A) a bond that matures in installments at regular intervals
B) a bond that gives the bondholder a claim for specific assets
C) a bond that matures at one specified time
D) a bond that is not backed by specific assets
Q5) When computing a bond's cash flow for interest, which interest rate is used? Why?
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) Valley, Inc. has 9000 shares of preferred stock outstanding. The preferred stock has a $90 par value, a 14% dividend rate, and is noncumulative. If Valley has sufficient funds to pay dividends, what is the total amount of dividends that will be paid out to preferred stockholders?
A) $32,143
B) $113,400
C) $57,857
D) $8100
Q2) Which of the following occurs when a 2-for-1 stock split is declared?
A) The balance in Common Stock remains the same.
B) The balance in Common Stock is reduced to half the original amount.
C) The balance in Common Stock doubles.
D) The balance in Paid-in Capital in Excess of Par-Common doubles.
Q3) The retained earnings of a corporation is ________.
A) internally generated equity that is earned by profitable operations that is not distributed to stockholders
B) externally generated equity that is contributed by shareholders
C) externally generated equity that is acquired from banks and other creditors
D) internally generated equity that is received from employee stock purchases
Q4) List the four basic rights of stockholders.
Page 15
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) A debtor of Adams Company owes $500,000 but does not have enough cash to repay the debt. Following lengthy negotiations, the parties agreed that the debtor will issue 200,000 shares of common stock to settle the debt. This transaction will be reported in the investing activities section of the statement of cash flows for Adams Company.
A)True
B)False
Q2) Which of the following appears on a statement of cash flows prepared using the direct method?
A) adjustments to net income
B) cash payments for salaries
C) adjustments for gains and losses on sale of property
D) increase/decrease in current assets
Q3) The purchase of equipment financed by a long-term notes payable is an example of ________.
A) investing activity
B) financing activity
C) operating activity
D) non-cash investing and financing activity
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) In regards to benchmarking, which of the following statements is incorrect?
A) Benchmarking is the practice of comparing a company with other leading companies.
B) The industry average is not a useful benchmark for evaluating a company.
C) Providing common-size percentages in a graphical manner highlights differences.
D) The two main types of benchmarks in financial statement analysis include benchmarking against the industry average and benchmarking against a key competitor.
Q2) The debt to equity ratio shows the proportion of total liabilities relative to total equity.
A)True
B)False
Q3) Benchmarking often compares a company against a key competitor or the industry average.
A)True
B)False
Q4) Trend analysis is a form of horizontal analysis.
A)True
B)False
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Page 17
Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Which of the following represents the combined sum of direct materials costs and direct labor costs?
A) conversion costs
B) period costs
C) prime costs
D) fixed costs
Q2) Define planning. List and briefly discuss the two types of planning managers perform.
Q3) Mason Cabinet Company sells standard kitchen cabinets. The following information summarizes Mason's operating activities for the year:
\[\begin{array} { | l | r | }
\hline \text { Selling and Administrative Expenses } & \$ 42,750 \\
\hline \text { Purchases } & 85,700 \\
\hline \text { Sales Revenue } & 154,500 \\
\hline \text { Merchandise Inventory, January 1 } & 12,500 \\
\hline \text { Merchandise Inventory, December 31 } & 16,200 \\
\hline
\end{array}\] Mason sold 950 cabinets during the year.
Calculate the operating income for the year.
Compute the unit cost for one cabinet (Round to two decimal places.)
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Chapter 17: Job Order Costing
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Sample Questions
Q1) Bass Accounting Services expects its accountants to work a total of 27,000 direct labor hours per year. The company's estimated total indirect costs are $270,000. The company uses direct labor hours as the allocation base for indirect costs. What is the indirect cost allocation rate?
A) $10.00 per hour
B) $20.00 per hour
C) $100.00 per hour
D) $12.00 per hour
Q2) Which of the following correctly describes the term cost driver?
A) the inflation rate that causes costs to rise
B) the average inventory costs incurred at any point of time
C) the primary factor that causes a cost to be incurred
D) the total material, labor, and overhead costs of a completed job
Q3) Which of the following businesses is most likely to use a process costing system?
A) a baker producing cakes to order
B) a legal service provider
C) an audit service provider
D) a candy manufacturer
Q4) Why would the manager of a service company need to use job order costing?
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Chapter 18: Process Costing
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Sample Questions
Q1) The production cost report for Department 2 shows that $454,000 was assigned to the 50,000 units transferred to Finished Goods Inventory. Cost of goods manufactured equals $454,000. Process costing is used.
A)True
B)False
Q2) The first-in, first-out (FIFO) method creates better month-to-month cost comparisons than the weighted-average method ________.
A) because it does not recognize transferred in units from other processes B) when there are substantial quantities of units in process at the end of the period C) because it merges costs from the prior period with the current period D) because it is used by industries that do not experience significant cost changes
Q3) Direct labor costs are accumulated in the Manufacturing Overhead account. Process costing is used.
A)True
B)False
Q4) List five ways in which managers use a production cost report to make decisions for their companies.
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Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Sample Questions
Q1) Whirlwind Fan Company manufactures ceiling fans and uses an activity-based costing system. Each ceiling fan has 20 separate parts. The direct material cost is $90, and each ceiling fan requires 2.50 hours of machine time to manufacture. Additional information is as follows: \[\begin{array} { | l | l | r | }
\hline \text { Activity } & \text { Allocation Base } & \begin{array} { c }
\text { Predetermined Overhead } \\
\text { Allocation Rate }
\end{array} \\
\hline \text { Materials handling } & \text { Number of parts } & \$ 0.04 \\
\hline \text { Machining } & \text { Machine hours } & 6.00 \\
\hline \text { Assembling } & \text { Number of parts } & 0.20 \\
\hline \text { Packaging } & \text { Number of finished units } & 2.50 \\
\hline
\end{array}\] What is the cost of materials handling per ceiling fan? (Round any intermediate calculations and your final answer to two decimal places.)
A) $0.80
B) $6.00
C) $2.50
D) $6.25
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Chapter 20: Cost Volume Profit Analysis
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Sample Questions
Q1) Mosaic Tile Company has estimated the following amounts for its next fiscal year:
\[\begin{array} { | l | r | }
\hline \text { Total fixed costs } & \$ 832,000 \\
\hline \text { Sales price per unit } & 44 \\
\hline \text { Variable costs per unit } & 20 \\
\hline
\end{array}\] What will happen to the breakeven point (in units) if Mosaic can reduce fixed costs by $22,000? (Round your answer up to the nearest whole unit.)
A) The breakeven point will decrease by 917 units.
B) The breakeven point will decrease by 1100 units.
C) The breakeven point will increase by 1100 units.
D) The breakeven point will increase by 500 units.
Q2) If fixed costs increase, and all other factors remain the same, the margin of safety will become larger.
A)True
B)False
Q3) The sales level at which operating income is zero is called the breakeven point.
A)True
B)False
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Page 22
Chapter 21: Variable Costing
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Sample Questions
Q1) In absorption costing, the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.
A)True
B)False
Q2) Palmer's Plant Food Company sells two products, Quo-Eco and Quo-Pre, with a sales mix of 65% and 35%, respectively. Quo-Eco has a contribution margin per unit of $10, and Quo-Pre has a contribution margin per unit of $15. The company sold 1,000 total units in March.
Requirements:
a) Calculate the total contribution margin for the company.
b) Assume the sales mix shifted to 50% for each product, and calculate the total contribution margin for the company.
Q3) In the variable costing income statement, variable costs are reported separately from fixed costs.
A)True
B)False
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Chapter 22: Master Budgets
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Sample Questions
Q1) The human resources manager projects the number of direct labor hours to be worked by employees.
A)True
B)False
Q2) For manufacturing companies, the primary source of cash is from its customers.
A)True
B)False
Q3) For a merchandising company, the selling and administrative expense budget separates fixed and variable expenses.
A)True
B)False
Q4) Which of the following budgets would NOT be prepared for a merchandising firm?
A) Direct labor budget
B) Cash budget
C) Capital expenditures budget
D) Sales budget
Q5) A budget represents the plans that a company has in place to achieve its goals.
A)True
B)False
Q6) List the three sections of the cash budget for a merchandising company.
Page 24
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Sample Questions
Q1) A cost variance measures the difference in quantities of actual inputs used and the standard quantity of inputs allowed for the actual number of units produced.
A)True
B)False
Q2) A favorable variance has a debit balance and is a contra revenue.
A)True
B)False
Q3) Lewis Manufacturing uses a standard cost system. The direct labor cost standard is $18.00 per direct labor hour. The direct labor efficiency standard is 0.5 direct labor hour per unit. Actual direct labor for the month is 1,200 hours for a total cost of $24,000. Production for the month is 3,000 units. Give the journal entry to record direct labor (not paid). Omit explanation.
Q4) A direct labor efficiency variance is favorable if laborers actually work more hours than the flexible budget calls for to produce the actual quantity of output.
A)True
B)False
Q5) What does the variable overhead efficiency variance measure?
Q6) List three ways in which using a standard cost system helps managers.
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) The manager of a profit center is responsible for generating revenues and managing the center's invested capital.
A)True
B)False
Q2) The financial perspective of the balanced scorecard is concerned with ________.
A) how customers perceive the business and its products and services
B) the company's ability to improve and create value
C) which business processes the company must excel in to meet expectations
D) whether investors and creditors view the company favorably
Q3) The responsibility report for a profit center would compare ________.
A) actual costs to budgeted costs
B) actual revenues to budgeted revenues
C) actual revenues and costs to budgeted revenues and costs
D) actual profits to budgeted profits
Q4) Define cost-based transfer price. When should cost-based transfer pricing be used? Explain your answer.
Q5) Decentralized companies often lead to diminished customer relations and slower customer response time.
A)True
B)False
Page 26
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Chapter 25: Short-Term Business Decisions
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Q1) Celaneo Avionics makes aircraft instrumentation. Its basic navigation radio requires $60 in variable costs and $4000 per month in fixed costs. Celaneo sells 20 radios per month. If the company further processes the radio, to enhance its functionality, it will require an additional $40 per unit of variable costs, plus an increase in fixed costs of $500 per month. The current sales price of the radio is $280. The CEO wishes to improve operating income by $1200 per month by selling the enhanced version of the radio. In order to meet this target, the sales price to be charged for the enhanced product is
A) $320 per unit
B) $405 per unit
C) $125 per unit
D) $380 per unit
Q2) ________ refers to the benefit given up by choosing an alternative course of action.
A) Opportunity cost
B) Sunk cost
C) Relevant cost
D) Irrelevant cost
Q3) Explain the difference between price-takers and price-setters.
Q4) Define the terms "Relevant Cost" and "Sunk Cost."
Page 27
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Chapter 26: Capital Investment Decisions
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Sample Questions
Q1) Which of the following two methods are typically used for initial screening of investments, rather than for detailed, in-depth analysis?
A) payback and accounting rate of return
B) net present value and payback
C) internal rate of return and net present value
D) accounting rate of return and net present value
Q2) List two strengths and one weakness of the accounting rate of return capital budgeting method.
Q3) Which of the following is NOT part of the capital budgeting process?
A) develop short-term operating strategies
B) identify and analyze potential capital investments
C) apply capital rationing
D) perform post-audits
Q4) Most capital budgeting methods focus on accrual-based income.
A)True
B)False
Q5) The following formula is used to compute the present value of a lump sum: Future value = Present value × PV factor for i = X%, n = X periods
A)True
B)False
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Chapter 27: Understanding Accounting Information Systems
and their Components
Available Study Resources on Quizplus for this Chatper
164 Verified Questions
164 Flashcards
Source URL: https://quizplus.com/quiz/70087
Sample Questions
Q1) Companies are now spending less amounts of cash to ensure that their data and information are secure.
A)True
B)False
Q2) Which of the following is an advantage of enterprise resource planning (ERP) systems?
A) It is inexpensive to implement.
B) It provides financial benefits only to small corporations.
C) It replaces separate software systems, such as sales and payroll.
D) Its implementation requires a small commitment of time and people.
Q3) Which of the following is an output device in an accounting information system?
A) keyboard
B) Internet protocol
C) printer
D) mouse
Q4) Define enterprise resource planning (ERP) systems and state one advantage and one disadvantage of ERP systems.
Q5) Describe the transactions recorded in the cash payments journal.
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Q6) List and briefly discuss the three basic components of an accounting information system.
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