Financial Accounting for Managers
Exam Review
Course Introduction
Financial Accounting for Managers provides an essential foundation in financial reporting and analysis tailored for current and future business leaders. This course introduces core accounting principles, the preparation and interpretation of financial statements, and the regulatory framework governing financial information. Students learn how to analyze balance sheets, income statements, and cash flow statements to assess organizational performance and make informed managerial decisions. Additionally, the course emphasizes the ethical considerations and real-world applications of financial data in strategic planning and communication with stakeholders.
Recommended Textbook
Financial Accounting 9th Edition by Walter T. Harrison
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Chapter 1: The Financial Statements
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Sample Questions
Q1) An investor wishing to assess a company's overall financial position at the end of the period would probably examine the:
A) statement of cash flows and the income statement.
B) income Statement only
C) balance sheet.
D) statement of retained earnings.
Answer: C
Q2) The net income shown on the income statement also appears on the:
A) balance sheet and operations statement.
B) statement of assets.
C) statement of financial position.
D) statement of retained earnings.
Answer: D
Q3) Which financial statement is dated at the moment in time when the accounting period ends?
A) Balance sheet
B) Income statement
C) Statement of retained earnings and income statement
D) Statement of cash flows
Answer: A
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Chapter 2: Transaction Analysis
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Q1) Transactions:
A) must be recorded for every company event.
B) provide objective information about the financial impact on a company.
C) are recorded only if the amounts are significant to the company.
D) only have one side that needs to be recorded.
Answer: B
Q2) The account is the basic summary device of accounting.
A)True
B)False
Answer: True
Q3) Which of the following business events would NOT be recorded in a company's accounting records?
A) The company paid a monthly utility bill.
B) The company issued 100 shares of common stock.
C) The company purchased two acres of land for future plant expansion.
D) The company signed a contract to provide services in the next accounting period.
Answer: D
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4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Which of the following combinations of ratios is preferable?
A) A low current ratio and a high debt ratio
B) A high current ratio and a low debt ratio
C) A low current ratio and a low debt ratio
D) A high current ratio and a high debt ratio
Answer: B
Q2) HG Enterprises paid $105,000 for office furniture. The furniture is depreciated using the straight-line method and has an estimated service life of 7 years. After three years of use, the book value of the furniture will be:
A) $45,000.
B) $60,000.
C) $90,000.
D) $105,000.
Answer: B
Q3) Revenue recognition:
A) does not vary by industry under GAAP.
B) is less detailed under GAAP than under IFRS.
C) for the retail industry is similar under GAAP and IFRS.
D) under IFRS leaves no room for interpretation on the part of the company .
Answer: C
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) Differences between the bank statement and the company's Cash account are primarily the result of a time lag in recording transactions.
A)True
B)False
Q2) Cash requires specific internal controls because:
A) cash is one of the most difficult assets to steal.
B) cash is difficult to convert to other forms of wealth.
C) all transactions ultimately affect cash.
D) cash is difficult to conceal.
Q3) Fraudulent financial reporting is committed by company managers.
A)True
B)False
Q4) The bookkeeper recorded a deposit for the wrong amount. On the bank reconciliation, this will be a(n):
A) addition to the bank.
B) subtraction from the bank.
C) addition or subtraction from the books.
D) non-reconciling item.
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Chapter 5: Short-Term Investments Receivables
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Q1) ABC Company has shipped goods to one of its customers FOB shipping point. ABC Company will recognize sales revenue when:
A) their customer has received and inspected the goods.
B) when the goods leave ABC's shipping dock.
C) whenever the two parties agree that revenue should be recognized.
D) when the customer pays the invoice.
Q2) Sales discounts and sales returns and allowances are deducted from gross revenue to determine net revenue.
A)True
B)False
Q3) Which of the following is a true statement about sales?
A) Net revenue is gross revenue plus sales discounts less sales returns and allowances.
B) Sales discounts are offered to customers in order to speed up cash flow.
C) Sales returns and allowances increase a company's profit.
D) Retailers do not generally record sales returns and allowances in a separate account.
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Chapter 6: Inventory Cost of Goods Sold
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Q1) Crazy Eddie "cooked the books" which ultimately led the company to go out of business. Which of the following is a correct statement about the frauds at Crazy Eddie?
A) Crazy Eddie understated the inventory counts.
B) Crazy Eddie converted to a computerized inventory system to help them control their inventory problems.
C) The company's auditors detected the inventory problems.
D) The inventory overstatement became larger than the total profits the company had reported since they went public.
Q2) To determine cost of goods sold under the FIFO method:
A) the first costs into inventory are the first costs assigned to cost of goods sold.
B) the last costs into inventory are the first costs assigned to cost of goods sold.
C) the average cost of the inventory must be determined.
D) the company must first determine the specific units sold.
Q3) Inventory is presented on the balance sheet at the selling price of the item.
A)True
B)False
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Chapter 7: Plant Assets, Natural Resources, Intangibles
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Q1) When determining the estimated useful life of an asset, the useful life:
A) must be expressed in years.
B) must be the same for all companies.
C) is determined by GAAP.
D) is based on a company's experience and trade publications.
Q2) Equipment acquired on January 1, 2010, is sold on June 30, 2013, for $11,200. The equipment cost $26,800, had an estimated residual value of $6,800, and an estimated useful life of 5 years. The company prepared financial statements on December 31, and the equipment has been depreciated using the straight-line method. Prior to determining the gain or loss on the sale of this equipment, the company should record depreciation of:
A) $0.
B) $2,000.
C) $5,000.
D) $31,700.
Q3) The three depreciation methods allocate different amounts of depreciation to each period, but all result in the same total amount of depreciation over the life of the asset.
A)True
B)False
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Chapter 8: Long-Term Investments the Time Value of Money
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Q1) A consolidated income statement will show:
A) only the parent's net income.
B) only the income from partially owned subsidiaries.
C) the parent's net income plus the parent's share of the subsidiary's net income.
D) the parent's net income plus the subsidiary's net income.
Q2) Milton Company owns 30% interest in the stock of Darcy Corporation. During the year, Darcy pays $20,000 in dividends to Milton, and reports $100,000 in net income. Milton Company's investment in Darcy will increase Milton's net income by:
A) $15,000.
B) $30,000.
C) $24,000.
D) $6,000.
Q3) Interest is the difference between the amount borrowed and the principal. A)True B)False
Q4) Market prices of bonds have no correlation to market interest rate.
A)True B)False
Page 10
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Chapter 9: Liabilities
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Q1) A contingency that is remote:
A) should be disclosed in the financial statements.
B) does not need to be disclosed.
C) must be accrued as a loss.
D) is recorded as a contingent liability.
Q2) The allocation process of writing off the bond premium or bond discount to interest expense over the life of the bond is called reducing the market rate.
A)True
B)False
Q3) Corporations borrow large amounts of money by issuing (selling) bonds to the public.
A)True
B)False
Q4) If bonds sell at a premium, the interest expense recognized each year will be greater than the stated interest rate.
A)True
B)False
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Chapter 10: Stockholders Equity
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Q1) Stockholders of a corporation directly elect the:
A) Board of directors.
B) President of the corporation.
C) Chief Financial Officer of the corporation
D) Chairperson of the Board.
Q2) A new corporation forms every time there is a change in ownership.
A)True
B)False
Q3) Treasury stock accounts for the difference between:
A) issued shares and authorized shares.
B) issued shares and preferred shares.
C) outstanding shares and issued shares.
D) authorized shares and outstanding shares.
Q4) Corporations may choose to distribute stock dividends in order to:
A) increase the market price per share of its stock.
B) reduce the market price per share of its stock.
C) increase retained earnings.
D) decrease the amount of capital in the corporation.
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Chapter 11: The Income Statement, the Statement of
Comprehensive Income, the Statement of Stockholders Equity
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Q1) Income tax payable is the amount of tax to be paid to the government in the next period.
A)True
B)False
Q2) The paragraph in a typical audit report that describes the inherent limitations in the system of internal control is the:
A) first paragraph.
B) second paragraph.
C) third paragraph.
D) fourth paragraph.
Q3) Corporations with complex capital structures report:
A) basic and diluted EPS.
B) basic EPS.
C) diluted EPS.
D) nothing. EPS is not reported.
Q4) An event or transaction should be considered as an extraordinary item if it is unusual in nature and if it occurs infrequently.
A)True
B)False
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Chapter 12: The Statement of Cash Flows
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Q1) If a company has high net income, it may still have difficulty paying its bills.
A)True
B)False
Q2) Cash received from the issuance of bonds would be reported on a statement of cash flows under:
A) investing activities.
B) financing activities
C) operating activities.
D) noncash activities.
Q3) Using the indirect method, an increase in accounts receivable is subtracted from net income in calculating cash flows from operating activities.
A)True
B)False
Q4) To convert net income to cash flows under the indirect method, depreciation expense is added to net income.
A)True
B)False
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Chapter 13: Financial Statement Analysis
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Q1) To perform vertical analysis, financial statements must first be converted to common-size format.
A)True
B)False
Q2) Which of the following would be most helpful in the comparison of different size companies?
A) Horizontal analysis
B) Comparison of their net incomes
C) Comparison of their working capital balances
D) Preparation of common-size financial statements
Q3) In performing a vertical analysis, the base for cash is:
A) total liabilities and stockholders' equity.
B) total assets.
C) total cash and cash equivalents.
D) total current assets.
Q4) A common-size statement is less effective than a horizontal analysis when comparing companies.
A)True
B)False
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