Financial Accounting for Managers
Pre-Test Questions
Course Introduction
Financial Accounting for Managers introduces students to the fundamental concepts and principles of financial accounting with a focus on their application in managerial decision-making. The course covers essential topics such as the preparation and analysis of financial statements, the interpretation of accounting data, and the regulatory environment affecting financial reporting. Emphasis is placed on understanding how managers use accounting information to plan, control, and evaluate business operations. Students will also explore the ethical issues in accounting and develop the skills needed to communicate financial information effectively within organizations.
Recommended Textbook
Financial Accounting An Introduction to Concepts Methods and Uses 14th Edition by Roman L. Weil
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Page 2
Chapter 1: Introduction to Business Activities and Overview
of Financial Statements and the Reporting Process
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Sample Questions
Q1) The same asset can have different measurements for tax purposes, for financial reporting purposes, and for internal managerial decision-making purposes.
A)True
B)False
Answer: True
Q2) Investments in long-lived assets, with useful lives (or service lives) that can extend for several or many years such as land, buildings, and equipment represent _____ capital.
A)sunk
B)hard
C)physical
D)intangible
E)soft
Answer: C
Q3) Current assets, typically held and used for several years, include land, buildings, equipment, patents; and long-term investments in securities.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The Basics of Record Keeping and Financial
Statement Preparation: Balance Sheet
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Sample Questions
Q1) Current liabilities
A)are obligations that a firm expects to pay or discharge during the normal operating cycle of the firm, usually one year.
B)include liabilities to merchandise suppliers, employees, and governmental units.
C)include notes and bonds payable to the extent that they will require the use of current assets within the next year.
D)include all of the above.
E)None of the above answers is correct.
Answer: D
Q2) The balance sheet amount of shareholders' equity does not, and is not intended to, provide the user of the financial reports with a measure of the market value of common equity.
A)True
B)False Answer: True
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Chapter 3: The Basics of Record Keeping and Financial
Statement Preparation: Income Statement
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Q1) Revenues measure the inflow of net assets from operating activities.
A)True
B)False
Answer: True
Q2) The firm recognizes an expense when the following condition(s) hold(s):
A)The consumption of the asset results from a transaction that leads to the recognition of revenue.
B)The consumption of the asset results from the passage of time.
C)The expenditures on advertising must be recognized as expense in the period of expenditure.
D)The expenditures on research must be recognized as expense in the period of expenditure.
E)all of the above
Answer: E
Q3) Expenditures on advertising and research must be recognized as expense in the period of expenditure, regardless of the firm's expectation of future benefits.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Balance Sheet: Presenting and Analyzing
Resources and Financing
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Sample Questions
Q1) U.S.GAAP explicitly defines _____ of an asset as "the price that would be received to sell an asset [or paid to transfer a liability] in an orderly transaction between market participants at the measurement date." Thus, U.S.GAAP defines it as an exit value, namely, the amount the firm would receive if it sold an asset in an orderly, arm's-length transaction at the measurement date.
A)Current Replacement Cost
B)Net Realizable Value
C)Fair Value
D)Present Value of Future Net Cash Flows
E)Acquisition cost
Q2) Which of the following is/are true regarding accounting liabilities?
A)All accounting liabilities are obligations.
B)Not all obligations are accounting liabilities.
C)An item must meet the definition of a liability.
D)An item must recognition criteria.
E)All of these answers are correct.
Q3) Describe Asset recognition, definition, and measurement.
Q4) Discuss shareholders' equity, how it is measured and disclosed.
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Q5) How does one assess the impact of asset and liability recognition and their measurement?
Chapter 5: Income Statement: Reporting Results of Operating Activities
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Q1) _____ reflect the decrease in shareholders' equity resulting from the decrease in the net assets consumed during the generation of income.
A)Revenues
B)Expenses
C)Dividends
D)Liabilities
E)Common stock
Q2) A firms decision to sell its headquarters building at a gain
A)would increase income in the year of sale.
B)is not part of the core business.
C)would be aggregated with other noncore, nonoperating items.
D)reported below operating income, probably as Other Income.
E)all of the above
Q3) Expenditures on advertising and research must be recognized as expense in the period of expenditure, regardless of the firm's expectation of future benefits.
A)True
B)False
Q4) What is revenue recognition?
Q5) What are the criteria for revenue recognition?
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Chapter 6: Statement of Cash Flows
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Q1) Net income for a particular period does not equal cash flow from operations because
A)most firms use the accrual basis of accounting to measure operating performance.
B)most firms typically recognize revenue at the time of sale, independent of when they receive the cash from the sale.
C)some firms receive cash before providing services and recognizing revenues.
D)some firms receive cash after they have provided goods and recognized revenues.
E)all of the above
Q2) U.S.GAAP classifies all of the following as financing activities on the statement of cash flows except
A)cash inflows from issuance of bonds.
B)cash inflows from selling capital stock of the entity.
C)cash outflows to lender for interest.
D)cash outflows to repurchase capital stock of the entity.
E)cash outflows to repurchase bonds of the entity.
Q3) Cash flows do not always fit unambiguously into only one of the three categories: operating, investing and financing. Explain.
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Chapter 7: Introduction to Financial Statement Analysis
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Q1) What are pro forma financial statements?
Q2) To calculate the amount of net income assignable to common shareholders' equity, the analyst does not
A)subtract all amounts required to compensate other providers of financing for the use of their funds.
B)make any further adjustment for interest.
C)subtract from net income any earnings allocable to preferred stock equity usually the dividends on preferred stock declared during the period.
D)subtract dividends on common stock.
E)none of the above
Q3) Various techniques are used in the analysis of financial data to emphasize the comparative and relative importance of data presented and to evaluate the position of the firm.These techniques include(s)
A)ratio analysis.
B)common-size analysis.
C)examination of relative size among firms.
D)all of the above.
E)none of the above.
Q4) What are the steps in preparing pro forma financial statements?
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Chapter 8: Revenue Recognition, Receivables, and
Advances From Customers
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Q1) Jaymar Software Corporation sells SPAM BE GONE to customers, who receive the software and have access to postdelivery telephone support and the right to receive certain upgrades and enhancements if and when Jaymar Software develops them.Jaymar Software sells SPAM BE GONE for approximately $100; customers pay cash or with a credit card.When should Jaymar Software recognize revenue from selling SPAM BE GONE?
A)It recognizes revenue from sale of the software at the time of delivery and revenue associated with future obligations over the product's life cycle.
B)It recognizes revenue from sale of the software over the product's life cycle and revenue associated with future obligations at the time of delivery.
C)It recognizes revenue from sale of the software and the revenue associated with future obligations over the product's life cycle.
D)It recognizes revenue from sale of the software and the revenue associated with future obligations at the time of delivery.
E)none of the above.
Q2) Describe income recognition after the sale when substantial performance remains.
Q3) Discuss how accounts receivable can be analyzed.
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Page 10
Chapter 9: Working Capital
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Q1) On August 1, Covington Motors pays £18,000 for insurance coverage for the next 12 months.On August 1, the firm records the following journal entry:
A) Prepaid
B)
C)
D)
E)
Q2) As time passes, firms gain information about both actual warranty usage and actual warranty expenditures.
A)True
B)False
Q3) How do Merchandising and Manufacturing firms report product costs and changes in Inventory?
Q4) What are the cost-flow assumptions used in inventory measurement?
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Chapter 10: Long-Lived Tangible and Intangible Assets
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Q1) Tangible long-lived assets include all of the following except A)land.
B)buildings.
C)equipment.
D)factories.
E)franchise rights.
Q2) When a firm constructs its own buildings or equipment:
A) it recognizes the labor, material, and overhead costs incurred as an asset.
B)U.S.GAAP and IFRS require firms to include, or capitalize, interest costs during construction in the cost of a self-constructed asset.
C) it recognizes the labor, material, and overhead costs incurred as a period expense.
D)U.S.GAAP and IFRS require firms to expense interest costs incurred during construction of a self-constructed asset.
E)both choices a and b are correct.
Q3) How is the acquisition cost treated over the life of tangible and intangible assets?
Q4) How are long-lived assets analyzed?
Q5) Discuss the treatment of expenditures as assets versus immediate expenses.
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Page 12
Chapter 11: Notes, Bonds, and Leases
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Q1) The following information is available from the comparative balance sheets and related income statement of the Horner Company for the year ended December 31, Year 7.
\(\begin{array}{lll}&\text { December } 31, & \text { December } 31, \\ &\text { Year } 6 & \text { Year } 7\\
\text { Present value of lease obligation } & \$ 2,040,508.60 & \$ 1,862,939.10 \\
\text { Leasehold (net of accumulated amortization) } & \$ 1,987,224.30 & \$ 1,766,421.60
\\
\text { Interest expense on lease obligation for Year 7 } & & \$ 122,430.52 \end{array}\) The company has only one lease contract outstanding, which it entered into on January 1, Year 6.The contract called for 10 equal lease payments commencing on December 31, Year 6.
Required:
a. What was the interest rate used to value the lease?
b. What is the annual lease payment?
c. What was the present value of the lease obligation on January 1, Year 6?
d. What was the amortization expense for Year 6?
Q2) Describe the sources of long-term debt financing.
Q3) What disclosures are required for leases?
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Page 13
Chapter 12: Liabilities: Off-Balance Sheet Financing,
Benefits, and Income Taxes
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Q1) Firms frequently sign contracts promising to pay defined amounts in the future in return for future benefits.If the firm has not received past or current benefits, but will receive the benefits in the future, accounting treats the obligation as a(n) _____ contract and typically _____.
A)contingent; does recognize a liability
B)executory; does not recognize a liability
C)executory; does recognize a liability
D)contingent; does not recognize a liability
E)future; does recognize a liability
Q2) Pension expense for a defined contribution plan always exceeds the employer's contribution to the plan.
A)True
B)False
Q3) The pension expense for a particular period for a firm's defined benefit pension plans rarely equals the cash contribution.
A)True
B)False
Q4) Describe the accounting for pension plan benefits.
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Q5) Describe the accounting for employer sponsored defined benefit pension plans.
Chapter 13: Marketable Securities and Derivatives
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Q1) U.S.GAAP and IFRS require firms to account for debt securities held-to-maturity that are deemed to be impaired.The investor recognizes (debits) _____ and reduces (credits) _____.
A)an impairment loss (included in other comprehensive income); the balance sheet carrying value of the investment
B)the balance sheet carrying value of the investment; an impairment loss (included in other comprehensive income)
C)the balance sheet carrying value of the investment; an impairment loss (included in net income)
D)an impairment loss (included in net income); the balance sheet carrying value of the investment
E)reserve for impairment loss (included in other comprehensive income); the balance sheet reserve for net realizable value of investments
Q2) What are elements of a derivative?
Q3) What is the accounting treatment for securities available for sale?
Q4) Describe the fair value option applied to marketable securities and derivatives.
Q5) How are securities measured after acquisition?
Q6) What are derivative instruments and how are they used?
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Chapter 14: Intercorporate Investments in Common Stock
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Q1) Describe the accounting and reporting of investments in common stock.
Q2) Minority, passive investments are initially recorded at the A)acquisition cost.
B)fair market value of the net assets.
C)lower of cost or market.
D)present value of future cash flows.
E)future value of present cash flows.
Q3) U.S.GAAP view investments of between 20 and 50 percent of the voting stock of another company (unless evidence indicates that significant influence cannot be exercised) as
A)minority, passive investments.
B)minority, active investments.
C)majority, passive investments.
D)majority, active investments.
E)marketable securities.
Q4) U.S.GAAP and IFRS view ownership of more than 50% of an investee as implying an ability to control the investee, unless evidence indicates to the contrary.
A)True
B)False
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Chapter 15: Shareholders Equity: Capital Contributions and Distributions
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Q1) Corporations often sell, or exchange for goods and services, various call options on their shares.Which of the following is/are not true?
A)A call option gives the holder the right to acquire shares of common stock at a fixed or determinable price, called the strike price or exercise price.
B)If the market price of the shares increases above the exercise price, the holder of the option can benefit by exercising the option to purchase shares.
C)The excess of the market price over the exercise price is the option's intrinsic value.
D)Many firms pay part of the compensation of some employees by issuing call options on their own shares referring to these arrangements as employee stock options (ESOs).
E)none of the above
Q2) If the firm becomes insolvent, in order to settle debts creditors can claim
A)the assets of the corporate entity.
B)the owners' business and personal assets of partnerships.
C)the owner's business and personal assets of sole-proprietorships.
D)all of the above.
E)none of the above.
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Chapter 16: Statement of Cash Flows: Another Look
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Q1) Bonds Payable on the balance sheet of Michael LLC includes one series of bonds initially issued at a premium.The entry made in the accounting records for interest expense during the period was as follows:
Interest Expense .................4,500
Premium on Bonds Payable ..........500
Cash ...............................5,000
The firm spent $5,000 of cash even though it subtracted only $4,500 of interest expense in computing net income.In preparing the statement of cash flows using the T-account work sheet
A)subtract an additional $5,000 from net income to derive cash flow from operations.
B)subtract an additional $4,500 from net income to derive cash flow from operations.
C)subtract an additional $500 from net income to derive cash flow from operations.
D)add an additional $500 from net income to derive cash flow from operations.
E)add an additional $4,500 from net income to derive cash flow from operations.
Q2) Discuss the indirect and direct methods in deriving cash flow from operations.
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Chapter 17: Synthesis and Extensions
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Q1) Which of the following is not true?
A)Comprehensive income equals the net amount of revenues, expenses, gains, and losses during an accounting period.
B)Authoritative guidance classifies revenues and expenses arising from a firm's core business as components of net income.
C)Net income includes gains and losses from sales or exchanges of assets or settlements of liabilities related incidentally or peripherally to the firm's core business.
D)Authoritative guidance classifies gains and losses from the remeasurement of certain assets and liabilities as either net income or other comprehensive income.
E)The FASB's and IASB's conceptual framework contains a conceptual model for classifying items in net income versus in other comprehensive income.
Q2) Firms account for changes in accounting principles required by a new reporting standard in accordance with the guidance specified in the standard.
A)True
B)False
Q3) How do firms account for property, plant, and equipment?
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