Financial Accounting I Final Exam
Course Introduction
Financial Accounting I introduces students to the fundamental principles and practices of financial accounting, focusing on the preparation, analysis, and interpretation of financial statements. The course covers the accounting cycle, double-entry bookkeeping, and the application of generally accepted accounting principles (GAAP) to various business transactions. Key topics include recording transactions, adjusting entries, preparation of the income statement, balance sheet, statement of owner's equity, and cash flow statement. Students will develop foundational skills essential for measuring business performance and communicating financial information to internal and external stakeholders.
Recommended Textbook
Financial Accounting A Business Process Approach 3rd Edition by Jane L. Reimers
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Page 2
Chapter 1: Business: Whats It All About
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Sample Questions
Q1) Which of the following increases retained earnings?
A)issuance of stock
B)revenues
C)purchase of inventory
D)dividends
Answer: B
Q2) A corporation ________.
A)is a legal entity separate from the owners
B)is a manufacturer and not a service organization
C)may cause unlimited liability for its shareholders
D)provides goods or services for the sole purpose of helping people
Answer: A
Q3) Cash
A)Balance sheet
B)Income statement
C)Statement of changes in shareholders' equity
D)Statement of cash flows
Answer: A
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Page 3
Chapter 2: Qualities of Accounting Information
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Q1) The three basic elements of the statement of cash flows are ________.
A)operating activities,investing activities,and financing activities
B)assets,liabilities,and shareholders' equity
C)revenues,expenses,and net income or loss
D)retained earnings,net income,and dividends
Answer: A
Q2) The accounting rule which requires that only the business transactions of Team Shirts be shown on the balance sheet is the ________.
A)separate-entity assumption
B)going-concern assumption
C)monetary-unit assumption
D)historical-cost principle
Answer: A
Q3) The Financial Accounting Standards Board sets international financial reporting standards (IFRS).
A)True
B)False
Answer: False
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4
Chapter 3: Accruals and Deferrals: Timing Is
Everything in Accounting
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Sample Questions
Q1) Reader,Inc.collected $12,000 in October 2011 from customers in exchange for 12-month subscriptions to its monthly magazine Reader.The October issue was the first issue of the subscription.How much revenue should the company report on its income statement for the year ended March 31,2012?
A)$12,000
B)$8,000
C)$6,000
D)No revenue will be recognized until all the magazines are delivered.
Answer: C
Q2) Which financial statement shows Cash paid for interest?
A)income statement
B)statement of changes in shareholders' equity
C)statement of cash flows
D)balance sheet
Answer: C
Q3) The profit margin on sales ratio equals net income divided by net sales.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Payment for Goods and Services: Cash and Accounts Receivable
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Sample Questions
Q1) On July 31,the accountant for Team Shirts was reviewing items related to accounts receivable.The following information was gathered for July:
a.The beginning balance in the Allowance for uncollectible accounts was $(600).
b.An account receivable owed by a customer in England for $250 U.S.dollars was determined to be uncollectible.
c.Credit sales for July were $12,000.The accountant for Team Shirts estimated that 4% of the sales would eventually be uncollectible. What is the amount of bad debts expense for July? What will be the ending balance in the Allowance for uncollectible accounts?
Q2) Accounts receivable are interest-bearing,while notes receivable are not.
A)True B)False
Q3) On a bank reconciliation,outstanding checks and NSF checks are deductions from the bank balance.
A)True
B)False
Q4) Discuss the importance of reporting net accounts receivable.
Q5) What is the purpose of a bank reconciliation?
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Chapter 5: The Purchase and Sale of Inventory
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Q1) Nadir Company sold $2,000 of merchandise to Acme Company,with terms of 3/10,n/30.Five days later,Acme returned $500 of the merchandise.If Acme does NOT pay within the discount period,how much cash will Nadir receive?
A)$2,000
B)$1,940
C)$1,500
D)$1,455
Q2) Inside Outfitters sold $200 of merchandise to a customer for cash.The sales tax was 8%.How much sales revenue did Inside Outfitters earn?
A)$200
B)$0
C)$216
D)$184
Q3) In times of rising prices,a company that uses LIFO will report higher sales than if it had used FIFO.
A)True
B)False
Q4) Describe the operating cycle for a merchandising firm.
Q5) Describe the function and use of a purchase requisition and a purchase order.
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Chapter 6: Acquisition and Use of Long-Term Assets
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Q1) XYZ Company owns an asset with historical cost of $75,000,estimated useful life of 10 years,and salvage value of $5,000.As of December 31,2011,the asset has accumulated depreciation of $49,000 after adjustment.The company still owes $20,000 in liabilities from the purchase of the asset years ago.What is the asset's book value on December 31,2011?
A)$70,000
B)$26,000
C)$21,000
D)$6,000
Q2) On January 1,2011,Ace Electronics paid $400,000 cash for a computer that would be used to store and process its accounting information.The computer has a 5-year useful life,after which it will be worthless because it will be obsolete.How much depreciation expense should Ace Electronics record for the year ended December 31,2011,using the straight-line method?
A)$400,000
B)$40,000
C)$80,000
D)$160,000
Q3) Discuss risks and controls associated with long-term assets.
Q4) How do financial analysts evaluate how well a business uses its assets?
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Chapter 7: Accounting for Liabilities
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Sample Questions
Q1) Stanton Corporation sold a 10-year,$1,000,zero-interest bond when the market rate of interest was 7%.The present value of the principal is ________.
A)$508.35
B)$700.00
C)$1,000.00
D)$1070.00
Q2) On November 30,2011,Just in Thyme,Inc.issued $10,000 of 20-year,9% bonds at 100.The bonds pay interest semiannually on May 31 and November 30.Which of the following will appear on Just in Thyme's balance sheet at December 31,2011?
A)Bonds payable $10,900
B)Bonds payable $10,000
C)Bonds payable $9,100
D)Interest expense $900
Q3) Discount on bonds payable is a(n)________.
A)asset
B)contra-liability
C)revenue
D)equity
Q4) What is an annuity?
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Chapter 8: Accounting for Shareholders Equity
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Sample Questions
Q1) Treasury stock ________.
A)is a contra-equity account
B)is the amount of stock issued by the company
C)results in an increase in total shareholders' equity
D)is a contra-asset account
Q2) Dale Murphy Company had beginning retained earnings of $60,000.During the year the company had net income of $20,000,and paid dividends of $7,500.The Company repurchased 1,000 shares of its stock for $45 during the period.What is the net effect of these transactions on the items shown below?
A)increase Retained earnings; increase Total shareholders' equity
B)increase Retained earnings; decrease Total shareholders' equity
C)decrease Retained earnings; increase Total shareholders' equity
D)decrease Retained earnings; decrease Total shareholders' equity
Q3) Which of the following will cause total shareholders' equity to decrease?
A)issuing common stock
B)selling treasury stock
C)repaying a bond's principal
D)purchasing treasury stock
Q4) Explain the difference between contributed capital,capital stock,and additional paid-in capital.
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Chapter 9: Preparing and Analyzing the Statement of Cash Flows
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Q1) Jo Lynn Lee is learning about investing.She has learned that Warren Buffet uses free cash flow as one of the tools to analyze companies.Explain to Jo Lynn why Warren Buffet and other investors believe that free cash flow is a valuable tool to use when analyzing companies.
Q2) Why would a company cut its cash dividends? Is it ethical to cut the dividends?
Q3) Investors should be aware that management may unethically misclassify cash from the sale of land as cash from customers in order to look better.
A)True
B)False
Q4) payment of interest expense
A)operating activities
B)investing activities
C)financing activities
D)noncash item
Q5) Team Shirts,Inc.had a beginning balance in Accounts receivable of $4,000 on November 1.The balance on November 30 was $5,100.Total credit sales were $63,000.What amount of cash was collected from customers for November?
Q6) Why is evaluating a company's cash flow important for analysts?
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Q7) How would managers use the information reported in the statement of cash flows?
Chapter 10: Using Financial Statement Analysis to Evaluate
Firm Performance
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Q1) Refer to the Ace Electronics annual report above.Using vertical analysis,\(\bold{2012}\) Cost of goods sold would be represented as ________.
A)16%
B)119%
C)125%
D)42%
Q2) The price/earning (P/E)ratio equals the market price of a share of stock divided by that company's earnings per share.
A)True
B)False
Q3) Horizontal analysis is a technique used to evaluate a series of financial statement data over a period of time.
A)True
B)False
Q4) What is treated as an extraordinary item on an income statement?
Q5) A loss from a tsunami in Kansas could be classified as an extraordinary item. A)True
B)False
Q6) What is vertical analysis?
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Chapter 11: Quality of Earnings, corporate Governance, and Ifrs
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Q1) Which of the following is an indication of good corporate governance?
A)A company has a board of directors with highly qualified members who are independent of the management team.
B)A company has an audit committee that reports directly to the company's CFO.
C)A company has a board of directors that delegates all major financial decisions to management.
D)The company has the external auditors prepare,as well as audit,its financial statements.
Q2) During the year,Core,Rupt,and Baroque,Inc.had sales revenue of $13,200.For each of the following ranges of estimates provided,indicate which percent is the more conservative choice.
a.Estimated sales returns range from 1 to 2% of total sales
b.Bad debts are expected to be between 1 and 2% of net sales
c.Estimated warranty costs are 1 to 2% of net sales
d.Straight-line depreciation rate could be 10% or 20% for its buildings
Q3) A lower than usual allowance for uncollectible accounts may indicate a company is manipulating earnings using big bath charges.
A)True
B)False
Page 13
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