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 essential topics such as the accounting cycle, double-entry bookkeeping, accrual accounting, and the preparation of balance sheets, income statements, and cash flow statements. Students will learn how to record business transactions, adjust entries at the end of accounting periods, and understand the regulatory and ethical framework governing financial reporting. Through practical exercises and real-world examples, this course builds a solid foundation for further study in accounting and equips students with skills necessary for informed decision-making in business environments.
Recommended Textbook
Cornerstones of Financial Accounting 3rd Edition by Jay Rich
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Chapter 1: Accounting and the Financial Statements
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Q1) You Decide Essay
A friend of yours is seeking advice on which stocks to buy. Right now, she is looking for a stock that pays cash dividends on a regular basis. She has obtained 6 years worth of financial statements for the two stocks under consideration. Describe at least one item on each financial statement that she should study to determine which stock is more likely to pay future cash dividends.
Answer: Income statement: Trend of profitable operations
Retained earnings statement: The payment of cash dividends in the past Balance sheet: The existence of sufficient cash from which to pay dividends
Cash flow statement: Trend of positive cash flows from operations
Q2) If assets are expected to be realized in cash, sold, or consumed within the normal operating cycle of a business or within one year (if the operating cycle is shorter than one year), how are they reported on a classified balance sheet?
A)property, plant, and equipment
B)current assets
C)intangible assets
D)current liabilities
Answer: B
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Chapter 2: The Accounting Information System
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Q1) Issuing common stock to investors
Answer: B
Q2) What type of account is increased with a debit but represents a decrease in retained earnings?
A)liability
B)asset
C)revenue
D)dividends
Answer: D
Q3) A chronological record showing the debit and credit effects of transactions on a company.
Answer: I
Q4) This principle is used to determine when revenue is recorded and reported.
Answer: J
Q5) Paying for a previous purchase on credit
Answer: E
Q6) Refer to H&R Clock Company. Set up T-accounts and post each transaction to the T-accounts.
Answer: 11ea7daa_2cbb_0e18_b9bd_99fbf2c1b985_TB2047_00_TB2047_00
Page 4
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Chapter 3: Accrual Accounting
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Q1) Refer to California Condos. The company reported interest receivable of $2,500 at December 31, 2013, and $0 at the beginning of 2013. How much cash did the company collect for interest during the year?
Answer: $7,500
$10,000 (Interest Revenue) - $2,500 (Interest Receivable at December 31)= $7,500
Q2) Adjusting entries must be made prior to the preparation of financial statements.
A)True
B)False
Answer: True
Q3) A particular company had $2,400 of supplies on hand at January 1. During the year, supplies with a cost of $4,000 were purchased. At December 31, the actual supplies on hand amounted to $2,000. After the adjustments are recorded and posted at December 31, what are the ending balances in the Supplies and Supplies Expense accounts? Supplies Supplies Expense
A)$4,400 $2,000
B)$2,000 $4,400
C)$2,400 $4,000
D)$4,000 $2,400
Answer: B
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Page 5
Chapter 4: Internal Control and Cash
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Q1) What adjustments are often necessary after the reconciliation of a bank account?
Q2) Risks associated with how the company allocates its resources to meet its objectives
Q3) Which of the following statements is false regarding a credit memo and its relationship to a company's bank reconciliation procedures?
A)It must be recorded as a credit to the balance per the customer's records.
B)It is issued to notify a company of interest earned which needs to be recorded on the company's records.
C)It is issued when the bank collects a note on behalf of the company.
D)It must be recorded as a debit to the balance per the company's records.
Q4) A company's records indicate the balance in its checking account at the end of the month is $3,918. Comparing the company's records with the monthly bank statement reveals several additional cash transactions, such as deposits in transit of $4,022, three outstanding checks totaling $497, a $30 bank service charge, a $1,000 note receivable collected by the bank plus interest earned of $35, and an NSF check for $150. Determine the company's adjusted cash balance and prepare the journal entries necessary to adjust the account balance.
Q5) A fund used to pay for small amounts to avoid the time and expense of paying by check
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Chapter 5: Sales and Receivables
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Q1) Refer to Accelerated Solutions. What is the balance of Accounts Receivable at December 31, 2013?
A)$700,000
B)$340,000
C)$690,000
D)$710,000
Q2) Accounts receivable are shown on the balance sheet at their net realizable value.
A)True
B)False
Q3) Refer to Aardvark Resale. Determine the balance of Accounts Receivable at December 31, 2013.
Q4) Indicates that the earnings process is substantially complete.
Q5) Which one of the following is an accurate description of the Allowance for Doubtful Accounts?
A)Contra Account
B)Liability Account
C)Revenue Account
D)Expense Account
Q6) Measure the return the company is earning on sales.
Page 7
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Chapter 6: Cost of Goods Sold and Inventory
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Q1) Refer to the information provided for Yancey Company. How much is cost of goods available for sale for 2013 assuming that Yancey Company take advantage of one-half of the cash discounts?
Q2) "You Decide" Essay
You are the Orlando store manager for Kruge Enterprises. When you came in this morning, you found the front door ajar. Once Security had arrived and you eventually got inside, you discovered that most of your inventory had been stolen. In order to file a claim with your insurance company you need to estimate the amount of inventory you had yesterday at closing time. Unfortunately, Kruge Enterprises uses a periodic inventory system. How can you estimate your lost inventory amount?
Q3) Arrangement whereby goods owned by one party are held and offered for sale by another party.
Q4) What effects on a retail store's accounting equation occur when it records merchandise purchased for cash, assuming the use of a perpetual inventory system?
A)Assets and stockholders' equity increase.
B)Assets and stockholders' equity decrease.
C)Assets and liabilities increase.
D)No net effect.
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Page 8
Chapter 7: Operating Assets
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Q1) Which of the following factors is not related to the decline in the usefulness of plant and equipment assets, and therefore does not need to be considered in selecting an appropriate depreciation method?
A)physical deterioration
B)obsolescence
C)repair and maintenance policies
D)current replacement cost
Q2) A company purchased a building for $900,000 on January 1, 2013. The building is being depreciated over 40 years with an estimated residual value of $100,000. What will be the book value of the building in 10 years?
A)$575,000
B)$600,000
C)$675,000
D)$700,000
Q3) Building
Q4) The ______________ depreciation method is the GAAP depreciation method used most frequently.
Q5) A ____________________ is a cost that improves an operating asset and is therefore added to the asset account.
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Chapter 8: Current and Contingent Liabilities
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Q1) Which of the following statements about current liabilities is true?
A)Current liabilities are listed in order of decreasing amounts in the current liability section of a classified balance sheet.
B)The amount of current liabilities has little implication for a company's liquidity.
C)Current liabilities are the denominator in the formula for the current ratio.
D)The current liabilities section of a classified balance sheet will never contain any portion of long-term liabilities.
Q2) Gross pay
Q3) Assume a company has a current ratio of 0.75. The purchase of inventory on account would cause the current ratio to A)decrease.
B)increase.
C)be unchanged since the effects offset one another.
D)be unchanged since it has no impact on any current asset or liability accounts.
Q4) Cash Flows from Operating Activities / Current Liabilities
Q5) Guarantees the repair or replacement of defective goods during a specified period following the sale
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Chapter 9: Long-Term Liabilities
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Q1) Bonds are generally issued in denominations of $1,000.
A)True
B)False
Q2) The party who has the use of a leased asset.
Q3) A(n)____________________ lease is recorded on the lessee's balance sheet as an asset and related liability.
Q4) A company with operating income of $200,000, cash flow from operating activities of $75,000 and gross profit of $380,000, has interest payments of $25,000. What is the company's Interest Coverage Ratio (Cash Basis)?
A)4 or 4 to 1
B)3 or 3 to 1
C)15.2 or 15.2 to 1
D)2.67 or 2.67 to 1
Q5) Under this method, interest expense for the period is always the yield (i.e., effective interest rate)times the carrying value of the bonds at the beginning of the period.
Q6) Mortgage bonds are secure bonds.
A)True
B)False
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Chapter 10: Stockholders Equity
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Q1) A performance measures that assesses the growth in equity from operating activities.
Q2) When treasury stock is reissued at a price that is greater than their cost, the difference should be credited to the Treasury Stock account.
A)True
B)False
Q3) The portion of the stock's issue price that exceeds par.
Q4) Accumulated other comprehensive income is NOT considered to be a source of stockholders' equity.
A)True
B)False
Q5) When a corporation declares a cash dividend, which of the following is true?
A)cash decreases
B)liabilities decrease
C)stockholders' equity decreases
D)no entry is necessary
Q6) Provides that current dividends must be paid to preferred stockholders before any dividends are paid to common stockholders.
Q7) What is treasury stock and how is it reported in the financial statements?
Page 12
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Chapter 11: The Statement of Cash Flows
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Q1) Refer to Mary Kay Cosmetics. Prepare the company's statement of cash flows for the year ended December 31, 2014. Use the indirect method of determining net cash flows from operating activities.
Q2) If the balance of prepaid insurance was the same on January 1, 2014, and December 31, 2014, then the insurance expense must have been ____________________ the cash payments made for insurance during the year.
Q3) Refer to Mary Kay Cosmetics. Prepare the financing activities section of the company's statement of cash flows for 2014.
Q4) Sold common stock for cash.
Q5) Increase in the inventory balance.
Q6) Issued long term mortgage to acquire land and a building.
Q7) The issuance of common stock in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.
A)True
B)False
Q8) Refer to Mary Kay Cosmetics. What amount was paid to retire bonds payable during 2014?
Page 13
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Chapter 12: Financial Statement Analysis
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Q1) In considering equity and debt financing, which of the following statements is generally true?
A)The lower the measure of the long-term debt-to-equity ratio, the greater the likelihood the company will have difficulty in meeting its obligation in some future period.
B)Interest and dividend payments are required to be made by the issuing company.
C)The higher the measure of the debt-to-equity ratio, the greater the likelihood the company will have difficulty in meeting its obligation in some future period.
D)Most companies prefer to have no debt and rely exclusively on equity financing.
Q2) Refer to Rio Imports. The debt-to-equity ratio for 2015 is
A)an indicator that the company's ability to meet current interest payments to creditors is increasing.
B)increasing slightly from 2014 to 2015.
C)an indicator that for every $1 of capital that has been provided by stockholders, creditors provided $0.83.
D)an indicator that the company's reliance on stockholders for funding increased from 2014 to 2015.
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Chapter 13: Investments
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Q1) The fair value method should be used to account for stock investments of less than 20% of the outstanding shares.
A)True
B)False
Q2) Business combinations can occur through either an asset or ____________________ acquisition.
Q3) Any transaction or set of transactions that brings together two or more previously separate entities to form a single accounting entity is called a ____________________.
Q4) An intangible asset arising from attributes that are not separable from the business-such as customer satisfaction, product quality, skilled employees, and business location
Q5) Result when the value of securities must be written up or down to fair market value at the balance sheet date, a process referred to as "marking to market"
Q6) Represents an ownership interest in a corporation, usually common stock
Q7) Name given to the investee when an investor owns over 50% of the investee's outstanding common stock
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Chapter 14: Time Value of Money
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Q1) Interest may only be charged to a borrower by a bank.
A)True
B)False
Q2) When the calculated present value is reversed, the resulting figure is the A)interest accrued.
B)future value.
C)total interest earned.
D)total interest paid.
Q3) Tom is saving for an engagement ring. If he deposits $500 payments into an account (one at the end of each year)that earns 6% interest compounded annually, how much will he have saved by the end of the 10<sup>th</sup> year?
A)$895.42
B)$13,435.18
C)$6,590.39
D)$6,554.39
Q4) Marvin's Manufacturing can invest in a new process, but will need to purchase new equipment. The cost of the equipment is $75,000 and needs to be in place in 8 years. The company invests the money at 8% interest compounded semiannually. How much will they need to invest in order to have $75,000 in 8 years?
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