Financial Accounting I Review
Questions
Course Introduction
Financial Accounting I is an introductory course designed to provide students with a foundational understanding of the principles and procedures of financial accounting. The course covers the accounting cycle, the preparation and analysis of financial statements, and the measurement and recording of assets, liabilities, equity, revenues, and expenses. Emphasis is placed on the conceptual framework underlying financial accounting and its application in real-world business scenarios. Students will learn how to use accounting information for decision-making purposes, develop critical thinking skills, and gain proficiency in interpreting and communicating financial data to various stakeholders.
Recommended Textbook
Financial Accounting 5th Canadian Edition by
Walter T. Harrison
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13 Chapters
1520 Verified Questions
1520 Flashcards
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Page 2
Chapter 1: The Financial Statements
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) Notes receivable due in 60 days would be classified as a:
A) non-current asset on the balance sheet
B) current asset on the balance sheet
C) current liability on the balance sheet
D) non-current liability on the balance sheet
Answer: B
Q2) The accounting concept that maintains that each organization or section of an organization stands apart from other organizations and individuals is known as the:
A) reliability principle
B) going-concern assumption
C) entity assumption
D) monetary unit assumption
Answer: C
Q3) In accounting, the word "net" means after a subtraction.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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164 Flashcards
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Sample Questions
Q1) The entry to record the purchase of supplies on account would include a:
A) credit to the Accounts Payable account
B) debit to the Retained Earnings account
C) credit to the Cash account
D) credit to the Supplies account
Answer: A
Q2) Expenses increase shareholders equity. That is why they are credits.
A)True
B)False
Answer: False
Q3) On a trial balance the total of all debits must equal the total of all credits.
A)True
B)False
Answer: True
Q4) Purchasing supplies and paying cash for them would:
A) increase total assets
B) decrease total assets
C) have no effect on total assets
D) increase total liabilities and shareholders' equity
Answer: C
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Chapter 3: Accrual Accounting and the Financial Statements
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144 Flashcards
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Sample Questions
Q1) If deferred revenue has been earned by the end of the current period and no adjustment is recorded, net income for the current period will be understated.
A)True
B)False
Answer: True
Q2) Deferred revenue occurs when cash is received from a customer before work or the sale is completed.
A)True
B)False
Answer: True
Q3) The closing entry required to reset the dividends account for the next accounting period includes a debit to dividends and a credit to retained earnings.
A)True
B)False
Answer: False
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Chapter 4: Internal Control and Cash
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110 Flashcards
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Sample Questions
Q1) Fraudulent financial reporting is a type of fraud than impacts on financial statements. Why do managers undertake this type of fraudulent activity?
Q2) A budget may be used as an evaluation instrument, where managers compare actual figures during the year with budgeted figures for the same time period.
A)True
B)False
Q3) Outstanding cheques are added to the ending bank balance on the bank statement when preparing the bank reconciliation.
A)True
B)False
Q4) The cheques that have been paid by the bank on behalf of the depositor and included with the bank statement are called:
A) cancelled cheques
B) cheques in transit
C) NSF cheques
D) outstanding cheques
Q5) Identify and briefly describe the two most common types of fraud that impact financial statements.
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Chapter 5: Short-Term Investments and Receivables
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110 Flashcards
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Sample Questions
Q1) A written promise to pay a specified amount of money at a particular future date is called a(n):
A) account receivable
B) promissory note
C) maturity note
D) unearned revenue
Q2) The interest on a $50,000 note at 12% for 60 days is:
A) $56,000.00
B) $1,000.00
C) $44,000.00
D) $986.30
Q3) Which of the following accounts is a contra-account to Accounts Receivable?
A) Sales Discounts
B) Sales Returns and Allowances
C) Allowance for Uncollectible Accounts
D) Bad Debt Expense
Q4) Explain how net realizable value for accounts receivable is calculated. On which financial statement is net realizable value shown?
Q5) What are 'held-for-trading investments'?
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Chapter 6: Inventory and Cost of Goods Sold
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106 Flashcards
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Sample Questions
Q1) Under a periodic inventory system, which of the following entries would record the purchase of merchandise on credit?
A) Debit Inventory and credit Accounts Payable
B) Credit Purchases and debit Cost of Goods Sold
C) Credit Sales and debit Accounts Receivable
D) Debit Purchases and credit Accounts Payable
Q2) If a company makes an error when counting ending inventory in 2013, the effect of the error will cancel out at the end of 2014.
A)True
B)False
Q3) Inventory turnover is calculated by:
A) dividing average inventory by cost of goods sold
B) dividing cost of goods sold by average inventory
C) multiplying average inventory by cost of goods sold
D) subtracting ending inventory from cost of goods sold
Q4) The specific unit cost method is frequently used for items with common characteristics, such as gallons of paint.
A)True
B)False
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Chapter 7: Property, Plant, and Equipment, and Intangible Assets
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129 Flashcards
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Sample Questions
Q1) Depreciation is calculated using full years only.
A)True
B)False
Q2) Expenditures of a periodic, routine nature incurred to maintain the asset in its existing condition are referred to as:
A) capital expenditures
B) equity expenditures
C) matching expenditures
D) immediate expenses
Q3) Except for goodwill, the accounting for intangibles is similar to accounting for tangible long-lived assets.
A)True
B)False
Q4) The cost of land would include all of the following except:
A) purchase price
B) back property taxes
C) clearing the land
D) sidewalks and curbs
Page 9
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Chapter 8: Long-Term Investments and the Time Value of Money
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Sample Questions
Q1) Why is understanding the extent to which ATCO Ltd. influences another company important for accounting purposes? What impact does the degree of influence ATCO Ltd. has over another company have on accounting?
Q2) On January 1, 2013 Blue Cat Corporation purchased 1,000 shares (5%) of Mike Mouse Co. for $14,000 as a long term investment. On May 31, 2014 Mike Mouse pays a $0.70 dividend. At year end December 31, 2014 Mike Mouse shares are trading at $15 per share. Blue Cat then sells their investment in Mike Mouse Co for $13,500 on February 20, 2015. Prepare Blue Cat's journal entries for 2013, 2014 and 2015.
Q3) The investor should generally use the equity method of accounting for the investee if the investor owns what percentage of the outstanding stock of the investee?
A) 0%-15%
B) 20%-50%
C) any percentage greater than 50%
D) any percentage greater than 60%
Q4) What are consolidated financial statements? What are some of the benefits and limitations of them for ATCO Ltd.?
Q5) Briefly explain the meaning of the term "present value."
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Chapter 9: Liabilities
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Sample Questions
Q1) Arrowplan Inc. prepares its financial statements in accordance with ASPE. It issued $800,000 of 7.5%, 15-year bonds dated March 1, 2014, on May 1, 2014, at 97 1/2 plus accrued interest. If Arrowplan Inc. uses the straight-line method of amortization, the entry to retire the bonds on the maturity date would include a:
A) debit to Bonds Payable for $780,000
B) credit to Cash for $800,000
C) credit to Discount on Bonds Payable for $20,000
D) debit to Premium on Bonds Payable for $20,000
Q2) A $1,500 bond quoted at 98 1/2 is selling for:
A) $1,500
B) $1,518
C) $1,492
D) $1,478
Q3) The market or effective rate of interest is used to calculate the actual amount of interest bondholders will receive from a company issuing bonds.
A)True
B)False
Q4) Describe the two interest rates included in setting the price of a bond.
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Page 11
Chapter 10: Shareholders Equity
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Sample Questions
Q1) Shareholders are typically more concerned about the market value of the company's shares than about the redemption value of the shares.
A)True B)False
Q2) Assets other than cash should be recorded at their current fair market values when received from the issuance of shares.
A)True B)False
Q3) A corporation is a separate legal entity that exists apart from its owners. A)True B)False
Q4) What type of shares would an investor purchase if he or she were primarily interested in steady dividends?
Q5) JetNew issued 50,000 common shares on January 1, 2014 at $8 each. Preferred shares were issued on March 15, 2014 at $10 each with a dividend rate of $0.50. JetNew sold 20,000 of these shares. On November 15, in order to buy into the business, another shareholder offered up a building valued at $300,000 for 30,000 common shares. At the time of this transaction JetNew shares were trading at $9. Prepare the required journal entries.
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Equity
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Sample Questions
Q1) Flexity Corporation, whose income tax rate is 35%, has taxable income of $592,600 and pretax accounting income of $494,000. The entry to record the income tax includes a:
A) debit to Income Tax Expense for $207,410
B) credit to Income Tax Payable for $207,410
C) credit to Income Tax Payable for $172,900
D) debit to Income Tax Payable for $172,900
Q2) Traxx Corporation reports net income for 2014 of $460,000. Traxx Corporation had 10,000 shares of $10 preferred shares outstanding for all of 2014. Traxx Corporation also had 50,000 common shares issued at $10 outstanding for all of 2014. Earnings per share is:
A) $6.00
B) $6.67
C) $7.20
D) $8.00
Q3) A statement of shareholder's equity does not include details about a company's issuance of stock.
A)True
B)False
Q4) Outline the criteria required for revenue recognition. Page 13
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Page 14
Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following represents the correct order on the statement of cash flows?
A) Investing, operating and then financing activities
B) Operating, investment then financing activities
C) Operating, financing then investing activities
D) Investing, financing then operating activities
Q2) Minden Company purchased a piece of land in 2008 for $120,000. At the end of 2013 the land was appraised and valued at $200,000. In 2014, due to water quality issues Minden Company sold the land for $55,000. On its 2014 income statement and statement of cash flows how should the company record this sale transaction.
Q3) Free cash flow is calculated by taking net cash flow provided by operations less cash flow marked for investment in property, plant, equipment and other non-current assets.
A)True
B)False
Q4) If Dividends Payable decreased during the period, then cash paid for dividends exceeded dividends declared during the current year.
A)True
B)False
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Page 15
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Earnings per common share measures the market value of one common share.
A)True
B)False
Q2) For each of the following items, explain its significance and show how the ratio mentioned is calculated:
a. A decrease in the current ratio
b. An increase in inventory turnover
c. An increase in the days' sales in receivables
d. A decrease in the debt ratio
e. An increase in the rate of return on net sales
Q3) When performing vertical analysis on a balance, the current liabilities are compared typically to total liabilities.
A)True
B)False
Q4) The acid-test ratio shows the ability of a business to pay all of its current liabilities if they came due immediately.
A)True
B)False
Q5) Identify three cash flow signs of a healthy company.
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