Financial Accounting I Test
Questions
Course Introduction
Financial Accounting I provides an introduction to the foundational principles and practices of financial accounting. Students learn to analyze, record, and report economic transactions for businesses, focusing on the preparation of core financial statements such as the balance sheet, income statement, and statement of cash flows. The course covers accounting concepts, the accounting cycle, and the use of Generally Accepted Accounting Principles (GAAP), while emphasizing the importance of ethics and accuracy in financial reporting. By the end of the course, students will have the skills to interpret basic financial information and understand its role in decision-making for various stakeholders.
Recommended Textbook
Financial Accounting 11th Edition by Belverd E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) The economic resources to which the owners have claim are represented by stockholders' equity.
A)True
B)False
Answer: True
Q2) The net income figure appears in all the following financial statements except the A) statement of cash flows.
B) income statement.
C) statement of retained earnings.
D) balance sheet.
Answer: D
Q3) All public accountants but not management accountants are required to adhere to a code of professional conduct.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) The chart of accounts is the starting point for a
A) journal.
B) trial balance.
C) ledger.
D) financial statement.
Answer: C
Q2) Fair value relates most closely to the
A) recognition point.
B) recognition issue.
C) valuation issue.
D) classification issue.
Answer: C
Q3) An increase in revenue is recorded with a credit.
A)True
B)False
Answer: True
Q4) Column totals are called account balances.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) Accrued revenues
A)Used to determine that all temporary accounts have zero balances.
B)The postponement of the recognition of an expense already paid.
C)Accounts that begin each accounting period with a zero balance.
D)Increases in stockholders' equity resulting from selling goods.
E)Revenue that is received in advance of goods delivery or service performance.
F)Accounts that carry their end-of-period balances into the next accounting period.
G)The recognition of a revenue or an expense that has arisen but not been recorded during the accounting period.
H)Decreases in stockholders' equity resulting from the cost of selling goods.
I)Used after making adjusting journal entries to ensure that debits equal credits.
J)Revenues that a company has earned by performing a service or delivering goods but for which no entry
Answer: J
Q2) Supplies Expense is a permanent account.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Supplement - Closing Entries and the Work Sheet
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Sample Questions
Q1) The work sheet is a type of source document.
A)True
B)False
Q2) The final step when preparing closing entries is to close the Dividends account to the Retained Earnings account.
A)True
B)False
Q3) Despite the many uses of microcomputers,they cannot be used to prepare work sheets.
A)True
B)False
Q4) The work sheet should be prepared after the formal financial statements have been prepared.
A)True B)False
Q5) The total assets and the total liabilities and stockholders' equity on the balance sheet are the same as the totals of the Balance Sheet columns on the work sheet.
A)True B)False
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Chapter 5: Financial Reporting and Analysis
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Sample Questions
Q1) Who is responsible for preparing financial statements?
A) The CPA firm that audits the financial statements
B) Management of the company
C) A company's accounting department
D) The FASB
Q2) A corporation's stockholders' equity section of the balance sheet may contain all except
A) T.McDonald,capital
B) Retained earnings
C) Additional paid-in capital
D) Common stock
Q3) The asset turnover ratio measures
A) how quickly the company uses assets to pay debt.
B) how efficiently assets are used to produce sales.
C) the income produced by selling inventory.
D) how efficiently equity is used to produce revenue.
Q4) Advertising expense should be included in the general and administrative expenses section of a multistep income statement.
A)True
B)False
Page 7
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Chapter 6: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) A purchase order is sent from a company's
A) accounting department to the supplier.
B) treasurer to the supplier.
C) supplier to its accounting department.
D) purchasing department to the supplier.
Q2) In addition to keeping the records of a purchase transaction,the accounting department should prepare and mail checks for payment of invoices.
A)True
B)False
Q3) Which of the following is necessary for computing cost of goods sold but not necessary for computing goods available for sale?
A) Freight-in
B) Purchases
C) Ending merchandise inventory
D) Beginning merchandise inventory
Q4) The perpetual inventory system relies on a physical count of merchandise for its balance sheet amount.
A)True
B)False
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Chapter 7: Inventories
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Sample Questions
Q1) The term goods flow refers to the association of costs with their assumed flow in the operation of a business.
A)True
B)False
Q2) The average-cost method relies on a calculation of average unit cost.
A)True
B)False
Q3) The gross profit method requires that records be kept at both cost and retail.
A)True
B)False
Q4) The LIFO method is rarely used because most companies do not sell the last goods they purchase first.
A)True
B)False
Q5) In general,when prices are rising,use of the FIFO method will result in a lower tax liability than the other methods.
A)True
B)False
Q6) What is the chief objective of supply-chain management? How is it accomplished?
Page 9
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Chapter 8: Cash and Receivables
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Sample Questions
Q1) A check that is outstanding for two consecutive months will appear only on the first month's bank reconciliation.
A)True
B)False
Q2) Assume that on December 1,a note which has a face value of $18,000,bears interest at 10 percent for 90 days,received from a customer as an extension of his past-due account is dishonored.The entry that would be made to record the dishonor (ignoring interest)is:
A) Notes receivable 18,000
Cash 18,000
B) Accounts receivable 18,000
Cash 18,000
C) Accounts receivable 18,000
Notes receivable 18,000
D) Cash 18,000
Accounts Receivable 18,000
Q3) A company's acceptance of credits cards,like MasterCard,is an example of factoring with recourse.
A)True
B)False
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Chapter 9: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) A company receives $180 for a sale,of which $10 is for sales tax.The journal entry to record the sale is:
A) Sales Tax expense 10
Cash 170
Sales 180
B) Cash 170
Sales 170
C) Cash 180
Sales 180
D) Cash 180
Sales Tax Payable 10
Sales 170
Q2) An employee has gross earnings of $1,200 and withholdings of $91.80 for social security and Medicare taxes and $120 for income taxes.The employer pays $91.80 for social security and Medicare taxes and $9.60 for FUTA.The total cost of this employee to the employer is
A) $1,301.40.
B) $1,200.00.
C) $1,393.20.
D) $1,209.60.
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Page 11
Chapter 10: Long Term Assets
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Sample Questions
Q1) A company purchases for $24,000 an asset that has a useful life of six years and no salvage value.After two years,the company spends $4,000 for a major overhaul that will extend the machine's useful life four years beyond the original six.Assuming straight-line depreciation,how much depreciation should be taken in year 3?
A) $2,800
B) $2,500
C) $2,000
D) $4,000
Q2) A truck that cost $24,000 and on which $18,000 of accumulated depreciation has been recorded was disposed of on January 1.Assume that the truck was traded for a similar truck having a price of $26,000,that an $3,600 trade-in was allowed,and that the balance was paid in cash.The amount of the gain or loss recognized on this transaction would be
A) a $2,400 loss.
B) a $2,400 gain.
C) no gain recognized.
D) no loss recognized.
Q3) Present two arguments in favor of the use of accelerated depreciation.
Q4) What is goodwill and when may it be recorded?
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Chapter 11: Long-Term Liabilities
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Sample Questions
Q1) When all the bonds of an issue mature at the same time,they are called serial bonds.
A)True
B)False
Q2) The total interest cost on seventy-eight,ten-year,6 percent,$1,000 bonds that are issued at 98 is
A) $48,360.
B) $45,240.
C) $47,580.
D) $46,800.
Q3) Deferred income taxes arise when accounting methods used for financial reporting differ from those used on the income tax return.
A)True
B)False
Q4) The carrying value of a bond issued at a premium is calculated at any given point in time by adding the balance of the unamortized premium from the bond's face value.
A)True
B)False
Q5) Deferred income taxes
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Chapter 12: Stockholders Equity
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Sample Questions
Q1) The balance in the Additional Paid-in Capital account must be added to the balance of the Common Stock account to compute the amount of legal capital for a corporation with a par value common stock.
A)True
B)False
Q2) Book value per share of stock represents the amount of equity the shareholder of one share of stock has in the net assets of the company.
A)True
B)False
Q3) Which of the following classifications represents the fewest shares of common stock?
A) Outstanding shares
B) Issued shares
C) Treasury shares
D) Impossible to determine
Q4) Return on equity equals net income divided by average stockholders' equity.
A)True
B)False
Q5) Define outstanding stock.
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Chapter 13: The Statement of Cash Flows
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Sample Questions
Q1) For 2013,Fairfield Corporation had average total assets of $1,300,000,net sales of $1,125,000,net income of $125,000,net cash flows from operating activities of $150,000,dividend payments of $62,500,purchases of plant assets of $150,000,and sales of plant assets of $137,500.Using this information,compute (a)cash flow yield,(b)cash flows to sales,(c)cash flows to assets,and (d)free cash flow.Round amounts to one decimal place.
Q2) Royer Corporation engaged in this transaction: Collected accounts receivable.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A) Does not represent a cash flow
B) Operating activities section
C) Financing activities section
D) Investing activities section
Q3) Cash flows to assets is measured in "times."
A)True
B)False
Q4) Cash inflows and outflows are not as subject to manipulation as earnings are.
A)True
B)False
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Chapter 14: Financial Performance Measurement
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Sample Questions
Q1) Both profit margin and asset turnover affect a company's return on assets.
A)True
B)False
Q2) In a common-size balance sheet,which of the following is given a designation of 100 percent?
A) Total assets
B) Net income
C) Current assets
D) Cost of goods sold
Q3) The index number used in trend analysis is computed by dividing the base year amount by the index year amount,and multiplying that result by 100.
A)True
B)False
Q4) It is possible for horizontal analysis to indicate a decrease in revenues from one year to another and an increase in net income.
A)True
B)False
Q5) Define quality of earnings and identify the factors that affect quality of earnings.
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Chapter 15: Investments
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Sample Questions
Q1) Blau Corporation invests $302,500 in Hills Corporation,buying 80 percent of the voting stock.Hills pays Blau $20,000 in cash dividends and earns a net income of $130,000 during 2013.On the consolidated balance sheet,the balance in the investments account representing Blau's interest in Hills will be
A) $432,500.
B) $412,500.
C) $0 .
D) $302,500.
Q2) Available-for-sale debt securities are valued on the balance sheet at A) cost,adjusted for the effects of interest.
B) maturity value.
C) fair value.
D) original cost.
Q3) An ownership interest of greater than 50 percent is required for an investor to have accounting control over an investee.
A)True
B)False
Q4) Briefly explain,what are the consolidated financial statements,and how is the consolidation accomplished?
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