Financial Accounting
Mock Exam
Course Introduction
Financial Accounting introduces students to the fundamental concepts and principles used to record, classify, and interpret financial transactions for business organizations. The course covers the processes involved in preparing and analyzing key financial statements, including the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding the regulatory frameworks, such as generally accepted accounting principles (GAAP), and their role in ensuring the integrity and comparability of financial information. Students will also explore the impact of accounting choices on decision-making by stakeholders and gain practical skills in recording transactions, adjusting entries, and preparing final accounts.
Recommended Textbook
Financial Managerial Accounting 16th Edition by Jan Williams
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Chapter 1: Accounting: Information for Decision Making
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Sample Questions
Q1) The work of accountants practicing in public accounting may best be described as:
A) Providing various types of accounting services to a wide variety of clients.
B) Preparing income tax returns for individuals and small businesses.
C) Developing and interpreting information tailored to the needs of business managers.
D) Helping governmental agencies carry out their various regulatory responsibilities.
Answer: A
Q2) Which of the following is generally not considered an external user of accounting information?
A) Stockholders of a corporation.
B) Bank lending officers.
C) Financial analysts.
D) Factory managers.
Answer: D
Q3) Users of accounting information
List seven groups that would typically use financial information.
Answer: 1. Investors; 2. Creditors; 3. Managers; 4. Owners; 5. Customers; 6. Employees; 7. Regulators.
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3
Chapter 2: Basic Financial Statements
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Sample Questions
Q1) Accounts payable and notes payable are:
A) Always less than the amount of cash a business owns.
B) Creditors.
C) Written promises to pay a certain amount, plus interest, at a definite future date.
D) Liabilities.
Answer: D
Q2) A statement of cash flows for February, would report an increase in cash of:
A) $4,000.
B) $47,000.
C) $53,600.
D) $96,600.
Answer: D
Q3) A business entity is regarded as separate from the personal activities of its owners whether it is a sole proprietorship, a partnership, or a corporation.
A)True
B)False
Answer: True
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Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) In a trial balance prepared on June 4, the sum of the credit column is:
A) $130,000.
B) $132,600.
C) $127,000
D) Some other amount.
Answer: B
Q2) This transaction involves:
A) The sale of land and building for $286,000.
B) Payment of $221,000 on a note payable.
C) The receipt of $65,000 cash.
D) An increase in liabilities of $221,000.
Answer: D
Q3) What is the balance in the Cash account at the end of May?
A) $210,000.
B) $390,000.
C) $600,000.
D) $810,000.
Answer: B
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) If Hot Bagel Co. estimates depreciation on an automobile to be $578 for the year, the company should make the following adjusting entry:
A) Debit Accumulated Depreciation $578 and credit Depreciation Expense $578.
B) Debit Depreciation Expense $578 and credit Automobile $578.
C) Debit Depreciation Expense $578 and credit Accumulated Depreciation $578.
D) Debit Automobile $578 and credit Depreciation Expense $578.
Q2) Prepaid expenses are assets that should appear on the balance sheet. A)True B)False
Q3) Videobusters, Inc. offered books of video rental coupons to its patrons at $40 per book. Each book contained a certain number of coupons for video rentals. During the current period 500 books were sold for $20,000, and this amount was credited to Unearned Rental Revenue. At the end of the period, it was determined that $15,000 worth of book coupons had been used by customers to rent videos. The appropriate adjusting entry at the end of the period would be:
A) Debit Rental Revenue $5,000 and credit Unearned Rental Revenue $5,000. B) Debit Rental Revenue $15,000 and credit Unearned Rental Revenue $15,000.
C) Debit Unearned Rental Revenue $5,000 and credit Rental Revenue $5,000.
D) Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.
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Page 6
Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Q1) For a publicly held company, indicate which of the following activities are likely to occur at or shortly after year-end. (More than one answer may be correct.)
A) Preparing of income tax returns.
B) Adjusting and closing the accounts.
C) Drafting disclosures that accompany financial statements.
D) An audit of the financial statements by a firm of CPAs.
Q2) The normal order in which the financial statements are prepared is:
A) Balance sheet, income statement, statement of retained earnings.
B) Income statement, statement of retained earnings, balance sheet.
C) Income tax return, income statement, balance sheet.
D) Income statement, statement of cash flows, balance sheet.
Q3) A current asset may be cash or must be capable of being converted into cash within a relatively short period of time, usually less than five years.
A)True
B)False
Q4) Closing entries do not affect the cash account.
A)True
B)False
Page 7
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Chapter 6: Merchandising Activities
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Q1) Emerald Co. uses a perpetual inventory system and records purchases of merchandise at net cost. The company recently purchased 200 compact discs at an invoice price of $6,000 and terms of 2/10, n/30. Half of these discs had been mislabeled and were returned immediately to the supplier. The journal entry to record payment of this invoice after the discount period has expired will include a:
A) Debit to Inventory for $3,000.
B) Credit to Cash for $3,000.
C) Debit to an expense account for $60.
D) Credit to Cash for $2,940.
Q2) If World of Sound uses a perpetual inventory system, the journal entry to record the purchase on May 18th would include which of the following?
A) A debit to the Purchases account for $38,250.
B) A debit to the Cost of Goods Sold for $38,250.
C) A credit to Inventory for $38,250.
D) A debit to Inventory for $38,250.
Q3) Inventories are assets that a company holds for sale in the ordinary course of business.
A)True
B)False
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Page 8
Chapter 7: Financial Assets
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Q1) In financial statements prepared on December 31, 2010, Neptune Corporation reports:
A) The asset Investments in Marketable Securities at $700,000 with footnote disclosure of the market value of $730,000.
B) The asset Investments in Marketable Securities at $730,000, and a $30,000 Unrealized Holding Gain included in total stockholders' equity.
C) The asset Investments in Marketable Securities at $730,000, and a $30,000 gain recognized in the income statement.
D) The asset Investments in Marketable Securities at $700,000, and a $30,000 Unrealized Holding Gain included in total stockholders' equity.
Q2) If a 5%, 120-day note receivable is acquired from a customer in settlement of an existing account receivable of $50,000, the accounting entry for acquisition of the note will:
A) Include a debit to Notes Receivable for $50,822.
B) Include a debit to Notes Receivable for $50,208.
C) Include a credit to Interest Revenue for $822.
D) Include a debit to Notes Receivable for $50,000 and no entry for interest.
Q3) What is the amount of the deposit in transit?
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Page 9
Chapter 8: Inventories and the Cost of Goods Sold
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Q1) A clothing store would logically have a higher inventory turnover rate than would a doughnut shop.
A)True
B)False
Q2) In a periodic system, the only account in regard to inventory that is kept up-to-date is the inventory account.
A)True
B)False
Q3) In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?
A) Only Sales.
B) Sales and Inventory.
C) Sales and Cost of Goods Sold.
D) Sales, Inventory, and Cost of Goods Sold.
Q4) The retail inventory method would never be used if a company uses the FIFO method.
A)True
B)False
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Chapter 9: Plant and Intangible Assets
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Sample Questions
Q1) Various depreciation methods-first year
On September 5, 2009, Apollo purchased equipment costing $40,000, with an estimated life of 6 years and an estimated salvage value of $4,000.
Compute the depreciation expense Apollo would recognize on this equipment in 2009, assuming:
\[\begin{array} { | l | l | }
\hline \text { (a) Straight-line depreciation with fractional periods rounded } \\ \text { to the nearest full month }& \$\_\_\_ \\
\hline \text { (b) } 200 \% \text {-declining-balance, using the half-year convention }& \$\_\_\_ \\
\hline \text { (c) } 150 \% \text {-declining-balance with fractional periods rounded } \\ \hline \text { to the nearest full month } & \$\_\_\_ \\ \hline
\end{array}\]
Q2) Revenue expenditures are a part of selling and administrative expenses. A)True B)False
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Page 11
Chapter 10: Liabilities
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Sample Questions
Q1) Assume Apex borrows $2 million to finance its expansion. Apex's debt ratio immediately after the borrowing will be:
A) .10.
B) .20.
C) .33 (rounded).
D) .18.
Q2) The basic measure of the amount of leverage being applied within the capital structure of an organization is the:
A) Interest coverage ratio.
B) Debt ratio.
C) Return on assets.
D) Return on equity.
Q3) The entry made by Webster Company to record issuance of the bonds payable at December 31, 2011, includes:
A) A debit to Cash of $1,000,000.
B) A debit to Discount on Bonds Payable of $30,000.
C) A credit to Bonds Payable of $970,000.
D) A credit to Bond Interest Payable of $30,000.
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12
Chapter 11: Stockholders Equity: Paid-In Capital
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Q1) The market price of a preferred stock will be affected by:
A) The dividend rate.
B) The chance that the company will not operate profitably.
C) The level of interest rates.
D) The dividend rate, the chance that the company will not operate profitably, and the level of interest rates.
Q2) Inside directors of a corporation may be officers of the corporation and therefore are not considered independent.
A)True
B)False
Q3) The purchase of treasury stock creates an asset for the corporation and is recorded at the cost of the shares purchased, not par value.
A)True
B)False
Q4) Contributed capital is equivalent to paid-in capital.
A)True
B)False
Q5) The average issue price per share of preferred stock: $_____ per share
Q6) The total amount of paid-in capital: $__________
Page 13
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Chapter 12: Income and Changes in Retained Earnings
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Q1) The numerator in calculating earnings per share is reduced for:
A) Preferred dividends.
B) Common dividends.
C) Common stock dividends.
D) Any form of dividend.
Q2) Of the items listed, which would appear closest to the bottom of the income statement?
A) Extraordinary items.
B) Prior period adjustment.
C) Income from continuing operations.
D) Discontinued operations.
Q3) If Global Publishing had reacquired 16,000 shares of treasury stock early in 2009, then some treasury stock must have been sold during 2009 for:
A) $5 per share.
B) $8 per share.
C) $6 per share.
D) $16 per share.
Q4) Comprehensive income is a component of net income.
A)True
B)False
Page 14
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) If accounts receivable decrease during the period, cash received from customers probably exceeds net sales.
A)True
B)False
Q2) Cash flows from operating activities include all of the following except:
A) Collections from customers for sales of goods.
B) Interest and dividends received.
C) Payments of interest.
D) Payments of dividends.
Q3) Compute the cash payments for purchases of merchandise during the current year.
A) $260,000.
B) $250,000.
C) $266,000.
D) $254,000.
Q4) Total cash proceeds received by Johnson from sales of plant assets during the current year amounted to:
A) $13,000.
B) $104,000.
C) $195,000.
D) $41,000.
Page 15
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) The measurement that best reflects investors' expectations about future earnings is:
A) Earnings per share.
B) Return on assets.
C) The price-earnings ratio.
D) Return on equity.
Q2) Which of the following is not a measure of short-term liquidity?
A) Quick ratio.
B) Working capital.
C) Current ratio.
D) Debt ratio.
Q3) Hart Corporation's net income was $400,000 in 2010 and $160,000 in 2011. What percentage increase in net income must Hart achieve in 2012 to offset the decline in profits in 2011?
A) 60%.
B) 150%.
C) 600%.
D) 67%.
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Chapter 15: Global Business and Accounting
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Q1) Which of the following is not true regarding the above sales transaction to Music of Mexico?
A) Brown recognizes a loss on fluctuation of foreign currency in the amount of $4.65 in 2011.
B) Brown recognizes a gain on fluctuation of foreign currency in the amount of $4.80 in 2012.
C) Brown has incurred an overall loss of $1.60 on fluctuation of foreign currency in the period from December 10, 2011 to February 8, 2012.
D) Brown could have avoided any loss due to fluctuations in foreign currency by setting the sales price of the cassettes in terms of U.S. dollars instead of pesos.
Q2) "Convergence" means abandoning a country's financial reporting standards and replacing them with the International financial Reporting Standard.
A)True B)False
Q3) Explain the major provisions of the Foreign Corrupt Practices Act as amended in 1986.
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Chapter 16: Management Accounting: a Business Partner
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Q1) The accounting records of Newport Mfg. Co. include the following information for the most recent year ended Dec. 31: Indicate which of the following are correct. (More than one answer may be correct.)
A) Amount debited to the Work in Process Inventory account during year, $500,000.
B) Cost of finished goods manufactured, $490,000.
C) Cost of goods sold, $470,000.
D) Total manufacturing costs, $650,000.
Q2) Generally Accepted Accounting Principles
The accounting department of Burke Manufacturing prepares numerous reports at the request of, and for exclusive use by, the management of the company. Is it necessary that these managerial accounting reports be developed in accordance with generally accepted accounting principles (GAAP)?
Q3) The balance in the Materials Inventory account at the beginning of 2011: was:
A) $65,000.
B) $85,000.
C) $45,000.
D) Some other amount. $_____________
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Chapter 17: Job Order Cost Systems and Overhead
Allocations
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Q1) An increase in an activity base must cause an increase in actual overhead costs incurred for that base to be considered a cost driver.
A)True
B)False
Q2) Alice Blue is a wholesale dress manufacturer. In manufacturing dresses, the following costs were incurred in March: \(\begin{array}{|l|l|}
\hline \text { Direct materials } & \$ 40,600 \\
\hline \text { Direct labor } & \$ 78,000 \\ \hline
\end{array}\)
Projected overhead for the year was $560,000 to be allocated based on project direct labor cost of $395,000. What are the total manufacturing costs for March?
Q3) An overhead application rate is computed by dividing the estimated overhead costs by the expected amount of units in the activity base.
A)True
B)False
Q4) What is the finished goods inventory at October 31? $___________
Page 19
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Chapter 18: Process Costing
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Q1) In a process costing system, the number of units started and completed for a period is equal to:
A) Units transferred out less units in beginning work in process.
B) Units transferred out less units in ending work in process.
C) Units transferred out plus units of beginning work in process.
D) Units transferred out plus units in ending work in process.
Q2) All of the following are characteristics of the products of process costing except:
A) High volume.
B) Different amounts of direct materials.
C) Identical amounts of direct materials.
D) Repetitive operations.
Q3) As companies become more automated, overhead costs increase and direct labor costs decrease.
A)True
B)False
Q4) A company may choose to use process costing or job costing, but never both simultaneously.
A)True
B)False
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Chapter 19: Costing and the Value Chain
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Q1) Value-added activities include:
A) Setting up machinery.
B) Storing direct materials.
C) Employees' idle time.
D) Product design.
Q2) The basic approach of just-in-time costing is to try to eliminate inefficiency and to improve product quality.
A)True
B)False
Q3) Target costing is directed toward:
A) Increasing the activity costs associated with existing products.
B) Identifying the amount by which the costs of existing products must be reduced to achieve a target profit margin.
C) The creation and design of products that will provide adequate profits.
D) The improvement of existing production processes by eliminating non-value adding activities.
Q4) Activity-based management is a subset of activity-based costing.
A)True B)False
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) If unit sales prices are $7 and variable costs are $5 per unit, how many units would have to be sold to break-even if fixed costs equal $8,000?
A) 2,000.
B) 3,000.
C) 4,000.
D) 3,800.
Q2) Millar Company produces a single product which it sells for $89 a unit. If the fixed costs of manufacturing and selling the product are $68,400 a month and the variable costs are $57 a unit, which of the below are correct?
A) The fixed costs amount to $32 per unit at any level of output within a relevant volume range.
B) The company will break even with a sales volume of $68,400 a month.
C) An increase in sales volume above $68,400 a month will cause an increase in fixed costs.
D) The contribution margin per unit of product is $32.
Q3) At the original selling price of $50 per unit, how many units must Paulsen sell to break even?
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Chapter 21: Incremental Analysis
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Q1) Aircraft Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a special valve used in assembling one of its products. The unit cost of producing this valve includes variable costs of $70 and fixed costs of $60. The valves could be purchased from an outside supplier at $77 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company's operating income to:
A) Increase by $26,000.
B) Increase by $17,000.
C) Decrease by $9,000.
D) Decrease by $29,000.
Q2) Which of the following is not a relevant factor in Burns' decision concerning whether to accept the special order from Allen?
A) The opportunity cost involved in accepting Allen's order.
B) The incremental cost of manufacturing an additional 5,000 saws per month.
C) The $65 average cost per unit to manufacture a power saw.
D) Where and at what price Allen intends to sell the saws.
Q3) Joint costs allocated to product EB total: $_____________
Q4) Joint costs allocated to product MB total: $_____________
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Chapter 22: Responsibility Accounting and Transfer Pricing
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Q1) All of the following costs are traceable to specific sales departments except:
A) Cost of goods sold.
B) Depreciation of equipment and fixtures used in the department.
C) Advertising a special sale in a particular department.
D) The salary of the store manager.
Q2) Parker's newly hired director of accounting services feels that the property taxes on the Cairo factory should be allocated to the fabricating, assembly, and finishing departments based upon the square footage they occupy. Of the following, which is not a valid reason to reject this recommendation?
A) The property taxes would not change even if one or more of the departments were eliminated.
B) Such an allocation violates GAAP.
C) The property taxes are not under the control of department managers.
D) The allocation may imply changes in efficiency that are unrelated to center performance.
Q3) Profit centers generate revenues and expenses.
A)True
B)False
Q4) Contribution margin ratio: _____________%
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Chapter 23: Operational Budgeting
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Q1) If the behavioral approach is employed to determine the levels at which budgeted amounts are set, then reasonable and achievable levels should be used.
A)True
B)False
Q2) Which of the following is not considered an operating budget?
A) Manufacturing cost budget.
B) Production schedule.
C) Capital expenditures budget.
D) Sales forecast.
Q3) What are Ross's budgeted collections for July?
A) $800,000.
B) $939,000.
C) $1,083,000.
D) $915,000.
Q4) The operating cycle is the average time required to manufacture products for sale.
A)True
B)False
Q5) Explain what is meant by "profit rich, yet cash poor".
Q6) Discuss the benefits that a company may derive from a formal budgeting process.
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Chapter 24: Standard Cost Systems
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Q1) In setting standards, management's level of performance expectation must be something less than ideal.
A)True
B)False
Q2) Modern Art, Inc., produces handpainted mouse pads. The following budgeted and actual results are for a recent month in which actual production was equal to budgeted production: Which of the following is true? (There may be more than one response.)
A) The materials price variance is favorable.
B) The direct labor rate variance is favorable.
C) The materials quantity variance is unfavorable.
D) The direct labor efficiency variance is unfavorable.
Q3) The purchasing manager is often included in evaluating cost variances.
A)True
B)False
Q4) The direct labor rate variance for the period was:
A) $425 favorable.
B) $360 favorable.
C) $360 unfavorable.
D) $425 unfavorable.
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Chapter 25: Rewarding Business Performance
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Q1) What is the return on investment for Mahen, Inc?
A) 5%.
B) 6%.
C) 10%.
D) 20%.
Q2) What is the return on investment for Brookes, Inc?
A) 70%.
B) 19%.
C) 13%.
D) 9%.
Q3) What is the capital turnover for Mahen, Inc.?
A) 166%.
B) 5%.
C) 10%.
D) 60%.
Q4) The value chain starts with the supplier and ends with the consumer.
A)True
B)False
Q5) Identify the criticisms of using ROI (Return on investment) as the only performance measure.
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Chapter 26: Capital Budgeting
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Q1) The management of Trylon Farms is considering the purchase of equipment costing $320,000. The equipment has a useful life of eight years, with $20,000 residual value. The use of this equipment will produce positive annual cash flow of $60,000 for eight years, as well as $20,000 from sale of the equipment at the end of the eighth year. Compute the net present value of this investment, discounted at an annual rate of 10%. (Present value of $1 due in eight years, discounted at 10%, is 0.467; present value of $1 received annually for eight years, discounted at 10%, is 5.335.)
A) $9,340.
B) $320,100.
C) $9,440.
D) $329,440.
Q2) The above data indicate that:
A) After considering the timing of future cash flows, each of the three proposals is expected to provide a rate of return in excess of 15%.
B) Proposal A will generate net losses annually.
C) If the salvage value of proposal A were $52,000 instead of zero, proposal A would have the highest net present value.
D) The present value of proposal B's future cash flows is $2,471,600.
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Chapter 28: Forms of Business Organization
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Q1) Limited personal liability is a characteristic of a sole proprietorship.
A)True B)False
Q2) Sue and Al form a partnership. Sue invests $20,000 and Al invests $25,000. In the first year the partnership earns $60,000. Sue withdraws $7,500 and Al withdraws $12,000. Each receives a salary of $15,000 and the remainder is divided 60% to Al and 40% to Sue. Prepare a schedule showing the capital accounts for Sue and Al.
Q3) When a corporation declares a dividend:
A) Assets decrease, liabilities increase.
B) Retained earnings increase, liabilities increase.
C) Liabilities increase, retained earnings decrease.
D) Retained earnings decrease, assets increase.
Q4) Mutual agency refers to the ability of each partner to withdraw cash and other assets at will.
A)True B)False
Q5) Shareholders report and pay income tax on dividends received from a corporation. A)True B)False
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Chapter 27: The Time Value of Money: Future Amounts and
Present Values Answer Key
Available Study Resources on Quizplus for this Chatper
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Sample Questions
Q1) If you receive $20,000 as a gift and invest it at 12% compounded quarterly, how much will you have at the end of three years?
A) $32,020.60.
B) $28,515.20.
C) $22,497.20.
D) $14,027.60.
Q2) To determine the present value of a single amount to be received or paid at a future time you need to know all of the following except:
A) The interest rate or discount rate.
B) The number of periods.
C) The future value.
D) The time between periods.
Q3) A scholarship fund has $75,000 to invest now to provide scholarships to high school students. They want to have at least $150,000 in 8 years. What rate of interest must they invest this money at to reach their goal?
A) 8%.
B) 9%.
C) 10%.
D) 11%.
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