Financial Accounting
Pre-Test Questions
Course Introduction
Financial Accounting introduces the fundamental principles and practices used to record, classify, and interpret financial transactions of businesses. The course covers topics such as the accounting cycle, preparation of financial statements, recognition of revenues and expenses, and understanding assets, liabilities, and equity. Emphasis is placed on the Generally Accepted Accounting Principles (GAAP) and the role of financial information in decision-making for investors, creditors, and management. Students will learn how to analyze and communicate financial data, preparing them for further study in accounting and finance.
Recommended Textbook
Financial and Managerial Accounting 11th Edition by
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Page 2
Carl S. Warren
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Clifford Moore purchased $15,000 of Star Tech stock for cash. Star Tech would
A) increase Assets (Cash) and increase Liabilities (Accounts Payable)
B) increase Assets (Cash) and increase Stockholders' Equity (Capital Stock)
C) Increase Assets (Accounts Receivable) and decrease Liabilities (Accounts Payable)
D) Increase Assets (Cash) and increase Assets (Accounts Receivable)
Answer: B
Q2) Which of the items below is not a business entity?
A) entrepreneurship
B) proprietorship
C) partnership
D) corporation
Answer: A
Q3) The balance sheet represents the accounting equation.
A)True
B)False
Answer: True
Q4) What are the three sections of the statement of cash flows?
Answer: Operating Activities, Investing Activities, and Financing Activities
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Which of the following accounts would be increased with a credit?
A) Land, Accounts Payable, Dividends
B) Accounts Payable, Unearned Revenue, Capital Stock
C) Capital Stock, Accounts Receivable, Unearned Revenue
D) Cash, Accounts Receivable, Capital Stock
Answer: B
Q2) The balance of the account can be determined by adding all of the debits, adding all of the credits, and adding the amounts together.
A)True
B)False
Answer: False
Q3) Supplies purchased on account were incorrectly recorded as Office Equipment. The correcting entry would be
A) Supplies, debit; Office Equipment, credit.
B) Accounts Receivable, debit; Supplies, credit.
C) Office Equipment, debit; Supplies Expense, credit.
D) Supplies, debit; Accounts Payable, credit.
Answer: A
Q4) Prepare a journal entry on March 27 for the payment of $8,000 in dividends.
Answer: 11ea9299_7dce_128e_85c7_01882ae826fa_TB6235_00
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) If the adjustment for accrued salaries at the end of the period is inadvertently omitted, both liabilities and stockholders' equity will be understated for the period.
A)True
B)False
Answer: True
Q2) Adjusting journal entries are dated on the last day of the period.
A)True
B)False
Answer: True
Q3) If the adjustment of the unearned rent account at the end of the period to recognize the amount of rent earned is inadvertently omitted, the net income for the period will be understated.
A)True
B)False
Answer: True
Q4) A fixed asset's market value is reflected in the Balance Sheet.
A)True
B)False Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The amount of the net income for a period appears on both the income statement and the balance sheet for that period.
A)True
B)False
Q2) Explain the differences between a nonclassified balance sheet and a classified balance sheet.
Q3) The balance sheet should be prepared
A) before the income statement and the retained earnings statement
B) before the income statement and after the retained earnings statement
C) after the income statement and the retained earnings statement
D) after the income statement and before the retained earnings statement
Q4) After all of the account balances have been extended to the Income Statement columns of the work sheet, the totals of the debit and credit columns are $77,500 and $85,300, respectively. What is the amount of the net income or net loss for the period?
A) $7,800 net income
B) $7,800 net loss
C) $85,300 net income
D) $77,500 net loss
Q5) Explain how net income or loss is determined by using the work sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Gross profit is equal to:
A) sales plus (sales discounts and sales returns and allowances) plus cost of merchandise sold
B) sales plus sales returns and allowances less sales discounts less cost of merchandise sold
C) sales plus sales discounts less sales returns and allowances less cost of merchandise sold
D) sales less (sales discounts and sales returns and allowances) less cost of merchandise sold
Q2) Merchandise with a sales price of $800 is sold on account with term 2/10, n/30. The journal entry to record the sale would include a
A) debit to Cash for $800
B) Debit to Sales Discounts for $16
C) Credit to Sales for $800
D) Debit to Accounts Receivable for $784
Q3) In the periodic inventory system, purchases of merchandise for resale are debited to the Purchases account.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) The average cost method will always yield results between FIFO and LIFO.
A)True
B)False
Q2) All of the following are reasons to use an estimated method of costing inventory except:
A) Perpetual inventory records are not maintained.
B) Purchase records are not maintained.
C) A disaster has destroyed the inventory records and the inventory.
D) Interim financial statements are required but physical inventory is only taken at the end of the financial accounting period.
Q3) If ending inventory for the year is overstated, retained earnings reported on the balance sheet at the end of the year is understated.
A)True
B)False
Q4) FIFO is the inventory costing method that follows the physical flow of the goods. A)True
B)False
Q5) List three different security measures taken by stores to safeguard inventory.
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Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) A check drawn by a company for $270 in payment of a liability was recorded in the journal as $720. This item would be included on the bank reconciliation as a(n)
A) addition to the balance per the company's records
B) addition to the balance per the bank statement
C) deduction from the balance per the bank statement
D) deduction from the balance per the company's records
Q2) A $140 petty cash fund has cash of $18 and receipts of $120. The journal entry to replenish the account would include a credit to
A) Cash for $120.
B) Cash Over and Short for $2.
C) Petty Cash for $122.
D) Cash for $122.
Q3) A minimum cash balance required by a bank is called
A) cash in bank
B) cash equivalent
C) compensating balance
D) EFT
Q4) Why would a bank require a company to maintain a compensating balance?
Q5) List the principal advantage of electronic funds transfers.
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Chapter 8: Receivables
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Sample Questions
Q1) An aging of a company's accounts receivable indicates that the estimate of uncollectible accounts totals $4,000. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record the bad debt expense for the period will require a
A) debit to Bad Debt Expense for $5,200.
B) debit to Bad Debt Expense for $4,000.
C) debit to Bad Debt expense for $2,800
D) credit to Allowance for Doubtful Accounts for $5,000.
Q2) Discuss the two methods for recording bad-debt expense. What type of company uses each method?
Q3) Under the allowance method of accounting for uncollectible receivables, writing off an uncollectible account.
A) affects only income statement accounts.
B) is not an acceptable practice.
C) affects only balance sheet accounts.
D) affects both balance sheet and income statement accounts.
Q4) Receivables currently collectible are reported in the investments section of the balance sheet.
A)True
B)False
Page 10
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Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) Equipment with a cost of $130,000 has an estimated residual value of $10,000 and an estimated life of 5 years or 12,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 3,300 hours?
A) $24,000
B) $32,500
C) $33,000
D) $35,750
Q2) On December 31, Strike Company has decided to discard one of its batting cages. The initial cost of the equipment was $215,000 with an accumulated depreciation of $185,000. Depreciation has been taken up to the end of the year. The following will be included in the entry to record the disposal.
A) Accumulated Depreciation Dr. $215,000
B) Loss on Disposal of Asset Dr. $185,000
C) Equipment Cr. $215,000
D) Gain on Disposal of Asset Cr. $30,000
Q3) A machine costing $57,000 with a 6-year life and $3,000 residual value was purchased January 2, 2011. Compute the yearly depreciation expense using straight-line depreciation.
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Page 11
Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) The journal entry to record the cost of warranty repairs that were incurred during the current period, but related to sales made in prior years, includes a debit to Warranty Expense.
A)True
B)False
Q2) On January 5, 2012, Garrett Company, a calendar-year company, issued $500,000 of notes payable, of which $100,000 is due on January 1 for each of the next five years. The proper balance sheet presentation on December 31, 2012, is
A) Current Liabilities, $500,000.
B) Current Liabilities, $100,000; Long-term Debt, $400,000.
C) Long-term Debt, $500,000
D) Current Liabilities, $400,000; Long-term Debt, $100,000.
Q3) Estimating and recording product warranty expense in the period of the sale best follows which of the following accounting concepts?
A) cost concept
B) business entity concept
C) matching concept
D) materiality concept
Q4) List five internal controls that relate directly to payroll.
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Chapter 11: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) Carmen Company a publicly traded company with preferred and common stock issued. As of January 1st, it had 50,000 shares of $100 par, 2% preferred stock outstanding and 250,000 shares of $10 par common stock outstanding.
(a) On January 31st, the Board of Directors issues a requirement to purchase 5,000 shares of common stock at market price. The shares are purchased at a market price of $22 per share. Journalize the purchase utilizing the cost concept.
(b) On March 15th, Carmen declares a dividend on preferred stock of $2.75 per share. The date of record is March 25th and the date of payment is March 31st. Journalize these events.
(c) On December 1st, Carmen declares a cash dividend on common stock of $0.12 per share. The date of record is December 15th and the date of payment is December 21st. Journalize these events.
(d) On December 27th the board orders that 2,500 shares of treasury stock be sold. The sale price is $25 per share. Journalize this event.
Q2) The retained earnings statement may be combined with the income statement. A)True B)False
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Page 13
Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) The interest expense recorded on an interest payment date is increased
A) only if the market rate of interest is less than the stated rate of interest on that date.
B) by the amortization of premium on bonds payable.
C) by the amortization of discount on bonds payable.
D) only if the bonds were sold at face value.
Q2) The balance in Discount on Bonds Payable that is applicable to bonds due in 2015 would be reported on the balance sheet in the section entitled
A) current liabilities
B) long-term liabilities
C) current assets
D) intangible assets
Q3) The concept of present value is that an amount of cash to be received at some date in the future is the equivalent of the same amount of cash held at an earlier date. A)True
B)False
Q4) (a) Prepare the journal entry to issue $200,000 bonds which sold for $195,000 (b) Prepare the journal ertry to issue $200,000 bonds which sold for $204,000
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Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) The corporation owning all or a majority of the voting stock of another corporation is known as the parent company.
A)True
B)False
Q2) Jacks Corporation purchases $200,000 bonds plus accrued interest for 2 months of $2,000 from Kennedy Company on March 1. The bonds have an annual interest rate of 6% payable on June 30 and December 31. The entry to record the purchase of the bonds would include:
A) Interest Receivable debit $2,000
B) Investment in Bonds debit $202,000.
C) Cash credit $200,000
D) Interest Revenue credit $2,000.
Q3) In order to maintain the original value of a trading security, the fair value adjustments are debited or credited to the account Valuation Allowance for Trading Investments.
A)True B)False
Q4) Discuss the similarities and differences in reporting trading securities, available-for-sale securities and held-to-maturity securities.
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Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) In preparing the cash flows from operating activities section of the statement of cash flows by the indirect method, the amortization of bond discount for the period is deducted from the net income for the period.
A)True
B)False
Q2) Which of the following concepts of cash is not appropriate to use in preparing the statement of cash flows?
A) cash
B) cash and money market funds
C) cash and cash equivalents
D) cash and U.S. treasury bonds
Q3) Which one of the following below should be added to net income in calculating net cash flow from operating activities using the indirect method?
A) a gain on the sale of land
B) a decrease in accounts payable
C) an increase in accrued liabilities
D) dividends paid on common stock
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) An extraordinary item results from
A) a segment of the business being sold.
B) corporate income tax being paid.
C) a change from one accounting method to another acceptable accounting method.
D) a transaction or event that is unusual and occurs infrequently.
Q2) The current ratio is
A) used to evaluate a company's liquidity and short-term debt paying ability.
B) is a solvency measure that indicated the margin of safety of a noteholder or bondholder.
C) calculated by dividing current liabilities by current assets.
D) calculated by subtracting current liabilities from current assets.
Q3) An acceleration in the collection of receivables will tend to cause the accounts receivable turnover to A) decrease
B) remain the same
C) either increase or decrease
D) increase
Q4) In horizontal analysis, the current year is the base year.
A)True
B)False
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