Financial Accounting Review
Questions
Course Introduction
Financial Accounting introduces students to the fundamental principles and practices involved in preparing, analyzing, and interpreting financial statements. The course covers essential topics such as the accounting cycle, recording business transactions, adjusting entries, and the preparation of income statements, balance sheets, and cash flow statements. Emphasis is placed on understanding Generally Accepted Accounting Principles (GAAP), the role of ethics in accounting, and how financial information supports decision-making in a business context. Through practical exercises and real-world examples, students gain the skills necessary to assess the financial health and performance of organizations.
Recommended Textbook Principles of 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) If a company has suffered only net losses since its inception, the owner's equity account will always have a negative balance.
A)True
B)False
Answer: False
Q2) Companies listed on the stock exchanges must file financial statements with the
A) Financial Accounting Standards Board.
B) American Institute of Certified Public Accountants.
C) Securities and Exchange Commission.
D) Internal Revenue Service.
Answer: C
Q3) The Federal Reserve Board is an example of an economic planner.
A)True
B)False
Answer: True
Q4) The statement of owner's equity discloses the owner's withdrawals made during the period.
A)True
B)False Answer: True
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) If Accounts Receivable has debit postings of $29,000, credit postings of $22,000, and a normal ending balance of $24,000, which of the following was its beginning balance?
A) $31,000 Dr.
B) $17,000 Dr.
C) $17,000 Cr.
D) $31,000 Cr.
Answer: B
Q2) In a journal entry, credits are always indented.
A)True
B)False
Answer: True
Q3) Which of the following accounts probably would be listed before the others in a chart of accounts?
A) Insurance Expense
B) Grace Peterson, Withdrawals
C) Notes Payable
D) Accumulated Depreciation, Buildings
Answer: D
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4
Chapter 3: Measuring Business Income
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Sample Questions
Q1) Accumulated depreciation is classified as a(n)
A) contra-expense account.
B) expense account.
C) contra-asset account.
D) liability account.
Answer: C
Q2) Which of the following accounts would appear on an adjusted trial balance but probably would not appear on a trial balance?
A) Supplies Expense
B) Accounts Payable
C) Service Revenue
D) Cash
Answer: A
Q3) When a net loss has been suffered, the Owner's Capital account will contain a negative balance.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) On the completed work sheet, which set of columns usually should be out of balance after the initial footing?
A) Both Income Statement and Balance Sheet columns
B) Balance Sheet columns only
C) Income Statement columns only
D) Adjusted Trial Balance columns only
Q2) Below are the adjusted accounts of Valdez Realtors for the month ended July 31, 20xx, listed in alphabetical order: \(\begin{array}{lrlr}
\text { Accounts Payable } & \$ 500 & \text { Land } & \$ 1,500 \\
\text { Accounts Receivable } & 3,600 & \text { Office Equipment } & 10,900 \\
\text { Accumulated Depreciation- } & & \text { Salaries Expense } & 2,400 \\
\text { Office Equipment } & 4,000 & \text { Toni Valdez, Capital } & 8,900 \\
\text { Cash } & 1,150 & \text { Toni Valdez Withdrawals } & 1,000 \\
\text { Commissions Revenue } & 7,500 & \text { Utilities Expense } & 150 \\
\begin{array}{l}
\text { Depreciation Expense- } \\
\text { Office Equipment } \end{array} &200 & & \end{array}\) Prepare a post-closing trial balance.
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Chapter 5: Financial Reporting and Analysis
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Sample Questions
Q1) Which of the following items is not shown on a single-step income statement?
A) Cost of goods sold
B) Interest expense
C) Selling expenses
D) Gross margin
Q2) Advertising expense appears as a general and administrative expense on the income statement.
A)True
B)False
Q3) The relevance of accounting information is also an indication of its reliability.
A)True
B)False
Q4) The other revenues and expenses section of a multistep income statement could include all the following except
A) interest expense.
B) interest income.
C) dividend income.
D) insurance expense.
Q5) State the definition of a current asset.
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Chapter 6: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) Exchange gains and losses are reported on the income statement.
A)True
B)False
Q2) Under the periodic inventory system, cost of goods sold is treated as an account.
A)True
B)False
Q3) If a retailer makes a sale of $100 on a MasterCard, and MasterCard takes a 5 percent discount on the sale, the retailer would record Cash for $100 and Accounts Payable for $5.
A)True
B)False
Q4) On the income statement, freight-out is included as part of cost of goods sold.
A)True
B)False
Q5) Under the periodic inventory system, the amount for inventory on hand is accurate only on the balance sheet date.
A)True
B)False
Page 8
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Chapter 7: Internal Control
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Sample Questions
Q1) Internal control involves, in part, the protection of a company's assets.
A)True
B)False
Q2) Which of the following attributes of internal control would be violated if the chief accounting clerk wrote checks to pay accounts payable?
A) Adequate design of documents
B) Sound personnel procedures
C) Periodic independent verification
D) Separation of duties
Q3) For each description below, state which document is being described.
a. Document issued to permit the treasurer to make a payment
b. Bill sent by the vendor to the purchaser
c. Written request prepared by a department asking the purchasing department to make a purchase
d. Document accompanying money put in the bank
e. Document describing items in a shipment of goods delivered
f. Document sent to a vendor requesting shipment of goods
Q4) An understated ending inventory will produce an understated cost of goods sold.
A)True
B)False
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Chapter 8: Inventories
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Sample Questions
Q1) An overstatement of beginning inventory results in
A) no effect on the period's gross margin.
B) an overstatement of gross margin.
C) an understatement of gross margin.
D) a need to adjust purchases.
Q2) Freight charges associated with the purchase of inventory normally are not included in inventory cost.
A)True
B)False
Q3) For each of the following descriptive statements, indicate whether FIFO or LIFO is being described.
_____ 1. Preferable method for conforming to matching principle
_____ 2. Preferable method for tax purposes under rising prices
_____ 3. Results in more up-to-date ending inventory figure
_____ 4. Results in fictitious profits under rising prices
_____ 5. Produces higher income when prices are declining
_____ 6. Produces higher ending inventory when prices are rising
Q4) Under rising prices, why will the FIFO method produce a higher ending inventory than LIFO?
Q5) What is the chief objective of supply-chain management? How is it accomplished?
Page 10
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Chapter 9: Cash and Receivables
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Sample Questions
Q1) A bank reconciliation begins with the balances as of the beginning of the month.
A)True
B)False
Q2) Which of the following situations results in a contingent liability?
A) Making a credit card sale
B) Dishonoring a note
C) Estimating uncollectible accounts expense
D) Discounting a note
Q3) The allowance for uncollectible accounts is necessary because
A) a liability results when a credit sale is made.
B) when recording uncollectible accounts expense, it is not possible to predict specifically which accounts will not be collected.
C) management should know how many credit losses have been sustained over the years.
D) uncollected accounts that are written off must be accumulated in a separate account.
Q4) Days' sales uncollected cannot be calculated without first knowing the receivable turnover.
A)True
B)False
Page 11
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) A company purchases an asset on a deferred payment plan, ultimately paying $10,000. On the payment date, the company would
A) credit Cash for less than $10,000.
B) debit Interest Expense for the imputed amount.
C) debit the asset account for $10,000.
D) debit Accounts Payable for $10,000.
Q2) Interest on a promissory note is recognized when the note is issued.
A)True
B)False
Q3) At the time a company signs a contract to pay an employee a certain salary in the future, it records a liability.
A)True
B)False
Q4) All of the following are classified as definitely determinable liabilities except A) sales tax payable.
B) estimated property tax payable.
C) the current portion of long-term debt.
D) unearned revenue.
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Chapter 11: Long Term Assets
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Sample Questions
Q1) A reduction in carrying value as a result of impairment is recorded as a loss.
A)True
B)False
Q2) Computation of a partial year's depreciation is often required for the proper determination of net income.
A)True
B)False
Q3) The construction of a new wing on an existing building is described as a(n) A) addition.
B) extraordinary repair.
C) revenue expenditure.
D) betterment.
Q4) When an asset is sold, a gain is calculated as the difference between A) sale price and the depreciable cost of the asset sold.
B) sale price and the carrying value of the asset sold.
C) carrying value and the residual value of the asset sold.
D) sale price and the original cost of the asset sold.
Q5) Intangible assets are subject to a process called depreciation.
A)True
B)False
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Chapter 12: Contributed Capital
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Sample Questions
Q1) The dividends yield is measured in terms of "times."
A)True
B)False
Q2) Holders of preferred stock normally do not have
A) preference as to dividends.
B) preference as to assets in liquidations.
C) full voting rights.
D) ownership interests in the corporation.
Q3) Corporate earnings are subject to double taxation.
A)True
B)False
Q4) The contributed capital of a corporation does not include
A) additional paid-in capital.
B) preferred stock.
C) the stated value of common stock issued.
D) retained earnings.
Q5) The death of a stockholder results in the dissolution of the corporation.
A)True
B)False
Q6) Define outstanding stock.
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Chapter 13: Long Term Liabilities
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Sample Questions
Q1) In a monthly mortgage payment, the same amount is devoted to interest expense as in the previous month's payment.
A)True
B)False
Q2) Financial leverage refers to the issuance of stock to raise cash.
A)True
B)False
Q3) Suffolk Corporation issued $100,000 of 20-year, 6 percent bonds at 98 on one of its semiannual interest dates. The straight-line method of amortization is to be used. After seven years, what is the carrying value of the bonds?
A) $98,350
B) $98,700
C) $99,300
D) $99,650
Q4) When a bond sells at a discount, what is probably true about the market interest versus the face interest rate? Discuss.
Q5) Entering into a lease is an example of off-balance-sheet financing.
A)True
B)False
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Chapter 14: The Corporate Income Statement and the Statement of Stockholders Equity
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Q1) On the income statement, all income taxes should be centralized in the Income Taxes Expense account.
A)True
B)False
Q2) The quality of a company's earnings may be affected by the
A) industry in which the company operates.
B) choice of independent auditors.
C) accounting methods the company uses.
D) countries in which the company operates.
Q3) The existence of which of the following income statement items will reduce the quality of the bottom-line figure?
A) Advertising expense
B) Revenues from services
C) Cost of goods sold
D) Extraordinary gain
Q4) The effects on individual contributed capital accounts of a conversion of preferred stock to common stock during the period are disclosed on the statement of stockholders' equity.
A)True B)False
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) Cash flows to sales is a measure of free cash flow.
A)True
B)False
Q2) During 2009, Heckart Corporation had sales of $250,000, net income of $25,000, average total assets of $350,000, dividend payments of $17,500, net cash flows from operating activities of $26,000, purchases of plant assets of $37,500, and sales of plant assets of $45,000. Cash flow yield equals (Round amounts to one decimal place)
A) 1.5 times.
B) 1.0 times.
C) 2.1 times.
D) 1.3 times.
Q3) Royer Corporation engaged in this transaction: Purchased one-year insurance policy for cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.
A) Financing activities section
B) Does not represent a cash flow
C) Investing activities section
D) Operating activities section
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Chapter 16: Financial Performance Measurement
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Sample Questions
Q1) Dun & Bradstreet publishes
A) data on average ratios and relationships.
B) credit ratings of companies.
C) data on industry norms.
D) all of these.
Q2) A quick ratio that is much smaller than the current ratio indicates that
A) inventories represent a large portion of current assets.
B) the company has a low inventory turnover.
C) inventories represent a small portion of current assets.
D) the company has a high inventory turnover.
Q3) Dividends yield is a market strength ratio.
A)True
B)False
Q4) A primary purpose of vertical analysis is to observe trends over a five-year period.
A)True
B)False
Q5) What is horizontal analysis, and why is it useful in performing financial performance measurement?
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Chapter 17: Partnerships
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Q1) It is possible for a partner's Capital account to increase as a result of the allocation of a net loss.
A)True
B)False
Q2) Tom, Dick, and Harry each receive a $10,000 salary, as well as 10 percent interest on their respective average investments of $60,000, $100,000, and $20,000. If they share remaining income and losses in a 2:1:3 ratio, respectively, by how much would Dick's account increase or decrease (indicate a decrease by placing parentheses around the amount), assuming (a) net income of $72,000, (b) net income of $36,000, and (c) net loss of $36,000.
Q3) Which of the following will not result in dissolution of a partnership?
A) Death of a partner
B) Withdrawal of a partner
C) Admission of a new partner
D) Sale of partnership assets
Q4) A liquidation differs from a dissolution is that in a liquidation
A) the business will not continue
B) assets may be revalued
C) gains and losses are distributed according to the partnership agreement
D) there may be an adjustment of partners' Capital accounts
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Chapter 18: The Changing Business Environment-A
Managers Pers
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Q1) Management accounting
A) deals primarily with people and organizations outside of the business entity.
B) requires only periodic reporting on a regular basis.
C) uses any type of useful measurement unit, including physical as well as monetary measures.
D) deals only with the double-entry recording system.
Q2) The balanced scorecard has gained little acceptance as an approach to establish effective performance measurement.
A)True
B)False
Q3) Which of the following is not a key question to be addressed when preparing a report?
A) Who?
B) What?
C) When?
D) Where?
Q4) Financial performance measures are useful in reducing waste and inefficiencies in operating activities.
A)True
B)False
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Chapter 19: Cost Concepts and Cost Allocation
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Sample Questions
Q1) The cost of goods manufactured is added to the beginning balance of Finished Goods Inventory to obtain the total cost of goods available for sale during the period.
A)True
B)False
Q2) The numbers of vendors, products, and engineering change orders are examples of A) beneficial relationships.
B) potential cost drivers.
C) inputs to processing time.
D) unavoidable overhead costs.
Q3) Indirect costs can be conveniently traced to a cost object.
A)True
B)False
Q4) Product costs for a manufacturing company consist of direct materials, direct labor, and overhead.
A)True
B)False
Q5) Both indirect materials and indirect labor are overhead costs. A)True
B)False
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Chapter 20: Costing Systems: Job Order Costing
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Sample Questions
Q1) In a job order costing system, product costs are traced to work cells.
A)True
B)False
Q2) In a process costing system, each product is assigned the same amount of costs.
A)True
B)False
Q3) Which of the following is not a characteristic of a job order costing system?
A) Uses only one Work in Process Inventory account
B) Uses job cost cards to keep track of each job in process
C) Assigns costs to specific batches of products
D) Measures costs for a set time period
Q4) In a job order costing system, a separate job order cost card is used for each individual job.
A)True
B)False
Q5) In a job order costing system, the transfer of overhead costs to the Work in Process Inventory account must take place before product unit costs can be computed.
A)True
B)False
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Chapter 21: Costing Systems Process Costing
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Sample Questions
Q1) During October, Department A started 320,000 units of product in a particular manufacturing process. The beginning work in process inventory was 50,000 units, and the ending inventory was 30,000 units. Direct materials are introduced at the start of processing, and beginning and ending inventories are considered to be 50 percent complete with respect to conversion costs. Department A uses the FIFO costing method. The number of equivalent units for conversion costs was
A) 345,000.
B) 330,000.
C) 360,000.
D) 375,000.
Q2) The FIFO process costing method assumes that the items in ending work in process inventory were started and completed during the current period.
A)True
B)False
Q3) Which of the following entities probably would use a process costing system?
A) An oil refinery
B) A yacht builder
C) A custom furniture company
D) A custom screw manufacturer
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Chapter 22: Activity-Based Systems-Abm and Lean
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Sample Questions
Q1) A value-adding activity is one that adds cost to a product or service but does not increase its market value.
A)True
B)False
Q2) Backflush costing eliminates the need to make journal entries during the period to track cost flows through the production process as the product is made.
A)True B)False
Q3) Which of the following statements contradicts the philosophy underlying the just-in-time operating environment?
A) The work force must become multiskilled in order to operate many different machines and perform other tasks in the work cell.
B) A customer order triggers the purchase of materials and the activation of the production process.
C) Large inventories are maintained in order to fulfill customer orders on a timely basis.
D) Flexible work cells are created to increase productivity.
Q4) How can activity-based systems help managers in a global marketplace?
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Chapter 23: Cost Behavior Analysis
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Q1) A crystal goblet sells for $50 per goblet. The contribution margin per goblet is $14. Total monthly fixed costs are estimated to be $82,600. The monthly breakeven point in goblets is
A) 5,900 goblets.
B) 11,800 goblets.
C) 2,950 goblets.
D) 41,300 goblets.
Q2) Dapper Hat Makers is in the business of designing and producing specialty hats. The material used for derbies costs $4.50 per unit, and Dapper pays each of its two full-time employees $250 per week. If Employee A makes 15 derbies in one week, what is the variable cost per derby? (Round to two decimal places where necessary.)
A) $4.50
B) $15.00
C) $16.67
D) $21.17
Q3) Normal capacity is the average annual level of operating capacity needed to meet expected sales demand.
A)True
B)False
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Chapter 24: The Budgeting Process
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Q1) Operating budgets for the DiP Company reveal the following information: net sales, $400,000; beginning materials inventory, $23,000; materials purchased, $185,000; beginning work in process inventory, $64,700; beginning finished goods inventory, $21,600; direct labor costs, $34,000; overhead applied, $67,000; ending work in process inventory, $61,200; ending materials inventory, $18,700; and ending finished goods inventory, $16,300. Compute DiP Company's budgeted gross margin.
A) $299,800
B) $293,800
C) $150,900
D) $100,900
Q2) Budgets facilitate congruence between organizational and personal goals. A)True
B)False
Q3) In estimating cash receipts and cash payments for the cash budget, many organizations prepare supporting schedules.
A)True
B)False
Q4) Describe three benefits budgeting provides to an organization's success.
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Chapter 25: Performance Management and Evaluation
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Q1) A responsibility center whose manager is held accountable for both revenues and costs and for the resulting operating income is called a profit center.
A)True
B)False
Q2) The use of quantitative tools to gauge an organization's performance in relation to a specific goal or an expected outcome is known as
A) responsibility accounting.
B) an asset turnover.
C) a performance management and evaluation system.
D) a performance measurement.
Q3) Employer-provided health insurance is a common type of incentive compensation.
A)True
B)False
Q4) Standard costing would most often require which type of performance evaluation?
A) Flexible budgeting
B) Zero-based budgeting
C) Variable costing
D) Any of these choices
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Chapter 26: Standard Costing and Variance Analysis
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Q1) Variance analysis involves computing the difference between standard and actual costs.
A)True
B)False
Q2) An expression of the hourly labor pay cost per function or job classification that is expected to exist during the next accounting period is the definition of a
A) direct labor time standard.
B) direct materials quantity standard.
C) direct labor rate standard.
D) variable overhead rate.
Q3) A standard cost accounting system can be used for
A) direct materials.
B) overhead.
C) direct labor.
D) all of these.
Q4) The flexible budget formula is an equation that determines unexpected costs at any level of output.
A)True
B)False
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Chapter 27: Short Run Decision Analysis
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Q1) The cost of a previously purchased machine is an example of a sunk cost.
A)True
B)False
Q2) Which of the following techniques is most useful for a special order decision?
A) Payback method
B) Present value method
C) Accounting rate-of-return method
D) Incremental analysis
Q3) A cost that does not change between the alternatives is known as a differential cost.
A)True
B)False
Q4) If the incremental costs of processing further is greater than the incremental revenue, the decision to process the product or service further is justified.
A)True
B)False
Q5) A segment margin is a segment's sales revenue minus its direct costs.
A)True
B)False
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Chapter 28: Capital Investment Analysis
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Q1) The method of project selection that brings the time value of money into capital investment analysis is the
A) rate of return on initial investment.
B) net present value method.
C) payback method.
D) accounting rate-of-return method.
Q2) Present value is the amount that must be invested today at a given rate of compound interest to produce a given future value.
A)True
B)False
Q3) When deciding whether to keep or replace a fixed asset, the asset's carrying value could be relevant to the decision.
A)True
B)False
Q4) Cost of capital information is not at all necessary to establish the minimum rate of return on investments.
A)True
B)False
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