Financial Accounting
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Course Introduction
Financial Accounting is an essential course that introduces students to the principles and practices of recording, summarizing, and reporting financial transactions for business entities. The course covers the fundamental concepts of accounting, including the accounting cycle, preparation of financial statements, and analysis of assets, liabilities, and equity. Students will learn to interpret financial information, understand regulatory frameworks such as GAAP or IFRS, and analyze the impact of financial transactions on organizational performance. By the end of the course, students will be equipped with the skills to prepare and evaluate financial reports, providing a foundation for further study in accounting and finance.
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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Chapter 1: The Financial Statements
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Sample Questions
Q1) The balance sheet measures how well the company performed during the year.
A)True
B)False
Answer: False
Q2) Liabilities are often referred to as "outsider claims" and owners' equity as "insider claims" to assets.
A)True
B)False
Answer: True
Q3) The payment of the chief financial officer's salary would appear:
A) on the cash flow statement with the operating activities
B) on the balance sheet with the current liabilities
C) on the income statement with the revenues
D) on the income statement as part of cost of goods sold
Answer: A
Q4) Financial statement information that reflects the economic substance of a transaction is considered to be representationally faithful.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Recording Business Transactions
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Sample
Questions
Q1) What criteria are used to determine if a transaction has occurred?
Answer: If the event affects the entity's financial position and can be reliably recorded, then a transaction has occurred. If both of these criteria are not met, a transaction has not occurred. Some business events do not lead to transactions, such as the retirement of an executive officer in the company, or changing the company's logo. However, if these events have some financial impact, then a transaction has occurred.
Q2) Where is information for each account stored?
Answer: Information for each account is stored in the ledger. The ledger becomes an accounting history for each account, since it details all of the transactions for each account. It also contains the dates of the transactions and references to the journal from which the transactions have been posted.
Q3) A trial balance is simply a list of all accounts and their balances at a point in time.
A)True
B)False
Answer: True
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4
Chapter 3: Accrual Accounting and the Financial Statements
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Sample Questions
Q1) In accrual accounting, revenue may be earned prior to or after cash is received. A)True
B)False Answer: True
Q2) Under the revenue recognition principle, businesses should record revenue when it is earned regardless of when payment is received from the customer.
A)True
B)False Answer: True
Q3) When considering making a loan to a company, a bank will look for:
A) a high debt ratio and a low current ratio
B) a high debt ratio and a high current ratio
C) a low debt ratio and a low current ratio
D) a low debt ratio and a high current ratio
Answer: D
Q4) Accrual accounting is more complex than the cash basis. A)True
B)False
Answer: True
Page 5
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Chapter 4: Internal Control and Cash
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Sample Questions
Q1) In a bank reconciliation, an EFT cash payment is:
A) deducted from the bank balance in the general ledger
B) added to the bank balance in the general ledger
C) deducted from the bank balance on the bank statement
D) added to the bank balance on the bank statement
Q2) If a bookkeeper mistakenly recorded a disbursement of $63 instead of the correct amount of $36, the error would be shown on the bank reconciliation as a:
A) $36 addition to the books
B) $36 deduction from the books
C) $27 addition to the books
D) $27 deduction from the books
Q3) If a bank reconciliation included $600 of outstanding cheques, the journal entry to record this reconciling item would include:
A) a credit to Cash of $600
B) a debit to Cash of $600
C) a credit to Accounts Payable of $600
D) no entry is required
Q4) Briefly describe how payment of expenses by cheque is an important internal control.
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Chapter 5: Short-Term Investments and Receivables
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Sample Questions
Q1) Under the aging-of-accounts-receivable method:
A) the balance in accounts receivable prior to adjustment must be considered
B) the balance in Allowance for Uncollectible Accounts prior to adjustment is ignored
C) the balance in Allowance for Uncollectible Accounts prior to adjustment must be considered
D) the balance in Bad Debt Expense prior to adjustment must be considered
Q2) A company with net sales of $500,000, a beginning balance of net receivables of $80,000, and an ending balance of net receivables of $90,000 has a collection period of:
A) 197 days
B) 62 days
C) 54 days
D) 6 days
Q3) When a note matures, the maker should record:
A) interest expense
B) interest revenue
C) interest receivable
D) unearned revenue
Q4) What are 'held-for-trading investments'?
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) If ending inventory for the year ended December 31, 2013, is understated, this error will cause owners' equity to be:
A) overstated at the end of 2013 and understated at the end of 2014
B) understated at the end of 2013 and overstated at the end of 2014
C) correctly stated at the end of 2013 and overstated at the end of 2014
D) understated at the end of 2013 and correctly stated at the end of 2014
Q2) If ending inventory for the year ended December 31, 2013, is overstated by $25,000:
A) net income for 2014 will be understated by $25,000
B) net income for 2014 will be overstated by $25,000
C) ending inventory for 2014 will be understated by $25,000
D) beginning inventory for 2014 will be understated by $25,000
Q3) A firm can change their inventory costing method if it provides more reliable and relevant information.
A)True
B)False
Q4) State some methods retailers might use to increase the gross margin on sales.
Q5) State some guidelines a company's management could use to determine the most desirable inventory costing method.
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Chapter 7: Property, Plant, and Equipment, and Intangible Assets
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Sample Questions
Q1) Book value is determined by subtracting the salvage value from the cost of an asset. A)True
B)False
Q2) A loss is recorded on the sale of property, plant, and equipment when:
A) the asset is sold for a price greater than the asset's book value
B) the asset's book value is less than the balance in Accumulated Depreciation
C) the asset's book value is greater than the amount of cash received from the sale
D) a loss on the sale of property, plant, and equipment is not allowed according to GAAP
Q3) Key West Corporation, a public company purchased its plant at a cost of $10.7 million, with no residual value. The plant is to be depreciated over 20 years. At this time the company selected the revaluation method.
December 31, 2013 a real estate expert determined this building is now worth $18.6 million. Prepare the required journal entry if any.
Q4) Explain how a company should decide which depreciation method to use for income tax purposes.
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Chapter 8: Long-Term Investments and the Time Value of Money
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Sample Questions
Q1) Purchases of bonds of other companies are reported as financing activities on the cash-flow statement.
A)True
B)False
Q2) The equity method of accounting for a stock investment should generally be used when the investor owns 20%-50% of the investee's stock, because that level of stock ownership:
A) usually indicates a plan to acquire a controlling interest of the investee company
B) requires the investor to notify the government of any plans to acquire a controlling interest in the investee company
C) means the investor has a controlling interest in the investee company
D) gives the investor significant influence over the investee company
Q3) JetNew Corporation sold merchandise on June 25, 2014 to a US company for 560,000 US dollars. JetNew received payment from the US company on July 5, 2014. The US was worth $1.04 on June 25, 2014, and $1.05 on July 5, 2014.
Prepare the appropriate sales and cash receipts entries for JetNew Corporation on May 25, 2014, and July 5, 2014.
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Page 10
Chapter 9: Liabilities
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Sample Questions
Q1) Which type of lease will not increase a company's assets or liabilities?
A) a finance lease
B) an operating lease
C) a lease in which title is transferred to the lessee at the end of the lease term
D) the present value of lease payments is 90% or more of the market value of the leased asset
Q2) Interest expense will decrease each period if a company uses the effective-interest method of amortization and the bonds are issued at a discount.
A)True
B)False
Q3) The carrying amount of bonds issued at a premium is calculated by subtracting Premium on Bonds Payable from Bonds Payable. A)True B)False
Q4) The carrying value of bonds will decrease each interest period if the bonds were issued at a premium.
A)True
B)False
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Chapter 10: Shareholders Equity
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Sample Questions
Q1) List several characteristics of a corporation. Indicate, wherever appropriate, if the characteristic is an advantage or a disadvantage of the corporate form of business.
Q2) A stock dividend will:
A) reduce total assets
B) have no effect on total assets
C) have no effect on total assets or total owners' equity
D) increase total owners' equity
Q3) Quo Corporation issues 100 common shares for $12 per share. This transaction will include a:
A) credit to Retained Earnings for $1,200
B) credit to Contributed Surplus for $1,200
C) debit to Common Shares for $1,200
D) credit to Common Shares for $1,200
Q4) What type of shares would an investor purchase if he or she were primarily interested in increasing dividends?
Q5) The entry to record the declaration of a cash dividend includes a credit to retained earnings.
A)True
B)False
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of Shareholders Equity
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Sample Questions
Q1) Prior-period adjustments are made when an error occurs in one period and it is corrected in a later period.
A)True
B)False
Q2) Under ASPE, when pretax accounting income exceeds taxable income:
A) Prepaid Income Tax is debited
B) Prepaid Income Tax is credited
C) Future Tax Liability is credited
D) Future Tax Asset is debited
Q3) JetNew has a tax rate of 35%. The controller has just calculated JetNew's accounting income (pre-tax) to be $560,000 for 2013. Taking into account the differences in calculation, JetNew's taxable income is $440,000. Prepare the journal entry to record JetNew's taxes for 2013 under IFRS.
Q4) A statement of shareholders' equity would not include which type of transaction?
A) inventory acquired for cash
B) land exchanged for common shares
C) repurchased shares reissued by the corporation
D) stock dividends declared by the board of directors
Q5) Explain what is meant by the phrase "the quality of earnings." Page 13
Q6) Outline the criteria required for revenue recognition.
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Page 14
Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Cassidy Lake Corporation sold some of its used equipment for $65,000. The indirect method statement of cash flows shows an addition to net income of $6,000. The accumulated depreciation on the equipment to date of sale was $63,000. The original cost of the equipment was:
A) $69,000
B) $71,000
C) $134,000
D) $122,000
Q2) Lindsay Limited had the following transactions during the year:
Proceeds from the sale of land $100,000
Gain on the sale of land $50,000
Proceeds from the issue of common shares $800,000 What was the cash from investing activities?
Q3) Under the indirect method, depreciation expense must be added back to net income under the operating activities.
A)True
B)False
Q4) Why is the statement of cash flows of interest to investors, creditors, and management?
Q5) Why is the statement of cash flows necessary?
Page 15
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) A common size statement reports each item as a percentage of the previous years figure.
A)True
B)False
Q2) Which of the following would be most likely to reveal that net income represented 7% of total net sales in 2014, but only 4% in 2013?
A) common-size financial statements
B) horizontal analysis
C) trend analysis
D) ratio analysis
Q3) A very high accounts receivable turnover would most likely indicate that:
A) net credit sales for the year have been understated
B) policies for extending credit to customers are too tight
C) accounts receivable balances have been overstated
D) the company is unsuccessful in its efforts to collect cash from customers
Q4) Briefly discuss what information is provided by the following ratios:
a. inventory turnover
b. accounts receivable turnover
c. days' sales in receivables
Q5) Identify three cash flow signs of a healthy company.
Page 16
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