Financial Accounting
Test Questions
Course Introduction
Financial Accounting introduces students to the fundamental principles, concepts, and procedures used in the preparation, interpretation, and analysis of financial statements. The course covers key topics such as the accounting cycle, recognition and measurement of assets and liabilities, revenue and expense reporting, and the presentation and disclosure of financial information. Emphasizing both theoretical understanding and practical application, students will learn to prepare balance sheets, income statements, and cash flow statements in accordance with generally accepted accounting principles (GAAP). This foundational course is essential for anyone pursuing further studies or a career in accounting, finance, or business management.
Recommended Textbook
College Accounting A Practical Approach 12th Edition by Jeffrey Slater
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Chapter 1: Accounting Concepts and Procedures
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Sample Questions
Q1) The function of accounting includes analyzing,recording,classifying,summarizing,reporting,and interpreting financial information.
A)True
B)False
Answer: True
Q2) Which of the following items are on both the balance sheet and the statement of owner's equity?
A)Net loss
B)Capital
C)Additional owner's investments
D)Owner's withdrawals
Answer: B
Q3) Go Blue Retail Store collected $12,000 of its accounts receivable.The expanded accounting equation changes include:
A)Cash and Capital increase,$12,000.
B)Cash and Revenue increase $12,000.
C)Cash increases and Accounts Receivable decreases $12,000.
D)Accounts Receivable decreases and Capital increases $12,000.
Answer: C
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Chapter 2: Debits and Credits: Analyzing and Recording
Business Transactions
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Q1) A formal account that has columns for date,explanation,post reference,debit,and credit is called the:
A)T account.
B)standard account form.
C)ledger.
D)chart of accounts.
Answer: B
Q2) Which of the following is prepared first?
A)Balance sheet
B)Income statement
C)Statement of owner's equity
D)Trial balance
Answer: D
Q3) Accounts Receivable has a normal balance of $1,100.After collecting $800,the balance in the account is:
A)debit $300.
B)debit $1,900.
C)credit $300.
D)credit $1,900.
Answer: A
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Chapter 3: Beginning the Accounting Cycle
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Sample Questions
Q1) The general journal entry to record the earning of revenue would most commonly include:
A)a debit to Accounts Receivable and a credit to Capital.
B)a debit to Cash and a credit to Capital.
C)a debit to Fees Earned and a credit to Cash.
D)a debit to Accounts Receivable and a credit to Fees Earned.
Answer: D
Q2) During the month of January,Katelyn invested $11,000 in starting her legal practice.The proper journal entry would be:
A)Cash,debit $11,000; Katelyn's Capital,credit $11,000
B)Accounts Payable,debit $11,000; Cash,credit $11,000
C)Cash,debit $11,000; Revenue,credit $11,000
D)Katelyn's Capital,debit $11,000; Cash,credit $11,000
Answer: A
Q3) The time period for which an income statement is prepared is called the accounting period.
A)True
B)False
Answer: True
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Chapter 4: The Accounting Cycle Continued
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Q1) Accumulated Depreciation is a contra-asset account.
A)True
B)False
Q2) The cost of an asset less accumulated depreciation equals:
A)residual value.
B)book value.
C)depreciation expense.
D)None of these answers are correct.
Q3) The worksheet is a formal statement.
A)True
B)False
Q4) If the balance of supplies at the start of the month was $900 and at the end of the month you had $450 on hand,the adjustment for Supplies would be:
A)$450.
B)$550.
C)$350.
D)$900.
Q5) What is the purpose of adjusting entries? Discuss the effect of not preparing adjusting entries on various accounts.
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Chapter 5: The Accounting Cycle Completed
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Q1) A real account is the same as a permanent account.
A)True
B)False
Q2) The post-closing trial balance is used to determine if the ledger is in balance after closing.
A)True
B)False
Q3) Real accounts are those accounts with balances that are brought forward to the next accounting period.
A)True
B)False
Q4) Which of the following is not a temporary account?
A)Wages Expense
B)Service Fees
C)Rent Expense
D)Capital
Q5) The goal of closing is to clear all temporary accounts and update Capital.
A)True
B)False
Q6) What are the major goals of the closing process?
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Chapter 6: Banking Procedure and Control of Cash
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Q1) The bank added another company's deposit to our account.This would be included on the bank reconciliation as a(n):
A)addition to the balance per books.
B)subtraction from the balance per books.
C)addition to the balance per bank.
D)subtraction from the balance per bank.
Q2) ________ Owner withdrew money from the company for personal use
Q3) The drawee of the check is the person receiving the money.
A)True
B)False
Q4) If the written amount on the check does not match the amount expressed in figures,the bank may:
A)pay the amount written in words.
B)return the check unpaid.
C)contact the drawer to see what was meant.
D)All of the above are correct choices.
Q5) What is the difference between a debit and credit memorandum?
Q6) List at least five company policies that would be included in an internal control system.
Q7) What is the purpose of internal control?
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Chapter 7: Calculating Pay and Payroll Taxes: The
Beginning of the Payroll Process
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Q1) A W-4 form:
A)determines the amount of FICA-OASDI to be withheld.
B)determines the amount of FICA-Medicare to be withheld.
C)provides the number of allowances an employee has claimed.
D)shows total wages earned for the year.
Q2) The taxable earnings column of the payroll register records the tax due.
A)True
B)False
Q3) Compute the net pay for each employee.The FICA tax rate is: OASDI 6.2% on a limit of $106,800; Medicare is 1.45%; federal income tax is 15%; state income tax is 5%; and medical insurance is $100 per employee.
\(\begin{array}{llcc}
& \text {Cumulative Pay } & \text {This Week's Pay } \\
\text { Sarah Ahti } &\$75,000&\$4,000\\
\text { Matt DeFore } &\$62,000&\$2,000\\
\end{array}\)
Q4) What is required of an employer by the Federal Insurance Contributions Act?
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Q5) Why would a business decide to use an external company to prepare their payroll checks and related reports?
Chapter 8: Paying,recording,and Reporting Payroll and Payroll Taxes: The Conclusion of the Payroll Process
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Q1) What is the purpose of Form 8109?
A)Used by employers to report the amount of unemployment tax due for the year
B)A quarterly tax report indicating the amount of FICA (OASDI and Medicare)taxes owed
C)A coupon that is completed and sent along with payments of tax deposits relating to forms 940,941,or 944
D)To allow employers who owe less than $2,500 to report their FICA (OASDI and Medicare)taxes owed
Q2) Prepare the general journal entry to record the employer's payroll tax expense.
Q3) Compute the total gross earnings for the tutors.________
Q4) The employer's annual Federal Unemployment Tax Return is:
A)Form 940.
B)Form 941.
C)Form W-4.
D)Form 8109. Page 10
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Chapter 9: Sales and Cash Receipts
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Q1) Determine the amount of cash collected on a credit sale in the amount of $4,500,subject to a 6% sales tax when $500 worth of merchandise has already been returned for credit.
$ ________
Q2) \[\begin{array} { | l | l | l | l | }
\hline & \text { Column 1 } & \text { Column 2 } & \text { Column } 3 \\
\hline \text { Store Supplies } & & & \\ \hline \end{array}\]
Q3) Collected a payment from a credit customer.This will be recorded with:
A)a credit to an asset account.
B)a credit to a liability account.
C)a credit to Capital.
D)None of these are correct.
Q4) The side that increases the balance of the Sales Discount account is:
A)a credit.
B)a debit.
C)zero.
D)It does not have a normal balance.
Q5) Explain how the record keeping differs between a cash sale and a credit sale.
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Chapter 10: Purchases and Cash Payments
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Sample Questions
Q1) A debit memorandum decreases which account on the buyer's books?
A)Accounts Payable
B)Purchases Returns and Allowances
C)Sales Returns and Allowances
D)Accounts Receivable
Q2) Returned merchandise paid for within the discount period for cash.The perpetual inventory system is in use.This will be recorded with:
A)a debit to a liability and a credit to an asset.
B)a debit to an asset and a credit to an asset.
C)a debit to an expense and a credit to a liability.
D)a debit to an expense and a credit to an asset.
Q3) Before paying an invoice,the accounting department must check:
A)the purchase order.
B)the invoice.
C)the receiving report.
D)All of the above are correct.
Q4) Compare and contrast the controlling account Accounts Payable to the accounts payable subsidiary ledger.Discuss why the balance of the controlling account,Accounts Payable,does not equal the sum of the accounts payable ledger during the month.
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Chapter 11: Preparing a Worksheet for a Merchandise Company
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Q1) The ending inventory in Year 1 is the beginning inventory in Year 2.
A)True
B)False
Q2) Camping is Fun purchased merchandise costing $2,000.Calculate the cost of goods sold under the following different situations:
a)Beginning inventory $200 and no ending inventory.
b)Beginning inventory $250 and a $300 ending inventory.
c)No beginning inventory and a $150 ending inventory.
Q3) When counting supplies,several boxes were missed.This would cause:
A)Supplies to be overstated.
B)Supplies Expense to be understated.
C)Net Income to be overstated.
D)All of the above are correct.
Q4) Mortgage Payable:
A)has a debit balance.
B)has a credit balance.
C)shows the amount owed on a mortgage.
D)Both B and C are correct.
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Q5) Discuss the reasons a company would consider using a periodic inventory system.
Chapter 12: Completion of the Accounting Cycle for a Merchandise Company
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Q1) The formal income statement can be prepared from the income statement columns of the worksheet.
A)True
B)False
Q2) Closing entries:
A)are posted to the general ledger.
B)are done to update Cash.
C)can be done before adjusting entries.
D)All of the above are correct.
Q3) How is Income Summary closed if the company had a net income?
A)Debit Capital; credit Income Summary
B)Debit Income Summary; credit Capital
C)Debit Capital; credit Withdrawals
D)Debit Withdrawals; credit Capital
Q4) Adjusting entries from the worksheet:
A)are journalized and posted to the ledger.
B)are posted directly to the ledger.
C)are closed to the Income Summary account.
D)affect only balance sheet accounts.
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Chapter 13: Accounting for Bad Debts
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Q1) At December 31,200x,Brooke's Horse Stable unadjusted Allowance for Doubtful Accounts showed a debit balance of $432.An aging of the Accounts Receivable indicates probable uncollectible accounts of $1,000.The year-end adjusting entry for Bad Debts Expense:
A)includes a debit to the Allowance account for $568.
B)includes a credit to the Allowance account for $42.
C)includes a debit to the Allowance account for $822.
D)includes a credit to the Allowance account for $1,432.
Q2) The entry to adjust for bad debts was ignored.This error would cause:
A)total assets to be overstated.
B)total liabilities to be understated.
C)net income to be understated.
D)None of these are correct.
Q3) When a customer's account is written off:
A)net realizable value of the Accounts Receivable increases.
B)net realizable value of the Accounts Receivable decreases.
C)net realizable value of the Accounts Receivable remains the same.
D)none of the above
Q4) Reinstated an account previously written off under the allowance method. Debit account ________ Credit account ________
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Chapter 14: Notes Receivable and Notes Payable
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Q1) Why is the effective rate of interest always higher than the interest rate of the loan on a discounted note?
Q2) The maturity date of a 60-day note dated April 5 is June 3.
A)True
B)False
Q3) The accounting department forgot to adjust for interest on the note payable.This error would cause:
A)the period end assets to be understated.
B)the period end liabilities to be understated.
C)the period's net income to be understated.
D)None of these answers are correct.
Q4) If your customer does not pay the note at maturity,the journal entry on your books would be:
A)debit Notes Payable and credit Accounts Payable.
B)debit Accounts Payable,credit Interest Income and credit Notes Payable.
C)debit Accounts Receivable,credit Interest Income and credit Notes Receivable.
D)debit Notes Receivable,credit Interest Income,and credit Accounts Receivable.
Q5) Maturity value is Principal + Discount.
A)True
B)False
Page 17
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Chapter 15: Accounting for Merchandise Inventory
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Q1) The freight paid on goods purchased F.O.B.shipping point was debited to the Purchases account.This error would cause:
A)the period end expenses to be understated.
B)the period end expenses to be overstated.
C)the period's net income to be understated.
D)None of these are correct.
Q2) Hawkeye Tack uses a periodic inventory system.Hawkeye Tack sold 80 sweaters during September.Other data for September includes: \(\begin{array} { | r | l | l | }
\hline \text { Sep. 1 } & \text { Balance } & 40 @ \$ 25 \\
\hline 8 & \text { Purchased } & 12 @ 28 \\
\hline 17 & \text { Purrchased } & 25 @ 30 \\
\hline 25 & \text { Purrchased } & 35 @ 32 \\
\hline
\end{array}\) Cost of goods sold under the FIFO method is:
A)$800.
B)$2,406.
C)$1,024.
D)$2,182.
Q3) Under the perpetual inventory method,purchase returns are credited to ________.
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Chapter 16: Accounting for Property, plant, equipment, and Intangible Assets
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Q1) A piece of equipment is purchased for $78,000 on January 1.It has a 5-year life and a salvage value of $8,000.Compute the annual depreciation expense using the double-declining-balance method for all 5 years.
Q2) A loss on the sale of an asset would occur when:
A)the cash received is less than the book value of the asset.
B)the cash received is equal to the book value of the asset.
C)the cash received is greater than the book value of the asset.
D)None of these answers are correct.
Q3) What would be the depreciation expense using double-declining-balance to compute the expense for year 2 of a machine costing $15,000,when residual value is $5,000,and useful life is 5 years?
A)$3,600
B)$6,000
C)$5,000
D)$3,000
Q4) Revenue expenditures include:
A)additions to existing plant assets.
B)periodic normal maintenance costs.
C)initial costs of acquiring plant assets.
D)All of these answers are correct.
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Chapter 17: Partnership
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Q1) If Blake invests $10,000 cash in a partnership,Cash is debited and Blake,Capital is credited,$10,000.
A)True
B)False
Q2) A bonus is paid to the old partners when:
A)the old partner believes the business is worth less than the amounts recorded in the accounting records.
B)the equity of a partnership is worth more than what is recorded in the accounting records.
C)the company's earnings records are less than expected.
D)None of these answers are correct.
Q3) Closed the income summary to the partners' accounts with a net income.
Debit ________ & ________ & ________
Q4) The business paid an account.
Debit ________ & ________ & ________
Q5) A partner may withdraw assets valued at more than book equity if:
A)the remaining partners are anxiously awaiting the partner's retirement.
B)partnership assets are overvalued.
C)partnership assets are undervalued.
D)Both A and C
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&
Chapter 18: Corporations: Organizations and Stock
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Q1) Birch Company issued 200 shares of common stock with a par value of $12 per share in exchange for equipment with a fair market value of $3,000.Record the journal entry for the stock issuance.
Q2) Sold common stock at a price equal to the par value.
Debit ________ & ________ & ________ Credit ________ & ________ &
Q3) Journalize the following stock transactions for Rick Corporation.
\(\text {July\quad 22 }\) \(\quad \)\(\text {Issued 10,000 shares of \(\$ 5\) par common stock for \(\$ 43,000 \mathrm { cash }\).}\)
\(\quad \) \(\quad \)\(\text {28}\) \(\quad \) \(\text { Issued 6, 000 shares of \(\$ 5\) par common stock for \(\$ 33,000\) cash.}\)
\(\quad \) \(\quad \)\(\text {31 }\) \(\quad \)\(\text {Issued 4,000 shares of \(\$ 12\) par, \(7 \%\) preferred stock for \(\$ 53,000\) cash.}\)
Q4) If preferred stock is cumulative,the preferred stockholders:
A)have a right to certain dividends every year.
B)may receive a bonus.
C)will always receive a yearly dividend.
D)All of these answers are correct.
Q5) Describe a stock subscription plan.
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Chapter 19: Corporations: Stock Values,
Stocks, and Retained
Earnings
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Q1) The declaration of a stock dividend was credited to Dividends Payable and debited to Retained Earnings.This error would cause:
A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the period end stockholders' equity to be overstated.
D)the period's net income to be overstated.
Q2) A retained earnings appropriation is a restriction of retained earnings by: A)accountants.
B)senior management.
C)stockholders.
D)the board of directors.
Q3) Retained Earnings is a current liability on the balance sheet. A)True B)False
Q4) Prior period adjustments are included in the statement of retained earnings. A)True B)False
Q5) Book value is only calculated for common stock. A)True B)False
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Chapter 20: Corporations and Bonds Payable
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Q1) At year end there was no accrual of interest on a bond payable.This error would cause:
A)the period end assets to be overstated.
B)the period end liabilities to be overstated.
C)the period's net income to be understated.
D)None of the above.
Q2) The carrying value for bonds sold at a discount:
A)equals face value at all times.
B)increases as time passes until it matures at face value.
C)decreases as time passes until it matures at face value.
D)None of these answers are correct.
Q3) Scooters Doll Flower Company on July 1 issued 10%,$600,000 bonds for $564,149.This price will yield a market rate of 11%.Interest dates are June 30 and December 31.Prepare the journal entries to record:
a.Issuance of the bond.
b.Payment for the first semiannual interest period plus amortization of the discount using the interest method.
c.Payment for the second semiannual interest period plus amortization of the discount using the interest method.
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Chapter 21: Statement of Cash Flows
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Q1) Under the indirect method,net income is considered the primary source of cash from operating activities.
A)True
B)False
Q2) A business issues 10-year bonds payable in exchange for common stock.This transaction would be reported on the statement of cash flows in:
A)operating activities.
B)financing activities.
C)investing activities.
D)a separate schedule.
Q3) When preparing the statement of cash flows by the indirect method,if accumulated depreciation increases the difference is:
A)added to net income.
B)added to investments.
C)deducted from net income.
D)not considered in the statement of cash flows using the indirect method.
Q4) One section of a statement of cash flows is purchasing activities.
A)True
B)False
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Chapter 22: Analyzing Financial Statements
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Q1) Carla's Fashions has an average collection period of 30 days.You could infer that Carla's Fashions:
A)bills her customers monthly.
B)bills her customers quarterly.
C)has an accounts receivable turnover of approximately 12.
D)Both A and C can be inferred.
Q2) Chuck Company has a beginning Accounts Receivable balance of $65,000 and an ending balance of $60,000.Net credit sales are $250,000.The company's accounts receivable turnover ratio is:
A)3.846.
B)4.167.
C)4.000.
D)None of the above.
Q3) An acid test (quick)ratio of 0.75 to 1 would indicate:
A)a ratio that would not allow a company to pay off all current liabilities with quick assets.
B)for every $1 of short-term debt there is $0.75 of quick assets to meet short-term obligations.
C)for every $1 of current assets there is $0.75 of short-term debt.
D)Both A and B are correct.
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Chapter 23: The Voucher System
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Q1) Describe how the transactions listed would be handled applying the gross approach method and the net approach method.For example: A $750 invoice with a 3/10 net 30 discount.
\(\begin{array}{llcc}
\text {Transaction } & \text { Gross Method } & \text {Net Method } \\
\hline \text { (a) Record original transaction } &&\\
\text { (b) Returned purchases } &&\\
\text { (c) Discounts taken } &&\\ \text {(d) Discounts not taken } &&\\ \end{array}\)
Q2) Grant's Hardware bought $7,500 of merchandise,terms 3/10,n/30.The journal entry to record the transaction under the net approach method would be to:
A)debit Purchases
$7,275; credit Accounts Payable $7,275.
B)debit Purchases $7,275; credit Vouchers Payable $7,275.
C)debit Purchases $7,500; credit Vouchers Payable $7,275; credit Discounts Lost $225.
D)debit Purchases $7,500; credit Cash $7,500.
Q3) Paid voucher #424.
Debit ________ & ________ & ________ Credit ________ & ________ &
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Chapter 24: Departmental Accounting
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Q1) If the gross sales for the computer department are $3,700 and the book department gross sales are $6,300,what is the allocation for advertising expense of $750 to these departments,based on gross sales?
A)Computer department $425; book department $325
B)Computer department $375; book department $375
C)Computer department $277.50; book department $472.50
D)Computer department $462.50; book department $287.50
Q2) The candy department experienced the following revenue and expenses during October: \[\begin{array} { | l | r | }
\hline \text { Sales } & \$ 13,500 \\
\hline \text { Cost of Goods Sold } & 8,200 \\
\hline \text { Direct Operating Expenses } & 1,100 \\
\hline \text { Indirect Operating Expenses } & 700 \\
\hline
\end{array}\] The candy departmental net income is:
A)$6,400.
B)$3,500.
C)$4,200.
D)$5,300.
Q3) Explain the difference between a "cost center" and a "profit center."
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Chapter 25: Manufacturing Accounting
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Sample Questions
Q1) If direct labor for the month is $30,000,overhead is applied based on direct labor,annual overhead is estimated to be $500,000,and annual direct labor is estimated to be $800,000,what is the entry to apply overhead to production?
A)Debit Work-in-Process Inventory $18,750; credit Payroll $18,750
B)Debit Overhead-Applied $18,750; credit Work-in-Process Inventory $18,750
C)Debit Work-in-Process Inventory $18,750; credit Overhead-Applied $18,750
D)Debit Work-in-Process Inventory $30,000; credit Overhead-Applied $30,000
Q2) Issued raw materials to production.
Debit
Q3) A shop foreman's salary is not considered direct labor.
A)True
B)False
Q4) Molly Manufacturing is using a manufacturing overhead application rate of 125% of machine hours.Machine hours are $9/hour and uses 35 hours.How much overhead should be applied to the job?
A)$315.00
B)$393.75
C)($393.75)
D)($315.00)
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