Financial Accounting
Textbook Exam Questions
Course Introduction
Financial Accounting introduces students to the fundamental principles and concepts of accounting with a focus on the processes used to record, summarize, and present financial information for external reporting. The course examines the accounting cycle, preparation of financial statements, accounting for assets, liabilities, equity, and the interpretation of financial data using generally accepted accounting principles (GAAP). Through practical exercises and case studies, students develop the skills to analyze financial transactions, assess the financial health of organizations, and understand the role of accounting in decision-making for businesses and stakeholders.
Recommended Textbook
Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition by Gary
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Page 2
Chapter 1: Accounting As a Form of Communication
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Sample Questions
Q1) The Financial Accounting Standards Board defined the objectives of financial reporting.
A)True
B)False
Answer: True
Q2) Which one of the following business decisions will least likely require financial information?
A)The Gulf Coast Bank is reviewing the loan application from Tuo's Restaurant.
B)Tuo's Restaurant is attempting to sell its stock to the public.
C)The labor union representing Flaggler's Fitness Spa employees is negotiating a pay raise as part of a new labor agreement.
D)Tuo's Restaurant management is deciding whether to wash its catering vans today or tomorrow.
Answer: D
Q3) What is Leary's total liabilities balance at the end of the current year?
A)$3,000
B)$110,000
C)$63,000
D)$173,000
Answer: C
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Chapter 2: Financial Statements and the Annual Report
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Sample Questions
Q1) Read the information about Seikoson.What is Seikoson's net income?
A)$80,000
B)$92,190
C)$130,800
D)$46,470
Answer: D
Q2) Assume that you want to determine the profit margin for a company.Which one of the following financial statements is the best source of this information?
A)Statement of retained earnings
B)Statement of cash flows
C)Statement of stockholders' equity
D)Income statement
Answer: D
Q3) Read the information about Jobston,Inc.What is Jobston's working capital?
A)$58,440
B)$89,740
C)$84,040
D)$9,740
Answer: D
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Page 4
Chapter 3: Processing Accounting Information
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Sample Questions
Q1) Which pair of accounts has the same set of rules for debit and credit entries?
A)Common Stock (Capital Stock)and Accounts Payable
B)Salaries Expense and Retained Earnings
C)Cash and Notes Payable
D)Sales Revenue and Accounts Receivable
Answer: A
Q2) A list of all accounts and their balances that is used to prove the equality of debits and credits as of a specific date is a(n)
A)account.
B)general journal.
C)trial balance.
D)chart of accounts.
Answer: C
Q3) With few exceptions,the balance of an account should be on the side of the T account that causes the increase.
A)True
B)False
Answer: True
Q4) Credits are always on the _____________________ side of the T account.
Answer: right
Page 5
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Chapter 4: Income Measurement and Accrual Accounting
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Sample Questions
Q1) Adjustments are recorded for all transactions involving outside entities.
A)True
B)False
Q2) Autumn Resorts purchased guest room furniture on January 1,2017 for $120,000.The furniture has an estimated useful life of 10 years and no salvage value.What amount will appear on Autumn's income statement for depreciation expense for the year ending June 30,2018?
A)$1,000
B)$6,000
C)$10,000
D)$12,000
Q3) ____________________ is the name given to balance sheet accounts because they are permanent in nature.
Q4) Why does the accrual basis of accounting require adjustments,while the cash basis does not?
Q5) When cash is paid before an expense is incurred,an accrual is necessary.
A)True
B)False
Q6) Temporary accounts are also known as _________________ accounts.
Q7) What role do accounting records play in the adjustment process?
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Chapter 5: Inventories and Cost of Goods Sold
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Sample Questions
Q1) Bower Corp.'s cost of sales has remained steady over the last two years.During this same time period,however,its inventory has increased considerably.What does this information tell you about the company's inventory turnover? Explain your answer.
Q2) If Roki uses the FIFO method,the amount assigned to the June 30 inventory would be
A)$1,354.00.
B)$1,366.50.
C)$1,590.42.
D)$1,594.00.
Q3) If cost of goods sold under FIFO was $8,000 and was $10,000 under LIFO,assuming a tax rate of 40%,how much tax savings resulted from using LIFO?
A)There would be no tax savings.
B)$ 800
C)$ 1,200
D)$ 2,000
Q4) Like sales revenue,cost of goods sold represents an inflow of assets.
A)True
B)False
Q5) Accountants define the market value of inventory as its __________.
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Chapter 6: Cash and Internal Control
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Sample Questions
Q1) On a bank reconciliation,bank charges for the month are added to the cash balance per the books.
A)True
B)False
Q2) A credit memorandum appeared on Central Company's bank statement.How will Central treat this amount on its bank reconciliation?
A)Add it to the bank balance
B)Add it to the book balance
C)Deduct it from the bank balance
D)Deduct it from the book balance
Q3) A(n)__________ is a form used by the receiving department to account for the quantity and condition of merchandise received from a supplier.
Q4) Petty cash typically is composed of coins and currency kept on hand in a business to make minor disbursements.
A)True B)False
Q5) What is the typical composition of a board of directors of a publicly held corporation?
Q6) Why is cash management necessary?
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Chapter 7: Receivables and Investments
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Sample Questions
Q1) The payee of a note recognizes a note payable on the balance sheet and interest expense on its income statement.
A)True
B)False
Q2) Accounts receivable are shown on the balance sheet at their net realizable value.
A)True
B)False
Q3) Bonds issued by corporations or governmental bodies as a form of borrowing are called __________.
Q4) Which one of the following statements is true if a company's collection period for accounts receivable is unacceptably long?
A)The company may need to borrow to acquire operating cash.
B)The company may offer trade discounts to lengthen the collection period.
C)Cash flows from operations may be higher than expected for the company's sales.
D)The company should expand operations with its excess cash.
Q5) If a company discounts a note at a bank,but still is contingently liable for the maturity value,then the note was discounted with __________.
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Page 9
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
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Sample Questions
Q1) On January 2,2017,Hannah Company sold a machine for $1,000 that it had used for several years.The machine cost $12,000 and had accumulated depreciation of $9,000 at the time of sale.What gain or loss will be reported on the income statement for the sale of the machine?
A)Gain of $2,000
B)Loss of $11,000
C)Loss of $2,000
D)Gain of $3,000
Q2) Interest is never a part of the cost of property,plant,and equipment or intangible assets.
A)True
B)False
Q3) If a company constructs an asset over a period of time and borrows money,the amount of interest incurred during construction on the borrowed money is
A)capitalized as part of the cost of the plant asset.
B)amortized over the construction period.
C)reported as interest expense on the income statement.
D)reported as depletion on the income statement.
Q4) Distinguish between tangible and intangible operating assets.
Page 10
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Chapter 9: Current Liabilities, Contingencies, and the Time
Value of Money
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Sample Questions
Q1) An obligation that involves an existing condition for which the outcome is not known with certainty and depends on some event that will occur in the future is call a(n)__________.
Q2) Pablos wants to save some money so that he can make a down payment of $3,000 on a car when he graduates from college four years from now.If he opens a savings account and earns 3% on his money,compounded annually,how much will he have to invest now?
A)$2,520
B)$2,664
C)$2,910
D)$3,000
Q3) If a company borrows money from its bank and the bank deducts the interest in advance,the company would record the amount of the interest deduction as A)a loss.
B)an expense.
C)a discount.
D)prepaid interest.
Q4) Define the term annuity.Can the present value of an annuity be calculated as a series of single amounts? If so,how?
Page 11
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) A decreasing long-term liability account is presented on the statement of cash flows as
A)a decrease in cash in the Financing Activities category.
B)a decrease in cash in the Investing Activities category.
C)an increase in cash in the Operating Activities category.
D)an increase in cash in the Financing Activities category.
Q2) The result of using the effective interest method of amortization of discount on bonds is that the
A)interest expense for each amortization period is constant.
B)effective interest rate for each amortization period is constant.
C)amount of interest expense decreases each period.
D)cash interest payment is greater than the interest expense.
Q3) The Deferred Tax account should reflect permanent differences but not items that are temporary differences between book accounting and tax reporting.
A)True
B)False
Q4) The face rate is also called the nominal or stated rate.
A)True
B)False
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Chapter 11: Stockholders Equity
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Sample Questions
Q1) When a company declares a cash dividend,which of the following is true?
A)Stockholders' equity is increased.
B)Liabilities are increased.
C)Assets are increased.
D)Assets are decreased.
Q2) Assume that the Stockholders Equity section of Cherokee Companys balance sheet on December 31, 2017, appears as follows:
\[\begin{array} { l r }
\text { Common stock, } \$ 10 \text { par value, } 1,500 \text { shares issued and outstanding } & \$ 15,000 \\
\text { Additional paid-in capital-common } & 17,000 \\
\text { Retained eamings } & \underline{11,000} \\
\text { Total stockholders' equity } & \underline{ \$ 43,000} \\ \end{array}\]
1.If on February 1,2018,Cherokee buys 120 of its shares as treasury stock at $30 per share,determine the impact of this transaction on the accounting equation.
2.How will the Stockholders' Equity section of Cherokee's balance sheet appear on February 1,2018,after the purchase of the treasury stock?
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Page 13
Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Cash flow per share is computed by dividing cash on the balance sheet by the number of shares outstanding.
A)True
B)False
Q2) Each of the following transactions would be classified as either an investing or a financing activity except when
A)investments in stock are purchased.
B)a bank loan is obtained.
C)stock is issued to acquire land.
D)dividends are paid.
Q3) Which of the following activities results in a cash outflow?
A)Decreases in noncash current assets (NCCA)
B)Decreases in long-term assets (LTA)
C)Increases in long-term liabilities (LTL)
D)Decreases in retained earnings (RE)
Q4) Many companies report cash flow per common share on the statement of cash flows.
A)True
B)False
Q5) An important __________ activity for many companies is acquiring property.
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Q6) The purchase of merchandise is an important __________ activity for a retailer.
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Refer to the Westmoreland Company data.
The cash flow from operations to capital expenditures ratio for 2018 is an indicator that Westmoreland Company
A)has been effectively able to use operations to finance its acquisitions of productive assets.
B)has increased profits by $13,000.
C)has decreased cash,but is offset by the increase in net income.
D)has net income that is more than it would have been had dividends of $30,000 been paid.
Q2) The denominator of a return ratio will be some measure of the company's income for the period.
A)True
B)False
Q3) The three types of analysis that involve ratios are __________,__________,and
Q4) Which of the following is a total dollar measure of liquidity?
A)Accounts receivable turnover ratio
B)Cash-to-cash operating cycle
C)Number of days' sales in inventory
D)Working capital
Page 15
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Chapter 14: International Financial Reporting Standards
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Sample Questions
Q1) Explain the meaning of the terms contingent liabilities and provisions as they relate to U.S.GAAP and IFRS?
Q2) Which of the following is a commonly cited disadvantage of having a new unified set of accounting standards?
A)Acquiring foreign companies would become a more confusing proposition.
B)Corporations may find themselves more susceptible to lawsuits due to the principles-based system.
C)Time and money would not be saved in accessing capital markets abroad.
D)The SEC would be dissolved if international accounting standards were adopted.
Q3) In which of the following countries do significant differences exist between accounting income and taxable income?
A)Japan
B)United States
C)Germany
D)France
Q4) The state of economic development can affect accounting standards.
A)True
B)False
Q5) Summarize some of the common differences between U.S.GAAP and IFRS.
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