Financial Accounting
Textbook Exam Questions
Course Introduction
Financial Accounting is an essential course that introduces students to the principles and practices of recording, summarizing, and reporting the financial transactions of a business. The course covers key concepts such as the accounting cycle, preparation of financial statements, and the analysis and interpretation of financial data in accordance with Generally Accepted Accounting Principles (GAAP). Students will gain practical skills in using accounting information for decision-making, understanding the impact of accounting transactions on business performance, and ensuring compliance with regulatory standards. This foundational knowledge is critical for careers in business, finance, auditing, and related fields.
Recommended Textbook
Accounting Business Reporting for Decision Making 4th Edition by Jacqueline Birt
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Chapter 1: Introduction to Accounting
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Q1) A disclosing entity is an entity that
A)discloses the basis on which their financial reports are prepared
B)issues securities that are quoted on a stock market or made available to the public via a prospectus
C)is exempt under the Corporations Act 2001 from applying the AASB accounting standards
D)is involved in the accounting standard setting process
Answer: B
Q2) The _________________ Reporting Council was established to oversee the AASB.
Answer: Financial
Q3) Firms of accountants who work for many different clients are known as:
A)financial accountants
B)private accountants
C)public accountants
D)company accountants
Answer: C
Q4) Accounting reports prepared for users who have the authority to obtain the information they need are known as ____________________ purpose financial reports.
Answer: special
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Chapter 2: Business Sustainability
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Q1) A factor which has not been a major reason for heightened interest in business ethics is:
A)the introduction of the GST
B)corporate collapses
C)the community becoming more educated and aware
D)globalisation
Answer: C
Q2) Not disclosing information acquired in the course of your work,to third parties without specific authority is known as maintaining ______________.
Answer: confidentiality
Q3) Which of the following is a key driver of business sustainability?
A)Economic Globalization
B)Competition for Resources
C)Climate Change
D)All the options are key drivers of business sustainability
Answer: D
Q4) Behaviour conforming to acceptable moral standards is said to be __________ behaviour.
Answer: ethical
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Chapter 3: Business Structures
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Q1) If the partnership agreement does not contain profit sharing arrangements,then the Partnership Act states that profits must be shared:
A)according to the amount of time invested by each partner
B)in proportion to the capital contribution of each partner
C)equally between all partners
D)based on capital contributions and time invested
Answer: C
Q2) Compared to the sole trader,the advantage of the partnership form of business is:
A)mutual agency
B)limited life
C)easy to set up
D)greater access to skills and resources
Answer: D
Q3) A partnership has which of these sets of characteristics?
A)Harder to raise funds and gives the owner full control.
B)Shared control,increased skills and resources.
C)Simple to set up but substantial government regulation.
D)Easier to transfer ownership and raise funds,and no personal liability.
Answer: B
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Chapter 4: Business Transactions
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Q1) The sale on credit of a computer by Computers R Us is:
A)A business transaction
B)A personal transaction
C)A business event
D)Not a business transaction
Q2) Income has a (positive/negative)____________________ effect on Equity.
Q3) In a manual accounting system for a business that offers credit to its customers,the journal(s)most like to be used is/are:
A)the general journal only
B)the cash receipts journal only
C)the cash receipts and cash payments journal
D)special journals;i.e.cash receipts,cash payments,credit purchases,credit sales and the general journal
Q4) Which of the following accounts could not have a credit balance?
A)accounts payable
B)fee income
C)office furniture
D)capital
Q5) Profit is added to opening equity to calculate ending _________.
Q6) The abbreviation for credit is _________.
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Chapter 5: Balance Sheet
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Q1) Collection of an accounts receivable will:
A)increase the cash account and decrease the accounts receivable account.
B)increase both the cash account and the accounts receivable account.
C)decrease both the cash account and the accounts receivable account.
D)decrease the cash account and increase the accounts receivable account.
Q2) A balance sheet can be presented in a number of ways.Which of these is not one of those ways?
A)As a contingent report
B)As a budgeted report
C)As a consolidated report
D)Including comparative figures
Q3) Trade Wind Ltd acquired all the shares in Clear Wind Ltd at a cost of $1 250 000.The fair value of the assets acquired was $1 450 000 and the fair value of the liabilities assumed was $450 000.The amount of goodwill acquired by Trade Wind Ltd is:
A)$1 000 000
B)$200 000
C)$250 000
D)$850 000
Q4) External claims on the assets of an entity are known as ___________________.
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Chapter 6: Income Statement and Statement of Changes in Equity
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Q1) The statement of __________ in equity is an additional statement to the income statement and the balance sheet that is required to be prepared under the accounting standards.
Q2) Which of the following is \(\bold{not}\) an administrative expense?
A)motor vehicle lease payments
B)salaries and wages
C)rent
D)utilities charges and supplies
Q3) Which of these is not an income type item?
A)sales revenue
B)interest revenue
C)dividends received
D)unearned revenue
Q4) If sales = $45 000,purchases = $25 000,beginning inventory = $10 000 and ending inventory = $8000 cost of sales is:
A)$18 000
B)$27 000
C)$7000
D)$20 000
Q5) Income
Chapter 7: Statement of Cash Flows
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Q1) Calculate net cash flows from operations by adjusting operating profit. \(\begin{array}{llcc}
\text { Profit for the year } &\$ 75000 \\
\text { Depreciation } &13000\\
\text { Decrease in accounts receivable } &5000\\
\text {Decrease in accounts payable } &1000\\ \end{array}\)
A)$82 000
B)$92 000
C)$56 000
D)$94 000
Q2) Which of these is not an example of cash or cash equivalents?
A)Deposit at call
B)Money market deposit with 6 months maturity
C)Bank overdraft
D)Bank and non-bank bills
Q3) Cash flows from investing activities are determined from changes in the balance sheet classification non- ___________ ____________.
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Chapter 8: Analysis and Interpretation of Financial Statements
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Q1) Vertical analysis is also known as:
A)trend analysis
B)horizontal analysis
C)ratio analysis
D)common size statements
Q2) Weston Trading Ltd has the following balance sheet figures.The quick asset ratio is: \(\begin{array}{llcc}
& \text { \$ } \\
\text { Total current assets} &500000\\
\text { Total current liabilities } &150000\\
\text { Inventory} &200000\\
\text { Bank} &30000\\ \end{array}\)
A)1.67:1
B)1:1
C)2:1
D)3.33:1
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Chapter 9: Budgeting
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Q1) The __________ ___ ____________ is a detailed listing of ledger accounts,together with an associated numbering system,that guides how transactions are classified in the financial statements.
Q2) Under the ___________________ style of budgeting,targets and budgets are set for unit managers by senior management.
Q3) The control aspect of budgeting is achieved by calculating ______________.
Q4) From the following data calculate the estimated cash received from credit sales for October.
Credit sales for August,$10 000;September,$12 000;October,$15 000
Credit sales are normally settled in the pattern,60% in the month of sale and 40% in the month following the sale.
A)$15 000
B)$27 000
C)$9000
D)$13 800
Q5) The budget which shows the expected future cash receipts and cash payments is the ____________ budget.
Q6) Performance ____________________ involves setting business targets in other than just financial terms.
Page 11
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Chapter 10: Cost-Volume-Profit Analysis
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Q1) An increase in the level of production,within the relevant range,has what effect on fixed costs per unit?
A)they rise
B)they fall
C)they usually rise
D)they usually fall
Q2) The break-even point decreases with:
A)an increase in the contribution margin ratio.
B)an increase in fixed costs
C)an increase in variable costs
D)none of the options is correct
Q3) The horizontal axis of a CVP graph represents ____________________.
Q4) The break-even point is calculated by dividing fixed costs by the A)selling price per unit.
B)total contribution margin.
C)contribution margin per unit.
D)sales mix.
Q5) Buying in a product or service instead of producing it known as ________________.
Q6) As production increases,unit fixed costs (increase/decrease)_________________.
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Chapter 11: Costing and Pricing in an Entity
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Q1) Assume Air Tec manufactures only one component for the air conditioning industry.In 2013 the company produced 12 000 units of the component of which 10 000 were sold.The following costs were recorded for 2013: \(\begin{array}{llcc}
&\text { \$ }\\
\text { Direct material} &500000 \\
\text {Direct labour } &150000\\
\text { Manufacturing overhead } &220000\\
\text { Administrative expenses } & 97000\\ \end{array}\)
If there were 1000 units in beginning inventory,calculate the cost of sales for Air Tec for 2013.
A)$72 500
B)$145 000
C)$217 500
D)$725 000
Q2) Inventoriable product cost is the sum of direct and indirect _______________ costs.
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Chapter 12: Capital Investment
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Q1) A disadvantage of the internal rate of return method of investment analysis is that:
A)the actual rate of percentage return is not revealed
B)it ignores the scale of projects so it does not focus on the generation of absolute wealth
C)the time value of money is ignored
D)it ignores all cash flow after a certain period
Q2) The ARR method of investment evaluation:
A)measures profits and costs in the same way
B)cannot differentiate between two equally profitable projects but with unequal timing of profits.
C)incorporates the time value of money.
D)is at odds with the ROA measure
Q3) A retailer invests $20 million in capital expenditure projects to open 15 new stores.In which category of investment is this capital expenditure most likely to fit?
A)replacement of old assets as they wear out
B)new technology to decrease costs
C)new investments to increase revenue
D)the capital investment projects do not fit any of the categories
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Chapter 13: Financing the Business
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Q1) Examples of cash outflows from an entity do not include
A)sale of unused assets.
B)purchase of labour and materials.
C)payment of taxes.
D)purchase of inventories.
Q2) A rights issue is:
A)the issue of new shares to existing shareholders in proportion to their current holdings
B)the right to subscribe to shares at a price and time that are predetermined
C)an issue of shares where the shareholder has the right to decide whether the shares are classified as debt or equity
D)none of the options is true
Q3) The issuer of a discount security receives (more/less)_______________ than the face value of the security.
Q4) The ease of conversion of an asset into cash is a measure of an entity's
Q5) _________________ discounts are offered to debtors to provide a monetary incentive to encourage debtors to pay their accounts quickly.
Q6) There are two types of floor-plan lenders: captives and _________________.
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Chapter 14: Performance Measurement
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Q1) Economic value added is:
A)a long-term performance indicator
B)a short-term performance indicator
C)a medium-term performance indicator
D)not a performance indicator
Q2) The ratio that measures the profit relative to sales is:
A)residual income.
B)investment turnover.
C)return on investment.
D)return on sales.
Q3) Which of the following is not an advantage of non-financial performance measures?
A)Non-financial performance measures can easily be benchmarked.
B)There is no proven cause and effect link between non-financial measures and economic success.
C)Non-financial performance measures are more likely to lead to longer-term performance gains,as they tend to be linked more readily to the organisation's goals.
D)Non-financial performance measures can identify problems in a more timely fashion.
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