Financial Reporting
Exam Questions
Course Introduction
Financial Reporting is a comprehensive course designed to provide students with an in-depth understanding of the principles and practices underlying the preparation, analysis, and interpretation of financial statements. The course covers the regulatory framework of accounting, the conceptual foundations of financial reporting, and the requirements of major accounting standards. Students will learn how to accurately report assets, liabilities, equity, income, and expenses in accordance with established accounting principles and will explore the ethical considerations and professional judgments involved in preparing financial information. By the end of the course, students will be able to critically analyze financial statements to assess an organizations financial health and make informed business decisions.
Recommended Textbook
Financial Accounting 12th Edition by C. William Thomas
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) In 1990,Johnson Company purchased a building for $170,000.In 2020,a real estate professional says the building has a fair value of $1,000,000.In 2020,a similar building down the street recently sold for $900,000.What value,before consideration of accumulated depreciation,is reported for the building on the balance sheet at December 31,2020?
A)$170,000
B)$585,000
C)$900,000
D)$1,000,000
Answer: A
Q2) Net income is the profit left over after subtracting expenses and dividends from revenues and gains.
A)True
B)False Answer: False
Q3) Stockholders have no personal obligation for the corporation's debts.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Transaction Analysis
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Q1) The purchase of office computers for cash includes a debit to:
A)Cash and a credit to Office Equipment.
B)Office Equipment and a credit to Accounts Payable.
C)Accounts Receivable and credit to Office Equipment.
D)Office Equipment and a credit to Cash.
Answer: D
Q2) An example of a slide-type error is writing:
A)$1,300 as $3,100.
B)$300 as $600.
C)$5,000 as $10,000.
D)$500 as $50.
Answer: D
Q3) A partner in Sturm Company purchased a new yacht,for personal use,with his own funds.Sturm Company would:
A)debit an asset account.
B)credit a revenue account.
C)credit a liability account.
D)not record the transaction in its books.
Answer: D
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Page 4
Chapter 3: Accrual Accounting Income
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Q1) The statement of retained earnings reports the amount of dividends declared over a period of time.What is the source of the amount of dividends declared?
A)Balance Sheet
B)Income Statement
C)Adjusted Trial Balance
D)Cash Dividend Statement
Answer: C
Q2) On October 1 of the current year,a company received $9,600 for services to be performed evenly over the next six months.If no adjusting entry was made on December 31 of the current year:
A)net income would be understated by $9,600.
B)net income would be understated by $4,800.
C)net income would be overstated by $2,400.
D)net income would be overstated by $4,800.
Answer: B
Q3) Unearned Service Revenue is a revenue account.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Internal Control Cash
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Q1) Deposits that have been recorded on the company's books,but have not yet been recorded by the bank are:
A)nonsufficient funds deposits.
B)outstanding deposits.
C)deposits in transit.
D)electronic funds deposits.
Q2) The primary way that fraud is prevented,detected,or corrected is through a proper system of:
A)ethical standards and a code of ethics.
B)policies developed by upper management.
C)internal control.
D)internal and external audits.
Q3) The components of internal control do NOT include:
A)control environment.
B)risk assessment.
C)control procedures.
D)safeguard assets.
Q4) Collusion is the method used to defeat an internal controls system.
A)True
B)False
Page 6
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Chapter 5: Receivables and Revenue
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Q1) On December 1,Macy Company sold merchandise with a selling price of $3,000 on account to Mrs.Jorgensen,with terms 1/10,n/30.Using the gross method and ignoring cost of goods sold,what journal entry did Macy Company prepare on December 1? Macy expects no sales returns.
A)Debit Cash for $3,000 and credit Accounts Receivable for $3,000.
B)Debit Accounts Receivable for $2,970 and credit Cash for $2,970.
C)Debit Accounts Receivable for $2,970 and credit Sales Revenue for $2,970.
D)Debit Accounts Receivable for $3,000 and and credit Sales Revenue for $3,000.
Q2) The principal amount of a note is the amount borrowed by the creditor.
A)True
B)False
Q3) Days' sales in receivables is also called:
A)days' sales outstanding
B)collection period
C)accounts receivable turnover
D)A and B
Q4) When goods are shipped FOB destination,revenue is recognized by the seller when the goods leave the seller's shipping dock.
A)True
B)False
Page 7
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Chapter 6: Inventory Cost of Goods Sold
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Questions
Q1) Barker Office Supply Store is budgeting for the fiscal year ending March 31,2020.During the fiscal year ended March 31,2019,sales totaled $1,200,000 and cost of goods sold was $660,000.At March 31,2019,inventory was $200,000.During the upcoming fiscal year,Barker estimates that cost of goods sold will increase by 9% and that ending inventory will be $225,000.
Required: How much inventory should Barker purchase during the fiscal year ending March 31,2020? Show your well-labeled computations.
Q2) Under the average-cost inventory method,to determine the average cost per unit:
A)the cost of beginning inventory is divided by the number of units available.
B)the cost of beginning inventory plus the cost of purchases is divided by the number of units sold.
C)the cost of purchases for the period are divided by the number of units available.
D)the cost of beginning inventory plus the cost of purchases is divided by the number of units available.
Q3) The cost-of-goods-sold model can be used to estimate ending inventory.
A)True B)False
Q4) List three ways in which the gross profit method can be used by a retailer.
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Page 8
Chapter 7: Plant Assets, natural Resources, Intangibles
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Q1) On January 1,2019,Plenty of Oil,Inc.purchased an oil field that is estimated to have 15,000,000 barrels of oil for $45,000,000.In 2019,1,300,000 barrels of oil were extracted and sold.In 2020,2,100,000 barrels of oil were extracted and sold.The oil field will have no residual value.What is the book value of the oil reserves that will be reported on the balance sheet as of December 31,2020?
A)$10,200,000
B)$34,800,000
C)$38,700,000
D)$45,000,000
Q2) A distinctive identification of a product or a service is a:
A)patent.
B)trademark.
C)copyright.
D)license.
Q3) The impairment loss on long-term plant assets equals:
A)net book value minus fair value.
B)net book value minus estimated future cash flows.
C)estimated future cash flows minus fair value.
D)estimated future cash flows minus present value.
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Page 9
Chapter 8: Current and Contingent Liabilities
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Q1) An example of a contingent liability may be a lawsuit.
A)True
B)False
Q2) A contingent liability should be disclosed in the notes to the financial statements if there is a reasonable possibility that a loss (or expense)will occur.
A)True
B)False
Q3) Which account is NOT an example of an accrued liability?
A)sales tax payable
B)wages payable
C)interest payable
D)accounts payable
Q4) The most frequently used current liabilities are:
A)accounts payable,accounts receivable,and accrued liabilities.
B)accounts payable,notes payable,and accrued liabilities.
C)cash,notes payable,and accrued liabilities.
D)accounts payable,notes payable,and inventories.
Q5) Interest expense on a note payable is only recorded at maturity.
A)True
B)False
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Chapter 9: Long-Term Liabilities
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Q1) Doug's Boat Shop,Inc.reports operating income of $260,000 and interest expense of $31,200.The average common stockholders' equity during the year was $50,000.The beginning assets balance is $115,000 and ending assets balance is $180,000.What is the leverage ratio? (Round your final answer to two decimal places. )
A)5.90
B)9.42
C)2.95
D)8.89
Q2) Bonds that are secured by real estate are called:
A)term bonds.
B)secured bonds.
C)mortgage bonds.
D)B and C.
Q3) Bonds that the issuer may pay off at a prearranged price whenever the issuer chooses before the maturity date are:
A)serial bonds.
B)callable bonds.
C)convertible bonds.
D)debenture bonds.
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Chapter 10: Stockholders Equity
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Q1) Kunze Corporation has $1 par value Common Stock with 100,000 shares authorized and 25,000 shares issued.The journal entry to record Kunze's purchase of 10,000 shares of common stock at $4 per share would be:
A)debit Common Stock for $10,000,debit Paid-in Capital in Excess of Par-Common for 30,000 and credit Cash for $40,000.
B)debit Common Stock for $40,000 and credit Cash for $40,000.
C)debit Cash for $40,000,credit Common Stock for $10,000 and credit Paid-in Capital in Excess of Par-Common for $30,000.
D)debit Treasury Stock for $40,000 and credit Cash for $40,000.
Q2) The calculation to determine the number of outstanding shares of stock is the number of:
A)treasury stock shares plus number of issued shares.
B)authorized shares minus number of issued shares.
C)issued shares minus number of treasury shares.
D)authorized shares minus treasury shares.
Q3) What is the formula for the price-earnings ratio? What does this ratio measure?
Q4) For cash dividends,no journal entry is made on the date of record.
A)True
B)False
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Chapter 11: The Statement of Cash Flows
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Q1) The direct method of preparing the statement of cash flows:
A)has an identical operating activities section as the indirect method.
B)is used by a vast majority of companies.
C)is preferred by FASB.
D)is much easier for companies to compute.
Q2) Under the direct method of preparing the statement of cash flows,cash receipts from operating activities do NOT include:
A)collection of long-term note receivable.
B)collections from customers.
C)receipt of interest on investments.
D)receipt of dividends on investments.
Q3) Net cash provided by operating activities is $2.9 million.Planned capital expenditures are $2.4 million.Depreciation expense is $1.2 million per year.What is free cash flow?
A)($700,000)
B)$500,000
C)$1,200,000
D)$1,700,000
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Chapter 12: Financial Statement Analysis
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Q1) A "red flag" on a financial statement means:
A)a potential financial trouble.
B)a potential irregularity.
C)a company has claimed bankruptcy.
D)A and B.
Q2) Vertical analysis compares a line item on the balance sheet,in a current period,to the same line item on the balance sheet in a prior period.
A)True
B)False
Q3) To stockholders,the larger the net income,the greater the likelihood of:
A)dividends.
B)the company will purchase treasury stock.
C)the stock price decreasing.
D)all of the above.
Q4) In vertical analysis:
A)a base amount is optional.
B)a base amount is required.
C)line items from balance sheets are examined only.
D)line items from income statements are examined only.
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Chapter 13: Investments
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Q1) Consolidated financial statements:
A)are prepared if the parent owns more than 20% of the investee's voting stock.
B)do not include a consolidated statement of cash flows because investors need to understand the separate cash flows of the parent and each individual subsidiary.
C)allow investors to gain a better perspective on total operations than they could by examining the reports of the parent and each individual subsidiary.
D)do not identify the amount of noncontrolling interest in subsidiaries' stock because investors do not focus on that information.
Q2) On January 1 of the current year,Conner Corporation purchased 100,000 of the 400,000 shares of outstanding stock of JJ Company for $560,000.Net income reported by JJ Company for the year was $600,000.Dividends declared and paid by JJ Company during the year were $130,000.The Equity-method Investment will be reported on Conner Corporation's December 31 balance sheet for the current year in the amount of:
A)$560,000.
B)$592,500.
C)$677,500.
D)$742,500.
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Page 15
Chapter 14: Time Value of Money
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Q1) An ordinary annuity is an investment that provides multiple receipts of an equal amount at fixed year-end intervals over the investment's duration.
A)True
B)False
Q2) You are calculating the present value of $15,000 that you will receive at the end of every year for the next ten years.Which table will you use to obtain the present value of those $15,000 payments you will be receiving?
A)Present Value of $1 table
B)Future Value of $1 table
C)Present Value of Ordinary Annuity of $1 table
D)Future Value of Ordinary Annuity of $1 table
Q3) Ordinary annuity investments provide multiple receipts of an unequal amount at fixed year-end intervals over the investment's duration.
A)True
B)False
Q4) Compound interest is only the interest you earn on your principal amount.
A)True B)False
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