Financial Reporting
Final Exam
Course Introduction
Financial Reporting is a course designed to provide students with an in-depth understanding of the principles and practices involved in preparing and analyzing financial statements for external users. The course covers key accounting standards, the conceptual framework underlying financial reporting, and the regulatory environment affecting the presentation and disclosure of financial information. Students will learn how to interpret income statements, balance sheets, and cash flow statements, as well as develop skills in analyzing financial performance and assessing the impact of accounting choices on stakeholders. Emphasis is placed on ethical considerations, transparency, and the importance of reliable financial information for decision-making by investors, creditors, and regulators.
Recommended Textbook
Financial Accounting Information for Decisions 7th Edition by John J Wild
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Page 2
Chapter 1: Introducing Financial Accounting
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Sample Questions
Q1) A company's balance sheet shows: cash $22,000,accounts receivable $16,000,office equipment $50,000,and accounts payable $17,000.What is the amount of equity?
A)$17,000
B)$29,000
C)$71,000
D)$88,000
E)$105,000
Answer: C
Q2) Identify the three basic forms of business organizations.
Answer: The three basic forms of business organizations are sole proprietorships,partnerships,and corporations.
Q3) Assets are the resources owned or controlled by a business.
A)True
B)False
Answer: True
Q4) __________________________ is the recording of transactions or events and is just one part of accounting.
Answer: Recordkeeping (or bookkeeping)
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Chapter 2: Accounting System and Financial Statements
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Sample Questions
Q1) The credit purchase of a delivery truck for $4,700 was posted to Delivery Trucks as a $4,700 debit and to Accounts Payable as a $4,700 debit.What effect would this error have on the trial balance?
A)The total of the Debit column of the trial balance will exceed the total of the Credit column by $4,700.
B)The total of the Credit column of the trial balance will exceed the total of the Debit column by $4,700.
C)The total of the Debit column of the trial balance will exceed the total of the Credit column by $9,400.
D)The total of the Credit column of the trial balance will exceed the total of the Debit column by $9,400.
E)The total of the Debit column of the trial balance will equal the total of the Credit column.
Answer: C
Q2) Debits increase both asset and expense accounts.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Adjusting Accounts for Financial Statements
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Sample Questions
Q1) The accrual basis of accounting is a system of accounting in which the adjustments are needed to assign revenues to periods in which they are earned and to match expenses with revenues.
A)True
B)False
Answer: True
Q2) Which of the following statements is true?
A)Retained earnings must be closed each accounting period.
B)A post-closing trial balance should include only permanent accounts.
C)Information on the work sheet can be used in place of preparing financial statements. D)By using a work sheet to prepare adjusting entries,you need not post these entries to the ledger accounts
E)Closing entries are only necessary if errors have been made.
Answer: B
Q3) __________________________ is the process of allocating the cost of plant assets to their expected useful lives.
Answer: Depreciation
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Chapter 4: Reporting and Analyzing Merchandising Operations
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Sample Questions
Q1) A perpetual inventory system continually updates accounting records for inventory transactions.
A)True
B)False
Q2) A company purchased $8,750 worth of merchandise,with terms of 2/10,n/30.The invoice was paid within the cash discount period.Accordingly,the company received a cash discount of _______________.
Q3) The current period's ending inventory is:
A)The next period's beginning inventory.
B)The current period's cost of goods sold.
C)The prior period's beginning inventory.
D)The current period's net purchases.
E)The current period's beginning inventory.
Q4) The gross margin ratio reflects the relation between sales and cost of goods sold. A)True
B)False
Q5) A ___________ inventory system updates the accounting record for inventory only at the end of a period.
Q6) Explain the cost flows and operating activities of a merchandising company.
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Chapter 5: Reporting and Analyzing Inventories
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Sample Questions
Q1) On September 30 a company needed to estimate its ending inventory to prepare its third quarter financial statements.The following information is available:
Beginning inventory,July 1: $4,000
Net sales: $40,000
Net purchases: $41,000
The company's gross margin ratio is 15%.Using the gross profit method,the cost of goods sold would be:
A)$4,000
B)$5,000
C)$21,000
D)$25,000
E)$34,000
Q2) The full disclosure principle requires that the notes to the financial statements report a change in accounting method for inventory costing.
A)True
B)False
Q3) When purchase costs regularly rise,the ___________________ method of inventory valuation yields the lowest gross profit and net income,providing a tax advantage.
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Page 7
Chapter 6: Reporting and Analyzing Cash and Internal Controls
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Sample Questions
Q1) Bonding does not discourage employees from stealing from the company as employees know that bonding is an insurance policy against loss from theft.
A)True
B)False
Q2) Controls of cash disbursements are important for companies as most large thefts occur from payment of fictitious invoices.
A)True
B)False
Q3) Cash includes currency,coins,and the deposits in most checking accounts. A)True
B)False
Q4) A check involves three parties: the maker who signs the check,the payee who is the recipient,and the bank on which the check is drawn. A)True B)False
Q5) The Petty Cash account is a separate checking account used for small amounts. A)True B)False
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Chapter 7: Reporting and Analyzing Receivables
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Sample Questions
Q1) A credit sale of $2,500 to a customer would result in a:
A)Debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable ledger.
B)Credit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable ledger.
C)Debit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable ledger.
D)Credit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable ledger.
E)Credit to Sales and a credit to the customer's account in the accounts receivable ledger.
Q2) The percent of sales method of estimating bad debts is focused more on realizable value of accounts receivable than matching. A)True B)False
Q3) The person to whom a note is payable to is known as the ______________.
Q4) Explain the options a company has when converting its receivables to cash.
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Chapter 8: Reporting and Analyzing Long-Term Assets
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Sample Questions
Q1) Total asset turnover is used to evaluate:
A)The efficiency of management's use of assets to generate sales.
B)The need for asset replacement.
C)The number of times operating assets were sold during the year.
D)The cash flows used to acquire assets.
E)The relation between asset cost and book value.
Q2) A company purchased equipment valued at $825,000 on January 1.The equipment has an estimated useful life of seven years or 6 million units.The equipment is estimated to have a salvage value of $35,000.Assuming the straight-line method of depreciation,what is depreciation for the second year?
Q3) Another name for a capital expenditure is:
A)Revenue expenditure
B)Asset expenditure
C)Long-term expenditure
D)Contributed capital expenditure
E)Balance sheet expenditure
Q4) How is the cost principle applied to plant asset acquisitions,including lump-sum purchases?
Q5) Why is the useful life of a plant asset so difficult to predict?
Q6) Define plant assets and identify the four primary issues in accounting for them.
Page 10
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Chapter 9: Reporting and Analyzing Current Liabilities
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Sample Questions
Q1) A short-term note payable is a written promise to pay a specified amount on a definite future date within one year or the operating cycle,whichever is longer.
A)True
B)False
Q2) A company sells leaf blowers for $170 each.Each unit has a three-year warranty that covers replacement of defective parts.It is estimated that 4% of all leaf blowers sold will be returned under the warranty at an average cost of $30 each.During October,the company sold 400,000 leaf blowers; 800 leaf blowers were serviced under the warranty during October at a total cost of $25,000.The balance in the Estimated Warranty Liability account on October 1 was $12,500.What is the company's warranty expense for the month of October?
A)$24,000
B)$25,000
C)$37,500
D)$467,500
E)$480,000
Q3) A single liability can be divided between current and noncurrent liabilities.
A)True
B)False
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Page 11
Chapter 10: Reporting and Analyzing Long-Term Liabilities
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Sample Questions
Q1) What is the debt to equity ratio for a company that has $700,000 in total liabilities and $3,500,000 in total equity?
A)20%
B)5
C)$2,100,000
D)2%
E).5
Q2) An installment note is an obligation to the issuing company that requires a series of periodic payments to the holder.
A)True
B)False
Q3) Describe the journal entries required to record the issuance of bonds and the payment of bond interest.
Q4) On March 1,a company issues bonds with a par value of $300,000.The bonds mature in 10 years and pay 6% annual interest,payable each June 30 and December 31.The bonds sell at par value plus interest accrued since January 1.Prepare the general journal entry to record the issuance of the bonds on March 1.
Q5) How are bond issue prices determined?
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Chapter 11: Reporting and Analyzing Equity
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Sample Questions
Q1) ____________________ preferred stock gives holders the option to exchange their preferred shares for common shares at a specified rate.
Q2) Explain the components of the statement retained earnings and identify the special items that are reported in it.
Q3) A proxy is:
A)A legal document that gives a designated agent of a stockholder the power to vote the stock.
B)A contractual commitment by an investor to purchase unissued shares of stock.
C)An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.
D)The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.
E)An arbitrary amount assigned to no-par stock by the corporation's board of directors.
Q4) Stock that is not assigned a value per share by the corporate charter is called
Q5) _____________________ is the amount at which a stock is bought and sold.
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Page 13
Chapter 12: Reporting and Analyzing Cash Flows
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Q1) The primary purpose of the statement of cash flows is to report all major cash receipts (inflows) and cash payments (outflows) during a period.
A)True
B)False
Q2) Financing activities include receiving cash dividends from investments in other companies' stocks.
A)True
B)False
Q3) The appropriate section in the statement of cash flows for reporting the issuance of common stock for cash is:
A)Operating activities.
B)Financing activities.
C)Investing activities.
D)Schedule of noncash investing or financing activity.
E)None of these as this is not reported on the statement of cash flows.
Q4) The conversion of preferred stock to common stock is disclosed in the financing section of the statement of cash flows.
A)True B)False
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Chapter 13: Analyzing and Interpreting Financial Statements
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Sample Questions
Q1) A company had a profit margin of 5%.If net income equaled $83,000 and average total assets equaled $45,000,how much were net sales?
A)$4,150
B)$2,250
C)$1,660,000
D)$6,400
E)$128,000
Q2) What is the purpose of a good financial statement analysis report? What are the key components?
Q3) What is the company's profit margin ratio for 2014?
A)65%
B)12%
C)3.7%
D)5.9%
E)5.0%
Q4) Efficiency refers to how productive a company is in using its assets and is usually measured relative to how much revenue is generated from a certain level of assets.
A)True
B)False
15
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Chapter 14: Applying Present and Future Values
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Sample Questions
Q1) Chad is setting up a retirement fund,and he plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take him to reach his retirement goal of $69,080?
A)13.816 years
B)0.072 years
C)10 years
D)20 years
E)5 years
Q2) Explain the concept of the future value of an annuity.
Q3) Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five years.The annual interest rate on the loan is 12%.What is the present value of the building?
A)$72,096
B)$113,004
C)$147,202
D)$86,590
E)$200,000
Q4) What is interest?
Q5) _____________ is a borrower's payment to the owner of an asset for its use.
Page 16
Q6) Explain the concept of the future value of a single amount.
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Chapter 15: Investments and International Operations
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Sample Questions
Q1) Brown Company sold supplies in the amount of 15,000 euros to a French company when the exchange rate was $1.15 per euro.At the time of payment,the exchange rate decreased to $1.12.Brown must record a loss of $450.
A)True
B)False
Q2) Net profit margin reflects the percent of net income in each dollar of net sales.
A)True
B)False
Q3) A company paid $37,800 plus a broker's fee of $525 to acquire 8% bonds with a $40,000 maturity value.The company intends to hold the bonds to maturity.The cash proceeds the company will receive upon the maturity of the bond is:
A)$37,800
B)$38,325
C)$40,000
D)$40,525
E)$43,200
Q4) Explain how transactions (both sales and purchases) in a foreign currency are recorded and reported.
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Chapter 16: Accounting for Partnerships
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Sample Questions
Q1) Brown and Rubix are partners.Brown's capital balance in the partnership is $73,000 and Rubix's capital balance is $62,000.Brown and Rubix have agreed to share equally in income or loss.Brown and Rubix agree to accept Cabela with a 20% interest.Cabela will invest $41,500 in the partnership.The bonus that is granted to Brown and Rubix equals:
A)$3,100 each.
B)$6,200 each.
C)$35,300 in total.
D)$41,500 in total.
E)$0,because Brown and Rubix actually grant a bonus to Cabela.
Q2) A capital deficiency means that:
A)The partnership has a loss.
B)The partnership has more liabilities than assets.
C)At least one partner has a debit balance in his/her capital account.
D)At least one partner has a credit balance in his/her capital account.
E)The partnership has been sold at a loss.
Q3) Armstrong plans to leave the FAP Partnership.The recorded balance in her capital account is $48,000.The remaining partners,Peters and Floyd,agree to pay Armstrong $58,000 cash.The partners have agreed to share income and loss equally.Prepare the journal entry to record the transaction.
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Chapter 17: Accounting With Special Journals
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Sample Questions
Q1) The SAP enterprise resource planning software is already being used to help direct the operations of many of the world's largest companies.
A)True
B)False
Q2) A company's Southwest segment had revenues of $12 million,operating income of $2 million,and average total assets of $3 million.The Southwest segment return on assets is:
A)42.85%
B)41.67%
C)25.00%
D)16.67%
E)66.67%
Q3) Enterprise resource planning software packages include the programs that manage a company's vital operations.
A)True
B)False
Q4) __________________ processing accumulates source documents for a period of time and then processes them all at once such as daily,weekly,or monthly.
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