Financial Reporting
Mock Exam
Course Introduction
Financial Reporting is a foundational course that explores the principles, standards, and procedures involved in the preparation and presentation of financial statements. Students will learn how organizations communicate financial information to external users such as investors, creditors, and regulators, in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). The course covers essential topics such as the accounting cycle, revenue recognition, measurement of assets and liabilities, and the analysis of financial statements. Through practical examples and case studies, students will develop the skills needed to interpret and assess the financial health and performance of business entities.
Recommended Textbook
Financial Accounting 10th Edition by Walter T. Harrison
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Chapter 1: The Financial Statements
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Sample Questions
Q1) Revenues are cash distributions to the stockholders.
A)True
B)False
Answer: False
Q2) Which financial statement must be prepared before the others?
A)Statement of cash flows
B)Income statement
C)Balance sheet
D)Statement of retained earnings
Answer: B
Q3) The stable monetary unit assumption:
A)ensures that accounting records and statements are based on the most reliable data available.
B)holds that the entity will remain in operation for the foreseeable future.
C)maintains that each organization or section of an organization stands apart from other organizations and individuals.
D)enables accountants to ignore the effect of inflation on the accounting records.
Answer: D
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) A company recorded a cash payment incorrectly.They debited Accounts Receivable for $1,000 and credited Cash for $1,000.The correct entry would debit Accounts Payable for $1,000 and credit Cash for $1,000.Is the trial balance out of balance?
A)No.
B)Yes,by $1,000.
C)Yes,by $2,000.
D)Yes,by an indeterminate amount.
Answer: A
Q2) In a journal entry,the sum of the debits must always equal the sum of the credits.
A)True
B)False
Answer: True
Q3) The financial statements can be prepared from the trial balance. A)True
B)False
Answer: True
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4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) A doctor performed surgery in April and did not receive cash payment from the patient until August.Under cash-basis accounting,the doctor recognizes revenue:
A)in April.
B)in August.
C)in April or August.
D)at a time that cannot be determined from the facts.
Answer: B
Q2) ________ will be increased when a company receives cash before performing the services.
A)Service Revenue
B)Accumulated Depreciation
C)Unearned Service Revenue
D)Accrued Salaries Payable
Answer: C
Q3) Some accounts do not need to be adjusted at the end of the period,since the day-to-day transactions provide all the data for these accounts.
A)True
B)False
Answer: True
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) Fraudulent financial reporting:
A)involves employee overstatement of expense reimbursement requests.
B)involves bribes and kickbacks.
C)involves stealing assets from the company.
D)deceives financial statement users.
Q2) Debit cards are being used:
A)in place of petty cash funds.
B)for small purchases.
C)for package delivery fees.
D)all of the above.
Q3) Differences between the bank statement and the company's Cash account are primarily the result of a time lag in recording transactions.
A)True
B)False
Q4) When preparing a cash budget,the budgeted balance is:
A)the beginning cash balance.
B)the budgeted cash payments.
C)the minimum amount of cash the company needs.
D)the budgeted cash receipts.
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) Interest rates are always for an annual period unless stated otherwise.
A)True
B)False
Q2) When a company sells a trading security,the Gain on the Sale of Trading Securities is reported in the:
A)stockholders' equity section of the balance sheet.
B)short-term investments section of the balance sheet.
C)other revenue,gains,and losses section of the balance sheet.
D)other revenues and gains of the income statement.
Q3) Bird's Nest had net credit sales for the current period of $600,000 and average net receivables were $55,000.What is the days' sales in receivables?
A)11 days
B)17 days
C)33 days
D)79 days
Q4) The current ratio is a more stringent measure of a firm's ability to pay current liabilities than the quick ratio.
A)True
B)False
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Which inventory costing method provides the most realistic measure of net income?
A)FIFO
B)LIFO
C)average cost
D)specific identification
Q2) Speedy Corporation reported net income of $425,000 for the current year.After the financial statements had been prepared,it was discovered that ending inventory had been understated by $25,000.If the tax rate is 40%,after the error has been corrected,net income will:
A)increase by $15,000.
B)decrease by $15,000.
C)increase by $25,000.
D)decrease by $25,000.
Q3) The LIFO Reserve is the difference between the LIFO cost of inventory and what the cost of that inventory would be under FIFO.
A)True
B)False
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8
Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) Lorenzo Corporation purchased equipment on January 1,2015 for $500,000.The equipment had an estimated useful life of 5 years and an estimated salvage value of $50,000.After using the equipment for 2 years,the company determined that the equipment could be used for an additional 6 years and have a salvage value of $9,000.Assuming Lorenzo Corporation uses straight-line depreciation,compute depreciation expense for the year ending December 31,2017.
A)$45,000
B)$48,500
C)$51,833
D)$53,333
Q2) When recording a nonmonetary exchange of two plant assets,what information is NOT needed?
A)book value of the asset given up
B)book value of asset receiving
C)fair value of asset given up
D)fair value of asset receiving
Q3) If a company buys a building and the surrounding land for cash,total assets increase.
A)True
B)False
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Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) On January 1,2014,Innocente Company purchases 1,000 shares of Intel common stock at $40 per share.Innocente intends to hold this investment for longer than one year.On June 1,2014,Intel declares and distributes a cash dividend of $0.50 per share.On December 31,2014,the market price of Intel's stock is $44 per share.On December 31,2015,the market price of Intel's stock is $56 per share.On December 31,2016,the market price of Intel's stock is $50 per share.Innocente Company uses a separate Allowance account to adjust the investment.
Prepare the journal entries on:
1.January 1,2014
2.June 1,2014
3.December 31,2014
4.December 31,2015
5.December 31,2016
Explanations are not required.
Q2) The Unrealized Gain on Investment in Available-for-Sale Securities is reported in:
A)Other Revenues and Gains on the income statement.
B)Other Comprehensive Income on the Statement of Comprehensive Income.
C)Accumulated Other Comprehensive Income on the balance sheet.
D)B and C.
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Chapter 9: Liabilities
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Sample Questions
Q1) Drury Corporation wants to raise $2,000,000.The corporation plans on selling 100,000 shares of $20 par value common stock.Drury Corporation currently has 150,000 shares of stock outstanding and net income of $1,500,000.The $2,000,000 from the stock sale is expected to generate additional income of $500,000 before interest and taxes.The income tax rate is 30%.What are the earnings per share after the sale of 100,000 shares of stock?
A)$7.40
B)$8.00
C)$9.40
D)$10.00
Q2) A $5,000,7% bond is sold at 95.When the bond is issued,the Cash account will be increased by:
A)$4,750.
B)$5,000.
C)$5,100.
D)$5,250.
Q3) Unearned revenue will be zero when a company has earned all of the revenue it had collected in advance.
A)True
B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) If stock is issued for an asset other than cash,the asset should be recorded on the books of the corporation at:
A)fair market value of the asset.
B)book value of the asset.
C)par value of the stock.
D)fair value of the stock minus the par value of the stock.
Q2) Amber Corporation purchases 40,000 shares of its own $10 par value common stock for $30 per share.What will be the effect on stockholders' equity?
A)Increase $400,000
B)Increase $1,200,000
C)Decrease $400,000
D)Decrease $1,200,000
Q3) Treasury stock is a contra-stockholders' equity account.
A)True B)False
Q4) The sale of treasury stock is reported as a cash inflow in the financing activities section of a statement of cash flows.
A)True B)False
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Chapter
11:
Quality, the Income Statement, the Statement of Comprehensive Income
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Sample Questions
Q1) Items of comprehensive income,other than net income,do not enter into the determination of earnings per share.
A)True
B)False
Q2) The loss incurred as a result of the impairment of goodwill should be reported as:
A)part of discontinued operations.
B)an operating expense.
C)other expenses and losses.
D)an extraordinary item.
Q3) When predicting a company's future income,financial analysts exclude:
A)gains or losses from discontinued operations.
B)extraordinary gains or losses.
C)accounting changes in accounting principle.
D)all of the above.
Q4) If a company reports both basic and diluted EPS,diluted EPS will always be equal or lower than basic EPS.
A)True
B)False
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) During the year,Crapitto Engineering Corporation has operating expenses of $50,000.There was an increase in prepaid expenses of $5,000 and an increase in accrued liabilities of $7,000.What were Crapitto's cash payments for operating expenses?
A)$43,000
B)$48,000
C)$55,000
D)$57,000
Q2) In computing Net Cash Provided by Operating Activities using the indirect method,each of the following is added to net income EXCEPT:
A)an increase in accrued expenses payable.
B)a gain on sale of equipment.
C)depreciation expense.
D)a decrease in inventory.
Q3) A gain on sale of equipment is subtracted from net income when determining Net Cash Provided by Operating Activities under the indirect method.
A)True
B)False
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14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Which of the following statements about financial ratios is FALSE?
A)When calculating return on assets,preferred dividends are subtracted from net income.
B)When calculating return on equity,preferred dividends are subtracted from net income.
C)When calculating the price-earnings ratio,preferred dividends are subtracted from market price per share.
D)When calculating earnings per share,preferred dividends are subtracted from net income.
Q2) A positive economic value added (EVA)suggests an increase in stockholders' wealth. A)True
B)False
Q3) On a statement of cash flows,repayment of long-term debt is considered:
A)an operating activity.
B)an investing activity.
C)a financing activity.
D)a noncash investing and financing activity.
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