Financial Reporting
Practice Exam
Course Introduction
Financial Reporting is a foundational course that introduces students to the principles, standards, and practices involved in preparing, presenting, and analyzing financial statements. The course covers the conceptual framework of accounting, the regulatory environment, and the major components of financial statements such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on interpreting financial information, understanding the impact of various accounting policies, and communicating key insights to stakeholders. Students will develop skills necessary for ethical financial reporting and gain an appreciation for the role of transparent, accurate information in decision-making by businesses and investors.
Recommended Textbook
Financial Accounting 4th Edition by Robert Kemp
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12 Chapters
1893 Verified Questions
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Page 2
Chapter 1: Business, Accounting, and You
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159 Verified Questions
159 Flashcards
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Sample Questions
Q1) The first financial statement that is prepared is the:
A)Statement of Cash Flows.
B)Income Statement.
C)Statement of Retained Earnings.
D)Balance Sheet.
Answer: B
Q2) Neil owns a sporting goods store. In his accounting records, he included his personal computer and all of his personal sporting gear. Neil is violating what principle of accounting?
A)Going concern
B)Cost
C)Reliability
D)Business entity
Answer: D
Q3) Purchasing supplies on account will increase both assets and liabilities.
A)True
B)False
Answer: True
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) The second step in analyzing a transaction is to determine:
A)if the account balance will increase or decrease.
B)the accounts that are involved.
C)the type of accounts that are involved.
D)which accounts are to be debited and credited.
Answer: C
Q2) An entry could have been posted twice and the trial balance might still balance.
A)True
B)False
Answer: True
Q3) The fact that each transaction has a dual effect on the accounting equation provides the basis for what is called:
A)single-entry accounting.
B)double-entry accounting.
C)compound-entry accounting.
D)multiple-entry accounting.
Answer: B
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Chapter 3: Adjusting and Closing Entries
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Sample Questions
Q1) The value of an asset after all allowable depreciation has been taken is called:
A)depreciable value.
B)market value.
C)salvage value.
D)trade-in value.
Answer: C
Q2) Of the following, which are reported on the Balance Sheet?
A)Assets
B)Revenues
C)Expenses
D)Net income or net loss
Answer: A
Q3) The entry to close the Dividend account includes:
A)a debit to Common Stock and a credit to Dividends.
B)a debit to Dividends and a credit to Retained Earnings.
C)a debit to Dividends and a credit to Common Stock.
D)a debit to Retained Earnings and a credit to Dividends.
Answer: D
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5
Chapter 4: Accounting for a Merchandising Business
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Sample Questions
Q1) Equipment is an example of a:
A)current asset.
B)long-term asset.
C)current liability.
D)long-term liability.
Q2) S&C, Inc. purchases $2,100 of inventory with shipping terms FOB Olympia. The supplier is based in Seattle and S&C is based in Olympia. The shipping costs are $300. What is the cost of S&C's inventory?
A)$2,100
B)$2,400
C)Either $2,100 or $2,400 is an acceptable amount to assign to inventory cost under GAAP.
D)There is not enough information to calculate inventory cost.
Q3) Under a perpetual inventory system, when goods are returned to the retailer from a customer:
A)Cost of Goods Sold is debited; Sales Returns and Allowances is credited.
B)Sales Returns and Allowances is debited; Cost of Goods Sold is credited.
C)Sales is debited; Cost Goods Sold is credited.
D)Inventory is debited; Sales is credited.
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Page 6
Chapter 5: Inventory
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Sample Questions
Q1) A method of valuing inventory based on the average of units is called the:
A)LIFO method.
B)average cost method.
C)specific-unit-cost method.
D)FIFO method.
Q2) ________ produces the lowest cost of goods sold and the highest gross profit when prices are increasing.
A)FIFO
B)LIFO
C)Average cost
D)Specific identification
Q3) A company has $4,200 in net sales, $3,500 in gross profit, $1,000 in ending inventory, and $1,600 in beginning inventory. The company's cost of goods sold is:
A)$3,500.
B)$700.
C)$2,600.
D)$1,900.
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Chapter 6: The Challenges of Accounting: Standards, Internal
Control, Audits, Fraud, and Ethics
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Sample Questions
Q1) ________ represents what a business was paid for its stock plus the profits that have been retained in the business.
A)Historical value
B)Market value
C)Replacement value
D)Book value
Q2) An organization's employees are usually responsible for fraud that is committed by a business organization.
A)True
B)False
Q3) Details that support business transactions make up what is called:
A)internal control.
B)monitoring.
C)risk assessment.
D)an audit trail.
Q4) Certified Public Accountants perform external audits of a company to confirm that the financial statements are fairly presented according to GAAP.
A)True
B)False
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) What type of account is Allowance for Doubtful Accounts?
A)A contra-asset account
B)An expense account
C)A contra-liability account
D)A revenue account
Q2) A 4-month promissory note dated on July 17 will be due on November 17.
A)True
B)False
Q3) The account receivable turnover is computed by taking the average net Accounts Receivable and dividing it by the net credit sales.
A)True
B)False
Q4) An 83-day note issued on November 13, 2014 will mature on:
A)February 2, 2015.
B)February 3, 2015.
C)February 4, 2015.
D)February 5, 2015.
Q5) Notes receivable generally include a charge for interest.
A)True
B)False
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Chapter 8: Long-Term and Other Assets
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Sample Questions
Q1) Juarez Mining purchased a vein of coal ore for $3,800,000. It is estimated that 30,000,000 tons of ore are available to be extracted. The estimated depletion rate for each ton of ore (rounded to the nearest cent)is:
A)$1.30.
B)$0.13.
C)$0.12.
D)$0.14.
Q2) A method best suited for depreciating items, such as copy machines and vehicles, would be the:
A)expense method.
B)units-of-production method.
C)double-declining balance method.
D)straight-line method.
Q3) Torres Co. has installed a piece of machinery for a total of $45,000. In its third month of operation, repairs of $900 had to be made on the machine. This $900 would be:
A)added to the cost of the machinery.
B)treated as a repairs and maintenance expense.
C)capitalized in an asset account.
D)deducted from cost of the machinery.
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Page 10
Chapter 9: Current Liabilities and Long-Term Debt
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Sample Questions
Q1) Bonds from the same bond issue that mature at different times are called: A)unsecured bonds.
B)term bonds.
C)convertible bonds.
D)serial bonds.
Q2) Many salespersons have part of their payroll determined by a percent of sales. These are called:
A)salaries. B)wages.
C)bonuses.
D)commissions.
Q3) Debentures are bonds that are backed only by the general credit of the company issuing the bond.
A)True
B)False
Q4) When sales tax is remitted to the state, the journal entry includes a debit to Cash and a credit to Sales Tax Payable.
A)True B)False
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Chapter 10: Corporations: Paid-In Capital and Retained Earnings
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Sample Questions
Q1) S&C, Inc. has 420,000 shares of $12-par common stock outstanding. They have declared a 7% stock dividend. The current market price of the common stock is $19/share. The amount that will be credited to Paid-in Capital in Excess of Par Common Stock on the date of declaration is:
A)$911,400.
B)$205,800.
C)$352,800.
D)$558,600.
Q2) A corporation must incorporate in every state in which it does business.
A)True
B)False
Q3) The portion of Stockholders' Equity that can be used for dividends is referred to as legal capital.
A)True
B)False
Q4) Changes in ownership through transfer of shares of stock have no effect on the life of a corporation.
A)True
B)False
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) In the direct method, each line of the Income Statement is converted from the accrual basis to cash basis.
A)True
B)False
Q2) Cost of goods sold for the year was $840,000. Inventory was $64,000 at the beginning of the year and $89,000 at the end of the year. There were no changes in the amount in account payable for the year. Cash payment for merchandise to be reported under the direct method is:
A)$840,000.
B)$904,000.
C)$929,000.
D)$865,000.
Q3) The Prepaid Rent balance has decreased during the year. How would this affect the Statement of Cash Flows operations section under the indirect method?
A)It is already included in the net income.
B)It would be added back to net income.
C)It would be subtracted from net income.
D)It does not affect the cash flow from operations.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Which of the following would NOT be a red flag in a financial statement analysis?
A)Increased Accounts Receivable turnover
B)Decreased cash flow
C)High debt ratio
D)Low inventory turnover
Q2) If current assets were $101,000 in 2015 and $91,000 in 2016, what was the amount of increase or decrease in percentage terms from 2015 to 2016? (Round your final answer to two decimal places, X.XX%.)
A)Increase of 11%
B)Decrease of 11%
C)Increase of 10%
D)Decrease of 10%
Q3) The formula "net income divided by average Stockholders' Equity" yields:
A)return on equity.
B)return on assets.
C)earnings per share.
D)return on sales.
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