Financial Reporting
Question Bank
Course Introduction
Financial Reporting is a foundational course that introduces students to the concepts, principles, and standards governing the preparation and presentation of financial statements for external users. The course covers the structure and content of income statements, balance sheets, cash flow statements, and statements of changes in equity in accordance with internationally recognized frameworks such as IFRS or GAAP. Emphasis is placed on understanding the regulatory environment, the qualitative characteristics of useful financial information, and the ethical responsibilities of accountants. Through practical exercises and case analyses, students develop the skills to interpret financial reports, assess organizational performance, and communicate financial information effectively to stakeholders.
Recommended Textbook
Financial Accounting 8th Edition by Walter T. Harrison
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Accounting information is subject to the constraints of:
A)comparability and consistency.
B)comparability and verifiability.
C)materiality and cost.
D)relevance and faithful representation.
Answer: C
Q2) The economic resources of a business that are expected to produce a benefit in the future are:
A)liabilities.
B)assets.
C)owners' equity.
D)expenses.
Answer: B
Q3) Managerial accounting information is used mainly by external users.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) Notes payable, accounts payable, taxes payable and salaries payable are all examples of:
A)liabilities. B)revenues.
C)expenses.
D)assets.
Answer: A
Q2) Any event that has a financial impact on the business and can be measured reliably is a(n):
A)income statement. B)transaction.
C)asset.
D)journal.
Answer: B
Q3) Every business transaction involves both debits and credits.
A)True
B)False
Answer: False
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) On August 1 of the current year, Jamie Simmons received $5,400 for legal services to be performed evenly throughout the next six months. The adjusting entry on December 31 of the current year would include a:
A)credit to Unearned Service Revenue of $4,500.
B)debit to Unearned Service Revenue of $900.
C)debit to Service Revenue of $900.
D)credit to Service Revenue of $4,500.
Answer: D
Q2) A company makes a $200 sale on account. It later collects the $200 in cash. Under the accrual method of accounting, revenue is recognized:
A)when the cash is collected.
B)when the sale is made.
C)either when the cash is received or the sale is made.
D)at a time that cannot be determined from the facts.
Answer: C
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) When preparing a bank reconciliation, which of the following items should be added to the book balance?
A)EFT receipts
B)Deposits in transit
C)Collection items
D)Both EFT receipts and collection items
Q2) Three of the five components of internal control are:
A)control environment, risk assessment and control policies.
B)monitoring of controls, information database and risk assessment.
C)monitoring of controls, risk assessment and control environment.
D)risk assessment, control procedures and information database.
Q3) The Toy Store borrowed $12,000 from the bank and agreed to keep $3,000 on deposit at all times. The net result of this compensating balance agreement is that:
A)the Toy Store actually only borrowed $9,000.
B)the Toy Store actually only borrowed $3,000.
C)the actual interest rate is lower than the stated interest rate.
D)none of the above are true.
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) The Allowance for Uncollectible Accounts has a credit balance of $500. The sales for the current year were $800,000, and the historical bad debt percentage has been 2% of sales. The adjusting journal entry amount should be $15,500 under the percent-of-sales method.
A)True
B)False
Q2) Net accounts receivable is calculated as:
A)sales less sales returns and allowances.
B)accounts receivable plus allowance for uncollectible accounts.
C)accounts receivable less allowance for uncollectible accounts.
D)accounts payable plus allowance for uncollectible accounts.
Q3) Net sales for the current period were $114,000 and average receivables were $96,250. What is the amount of day's sales in receivables?
A)233 days
B)266 days
C)308 days
D)416 days
Q4) The Allowance for Uncollectible Accounts normally has a credit balance.
A)True
B)False
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) Ace Company began the current accounting period with 9,000 units of inventory purchased for $100 per unit. Ace sells its units at $300 per unit. Ace would experience a LIFO liquidation if:
A)the sales price falls below $300 per unit.
B)the purchase price falls below $100 per unit.
C)the level of ending inventory falls below 9,000 units.
D)any of the above scenarios happened.
Q2) The inventory turnover figure should be the same no matter what business a company is in.
A)True
B)False
Q3) In a perpetual inventory system, businesses maintain a continuous record for each inventory item.
A)True
B)False
Q4) The largest expense on the income statement for most merchandising companies is:
A)administrative expenses.
B)selling expenses.
C)cost of goods sold.
D)other expenses.
8
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Chapter 7: Plant Assets Intangibles
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Sample Questions
Q1) Land, buildings and equipment are acquired for a lump sum of $875,000. The market values of the three assets are, respectively, $200,000, $500,000 and $300,000. What is the cost assigned to the equipment?
A)$250,000
B)$262,500
C)$300,000
D)$342,857
Q2) Patch Company sold some office furniture for $4,800 cash. The furniture cost $31,500 and had accumulated depreciation through the date of sale totaling $29,300. The journal entry to record the sale of the furniture will include a:
A)debit to Loss on Sale of Furniture for $26,700.
B)debit to Gain on Sale of Furniture for $2,600.
C)credit to Gain on Sale of Furniture for $2,600.
D)credit to Loss on Sale of Furniture for $26,700.
Q3) Treating a capital expenditure as an immediate expense:
A)overstates assets and overstates owners' equity.
B)overstates expenses and understates net income.
C)understates expenses and overstates owners' equity.
D)understates expenses and understates assets.
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Page 9
Chapter 8: Liabilities
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Sample Questions
Q1) The Salary Expense account is debited for:
A)payroll tax liabilities only.
B)gross pay only.
C)gross pay plus employee payroll liabilities.
D)gross pay minus employee payroll liabilities.
Q2) The amount to invest now to receive more later is the:
A)present value.
B)future value.
C)maturity value.
D)time value.
Q3) An example of a post-retirement benefit provided by a company is medical insurance for retired workers.
A)True
B)False
Q4) The journal entry to record the sale of a bond at a discount will include a:
A)debit to the discount on bonds payable account.
B)credit to the discount on bonds payable account.
C)debit to bonds payable.
D)credit to cash.
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Chapter 9: Stockholders Equity
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Sample Questions
Q1) When the board of directors declares a cash dividend, the owners of noncumulative preferred stock must receive:
A)neither the current year's dividend nor dividends in arrears.
B)dividends in arrears, but not the current year's dividend.
C)all dividends in arrears plus the current year's dividend.
D)the current year's dividend, but no dividends in arrears.
Q2) The number of shares of treasury stock plus the number of shares outstanding equals the number of shares:
A)authorized that have not been issued.
B)authorized.
C)issued.
D)issued that have not been reacquired by the company.
Q3) Paid-in capital, as shown on a corporate balance sheet, includes the stock accounts and any additional paid-in capital.
A)True
B)False
Q4) Legal capital is an arbitrary amount assigned by a company to a share of stock.
A)True
B)False
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Chapter 10: Long-Term Investments International Operations
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Sample Questions
Q1) When a company holds a receivable denominated in a foreign currency:
A)it wants the foreign currency to weaken.
B)it wants the foreign currency to strengthen.
C)it wants the foreign currency to remain the same.
D)it does not matter if the foreign currency strengthens or weakens.
Q2) Under the equity method of accounting for stock investments, cash dividends received from the investee are recorded by the investor as:
A)a debit to the Investment account of the investor company.
B)a credit to Dividend Revenue of the investor company.
C)a credit to the Investment account of the investor company.
D)no entry. There is no entry made to record dividends in this accounting situation.
Q3) Which of the following is the method used when one company owns less than 20% of the shares of another company?
A)Market value method
B)Consolidation method
C)Equity method
D)Amortized method
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Page 12
Chapter 11: The Income Statement the Statement of
Stockholders Equity
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Sample Questions
Q1) Unrealized gains or losses on available-for-sale investments are reported as:
A)part of a company's pro forma earnings only.
B)part of a company's net income or loss from its continuing operations.
C)other comprehensive income, since these items do not enter into the determination of net income.
D)none of the above.
Q2) For any given year, Income Tax Payable can never exceed Income Tax Expense.
A)True
B)False
Q3) The unqualified opinion is the highest statement of assurance that an independent certified public accountant can express.
A)True
B)False
Q4) Each identifiable part of a company is called a business segment.
A)True
B)False
Q5) The auditors perform their audit in accordance with GAAP.
A)True
B)False
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) A statement of cash flows:
A)reports where the cash came from (receipts)and how it was spent (payments).
B)covers a span of time.
C)is a basic financial statement required for publicly-held companies.
D)is all of the above.
Q2) Thunder Corporation had a beginning balance in net plant assets of $220,000. During the year, Thunder purchased $60,000 of new plant assets. Depreciation expense for the year was $30,000 and there was a net gain on the sale of plant assets was $3,000. The ending balance in net plant assets was $170,000. The cash received from the sale of the plant assets was:
A)$80,000.
B)$88,000.
C)$83,000.
D)none of the above.
Q3) Under the indirect method of preparing a statement of cash flows, depreciation expense for the current period is:
A)added in the operating activities section.
B)subtracted in the operating activities section.
C)not reported.
D)reported in the investing activities section.
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) The cost of capital:
A)is the same for all companies.
B)can be obtained from the financial statements.
C)is higher for a start-up company since it is untested.
D)is all of the above.
Q2) Horizontal analysis evaluates financial data:
A)for one year.
B)for the future.
C)over a period of time.
D)none of the above.
Q3) The ratio that measures the value that the stock market places on $1 of a company's earnings is the:
A)dividend yield.
B)return on equity.
C)price/earnings ratio.
D)earnings per share.
Q4) An efficient capital market is one in which market prices fully reflect all information available to the public.
A)True
B)False
Page 15
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