Financial Reporting
Test Preparation
Course Introduction
Financial Reporting is a comprehensive course designed to equip students with a thorough understanding of the principles, standards, and practices governing corporate financial disclosure. The course covers the preparation and analysis of key financial statements, such as the balance sheet, income statement, and cash flow statement, in accordance with generally accepted accounting principles (GAAP) and International Financial Reporting Standards (IFRS). Students will explore how organizations communicate financial performance to stakeholders, interpret complex financial data, and assess the impact of financial transactions on business operations and external reporting. The course also addresses ethical considerations, regulatory frameworks, and the role of financial reporting in decision-making processes.
Recommended Textbook
Financial Accounting 15th Edition by Carl Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) The owner's rights to the assets rank ahead of the creditors' rights to the assets.
A)True
B)False
Answer: False
Q2) The Financial Accounting Standards Board (FASB)is the authoritative body that has primary responsibility for developing accounting principles.
A)True
B)False
Answer: True
Q3) Often used as an alternative to a partnership
A)Proprietorship
B)Partnership
C)Corporation
D)Limited liability company (LLC)
Answer: D
Q4) Prepare an income statement for the current year ended March 31.
Answer: 11ea8d32_2887_7aa9_b445_4930253f6350_TB6239_00
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) The recording of cash receipts to the cash account will be done by debiting the account.
A)True
B)False
Answer: True
Q2) The purchase of supplies on account was recorded and posted as a debit to Supplies for $500 and a credit to Accounts Receivable for $500.The correcting entry would include a
A)credit to Accounts Receivable for $500
B)credit to Accounts Receivable for $1,000
C)credit to Accounts Payable for $500
D)credit to Accounts Payable for $1,000
Answer: C
Q3) A debit signifies a decrease in A)assets
B)expenses
C)drawing
D)revenues
Answer: D
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Which of the following accounting steps in the accounting process would be completed last?
A)preparing the adjusted trial balance
B)posting
C)preparing the financial statements
D)journalizing
Answer: C
Q2) Using accrual accounting,expenses are recorded and reported only
A)when they are incurred, whether or not cash is paid
B)when they are incurred and paid at the same time
C)if they are paid before they are incurred
D)if they are paid after they are incurred
Answer: A
Q3) Accrued revenues would affect _______ on the balance sheet.
A)assets
B)liabilities
C)owner's capital
D)prepaid expenses
Answer: A
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Reversing entries are recorded after adjusting entries have been recorded and before closing entries are recorded for the same period.
A)True
B)False
Q2) The end-of-period spreadsheet (work sheet)for the current year for Jamal Company shows Balance Sheet columns with a debit total of $630,430 and a credit total of $614,210.This is before the amount for net income or net loss has been included.In preparing the income statement from the end-of-period spreadsheet,what is the amount of net income or net loss?
Q3) Since the adjustments are entered on the work sheet,it is not necessary to record them in the journal or post them to the ledger.
A)True
B)False
Q4) The balance in the capital account on the worksheet will equal the amount presented in the balance sheet.
A)True
B)False
Q5) List and describe the purpose of the four closing entries.
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Chapter 5: Accounting Systems
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Sample Questions
Q1) An accounting system design consists of internal controls and information processing methods.
A)True
B)False
Q2) The accounts receivable subsidiary ledger is an example of a special journal.
A)True
B)False
Q3) A cash purchase of supplies should be recorded in the
A)cash receipts journal
B)purchases journal
C)general journal
D)cash payments journal
Q4) The basic procedure of posting from a revenue journal is to make all postings at the end of the month.
A)True
B)False
Q5) Using the Internet to perform business transactions is called e-commerce.
A)True
B)False
Q6) Define and describe an accounting system.
Page 7
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) Jacob Co.sells merchandise on credit to Isaiah Co.for $9,700.The invoice is dated on May 1 with terms of 1/15,net 45.What is the amount of the discount and up to what date must the invoice be paid in order for the buyer to take advantage of the discount?
A)$194, May 15
B)$194, May 16
C)$97, May 15
D)$97, May 16
Q2) The adjusting entry to record inventory shrinkage would generally include a debit to Cost of Merchandise Sold.
A)True
B)False
Q3) The statement of owner's equity shows
A)only net income and beginning and ending capital
B)only total assets and beginning and ending capital
C)only net income, beginning capital, and withdrawals
D)beginning and ending capital, all the changes in the owner's capital as a result of net income (loss), and withdrawals
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8
Chapter 7: Inventories
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Sample Questions
Q1) During periods of increasing costs,an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.
A)True
B)False
Q2) While taking a physical inventory,a company counts its inventory as less than the actual amount on hand.How will this error affect the income statement?
Q3) If the cost of an item of inventory is $60 and the current replacement cost is $75,the amount included in inventory according to the lower of cost or market is
A)$15
B)$60
C)$75
D)$135
Q4) The lower of cost or market is a method of inventory valuation.
A)True
B)False
Q5) Describe three inventory cost flow assumptions and how they impact the financial statements.
Q6) List three different security measures taken to safeguard inventory.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Outstanding checks
A)Bank statement adjustment
B)Company books adjustment
C)Either
Q2) The debit recorded in the journal to reimburse the petty cash fund is to
A)Petty Cash
B)Accounts Receivable
C)Cash
D)various accounts for which the petty cash was disbursed
Q3) When the voucher system is used,the amount due on each voucher represents the credit balance of an account payable if the voucher is in full payment to a creditor.
A)True
B)False
Q4) Which of the following would be subtracted from the balance per books on a bank reconciliation?
A)outstanding checks
B)deposits in transit
C)notes collected by the bank
D)error in recording a check for $732 as $723
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Chapter 9: Receivables
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Sample Questions
Q1) When using the direct write-off method of accounting for uncollectible receivables,the account Allowance for Doubtful Accounts is debited when a specific account is determined to be uncollectible.
A)True
B)False
Q2) Under the direct write-off method of accounting for uncollectible accounts,Bad Debt Expense is recorded
A)at the end of each accounting period
B)when a credit sale is past due
C)whenever a predetermined amount of credit sales has been made
D)when an account is determined to be worthless
Q3) Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),and bad debt expense is estimated at 3% of credit sales.If credit sales are $300,000,the amount of the adjusting entry to record the estimated uncollectible accounts receivable
A)is $8,500
B)is $9,500
C)is $9,000
D)cannot be determined
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Page 11
Chapter 10: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Interest on money borrowed to finance construction of new office building
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements
Q2) Reputation of a company
A)Patent
B)Copyright
C)Trademark
D)Goodwill
Q3) Standby equipment held for use in the event of a breakdown of regular equipment is reported as property,plant,and equipment on the balance sheet.
A)True
B)False
Q4) The cost of repairing damage to a machine during installation is debited to a fixed asset account.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) A defined contribution plan promises employees a fixed annual pension benefit.
A)True
B)False
Q2) According to a summary of the payroll of Scotland Company,$450,000 was subject to the 6.0% social security tax and $500,000 was subject to the 1.5% Medicare tax.Federal income tax withheld was $98,000.Also,$15,000 was subject to state (4.2%)and federal (0)8%)unemployment taxes.The journal entry to record accrued salaries would include a
A)debit to Salaries Payable of $450,000
B)credit to Salaries Payable of $500,000
C)debit to Salaries Expense of $500,000
D)credit to Salaries Expense of $450,000
Q3) Chang Co.issued a $50,000,120-day,discounted note to Guarantee Bank.The discount rate is 6%.Assuming a 360-day year,the cash proceeds to Chang Co.are
A)$49,750
B)$47,000
C)$49,000
D)$51,000
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Page 13
Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) The process of going out of business by selling the entity's assets and paying its liabilities
A)Partnership
B)Partnership agreement
C)Distribution of remaining cash to partners
D)Mutual agency
E)Equally
F)Death of a partner
G)Liquidation
H)Unlimited liability
Q2) A voluntary association of two or more persons who co-own a business for profit
A)Partnership
B)Partnership agreement
C)Distribution of remaining cash to partners
D)Mutual agency
E)Equally
F)Death of a partner
G)Liquidation
H)Unlimited liability
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Chapter 13: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) Twenty percent of all businesses in the United States are corporations,and they account for 80% of the total business dollars generated.
A)True
B)False
Q2) Shares of common stock that were issued and then reacquired by a company
A)Cash dividend
B)Date of record
C)Stock Dividends Distributable
D)Date of declaration
E)Treasury stock
F)Preferred stock
G)Date of payment
H)Paid-In Capital in Excess of Par
Q3) Under the cost method,when treasury stock is purchased by the corporation,the par value and the price at which the stock was originally issued are important.
A)True
B)False
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Page 15
Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) If the market rate of interest is 8% and a corporation's bonds bear interest at 7%,the bonds will sell at a premium.
A)True
B)False
Q2) If bonds are issued at a premium,the stated interest rate is
A)higher than the market rate of interest
B)lower than the market rate of interest
C)too low to attract investors
D)adjusted to a higher rate of interest
Q3) A $300,000 bond was redeemed at 98 when the carrying value of the bond was $292,000.The entry to record the redemption would include a
A)loss on bond redemption of $4,000
B)gain on bond redemption of $4,000
C)gain on bond redemption of $2,000
D)loss on bond redemption of $2,000
Q4) The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.
A)True
B)False
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Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) Investment in Bonds is reported on the balance sheet at lower of cost or market.
A)True
B)False
Q2) Generally accepted accounting principles (GAAP)require the use of fair value accounting for all assets and liabilities.
A)True
B)False
Q3) Wendell Company owns 28% of the common stock of Porter Company and accounts for the investment using the equity method.Assuming that Wendell Company purchased the stock several years ago,the balance in the investment account would be equal to the cost of the
A)investment only
B)investment plus Wendell's share of Porter's net income earned since the investment was purchased
C)investment plus the total amount of dividends Wendell has received from Porter since the investment was purchased
D)investment plus Wendell's share of Porter's net income earned since the investment was purchased minus the total amount of dividends Wendell has received from Porter since the investment was purchased
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Page 17
Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Durrand Corporation's accumulated depreciation increased by $12,000,while patents decreased by $2,200 between consecutive balance sheet dates.There were no purchases or sales of depreciable or intangible assets during the year.In addition,the income statement showed a gain of $4,300 from sale of land.The company earned a net income of $65,000.Determine net cash flow from operating activities under the indirect method.
Q2) Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?
A)a decrease in inventory
B)a decrease in accounts payable
C)preferred dividends declared and paid
D)a decrease in accounts receivable
Q3) The board of directors of Kendall Co.declared cash dividends totaling $390,000 during the current year.The comparative balance sheet indicates dividends payable of $58,000 at the beginning of the year and $73,000 at the end of the year.What was the amount of cash payments Kendall Co.made to stockholders during the year?
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) Which of the following is required by the Sarbanes-Oxley Act?
A)price-earnings ratio
B)report on internal control
C)vertical analysis
D)common-sized statement
Q2) If two companies have the same current ratio,their ability to pay short-term debt is the same.
A)True
B)False
Q3) The percentage analysis of the relationship of each component in a financial statement to a total within the statement
A)Solvency
B)Leverage
C)Times interest earned
D)Horizontal analysis
E)Vertical analysis
F)Common-sized financial statements
G)Current position analysis
H)Profitability analysis
Q4) Define solvency and profitability.How are they alike?
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