Financial Reporting
Test Questions
Course Introduction
Financial Reporting is a foundational course that explores the principles, standards, and processes involved in preparing and presenting financial statements for external users. The course covers key concepts such as recognition, measurement, and disclosure of assets, liabilities, equity, revenues, and expenses according to generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS). Students learn how to interpret and analyze financial statements, assess a companys financial health, and understand the regulatory and ethical environment governing external reporting. This course is essential for those seeking careers in accounting, finance, and business management.
Recommended Textbook Principles of Accounting 12th Edition by
Belverd E. Needles
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Chapter 1: Accounting Principles and the Financial Statements
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Sample Questions
Q1) The Federal Reserve Board is an example of a consumer group.
A)True
B)False
Answer: False
Q2) The day-by-day accumulation of interest is considered a transaction involving an exchange of value.
A)True
B)False
Answer: False
Q3) The Sarbanes-Oxley Act of 2002 applies to all except
A)quarterly statements
B)annual reports
C)internal management reports
D)none of these are exceptions
Answer: C
Q4) Creditors' equities is another term for liabilities.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) Purchase requests and purchase orders are economic events,and as such they affect a company's financial position,and are recognized in the accounting records.
A)True
B)False
Answer: False
Q2) The general ledger is the basic storage unit for accounting data and is used to accumulate amounts from similar transactions.
A)True
B)False Answer: False
Q3) If the trial balance showed a balance of $14,000 in the Mike Parker,Withdrawals account and a balance of $30,000 in the Wages Expense account,what would be the amount of Advertising Fees Earned for the period?
A)$106,000
B)$86,000
C)$116,000
D)$56,000
Answer: B
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Page 4
Chapter 3: Adjusting the Accounts
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Sample Questions
Q1) Which of the following is one of the conditions for recognition of an expense?
A)There is a reasonable expectation that cash will be received.
B)The expense can be recognized only when cash is paid.
C)The goods will be delivered or the services will be provided within the accounting cycle.
D)The goods or services are used to produce revenue.
Answer: D
Q2) Which of the following is a condition required by the SEC for the recognition of revenue?
A)Completion of goods manufactured.
B)Execution of a promissory note.
C)Price in excess of $100.
D)Reasonable assurance of collection.
Answer: D
Q3) An adjusted trial balance will probably list fewer accounts than are listed in the trial balance.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following entries could not be a legitimate reversing entry?
A)Debit Wages Payable and credit Wages Expense
B)Debit Fees Earned and credit Accounts Receivable
C)Debit Interest Payable and credit Interest Expense
D)Debit Interest Receivable and credit Interest Income
Q2) The amount of withdrawals for the period is
A)$50.
B)$200.
C)$400.
D)$500.
Q3) Under which circumstance would one less closing entry than usual be made?
A)When a net loss has been suffered
B)When withdrawals by the owner are equal to net income for the period
C)When net income is zero
D)When the owner's Capital account is zero prior to posting of closing entries
Q4) The amount for the Withdrawals account will appear in the Income Statement columns of a work sheet.
A)True
B)False
Q5) What two broad purposes do closing entries serve?
Page 6
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Chapter 5: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) The debt to equity ratio is
A)0.46.
B)0.67.
C)2.18.
D)0.33.
Q2) A company with a current ratio of 1.0 is considered more liquid than a company with a current ratio of 2.0.
A)True
B)False
Q3) The term owner's equity is preferred over the term net worth because most assets are carried at original cost rather than at current value.
A)True
B)False
Q4) Which of the following accounts is most likely to appear on the balance sheet as a current liability?
A)Accumulated Depreciation
B)Bonds Payable
C)Mortgage Payable
D)Wages Payable
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Chapter 6: Accounting for Merchandising Operations
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Sample Questions
Q1) The financing period is also referred to as the cash gap.
A)True
B)False
Q2) The terms "2/10,n/30" mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.
A)True
B)False
Q3) The change in merchandise inventory level from the beginning to the end of the year affects cost of goods sold.
A)True
B)False
Q4) FOB shipping point means that the seller incurs the shipping costs.
A)True
B)False
Q5) A merchandiser will earn an operating income of exactly $0 when A)gross margin equals operating expenses.
B)net sales equals cost of goods sold.
C)cost of goods sold equals gross margin.
D)operating expenses equal net sales
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Chapter 7: Inventories
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Sample Questions
Q1) The most important accounting problem in dealing with merchandise inventory is the application of which of the following conventions or rules?
A)Materiality
B)Full disclosure
C)Matching
D)Conservatism
Q2) Which of the following accounts would not appear as an asset on a manufacturer's balance sheet?
A)Finished Goods
B)Work in Process
C)Factory Overhead
D)Raw Materials
Q3) The lower-of-cost-or-market rule implies that it is a violation of the conservatism concept to carry inventory at a cost that is in excess of its market value.
A)True
B)False
Q4) What is a LIFO liquidation,and what is its effect on income before income taxes?
Q5) How is the matching rule applied when accounting for merchandise inventory?
Q6) What is the chief objective of supply-chain management? How is it accomplished?
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Chapter 8: Cash and Internal Control
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Sample Questions
Q1) When payment is received by mail,a detailed list of such receipts would not be retained by the
A)receiving department.
B)accounting department.
C)person who opens the mail.
D)cashier.
Q2) Which of the following is an appropriate internal control activity for cash?
A)Recordkeeping and custodianship over cash should be performed by the same person.
B)The amount of cash on hand should be kept to a minimum.
C)Banking facilities should be used as little as possible.
D)All payments should be made with currency,not checks.
Q3) When a petty cash fund is established,the entry contains a credit to Cash. A)True
B)False
Q4) One example of a periodic independent verification is the bank reconciliation. A)True
B)False
Q5) Under a perpetual inventory system,is it necessary to take a physical inventory at the end of the period? Why or why not?
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Chapter 9: Receivables
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Sample Questions
Q1) Which of the following situations results in a contingent liability?
A)Making a credit card sale
B)Dishonoring a note
C)Estimating uncollectible accounts expense
D)Discounting a note
Q2) The interest on a three-month,12 percent,$16,200 note receivable is
A)$486.
B)$162.
C)$324.
D)$1,944.
Q3) Each of the following is a characteristic of a promissory note except a(n)
A)maturity date that can be determined on the date the note is signed.
B)payee who has an unconditional right to receive a definite amount on a definite date.
C)maker who agrees to pay a definite sum subject to certain conditions.
D)amount to be paid that can be determined on the date the note is signed.
Q4) The debtor named in a promissory note is called the payee.
A)True
B)False
Q5) Explain the two methods used to estimate uncollectible accounts.
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Chapter 10: Long -Term Assets
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Sample Questions
Q1) Goodwill reflects all the factors that allow a company to earn a higher-than-market rate of return on its assets.
A)True
B)False
Q2) Extraordinary repairs are recorded with a debit to Accumulated Depreciation.
A)True
B)False
Q3) A truck that cost $12,000 and on which $9,000 of accumulated depreciation has been recorded was disposed of on January 1.If the truck was discarded as having no value,the entry to record this event includes
A)a gain of $3,000.
B)a loss of $3,000.
C)a loss of $6,000.
D)no recognition of a gain or loss.
Q4) Prior to the sale of an asset,depreciation should be updated and recorded. A)True
B)False
Q5) A revenue expenditure results in the recognition of an asset.
A)True
B)False
Page 12
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Chapter 11: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) The lower the interest rate,the higher the present value factor.
A)True
B)False
Q2) The amount of liabilities relating to payroll,other than Salaries Payable,is
A)$8,356.
B)$7,496.
C)$7,256.
D)$8,596.
Q3) Which of the following statements is true regarding the time value of money?
A)Compound interest will produce equal amounts of interest each period on a fixed deposit.
B)Earning simple interest is more beneficial than earning compound interest.
C)When making a purchase,it is better to make payment as soon as possible.
D)It is better to receive $1 now than a year from now.
Q4) If any portion of a long-term debt is to be paid in the next year,that portion should be classified as a current liability.
A)True
B)False
Q5) Identify and briefly discuss the three approaches for determining fair value identified by the FASB.
Page 13
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) If liquidation of a partnership results in a negative balance in a partner's account,the partner must pay into the partnership the amount of the negative balance.
A)True
B)False
Q2) When the existing partners pay a bonus to a newly admitted partner,the existing partners' accounts are debited.
A)True
B)False
Q3) Rachel and Dillon divide partnership income and losses solely on the basis of their average capital balances.Rachel had $55,000 invested during all of 20x5;Dillon had $40,000 invested from January 1 to August 31,and he invested another $15,000 on September 1.If income was $160,000 during 20x5,how much should each partner receive?
Q4) Each partner has a separate Capital,Withdrawals,and Income or Loss account.
A)True
B)False
Q5) Justin and Nicole are forming a partnership.What are some of the factors they should consider in deciding how income might be divided?
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Page 14
Chapter 13: Accounting for Corporations
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Sample Questions
Q1) Return on equity is measured in terms of A)days.
B)times.
C)a percentage.
D)dollars.
Q2) A corporation cannot declare a dividend that would cause stockholders' equity to fall below the legal capital.
A)True
B)False
Q3) If a corporation issues par value common stock and the proceeds are less than par value,the Common Stock account is credited for the par value.
A)True
B)False
Q4) The value at which one share of stock can be bought or sold is called A)book value.
B)call value.
C)par or stated value.
D)market value.
Q5) Define outstanding stock.
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Chapter 14: Long Term Liabilities
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Sample Questions
Q1) Pelican Company issued $200,000 of 20-year,6 percent bonds at 98 on one of its semiannual interest dates.The straight-line method of amortization is to be used.After seven years,what is the carrying value of the bonds?
A)$196,700
B)$197,400
C)$198,600
D)$199,300
Q2) Bonds that contain a provision that allows the issuing corporation to buy back the bonds prior to the maturity date are called
A)secured bonds.
B)callable bonds.
C)convertible bonds.
D)debenture bonds.
Q3) Under a defined benefit pension plan,
A)the pension expense account must be determined by actuarial calculations.
B)the employer guarantees the employee certain benefits upon retirement.
C)the annual contribution is based on estimated future benefits.
D)All of these choices.
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) Transaction 3 would be found on the statement of cash flows in the
A)cash flows from operating activities section.
B)cash flows from financing activities section.
C)noncash investing and financing transactions section.
D)cash flows from investing activities section.
Q2) Under the indirect method,gains or losses from the sale of equipment used in operations would appear as adjustments in the cash flows from operating activities section of the statement of cash flows.
A)True
B)False
Q3) When preparing a statement of cash flows using the indirect method,an increase in wages payable is subtracted from net income.
A)True
B)False
Q4) Dividends declared but unpaid are reflected in the financing activities section of the statement of cash flows.
A)True
B)False
Q5) Which accounts are analyzed to determine cash flows from financing activities?
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Chapter 16: Financial Statement Analysis
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Sample Questions
Q1) Days' payable is a measure of
A)liquidity.
B)volatility.
C)long-term solvency.
D)profitability.
Q2) What is the best way to study the relationship of the components of financial statements?
A)Perform ratio analysis.
B)Perform trend analysis.
C)Perform horizontal analysis.
D)Prepare common-size statements.
Q3) Horizontal analysis will result in common-size statements.
A)True
B)False
Q4) Which of the following is the least useful in evaluating a relationship as either favorable or unfavorable?
A)Past and current performances of the company
B)Industry averages
C)Past performance of the company
D)Rule-of-thumb measures
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Chapter 17: Managerial Accounting and Cost Concepts
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Q1) When there is an ethical conflict,the management accountant should resign if the immediate supervisor is involved in the conflict.
A)True
B)False
Q2) As units are completed,their costs are transferred from the Materials Inventory account to the Finished Goods Inventory account.
A)True
B)False
Q3) Which of the following is not a reason to classify costs as either product or period costs?
A)To determine unit manufacturing costs
B)To determine if the costs are fixed or variable
C)To analyze costs for control purposes
D)To report production costs on the income statement
Q4) The four stages of the management process are: planning,performing,evaluating,and communicating.
A)True
B)False
Q5) Give two examples of each stage in the management process.
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Chapter 18: Costing Systems: Job Order Costing
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Sample Questions
Q1) Lotus Company's actual overhead is greater than the applied overhead.This difference is deemed immaterial.The company records this by debiting Overhead account and crediting Cost of Goods Sold account.Which of the following is true of Lotus Company?
A)The company has correctly recorded the difference.
B)The company's assets are overstated.
C)The company should have credited Work in Process account for the difference.
D)The company's Cost of Goods Sold account is understated.
Q2) WinLaw is a legal services provider.It is planning to extend its operations by providing tax consultancy services.Which of the following statements will be true if the company extends its operation as planned?
A)The cost of providing legal services is high as tax consultancy service will be in its initial stages.
B)The company cannot extend its operations since it requires additional staff.
C)The company should know the unit service cost of tax services before determining the fees.
D)The company should drop this service line if it makes lesser profit than legal services.
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Chapter 19: Costing Systems Process Costing
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Sample Questions
Q1) Total conversion costs for the period include direct materials,direct labor,and overhead.
A)True
B)False
Q2) Direct materials for 8,000 units were added at the beginning of the second process during October.During the month,8,300 units were completed and transferred to the third process.On October 1,there were 600 units in beginning inventory,and on October 31,there were 300 units still remaining in the process.Compute the equivalent units for direct materials for the second process for October using the FIFO costing method.
A)8,600
B)8,000
C)8,300
D)8,900
Q3) In a process cost report,accounting for physical units excludes the physical units in beginning inventory to arrive at "units to be accounted for."
A)True
B)False
Q4) Mention the two cost allocation methods used in a process costing system.
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Chapter 20: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) Which of the following is reduced by a just-in-time operations?
A)Inspection time and moving time
B)Only storage time
C)Moving time and processing time
D)Inspection time and processing time
Q2) The JIT operating philosophy must be adopted by everyone in a company before its total benefits can be realized.
A)True
B)False
Q3) The repair of machines is an example of a value-adding activity.
A)True
B)False
Q4) Using the information provided for Prints Company,how much was cost of goods manufactured during June?
A)$375,000
B)$373,000
C)$370,000
D)$377,000
Page 22
Q5) Why is process value analysis not part of the general ledger accounting system?
Q6) When using a just-in-time system,what qualities should be a supplier posses?
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Page 23
Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Unit fixed costs will be the same regardless of how many units are produced.
A)True
B)False
Q2) The high-low method
A)calculates variable costs per unit by dividing the difference in the high and low activity levels by the high and low costs.
B)gives accurate results of cost estimation,irrespective of the relevant range.
C)helps in determining the fixed and variable components of a mixed cost.
D)is based on the premise that all data points are necessary to define a linear cost-volume relationship.
Q3) Cristy Lake Inc.sold goods worth $144,000 in 2014.It sells each unit for $5.50 and has a 30 percent contribution margin.The company's fixed costs amount to $33,000. Calculate Cristy's breakeven point in units.
A)43,200 units
B)9,900 units
C)26,182 units
D)20,000 units
Q4) Is breakeven analysis a tool that can be used for a service-oriented business? Explain your answer.
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Chapter 22: The Budgeting Process
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Q1) One of the limitation of the direct materials purchases budget is that it reflects only the quality of direct materials purchases.
A)True
B)False
Q2) Which of the following budgets is prepared soon after the preparation of sales budget in a master budget?
A)Cost of goods sold budget
B)Production budget
C)Cash budget
D)Selling and administrative expenses budget
Q3) The process of developing a master budget differs among manufacturing,retail,and service organizations in terms of preparation of
A)cash budget.
B)capital expenditures budget.
C)income statement.
D)operating budgets.
Q4) Sales budget is the final product of the budgeting process.
A)True
B)False
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Chapter 23: Flexible Budgets and Performance Analysis
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Q1) When developing performance measures,management must consider a number of different issues besides what to measure and how to measure.
A)True
B)False
Q2) The format of a variable costing income statement is similar to a(n)
A)contribution margin income statement.
B)traditional income statement.
C)audited income statement.
D)single-step income statement.
Q3) Using the information provided for Portia Corporation,what were the actual sales?
A)$185
B)$35
C)$190
D)$40
Q4) Provide three examples of something that an organization might want to measure and a performance measurement that could be utilized in each example.
Q5) Identify and describe the five different responsibility centers,and provide one example of each.
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Chapter 24: Standard Costing and Variance Analysis
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Q1) Service organizations do not develop standard rates for which of the following?
A)Any service costs
B)Overhead
C)Direct materials
D)Labor
Q2) The total variable overhead variance is comprised of the
A)variable overhead efficiency and fixed variances.
B)fixed overhead budget and volume variances.
C)variable overhead spending and efficiency variances.
D)labor efficiency and rate variances.
Q3) The purchasing agent is responsible for developing the direct materials quantity standard.
A)True
B)False
Q4) Using the information provided for Robert Inc,compute the fixed overhead budget variance.
A)$925 (U)
B)$3,675 (U)
C)$2,750 (F)
D)$5,800 (U)
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Chapter 25: Short-Run Decision Analysis and Capital
Budgeting
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Q1) Courtney Sinclaire is trying to rent a new bicycle.She has narrowed her choices to two lease arrangements,each with unique characteristics.Bike Superior would rent for $220 per year,and Bike Deluxe's annual rent would be $250.Bike Superior would need a new seat costing $35 and new racing tires costing $95.The old seat and tires could be sold for $30.Bike Deluxe is fully equipped but would need to be painted at a cost of $110.Maintenance and upkeep on both bikes would average $60 per year.
a.Identify the relevant data in this problem.
b.Prepare an incremental analysis for Courtney to aid her in this decision.
c.What decision should Courtney make?
Q2) While making capital investment decisions,companies set a minimum rate of return to
A)set the maximum expected returns.
B)guard their profitability.
C)cover their fixed costs.
D)comply with the government regulations.
Q3) Sunk costs arise when the choice of one course of action eliminates the possibility of another course of action.
A)True
B)False
Page 28
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