Financial Reporting
Textbook Exam Questions
Course Introduction
Financial Reporting focuses on the principles and practices of preparing, presenting, and analyzing financial statements in accordance with relevant regulatory frameworks and accounting standards. The course covers key topics such as the conceptual framework for financial reporting, recognition and measurement of assets and liabilities, income determination, and the presentation of financial information for both internal and external stakeholders. Students will develop an understanding of the qualitative characteristics of useful financial information, explore the disclosure requirements for publicly listed companies, and gain practical experience in interpreting and evaluating financial statements for decision-making and strategic planning purposes.
Recommended Textbook
Financial and Managerial Accounting 12th Edition by
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Page 2
Carl S. Warren
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Transactions affecting stockholders' equity include
A) shares of capital stock issued to stockholders and payment of liabilities
B) shares of capital stock issued to stockholders, dividends declared and paid to stockholders, revenues, and expenses
C) shares of capital stock issued to stockholders, revenues, expenses, and collection of accounts receivable
D) dividends declared and paid to stockholders, revenues, expenses, and purchases of supplies on account
Answer: B
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) About 90% of the businesses in the United States are organized as corporations.
A)True
B)False
Answer: False
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3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) The trial balance is out of balance and the accountant suspects that a transposition or slide error has occurred. What will the accountant do to find the error?
A) Determine the amount of the error and look for that amount on the trial balance.
B) Determine the amount of the error and divide by two, then look for that amount on the trial balance.
C) Determine the amount of the error and refer to the journal entries for that amount.
D) Determine the amount of the error and divide by nine. If the result is evenly divided, then this type of error is likely.
Answer: D
Q2) Posting a part of a transaction to the wrong account will cause the trial balance totals to be unequal.
A)True
B)False
Answer: False
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The type of account and normal balance of Accumulated Depreciation is
A) asset, credit
B) asset, debit
C) contra asset, credit
D) contra asset, debit
Answer: C
Q2) The Accumulated Depreciation's account balance is the sum of the depreciation expense recorded in past periods.
A)True
B)False
Answer: True
Q3) Explain the difference between accrual-basis accounting and cash-basis accounting.
Answer: Accrual-basis accounting reports revenues and expenses in the period in which the event happened regardless of when cash was received. Cash-basis accounting reports revenues and expenses when cash is received or paid.
Q4) The estimated amount of depreciation on equipment for the current year is $5,300.
Journalize the adjusting entry to record the depreciation.
Answer: no answer
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The fiscal year selected by companies
A) is the same as the calendar year.
B) begins with the first day of the month and ends on the last day of the twelfth month.
C) must always begin on January 1.
D) will change each year.
Q2) Which of the following is not an essential part of the accounting records?
A) journal
B) ledger
C) chart of accounts
D) work sheet
Q3) Prepaid insurance is reported on the balance sheet as a
A) current asset
B) fixed asset
C) current liability
D) long-term liability
Q4) The income summary account is closed to the retained earnings account.
A)True
B)False
Q5) Explain how net income or loss is determined by using the work sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Gross profit is equal to:
A) sales plus (sales discounts and sales returns and allowances) plus cost of merchandise sold
B) sales plus sales returns and allowances less sales discounts less cost of merchandise sold
C) sales plus sales discounts less sales returns and allowances less cost of merchandise sold
D) sales less (sales discounts and sales returns and allowances) less cost of merchandise sold
Q2) Isaac Co. sells merchandise on credit to Sonar Co in the amount of $5,700. The invoice is dated on April 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) $114, April 15
B) $114, April 16
C) $57, April 15
D) $57, April 16
Q3) On March 29th, customers who owe $10,500.00 for purchases made on Sonic Sales Company submit payments of $4,250.00. Journalize this event.
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Page 7
Chapter 6: Inventories
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Sample Questions
Q1) The inventory data for an item for November are: \(\begin{array}{rll}
\text { Nov } 1 & \text { Inventory } & 20 \text { units at } \$ 19 \\
4 & \text { Sold } & 10 \text { units } \\
10 & \text { Purchased } & 30 \text { units at } \$ 20 \\
17 & \text { Sold } & 20 \text { units } \\
30 & \text { Purchased } & 10 \text { units at } \$ 21 \end{array}\) Using a perpetual system, what is the cost of the merchandise sold for November if the company uses FIFO?
A) $610
B) $600
C) $590
D) $580
Q2) When using a perpetual inventory system, the journal entry to record the cost of merchandise sold is:
A) debit Cost of Merchandise Sold; credit Sales
B) debit Cost of Merchandise Sold; credit Merchandise Inventory
C) debit Merchandise Inventory; credit Cost of Merchandise Sold
D) No journal entry is made to record the cost of merchandise sold.
Q3) List three different security measures taken by stores to safeguard inventory.
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Page 8
Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) A firm's internal control environment is not influenced by
A) management's operating style
B) organizational structure
C) personnel policies
D) monitoring policies
Q2) A voucher is usually supported by
A) a supplier's invoice
B) a purchase order
C) a receiving report
D) all of the above
Q3) A remittance advice is the notification accompanying the check issued to a creditor that states the specific invoice being paid.
A)True
B)False
Q4) Which of the following would be added to the balance per books on a bank reconciliation?
A) Service charges
B) Outstanding checks
C) Deposits in transit
D) Notes collected by the bank
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Chapter 8: Receivables
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Sample Questions
Q1) An aging of a company's accounts receivable indicates that the estimate of uncollectible accounts totals $6,400. If Allowance for Doubtful Accounts has a $1,300 debit balance, the adjustment to record the bad debt expense for the period will require a
A) debit to Bad Debt Expense for $7,700.
B) debit to Bad Debt Expense for $6,400.
C) debit to Bad Debt expense for $5,100
D) credit to Allowance for Doubtful Accounts for $1,300.
Q2) The equation for computing interest on an interest-bearing note is as follows: interest equals maturity value times interest rate times time.
A)True
B)False
Q3) Under the direct write-off method of accounting for uncollectible accounts, Bad Debts Expense is debited
A) at the end of each accounting period.
B) when a credit sale is past due.
C) whenever a pre-determined amount of credit sales have been made.
D) when an account is determined to be worthless.
Q4) List at least three things that indicate a receivable may be uncollectible.
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Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) On December 31, Strike Company has decided to sell one of its batting cages. The initial cost of the equipment was $310,000 with an accumulated depreciation of $260,000. Depreciation has been taken up to the end of the year. The company found a company that is willing to buy the equipment for $20,000. What is the amount of the gain or loss on this transaction?
A) Gain of $20,000
B) Loss of $30,000
C) No gain or loss
D) Cannot be determined
Q2) An operating lease is accounted for as if the lessee has purchased the asset.
A)True
B)False
Q3) The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method.
A)True
B)False
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11
Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) A business borrowed $40,000 on March 1 of the current year by signing a 60-day, 9% interest bearing note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include a
A) debit to Interest Payable $600
B) debit to Interest Expense $600
C) credit to Cash for $40,000
D) credit to Cash for $46,300
Q2) A pension plan which requires the employer to make annual pension contributions, with no promise to employees regarding future pension payments, is termed A) funded
B) unfunded
C) defined benefit
D) defined contribution
Q3) The payroll summary for December 31 for Waters Co. revealed total earnings of $80,000. Earnings subject to 6% social security tax were $60,000; earnings subject to 1.5% Medicare tax were $80,000; and earnings of $3,000 were subject to 4.3% state and 0.8% federal unemployment compensation tax. Journalize the entry to record the accrual of payroll taxes.
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Page 12
Chapter 11: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) Which of the following amounts should be disclosed in the stockholders' equity section of the balance sheet?
A) the number of shares of common stock outstanding
B) the number of shares of common stock issued
C) the number of shares of common stock authorized
D) all of the above
Q2) When a corporation completes a 3-for-1 stock split
A) the ownership interest of current stockholders is decreased
B) the market price per share of the stock is decreased
C) the par value per share is decreased
D) b and c
Q3) Before a stock dividend can be declared or paid, there must be sufficient cash. A)True
B)False
Q4) A sale of treasury stock may result in a decrease in paid-in-capital. All decreases should be charged to the Paid-In-Capital from Sale of Treasury account.
A)True
B)False
13
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) An unsecured bond is the same as a
A) debenture bond.
B) zero coupon bond.
C) term bond.
D) bond indenture.
Q2) On the first day of the fiscal year, Hawthorne Company obtained a $ 88,000, seven-year, 5% installment note from Sea Side Bank. The note requires annual payments of $15,208, with the first payment occurring on the last day of the fiscal year. The first payment consists of interest of $4,400 and principal repayment of $10,808. The journal entry Hawthorne would record to make the first annual payment due on the note would include:
A) a debit to Cash of $15,208
B) a credit to Notes Payable for $10,808
C) a debit to Interest Expense for $4,400
D) a debit to Notes Payable for $15,208
Q3) A secured bond is called a debenture bond and is backed only by the general creditworthiness of the corporation.
A)True
B)False
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Page 14
Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) Yankton Company began the year without an investment portfolio. During the year they purchased investments classified as trading securities at a cost of $13,000. At the end of the year, the market value of the securities was $11,000. The Yankton Company's financial statements for the current year should show
A) a loss of $2,000 on the income statement and net trading securities of $13,000 on the balance sheet
B) no loss on the income statement and net trading securities of $13,000 on the balance sheet
C) no loss on the income statement, net trading securities of $11,000 and an unrealized loss of $2,000 as a stockholders' equity adjustment on the balance sheet
D) a loss of $2,000 on the income statement and temporary investments of $11,000 on the balance sheet
Q2) Which of the following would be considered an "Other Comprehensive Income" item? A) net income.
B) extraordinary loss related to flood.
C) gain on disposal of discontinued operations.
D) unrealized loss on available-for-sale securities.
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Page 15
Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) Cash receipts received from the issuance of a mortgage notes payable would be classified as
A) investing activities.
B) operating activities.
C) either financing or investing activities.
D) financing activities.
Q2) When using the worksheet method to analyzing noncash accounts , no order of analysis is required, but it is more efficient to start with Retained Earnings and proceed upward in the account listing.
A)True
B)False
Q3) Which of the following types of transactions would be reported as a cash flow from investing activity on the statement of cash flows?
A) issuance of bonds payable
B) issuance of capital stock
C) purchase of treasury stock
D) purchase of noncurrent assets
Q4) Fortune Corporation's comparative balance sheet for current assets and liabilities was as follows:
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Under which of the following cases may a percentage change be computed?
A) There is no amount in the base year.
B) There is a negative amount in the base year and a negative amount in the subsequent year.
C) The trend of the amounts is decreasing but all amounts are positive.
D) There is a negative amount in the base year and a positive amount in the subsequent year.
Q2) Current position analysis indicates a company's ability to liquidate current liabilities.
A)True
B)False
Q3) The denominator of the rate of return on total assets ratio is the average total assets.
A)True
B)False
Q4) Which of the following is not included in the computation of the quick ratio?
A) inventory
B) marketable securities
C) accounts receivable
D) cash
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Chapter 16: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Conversion costs are the combination of direct labor, direct material and factory overhead costs.
A)True
B)False
Q2) A plant manager's salary may be referred to as:
A) either a direct cost or an indirect cost since managerial accounting is not restricted by GAAP
B) a direct cost
C) an indirect cost
D) a period cost
Q3) Factory overhead cost is sometimes referred to as factory burden.
A)True
B)False
Q4) Prime costs are
A) direct materials and factory overhead
B) direct materials and direct labor
C) direct labor and factory overhead
D) period costs and factory overhead
Page 18
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Chapter 17: Job Order Costing
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Sample Questions
Q1) For which of the following businesses would the process cost system be appropriate?
A) Book retailer
B) Dress designer
C) Lumber mill
D) Printing firm
Q2) For the manufacturing business, inventory which is in the process of being manufactured is referred to as:
A) supplies inventory
B) work in process inventory
C) finished goods inventory
D) direct materials inventory
Q3) Scooby Company has applied $567,988 of overhead into production on Jobs in the Work in Process account. Actual overhead at the end of the year is $575,000. What is the adjustment for over or underapplied overhead?
A) $7012 Overapplied, increase Cost of Goods Sold
B) $7012 Underapplied, increase Cost of Goods Sold
C) $7012 Overapplied, decrease Cost of Goods Sold
D) $7012 Underapplied, decrease Cost of Goods Sold
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Chapter 18: Process Cost Systems
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Sample Questions
Q1) If the products of a manufacturing process are produced to customer specifications, a process cost system is more appropriate than a job order cost system.
A)True
B)False
Q2) Just-in-time processing is a business philosophy that focuses on reducing time and cost and eliminating poor quality. This is accomplished in manufacturing and non-manufacturing processes by:
A) moving a product from process to process as each function is completed
B) combining processing functions into work centers and cross-training workers to perform more than one function
C) having production supervisors attempt to enter enough materials into manufacturing to keep all manufacturing departments operating
D) having workers typically perform one function on a continuous basis
Q3) Industries that typically use process cost systems include chemicals, oil, metals, food, paper, and pharmaceuticals.
A)True
B)False
Q4) Describe the flow of materials in a process cost accounting system.
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Chapter 19: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) Penny Company sells 25,000 units at $59 per unit. Variable costs are $29 per unit, and loss from operations is ($50,000). Determine the (a) unit contribution margin (b) contribution margin ratio, and (c) fixed costs per unit at production of 25,000 units.
Q2) Carmelita Company sells 40,000 units at $18 per unit. Fixed costs are $62,000 and income from operations is $258,000. Determine the (a) variable cost per unit, (b) unit contribution margin, and (c) contribution margin ratio .
Q3) If sales are $525,000, variable costs are 53% of sales, and operating income is $50,000, what is the contribution margin ratio?
A) 47%
B) 26.5%
C) 9.5%
D) 53%
Q4) Which of the following is not an assumption underlying cost-volume-profit analysis?
A) The break-even point will be passed during the period.
B) Total sales and total costs can be represented by straight lines.
C) Costs can be accurately divided into fixed and variable components.
D) The sales mix is constant.
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21
Chapter 20: Variable Costing for Management Analysis
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Q1) On the variable costing income statement, deduction of the variable cost of goods sold from sales yields gross profit.
A)True
B)False
Q2) Under variable costing, which of the following costs would be included in finished goods inventory?
A) neither variable nor fixed factory overhead cost
B) both variable and fixed factory overhead cost
C) only variable factory overhead cost
D) only fixed factory overhead cost
Q3) On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.
A)True
B)False
Q4) Variable costing is also known as direct costing.
A)True
B)False
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Chapter 21: Budgeting
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Sample Questions
Q1) Magnolia, Inc. manufactures bedding sets. The budgeted production is for 55,000 comforters in 2012. Each comforter requires 7 yards of material. The estimated January 1, 2012, beginning inventory is 31,000 yards. The desired ending balance is 30,000 yards of material. If the material costs $4.00 per yard, determine the materials budget for 2012.
Q2) What is a capital expenditures budget?
Q3) Budgeting supports the planning process by encouraging all of the following activities except:
A) requiring all organizational units to establish their goals for the upcoming period
B) increasing the motivation of managers and employees by providing agreed-upon expectations
C) directing and coordinating operations during the period
D) improving overall decision making by considering all viewpoints, options, and cost reduction possibilities
Q4) Supervisor salaries, maintenance, and indirect factory wages would normally appear in the factory overhead cost budget.
A)True
B)False
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Chapter 22: Performance Evaluation Using Variances From
Standard Costs
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Q1) If at the end of the fiscal year the variances from standard are significant, the variances should be transferred to the:
A) work in process account only
B) cost of goods sold account only
C) finished goods account only
D) work in process, cost of goods sold, and finished goods accounts
Q2) Robin Company purchased and used 500 pounds of direct materials to produce a product with a 520 pound standard direct materials requirement. The standard materials price is $1.90 per pound. The actual materials price was $2.00 per pound. Prepare the journal entries to record (1) the purchase of the materials and (2) the material entering production. Robin records standards and variances in the general ledger.
Q3) Ruby Company produces a chair that requires 5 yds. of material per unit. The standard price of one yard of material is $7.60. During the month, 8,500 chairs were manufactured, using 40,000 yards at a cost of $7.50. Determine the (a) price variance, (b) quantity variance, and (c) cost variance.
Q4) Nonfinancial performance output measures are used to improve the input measures.
A)True B)False
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Chapter 23: Performance Evaluation for Decentralized Operations
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Q1) In an investment center, the manager has the responsibility for and the authority to make decisions that affect:
A) the assets invested in the center, but not costs and revenues
B) costs and assets invested in the center, but not revenues
C) both costs and revenues for the department or division
D) not only costs and revenues, but also assets invested in the center
Q2) Two divisions of Central Company (Divisions X and Y) have the same profit margins. Division X's investment turnover is larger than that of Division Y (1.2 to 1.0). Income from operations for Division X is $55,000, and income from operations for Division Y is $43,000. Division X has a higher return on investment than Division Y by:
A) using income from operations as a performance measure
B) comparing the profit margins
C) applying a negotiated price measure
D) using its assets more efficiently in generating sales
Q3) Identify the formula for the rate of return on investment.
A) Invested Assets/Income From Operations
B) Sales/Invested Assets
C) Income From Operations/Sales
D) Income From Operations/Invested Assets
Page 25
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Chapter 24: Differential Analysis and Product Pricing
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Sample Questions
Q1) The amount of income that would result from an alternative use of cash is called:
A) differential income
B) sunk cost
C) differential revenue
D) opportunity cost
Q2) Heston and Burton, CPAs, currently work a five-day week. They estimate that net income for the firm would increase by $75,000 annually if they worked an additional day each month. The cost associated with the decision to continue the practice of a five-day work week is an example of:
A) differential revenue
B) sunk cost
C) differential income
D) opportunity cost
Q3) Manufacturers must conform to the Robinson-Patman Act which prohibits price discrimination within the United States unless differences in prices can be justified by different costs of serving different customers.
A)True
B)False
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Chapter 25: Capital Investment Analysis
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Q1) Which method for evaluating capital investment proposals reduces the expected future net cash flows originating from the proposals to their present values and computes a net present value?
A) Net present value
B) Average rate of return
C) Internal rate of return
D) Cash payback
Q2) In calculating the net present value of an investment in equipment, the required investment and its terminal residual value should be subtracted from the present value of all future cash inflows.
A)True
B)False
Q3) A company is planning to purchase a machine that will cost $24,000, have a six-year life, and have no salvage value. The company expects to sell the machine's output of 3,000 units evenly throughout each year. Total income over the life of the machine is estimated to be $12,000. The machine will generate cash flows per year of $6,000. The accounting rate of return for the machine is 16.7%.
A)True
B)False
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Page 27
Chapter 26: Cost Allocation and Activity-Based Costing
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Q1) Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are different across different departments and products.
A)True
B)False
Q2) The Kaumajet Factory produces two products - table lamps and desk lamps. It has two separate departments - finishing and production. The overhead budget for the finishing department is $550,000, using 500,000 direct labor hours. The overhead budget for the production department is $400,000 using 80,000 direct labor hours. If the budget estimates that a table lamp will require 2 hours of finishing and 1 hours of production, how much factory overhead will be allocated to each unit of table lamp using the multiple production department factory overhead rate method with an allocation base of direct labor hours?
A) $6.33
B) $4.91
C) $5.00
D) $7.20
Q3) A single plantwide overhead rate method is very expensive to apply.
A)True
B)False
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Page 28
Chapter 27: Cost Management for Just-In-Time
Environments
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Q1) Reducing wait time is not linked to reducing inventory.
A)True
B)False
Q2) Which of the following is not an external failure cost?
A) warranty work
B) processing returned merchandise
C) rework
D) correcting invoice errors
Q3) Push manufacturing (made-to-stock) is a traditional approach to manufacturing.
A)True
B)False
Q4) A process-oriented layout segments production facilities into functional departments.
A)True
B)False
Q5) In a push manufacturing system, raw materials are released to production based on forecasted demand.
A)True
B)False
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