Financial Statements Analysis
Question Bank
Course Introduction
Financial Statements Analysis is a comprehensive course designed to equip students with the skills and techniques necessary to interpret and analyze financial statements for effective decision-making. The course covers the underlying principles of financial reporting, key accounting concepts, and the structure of financial statements including the balance sheet, income statement, and cash flow statement. Students learn to use ratio analysis, trend analysis, and comparative analysis to assess a companys financial health, profitability, liquidity, and solvency. Emphasis is placed on understanding the impact of accounting policies and estimates, as well as identifying red flags and potential manipulations in financial reports. By the end of the course, students will be able to critically evaluate financial information and draw meaningful conclusions to support investment, lending, and management decisions.
Recommended Textbook
Financial Accounting 9th Edition by Walter T. Harrison
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13 Chapters
2240 Verified Questions
2240 Flashcards
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Since we live in a global economy, all countries have adopted the same accounting standards for business transactions.
A)True
B)False
Answer: False
Q2) The relevant measure of the value of the assets of a company that is going out of business is the:
A) book value.
B) current fair market value.
C) historical cost.
D) recorded value.
Answer: B
Q3) Which of the following must be added to beginning Retained Earnings to compute ending Retained Earnings?
A) Net income.
B) Expenses.
C) Dividends.
D) All of the above.
Answer: A
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Page 3
Chapter 2: Transaction Analysis
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179 Flashcards
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Sample Questions
Q1) A trial balance has total debits of $720,000 and total credits of $850,000, with a debit balance of $65,000 for notes payable. This situation indicates:
A) a slide.
B) an incorrect posting.
C) a transposition.
D) that none of the above are correct.
Answer: B
Q2) The payment of salaries to employees would:
A) increase assets and increase liabilities.
B) decrease net income and decrease assets.
C) increase liabilities and increase net income.
D) decrease assets and increase liabilities.
Answer: B
Q3) The financial statements can be prepared from the information on the trial balance. A)True
B)False
Answer: True
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) A company started the year with $400 of supplies. During the year the company purchased additional supplies costing $1,600. There were $800 of supplies on hand at the end of the year. An adjusted trial balance prepared at the end of the accounting period will show the following balance in Supplies Expense:
A) $600.
B) $800.
C) $1,200.
D) $1,600.
Answer: C
Q2) The closing entry for the Salaries Expense account would include a debit to:
A) Salaries Expense and a credit to Retained Earnings.
B) Salaries Expense and a credit to Net Income.
C) Retained Earnings and a credit to Salaries Expense.
D) Net Income and a credit to Salaries Expense.
Answer: C
Q3) Liquidity measures how quickly an item can be converted into cash.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) SOX created the Public Company Accounting Oversight Board to oversee the audits of public companies.
A)True
B)False
Q2) Managers control cash receipts and disbursements, as well as ending cash balance, through a(n):
A) cash budget.
B) operating budget.
C) statement of cash flows.
D) sales budget.
Q3) A bank statement included a NSF check from customer Kim Fields for $2,100. The journal entry to record this reconciling item should:
A) debit NSF and credit Cash for $2,100.
B) debit Cash and credit Accounts Receivable for $2,100.
C) debit Accounts Receivable and credit Cash for $2,100.
D) debit Cash and credit NSF for $2,100.
Q4) Most petty cash funds use an imprest system.
A)True
B)False
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) A realized gain occurs when the:
A) sales price is greater than the trading investment carrying amount.
B) sales price is less than the trading investment carrying amount.
C) fair value exceeds the cost of the trading investment.
D) cost of the investments exceeds the fair value of the trading investment.
Q2) The Shark Bank lent Sandy's Pastry Store $34,000 on a sixty day, 7% note dated April 10<sup>th</sup>. Use a 365 day year when calculating interest and round all amounts to the nearest dollar.
Required:
1. Determine the due date of the note.
2. Determine the maturity value of the note.
3. Journalize the entries to record the receipt of the note by the payee and the receipt by the payee of the amount due on the note at maturity.
Q3) A business offers credit terms of 1/15, n/30. These terms indicate that:
A) the total amount of the invoice must be paid within 15 days.
B) a discount of 1% can be taken if the invoice is paid within 15 days.
C) the buyer can take a 1% discount if the bill is paid within 15 or 30 days.
D) no discount is offered for early payment.
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) The weighted-average cost per unit is calculated as the cost of goods sold divided by the number of units actually sold.
A)True
B)False
Q2) Crazy Eddie "cooked the books" which ultimately led the company to go out of business. Which of the following is a correct statement about the frauds at Crazy Eddie?
A) Crazy Eddie understated the inventory counts.
B) Crazy Eddie converted to a computerized inventory system to help them control their inventory problems.
C) The company's auditors detected the inventory problems.
D) The inventory overstatement became larger than the total profits the company had reported since they went public.
Q3) The gross profit percentage:
A) is markup stated as a percentage of cost.
B) is also known as the gross margin percentage.
C) will increase if a company is experiencing financial difficulty.
D) fluctuates significantly for most companies from year to year.
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8
Chapter 7: Plant Assets, Natural Resources, Intangibles
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Sample Questions
Q1) If an asset is sold:
A) depreciation must be recorded to the date of sale.
B) the cost of the asset is compared to the selling price to determine any gain or loss.
C) the journal entry to record the sale will include a credit to cash.
D) for a gain, total assets remain the same and total equity increases.
Q2) Thomas Company trades in a printing press for a newer model. The cost of the old printing press was $61,500, and accumulated depreciation up to the date of the trade-in amounts to $38,000. The company also pays $41,200 cash for the newer printing press. The journal entry to acquire the new printing press will require a debit to Equipment for:
A) $41,200.
B) $61,500.
C) $64,700.
D) $102,700.
Q3) WorldCom committed financial statement fraud by:
A) expensing items that should have been capitalized.
B) understating net income.
C) using IFRS to make the company look better.
D) capitalizing items that should have been expensed.
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Chapter 8: Long-Term Investments the Time Value of Money
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Sample Questions
Q1) If a U.S. Company has a foreign subsidiary, the financial statements of the subsidiary are not consolidated with the parent company's financial statements.
A)True
B)False
Q2) Unrealized Gain/Loss on investments account appears under other comprehensive income on a separate section of the income statement.
A)True
B)False
Q3) An investee should report available-for-sale securities that might be sold in the next 12 months as a short-term investment.
A)True
B)False
Q4) When the equity method is used to account for stock investments, the carrying value of an investment is computed as the cost of the investment and adjusted to fair value as of the balance sheet date.
A)True
B)False
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Chapter 9: Liabilities
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Sample Questions
Q1) Purchasing merchandise inventory on account results in a liability.
A)True
B)False
Q2) Bandana Corp. has convertible bonds with a par value of $200,000 and an unamortized discount of $7,000. The bonds can be converted into 2,000 shares of Bandana's common stock that has a $50 par value. Prepare the journal entry to record the conversion.
Q3) Details about a company's liabilities should be included in the notes to the financial statements.
A)True
B)False
Q4) Which of the following statements regarding leases is correct?
A) Capital leases are favored over operating leases.
B) A debit balance in the Leased Asset account on the balance sheet indicates an operating lease.
C) Title is transferred to the lessee at the end of an operating lease term.
D) Operating leases require the lessee to make rent payments.
Q5) The account Discount on Bonds Payable increases a company's liabilities.
A)True
B)False
Page 11
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) When preferred stock is cumulative, preferred dividends not paid in a year are:
A) distributions of earnings.
B) called dividends in arrears.
C) a liability.
D) never paid to the preferred stockholders.
Q2) The payment of dividends will appear on the statement of cash flows as a:
A) positive amount in the investing activities section.
B) negative amount in the investing activities section.
C) positive amount in the financing activities section.
D) negative amount in the financing activities section.
Q3) On November 24th, B & B Corporation declared a $0.40 per share cash dividend. The dividend will be payable on December 12th to the stockholders of record as of December 5th. B&B Corporation has 25,500 shares of $1 par value common stock outstanding on November 24th. On December 12th, B& B had 30,000 shares of $1 par value common stock outstanding. Prepare the journal entries on the declaration and payment dates.
Q4) The terms "authorized stock" and "issued stock" are used synonymously.
A)True
B)False
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Page 12
Chapter
Statement, the Statement of Comprehensive Income, the Statement of Stockholders Equity
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Sample Questions
Q1) Earnings per share shows how much income a company earned for each share of stock.
A)True
B)False
Q2) The purpose of channel stuffing is to increase operating expenses.
A)True
B)False
Q3) Middletown Corporation issued 3,000,000 shares of $1 par value common stock. In the current year, Middletown reported sales of $33.2 million, an operating profit of $5.4 million, and net income of $4.2 million. During the year, Middletown sold a business segment at a loss.
Required:
A) Show earnings per share as it would appear on the income statement.
B) Assume an investment capitalization rate of 6%. What price should an investor be willing to pay for a share of stock?
Q4) An unqualified opinion by independent auditors indicates the fairness of the company's financial statements and the effectiveness of its internal controls.
Page 13
A)True
B)False
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Cash equivalents do NOT include highly liquid short-term investments.
A)True
B)False
Q2) The statement of cash flows is an optional statement that can be prepared along with the income statement, balance sheet, and statement of retained earnings.
A)True
B)False
Q3) Under the direct method, cash receipts from dividend revenue affect the statement of cash flows, but not the income statement.
A)True
B)False
Q4) Most of the time, net income will be the same as cash flows from operating activities.
A)True
B)False
Q5) The change in total assets is the "check figure" for the statement of cash flows.
A)True
B)False
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Horizontal analysis is performed on:
A) only the income statement.
B) only the balance sheet.
C) only the statement of retained earnings
D) the income statement, the balance sheet, and the statement of retained earnings.
Q2) On a common-size balance sheet each item is expressed as a percentage of:
A) current assets.
B) operating income.
C) total assets.
D) net income.
Q3) The cost of capital is a weighted average of the returns demanded by the company's stockholders and lenders.
A)True
B)False
Q4) On a statement of cash flows, which is considered an investing activity?
A) Depreciation
B) Increase in inventory
C) Sale of securities
D) Repayment of debt
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