Foundations of Accounting Pre-Test Questions
Course Introduction
Foundations of Accounting introduces students to the essential principles and concepts that form the basis of financial and managerial accounting. The course covers the accounting cycle, including recording transactions, preparing financial statements, and interpreting accounting information. Students will learn about key topics such as assets, liabilities, equity, revenues, and expenses, as well as the ethical and regulatory environment of accounting. Emphasis is placed on developing practical skills for analyzing financial information and understanding its relevance for decision-making in business contexts.
Recommended Textbook
Financial Accounting 5th Canadian Edition by Walter T. Harrison
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13 Chapters
1520 Verified Questions
1520 Flashcards
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Page 2
Chapter 1: The Financial Statements
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) A company's management makes three major types of decisions on an ongoing basis: decisions regarding operating activities, decisions regarding investing activities, and decisions regarding financing activities. Discuss each of these three types of activities, including examples of each type.
Answer: Operating activities relate to deciding how to operate the business and involves decisions such as what products and/or services to sell, what prices to sell those products and services for, and how to market those products and services. Investing activities relate to deciding what kinds of investments to make and involve decisions such as what types of non-current assets to buy. Financing activities relate to deciding how to finance the company's operations and involve decisions such as whether to obtain cash by selling shares or by borrowing from a bank.
Q2) Revenues less cash outflow equals net income (or net loss).
A)True
B)False
Answer: False
Q3) All corporations have to follow the same sections of the CICA Handbook.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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164 Flashcards
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Sample Questions
Q1) The purchase of land for cash would:
A) increase total assets
B) decrease shareholders' equity
C) increase the total debits on the trial balance
D) not affect the total of debits or credits on the trial balance
Answer: D
Q2) A balance sheet is a required financial statement that reports the financial position of the company as of a given day in time.
A)True
B)False
Answer: True
Q3) The collection of cash from a customer on account would:
A) increase net income and shareholders' equity
B) increase assets and decrease liabilities
C) increase assets and increase net income
D) have no effect on net income or shareholders' equity
Answer: D
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Chapter 3: Accrual Accounting and the Financial Statements
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144 Flashcards
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Sample Questions
Q1) The adjusting entry to allocate the cost of a plant asset such as equipment involves a credit to:
A) Equipment Expense
B) Depreciation Expense
C) Accumulated Equipment
D) Accumulated Depreciation
Answer: D
Q2) Accrual accounting is more complex than the cash basis.
A)True
B)False
Answer: True
Q3) What will be the result if the adjusting entry to record the current period's depreciation on equipment is not recorded?
A) The net income for the period will be understated.
B) The net income for the period will be overstated.
C) The net income for the period will not be affected.
D) The assets for the period will be understated.
Answer: B
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Chapter 4: Internal Control and Cash
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110 Flashcards
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Sample Questions
Q1) A budget may be used as an evaluation instrument, where managers compare actual figures during the year with budgeted figures for the same time period.
A)True
B)False
Q2) List and describe at least five characteristics of an effective system of internal control. What is one inherent limitation/weakness of any system of internal control?
Q3) Identify and briefly describe the process of preparing a cash budget and how this information can be used for planning purposes.
Q4) In a bank reconciliation, adjustments to the bank balance always require preparation of journal entries.
A)True
B)False
Q5) In a bank reconciliation, a book error:
A) may be added or deducted from the bank balance in the general ledger
B) may be added or deducted from the bank balance on the bank statement
C) must be added to the bank balance in the general ledger
D) must be deducted from the bank balance in the general ledger
Q6) Identify and briefly describe the five components of internal control
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Chapter 5: Short-Term Investments and Receivables
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110 Flashcards
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Sample Questions
Q1) There are two basic ways to estimate uncollectible receivables: the percentage-of-sales method and the aging-of-receivables method.
A)True
B)False
Q2) Many companies use both the percentage-of-sales and the aging method to establish their allowance for doubtful accounts.
A)True
B)False
Q3) Net accounts receivable is calculated as:
A) sales less sales returns and allowances
B) accounts receivable less bad debt expense
C) accounts receivable less allowance for uncollectible accounts
D) accounts receivable plus allowance for uncollectible accounts
Q4) On the maturity date, the payee of a note will:
A) debit Cash, credit Note Receivable and Interest Revenue
B) debit Cash, credit Note Payable and Interest Expense
C) debit Cash, credit Note Receivable and Interest Expense
D) debit Cash, credit Note Payable and Interest Revenue
Q5) What are 'held-for-trading investments'?
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) Inventory errors can be ignored because they counter balance fix themselves.
A)True
B)False
Q2) A widely used method for estimating the value of ending inventory is the:
A) the lower-of-cost-or-market method
B) gross margin method
C) periodic method
D) perpetual method
Q3) In a merchandising business, gross margin is equal to sales revenue minus:
A) the sum of cost of goods sold, operating expenses, and prepaid expenses
B) the sum of cost of goods sold and operating expenses
C) cost of goods sold
D) the sum of cost of goods sold and sales commissions
Q4) If a company makes an error when counting ending inventory in 2013, the effect of the error will cancel out at the end of 2014.
A)True
B)False
Q5) Ending inventory under FIFO reflects the cost of goods most recently acquired.
A)True
B)False
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Chapter 7: Property, Plant, and Equipment, and Intangible Assets
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Sample Questions
Q1) Lauter Tun Corporation acquired equipment on January 1, 2012, for $300,000. The equipment had an estimated useful life of 10 years and an estimated salvage value of $25,000. On January 1, 2015, Lauter Tun Corporation revised the total useful life of the equipment to 8 years and the estimated salvage value to be $10,000. Compute depreciation expense for the year ending December 31, 2015, if Lauter Tun Corporation uses straight-line depreciation.
A) $25,938
B) $38,500
C) $41,500
D) $43,500
Q2) Which of the following is not an intangible asset?
A) Copyright
B) Patent
C) Leasehold improvement
D) Trademark
Q3) Double-declining-balance depreciation computes annual depreciation by multiplying the asset's carrying value by two times the straight-line rate.
A)True
B)False
Page 9
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Chapter 8: Long-Term Investments and the Time Value of Money
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Sample Questions
Q1) A gain or loss on sale of a long-term investment using the equity method is determined by comparing the cash received with the:
A) cost of the long-term investment
B) market value of the long-term investment
C) cost of the long-term investment adjusted for the investor's share of the investee's net income and cash dividends while the investment was held by the investor company
D) lower-of-cost-or-market value of the long-term investment
Q2) A foreign-currency transaction gain or loss on a credit purchase is calculated as the difference between the exchange rates on:
A) the date the merchandise is ordered and the date it arrives
B) the date of the purchase and the date of cash payment for the purchase
C) the date the merchandise is purchased and the date it is sold
D) the date the merchandise is ordered and the date payment is made for the merchandise
Q3) The journal entry to record the receipt of a cash dividend will include a credit to Retained Earnings.
A)True
B)False
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Chapter 9: Liabilities
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Sample Questions
Q1) The carrying amount of bonds is equal to:
A) the face value of the bonds less the premium on bonds payable
B) the face value of the bonds plus the premium on bonds payable
C) the face value of the bonds less the discount on bonds payable
D) the face value of the bonds plus the premium on bonds payable or the face value of the bonds less the discount on bonds payable
Q2) An accrued expense is an expense incurred by the company but not yet paid in cash.
A)True
B)False
Q3) Aviation Holdings Corporation's sales for the day totalled $10,552. Jensen collected an additional 5% in sales tax. The entry to record the day's sales includes a:
A) debit to Sales Tax Expense
B) debit to Sales Tax Payable
C) credit to Sales Tax Expense
D) credit to Sales Tax Payable
Q4) Describe the two interest rates included in setting the price of a bond.
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11
Chapter 10: Shareholders Equity
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Sample Questions
Q1) Return on equity is a ratio that:
A) is calculated by dividing net income plus preferred dividends by average common shareholders' equity
B) shows the relationship between net income available for common shareholders and average common shareholders' equity
C) cannot be calculated if the company has preferred shares in addition to common shares
D) is calculated by dividing net income plus preferred dividends by average common shareholders' equity and shows the relationship between net income available for common shareholders and average common shareholders' equity
Q2) What type of shares would an investor purchase if he or she were primarily interested in a safe investment?
Q3) Which of the following shows the relationship between net income and average common shareholders' equity?
A) current ratio
B) acid-test ratio
C) return on equity
D) return on assets
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Chapter
Income, and the Statement of Shareholders Equity
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Sample Questions
Q1) The primary responsibility of the independent auditor is to decide whether the company's:
A) internal controls are effective
B) financial statements are free from errors
C) management has complied with all applicable laws and regulations during the fiscal year under audit
D) financial statements comply with generally accepted accounting principles (GAAP)
Q2) An unqualified (or clean) opinion issued by an external auditor means:
A) the financial statements are reliable, except for one or more items stated in the third paragraph
B) the financial statements are unreliable
C) the auditor was unable to reach a professional opinion
D) the statements are reliable
Q3) Channel stuffing is a common fraud technique used to increase revenue. A)True B)False
Q4) Operating income excludes income from discontinued operations. A)True
B)False
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Retained Earnings had a balance on January 1, 2013, and December 31, 2013, respectively, of $234,500 and $411,000. Net income for the year was $199,500 and the only other event affecting Retained Earnings was the declaration of dividends. If there was no change in the Dividends account during the year, the payments for dividends was:
A) $23,000
B) $176,500
C) $376,000
D) indeterminable from the information given
Q2) Sometimes income and cash flow follow different patterns.
A)True
B)False
Q3) Governance Corporation uses the direct method when preparing its statement of cash flows. Governance sold equipment with a book value of $13,000 at a loss of $3,000. The amount to be reported on the statement of cash flows under "proceeds from the sale of capital assets" is:
A) $16,000
B) $13,000
C) $10,000
D) $3,000
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Page 14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) When performing vertical analysis, each financial statement item is shown as a percentage of the base amount.
A)True
B)False
Q2) The percentage change in any individual item shown on comparative financial statements is calculated by dividing the dollar amount of the change from the base period to the current period by:
A) 100
B) the amount shown for the current period
C) the average of the amounts shown for the base and the current periods
D) the base-period amount
Q3) Assume a company's current ratio is less than one. If the company pays current liabilities with cash, the new current ratio will:
A) increase
B) decrease
C) remain the same
D) cannot be determined with the information given
Q4) How is it possible for investors to compare two companies of different sizes or companies that operate in different industries?
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