Fundamentals of Financial Accounting Solved Exam Questions
Course Introduction
Fundamentals of Financial Accounting introduces students to the essential concepts and principles underlying the preparation, analysis, and interpretation of financial statements. The course covers the accounting cycle, including recording transactions, adjusting entries, and preparing financial reports in accordance with generally accepted accounting principles (GAAP). Students will learn how businesses track financial data, assess financial performance, and communicate results to stakeholders. Emphasis is placed on understanding the roles of balance sheets, income statements, and cash flow statements, as well as the ethical considerations and regulatory environment surrounding financial reporting.
Recommended Textbook Cornerstones of Financial Accounting 2nd Edition by Jay Rich
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Page 2
Chapter 1: Accounting and the Financial Statements
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Sample Questions
Q1) The company's annual report is contained within the company's 10-K filing with the Securities Exchange Commission.
A)True
B)False
Answer: True
Q2) You are a potential creditor and are concerned that a particular company you are ready to give a loan to might have too much debt.Which financial statement would provide you information needed in order to evaluate your concern?
A)Balance Sheet
B)Income Statement
C)Statement of Retained Earnings
D)Statement of Public Accounting
Answer: A
Q3) One primary purpose of a classified balance sheet is to help users evaluate the working capital of a company.
A)True
B)False
Answer: True
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Chapter 2: The Accounting Information System
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Sample Questions
Q1) The purchase of office equipment on credit has what effect on the accounting equation?
A)Assets and stockholders' equity decrease
B)Liabilities increase and stockholders' equity decreases
C)Assets and liabilities increase
D)Assets and liabilities decrease
Answer: C
Q2) Which of the following accounts is decreased by a debit entry?
A)Unearned Revenue
B)Prepaid Insurance
C)Cash
D)Insurance Expense
Answer: A
Q3) ____________________ is the quality of accounting information that allows a user to analyze two or more companies and look for similarities and differences.
Answer: Comparability
Q4) For assets,expenses,and dividend accounts,a credit will _______ the balance in the account.
Answer: decrease
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Chapter 3: Accrual Accounting
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Sample Questions
Q1) A local tennis club sells season memberships for $1,000 each.During January 2013,50 season memberships were sold.As of March 31,2013,only $25,000 of season membership fees had been collected from customers.The tennis season runs for 6 months starting April 01,2013.Which one of the following is an amount reported on the Balance Sheet dated March 31,2013?
A)Unearned tennis membership revenue of $25,000
B)Unearned tennis membership revenue of $50,000
C)Accounts Receivable $50,000
D)Tennis membership revenue of $25,000
Answer: A
Q2) Which one of the following adjustments increases net income for the period?
A)Recognition of the amount of supplies used.
B)Recognition revenue earned,but not recorded.
C)Recognition of wages earned,but not paid to employees.
D)Recognition of rent costs that had been paid to the landlord in advance.
Answer: B
Q3) Under the ____________________ basis of accounting,revenues are recognized when earned and expenses when incurred.
Answer: accrual
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Page 5
Chapter 4: Internal Control and Cash
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Sample Questions
Q1) In a sound system of internal control,cash receipts should be deposited daily.
A)True
B)False
Q2) "You Decide" Essay
You have just accepted a part-time job at one of the campus eateries.During your training the manager was called away to deal with some crisis and asked one of your co-workers to complete your training on using the cash register.The co-worker proceeds to tell you that if the money in the register drawer doesn't equal the total on the cash register tape,you will be responsible for the difference.If there is a cash shortage,you must make up the shortage out of your own pocket but if there is excess cash,you may keep the overage.Proudly,with the wink of an eye,she states,"I was short one time,right after I started working here.But I made sure,if you know what I mean,that I would never be short again."
A)Evaluate this control.Is it strong or weak? What kind of behavior will it encourage?
B)Do you have a professional obligation to report your co-worker to management? Explain.
Q3) If a company records a $450 receipt as $540,this type of mistake is called a(n)____________________.
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Chapter 5: Sales and Receivables
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Sample Questions
Q1) According to the ____________________ principle,bad debt expense must be recorded in the period in which the sale was made.
Q2) Alco Roofing Company's beginning accounts receivable were $200,000 and ending accounts receivable were $270,000.During the period,credit sales totaled $570,000,How much cash was collected from customers?
A)$470,000
B)$500,000
C)$570,000
D)$640,000
Q3) Advanced Technology reported the following on its balance sheet at December 31,2012:
Accounts receivable, less Allowance for Doubtful Accounts of \( \$ 20,500 \) \( \quad \) \( \quad \) \( \quad \) \( \quad \) \( \quad \) \( \quad \) \(
What is the net realizable value of the company's accounts recervable?
B) What is the balance of the accounts receivable account?
\) A)
C) Are you able to determine whether the company uses the allow ance method or the direct write off method for bad debts? Why or why not?
Q4) To encourage prompt payment,sellers offer a(n)____________________.
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Chapter 6: Cost of Goods Sold and Inventory
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Q1) Refer to the information provided for Yancey Company.How much is cost of goods sold assuming that Yancey Company takes advantage of one-half of the cash discount?
Q2) During a period of increasing purchase prices,which inventory costing method will yield the lowest cost of goods sold?
A)Any method in which the company uses a periodic system.
B)FIFO
C)LIFO
D)Weighted average cost
Q3) Cost of goods sold represents an outflow of a resource,inventory,which is caused by the sale of products.
A)True
B)False
Q4) During periods of rising prices,the ____________________ method results in the cost of goods sold expense on the income statement being a close approximation of the replacement cost of the goods sold.
Q5) The excess of an inventory's value stated on a FIFO basis over its value stated on a LIFO basis is called a(n)____________________.
Q6) Accountants define the market value of inventory as its
Page 8
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Chapter 7: Operating Assets
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Sample Questions
Q1) Refer to Fernbank Farms.What is the truck's book value at December 31,2013?
A)$68,000
B)$98,000
C)$80,000
D)$62,000
Q2) A company bought machinery on January 1,2010,for $200,000.On January 2,2012,the machinery had a book value of $100,000.It is estimated that the machine will generate future cash flows of $70,000 and its current fair value is $60,000.How much impairment loss should be recorded?
A)$0
B)$30,000
C)$40,000
D)$100,000
Q3) The intangible asset called ____________________ can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired.
Q4) An accumulated ________ account is used when writing off natural resources.
Q5) Distinguish between tangible and intangible operating assets.
Q6) Distinguish between current assets and operating assets.
Q7) Distinguish between capital and revenue expenditures.
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Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) Which of the following is <b>not</b> classified as a current liability account?
A)Accounts payable
B)Note payable,due in 2 years
C)Salaries and wages payable
D)Income taxes payable
Q2) When accrual basis accounting matches an expense to a period before it is actually paid,an adjusting entry is necessary to record the accrued expense and corresponding liability.
A)True
B)False
Q3) Current liabilities should include any amounts that have been accrued as expenses but not yet paid.
A)True
B)False
Q4) "You Decide" Essay
You are the owner of small chain of sporting goods.Currently,you pay a media company to maintain the company's website and Internet sales processing software system.You are considering bringing that operation in-house by hiring an Information Technology (IT)employee.
What factors should you consider in making this decision?
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) With the Effective Interest Method of Amortization,the amortization of a bond discount results in a(n)
A)increase in stockholders' equity.
B)decrease in liabilities.
C)increase in interest expense.
D)decrease in interest expense.
Q2) On January 2,2013,Kangaroo Convenience Stores issued 10-year,$5,000,000,zero-coupon bonds at 75.What is the amount of interest expense recorded in 2013 using the straight line amortization method?
A)$5,000,000
B)$3,750,000
C)$1,250,000
D)$125,000
Q3) Refer to Kaleidoscope Paint.The interest expense on the bonds at June 30,2013,is
A)$22,500
B)$24,037
C)$21,634
D)$43,267
Q4) Obligations that extend beyond one year are referred to as
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) In general,retained earnings represents accumulated earnings of the corporation less dividends paid.
A)True
B)False
Q2) Which of the following is true for a corporation that issues 1,000 shares of $2 par common stock at $5 per share?
A)The common stock account will increase by $5,000.
B)$2 per share is the maximum selling price for these shares of stock.
C)Total stockholders' equity will increase by $5,000.
D)The per share dividend amount on these shares is $2.
Q3) Since stock dividends are paid with shares of stock instead of cash,no reduction in Retained Earnings is recorded.
A)True
B)False
Q4) When computing the total payout ratio,common stock dividends plus common stock repurchases are included in the numerator.
A)True
B)False
Q5) The number of shares sold to stockholders are ____________________ shares.
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Chapter 11: The Statement of Cash Flows
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Q1) Which of the following statements is<b> not</b> true? The information in the statement of cash flows helps investors,creditors and others:
A)assess a company's ability to produce future cash inflows.
B)judge a company's ability to meet it obligations and pay dividends.
C)estimate the company's needs for external financing.
D)show the inflows and outflow of net income on the accrual basis.
Q2) ____________________ represents the cash flow that a company is able to generate after considering the maintenance or expansion of its assets (capital expenditures)and payment of dividends.
Q3) Operating cash flows generally involve income statement items (which are reflected in Retained Earnings)and balance sheet items (such as changes in current assets and current liabilities).
A)True
B)False
Q4) Refer to Memorial Corporation.How much cash was paid for dividends during 2014?
A)$40,000
B)$50,000
C)$60,000
D)$80,000
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) In a common size balance sheet to be used in vertical analysis,the 100% amount is
A)current assets
B)working capital
C)total assets
D)total stockholders' equity
Q2) A company paid off a $100,000 two-year note payable.The effect of this transaction is that the
A)Current ratio decreased.
B)Earnings per share increased.
C)Working capital increased.
D)Debt-to-equity ratio increased.
Q3) Refer to Red Oak Manufacturing.DuPont analysis return on equity (ROE)is:
A)32.8%
B)34.1%
C)35.8%
D)38.9%
Q4) The three aspects of return on equity (ROE)recognized by DuPont analysis are the net profit margin percentage,the ____________________ ratio,and leverage.
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