Fundamentals of Financial Accounting Practice Questions
Course Introduction
Fundamentals of Financial Accounting introduces students to the foundational concepts and practices used to record, summarize, and report an organizations financial activities. The course covers key principles such as the accounting cycle, double-entry system, preparation and analysis of financial statements, and the significance of generally accepted accounting principles (GAAP). Students gain practical knowledge of accounting for assets, liabilities, equity, revenues, and expenses, enabling them to interpret financial information and make informed business decisions. This course lays the groundwork for advanced study in accounting and related fields.
Recommended Textbook
Financial Accounting 15th Edition by Carl
Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) If a building is appraised for $85,000,it is offered for sale at $90,000,and the buyer pays $80,000 cash for it,the buyer would record the building at $85,000.
A)True
B)False
Answer: False
Q2) Profit is the difference between
A)assets and liabilities
B)the incoming cash and outgoing cash
C)the assets purchased with cash contributed by the owner and the cash spent to operate the business
D)the amounts received from customers for goods or services and the amounts paid forthe inputs used to provide the goods or services
Answer: D
Q3) The first statement prepared
A)Income statement
B)Balance sheet
C)Statement of owner's equity
D)Statement of cash flows
Answer: A
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) In which of the following types of accounts are decreases recorded by credits?
A)liabilities
B)owner's equity
C)assets
D)revenues
Answer: C
Q2) Which of the following entries records the receipt of cash for two months' rent? The cash was received in advance of providing the service.
A)Prepaid Rent, debit; Rent Revenue, credit
B)Cash, debit; Unearned Rent, credit
C)Cash, debit; Prepaid Rent, credit
D)Cash, debit; Rent Expense credit
Answer: B
Q3) On August 30,JumpStart incurred the following expenses:Payment to the landlord for August rent,$2,300Payment to Gas & Electric Company for August bill,$525Payment of employee wages for the last half of August,$1,750Payment of shopping center's parking lot cleaning fee,$275Journalize these payments as one compound journal entry. Answer: 11ea8d32_2879_9896_b445_f5e9735101fa_TB6239_00
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) A company pays $36,000 for 12 months' rent on October 1,recording the prepayment as an asset.The adjusting entry on December 31 is a debit to Rent Expense of $9,000,and a credit to Prepaid Rent of $9,000.
A)True
B)False
Answer: True
Q2) Services provided that have not been recorded.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices
Answer: D
Q3) Paid for a six-month magazine subscription.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts would appear in the Income Statement columns of the end-of-period spreadsheet?
A)Cash
B)Prepaid Insurance
C)Unearned Revenue
D)Net Loss
Q2) Accrued fees earned are recorded during the adjusting process.The reversing entry will leave a debit balance in Fees Earned as of the first day of the next period.
A)True
B)False
Q3) The classified balance sheet will show which asset subsections?
A)current assets and other equity
B)current assets and property, plant, and equipment
C)current liabilities and short-term assets
D)other revenues and property, plant and equipment
Q4) A post-closing trial balance contains only asset and liability accounts.
A)True
B)False
Q5) Describe a classified balance sheet.
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Chapter 5: Accounting Systems
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Sample Questions
Q1) Which of the following is not a special journal?
A)cash receipts journal
B)purchases journal
C)accounts receivable journal
D)cash payments journal
Q2) Which of the following statements is false?
A)Most computerized accounting systems use principles from manual systems.
B)Subsidiary ledgers and special journals are only useful when a business doesn't have a large number of similar transactions.
C)Even small companies use computerized accounting systems.
D)Large companies often integrate their accounting system with their automated business systems.
Q3) The Other Accounts column in the cash payments journal is used for recording debits to any account for which there is no specialized debit column.
A)True
B)False
Q4) Computerized accounting systems prevent all journalizing errors.
A)True
B)False
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called a cash discount.
A)True
B)False
Q2) Merchandise Inventory normally has a debit balance.
A)True
B)False
Q3) When a large quantity of merchandise is purchased,a reduction allowed on the sale price is called a trade discount.
A)True
B)False
Q4) Prepare a multiple-step income statement for Armstrong Co.from the following data for the year ended December 31.Sales,$755,000; cost of merchandise sold,$330,000; administrative expenses,$35,000; interest expense,$30,000; rent revenue,$25,000; selling expenses,$50,000.
Q5) Conquest Company uses a perpetual inventory system.Conquest purchased $1,500 of merchandise on account and payment was made within the discount period.The credit terms were 2/10,n/30.Journalize Conquest's purchase and payment.
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Chapter 7: Inventories
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Sample Questions
Q1) Establishes an initial record of the receipt of inventory
A)Receiving report
B)Vendor's invoice
C)Purchase order
Q2) During August,the first month of the fiscal year,sales totaled $875,000 and the cost of merchandise available for sale totaled $850,000.Estimate the cost of the merchandise inventory as of August 31,based on an estimated gross profit rate of 45%.
Q3) Based on the following information,compute (a)inventory turnover
(b)average daily cost of merchandise sold using a 365-day year and (c)days' sales in inventory.Cost of merchandise sold $195,640Inventory:Beginning 20,500Ending 18,628
Q4) Inventory controls start when the merchandise is shelved in the store area.
A)True
B)False
Q5) One of the two internal control procedures over inventory is to properly report inventory on the financial statements.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following reflects a weak internal control system?
A)All employees are well supervised.
B)A single employee is responsible for comparing a receiving report to an invoice.
C)All employees must take their vacations.
D)A single employee is responsible for collecting and recording cash.
Q2) Depositing all cash,checks,etc.,in a bank and paying with checks is an internal control procedure over cash.
A)True
B)False
Q3) The objectives of internal control are to
A)control the internal organization of the Accounting Department personnel and equipment
B)provide reasonable assurance that assets are safeguarded and used for business purposes, financial reports are accurate, and laws and regulations are complied with C)prevent fraud and promote the social interest of the company
D)provide control over "internal-use only" reports and employee internal conduct
Q4) List the objectives of internal control and give an example of how each is implemented.
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Page 10
Chapter 9: Receivables
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Sample Questions
Q1) The amount of the promissory note plus the interest earned on the due date is called the
A)interest value
B)maturity value
C)face value
D)issuance value
Q2) On June 30 (the end of the period),Brown Company has a credit balance of $2,275 in Allowance for Doubtful Accounts.An evaluation of accounts receivable indicates that the proper balance should be $30,025.Journalize the appropriate adjusting entry.
Q3) The difference between the balance in Accounts Receivable and the balance in Allowance for Doubtful Accounts is called the net realizable value of the receivables.
A)True B)False
Q4) Receivables not currently collectible are reported in the Investments section of the balance sheet.
A)True
B)False
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Chapter 10: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual value of $3,800 and an estimated useful life of eight years.Determine the (a)depreciable cost, (b)straight-line rate,and (c)annual straight-line depreciation.
Q2) Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or 19,000 hours.It is to be depreciated by the straight-line method.What is the amount of depreciation for the first full year,during which the equipment was used 2,100 hours?
A)$19,000
B)$21,000
C)$22,000
D)$30,000
Q3) The transfer to expense of the cost of intangible assets attributed to the passage of time or decline in usefulness is called amortization.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) The amount of federal income taxes withheld from an employee's gross pay is recorded as a (n)
A)payroll expense
B)contra account
C)asset
D)liability
Q2) Quick assets include
A)cash, cash equivalents, receivables, prepaid expenses, and inventory
B)cash, cash equivalents, receivables, and prepaid expenses
C)cash, cash equivalents, receivables, and inventory
D)cash, cash equivalents, and receivables
Q3) An interest-beating note is a loan in which the lender deducts interest from the amount loaned before the money is advanced to the borrower.
A)True
B)False
Q4) For a current liability to exist,the liability must be due usually within a year and must be paid out of current assets.
A)True
B)False
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) Carla and Eliza share income equally.For the current year,the partnership net income is $40,000.Carla made withdrawals of $12,000,and Eliza made withdrawals of $21,000.At the beginning of the year,the capital account balances were: Carla,Capital,$42,000; Eliza,Capital,$55,000.Eliza's capital account balance at the end of the year is
A)$34,000
B)$54,000
C)$78,000
D)$75,000
Q2) Soledad and Winston are partners who share income in the ratio of 1:3 and have capital balances of $100,000 and $140,000 at the time they decide to terminate the partnership.After all noncash assets are sold and all liabilities are paid,there is a cash balance of $130,000.What amount of loss on realization should be allocated to Winston?
A)$110,000
B)$97,500
C)$42,500
D)$82,500
Q3) What is a partnership? List three advantages and three disadvantages of the partnership form of business organization.
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Chapter 13: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) If the dividend amount of preferred stock,$50 par value,is quoted as 8%,then the dividends per share would be $4.
A)True
B)False
Q2) The charter of a corporation provides for the issuance of 100,000 shares of common stock.Assume that 40,000 shares were originally issued and 10,000 were subsequently reacquired.What is the number of shares outstanding?
A)10,000
B)40,000
C)30,000
D)50,000
Q3) The number of shares of outstanding stock is equal to the number of shares authorized minus the number of shares issued.
A)True
B)False
Q4) For accounting purposes,stated value is treated the same way as par value.
A)True
B)False
Page 15
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) If bonds are sold for a discount,the carrying value of the bonds is equal to the face value less the unamortized discount.
A)True
B)False
Q2) A form of an interest-bearing note
A)Contract rate
B)Effective rate
C)Bond discount
D)Bond premium
E)Bond
F)Bond indenture
G)Principal
Q3) Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000.If the issuing corporation redeems the bonds at 101,what is the amount of gain or loss on redemption?
A)$3,000 loss
B)$3,000 gain
C)$7,000 loss
D)$7,000 gain
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Page 16
Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) Gerardo Company had a net income of $75,000 and other comprehensive income of $12,500 for the year.On January 1,the retained earnings balance was $525,000 and the accumulated other comprehensive income balance was $55,000.Determine the (a)comprehensive income for the year, (b)retained earnings balance on December 31,and (c)the accumulated other comprehensive income on December 31.
Q2) When the cost method is used to account for an investment,the carrying value of the investment is affected by
A)the dividend distributions of the investee
B)the periodic net income of the investee
C)the earnings and dividend distributions of the investee
D)neither the earnings nor the dividends of the investee
Q3) Foreign currency translation adjustment is an example of an item that would be included in other comprehensive income.
A)True
B)False
Q4) Comprehensive income must be reported on the income statement.
A)True
B)False
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Cash paid to acquire treasury stock should be shown on the statement of cash flows under investing activities.
A)True
B)False
Q2) On the statement of cash flows prepared by the indirect method,a $50,000 gain on the sale of investments would be
A)deducted from net income in converting the net income reported on the income statement to cash flows from operating activities
B)added to net income in converting the net income reported on the income statement to cash flows from operating activities
C)added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
D)deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
Q3) The statement of cash flows is an optional financial statement.
A)True B)False
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) The relationship of each asset item as a percent of total assets is an example of vertical analysis.
A)True
B)False
Q2) Horizontal analysis is a technique for evaluating financial statement data
A)for one period of time
B)over a period of time
C)on a certain date
D)as it may appear in the future
Q3) The independent auditor's report
A)describes which financial statements are covered by the audit
B)gives the auditor's opinion regarding the fairness of the financial statements
C)summarizes what the auditor did
D)states that the financial statements were presented on time
Q4) Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
A)True
B)False
Q5) Define solvency and profitability.How are they alike?
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