Fundamentals of Financial Accounting Final Exam Questions
Course Introduction
Fundamentals of Financial Accounting introduces students to the basic principles and practices underlying the preparation and interpretation of financial statements. The course covers key accounting concepts such as the accounting cycle, double-entry bookkeeping, and the recognition and measurement of revenues, expenses, assets, and liabilities. Students will learn how to analyze business transactions, prepare journal entries, and construct essential financial statements, including the balance sheet, income statement, and cash flow statement. Throughout the course, emphasis is placed on understanding the role of accounting information in decision-making for various stakeholders and the importance of ethical standards in financial reporting.
Recommended Textbook
Horngren's Accounting 12th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) The Public Company Accounting Oversight Board (PCAOB)was created ________.
A) by the Sarbanes-Oxley Act (SOX)
B) to perform audits of public companies
C) to make restitution to investors who were defrauded by the issuance of fraudulent financial reports
D) to require auditors to take responsibility for the accuracy and completeness of financial reports from firms they audit
Answer: A
Q2) Mason Company purchased land for $80,000.The president of Mason Company believes that the land is actually worth $85,000.The land can be recorded at $85,000.
A)True
B)False
Answer: False
Q3) The balance sheet reports on the assets,liabilities,and owner's equity of the business as of a specific date.
A)True
B)False
Answer: True
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3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Journalizing a transaction involves ________.
A) calculating the balance in an account using journal entries
B) posting the account balances in the chart of accounts
C) preparing a summary of account balances
D) recording the data only in the journal
Answer: D
Q2) Which of the following statements is TRUE of the Owner,Capital account?
A) It is an equity account that has a normal credit balance.
B) It is a liability account that has a normal credit balance.
C) It is a liability account that has a normal debit balance.
D) It is an equity account that has a normal debit balance.
Answer: A
Q3) Which of the following sequences states the order in which accounts are listed on a trial balance?
A) Equity Assets Liabilities
B) Liabilities Assets Equity
C) Assets Equity Liabilities
D) Assets Liabilities Equity
Answer: D
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) West Electrical Company performed services of $8,000 on January 24 and invoiced the customer.West received the $8,000 on January 31.Provide the journal entry on January 31 when the cash was received.(Ignore explanation.)
Answer: \[\begin{array} { | l | r | r | }
\hline \text { Cash } & 8,000 \\
\hline \text { Accounts Receivable } & & 8,000 \\ \hline \end{array}\]
Q2) A worksheet is an external document that forms a part of the financial statements.
A)True
B)False
Answer: False
Q3) The matching principle ensures all expenses are recorded when they are incurred during the period and are matched to the cash payments for expenses.
A)True
B)False
Answer: False
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5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts has an ending balance equal to net income immediately before it is closed?
A) Income Summary
B) Owner, Withdrawals
C) Net Income
D) Owner, Capital
Q2) Which of the following is an example of an intangible asset?
A) Equipment
B) Plant
C) Property
D) Copyright
Q3) If a business has a net loss,the closing entry to close Income Summary would be a debit to Income Summary and a credit to Owner,Capital.The business is a sole proprietorship.
A)True
B)False
Q4) The steps of the accounting cycle are followed throughout the accounting period.
A)True
B)False
Q5) List the steps of the accounting cycle that take place at the end of the period.
Page 6
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Chapter 5: Merchandising Operations
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Q1) When a customer returns goods to the seller,the seller needs to debit Estimated Returns Inventory.The seller uses the perpetual inventory system.
A)True
B)False
Q2) Which of the following statements is NOT correct?
A) In a perpetual inventory system, the "cash register" at the store is a computer terminal that records sales and updates inventory records.
B) Even in a perpetual inventory system, a business must count inventory at least one a year.
C) Restaurants and small retail stores often use the periodic inventory system.
D) In a periodic inventory system, merchandise inventory and purchasing systems are integrated with the records for Accounts Receivable and Sales Revenue.
Q3) Cafeteria Supply returned 2 cases of defective warming trays to the vendor for an amount of $600.Prepare the journal entry for this transaction.Cafeteria Supply uses a perpetual inventory system and purchased the cases on account.Omit explanation.
Q4) List the three steps,in order of occurrence,of the operating cycle of a merchandising business.
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) What does inventory turnover measure? What does a low rate of inventory turnover indicate?
Q2) Given the same purchase and sales data,and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for net income. A)True B)False
Q3) Under the weighted-average method for inventory costing,the cost per unit is determined by ________.
A) dividing the cost of goods available for sale by the number of units available for sale
B) dividing the cost of goods available for sale by the number of units in beginning inventory
C) multiplying the number of units purchased with the weighted-average cost
D) multiplying the cost of goods available for sale by the ending weighted-average cost of the previous accounting period
Q4) A higher days' sales in inventory is preferable. A)True B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Ocean Company sells a product for $500 on account to Great Atlantic Sales.This transaction will be recorded in the ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) purchase journal
Q2) Which of the following is an advantage of enterprise resource planning (ERP)systems?
A) It is inexpensive to implement.
B) It provides financial benefits only to small companies.
C) It replaces separate software systems, such as sales and payroll.
D) Its implementation requires a small commitment of time and people.
Q3) Which of the following is an example of a source document in a computerized accounting information system?
A) statement of cash flows
B) balance sheet
C) bank checks
D) general ledger
Q4) Describe the transactions recorded in the cash payments journal.
Q5) List and describe two features of an effective accounting information system.
Page 9
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) List the four steps,the proper order,of the purchasing and payment process.
Q2) Which of the following is the first step in the purchasing and payment process?
A) The purchaser receives an invoice for the goods shipped by the supplier.
B) The purchaser sends a check to the supplier.
C) The purchaser sends a purchase order to the supplier.
D) The purchase receives the inventory and prepares a receiving report.
Q3) The difference that arises between the balance on the bank statement and the balance on the company's books because of a time lag in recording transactions is known as a timing difference.
A)True
B)False
Q4) For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer. The bookkeeper opens the mail,makes the deposit,and makes the journal entries to record receipt of the cash and checks.
Q5) Companies receive cash either over the counter,through the mail,or by electronic funds transfer.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) Use the following to calculate the acid-test ratio.(Round your answer to two decimal places.) \[\begin{array} { | l | l | }
\hline \text { Cash } & \$ 100,000 \\
\hline \text { Short-term investments } & 15,000 \\
\hline \text { Net current receivables } & 250,000 \\
\hline \text { Inventory } & 310,000 \\
\hline \text { Total current liabilities } & 780,000 \\
\hline \end{array}\]
A) 0.74
B) 6.67
C) 0.87
D) 0.47
Q2) Which method of estimating the amount of bad debts expense violates the matching principle?
A) percent-of-receivables
B) percent-of-sales
C) aging-of-receivables
D) All of these methods comply with the matching principle
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Chapter 10: Plant Assets,natural Resources,and Intangibles
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Sample Questions
Q1) Which of the following is an expense that results from the usage of a natural resource?
A) depletion
B) amortization
C) depreciation
D) obsolescence
Q2) A trademark should not be amortized over its useful life.
A)True
B)False
Q3) Which of the following is an intangible asset?
A) plant and machinery
B) goodwill
C) building
D) land
Q4) All intangible assets must be amortized each year.
A)True
B)False
Q5) Installation costs are recorded as part of the cost of equipment.
A)True
B)False
Page 12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) You have started working for a company that manufactures lawn mowers.These mowers carry a warranty that will replace defective parts for one year.The corporate president feels that an expense should be recorded when the defective parts are replaced.Explain the proper accounting treatment to the corporate president.
Q2) Which of the following columns is typically included in a payroll register?
A) Direct Labor Hours Worked
B) Warranties Payable
C) Current Period Earnings
D) Sales Tax
Q3) A contingency was evaluated at year-end and considered to have a reasonable possibility of becoming an actual liability.If this was not reported on the balance sheet or in the notes to the financial statements,it could be considered a violation of generally accepted accounting principles.
A)True
B)False
Q4) Employer FICA is paid by the employer and recorded as a payroll tax expense.
A)True
B)False
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Partnerships
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Sample Questions
Q1) Liquidation in a partnership refers to ________.
A) increasing the investment in highly liquid assets
B) shutting down the business by selling its assets and paying its liabilities
C) the admission or withdrawal of a partner that dissolves the partnership
D) purchase of another partnership firm which is operating in the same business
Q2) Keith and Jim are partners.Keith has a capital balance of $49,000 and Jim has a capital balance of $38,000.Bill invested $33,000 to acquire an ownership interest of 30%.Which of the following statements is TRUE of this transaction? (Round the final answer to the nearest dollar.)
A) Keith and Jim received a bonus of $1500 each.
B) Bill received a bonus of $4900.
C) Keith and Jim received a bonus of $2450 each.
D) Bill received a bonus of $3000.
Q3) Whenever a partner mix in a partnership changes,the old partnership ceases to exist and a new partnership begins.
A)True
B)False
Q4) The death of a partner dissolves the partnership.
A)True
B)False
Page 14
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Chapter 13: Corporations
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Q1) Dividends can be paid in the form of cash,stock,or other property.
A)True
B)False
Q2) Organic Produce,Inc.has 49,000 shares of common stock outstanding and 6000 shares of preferred stock outstanding.The common stock is $0.08 par value; the preferred stock is 4% noncumulative with a $100.00 par value.On October 15,2019,the company declares a total dividend payment of $56,000.How much dividend will be paid to the preferred stockholders?
A) $56,000
B) $48,000
C) $24,000
D) $3920
Q3) The distribution of a stock dividend ________.
A) decreases both assets and liabilities
B) decreases assets and increase liabilities
C) effects only stockholder's equity accounts
D) increases both dividends payable and cash
Q4) Treasury stock has voting rights and receives cash or stock dividends.
A)True
B)False
Page 15
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On March 1,2018,Mandy Services issued a 3% long-term notes payable for $15,000.It is payable over a 3-year term in $5000 principal installments on March 1 of each year,beginning March 1,2019.Each yearly installment will include both principal repayment of $5000 and interest payment for the preceding one-year period.What is the amount of total cash payment that Mandy will make on March 1,2019?
A) $5000
B) $5450
C) $15,000
D) $5225
Q2) Which of the following statements is TRUE if a bond is issued for an amount equal to its face value?
A) The bond's stated interest rate is less than the prevailing market interest rate at time of sale.
B) The bond's stated interest rate is the same as the prevailing market interest rate at time of sale.
C) The bond's stated interest rate is more than the prevailing market interest rate at time of sale.
D) The bond is not secured by specific assets of the issuer.
Q3) List three disadvantages of borrowing.
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Page 16
Chapter 15: Investments
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Q1) On May 18,2018,Fran Co.invested excess cash of $50,000 by purchasing bonds of Hans Inc.At year-end,December 31,2018,the market price of the bonds was $52,000.The investment is categorized as a trading debt investment.Journalize the adjusting entry needed at December 31,2018.Omit explanation.
Q2) On March 1,2018,Rawlins Company invests $25,000 in Ashton Company stock.Ashton pays Rawlins a $800 dividend on September 30,2018.Rawlins sells the Ashton stock on November 30,2018 for $23,500.Assume the investment is categorized as a short-term equity investment and that Rawlins does not have significant influence over Ashton. Requirements:
1.Journalize the transactions for Rawlins' investment in Ashton's stock.
2.What was the net effect of the investment on Rawlins' net income for the year ended December 31,2018.
Q3) Securities are ________.
A) commonly traded on an exchange
B) assets traded between companies working in the same industry
C) owned by the investee
D) always considered to be long-term investments
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Page 17
Chapter 16: The Statement of Cash Flows
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Q1) Which of the following is the typical order of the sections on a statement of cash flows?
A) operating, financing, investing
B) financing, investing, operating
C) investing, operating, financing
D) operating, investing, financing
Q2) When computing investing cash flows,it is helpful to evaluate the T-accounts for each long-term liability.
A)True
B)False
Q3) Which of the following is a cash inflow from an operating activity on a statement of cash flows prepared using the direct method?
A) sold treasury stock for cash
B) issued common stock
C) received interest revenue in cash
D) borrowed money on a long-term note
Q4) The statement of cash flows is dated the same as the balance sheet.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Elephant,Inc.'s cost of goods sold for the year is $1,900,000,and the average merchandise inventory for the year is $132,000.Calculate the inventory turnover ratio of the company.(Round your answer to two decimal places.)
A) 6.95 times
B) 14.39 times
C) 7.20 times
D) 9.31 times
Q2) In a vertical analysis of the income statement,each line item is shown as a percentage of net income.
A)True
B)False
Q3) A company reports total assets of $920,000 and stockholders' equity of $540,000.Calculate the debt ratio.(Round your answer to two decimal places.)
A) 36.99%
B) 41.30%
C) 58.70%
D) 70.37%
Q4) What is a common-size statement? Why are these statements useful?
Q5) What is an annual report? Briefly describe the key parts of the annual report.
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Chapter 18: Introduction to Managerial Accounting
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Q1) Enzo Design Corporation reports the following cost information for March: \[\begin{array} { | l | r | }
\hline \text { Cost of Goods Manufactured } & \$ 75,000 \\
\hline \text { Finished Goods Inventory, March 1 } & 4000 \\
\hline \text { Finished Goods Inventory, March 31 } & 2650 \\
\hline \text { Work-in-Process Inventory, March 1 } & 9670 \\
\hline \text { Work-in-Process Inventory, March 31 } & 1000 \\
\hline \text { Direct Labor } & 36,000 \\
\hline \text { Direct Materials Used } & 16,900 \\
\hline
\end{array}\] What is the amount of manufacturing overhead incurred by the company in March?
A) $30,330
B) $138,570
C) $13,430
D) $12,430
Q2) Factory rent,as well as factory property taxes and insurance,are included in manufacturing overhead.
A)True
B)False
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Page 20
Chapter 19: Job Order Costing
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Sample Questions
Q1) Manufacturing Overhead is a temporary account used to ________ indirect production costs during the accounting period.
A) allocate
B) assign
C) accumulate
D) approximate
Q2) For a service company,such as an accounting firm,each client is considered a job.
A)True
B)False
Q3) Pandora Manufacturing purchased $95,000 of raw materials on account and $5,000 of raw materials for cash.The materials will be used to produce furniture.Provide the journal entry for the purchase of materials.Omit explanation.
Q4) Manufacturing overhead costs allocated to a job amounted to $492,000.The actual manufacturing costs incurred during the year were $570,000.Overhead costs have been underallocated.
A)True B)False
Q5) Why would the manager of a service company need to use job order costing?
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Chapter 20: Process Costing
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Q1) Under process costing,the total production costs incurred in each process must be split between the units that have been completed in that process and transferred to the next process and the ________.
A) Finished Goods Inventory if it is the first process
B) units not completed and remaining in Work-in-Process Inventory for that department
C) Cost of Goods Sold when the units are sold
D) Work-in-Process Inventory of the previous department when there are no sales
Q2) A process costing system is generally used by companies that produce homogeneous products.
A)True
B)False
Q3) In a production cost report prepared under the FIFO method,equivalent units of production are NOT computed for ________.
A) units completed in beginning work-in-process inventory
B) units started and completed in the current period
C) units in ending work-in-process inventory
D) units started in the current period
Q4) How is a production cost report prepared using the FIFO method?
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Page 22
Chapter 21: Cost-Volume-Profit Analysis
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Q1) The highest value of total cost was $800,000 in June for Horchata Beverages,Inc.Its lowest value of total cost was $510,000 in December.The company makes a single product.The production volume in June and December were 13,000 and 8000 units,respectively.What is the fixed cost per month? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar.)
A) $510,000
B) $290,000
C) $46,000
D) $8000
Q2) Complete the statement,using the following terms: increase,decrease,or have no effect on.
Decreases in variable costs per unit ________ contribution margin per unit and ________ the breakeven point.
Q3) Which of the following statements is TRUE of variable costing?
A) It considers variable manufacturing overhead as period costs.
B) It considers fixed manufacturing overhead as product costs.
C) It considers variable selling and administrative costs as product costs.
D) It considers fixed selling and administrative costs as period costs.
Q4) How is the contribution margin calculated?
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Chapter 22: Master Budgets
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Q1) On the budgeted balance sheet,the number for notes payable will come from the ________.
A) operating budget
B) schedule of cash receipts
C) cash budget
D) cost of goods sold budget
Q2) Mary's Mittens,Inc.,a merchandising company,wants to prepare the budgeted balance sheet for the next budget period.For this purpose,the amount of ending cash balance can be retrieved from the ________.
A) capital expenditures budget
B) budgeted funds flow statement
C) cash budget
D) sales budget
Q3) For a manufacturer,the budgeted multi-step income statement shows operating income and net income.
A)True
B)False
Q4) A flexible budget is prepared to represent various levels of sales volume.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the month,the actual fixed costs were lower than the expected fixed costs as per the static budget.This difference results in a(n)________.
A) unfavorable flexible budget variance for fixed costs
B) favorable sales volume variance for fixed costs
C) favorable flexible budget variance for fixed costs
D) unfavorable sales volume variance for fixed costs
Q2) Under a standard cost system,the journal entry to record direct labor includes
A) a debit for standard direct labor quantity for actual production times standard direct labor cost per hour
B) a credit for standard quantity usage for actual production times actual cost per hour
C) a debit for actual quantity times standard cost per hour
D) a credit for standard quantity for actual production times standard cost per hour
Q3) Managers should look at any variance that is significant.
A)True
B)False
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Responsibility accounting can help managers identify the causes of variances,thereby allowing them to determine what was controllable.
A)True
B)False
Q2) Which of the following perspectives of the balanced scorecard focuses on the increase of company profits through increasing revenue growth and productivity?
A) financial
B) customer
C) internal business
D) learning and growth
Q3) Managers are able to set an accurate selling price without knowing product cost information.
A)True
B)False
Q4) A high rate of employee turnover indicates that ________.
A) employees of the organization leave their jobs frequently
B) pay packages of employees are at par with that of the industry
C) the employee retention ratio is also high
D) employees also participate in the decision-making process
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Chapter 25: Short-Term Business Decisions
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Q1) Companies that are price-takers have considerable flexibility in setting the prices of their products.
A)True
B)False
Q2) Woodstock Furniture manufactures a small table and a large table.The small table sells for $900,has variable costs of $570 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1700,has variable costs of $980,and takes eight direct labor hours to manufacture.The company has a maximum of 5000 direct labor hours per month when operating at full capacity.If there are no constraints on sales of either product,and the company could choose any proportions of product mix that they wanted,what is the optimum product mix to maximize operating income of the company?
A) 500 units of small and 625 units of large
B) 0 units of small and 625 units of large
C) 625 units of small and 500 units of large
D) 500 units of small and 0 units of large
Q3) Target full product cost equals the revenue at the market price minus the desired profit.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) The fact that invested cash earns interest over time is called the time value of money.
A)True
B)False
Q2) The payback method provides management with valuable information about the time period in which the cash invested will be recouped.
A)True
B)False
Q3) Gateway Graphics is considering an investment in new printing equipment costing $502,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $122,000 the first year,$158,000 the second year,and $160,000 every year thereafter until the fifth year.What is the payback period for this investment? The residual value is zero.(Round your answer to two decimal places.)
A) 4.30 years
B) 3.39 years
C) 2.80 years
D) 3.11 years
Q4) What are the strengths of the net present value capital budgeting method?
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