Fundamentals of Financial Accounting
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Course Introduction
Fundamentals of Financial Accounting introduces students to the basic principles and concepts underlying the field of financial accounting. The course covers the accounting cycle, preparation and analysis of financial statements, and the process of recording, classifying, and summarizing financial transactions. Students will learn about key topics including accrual and cash accounting, the role of accounting in decision-making, and the regulatory environment. Emphasis is placed on understanding how accounting information is used by internal and external stakeholders to assess the financial performance and position of organizations.
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Financial Accounting Fundamentals 6th Edition by
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Page 2
John J Wild
Chapter 1: Accounting in Business
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331 Verified Questions
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Sample Questions
Q1) The income statement reports all of the following except:
A) Revenues earned by a business.
B) Expenses incurred by a business.
C) Assets owned by a business.
D) Net income or loss earned by a business.
E) The time period over which the earnings occurred.
Answer: C
Q2) A common characteristic of ________ is their ability to yield expected future benefits to a business.
Answer: assets
Q3) Speedy has net income of $18,955,and assets at the beginning of the year of $200,000.Assets at the end of the year total $246,000.Compute its return on assets.
A) 7.7%.
B) 8.5%.
C) 9.5%.
D) 11.8%.
E) 13.0%.
Answer: B
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3
Chapter 2: Analyzing for Business Transactions
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Sample Questions
Q1) The debt ratio of Company A is .31 and the debt ratio of Company B is .21.Based on this information,an investor can conclude:
A) Company B has more debt than Company A.
B) Company B has a lower risk from its financial leverage.
C) Company A has a lower risk from its financial leverage.
D) Company A has 10% more assets than Company B.
E) Both companies have too much debt.
Answer: B
Q2) Office Furniture
A)L
B)SE
C)R
D)E
E)A
Answer: E
Q3) "Unearned" accounts are liabilities that must be fulfilled.
A)True
B)False
Answer: True
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Chapter 3: Adjusting Accounts for Financial Statements
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Sample Questions
Q1) Net income for a period will be understated if accrued revenues are not recorded at the end of the accounting period.
A)True
B)False
Answer: True
Q2) A trial balance prepared before any adjustments have been recorded is:
A) An adjusted trial balance.
B) Used to prepare financial statements.
C) An unadjusted trial balance.
D) Correct with respect to proper balance sheet and income statement amounts.
E) Only prepared once a year.
Answer: C
Q3) Accrued expenses at the end of one accounting period are expected to result in cash payments in a future period.
A)True
B)False
Answer: True
Q4) ________ revenues are liabilities requiring delivery of products and for services.
Answer: Unearned
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Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) Describe why tracking inventory activities are necessary for a merchandising company.
Q2) Sales discounts has a normal debit balance because it decreases Sales,which has a normal credit balance.
A)True
B)False
Q3) A seller usually prepares a ________ to confirm a buyer's return or allowance,and informs the buyer of the seller's credit to the buyer's Account Receivable on the seller's books.
Q4) Under the ________ inventory accounting system,each purchase,purchase return and allowance,purchase discount,and transportation-in transaction is recorded in a separate temporary account.
Q5) The acid-test ratio is also called the quick ratio.
A)True
B)False
Q6) Explain the way in which costs flow through the merchandise inventory account to a merchandiser's income statement.
Q7) A ________ inventory system updates the accounting record for inventory only at the end of an accounting period.
Page 6
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Chapter 5: Inventories and Cost of Sales
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Q1) ________ is the estimated sales price of damaged goods minus the cost of making the sale.
Q2) An advantage of the ________ method of inventory valuation is that it tends to smooth out the effect of erratic changes in costs.
Q3) When costs to purchase inventory regularly decline,which method of inventory costing will yield the lowest gross profit and income?
A) FIFO.
B) LIFO.
C) Weighted average.
D) Specific identification.
E) Gross margin.
Q4) The retail inventory method estimates the cost of ending inventory by applying the gross profit ratio to net sales.
A)True
B)False
Q5) Sarbanes Oxley (SOX)demands that companies safeguard inventory and properly report it.List methods that companies should use to safeguard inventory and accounting procedures that should be used to properly report inventory.
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Chapter 6: Cash, fraud, and Internal Controls
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Sample Questions
Q1) If a company made a bank deposit on September 30 that did not appear on the bank statement dated September 30,in preparing the September 30 bank reconciliation,the company should:
A) Deduct the deposit from the bank statement balance.
B) Send the bank a debit memorandum.
C) Deduct the deposit from the September 30 book balance and add it to the October 1 book balance.
D) Add the deposit to the book balance of cash.
E) Add the deposit to the bank statement balance.
Q2) Assigning purchasing,receiving,and paying for merchandise to one department or individual is a way to streamline a voucher system.
A)True
B)False
Q3) The Sarbanes-Oxley Act (SOX)requires managers and auditors of companies whose stock is traded on an exchange to document and certify the system of internal controls.
A)True
B)False
Q4) Describe a petty cash account and its purpose.
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Page 8
Chapter 7: Accounting for Receivables
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Q1) Amounts due from customers for credit sales.
A)Expense recognition (matching) principle
B)Realizable value
C)Interest
D)Bad debts
E)Accounts receivable
F)Aging of accounts receivable
G)Allowance for doubtful accounts
H)Promissory note
I)Payee of a note
J)Maker of a note
Q2) A company factored $30,000 of its accounts receivable and was charged a 2% factoring fee.The journal entry to record this transaction would include a debit to Cash of $30,000,a debit to Factoring Fee Expense of $600,and credit to Accounts Receivable of $30,600.
A)True
B)False
Q3) If a 60-day note receivable is dated September 22,what is the maturity date of the note?
Q4) Explain the difference between honoring and dishonoring a note receivable.
Page 9
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Chapter 8: Accounting for Long-Term Assets
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Sample Questions
Q1) The units-of-production method of depreciation charges a varying amount of expense for each period of an asset's useful life depending on its usage.
A)True
B)False
Q2) If an asset is sold above its book value,the selling company records a loss.
A)True
B)False
Q3) Intangible assets are nonphysical assets used in operations that confer on their owners' long-term rights,privileges,or competitive advantages.
A)True
B)False
Q4) The insufficient capacity of a company's plant asset to meet the company's productive demands is called ________.
Q5) Capital expenditures that extend an asset's useful life beyond its original estimate are called ________.
Q6) Explain how to calculate total asset turnover.Describe what it reveals about a company's financial condition,whether a higher or lower ratio is desirable,and how it is best applied for comparative purposes.
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Chapter 9: Accounting for Current Liabilities
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Sample Questions
Q1) Income taxes payable
A)Long-term liability
B)Not a liability
C)Current liability
Q2) On December 1,Watson Enterprises signed a $24,000,60-day,4% note payable as replacement of an account payable with Erikson Company.What amount of interest expense is accrued at December 31 on the note? (Use 360 days a year.)
A) $0
B) $80
C) $320
D) $960
E) $160
Q3) What is a short-term note payable? Explain the accounting issues related to notes payable.
Q4) A ________ is a seller's obligation to replace or correct a product or service that fails to perform as expected within a specified period.
Q5) Vacation benefits are a type of ________ liability.
Q6) Explain the responsibilities of and the accounting by employers for deductions from employee payroll.
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Chapter 10: Accounting for Long-Term Liabilities
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Sample Questions
Q1) The amount of interest expense recognized by Congo Express Airways on the bond issue in Year 1 would be:
A) $132,500.
B) $225,000.
C) $265,174.
D) $245,000.
E) $224,826.
Q2) The amount by which the bond par value exceeds the bond issue (selling)price
A)Secured bonds
B)Sinking fund bonds
C)Carrying value
D)Serial bonds
E)Bond indenture
F)Annuity
G)Premium on bonds
H)Contract rate
I)Debt-to-equity ratio
J)Callable bonds
Q3) Bonds issued in the names and addresses of their holders are ________ bonds.
Q4) ________ bonds are bonds that are scheduled for maturity on one specified date.
Page 12
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Chapter 11: Corporate Reporting and Analysis
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Sample Questions
Q1) A corporation reported net income of $2,730,000 and paid preferred cash dividends of $120,000 during the current year.There were 600,000 weighted-average shares of common stock outstanding and the market price per common share at year-end was $58.30.Calculate the company's price-earnings ratio.
Q2) The amount of income earned per share of a company's outstanding common stock is known as:
A) Restricted retained earnings per share.
B) Earnings per share.
C) Continuing operations per share.
D) Dividends per share.
E) Book value per share.
Q3) A class of stock that can usually be issued at any price without creating a minimum legal capital deficiency is called:
A) Convertible stock.
B) No-par stock.
C) Callable stock.
D) Noncumulative stock.
E) Discounted stock.
Q4) What are the rights generally granted to common stockholders?
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Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) Accounting standards require companies to include a statement of cash flows in a complete set of financial statements.
A)True
B)False
Q2) The appropriate section in the statement of cash flows for reporting the receipt of cash dividends from investments in securities is:
A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Schedule of noncash investing or financing activity.
E) This is not reported on the statement of cash flows.
Q3) The full disclosure principle requires that noncash investing and financing activities be disclosed in the financial statements.
A)True
B)False
Q4) Define and discuss the differences between operating,investing,and financing activities.
Q5) All cash transactions eventually affect noncash ________ accounts.
Q6) Explain how cash flows from investing and financing activities are determined.
Page 14
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Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) Financial statements with data for two or more successive accounting periods placed in columns side by side,sometimes with changes shown in both dollar amounts and percentages,are referred to as:
A) Period-to-period statements.
B) Controlling statements.
C) Successive statements.
D) Comparative statements.
E) Serial statements.
Q2) External users of accounting information manage and operate the company.
A)True B)False
Q3) Refer to the following selected financial information from Shakley's Incorporated.Compute the company's return on total assets for Year 2.
A) 9.6%.
B) 15.2%.
C) 2.6%.
D) 22.2%.
E) 14.5%.
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Page 15
Chapter 14: Time Value of Money
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Sample Questions
Q1) Explain the concept of the future value of a single amount.
Q2) How long will it take an investment of $25,000 at 6% compounded annually to accumulate to a total of $35,462.50? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)
A) 4 years
B) 5 years
C) 6 years
D) 2 years
E) 10 years
Q3) The interest rate is also called the ________ rate.
Q4) Which interest rate column would you use from a present value or future value table for 8% interest compounded quarterly?
A) 12%
B) 6%
C) 3%
D) 2%
E) 1%
Q5) Explain the concept of the present value of an annuity.
Q6) An ________ is a series of equal payments occurring at equal intervals.
Page 16
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Chapter 15: Investments
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Sample Questions
Q1) A company reported net income for Year 1 of $98,000 and $106,000 for Year 2.It also reported net sales of $835,000 in Year 1 and $918,000 in Year 2.The company's average total assets in Year 1 were $1,850,000 and $1,720,000 in Year 2.Calculate the company's profit margin,total asset turnover and return on total assets for Year 1 and Year 2.Comment on the results.
Q2) Investments in equity securities where the investor has a significant,but not controlling influence,are accounted for using the ________ method.
Q3) The cost method of accounting is used for long-term investments in equity securities with significant influence.
A)True B)False
Q4) Kim Manufacturing purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound.At the year-end balance sheet date,the exchange rate increased to $1.69.Kim must record a gain of $600.
A)True B)False
Q5) Return on total assets is computed by dividing ________ by ________.
Q6) Discuss the reasons companies make investments.
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Chapter 16: Partnership Accounting
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Questions
Q1) ________ means that partners can commit or bind the partnership to any contract within the scope of the partnership business.
Q2) MacArthur,Strong,and Viet form a partnership.MacArthur contributes $190,000 cash and Strong contributes $200,000 in cash.Viet contributes equipment worth $215,000.Prepare the single journal entry to record the formation of this partnership.
Q3) Aaron invests $98,000 in the partnership.The amount credited to Aaron's capital account is:
A) $81,000.
B) $102,600.
C) $110,400.
D) $98,000.
E) $114,533.
Q4) Partners can invest assets but not liabilities into a partnership. A)True
B)False
Q5) Partner net income divided by average partner equity equals ________.
Q6) In a Limited Partnership,there must be more than one general partner.
A)True
B)False
Page 18
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