Fundamentals of Financial Accounting Practice Exam
Course Introduction
Fundamentals of Financial Accounting introduces students to the basic principles and practices of financial accounting, focusing on how financial information is recorded, summarized, and reported for decision-making purposes. Topics include the accounting cycle, preparation of financial statements, understanding assets, liabilities, and equity, and the analysis of transactions in accordance with generally accepted accounting principles (GAAP). The course emphasizes developing the skills necessary to interpret and prepare financial statements, understand the role of accounting in business, and apply ethical considerations in financial reporting.
Recommended Textbook
Financial Accounting A Business Process Approach 3rd Edition by Jane L. Reimers
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11 Chapters
2570 Verified Questions
2570 Flashcards
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Page 2
Chapter 1: Business: Whats It All About
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214 Flashcards
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Sample Questions
Q1) Inventory
A)Balance sheet
B)Income statement
C)Statement of changes in shareholders' equity
D)Statement of cash flows
Answer: A
Q2) The United Way is an example of a ________.
A)sole proprietorship
B)partnership
C)corporation
D)not-for-profit
Answer: D
Q3) Ira Roth,CPA,is an example of a ________.
A)sole proprietorship
B)partnership
C)corporation
D)not-for-profit
Answer: A
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Page 3
Chapter 2: Qualities of Accounting Information
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Q1) What is the purpose of generally accepted accounting principles (GAAP)?
Answer: The purpose of financial reporting is to provide information for decision making.In order for financial information to be useful for evaluating the performance of a business,reporting rules must be uniform and applied in a consistent manner.Generally accepted accounting principles,or GAAP,are the set of rules that accountants and companies must follow when preparing financial statements.
Q2) Comparable information ________.
A)needs to be current so it can be used to make decisions
B)can be verified as accurate and truthful
C)allows users to make comparisons across financial statements
D)is presented the same way period after period
Answer: C
Q3) For information to be useful,it must be relevant and reliable.
A)True
B)False
Answer: True
Q4) IFRS have fewer detailed rules than U.S.GAAP.
A)True
B)False
Answer: True
Page 4
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Chapter 3: Accruals and Deferrals: Timing Is Everything in Accounting
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Sample Questions
Q1) Generally accepted accounting principles require the use of accrual accounting.
A)True
B)False
Answer: True
Q2) The employees of Dew Drop Inn get paid every Friday for a 5-day workweek (Monday through Friday).The total payroll is $5,000 per day of work.If the accounting period ends on Thursday of a given week,and the proper adjustment is made on Thursday,what will be the effect of the adjustment on the company's financial statements?
A)The balance sheet will report additional salaries expense of $20,000.
B)The balance sheet will report additional salaries expense of $25,000.
C)The income statement will report additional salaries expense of $20,000.
D)The income statement will report additional salaries expense of $25,000.
Answer: C
Q3) Which financial statement shows Revenues?
A)income statement
B)statement of changes in shareholders' equity
C)statement of cash flows
D)balance sheet
Answer: A
Page 5
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Chapter 4: Payment for Goods and Services: Cash and Accounts Receivable
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Sample Questions
Q1) Ace Electronics accepted a promissory note from Fenstermaker,who promised to pay Ace $2,000 plus 6% interest at the end of six months.When Fenstermaker first gives Ace the note,Fenstermaker should record ________.
A)a note payable of $2,000
B)a note receivable of $2,000
C)a note payable of $2,060
D)a note receivable of $2,060
Q2) What is the effect of the adjusting entry for bad debts expense on the Statement of cash flows?
A)no effect
B)a decrease in Cash from operating activities
C)an increase in Cash from operating activities
D)a decrease in Cash from financing activities
Q3) Which of these is a cash equivalent?
A)U)S.treasury bills that mature in three months or less
B)a note receivable that matures in six months
C)a note payable due in three months or less
D)accounts receivable due in three months or less
Q4) Discuss the risks associated with sales,cash and accounts receivable.
Q5) Discuss the importance of reporting net accounts receivable.
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Chapter 5: The Purchase and Sale of Inventory
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Q1) An example of an internal control procedure to protect inventory is to limit access to inventory deliveries to the accountants.
A)True
B)False
Q2) Which statement below best describes how to account for the costs of purchasing inventory?
A)The costs are initially recorded as expenses and depreciated over the estimated useful life.
B)Inventory costs are initially reported as assets and then maintained in the asset accounts for the life of the business.
C)The costs are initially recorded as assets and become expenses when the inventory has an increase in market value.
D)The costs are initially recorded as assets and become expenses when the inventory is sold.
Q3) In times of rising prices,a company that uses LIFO will report higher sales than if it had used FIFO.
A)True
B)False
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Chapter 6: Acquisition and Use of Long-Term Assets
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Sample Questions
Q1) Use the following code to identify the expense associated with each of the assets listed below:
A = Depreciation expense
B = Depletion expense
C = Amortization expense
D = None of the above
______ 1.Land
______ 2.Patent
______ 3.Oil reserves
______ 4.Lumber
______ 5.Franchise
______ 6.Equipment
______ 7.Inventory
______ 8.Computers
______ 9.Office supplies
______ 10.Office furniture
Q2) A major function of an internal control system is to safeguard assets from theft and damage.
A)True
B)False
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Page 8
Chapter 7: Accounting for Liabilities
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Sample Questions
Q1) On July 1,2011,Ace Electronics issued $10 million dollars of 8%,20-year bonds at 102.The bonds pay interest SEMIANNUALLY on December 31 and June 30.How much cash did Ace receive when the bonds were issued?
A)$10,000,000
B)$10,200,000
C)$12,000,000
D)$102,000,000
Q2) Beau Brentley earned $60,000 in 2011 from his job at Bridgestone Tires.He had 15% of his gross pay withheld for federal income taxes,6.2% withheld for FICA Social Security taxes,and 1.45% withheld for Medicare taxes.What amount will Bridgestone Tires report as salary expense for 2011?
A)$60,000
B)$64,590
C)$46,410
D)$69,160
Q3) Risks associated with debt affect both a company and its creditors.
A)True
B)False
Q4) What is an annuity?
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Chapter 8: Accounting for Shareholders Equity
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Sample Questions
Q1) Out of Africa,a multi-national corporation had a very successful year.The board of directors declared and paid a cash dividend of $50,000.The prior year,Out of Africa did not pay dividends on its 400 shares of cumulative,8%,$100 par,preferred stock.How much of the cash dividend was paid to the COMMON shareholders?
A)$50,000
B)$49,992
C)$46,800
D)$43,600
Q2) On July 1,the board of directors of Team Shirts declared a $0.75 cash dividend per share for shareholders owning company stock on July 10.The checks will be issued on July 15.What are the dates of declaration,record,and payment?
Q3) A ________ is created when a corporation increases the number of shares and proportionately decreases the par value.
A)cash dividend
B)liquidating dividend
C)stock dividend
D)stock split
Q4) What is preferred stock?
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Page 10
Chapter 9: Preparing and Analyzing the Statement of Cash Flows
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Q1) The direct method for the preparation of the statement of cash flows ________.
A)starts with net income and makes adjustments for all the items that are not cash.
B)starts by converting every number on the income statement to its cash amount.
C)starts by estimating the sources of cash and the uses of cash.
D)all of these
Q2) A cash budget is a detailed plan of a company's estimated cash receipts and estimated cash disbursements.
A)True
B)False
Q3) During its first year of business,Gnu,Inc.sold $200,000 of merchandise to customers on account.At the end of the year Gnu,Inc.had accounts receivable of $40,000.How much cash did the company collect from credit customers during the year?
A)$200,000
B)$240,000
C)$160,000
D)$40,000
Q4) How are the investing and financing activities sections of the statement of cash flows prepared?
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Chapter 10: Using Financial Statement Analysis to Evaluate
Firm Performance
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Sample Questions
Q1) A loss from a tsunami in Kansas could be classified as an extraordinary item.
A)True
B)False
Q2) The debt-to-equity ratio is a measure of a company's liquidity.
A)True
B)False
Q3) Which of the following items affects retained earnings but does not affect net income?
A)extraordinary items
B)declaring dividends
C)issuing stock
D)discontinued operations
Q4) Refer to the Ace Electronics annual report above.Using horizontal analysis with 2010 as the base year,\(\bold{2012}\) Cost of goods sold would be represented as
Page 12
Q5) What is horizontal analysis?
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Chapter 11: Quality of Earnings, corporate Governance, and Ifrs
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Sample Questions
Q1) Firms that recognize revenue early or postpone recognition of expenses often have a lower quality of earnings.
A)True
B)False
Q2) The ethical climate of a company is determined by the tone at the top.
A)True
B)False
Q3) Tim's Tams donated 100 baseball caps to the local homeless shelter.The company will record the donation as an operating expense.The caps cost Tim's Tams $2.00 each and the company usually sells them for $8.50.If Tim's Tams reports a charity expense of $850,this accounting choice would be considered ________.
A)conservative
B)fundamental
C)basic
D)aggressive
Q4) Name two characteristics of good corporate governance.
Q5) What is the purpose of the PCAOB and why was it established?
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Q6) What problems may exist because of Wall Street's over-emphasis on earnings per share?