Fundamentals of Financial Reporting Practice
Questions
Course Introduction
Fundamentals of Financial Reporting introduces students to the principles and practices involved in preparing, analyzing, and interpreting financial statements. The course covers essential topics such as the accounting cycle, accrual accounting, and the presentation and disclosure requirements of major financial statements, including the balance sheet, income statement, statement of cash flows, and statement of shareholders' equity. Emphasis is placed on understanding Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS), enabling students to communicate financial information effectively and make informed decisions based on financial data. This foundational course provides the necessary skills for advanced study in accounting and finance.
Recommended Textbook
Financial Accounting 6th Edition by Walter T. Harrison
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Chapter 1: The Financial Statements
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Sample Questions
Q1) In accounting,the word "net" means after a subtraction.
A)True
B)False
Answer: True
Q2) Accounting is called an information system since it measures business activities,processes data into reports,and communicates results to decision makers.
A)True
B)False
Answer: True
Q3) The Cash Flow Statement is organized in terms of the organization's operating,investing,and financing activities.
A)True
B)False Answer: True
Q4) The CICPA has a code of professional conduct.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A dividend account is known as a contra equity account. A)True
B)False Answer: True
Q2) Debits are always recorded (journalized)after credits. A)True
B)False Answer: False
Q3) A transaction involving the cash purchase of equipment will decrease one asset account and increase another asset account.
A)True
B)False Answer: True
Q4) The purchase of office supplies for cash would include a debit to the asset Office Supplies and a credit to the asset Cash.
A)True
B)False Answer: True
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Page 4
Chapter 3: Accrual Accounting and the Financial Statements
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Sample Questions
Q1) "Closing the books" adjusts the balances of asset and liability accounts back to zero for the next accounting period.
A)True
B)False
Answer: False
Q2) There are two methods used to account for transactions.These methods are:
A) cash and deferral
B) cash and accrual
C) accrual and deferral
D) deferral and prepaid
Answer: B
Q3) An accountant who records a transaction only when cash is received or disbursed is using which basis of accounting?
A) prepaid
B) accrual
C) cash
D) deferral
Answer: C
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Chapter 4: Cash and Receivables
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Sample Questions
Q1) The account that shows the amount of accounts receivable that the business does not expect to collect is:
A) Allowance for Uncollectible Accounts
B) net Accounts Receivable
C) Sales Returns and Allowances
D) Sales Discounts
Q2) Ace has just signed up for a KD Trust debit card machine (interact)which charges a $1 fee for transactions up to $200 and a $3 fee for transactions over that amount.On September 15<sup>th</sup> a customer makes a $150 purchase plus a cash back request of $40.Record the journal entry.
Q3) Under the allowance method,the entry to record the bad debts estimate includes a:
A) debit to Accounts Receivable
B) credit to Accounts Receivable
C) debit to Allowance for Uncollectible Accounts
D) debit to Bad Debt Expense
Q4) What is a bank reconciliation? Why is it important to prepare a bank reconciliation every month when the bank statement is received from the bank?
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Chapter 5: Inventory and Cost of Goods Sold
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Sample Questions
Q1) The gross margin percentage can be calculated by dividing cost of goods sold by net sales revenue.
A)True
B)False
Q2) Previously written down inventory does not need to be reassessed as it is at its lowest value.
A)True B)False
Q3) Historically,perpetual inventory systems have been used to account for inventory items with a low unit cost.
A)True
B)False
Q4) The specific unit cost method is frequently used for items with common characteristics,such as gallons of paint.
A)True
B)False
Q5) FIFO uses "old" inventory costs against revenue.
A)True B)False
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Chapter 6: Property, plant, and Equipment, and Intangible Assets
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Sample Questions
Q1) Repairs made to equipment as part of a yearly maintenance project would be recorded in the journal by:
A) debiting Equipment
B) debiting Repair Expense
C) debiting Depreciation Expense
D) debiting Accumulated Depreciation
Q2) Sowthoveer Company sold some office furniture for $4,500 cash.The furniture cost $24,000 and had accumulated depreciation through the date of sale totaling $21,700.The journal entry to record the sale of the furniture will include a:
A) credit to Office Furniture for $2,300
B) debit to Gain on Sale of Furniture for $2,200
C) credit to Gain on Sale of Furniture for $2,200
D) credit to Accumulated Depreciation for $21,700
Q3) Most companies use straight-line depreciation for their books but an accelerated method (CCA depreciation)for the tax return.Explain why companies use these two different methods that result in the need for two sets of records.
Q4) Explain how a company should decide which depreciation method to use for financial reporting purposes.
Page 8
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Chapter 7: Investments and the Time Value of Money
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Sample Questions
Q1) A short-term investment is not:
A) referred to as a temporary investment
B) referred to as a marketable security
C) a current asset
D) intended to be converted to cash in more than one year
Q2) Investments accounted for using the equity method are initially recorded at:
A) fair market value of the investee company multiplied by the percentage of ownership acquired
B) the total of the investee's equity accounts multiplied by the percentage of ownership acquired
C) cost
D) the lower of the cost or fair market value as of the balance sheet date
Q3) Long-term bond investments are reported on the balance sheet at their:
A) historical cost
B) amortized cost
C) current market value
D) lower of cost or market
Q4) How does an investor account for a long-term investment in bonds?
Q5) Briefly explain the meaning of the term "present value."
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Chapter 8: Liabilities
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Sample Questions
Q1) A contingent liability that has a remote chance of occurrence should be disclosed in the financial statement footnotes.
A)True
B)False
Q2) On January 1,2017,Tranche Corp.issued $750,000 of 8%,10-year bonds,with annual interest payments on December 31.The bonds were issued for $657,831 yielding an effective-interest rate of 10%.Tranche Corp.uses the effective-interest method of amortization.
a.Prepare the necessary journal entries to record the issuance of the bonds and the first interest payment.
b.Determine the carrying value of the bonds on December 31,2017.
Q3) Amortizing the discount on a bond payable:
A) increases the face value of the bonds
B) decreases the face value of the bonds
C) increases the carrying amount of the bonds
D) decreases the carrying amount of the bonds
Q4) Explain the accounting process for warranties.Be specific and include in your discussion the principle that governs the accounting method.
Q5) Describe the two interest rates included in setting the price of a bond.
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Chapter 9: Shareholders Equity
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Sample Questions
Q1) Before a company can pay dividends to the common shareholders,the owners of cumulative preferred shares must receive:
A) the current year's dividend, but not dividends in arrears
B) all dividends in arrears plus the current year's dividend
C) dividends in arrears, but not the current year's dividends
D) neither the current year's dividends nor dividends in arrears
Q2) Prevage Corporation has 10,000 shares of $10 cumulative preferred shares outstanding and 50,000 common shares outstanding.As of the beginning of this fiscal year,there were 2 years' dividends in arrears on the preferred shares.The board of directors wants to give the common shareholders a $1.50 dividend per share at the end of this fiscal year.The total dividends to be declared by the Prevage Corporation are:
A) $105,000
B) $120,000
C) $175,000
D) $375,000
Q3) What type of shares would an investor purchase if he or she were primarily interested in increasing dividends?
Q4) Describe the rights typically enjoyed by common shareholders.
Q5) Explain the fundamental difference between retained earnings and share capital.
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Chapter 10: The Statement of Cash Flows
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Sample Questions
Q1) Cash means more than just cash on hand and cash in the bank.Highly liquid,short-term investments that are easily convertible into cash are called:
A) common shares
B) cash equivalents
C) promissory notes
D) accounts receivable
Q2) The amount of cash dividends declared during the period and the amount of cash dividends paid during the period are reflected in the:
A) income statement and cash flow statement, respectively
B) statement of shareholders' equity and income statement, respectively
C) statement of shareholders' equity and the cash flow statement, respectively
D) cash flow statement and statement of shareholders' equity, respectively
Q3) Under ASPE the payment of principal and interest on a loan would be reported in the investing activities section of a statement of cash flows.
A)True
B)False
Q4) Why is the statement of cash flows of interest to investors,creditors,and management?
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Chapter 11: Financial Statement Analysis
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Sample Questions
Q1) The form of analysis that looks at trend percentages over a representative period is known as:
A) trend analysis, which is considered a form of horizontal analysis
B) trend analysis, which is considered a form of vertical analysis
C) ratio analysis
D) economic value added analysis
Q2) From the list below,select the ratio(s)that help in the analysis of working capital:
A) current ratio
B) quick ratio
C) debt ratio
D) current ratio and quick ratio
Q3) Working capital is defined as:
A) current liabilities - current assets
B) current assets - current liabilities
C) total assets - total liabilities
D) current assets + current liabilities
Q4) How is it possible for investors to compare two companies of different sizes or companies that operate in different industries?
Q5) Identify three cash flow signs of a healthy company.
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