Intermediate Financial Accounting
Exam Solutions
Course Introduction
Intermediate Financial Accounting builds upon foundational accounting principles to deepen students understanding of the preparation and analysis of financial statements. This course covers more complex topics such as revenue recognition, inventory valuation, long-term assets, liabilities, and stockholders equity. Emphasis is placed on the application of accounting standards (such as IFRS and GAAP) and the interpretation of financial information for decision-making. Through problem-solving, case studies, and real-world examples, students will enhance their ability to analyze financial data and communicate accounting information effectively.
Recommended Textbook
Financial Accounting An Integrated Approach 6th Australia Edition by Trotman
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17 Chapters
777 Verified Questions
777 Flashcards
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Page 2
Chapter 1: Introduction to Financial Accounting
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Sample Questions
Q1) What is the net profit for the period ending 30 June 2016?
A) $2000
B) $4000
C) $5000
D) $7000
Answer: A
Q2) Which of the following statements about an income statement is NOT true?
A) An income statement provides information on an organisation's profitability at a certain point in time.
B) An income statement includes revenues earned during a period,and expenses incurred in earning the revenues.
C) The expenses may include depreciation.
D) For revenue to be included,it is not necessary for cash to have been received.
Answer: A
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3
Chapter 2: Measuring and Evaluating Financial Position and
Financial Performance
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Sample Questions
Q1) Which of the following is a liability?
A) Retained profits
B) Prepaid advertising
C) Accumulated depreciation
D) Expenses payable
Answer: D
Q2) Assume no dividends were declared during the year.What is the balance of total assets at 30 June 2016?
A) $200 000
B) $210 000
C) $290 000
D) $310 000
Answer: B
Q3) To which balance sheet grouping does the item 'accumulated depreciation on equipment' belong?
A) Current asset
B) Noncurrent asset
C) Current liability
D) Noncurrent liability
Answer: B
Page 4
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Chapter 3: The Double-Entry System
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Sample Questions
Q1) Which of the following items would decrease profit for the year?
A) Purchase of equipment for cash
B) Payment of a dividend
C) Purchase of equipment on credit
D) None of the answers provided
Answer: D
Q2) If a company borrows money to purchase equipment:
A) one asset increases and another asset decreases.
B) an asset increases and a liability increases.
C) an asset decreases and a liability decreases.
D) an asset increases and shareholders' equity increases.
Answer: B
Q3) A business sells inventory for $220,receiving $100 cash as a deposit with the customer owing the remainder.The journal entry will include:
A) a debit to accounts receivable of $120.
B) a debit to inventory of $120.
C) a credit to accounts receivable of $100.
D) a credit to inventory for $220.
Answer: A
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Chapter 4: Record-Keeping
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Sample Questions
Q1) A chart of accounts is:
A) a means of ensuring that the debits equal the credits.
B) a chronological record of all transactions.
C) a list of the titles of all accounts in the ledger,together with an appropriate numbering system for the accounts.
D) a trial balance.
Q2) Which transaction represents payment for an expense item?
A) (4)
B) (5)
C) (10)
D) (8)
Q3) A trial balance would detect which of the following errors?
A) Failure to record depreciation for the year.
B) A credit purchase recorded in accounts payable account as $927 instead of $972.
C) A cash purchase of inventory recorded as a debit to plant and a credit to accounts payable.
D) A salesman failing to record a cash sale,and retaining the proceeds.
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6
Chapter 5: Accrual Accounting Adjustments
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Sample Questions
Q1) When the accumulated depreciation is deducted from the long-term asset account,the figure is known as the:
A) market value.
B) replacement value.
C) net book value.
D) realisable value.
Q2) If the Prepaid rent account before adjustment at the end of the month has a debit balance of $1500,representing a payment made on the first day of the month,and if the monthly rent was $1000,the amount of prepaid rent that would appear on the balance sheet at the end of the month,after adjustment,is:
A) $500.
B) $1000.
C) $1500.
D) $2500.
Q3) If a company neglects to make an adjustment for accrued expenses:
A) profit will be overstated and liabilities understated.
B) profit will be overstated and liabilities overstated.
C) profit will be overstated and assets understated.
D) profit will be understated and liabilities overstated.
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Page 7
Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Sample Questions
Q1) Which of the following statements about agency theory is true?
A) Accounting information is viewed as something that is 'right'.
B) Conflicts of interest are regarded as unnatural.
C) It tends to focus on the future-oriented,decision-making role of accounting information.
D) It is concerned with contractual relationships among people.
Q2) If the market is efficient with respect to accounting information,which of the following statements is true?
A) Accounting reports are useless to investors.
B) It is impossible to 'beat the market' using only accounting information that was released to the market 1 month ago.
C) Knowing the contents of an annual report before it is released to the market would not be useful to an investor.
D) Capital markets respond only to expected new information.
Q3) The return you earn by owning a share is:
A) the cash from dividends.
B) the current price of the share on the Australian Securities Exchange.
C) the change in the market price of the share.
D) cash from dividends plus the change in the market price of the share.
Page 8
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) What was the bank balance in Simon Ltd's books at 31 October before the adjustments?
A) $15600 Dr
B) $15800 Cr
C) $17200 Cr
D) $18800 Dr
Q2) Indicate which of the features of an effective internal control system are involved in the practices set out in the following question: The practice of issuing identification cards to employees ensures:
A) clear establishment of responsibility lines.
B) maintenance of effective records.
C) separation of record-keeping from handling assets.
D) physical protection of sensitive assets.
Q3) Which of the following is NOT a benefit to be derived from an efficient system of internal control?
A) Assets are protected against damage or loss.
B) Defalcations are completely eliminated.
C) The conduct of the business is more orderly.
D) Errors are identified and corrected on a timely basis.
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Page 9
Chapter 8: Accounts Receivable and Further
Record-Keeping
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Sample Questions
Q1) What was the balance of the debtors control account at 30 June 2016?
A) $8300
B) $9700
C) $21 300
D) $9000
Q2) What was the balance of the creditors control account at 31 January 2016?
A) $5800
B) $4600
C) $3800
D) $7400
Q3) 'Accounts receivable' is a credit column in the:
A) sales journal.
B) purchase journal.
C) cash receipts journal.
D) cash payments journal.
Q4) What was the balance of the debtors control account at 31 January 2016?
A) $8400
B) $4100
C) $3900
D) $4400
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Chapter 9: Inventory
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Sample Questions
Q1) Which of the following entries records a credit sale under the perpetual inventory system?
A) Dr Cost of goods sold
B) Dr Sales
C) Dr Inventory
D) Dr Accounts receivable
Q2) During the year ended 30 June 2016,Rico Ltd had net sales of $750 000 and net purchases of $440 000.Cost of goods sold was $475 000.What was Rico Ltd's gross profit for the year ended 30 June 2016?
A) $240 000
B) $275 000
C) $310 000
D) $475 000
Q3) What was the value of inventory in the balance sheet at 30 June 2016?
A) $22 500
B) $10 000
C) $7500
D) $12 500
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11
Chapter 10: Noncurrent Assets
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Sample Questions
Q1) Using the straight-line method,what is the amount of depreciation for the first full year?
A) $37 500
B) $42 500
C) $41 250
D) $40 000
Q2) If the machine was sold for $59 000 on 1 July 2016,what was the gain or loss on disposal?
A) Loss of $21 000.
B) Loss of $59 000.
C) Loss of $61 000.
D) Loss of $13 000.
Q3) What was the accumulated depreciation at 31 December 2017?
A) $21 000
B) $31 500
C) $42 000
D) $52 500
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Chapter 11: Liabilities
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Sample Questions
Q1) A contingent liability should be shown by way of a note to the accounts when:
A) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required.
B) the amount of the obligation cannot be measured reliably.
C) estimation procedures were necessary to determine its amount.
D) there is significant uncertainty as to whether a sacrifice of future economic benefits will be required and the amount of the obligation cannot be measured reliably.
Q2) Which of the following is NOT true? When a liability increases:
A) cash may increase.
B) revenue may increase.
C) another liability may decrease.
D) expenses may increase.
Q3) Which of the following items would NOT be recognised as a liability?
A) Advances from customers for goods and services to be delivered later
B) Warranty on products sold during the year
C) Final dividend recommended by directors,prior to the annual meeting
D) A dispute with a customer where there is some possibility that the company could lose the dispute
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Chapter 12: Completing the Balance Sheet
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Sample Questions
Q1) Springtown Ltd issued 10 000 ordinary shares for $2.50 each,payable $1 on application,50 cents on allotment and $1 in calls as required.The journal entries to record the allotment of 10 000 shares would include a:
A) credit to cash,$5000.
B) debit to allotment,$10 000.
C) credit to share capital,$25 000.
D) credit to share capital,$5000.
Q2) A debit balance in the retained profits account indicates that the company has:
A) made a loss in the current period.
B) made a loss in at least one period.
C) never made a profit.
D) paid a dividend.
Q3) If Sky-High Ltd used the equity basis,what would the balance sheet value of investment in Down Ltd be at 31 December 2016?
A) $880 000
B) $600 000
C) $510 000
D) $790 000
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Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Sample Questions
Q1) At what point would you expect revenue from sales of building materials to be recognised?
A) During production
B) On completion of production
C) At point of sale or delivery
D) When cash is received
Q2) Which of the following statements about the critical event in the revenue-generation sequence is true?
A) The most common critical event used is the receipt of cash from the customer.
B) The critical event is the point that can be readily documented and at which all revenue is recognised.
C) There can never be several critical events in a firm's operating cycle.
D) Revenue can be recognised even though no action relating to the contract has been completed.
Q3) Revenue from a credit sale should not be recognised until:
A) the goods have been paid for.
B) the warranty period has expired.
C) collection is reasonably assured.
D) it is certain that the goods will not be returned.
Page 15
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following is NOT classified as an investing activity?
A) Purchase of shares in BHP
B) Purchase of motor vehicle
C) Making a loan to another entity
D) Obtaining a loan from another entity
Q2) Which of the following is NOT a financing cash flow?
A) Dividends received
B) Issue of shares
C) Borrowing $10 000 from the bank
D) Share buybacks
Q3) Which of the following statements about the indirect method of presenting cash flow from operations is NOT true?
A) The direct and indirect methods give the same cash flow from operations.
B) Australian companies do not need to report information about the indirect method.
C) Depreciation expense is added back to operating profit in the indirect method.
D) Decreases in accounts payable are deducted from operating profit in the indirect method.
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16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Which of the following could NOT explain an increase in the return on equity ratio?
A) Share buyback
B) Declaring a final dividend
C) Increase in profits
D) Purchase of land on credit
Q2) What was the number of days' inventory on hand?
A) 121.7 days
B) 90 days
C) 80 days
D) 133.8 days
Q3) Which of the ratios listed helps to indicate whether a company has enough short-term assets to cover its short-term liabilities?
A) Current ratio
B) Profit margin
C) Debt-to-equity
D) Return on assets
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Chapter 16: Accounting Policy Choices
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Sample Questions
Q1) Select the balance sheet account(s)that would be affected by a policy choice at the same time as the wages expense income statement account.
A) Accounts receivable
B) Accrued expenses
C) Prepaid expenses
D) Property,plant and equipment;intangible and leased assets
Q2) Changing the rate of depreciation affects:
A) cash.
B) accounts receivable.
C) net profit.
D) none of the answers provided.
Q3) Which of the following would be increased by an accounting policy change involving use of the reducing balance method of depreciation in place of the straight-line method,leading to an increase in depreciation expense?
A) Assets
B) Net profit
C) Retained profits
D) Expenses
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Chapter 17: Sustainability Reporting
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Sample Questions
Q1) Sustainability reporting refers to:
A) environmental,social and economic performance.
B) reporting on carbon emissions.
C) maximising the net returns to shareholders.
D) maximising the net profits of the organisation.
Q2) Measurement and reporting of climate change related information is of use to stakeholders to:
A) evaluate the level of dividend they may receive.
B) understand the impact of the business operations on the environment.
C) identify and evaluate sustainability issues.
D) measure the impact of the business operations on the environment.
Q3) The Global Reporting Initiative sets out:
A) guidelines of how to reduce carbon emissions.
B) principles to measure and report measures used to reduce carbon emissions.
C) principles to measure and report economic,environmental and social performance.
D) how organisations should behave ethically in regards to carbon emissions.
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