Intermediate Financial Accounting
Review Questions
Course Introduction
Intermediate Financial Accounting delves deeper into the principles and practices of financial reporting, building on foundational accounting concepts. Students will explore the recognition, measurement, valuation, and disclosure of assets, liabilities, and equity in accordance with generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS), as appropriate. The course emphasizes the preparation and analysis of financial statements, addressing complex topics such as revenue recognition, income measurement, inventory valuation, long-term assets, and liabilities. Through case studies and real-world examples, learners will enhance their analytical skills, interpret financial information, and apply accounting standards to support informed business decision-making.
Recommended Textbook
Financial Accounting 2nd Edition by J. David Spiceland
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Page 2
Chapter 1: Accounting Information and Decision Making
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Sample Questions
Q1) Primary qualitative characteristics of accounting information are:
A)Relevance and comparability.
B)Comparability and consistency.
C)Faithful representation and relevance.
D)Faithful representation and consistency.
Answer: C
Q2) The financial statement that represents activity over the entire life of the company is the:
A)Income statement.
B)Statement of financial accounting.
C)Balance sheet.
D)Statement of cash flows.
Answer: C
Q3) Transactions related to the primary business activities of the company,such as selling goods and services to customers,are referred to as:
A)Investing activities.
B)Management activities.
C)Operating activities.
D)Financing activities.
Answer: C
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Chapter 2: The Accounting Information System
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Sample Questions
Q1) Liabilities normally carry a _______ balance and are shown in the _________.
A)Debit; Statement of stockholders' equity
B)Debit; Income statement
C)Credit; Balance sheet
D)Debit; Balance Sheet
Answer: C
Q2) On December 1,2012,Bears Inc.signed a contract with a retailer to supply maintenance for the next calendar year.How should this transaction be recorded on December 1,2012?
A)Debit Cash,credit Service Revenue.
B)Debit Cash,credit Accounts Receivable.
C)Debit Accounts Receivable,credit Service Revenue.
D)No transaction should be recorded on December 1,2012.
Answer: D
Q3) An account receivable can best be defined as:
A)A payment to the owners.
B)A sale of goods and services.
C)A resource owned by the company.
D)An amount owed by the company.
Answer: C
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Chapter 3: The Financial Reporting Process
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Sample Questions
Q1) A customer purchased a drill press on November 14 on account from Sears.The drill press was delivered two weeks later.The customer paid for the drill press on December 5.When should Sears record the revenue for this transaction according to the revenue recognition principle?
A)November.
B)December.
C)Evenly in each of the two months.
D)One-third in November and two-thirds in December.
Answer: A
Q2) The closing process includes which of the following?
A)Closing the balance of the retained earnings account to zero.
B)Closing the balance of only the dividends account to zero.
C)Closing the balances of only revenue and expense accounts to zero.
D)Closing the balances of revenue,expense and dividend accounts to zero.
Answer: D
Q3) Long-term assets are assets that provide a benefit to a company for more than one year.
A)True
B)False Answer: True
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Chapter 4: Cash and Internal Controls
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Sample Questions
Q1) Which of the following is NOT correct regarding the reporting of cash?
A)Cash is reported in both the balance sheet and the statement of cash flows.
B)Cash flows from buying and selling investments and long-term productive assets are called operating cash flows.
C)Cash flows from transactions with stockholders and creditors are called financing cash flows.
D)Net cash flows reported in the statement of cash flows should equal the change in cash reported in the balance sheet.
Q2) A company's free cash flows equal operating cash flows plus financing cash flows during the period.
A)True
B)False
Q3) Which of the following best describes the goal of internal controls?
A)Ensuring the business is profitable.
B)Enhancing the health of employees.
C)Improving the accuracy and the reliability of financial information.
D)Ensuring the compliance with tax regulations.
Q4) Discuss the events leading up to the passage of the Sarbanes-Oxley Act and its major provisions.
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Chapter 5: Receivables and Sales
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Sample Questions
Q1) Using the allowance method,writing off an actual bad debts would include a:
A)Debit to Bad Debt Expense.
B)Credit to Accounts Receivable.
C)Debit to Accounts Receivable.
D)Credit to Allowance for Uncollectible Accounts.
Q2) Suppose that the balance of a company's Allowance for Uncollectible Accounts was $6,200 (credit)at the end of 2012,prior to any adjustments.The company estimated that the total of uncollectible accounts in its accounts receivable was $44,300 at the end of 2012.Total accounts receivable were $150,000 on December 31,2012,and total credit sales for 2012 were $330,000.What amount of bad debt expense would appear in the company's 2012 income statement,assuming the company uses the percentage-of-receivables method?
A)$38,100.
B)$105,700.
C)$33,000.
D)$50,500.
Q3) On February 23,a company provides services on account to a customer for $4,500.The customer pays in full for those services on March 4.Record the transactions for the company when the services are provided on February 23 and when the cash is collected on March 4.
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) __________ is commonly referred to as the balance sheet approach.
Q2) Anthony Corporation reported the following amounts for the year: \(\begin{array}{lr}
\text { Net sales } & \$ 296,000 \\
\text { Cost of goods sold } & 138,000 \\
\text { Average inventory } & 50,000
\end{array}\)
Anthony's average days in inventory is:
A)170 days.
B)114 days.
C)132 days.
D)151 days.
Q3) In a perpetual inventory system,the purchase of inventory is debited to: A)Purchases.
B)Cost of Goods Sold.
C)Inventory.
D)Accounts Payable.
Q4) When inventory costs are rising,__________ generally results in a lower amount of reported cost of goods sold.
Q5) __________ is commonly referred to as the income statement approach.
Page 8
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Chapter 7: Long-Term Assets
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Sample Questions
Q1) Which one of the following regarding the book value of an asset is correct?
A)It is the fair value of the asset if the asset is sold.
B)It reflects the original cost of the asset less accumulated depreciation.
C)It is the original cost of the asset minus the depreciation expense for that asset during the year.
D)It is the original cost at which the asset was purchased.
Q2) Why don't we depreciate land? What are land improvements? Why do we record land and land improvements separately?
Q3) The purchase of a new cooling system for $150,000 to upgrade an office building owned by the company would be accounted for as:
A)Goodwill.
B)An addition in the Buildings account.
C)An expense in the period incurred.
D)A patent.
Q4) The return on assets is equal to the:
A)Profit margin plus asset turnover.
B)Profit margin minus asset turnover.
C)Profit margin times asset turnover.
D)Profit margin divided by asset turnover.
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Chapter 8: Current Liabilities
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Sample Questions
Q1) A company's liquidity refers to its:
A)Ability to collect accounts receivable.
B)Ability to sell inventory efficiently.
C)Ability to generate profits from operations.
D)Ability to pay currently maturing debts.
Q2) Liabilities are defined as:
A)Resources owed by an entity as a result of past transactions.
B)Resources owned by an entity as a result of past transactions.
C)Selling products and services to customers in the current period.
D)Costs of running the business in the current period.
Q3) Strikers,Inc.sells soccer goals to customers over the Internet.History has shown that 2% of Strikers' goals are faulty and will need repair under the warranty program.For the year,Strikers has sold 4,000 goals and 45 have been repaired.If the estimated cost to repair a goal is $200,what would be the Warranty Liability at the end of the year?
A)$0.
B)$16,000.
C)$7,000.
D)$6,750.
Q4) Why is it important to distinguish between current and long-term liabilities?
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) On January 1, 2012, Water Wonderland issues $20 million of 8% bonds, due in ten years, with interest payable semiannually on June 30 and December 31 each year.
1. If the market rate is 7%, will the bonds issue at face amount, a discount, or a premium?
Calculate the issue price.
2. If the market rate is 8%, will the bonds issue at face amount, a discount, or a premium?
Calculate the issue price.
3. If the market rate is 9%, will the bonds issue at face amount, a discount, or a premium?
Calculate the issue price.
Q2) Bond X and Bond Y are both issued by the same company.Each of the bonds has a face value of $100,000 and each matures in 10 years.Bond X pays 8% interest while Bond Y pays 9% interest.The current market rate of interest is 8%.Which of the following is correct?
A)Both bonds will sell for the same amount.
B)Bond X will sell for more than Bond Y.
C)Bond Y will sell for more than Bond X.
D)Both bonds will sell at a discount.
Q3) Why do some companies issue bonds rather than borrow money directly from a bank?
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11
Chapter 10: Stockholders Equity
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Sample Questions
Q1) Jade Jewelers issued 15,000 shares of $1 par value stock for $20 per share.What is true about the journal entry to record the issuance?
A)Credit Common Stock $300,000.
B)Credit Cash $300,000.
C)Credit Common Stock $15,000.
D)Debit Additional Paid-In Capital $285,000.
Q2) Earnings per share (EPS)measures the net income earned per share of common stock outstanding.
A)True
B)False
Q3) Earnings per share (EPS)
A)is useful in comparing earnings performance across companies.
B)is useful in comparing earnings performance for the same company over time.
C)is useful in both comparing earnings performance across companies and in comparing earnings performance for the same company over time.
D)is not useful in comparing earnings performance across companies or in comparing earnings performance for the same company over time.
Q4) Explain the difference between authorized,issued,and outstanding shares.
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Page 12
Chapter 11: Statement of Cash Flows
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Sample Questions
Q1) If no cash was exchanged in the purchase of equipment financed entirely with a note payable,we represent this as both an investing activity and a financing activity in the statement of cash flows.
A)True
B)False
Q2) During 2012,Smithson Corp.had the following cash flows: receipt from customers,$10,000; receipt from the bank for long-term borrowing,$6,000; payment to suppliers,$5,000; payment of dividends,$1,000,payment to workers,$2,000; and payment for machinery,$8,000.What amount would be reported for investing cash flows on the Statement of Cash Flows?
A)$5,000.
B)$2,000.
C)$6,000.
D)($8,000).
Q3) The total net cash flows from operating activities differ between the direct and indirect methods.
A)True
B)False
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Perform a horizontal analysis on the following information providing both the dollar amount and percentage change: \(\begin{array}{lrr}&2013&2012\\
\text { Cash } & \$ 500,000 & \$ 200,000 \\
\text { Accounts receivable } & 900,000 & 800,000 \\
\text { Inventory } & 700,000 & 500,000 \\
\text { Long-term assets } & 2.200 .000 & 2.500 .000\\
\text { Total assets }&\$4,300,000&\$4,000,000\\ \end{array}\)
Q2) Return on assets equals:
A)Gross profit ratio x Inventory turnover.
B)Profit margin x Inventory turnover.
C)Gross profit ratio x Asset turnover.
D)Profit margin x Asset turnover.
Q3) A larger estimation of the allowance for uncollectible accounts,the write-down of overvalued inventory and the use of a shorter useful life for depreciation are all examples of conservative accounting.
A)True
B)False
Q4) Explain the difference between vertical and horizontal analysis.
Page 14
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Chapter 13: Time Value of Money
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Q1) Explain the difference between present value and future value.
Q2) The future value of $1,000 invested today for three years that earns 10% compounded annually is greater than the future value of a $500 annuity with the same interest rate over the same period.
A)True
B)False
Q3) Shane wants to invest money in a 6% CD that compounds semiannually.Shane would like the account to have a balance of $100,000 four years from now.How much must Shane deposit to accomplish his goal?
A)$88,848.
B)$78,941.
C)$25,336.
D)$22,510.
Q4) Which three factors are necessary in calculating the present value of a single amount?
Q5) The value that an amount today will grow to in the future is referred to as the:
A)Future value of a single amount.
B)Present value of a single amount.
C)Future value of an annuity.
D)Present value of an annuity.
Page 15
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Chapter 14: Investments
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Sample Questions
Q1) Sports Spectacular purchased 1,000 shares of stock in The Athletic Warehouse for $30 per share.The investment is properly classified as a trading security.By the end of the year,the stock price has increased to $32 per share.How would the change in stock price affect Sports Spectacular's net income?
A)Increase net income by $32,000.
B)Increase net income by $30,000.
C)Increase net income by $2,000.
D)No effect.
Q2) When using the equity method to account for an investment,cash dividends received by the investor from the investee should be recorded:
A)As a reduction in the Investments account.
B)As an increase in the Investments account.
C)As dividend income.
D)As a contra item to stockholders' equity.
Q3) The statement of comprehensive income is a statement in which we report all changes in stockholders' equity other than investment by stockholders and payment of dividends.
A)True
B)False
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Page 16
Chapter 15: International Financial Reporting Standards
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Q1) The Norwalk Agreement formalizes the commitment between the FASB and IASB to the convergence of U.S.GAAP and IFRS.
A)True
B)False
Q2) Assuming rising costs,the switch from LIFO to FIFO or average cost would most likely have what effect(s)?
A)Increase reported net income in the income statement.
B)Decrease tax obligations to the Internal Revenue Service (IRS).
C)Increase reported net income and tax obligations.
D)Decrease reported net income and tax obligations.
Q3) More economically developed economies (the U.S.and the U.K.)have a need for more complex accounting standards.
A)True
B)False
Q4) Under U.S.GAAP,development expenditures are capitalized,while under IFRS,these expenditures must be expensed immediately.
A)True
B)False
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