Introduction to Financial Accounting
Exam Answer Key
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices used in the preparation and interpretation of financial statements. The course covers key topics such as the accounting cycle, double-entry bookkeeping, accrual accounting, and the preparation of the balance sheet, income statement, and cash flow statement. Students will explore how businesses use financial information to make informed decisions, comply with regulations, and communicate performance to external stakeholders. Emphasis is placed on real-world applications, ethical considerations, and the development of analytical skills necessary for success in the field of accounting.
Recommended Textbook
Fundamental Financial Accounting Concepts 9th Edition by Thomas P Edmonds
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13 Chapters
1874 Verified Questions
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Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) International accounting standards are formulated by the IASB.What does that acronym stand for?
A)Internationally Accepted Standards Board
B)International Accounting Standards Board
C)International Accountability Standards Bureau
D)International Accounting and Sustainability Board
Answer: B
Q2) In which section of a statement of cash flows would the payment of cash dividends be reported?
A)Investing activities.
B)Operating activities.
C)Financing activities.
D)Dividends are not reported on the statement of cash flows.
Answer: C
Q3) Expenses are shown on the
A)income statement.
B)balance sheet.
C)statement of changes in stockholders' equity.
D)the income statement and the statement of changes in stockholders' equity.
Answer: A
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Chapter 2: Understanding the Accounting Cycle
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Sample Questions
Q1) The temporary accounts are closed prior to the start of the next accounting cycle.In this closing process,the amounts in each of these accounts are transferred to what other account(s)?
Answer: Retained Earnings
Q2) The collection of an account receivable is a claims exchange transaction.
A)True
B)False
Answer: False
Q3) Dixon Company collected cash in 2015 from a customer for services to be performed beginning January 2016.Indicate whether each of the following statements about this transaction is true or false.
_____ a)Dixon's 2016 income statement would not be affected by this transaction.
_____ b)Dixon's 2015 statement of cash flows would be affected by this transaction.
_____ c)This transaction is an asset exchange transaction.
_____ d)The revenue for the services provided will be recorded in 2016.
_____ e)The transaction increases Dixon's liabilities.
Answer: a)False b)True c)False d)True e)True
Q4) What is the effect on the accounting equation of a cash payment to creditors?
Answer: Assets decrease;liabilities decrease
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Chapter 3: The Double-Entry Accounting System
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Sample Questions
Q1) The return on equity ratio for Wichita is:
A)5%.
B)10%.
C)20%.
D)50%.
Answer: C
Q2) The following account balances prior to closing entries were taken from the records of Kendall Company:
After closing entries at December 31,2016,Retained Earnings will be:
A)$19,900.
B)$7,400.
C)$2,900.
D)$24,400.
Answer: A
Q3) At the end of its fiscal year,a company must adjust its accounting records for unrecorded accruals and deferrals before it can prepare financial statements.
A)True
B)False
Answer: True
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Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) Explain the computation and the meaning of each of the following:
a.Gross margin percentage
b.Return on sales
Q2) The beginning Merchandise Inventory plus Cost of Goods Sold equals the Cost of Goods Available for Sale during the period.
A)True
B)False
Q3) Which factor has removed most of the practical limitations associated with use of the perpetual inventory system?
A)A more honest work force.
B)Recent changes in GAAP.
C)Recent changes in federal and state laws.
D)Advancements in technology.
Q4) If the buyer is to pay the transportation cost of delivering merchandise,the freight or shipping terms would be stated as:
Q5) If a company uses the perpetual inventory method,when would it normally discover that merchandise inventory has been lost or stolen?
Q6) How do gains and losses differ from revenues and expenses? How are they similar?
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) Landis Company is preparing its financial statements.Gross margin is normally 40% of sales.Information taken from the company's records revealed sales of $25,000;beginning inventory of $2,500 and purchases of $17,500.The estimated amount of ending inventory would be:
A)$15,000.
B)$5,000.
C)$8,000.
D)$10,000.
Q2) Maynard Company started the year with no inventory.During the year,it purchased two identical inventory items at different times.The first unit cost $1,100 and the second,$1,200.One of the items was sold during the year.Based on this information,how much product cost would be allocated to cost of goods sold and ending inventory,assuming use of a.LIFO
b.FIFO
c.Weighted average
Q3) If Bowman Company is using FIFO,how would the accountant compute cost of goods sold when recording a sale under the perpetual inventory system?
Q4) Discuss the significance of the average number of days to sell inventory.
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Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) What is meant by the term "materiality?"
Q2) After the check is signed,the third employee is the one who records the check in the ledger and examines the appropriate supporting documents.
A)True
B)False
Q3) Which of the following is not a primary role of an independent auditor?
A)Assume legal and professional responsibilities to the public
B)Advise client on tax strategies
C)Determine whether a company's financial statements are materially correct
D)All of these answer choices are correct.
Q4) Preparing a bank reconciliation is a requirement to obtain an unqualified audit opinion,but is not an important internal control for a business.
A)True
B)False
Q5) For internal control purposes,what is meant by "separation of duties?"
Q6) Is the establishment of a petty cash fund an asset source,asset use,asset exchange,or claims exchange transaction?
Q7) What is a fidelity bond and what is its purpose?
Page 8
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) The direct write-off method does a better job of matching revenues and expenses than does the allowance method.
A)True
B)False
Q2) The direct write-off method of accounting for uncollectible accounts overstates assets on the balance sheet.
A)True
B)False
Q3) A company that uses the direct write-off method of accounting for uncollectible accounts must still prepare a year-end adjusting entry to estimate its uncollectibles.
A)True
B)False
Q4) On June 1,2016,Carolina Company collected a $24,000 note receivable that had been issued on June 1,2015.The note carried a 6% interest rate.The interest revenue recognized on the maturity date is $1,440.
A)True
B)False
Q5) Discuss briefly the costs of making sales on account.
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) Which of the following would not be classified as a tangible long-term asset?
A)Delivery truck
B)Timber reserve
C)Land
D)Copyright
Q2) Schubert Co.owned equipment that originally cost $48,000.The company sold the equipment on January 1,2016 for $16,000 cash.Accumulated depreciation on the day of sale amounted to $34,000.Based on this information,indicate whether each of the following statements is true or false.
_____ a)The sale will increase Schubert's net income,but it will not affect the company's operating income.
_____ b)Schubert would show a $16,000 cash inflow in the operating activities section of the cash flow statement.
_____ c)The sale would result in a decrease in total assets.
_____ d)The sale would increase Schubert's equity by $2,000.
_____ e)The sale would be recorded as a debit to cash for $16,000,a credit to equipment for $14,000,and a credit to gain on sale of equipment for $2,000.
Q3) Give an example of an intangible asset with an identifiable useful life.
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Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) Vacation pay is considered a contingent liability to the extent that the obligation exists due to work already performed.
A)True
B)False
Q2) What type of account is Discount on Notes Payable?
A)Contra liability.
B)Liability.
C)Contra asset.
D)Expense.
Q3) Payment of interest on a note payable is considered a financing activity on the statement of cash flows.
A)True
B)False
Q4) Which of the following accounts appear in the liabilities section of the balance sheet?
A)Accounts payable,notes payable,allowance for doubtful accounts.
B)Warranties payable,discount on notes payable,accounts payable.
C)Notes payable,discount on notes payable,credit card receivables.
D)Accounts payable,allowance for doubtful accounts,warranties payable.
Q5) When is warranty expense usually recognized?
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) Unsecured bonds are called:
A)discount bonds.
B)coupon bonds.
C)debenture bonds.
D)par value bonds.
Q2) If Wayne issued the bonds for 96,
A)the market rate of interest was equal to the stated rate of interest.
B)the market rate of interest was lower than the stated rate of interest.
C)the market rate of interest was higher than the stated interest rate.
D)the bonds carried a variable or floating rate that changed in response to market conditions.
Q3) If a bond discount is amortized using the effective interest method,the total amount of interest recognized over the life of the bond is the same as if the straight-line method is used.
A)True
B)False
Q4) If bonds with a face value of $200,000 are issued at 98,the amount of cash received from issuing the bonds is $204,082.
A)True
B)False
Page 12
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Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) A separate capital account would be maintained for each partner in a partnership.
A)True
B)False
Q2) Explain the significance of (a)a high,and (b)a low,price-earnings ratio.
Q3) Discuss some of the information items normally included in a corporation's articles of incorporation.
Q4) At the time that Kirby Company issued a 2-for-1 stock split,the company had 5,000 shares of $6 par value common stock outstanding.Stockholders' equity also contained $15,000 of additional paid in capital and $22,000 of retained earnings.Immediately after the stock split,
A)the balance in the common stock account would amount to $30,000.
B)the amount of paid-in capital would be equal to $150,000.
C)the balance in the retained earnings account would amount to $11,000.
D)the number of outstanding shares of common stock would be 2,500.
Q5) All corporations are subject to extensive government regulation.
A)True
B)False
Q6) Discuss a few of the characteristics of sole proprietorships,partnerships and corporations.
Page 13
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Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) The Oglethorpe Corporation reported a beginning balance of $12,400 in its Prepaid Insurance account for 2016.During the year,Oglethorpe paid a total of $42,000 to purchase insurance,and the Prepaid Insurance account had an ending balance of $13,100.What was the amount of insurance expense that Oglethorpe reported for 2016?
A)$42,000
B)$42,300
C)$42,700
D)$41,300
Q2) What is the net cash flow from financing activities?
A)$22,000 inflow
B)$25,000 inflow
C)$25,000 outflow
D)$47,000 outflow
Q3) Give an example of a noncash financing and investing activity.
Q4) Prepare the operating activities section of Moreno's statement of cash flows.
Q5) A cash payment to purchase treasury stock is reported on the statement of cash flows as a financing activity.
A)True
B)False
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) The study of an individual item or account over several accounting periods,such as months,quarters or years is known as:
A)Percentage analysis
B)Ratio analysis
C)Vertical analysis
D)Horizontal analysis
Q2) Blumenthal Company received cash of $2,000,000 by issuing 20-year bonds payable.As a result of this transaction,the company's current ratio will:
A)Decrease.
B)Increase.
C)Remain the same.
D)Cannot be determined.
Q3) The Davis Company reported net income of $60,000 on sales of $300,000.The company has total assets of $500,000 and total liabilities of $100,000.What is the company's return on equity ratio?
A)10.0%
B)12.5%
C)15.0%
D)20.0%
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