Introduction to Financial Accounting Solved
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Course Introduction
Introduction to Financial Accounting provides students with a comprehensive overview of the fundamental principles and concepts underlying the preparation, analysis, and interpretation of financial statements. The course explores the accounting cycle, including the recording, classifying, and summarizing of business transactions, as well as the preparation of key financial reports such as the income statement, balance sheet, and statement of cash flows. Emphasis is placed on understanding the regulatory environment, accounting standards, and the role of financial information in decision-making for both internal and external stakeholders. Through practical exercises and real-world examples, students will develop the analytical skills necessary to assess an organizations financial health and performance.
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Introductory Financial Accounting for Business 1st Edition by Thomas Edmonds
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Page 2
Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) A company's total assets increased during the period while its liabilities and common stock were unchanged.No dividends were declared or paid during the period.Which of the following would explain this situation?
A) Revenues were greater than expenses during the period.
B) Retained earnings were less than net income during the period.
C) No dividends were paid during the period.
D) The company must have purchased assets with cash during the period.
Answer: A
Q2) What was the amount of total liabilities reported on the balance sheet as of the end of the current year?
A) $27,500
B) $31,500
C) $35,000
D) $42,500
Answer: A
Q3) The value created by a business is created by its assets.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Accounting for Accruals
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Sample Questions
Q1) What is the purpose of the accrual basis of accounting?
A) Recognize revenue when it is collected from customers.
B) Match assets with liabilities during the proper accounting period.
C) Recognize expenses when cash disbursements are made.
D) Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands.
Answer: D
Q2) What is the term used to describe the policies and procedures that are designed to reduce the opportunities for fraud?
A) Internal controls
B) Asset source transactions
C) Accounting standards
D) Financial systems
Answer: A
Q3) Which of the following is an asset use transaction?
A) Purchased land for cash
B) Paid cash for salary expense
C) Invested cash in an interest earning account
D) Accrued salary expense at the end of the period
Answer: B
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Chapter 3: Accounting for Deferrals
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Sample Questions
Q1) Which of the following is a claims exchange transaction?
A) Recognized revenue earned on a contract where the cash had been collected at an earlier date
B) Issued common stock
C) Provided services on account
D) Purchased land for cash
Answer: A
Q2) An adjusting entry that decreases unearned revenue and increases service revenue is a claims exchange transaction.
A)True
B)False
Answer: True
Q3) Tammy Company paid cash to purchase a long-term operational asset.The cost of the asset will be expensed (depreciated)
A) on the day it is purchased.
B) at the end of its useful life.
C) over the useful life of the asset.
D) when the asset is sold.
Answer: C
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) A multistep income statement shows sales revenue,cost of goods sold,and gross margin.
A)True
B)False
Q2) Which of the following would be considered as primarily a merchandising business?
A) West Consulting
B) Martin's Supermarket
C) Sandridge and Associates Law Offices
D) KPM Accounting and Tax Service
Q3) Which of the following items is not a product cost?
A) Freight cost on goods delivered FOB destination to customers
B) Cost of merchandise purchased for resale
C) Transportation cost on merchandise purchased from suppliers
D) All of these answer choices are product costs
Q4) Gross margin is equal to the amount of change (increase or decrease)in Merchandise Inventory during a period.
A)True
B)False
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) If a company overstates its Inventory balance at the end of Year 1 due to an error,its Retained Earnings will also be overstated on the Year 1 balance sheet.
A)True
B)False
Q2) During a period of rising inventory prices the LIFO cost flow method will result in higher total assets than FIFO.
A)True
B)False
Q3) What is the amount of ending inventory assuming the FIFO cost flow method?
A) $480
B) $440
C) $400
D) $940
Q4) Assuming Chase uses a FIFO cost flow method,what is the cost of goods sold for the sales transaction on January 31?
A) $1,020
B) $1,005
C) $1,045
D) $340
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Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) Which of the item(s)would be subtracted from the company's unadjusted book balance to determine the true cash balance?
A) Item numbers 2 and 4
B) Item numbers 2, 4, and 5
C) Item numbers 1 and 4
D) Item numbers 1, 2, 4, and 5
Q2) For a petty cash fund to be most useful to a business,one of the employees of the business should be designated as responsible for the fund.
A)True
B)False
Q3) A savings account or certificate of deposit that imposes a substantial penalty for early withdrawals should not be classified as Cash on the balance sheet.
A)True
B)False
Q4) A cash shortage is treated as an expense.
A)True
B)False
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) What is the amount of cash flow from operating activities that would appear on the Year 2 statement of cash flows?
A) $97,000
B) $104,000
C) $89,520
D) $95,060
Q2) The operating cycle is the average time that a company spends acquiring inventory to sell.
A)True
B)False
Q3) A company that uses the direct write-off method must still prepare a year-end adjustment to estimate its uncollectible accounts.
A)True
B)False
Q4) The best estimate of the amount of cash a company expects to collect from its accounts receivable is the face value of the receivables.
A)True
B)False
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) Madison Company owned an asset that had cost $44,000.The company sold the asset for $16,000.Accumulated depreciation on the day of sale amounted to $32,000.Which of the following statements is true?
A) A $16,000 cash inflow in the investing activities section of the cash flow statement.
B) A $16,000 increase in total assets.
C) A $4,000 gain in the investing activities section of the statement of cash flows.
D) A $4,000 cash inflow in the financing activities section of the cash flow statement.
Q2) On January 1,Year 1,Parker Company purchased an asset costing $20,000.The asset had an expected five-year life and a $2,000 salvage value.The company uses the straight-line method.What are the amounts of depreciation expense and accumulated depreciation,respectively,that will be reported in the Year 2 financial statements?
A) $3,600 and $3,600
B) $3,600 and $7,200
C) $4,000 and $12,800
D) $4,000 and $7,200
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10
Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) A company's classified balance sheet shows current assets of $8,650 and current liabilities of $6,000.What is the company's current ratio?
A) 0.69 to 1
B) 1.44 to 1
C) 1.16 to 1
D) 3.26 to 1
Q2) Which of the following terms describes the ability to generate short-term cash flows?
A) Profitability
B) Solvency
C) Stockholder's Equity
D) Liquidity
Q3) Joseph Company is preparing to repay a one-year note on May 1,Year 2.The first step in this process is to accrue eight months of interest expense.
A)True
B)False
Q4) Employers must withhold unemployment taxes from employee salaries.
A)True
B)False
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) Park Enterprises issued bonds with a face value of $500,000,a stated rate of interest of 7%,and a 5-year term to maturity.The proceeds from the issuance were $508,000.Interest is payable in cash on December 31 of each year.Assuming straight-line amortization,the amount of interest expense for the first year would be $31,600.
A)True
B)False
Q2) If bonds are issued at a premium,the bond issuer will pay the bondholders an amount lower than the issue price at maturity.
A)True
B)False
Q3) What is the total amount of liabilities shown on Jones' balance sheet at December 31,Year 2?
A) $191,600
B) $194,000
C) $196,400
D) $195,200
Q4) Amortization of a discount on bonds payable is an asset use transaction.
A)True
B)False
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Chapter 11: Proprietorships, partnerships, and Corporations
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Sample Questions
Q1) Van Buren Corporation issued 5,000 shares of $6 par common stock for $24 per share.For this transaction,Common Stock should be increased by $120,000.
A)True
B)False
Q2) Which of the following statements best describes the term "par value?"
A) The number of shares currently in the hands of stockholders
B) The amount that must be paid to purchase a share of stock
C) Determined by dividing total stockholder's equity by the number of shares of stock
D) An amount used in determining a corporation's legal capital
Q3) An advantage of the corporate form of business organization is that corporations are free from double taxation.
A)True
B)False
Q4) All corporations are subject to extensive government regulation.
A)True
B)False
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Page 13
Chapter 12: Statement of Cash Flows
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Q1) The three main sections of the statement of cash flows are,in order,operating activities,investing activities,and financing activities.
A)True
B)False
Q2) Which of the following statements best explains the correct handling of depreciation on the statement of cash flows when using the indirect method?
A) Depreciation expense is a noncash expense that is added to net income to derive cash flows from operating activities.
B) Depreciation is subtracted in the cash flows from investing activities section because it reduces the book value of the corresponding plant asset.
C) Depreciation is subtracted from net income because it causes a loss when the related plant asset is sold.
D) Depreciation adds to the company's Cash account to help pay for new equipment.
Q3) Rapid growth of a company can cause it to be short of cash.
A)True
B)False
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14
Chapter 13: The Double-Entry Accounting System
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Q1) When a company receives cash in advance from a customer,it should debit Cash and credit Accounts Receivable.
A)True
B)False
Q2) To record the purchase of supplies on account,an accountant would credit Supplies.
A)True
B)False
Q3) The left side of a T-account is the debit side.
A)True
B)False
Q4) The general journal is a list of a business's accounts and their account numbers.
A)True
B)False
Q5) Source documents provide information that serves as the basis for entries into the accounting system.Examples of source documents include invoices and deposit tickets. A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) In terms of solvency,the larger the number of times interest is earned,the better.
A)True
B)False
Q2) Phips Company paid total cash dividends of $200,000 on 25,000 outstanding common shares.On the most recent trading day,the common shares sold at $80.What is this company's dividend yield?
A) 25%
B) 6.4%
C) 16.9%
D) 10%
Q3) The accounting profession assumes that financial statement users have an expert knowledge of business.
A)True
B)False
Q4) The current ratio is one of the most common measures of solvency.
A)True
B)False
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