Introduction to Financial Accounting Final Exam
Questions
Course Introduction
Introduction to Financial Accounting presents students with the fundamental principles and practices of recording, summarizing, and reporting financial transactions for business organizations. The course covers key concepts such as the accounting cycle, preparation of financial statements, and essential accounting standards. Topics include assets, liabilities, equity, revenues, expenses, and the use of accounting information in decision-making. Through practical exercises and real-world examples, students will develop an understanding of how financial data is generated and interpreted, laying the groundwork for further study in accounting and related fields.
Recommended Textbook
Fundamental Financial Accounting Concepts 10th Edition by Thomas P Edmonds
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Page 2
Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) Which of the following cash transactions would not affect total assets?
A)Borrowing cash from a bank
B)Issuing common stock for cash
C)Purchasing land for cash
D)Providing services for cash
Answer: C
Q2) An asset source transaction increases a business's assets and the claims to assets.
A)True
B)False
Answer: True
Q3) What happened as a result of this transaction?
A)The balance in the Cash account on Northern's books decreased,while the balance in the Cash account on South Company's books increased.
B)South Company has a cash inflow from investing activities.
C)Northern Corporation has a cash outflow from financing activities.
D)All of these statements are true.
Answer: A
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Chapter 2: Accounting for Accruals and Deferrals
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Q1) Duluth Co.collected a $6,000 cash advance from a customer on November 1,Year 1 for services to be provided over a six-month period beginning on that date.If the year-end adjustment is properly recorded,what will be the effect of the adjusting entry on Duluth's Year 1 financial statements?
A)Increase assets and decrease liabilities
B)Increase assets and increase revenues
C)Decrease liabilities and increase revenues
D)No effect
Answer: C
Q2) The term "accrual" describes an earnings event that is recognized before cash is received or paid.
A)True
B)False
Answer: True
Q3) The ethical standards for certified public accountants only require that such accountants comply with applicable laws and regulations.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Double-Entry Accounting System
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Sample Questions
Q1) On November 1,Year 1,Shumate Company paid $1,200 in advance for an insurance policy that covered the company for six months.Which of the following will be included in the adjustment required on December 31,Year 1?
A)A debit to Prepaid Insurance for $400
B)A credit to Prepaid Insurance for $400
C)A debit to Insurance Expense for $1,200
D)A credit to Insurance Expense for $1,200
Answer: B
Q2) Which company has the highest return-on-assets ratio?
A)Grumpy.
B)Happy.
C)Doc.
D)They all have equal return-on-assets ratios.
Answer: B
Q3) To record the purchase of supplies on account,an accountant would credit Supplies.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) Butte Company recognized $24,000 of revenue on the cash sale of merchandise that cost $11,000.How will the sale be reported on the statement of cash flows?
A)Cash inflow from investing activities
B)Cash inflow from operating activities
C)Cash inflow from financing activities
D)Cash inflow from principal activities
Q2) With a perpetual inventory system,the cost of merchandise inventory is recognized at the time of purchase.
A)True
B)False
Q3) The return on sales ratio indicates the amount of each sales dollar that is left over after covering the cost of goods sold.
A)True
B)False
Q4) Which of the following is considered a product cost?
A)Utility expense for the current month
B)Salaries paid to the employees of a merchandiser
C)Transportation cost on goods received from suppliers
D)Transportation cost on goods shipped to customers
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Chapter 5: Accounting for Inventories
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Q1) In most businesses,the physical flow of goods occurs on a FIFO basis,but a different cost flow method is allowed under generally accepted accounting principles.
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) During a period of rising inventory prices,a company's cost of goods sold would be higher using the LIFO cost flow method than with FIFO.
A)True
B)False
Q4) Assuming Chase uses a LIFO cost flow method,what is the amount of cost of goods sold for the sales transaction on January 18?
A)$1,150
B)$1,050
C)$1,070
D)$1,130
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7
Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) A business learns about customers' NSF checks through debit memos that are included with the bank statement.
A)True
B)False
Q2) Even a good system of internal controls can be circumvented by collusion among employees.
A)True
B)False
Q3) Which of the following is not one of the nine features of an internal control system?
A)Establishment of clear lines of authority
B)Having employees covered by a fidelity bond
C)Requiring regular vacations for certain employees
D)Customer service comment cards
Q4) After the adjustments identified on the bank reconciliation have been recorded,the ending cash (book)balance reflected in the company's records will equal the true cash balance.
A)True
B)False
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) Many businesses find it more efficient to offer credit directly to customers rather than to accept third-party credit cards.
A)True
B)False
Q2) 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
Q3) What effect will the entry to recognize the uncollectible accounts expense for Year 2 have on the elements of the financial statements?
A)Increase total assets and retained earnings.
B)Decrease total assets and increase retained earnings.
C)Decrease total assets and net income.
D)Increase total assets and decrease net income.
Q4) The collection of an account receivable is an asset source transaction.
A)True B)False
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) On January 1,Year 1,Milton Manufacturing Company purchased equipment with a list price of $88,000.A total of $4,000 was paid for installation and testing.During the first year,Milton paid $6,000 for insurance on the equipment and another $2,200 for routine maintenance and repairs.Milton uses the units-of-production method of depreciation.Useful life is estimated at 100,000 units,and estimated salvage value is $8,000.During Year 1,the equipment produced 13,000 units.What is the amount of depreciation for Year 1?
A)$10,920
B)$11,960
C)$11,700
D)$12,740
Q2) Assuming the company uses the double-declining-balance depreciation method,what are the amounts of depreciation expense and accumulated depreciation,respectively,that would be reported in the financial statements prepared as of December 31,Year 3?
A)$0 and $24,000
B)$960 and $12,000
C)$8,640 and $23,040
D)$5,184 and $28,224
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Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) The Clarion Company provides a one-year warranty on all merchandise it sells.In Year 1,the company recorded sales of $500,000.It estimated that the warranty costs on these sales would amount to $2,000.In July of Year 2,Clarion paid $250 to satisfy a warranty claim.Indicate whether each of the following statements is true or false.
________ a)Clarion's adjusting entry recording the warranty at the end of Year 1 decreased total assets and total stockholders' equity.
________ b)Clarion's adjusting entry recording the warranties at the end of Year 1 increased Clarion's total liabilities.
________ c)The entries,dated in July of Year 2,decreased total assets and net income for Year 2.
________ d)The entries,dated in July of Year 2,decreased Clarion's total liabilities.
________ e)The adjusting entry recorded at the end of Year 1 did not affect Clarion's revenue for the year.
Q2) Independent contractors must be individuals who are employed by another company.
A)True
B)False
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) What is the carrying value of the bond liability at December 31,Year 3?
A)$241,000
B)$242,500
C)$237,500
D)$245,000
Q2) Peak Enterprises issued bonds with a face value of $500,000,receiving cash of $508,000.To record this event,Bonds Payable should be credited for $500,000.
A)True
B)False
Q3) Why are bonds sometimes issued at a discount?
A)The stated rate of interest is higher than the rate being paid on investments in the securities market with comparable risk.
B)The stated rate of interest is the same as the rate being paid on investments in the securities market with comparable risk.
C)The stated rate of interest is lower than the rate being paid on investments in the securities market with comparable risk.
D)The bonds are being issued between interest payment dates.
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Page 12
Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) What is meant by the term "double taxation?"
A)Corporations must pay income taxes on their net income,and their stockholders must pay income taxes on their dividends.
B)In a partnership,both partners are required to claim their share of net income on their tax returns.
C)A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals.
D)A sole proprietorship must pay income taxes to both the state government and the federal government.
Q2) Which of the following entities would have a "Paid-in Capital in Excess" account in the equity section of the balance sheet?
A)A corporation
B)A municipality
C)A sole proprietorship
D)A partnership
Q3) The most commonly reported measure of a company's value is earnings per share.
A)True
B)False
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13
Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) Under the indirect method,which of the following items would be added to net income to determine the cash flow from operating activities?
A)Gain on the sale of equipment
B)Depreciation expense
C)Accrued interest receivable
D)Decrease in the balance of accounts payable
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) Anton Company reported a beginning balance of $13,200 and an ending balance of $14,400 in its Unearned Revenue account for the current year.During the year,$36,000 of revenue (previously unearned)was recognized.Considering only this information,how much cash was received in advance from customers during the year?
A)$36,000
B)$37,200
C)$36,800
D)$27,600
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Page 14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) The study of an individual financial statement item over several accounting periods is called:
A)Horizontal analysis.
B)Vertical analysis.
C)Ratio analysis.
D)Time and motion analysis.
Q2) The accounting profession assumes that financial statement users have an expert knowledge of business.
A)True
B)False
Q3) Assume that you are considering purchasing some of a company's long-term bonds as an investment.Which of the company's financial statement ratios would you probably be most interested in?
A)Debt to assets ratio
B)Debt to equity
C)Plant assets to long-term liabilities
D)All of these answers are correct.
Q4) Working capital is current assets minus current liabilities.
A)True
B)False
Page 15
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