Introduction to Financial Accounting Review
Questions
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices involved in preparing, analyzing, and interpreting financial statements. The course covers essential concepts such as the accounting cycle, accruals and deferrals, revenue recognition, and the structure of key financial documents including the balance sheet, income statement, and statement of cash flows. Students will learn how to record business transactions, apply generally accepted accounting principles (GAAP), and assess the financial health of organizations using real-world examples and case studies. This course is essential for those seeking to develop basic accounting skills applicable in business, finance, and management contexts.
Recommended Textbook
Financial and Managerial Accounting Information for Decisions 5th Edition by John J Wild
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Page 2
Chapter 1: Introducing Accounting in Business
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Sample Questions
Q1) Describe the three important guidelines for revenue recognition.
Answer: The three important guidelines for revenue recognition include: (1)Revenue is recognized when earned.(2)Assets received from selling products and services do not need to be in cash.(3)Revenue recognized is measured by cash received plus the cash equivalent of other assets received.
Q2) The accounting principle that requires accounting information to be based on actual cost and requires assets and services to be recorded initially at the amount of cash or cash equivalent given in exchange is the:
A) Accounting equation
B) Cost principle
C) Going-concern principle
D) Realization principle
E) Business entity principle
Answer: B
Q3) Accounting is a ______________________ that identifies,records,and communicates relevant,reliable,and comparable information about an organization's economic activities.
Answer: Information and measurement system (or information system)
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3
Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) The balances for the accounts of Mike's Maintenance,Inc.for the year ended December 31 are shown below.Each account shown had a normal balance.
\(\begin{array}{|l|r|l|r|}
\hline \text { Accounts payable } & \$ 6,500 & \text { Wages expense } & \$ 36,000 \\
\hline \text { Accounts receivable } & 7,000 & \text { Rent expense } & 6,000 \\
\hline \text { Cash } & ? & \text { Retained earnings } & 68,700\\
\hline \text { Maintenance supplies } & 1,200 & & \\
\hline \text { Building } & 125,000 & \text { Land } & 50,000 \\
\hline \text { Supplies expense } & 21,500 & \text { Unearned maintenance fees } & 4,000 \\
\hline \text { Common stock } & 50,000 & &\\
\hline \text { Maintenance revenue } & 175,000 & \text { Dividends } & 48,000 \\ \hline
\end{array}\)
Calculate the correct balance for Cash and prepare a trial balance.
Answer: 11ea8897_df58_f67c_a96f_95ecde98a46e_TB6312_00_TB6312_00_TB6312_00
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4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) During the current year ended December 31,clients paid fees in advance for accounting services amounting to $25,000.These fees were recorded in an account called Unearned Accounting Fees.If $3,500 of these fees are still unearned on December 31 of this year,prepare the December 31 adjusting entry .
Answer: \(\begin{array}{|l|l|l|l|}
\hline \text { Dec. } 31 & \text { Unearned Accounting Fees } & 21,500 & \\ \hline & \text { Accounting Fees Earned } & & 21,500 \\ &(\$ 25,000-\$ 3,500=\$ 21,500) & &\\ \hline \end{array}\)
Q2) On October 15,a company received $15,000 cash as a down payment on a consulting contract.The amount was credited to Unearned Consulting Revenue.By October 31,10% of the services required by the contract were completed.The company will record consulting revenue of $1,500 from this contract for October.
A)True
B)False
Answer: True
Q3) Profit margin equals ___________________ divided by net sales. Answer: net income
Page 5
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Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) Assets tied up in inventory are referred to as nonproductive assets.
A)True
B)False
Q2) A company had sales of $375,000 and gross profit of $157,500.Its cost of goods sold was:
A) $(217,000)
B) $375,000
C) $157,500
D) $217,500
E) $532,500
Q3) When a credit customer returns merchandise,a seller that uses the perpetual system would debit Sales Returns and Allowances and credit Accounts Receivable and also debit Merchandise Inventory and credit Cost of Goods Sold.
A)True
B)False
Q4) A company had net sales of $741,800.Its cost of goods sold must have been _________ to yield a gross profit of $282,884.
Q5) The agreement regarding the amounts and timing of payment from a buyer to a seller are the ____________________.
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Chapter 5: Inventories and Cost of Sales
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Sample Questions
Q1) The inventory turnover ratio:
A) Is used to analyze profitability.
B) Is used to measure solvency.
C) Measures how quickly a company turns over its merchandise inventory.
D) Validates the acid-test ratio.
E) Calculation depends on the company's inventory valuation method.
Q2) The inventory valuation method that tends to smooth out erratic changes in costs is:
A) FIFO
B) Weighted average
C) LIFO
D) Specific identification
E) WIFO
Q3) Net realizable value for damaged or obsolete goods is equal to the sales price plus the cost of making the sale.
A)True
B)False
Q4) The cost of an inventory item includes the _____________,plus ______________ costs necessary to put it in a place and condition for sale.
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7
Chapter 6: Cash and Internal Controls
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Sample Questions
Q1) Given the following information: \(\begin{array}{llll}
\text { Petty cash balance } & \$ 450.00 & \text { Courier receipt } & \$ 82.50 \\
\text { Postage receipt } & \$ 48.00 & \text { Office Supplies receipt } & \$ 56.22\\ \text { Business meal receipt }& \$ 102.34&\text { Cash on hand at the end of the month}& \$ 76.21 \end{array}\)
What is the amount that needs to be reimbursed?
A) $365.27
B) $289.06
C) $373.79
D) $289.00
E) $450.00
Q2) The clerk who has access to the cash in the cash register should not have access to the cash register tape or file.
A)True B)False
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8
Chapter 7: Accounts and Notes Receivable
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Sample Questions
Q1) Sellers generally prefer to receive notes receivable rather than accounts receivable when the credit period is long and the receivable is for a large amount.
A)True
B)False
Q2) A supplementary record created to maintain a separate account for each customer is called the ________________________.
Q3) The _________________________ method uses income statement relationships to estimate bad debts and is based on the idea that a given percent of a company's credit sales for a period are uncollectible.
Q4) Receivables can be used to obtain cash by either selling them or using them as security for a loan.
A)True
B)False
Q5) Explain the basic differences between estimating the amount of uncollectible accounts using the percent of sales method and the accounts receivable method.
Q6) If a 60-day note receivable is dated September 22,what is the maturity date of the note?
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Page 9
Chapter 8: Long-Term Assets
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Sample Questions
Q1) Endor Fishing Company exchanged an old boat for a new one.The old boat had a cost of $260,000 and accumulated depreciation of $200,000.The new boat had an invoice price of $400,000.Endor received a trade in allowance of $100,000 on the old boat,which meant they paid $300,000 in addition to the old boat to acquire the new boat.What amount of gain or loss should be recorded on this exchange? (The exchange lacks commercial substance.)
A) $0 gain or loss
B) $40,000 gain
C) $40,000 loss
D) $60,000 loss
E) $100,000 loss
Q2) A company had average total assets of $897,000.Its gross sales were $1,090,000 and its net sales were $1,000,000.The company's total asset turnover is equal to:
A) 0.82
B) 0.90
C) 1.09 D) 1.11 E) 1.26
Q3) Explain the impact,if any,on depreciation when depreciation estimates change.
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Page 10
Chapter 9: Current Liabilities
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Sample Questions
Q1) The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible.
A)True
B)False
Q2) A company's income before interest expense and income taxes was $395,000 in 2013 and $427,000 in 2014.Its fixed interest expense was $125,000 for both years.Calculate the company's times interest earned ratio and comment on its level of risk.
Q3) Payments of FUTA are made quarterly to a federal depository bank if the total amount due exceeds $1,000.
A)True
B)False
Q4) A payroll register usually shows the pay period dates,hours worked,gross pay,deductions,and net pay of each employee for every pay period.
A)True
B)False
Q5) Explain the accounting procedures that employers must follow for employee payroll deductions.
Q6) Vacation benefits are a type of _______________ liability.
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Chapter 10: Long-Term Liabilities
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Q1) The process of systematically reducing a bond discount to zero over the life of the bond is called ______________________________.
Q2) Walker Corporation issued 14%,five-year bonds with a par value of $5,000,000 on January 1,2013.Interest is to be paid semiannually on each June 30 and December 31.The bonds were issued at $5,368,035 cash when the market rate for this bond was 12%.
(a)Prepare the general journal entry to record the issuance of the bonds on January 1,2013.
(b)Show how the bonds would be reported on Walker's balance sheet at January 1,2013.
(c)Assume that Walker uses the effective interest method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2013.
(d)Assume instead that Walker uses the straight-line method for amortizing any discount or premium on bonds.Prepare the general journal entry to record the first semiannual interest payment on June 30,2013.
Q3) The ____________ concept is the idea that cash paid (or received)in the future has less value now than the same amount of cash paid (or received)today.
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Chapter 11: Corporate Reporting and Analysis
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Sample Questions
Q1) What are the rights generally granted to common stockholders?
Q2) _____________________ is a general term that refers to any shares issued to obtain owner financing in a corporation.
Q3) On May 1,a company's board of directors declared a 10% stock dividend to be distributed on June 1 to the stockholders of record on May 21.The company had 250,000 shares of $10 par value common stock outstanding with a market value of $22 per share.Prepare the journal entries required on May 1,May 21,and June 1.
Q4) When all of the authorized shares have the same rights and characteristics,the stock is called:
A) Preferred stock
B) Common stock
C) Par value stock
D) Stated value stock
E) No-par value stock
Q5) A corporation has $1,750,000 in stockholders' equity and 350,000 shares of common stock outstanding.Calculate the book value per common share.
Q6) Explain how to compute book value per share and discuss how it can be used to analyze the financial condition of a corporation.
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Chapter 12: Reporting Cash Flows
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Q1) Cash flow amounts and their timing should be examined when planning and analyzing operating activities.
A)True
B)False
Q2) The payment of cash dividends to shareholders is classified as a financing activity.
A)True
B)False
Q3) Probably the most important section of the statement of cash flows in analyzing the financial performance of a company's ongoing business is the ____________ section.
Q4) A purchase of land in exchange for shares of stock is disclosed on the statement of cash flows or in a note to the statement.
A)True
B)False
Q5) Companies have the option of using either the direct or indirect method to prepare the operating section of the statement of cash flows.
A)True
B)False
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Page 14
Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) A corporation had cash of $14,000 and total assets of $178,300.On a common-size balance sheet,cash would be reported as 7.85%.
A)True
B)False
Q2) The following current year information is available from a manufacturing company: \[\begin{array} { | l | r | }
\hline \text { Sales } & \$ 640,000 \\
\hline \text { Gross profit on sales } & 276,000 \\
\hline \text { Operating income } & 64,000 \\
\hline \text { Income before taxes } & 44,000 \\
\hline \text { Net income } & 33,600 \\
\hline \text { Accounts receivable, beginnirg-year } & 58,000 \\
\hline \text { Accounts receivable, end-of-year } & 70,000 \\ \hline \end{array}\]
Calculate the company's accounts receivable turnover and its days' sales uncollected.
Q3) Describe the purpose of horizontal financial statement analysis and how it is applied.
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Page 15
Chapter 14: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) How does fraud affect managerial accounting?
Q2) A financial report that summarizes the amounts and types of costs that were incurred in the manufacturing process during the period is a:
A) Materiality statement
B) Managerial statement
C) Manufacturing statement
D) Merchandise statement
E) Monetary statement
Q3) Cost concepts such as variable,fixed,mixed,direct,and indirect apply only to manufacturers and not to service companies.
A)True
B)False
Q4) The process of identifying costs as direct or indirect is referred to as classifying costs by _______________.
Q5) An out-of-pocket cost requires a future cash outlay and is relevant for decision making.
A)True
B)False
Q6) What are prime costs? What are conversion costs?
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Chapter 15: Job Order Costing and Analysis
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Sample Questions
Q1) O.K.Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs.O.K.expects to incur $800,000 of overhead during the next period and expects to use 50,000 labor hours at a cost of $10.00 per hour.What is O.K.Company's overhead application rate?
A) 6.25%
B) 62.5%
C) 160%
D) 1600%
E) 67%
Q2) The overhead allocation rate in Frantz Company's job order cost accounting system applies overhead based on direct labor costs.The company's manufacturing costs for the current year were: direct materials,$108,000; direct labor,$144,000; and factory overhead,$18,000.At year-end,the total cost of goods in process is $36,000,which includes $12,000 of direct labor cost.What amount of direct material cost is included in the ending goods in process inventory?
Q3) A clock card is a source document used by an employee to record the total number of hours worked during the pay period.
A)True
B)False
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Page 17
Chapter 16: Process Costing
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Q1) (a) Why is the Process Cost Summary important to management?
(b) How does the Process Cost Summary accomplish its purposes?
Q2) Process and job order manufacturing operations both combine materials,labor,and overhead items in the process of producing products.
A)True
B)False
Q3) A department had 600 units which were 40% complete in beginning Goods in Process Inventory.During the current period,7,000 units were transferred out.Ending Goods in Process Inventory was 800 units which were 40% complete.Using the FIFO method,what are the equivalent units produced if all direct material and direct labor are added uniformly throughout the process?
A) 7,080
B) 6,960
C) 7,320
D) 7,680
E) 7,800
Q4) What total cost should be assigned to the units that were in the beginning goods in process inventory and completed during August?
Q5) What are the four steps in accounting for production activity in a period?
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Chapter 17: Activity-Based Costing and Analysis
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Sample Questions
Q1) The more activities tracked by activity-based costing,the more accurately overhead costs are assigned.
A)True
B)False
Q2) K Company estimates that overhead costs for the next year will be $2,900,000 for indirect labor and $800,000 for factory utilities.The company uses direct labor hours as its overhead allocation base.If 80,000 direct labor hours are planned for this next year,what is the company's plantwide overhead rate?
A) $.02 per direct labor hour.
B) $46.25 per direct labor hour.
C) $36.25 per direct labor hour.
D) $10 per direct labor hour.
E) $.10 per direct labor hour.
Q3) In activity-based costing,an activity can involve several related tasks.
A)True
B)False
Q4) In competitive markets,price is established through the forces of _______________ and _______________.
Q5) How does ABC differ from using multiple departmental rates?
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Chapter 18: Cost-Volume-Profit Analysis
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Q1) Contribution margin ratio is calculated as the ________________ divided by _____________.
Q2) A cost-volume-profit (CVP)chart is a graph that plots volume on the horizontal axis and costs and sales on the vertical axis.
A)True
B)False
Q3) Three important assumptions in cost-volume-profit analysis is that (1)_______________per unit is constant,(2)_____________ per unit is constant,and (3)______________ are constant in total.
Q4) Assume Moe's Southwest Grill has a break-even point of 24,000 units.At this point,total sales are $1,800,000 and total variable costs are $1,200,000.Compute total fixed costs at the break-even point.
A) $1,800,000
B) $1,200,000
C) $3,000,000
D) $25
E) $ 600,000
Q5) ___________________________ is a statistical method of identifying an estimated line of cost behavior.
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Chapter 19: Variable Costing and Performance Reporting
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Q1) Reporting contribution margin by market segment is useful in assessing the profitability of each segment.
A)True B)False
Q2) The biggest problems with producing too much are lost sales and customer dissatisfaction.
A)True B)False
Q3) Countdown Inc.sold 17,000 units of its product at a price of $81 per unit.Total variable cost per unit is $72.09,consisting of $69.05 in variable production cost and $3.04 in variable selling and administrative cost.Compute the contribution margin for the company.
Q4) Assume a company sells a given product for $83 per unit.Variable selling costs are $20.75 per unit and variable production costs are $49.80 per unit.If the company breaks even when selling 300,000 units,what are total fixed costs?
Q5) Managers should accept special orders provided the special order price exceeds full cost.
A)True B)False
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Chapter 20: Master Budgets and Performance Planning
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Sample Questions
Q1) Lingstat Company is trying to decide how many units of merchandise to order each month.The company's policy is to have 15% of the next month's sales in inventory at the end of each month.Projected sales for August,September,and October are 5,000 units,6,000 units,and 4,000 units,respectively.How many units must be purchased in September?
A) 6,600
B) 6,150
C) 5,850
D) 5,700
E) 6,300
Q2) A ________________________ is a continuously revised budget that adds future months or quarters to replace months or quarters that have lapsed.
Q3) The budgeted balance sheet is prepared with data contained in the previously prepared components of the master budget.
A)True
B)False
Q4) The ___________________________ is prepared by manufacturing firms and takes the place of the purchases budget prepared by merchandising firms.
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Chapter 21: Flexible Budgets and Standard Costs
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Q1) Fixed budget performance reports compare actual results with the expected amounts in the fixed budget.
A)True
B)False
Q2) Variable budget is another name for:
A) Cash budget.
B) Flexible budget.
C) Fixed budget.
D) Manufacturing budget.
E) Rolling budget.
Q3) An internal report that compares actual cost and sales amounts with budgeted amounts and identifies the differences between them as favorable or unfavorable variances is called a:
A) Performance report.
B) Production report.
C) Budget report.
D) Variance report.
E) Standard report.
Q4) Make the necessary general journal entries to record the above standard and actual costs,and all variances.
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Chapter 22: Decentralization and Performance Measurement
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Q1) A responsibility accounting system:
A) Is designed to measure the performance of managers in terms of uncontrollable costs.
B) Assigns responsibility for costs to the top managerial level.
C) Is designed to hold a manager responsible for costs over which the manager has no influence.
D) Can be applied at any level of an organization.
E) Is well suited to work in an environment without clear lines of responsibility and authority.
Q2) What is a transfer price and what methods are used to set its value?
Q3) A __________________________ helps control costs and expenses and evaluates managers' performance by assigning costs and expenses to the managers responsible for controlling them.
Q4) Evaluation of the performance of a department involves only financial measures. A)True
B)False
Q5) When a company has no excess capacity,the use of cost-based transfer pricing is preferred.
A)True
B)False
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Chapter 23: Relevant Costing for Managerial Decisions
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Q1) In a make or buy decision,management should focus on costs that are constant under the two alternatives.
A)True
B)False
Q2) In a constrained resource situation,a company should maximize contribution margin per _______________________________.
Q3) A cost that cannot be avoided or changed because it arises from a past decision,and is irrelevant to future decisions,is called a(n):
A) Uncontrollable cost
B) Incremental cost
C) Opportunity cost
D) Out-of-pocket cost
E) Sunk cost
Q4) The concept of incremental cost is the same as the concept of differential cost.
A)True B)False
Q5) Incremental costs should be considered in a make or buy decision. A)True B)False
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Chapter 24: Capital Budgeting and Investment Analysis
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Q1) A minimum acceptable rate of return for an investment decision is called the:
A) Internal rate of return.
B) Average rate of return.
C) Hurdle rate of return.
D) Maximum rate of return.
E) Payback rate of return.
Q2) A company purchases a machine for $84,000.The machine has an expected life of 12 years and no salvage value.The company anticipates a yearly net income of $41,000 after taxes of 32% to be received uniformly throughout each year.What is the accounting rate of return?
Q3) The calculation of the payback period for an investment when net cash flow is even (equal)is:
A) (Cost of investment)/(Annual net cash flow)
B) (Cost of investment)/(Total net cash flow)
C) (Annual net cash flow)/(Cost of investment)
D) (Total net cash flow)/(Cost of investment)
E) (Total net cash flow)/(Annual net cash flow)
Q4) How can management evaluate the risk of an investment?
Q5) The minimum acceptable rate of return on an investment is called the
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Chapter 25: Accounting With Special Journals
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Q1) The special journals of many accounting systems include all the following except:
A) Sales journal
B) General ledger
C) Purchases journal
D) Cash receipts journal
E) Cash disbursements journal
Q2) Assume that a company using a purchases journal made an error in totaling the journal's columns.The error should be discovered:
A) When the purchases journal is posted to the general ledger.
B) When the trial balance is prepared.
C) When the total of the schedule of accounts payable is compared with the balance of the Accounts Payable account.
D) When the creditors receive their payments.
E) When the financial statements are prepared.
Q3) __________________ processing accumulates source documents for a period of time and then processes them all at once such as daily,weekly,or monthly.
Q4) Explain the purposes,types,and uses of special journals.
Q5) What are the five basic components of accounting information systems?
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Chapter 26: Time Value of Money
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Q1) From the perspective of a depositor,a savings account is a liability with interest.
A)True
B)False
Q2) The present value of 1 formula is often useful when a borrowed asset must be repaid in full at a later date and the borrower wants to know its worth at the future date.
A)True
B)False
Q3) Jon Shear expects an investment of $25,000 to return $6,595 annually.His investment is earning 10% per year.How many annual payments will he receive?
A) Five payments
B) Six payments
C) Four payments
D) Three payments
E) More than six payments
Q4) Daley Co.lends $524,210 to Davis Corporation.The terms of the loan require that Davis repay the loan with six semiannual period-end payments of $100,000 each.What semiannual interest rate is Davis paying on the loan?
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Chapter 27: Investments and International Operations
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176 Verified Questions
176 Flashcards
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Sample Questions
Q1) Explain how transactions (both sales and purchases)in a foreign currency are recorded and reported.
Q2) _________________________ are investments that are both readily converted to known amounts of cash and mature within three months.
Q3) Consolidated financial statements:
A) Show the results of operations, cash flows, and the financial position of all entities under a parent's control.
B) Show the results of operations, cash flows, and the financial position of the parent only.
C) Show the results of operations, cash flows, and the financial position of the subsidiary only.
D) Include the investments account on the balance sheet.
E) Do not include a balance sheet.
Q4) Net profit margin reflects the percent of net income in each dollar of net sales. A)True B)False
Q5) Return on total assets is computed by dividing ___________ by __________.
Q6) Explain how to record the sale of trading securities.
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Chapter 28: Accounting for Partnerships
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Sample Questions
Q1) Partners in a partnership are taxed on _______________________,not on their withdrawals.
Q2) Kathleen Reilly and Ann Wolf decide to form a partnership on August 1.Reilly invested the following assets and liabilities in the new partnership: \[\begin{array} {| l |c| c| } \hline
& \text { Cost / Book Value } & \text { Market Value } \\
\hline \text { Larnd } & \$ 75,000 & \$ 100,000 \\ \hline \text { Buildirg } & \$ 50,000 & \$ 300,000 \\ \hline \text { Nate Payable } & \$ 198,000 & \$ 198,000\\ \hline \end{array}\]
The note payable is associated with the building and the partnership will assume the responsibility for the loan.Wolf invested $60,000 in cash and $105,000 in new equipment in the new partnership.Prepare the journal entries to record the two partner's original investments in the new partnership.
Q3) The life of a partnership is ____________________ in duration.
Q4) During the closing process,each partner's withdrawals account is closed to __________________.
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