Introduction to Financial Accounting Exam Practice Tests
Course
Introduction
Introduction to Financial Accounting provides a foundational understanding of the principles, concepts, and processes involved in recording, summarizing, and interpreting financial information for business entities. The course covers the accounting cycle, including transaction analysis, journal entries, adjusting entries, and the preparation of financial statements such as the balance sheet, income statement, and statement of cash flows. Students will also explore the regulatory framework of financial reporting, the importance of ethical practices in accounting, and the use of financial information in decision-making. By the end of the course, students will be able to analyze basic financial statements and understand the role of accounting in business operations.
Recommended Textbook Fundamentals of Financial Accounting 5th Canadian Edition by Fred Phillips
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Chapter 1: Business Decisions and Financial Accounting
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Sample Questions
Q1) The effects of net income and its distribution on the financial position of the company is reported in:
A)Balance sheet
B)Income statement
C)Statement of retained earnings
D)Statement of cash flows
Answer: C
Q2) There are a number of key concepts for external financing reporting,whether the company is following ASPE or IFRS.To this end,there are six elements to be measured and reported,regardless of what accounting standards a company is following.List these six elements to be measured and reported.
Answer: Assets,Liabilities,Shareholders' Equity,Revenues,Expenses,and Dividends
Q3) When is the financial information \(\bold{relevant}\)?
A)If it makes a difference in decision making.
B)Meets the requirement of Toronto Stock Exchange.
C)If it fully depicts the economic substance of business activities.
D)If it allows management the discretion when to release it to investors and general public.
Answer: A
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Page 3
Chapter 2: The Balance Sheet
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Sample Questions
Q1) A credit to an asset account will cause a decrease in assets on the financial statements.
A)True
B)False
Answer: True
Q2) Which of the following is not an example of a liability?
A)Account receivable.
B)Wages payable.
C)Interest payable.
D)Bonds payable.
Answer: A
Q3) If the total dollar value of credits to an account exceed the total dollar value of debits to that account,the ending balance of the account will be a debit balance.
A)True
B)False
Answer: False
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Chapter 3: The Income Statement
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Sample Questions
Q1) Recording a Debit in an expense account will reduce expenses.
A)True
B)False
Answer: False
Q2) Company's net income is the sole determinant of its value for the period the net income is generated.
A)True
B)False
Answer: False
Q3) Which of the following is true?
A)Credits increase both assets and liabilities.
B)Credits increase expenses and decrease liabilities.
C)Credits increase revenues and decrease expenses.
D)Credits decrease both assets and liabilities.
Answer: C
Q4) Under IFRS and ASPE cash basis accounting can never be used for reporting.
A)True
B)False Answer: False
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Chapter 4: Adjustments, financial Statements, and Financial Results
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Sample Questions
Q1) Accumulated Depreciation:
A)is an expense account.
B)is a liability account.
C)is a regular asset account
D)is a contra-asset account.
Q2) When the future benefits of existing assets are used up in the ordinary course of business:
A)an expense is recorded.
B)a loss is recorded.
C)a credit to a liability is recorded.
D)a debit to assets is recorded.
Q3) At the end of the accounting period:
A)all accounts are closed.
B)temporary accounts are closed; permanent accounts are not.
C)permanent accounts are closed; temporary accounts are not.
D)only accounts with a credit balance are closed.
Q4) An accrual adjustment that increases an asset will include an increase in an expense.
A)True
B)False
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Chapter 5: Fraud, internal Control, and Cash
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Sample Questions
Q1) Internal controls,if properly implemented,can eliminate the opportunity for fraud.
A)True
B)False
Q2) The internal control principle of establishing responsibility occurs when one employee is made responsible for all parts of a process.
A)True
B)False
Q3) When a company makes a sale and accepts a credit card payment from a customer,the company:
A)debits Cash.
B)credits Accounts Receivable.
C)credits Cash.
D)debits Accounts Receivable.
Q4) A bank reconciliation is an internal report prepared to verify the accuracy of both the cash account of a business or individual and the bank statement.
A)True
B)False
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Chapter 6: Merchandising Operations and the Multi-Step
Income Statement
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Sample Questions
Q1) Over a two-year period,Coca-Cola's gross profit percentage went from 70.4% to 69.7%.Which of the following was the cause of this change?
A)Reduced selling prices.
B)Rising product cost as a percentage of sales.
C)Increased competition from Pepsi.
D)All of the answers could have led to the change.
Q2) A company sells three different products.The first costs $8 and sells for $16,the second costs $18 and sells for $45,while the third costs $36 and sells for $120.
A)The gross profit percentages on the individual products are 50%,60%,and 70%,respectively.
B)The third product is the highest margin good.
C)If the company can persuade some customers to switch to the third product,overall gross profit percentage will increase.
D)All of the answers are acceptable.
Q3) Only companies that use a periodic inventory system need to perform a physical count of their inventory.
A)True
B)False
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Chapter 7: Inventory and Cost of Goods Sold
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Sample Questions
Q1) Fill in the blanks below to indicate which inventory costing method causes the value to be higher and which causes it to be lower.Assume that the cost of merchandise is decreasing.
\[\begin{array} { | l | l | l | }
\hline & \text { FIFO } & \text { L.IFO } \\
\hline \text { Cost of Goods Sold } & - & - \\
\hline \text { Ending irventory } & - & - \\
\hline \text { Net Income } & - & - \\
\hline \text { Irventory Tumover } & - & - \\
\hline \text { Days to sell } & - & - \\
\hline
\end{array}\]
Q2) If the inventory turnover ratio increases,the days to sell measure decreases.
A)True
B)False
Q3) First in,first out method
A)assumes the newest goods are the first ones sold.
B)assumes the oldest goods are the first ones sold.
C)is not allowed under ASPE or IFRS.
D)is not allowed under IFRS.
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Chapter 8: Receivables, bad Debt Expense, and Interest Revenue
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Sample Questions
Q1) When interest is calculated for periods shorter than a year,the formula to calculate interest is I = P * R * T,where:
A)I = interest calculated,P = principal,R = annual interest rate,and T = number of months.
B)I = interest calculated,P = principal,R = annual interest rate,and T = (number of months / 12)
C)I = interest calculated,P = principal,R = monthly interest rate,and T = (number of months / 12).
D)none of the choices are correct.
Q2) A company lends its CEO $150,000 for 3 years at a 6% annual interest rate.Interest payments are to be made twice a year.The company initially records the transaction by:
A)debiting Notes Receivable for $150,000 and crediting Cash for $150,000.
B)debiting assets for $150,000 and crediting liabilities for $150,000.
C)debiting Cash for $9,000 and crediting Interest Revenue for $9,000.
D)debiting Interest Receivable for $4,500 and crediting Interest Revenue for $4,500.
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Chapter 9: Long-Lived Tangible and Intangible Assets
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Sample Questions
Q1) Company A uses an accelerated depreciation method while Company B uses the straight-line method.All other things equal,during the first few years of the asset's use,Company B will show which of the following compared to Company A?
A)A smaller fixed asset turnover ratio and a smaller gain on asset disposal.
B)A larger fixed asset turnover ratio and a larger gain on asset disposal.
C)A smaller fixed asset turnover ratio and a larger gain on asset disposal.
D)A larger fixed asset turnover ratio and a smaller gain on asset disposal.
Q2) Assuming two companies use the same accounting methods,other things being equal,the company with a higher fixed asset turnover ratio:
A)has a greater amount invested in fixed assets than a company with a lower fixed asset turnover ratio.
B)has less invested in fixed assets than a company with a lower fixed asset turnover ratio.
C)generates less sales revenue than a company with a lower fixed asset turnover ratio. D)makes better use of its fixed assets to generate revenues than a company with a lower fixed asset turnover ratio.
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Chapter 10: Liabilities
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Sample Questions
Q1) Which of the following is not used to calculate the times interest earned ratio?
A)Net income.
B)Income tax expense.
C)Interest earned on investments.
D)Interest expense.
Q2) On January 1,your company issues a 5-year bond with a face value of $10,000 and a stated interest rate of 7%.The market interest rate is 5%.The issue price of the bond was $10,866.Using the effective interest method of amortization,the interest expense in the first year ended December 31 would be:
A)$700.00
B)$543.30.
C)$667.00
D)$758.80.
Q3) The bond price at issue is determined by A)the company issuing the bonds.
B)financial advisors associated with the issue.
C)investors in the market for the issue.
D)None of the choices are correct.
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Chapter 11: Shareholders Equity
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Sample Questions
Q1) Under IFRS preferred shares are classified as a liability if:
A)The issuing company is contractually obligated to pay dividends or redeem the shares at a future date.
B)The issuing company is contractually obligated to convert them into common shares.
C)They are not classified as a liability.
D)They are issued at a premium over the face value.
Q2) Stock splits and stock dividends have the following effects on retained earnings:
A)Stock splits increase retained earnings,while stock dividends have no impact.
B)Stock dividends decrease retained earnings,while stock splits have no impact.
C)Stock splits and stock dividends both lead to a decrease in retained earnings
D)Stock splits and stock dividends have no impact on retained earnings.
Q3) Company Z has 8 million shares of common shares authorized with a par value of $1 and a market price of $72.There are 4 million outstanding shares.Prepare the journal entry and show the effect on assets,liabilities and shareholders' equity if the company declares and distributes a 10% stock dividend.
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13
Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) The proceeds from sales of investments are reported as cash flows from investing activities.
A)True
B)False
Q2) Cash received from the sale of land would be classified in the statement of cash flows as investing activity.
A)True
B)False
Q3) Which of the following adjusting journal entries would change the Net Cash Flows from Operating Activities line of the statement of cash flows?
A)Recording bad debts expense.
B)Recording depreciation.
C)All of the answers are acceptable.
D)None of the answers are acceptable.
Q4) When the indirect method is used,changes in current liabilities are subtracted while changes in current assets are added to convert net income to net cash flow from operating activities.
A)True B)False
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Chapter 13: Measuring and Evaluating Financial Performance
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Sample Questions
Q1) If you wish to examine the relationships among various items reported in one or more of the financial statements,you are most likely to use:
A)time-series analysis.
B)ratio analysis.
C)horizontal analysis.
D)cross-sectional analysis.
Q2) According to the above Table.Calculate the company's fixed asset turnover ratio for the current year.
A)2.00
B)1.80
C)1.51
D)0.50
Q3) Factors revealed by financial analysis as contributing to going-concern problems include all of the following except,
A)Significant one-time expenses.
B)Insufficient current assets.
C)Insufficient product innovation.
D)Declining sales.
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