Introduction to Financial Accounting Review
Questions
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices underlying the preparation and interpretation of financial statements. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, accrual-based accounting, and the preparation of income statements, balance sheets, and cash flow statements. Through practical exercises and real-world examples, students develop the skills necessary to analyze financial information, understand the impact of business transactions, and communicate financial results to stakeholders, laying the groundwork for further study or a career in accounting and finance.
Recommended Textbook
Financial and Managerial Accounting 10th Edition by Belverd
E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Corporations represent the largest number of businesses in the United States.
A)True
B)False Answer: False
Q2) The intentional preparation of misleading financial statements is referred to as fraudulent financial reporting.
A)True
B)False Answer: True
Q3) Paying taxes to the government is an example of an operating activity.
A)True
B)False
Answer: True
Q4) The statement of cash flows would disclose the distribution of dividends to stockholders
A)in the financing activities section.
B)in the investing activities section.
C)in the operating activities section.
D)nowhere on the statement.
Answer: A
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Chapter 2: Measurement Concepts: Recording Business Transactions
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Sample Questions
Q1) A transaction should be recorded when title to merchandise passes from the supplier to the purchaser and creates an obligation to pay.
A)True
B)False
Answer: True
Q2) Which of the following accounts would be placed after the debit(s)in a journal entry?
A)Interest Payable,when it has been decreased.
B)Accounts Receivable,when it has been decreased.
C)Unearned Revenue,when it has been decreased.
D)Dividends,when it has been increased.
Answer: B
Q3) Purchase requests and purchase orders are economic events,and as such they affect a company's financial position,and are recognized in the accounting records.
A)True
B)False
Answer: False
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Chapter 3: Measuring Business Income: Adjusting the Accounts
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Sample Questions
Q1) An adjusted trial balance is prepared to
A)test that the ledger is in balance after the accounts have been adjusted.
B)facilitate preparation of the adjusting entries.
C)both test that the ledger is in balance after the accounts have been adjusted and facilitate preparation of the financial statements.
D)facilitate preparation of the financial statements.
Answer: C
Q2) Expenses are incurred
A)to generate revenue.
B)to produce liabilities.
C)only during the adjustment process.
D)to produce assets.
Answer: A
Q3) Almost every revenue or expense account on the income statement has one or more related accounts on the balance sheet.
A)True
B)False
Answer: True
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Chapter 4: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) Classified balance sheets list accounts in alphabetical order.
A)True
B)False
Q2) Faithful representation is comprised of all of the following except
A)Verifiability
B)Completeness
C)Neutrality
D)Free from error
Q3) The current ratio for Cane Construction is
A)1.75.
B)0.57.
C)1.4.
D)2.0.
Q4) General-purpose external financial statements are not primarily intended for A)management.
B)investors.
C)suppliers of goods and services.
D)lending institutions.
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Q5) Why is it important for a company to maintain the same accounting methods and practices from period to period?
Chapter 5: Accounting for Merchandising Operations
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Sample Questions
Q1) The difference between gross sales and net sales is equal to the sum of sales discounts and sales returns and allowances.
A)True
B)False
Q2) Cost of goods sold is a type of expense.
A)True
B)False
Q3) Exchange gains and losses are reported on the income statement.
A)True
B)False
Q4) On the income statement,freight-in is treated as an operating expense.
A)True
B)False
Q5) Interest expense on a mortgage would be classified on a multistep income statement under the heading
A)general and administrative expenses.
B)selling expenses.
C)cost of goods sold.
D)other revenue and expenses.
Q6) Describe how to compute the cost of goods available for sale.
Page 7
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Chapter 6: Inventories
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Sample Questions
Q1) When applying the lower-of-cost-or-market rule to inventory valuation,market generally means
A)original cost,less physical deterioration.
B)replacement cost.
C)original cost.
D)resale value.
Q2) Powell's inventory turnover is 4.8.What is Powell's day's inventory on hand?
A)6 days
B)13 days
C)34 days
D)76 days
Q3) Goods held on consignment should be included in the consignee's ending inventory.
A)True
B)False
Q4) The average-cost method under a periodic inventory system relies on a simple average calculation as total cost of goods available for sale divided by the total units available for sale.
A)True B)False
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Chapter 7: Cash and Internal Control
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Sample Questions
Q1) Merchandising companies do not need as good a system of internal control as service companies.
A)True
B)False
Q2) The use of electronic funds transfers makes check writing unnecessary.
A)True
B)False
Q3) A check for $236 is incorrectly recorded by the company as $263.On the bank reconciliation,the error would
A)appear as a deduction of $27 from the balance per books.
B)appear as an addition of $27 to the balance per bank.
C)appear as a deduction of $263 from the balance per books and an addition of $236 to the balance per bank.
D)appear as an addition of $27 to the balance per books.
Q4) The materiality concept dictates that no internal controls be established over petty cash.
A)True
B)False
Q5) On a balance sheet,what items normally are included in Cash?
Q6) Why do businesses need to keep some currency on hand?
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) At year end,Korkin Design Company has a $900 credit balance in Allowance for Uncollectible Accounts.If an accounts receiving aging method analysis indicates that an estimated $5,700 of year-end receivables are uncollectible,what will be the balance in Allowance for Uncollectible Accounts after the appropriate adjusting entry for uncollectible accounts has been made? Indicate if the balance is a debit or credit.
Q2) The percentage of net sales method of estimating uncollectible accounts is in violation of the matching principle.
A)True
B)False
Q3) Which of the following statements is false regarding promissory notes?
A)They are sometimes used to extend past-due accounts.
B)They can be resold to banks.
C)They must be held by the maker until maturity.
D)They are often received upon the sale of machinery and automobiles.
Q4) How is the account Allowance for Uncollectible Accounts presented in the financial statements,and what purpose does this presentation serve?
Q5) What is a contingent liability,and how does it relate to the discounting of a note receivable at the bank?
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Chapter 9: Long-Term Assets
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Sample Questions
Q1) Which of the following would be considered a capital expenditure?
A)Business vehicle tune-up
B)Equipment maintenance
C)Installation of an air-conditioning system
D)Professional deep cleaning of display room carpet
Q2) The cost of a sewage system should be included in the Land Improvements account.
A)True
B)False
Q3) The primary difference between ordinary and extraordinary repairs is that extraordinary repairs
A)are an expense of the current period.
B)are periodic in nature.
C)are necessary to maintain the asset in good operational condition.
D)extend the useful life or increase the residual value of the asset.
Q4) The production method is an accelerated method of depreciation. A)True
B)False
Q5) The replacement of tires on a truck is considered an ordinary repair.
A)True
B)False
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Kangjon Company allows each employee two weeks' paid vacation after the employee has worked at the company for one year (50 weeks work).On the basis of past experience,management estimates that 80 percent of employees will qualify for vacation pay this year.Assume that the March payroll is $400,000.Compute the vacation pay expense for the month.Show your computation.
Q2) Social Security and Medicare taxes are borne entirely by the employee.
A)True
B)False
Q3) The amount of liabilities relating to payroll,other than Salaries Payable,is
A)$8,356.
B)$7,496.
C)$7,256.
D)$8,596.
Q4) Recording estimated product warranty expense in the year of the sale best follows which of the following accounting principles?
A)Matching
B)Consistency
C)Historical cost
D)Full disclosure
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Chapter 11: Long-Term Liabilities
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Sample Questions
Q1) Under a capital lease,the lessee records both an asset and a liability.
A)True
B)False
Q2) The matching rule dictates that both the accrued interest and the amortization of a premium or discount be recorded at the year end.
A)True
B)False
Q3) When bonds are called for retirement,any excess of the bonds' call price over the bonds' carrying value is reported as a gain on the income statement.
A)True
B)False
Q4) A company with income before income taxes of $194,000,and $20,000 in interest expense,has an interest coverage ratio of
A)10.7 times.
B)8.7 times.
C)9.7 times.
D)1.1 times.
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Chapter 12: Stockholders Equity
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Sample Questions
Q1) All of the following are stockholders' equity accounts except A)Treasury Stock.
B)Preferred Stock.
C)Retained Earnings.
D)Dividends Payable.
Q2) The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder.
A)True
B)False
Q3) Return on equity is measured in terms of A)days.
B)times.
C)a percentage.
D)dollars.
Q4) If there is no change in the number of shares authorized and issued from one year to the next,but there is a change in the number of shares outstanding on those same dates,how would you explain that change?
Q5) Draw two distinctions between accounting for a stock split and accounting for a stock dividend.
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Chapter 13: The Statement of Cash Flows
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Sample Questions
Q1) Purchases and sales of long-term investments for the period should be netted for disclosure in the investing activities section of the statement of cash flows.
A)True
B)False
Q2) A decrease in plant assets shown in the investing activities section of the statement of cash flows would be presented based on the amount of the resulting gain or loss incurred.
A)True
B)False
Q3) When preparing a statement of cash flows using the indirect method,amortization expense is added to net income in the cash flows from operating activities section of the statement of cash flows.
A)True B)False
Q4) Net cash flows from operating activities would be needed to calculate cash flow yield,cash flows to assets,and cash flows to sales.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) A common measure of long-term solvency is the A)receivable turnover.
B)asset turnover.
C)debt to equity ratio.
D)current ratio.
Q2) What is the price/earnings (P/E)ratio for this corporation? Round your answer to two decimal places.
A)5.47 times
B)7.13 times
C)4.80 times
D)6.13 times
Q3) Liquidity ratios are an indication of a company's A)ability to effectively employ its resources.
B)overall debt to equity position.
C)overall debt position.
D)ability to pay bills when they are due and to meet unexpected needs for cash.
Q4) Contrast the circumstances where horizontal analysis would be an effective analysis tool with those where common-sized analysis would be more useful.
Q5) Briefly explain a "big bath" including when it occurs and why it occurs.
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Chapter 15: Managerial Accounting and Cost Concepts
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Sample Questions
Q1) Period cost and product cost are synonymous terms.
A)True
B)False
Q2) Total manufacturing costs incurred during a period are transferred to the
A)Cost of Goods Sold account.
B)Work in Process Inventory account.
C)Finished Goods Inventory account.
D)Overhead account.
Q3) The unit of measurement used in management accounting reports is
A)primarily the historical dollar.
B)usually current replacement cost.
C)any measurement unit that is useful in a particular situation.
D)the measurement unit used by competing companies.
Q4) The overriding goal of a business is to increase the value of the stakeholders' interest in the business.
A)True
B)False
Q5) Product unit cost is made up of direct materials and indirect materials only.
A)True
B)False
17
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Chapter 16: Costing Systems: Job Order Costing
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Sample Questions
Q1) The applied overhead is
A)$31,000.
B)$30,000.
C)$18,000.
D)$62,300.
Q2) In a job order costing system,the transfer of overhead costs to the Work in Process Inventory account must take place before product unit costs can be computed.
A)True
B)False
Q3) Under a job order costing system,the dollar amount of the entry to record the transfer of goods from Work in Process Inventory to Finished Goods Inventory is the total of the costs charged to all jobs
A)started during the period.
B)completed and sold during the period.
C)completed during the period.
D)started and completed during the period.
Q4) Job estimates must be compared with actuals for evaluating performance.
A)True B)False
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Chapter 17: Costing Systems: Process Costing
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Sample Questions
Q1) The number of equivalent units for direct materials is the same as the number for conversion costs.
A)True
B)False
Q2) Lopez Company uses the FIFO process costing method to determine the product unit cost.The company began the period with 1,800 units in beginning inventory.During the period,32,000 units were started and completed.There were 4,000 units in ending inventory at the end of the period.If all direct materials are added at the beginning of the process,the number of equivalent units for direct materials for the period is
A)29,800.
B)28,000.
C)32,000.
D)36,000.
Q3) Under the FIFO costing method,separate unit cost analyses are not used for each accounting period because costs of different periods are averaged.
A)True
B)False
Q4) How are costs recognized,matched,and measured in a process costing system?
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Chapter 18: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Sample Questions
Q1) For a manufacturer,materials storage is a value-adding activity.
A)True
B)False
Q2) Which of the following statements is true of a traditional operating environment?
A)It plans by using pull-through production scheduling.
B)It has long production runs with infrequent setups.
C)It always maintains less or no inventory.
D)It uses a multiskilled work force.
Q3) Which of the following is the major objective of the just-in-time operating environment?
A)To create push-through production
B)To develop a multiskilled work force
C)To substitute automation for manual operations
D)To reduce waste and improve quality and productivity
Q4) Activity-based costing applies only to production-related activities.
A)True
B)False
Q5) Distinguish between a supply chain and a value chain.How do they relate to each other?
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) The relevant range of activity is the range in which actual operations of a company are likely to occur.
A)True
B)False
Q2) Depreciation cost of a controller's computer calculated using the straight-line method is an example of a variable cost.
A)True
B)False
Q3) If fixed costs are $180,000,variable costs are $38 per unit,and the product sells for $70,the breakeven point in sales dollars is $5,625.
A)True
B)False
Q4) If direct materials costs are increased,the breakeven point will decrease.
A)True
B)False
Q5) Explain what cost-volume-profit analysis is and how managers use it.
Q6) Unit fixed costs will be the same regardless of how many units are produced.
A)True
B)False
21
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Chapter 20: The Budgeting Process
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Q1) Participative budgeting results in setting unattainable standards.
A)True
B)False
Q2) Given a planned production of 5,000 units,what are the planned direct materials purchases of Richard?
A)$300,000
B)$258,000
C)$240,000
D)$322,500
Q3) Which of the following forms the base of all operating budgets?
A)Direct materials purchases in units
B)Production budget (units)
C)Capital expenditures budget
D)Unit sales forecast
Q4) When making decisions to purchase new equipment,managers look into the capital expenditure budget of an organization
A)True
B)False
Q5) Describe three benefits budgeting provides to an organization's success.
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Chapter 21: Flexible Budgets and Performance Analysis
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Q1) The effectiveness of a performance management and evaluation system depends on how well it coordinates the goals of
A)the entire company.
B)responsibility centers.
C)managers.
D)All of these choices
Q2) What were the actual sales?
A)$185
B)$35
C)$190
D)$40
Q3) The balanced scorecard is a framework that links the perspectives of an organization's stakeholders with its
A)goals and vision,performance goals,strategic plan,and financial resources.
B)mission and overall plan,performance measures,departmental plans,and resources.
C)mission and vision,performance measures,strategic plans,and resources.
D)mission and vision,performance goals,overall plan,and resources.
Q4) Write a brief note on the performance-based pay.
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Chapter 22: Standard Costing and Variance Analysis
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Q1) Powerhorse Inc.manufactures steel hitches for horse trailers.The company's direct labor rates have been set by the terms of the current labor contract.Direct labor rate standards have been assigned for each job classification.In July 2014,a young apprentice was being trained during regular working hours to become a machine operator on one of the turret lathes.A timekeeper determined that the apprentice had spent a total of 48 hours as a novice machine operator in July.Standard time for the same work output is 34 hours.The apprentice earned $6.80 per hour in July.The standard direct labor rate for machine operators working on turret lathes is $9.50 per hour.
a.From the data provided,determine the direct labor efficiency variance and the direct labor rate variance that resulted from the temporary substitution of the apprentice for the regular machine operator.(Note that,according to the labor contract,the apprentice is not entitled to the same rate as a regular machine operator during the training period. )
b.Did the company benefit financially from the situation? Why or why not? (Show calculations. )
Q2) Discuss the keys to preparing a performance report based on standard costs and related variances.
Q3) Mention a few reasons for an unfavorable direct labor cost variance.
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Chapter 23: Short-Run Decision Analysis
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Q1) What is the operating income from further processing for Wood Cleaner?
A)$0.25.
B)$0.50
C)$0.75
D)$1.00
Q2) Information that is the same for all alternatives is considered relevant to the decision process.
A)True
B)False
Q3) Courtney Sinclaire is trying to rent a new bicycle.She has narrowed her choices to two lease arrangements,each with unique characteristics.Bike Superior would rent for $220 per year,and Bike Deluxe's annual rent would be $250.Bike Superior would need a new seat costing $35 and new racing tires costing $95.The old seat and tires could be sold for $30.Bike Deluxe is fully equipped but would need to be painted at a cost of $110.Maintenance and upkeep on both bikes would average $60 per year.
a.Identify the relevant data in this problem.
b.Prepare an incremental analysis for Courtney to aid her in this decision.
c.What decision should Courtney make?
Q4) What information does a manager need to gather for a make-or-buy decision?
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Chapter 24: Capital Investment Analysis
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Q1) Using the above information for Memphis,the machine's net present value is
A)$21,800.
B)$(3,285).
C)$79,915.
D)$(4,286).
Q2) The accounting rate-of-return method is widely used to measure the estimated performance of a capital investment,primarily because it uses time value of money concepts.
A)True
B)False
Q3) The minimum rate of return is also known as the hurdle rate.
A)True
B)False
Q4) Describe the net present value method of evaluating capital investment proposals.What is its main advantage?
Q5) Discounting calculates the __________ value of an amount to be received.
A)future
B)compounded
C)present
D)book
26
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Chapter 25: Pricing Decisions, including Target Costing and Transfer Pricing
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Q1) What should be the transfer price for the part using the market-price approach?
A)$16.35
B)$16.44
C)$19.00
D)$22.80
Q2) Market research shows potential customers will buy a particular product at a selling price of $2,590.If the desired profit is 40 percent of target cost,the company should make the product if the cost does not exceed
A)$1,036.
B)$1,554.
C)$1,850.
D)$1,992.
Q3) An internal issue to be considered when setting a price is A)whether there is a sole source or heavy competition.
B)total demand for the product or service.
C)the quality of material and labor.
D)the number of competing products or services.
Q4) Both internal and external factors can influence the pricing decision.
A)True B)False
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Chapter 26: Quality Management and Measurement
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Sample Questions
Q1) Compute delivery cycle time for Week 3.
A)3.3 days
B)5.7 days
C)6.7 days
D)9.1 days
Q2) The organization that promotes improvement in quality worldwide is called the International Organization for Standardization.
A)True
B)False
Q3) Which of the following is awarded to businesses and organizations in Europe that excel in quality management?
A)EFQM Excellence Award
B)Deming Prize
C)Malcolm Baldrige National Quality Award
D)ISO 9000 Award
Q4) A drawback of Six Sigma quality is diminishing worker moral.
A)True
B)False
Q5) Briefly identify the awards and organizations that promote quality in industry today.
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Chapter 27: Accounting for Unincorporated Businesses
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Q1) When a partner invests a noncash asset into the partnership,the partner's Capital account is debited and an asset account is credited.
A)True
B)False
Q2) If the partnership agreement does not describe the method of income and loss distribution,the partners must share income and losses equally.
A)True
B)False
Q3) Sara invests $120,000 for a 30 percent interest in a partnership in which the other partners have capital totaling $200,000 before admitting Sara.After distribution of the bonus,what is Sara's capital balance?
A)$60,000
B)$96,000
C)$120,000
D)$144,000
Q4) There is no income tax imposed on a partnership.
A)True
B)False
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Chapter 28: Accounting for Investments
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Q1) For available-for-sale securities,an unrealized loss on long-term investments appears as part of other comprehensive income (loss)in the company's financial statements.
A)True
B)False
Q2) Distinguish between the financial statement presentation of unrealized gains and losses related to trading securities and the financial statement presentation of unrealized gains and losses related to available-for-sale securities.
Q3) Unrealized Loss (Gain)on Short-Term Investments is a contra-asset account that will appear on the balance sheet.
A)True
B)False
Q4) An influential but noncontrolling investment is defined as ownership of between 20 to 50 percent of the stock of another company.
A)True
B)False
Q5) The following transactions and information pertain to Graczyk Corporation for 2014.Prepare journal entries to record these transactions (omit explanations):
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