Introduction to Financial Accounting Test
Questions
Course Introduction
Introduction to Financial Accounting provides an essential foundation in the concepts, principles, and techniques used to prepare and interpret the financial statements of organizations. Covering topics such as the accounting cycle, recording of business transactions, accrual accounting, and ethical considerations, this course equips students with the skills necessary to analyze financial data and make informed business decisions. Emphasis is placed on understanding the structure and content of the balance sheet, income statement, and cash flow statement, as well as the impact of various accounting policies on financial reporting.
Recommended Textbook
Financial Accounting 10th Edition by Walter T. Harrison
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2111 Verified Questions
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Accounting is moving in the direction of reporting more and more assets and liabilities at their fair values.
A)True
B)False
Answer: True
Q2) When total expenses exceed total revenues,the result is:
A)a net profit.
B)a net loss.
C)a dividend.
D)excess cash.
Answer: B
Q3) The major types of transactions that affect retained earnings are:
A)paid-in capital and common stock.
B)assets and liabilities.
C)revenues,expenses,and dividends.
D)revenues and liabilities.
Answer: C
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Page 3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) Accounts receivable is increased with a credit.
A)True
B)False
Answer: False
Q2) We have used transaction analysis and the accounting equation to record several transactions for a company.The transactions are now recorded on a multi-column spreadsheet of the assets,liabilities and stockholders' equity of the company.If you wanted to prepare a balance sheet with this spreadsheet,which column(s)would you use?
A)final balances of asset columns only
B)final balances of liability columns only
C)final balances of stockholders' equity columns only
D)all of the above
Answer: D
Q3) The trial balance is used to prepare the:
A)balance sheet only.
B)income statement only.
C)statement of retained earnings only.
D)all of the above.
Answer: D
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) A deferral is an adjustment for the receipt of cash in advance of providing services.
A)True
B)False
Answer: True
Q2) The net income or loss is calculated on which financial statement?
A)Statement of retained earnings
B)Income statement
C)Balance sheet
D)Dividends statement
Answer: B
Q3) Which account is credited in the adjusting entry to allocate the cost of equipment to an expense account?
A)Equipment Expense
B)Depreciation Expense
C)Accumulated Equipment
D)Accumulated Depreciation
Answer: D
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) ________ is the most common fraud,but ________ is the most expensive fraud.
A)Fraudulent financial reporting,misappropriation of assets
B)Misappropriation of assets,fraudulent financial reporting
C)Misappropriation of assets,cooking the books
D)Cooking the books,misappropriation of assets
Q2) A malicious program that enters program code without consent and performs destructive actions in the victim's computer files or programs is a(n):
A)encryption device.
B)phishing expedition.
C)computer virus.
D)fidelity bond.
Q3) The treasurer is solely responsible for the petty cash fund.
A)True
B)False
Q4) The duties of purchasing goods and receiving the goods should be given to the same employee.
A)True
B)False
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) The principal amount of a note is the amount borrowed by the creditor.
A)True
B)False
Q2) Lennon Company signed a 12-month,$50,000,8% note on June 1,2015.The amount of interest to be accrued on December 31,2015,is (round to nearest dollar):
A)$333.
B)$1,667.
C)$2,333.
D)$4,000.
Q3) The balance in the Allowance for Uncollectible Accounts is considered prior to the year-end adjustment under:
A)the direct write-off method.
B)the percent-of-sales method.
C)the aging-of-receivables method.
D)both the percent-of-sales and aging-of-receivables methods.
Q4) The higher the quick ratio,the easier it is to pay current liabilities.
A)True
B)False
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Beginning inventory and ending inventory have opposite effects on cost of goods sold.
A)True
B)False
Q2) The inventory method used by a company affects:
A)net income on the income statement.
B)the income taxes to be paid.
C)the ending inventory on the balance sheet.
D)all of the above.
Q3) The gross profit percentage is calculated as:
A)cost of goods sold divided by net sales revenue.
B)net sales revenue minus gross profit on sales.
C)net sales revenue minus cost of goods sold.
D)gross profit divided by net sales revenue.
Q4) Under the ________ method,ending inventory is based on the costs of the most recent purchases.
A)average-cost
B)FIFO
C)LIFO
D)specific-identification
Page 8
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Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) On January 2,2013,Saminski,Inc.,acquired equipment for $200,000.The estimated life of the equipment is 5 years.The estimated residual value is $30,000.What is the Accumulated Depreciation of the equipment on December 31,2014,if Saminski uses the double-declining-balance method of depreciation?
A)$68,000
B)$80,000
C)$108,800
D)$128,000
Q2) A company exchanges an old machine for a new machine and cash is paid for the new machine.Assume there is a Gain on Exchange of Machine.In the journal entry to record the exchange by the owner of the old machine,what accounts will the accountant debit?
A)Machine and Accumulated Depreciation
B)Cash and Machine
C)Accumulated Depreciation,Cash and Machine
D)Accumulated Depreciation,Cash,Machine and Gain on Exchange of Machine
Q3) The book value of an asset cannot be less than its residual value.
A)True
B)False
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Page 9
Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) On a worksheet for a consolidated balance sheet,one elimination entry:
A)debits notes payable to supplier and credits notes receivable from vendor.
B)debits notes payable to customer and credits notes receivable from customer.
C)debits the subsidiary's stockholders' equity accounts and credits the parent company's Investment in Subsidiary account.
D)debits the parent company's Investment in Subsidiary account and credits the subsidiary's stockholders' equity accounts.
Q2) On January 1,2014,bonds with a face value of $100,000 were sold.The bonds mature on January 1,2024.The stated rate of interest is 9% annually.The bonds pay interest semiannually on July 1 and January 1.The market rate of interest is 10% annually.What is the market price of the bonds? The present value of 1 for 20 periods at 5% is 0.377.The present value of an ordinary annuity of $1 for 20 periods at 5% is 12.462.The present value of 1 for 10 periods at 10% is 0.386.The present value of an ordinary annuity of $1 for 10 periods at 10% is 6.145.
A)$93,779
B)$93,905
C)$100,000
D)$102,000
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Chapter 9: Liabilities
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Sample Questions
Q1) The market interest rate is also referred to as the:
A)contractual rate.
B)coupon rate.
C)effective rate.
D)stated rate.
Q2) Following the DuPont analysis model,the higher the leverage ratio,the higher the:
A)net profit margin ratio.
B)return on assets.
C)return on sales.
D)return on stockholders' equity.
Q3) The journal entry to record accrued interest on a short-term note payable must include a debit to:
A)Interest Payable and a credit to Cash.
B)Interest Expense and a credit to Cash.
C)Interest Expense and a credit to Interest Payable.
D)Interest Payable and a credit to Notes Payable.
Q4) The account Premium on Bonds Payable increases the issuer's liabilities.
A)True
B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Dolanski Company declares and distributes a 50% common stock dividend when it has 20,000 shares of $10 par common stock outstanding.The market price per share is $50 at the date of declaration.What journal entry is prepared?
A)debit Retained Earnings $500,000,credit Common Stock $100,000 and credit Paid-in Capital in Excess of Par-Common $400,000
B)debit Retained Earnings $500,000,credit Paid-in Capital in Excess of Par-Common $500,000
C)debit Retained Earnings $500,000 and credit Common Stock $500,000
D)debit Retained Earnings $100,000 and credit Common Stock $100,000
Q2) The Statement of Stockholders' Equity has separate columns for:
A)each revenue and expense account.
B)each asset account.
C)each liability account.
D)each stockholders' equity account.
Q3) Passed dividends on cumulative preferred stock are considered to be a liability.
A)True B)False
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Page 12
Chapter
11: Evaluating
Earnings Quality, the Income Statement, the Statement of Comprehensive Income
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Sample Questions
Q1) Items of comprehensive income,other than net income,do not enter into the determination of earnings per share.
A)True
B)False
Q2) Income tax expense is used to calculate income from operations.
A)True
B)False
Q3) Comprehensive income includes net income plus:
A)Unrealized Gains on Investments in Available-for-Sale Securities.
B)Foreign-Currency Transaction Gain.
C)Realized Gains on Investments in Available-for-Sale Securities.
D)Unrealized Gains on Investments in Trading Securities.
Q4) The loss incurred as a result of the impairment of goodwill should be reported as:
A)part of discontinued operations.
B)an operating expense.
C)other expenses and losses.
D)an extraordinary item.
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) All of the following may appear as an adjustment of net income when preparing the statement of cash flows using the indirect method EXCEPT:
A)payment of cash dividends.
B)depreciation expense.
C)loss on sale of long-term assets.
D)an increase in accounts payable.
Q2) Which of the three types of activities reported on the statement of cash flows is the most critical for a company's long-term survival?
A)Investing activities
B)Operating activities
C)Financing activities
D)Noncash investing and financing activities
Q3) Increases and decreases in the long-term assets are reported on the statement of cash flows as:
A)operating activities.
B)investing activities.
C)financing activities.
D)noncash activities.
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14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) What is accounts payable turnover?
A)A ratio calculated as Purchases divided by ending balance in Accounts Payable.
B)A ratio calculated as Cost of Goods Sold divided by average Accounts Payable.
C)A ratio calculated as Purchases divided by average Accounts Payable.
D)B and C
Q2) American Furniture Company has an accounts receivable turnover ratio of 20 while the industry average is 10.What can be said about American Furniture Company's accounts receivable turnover ratio?
A)American Furniture Company collects accounts receivable slower than the industry average.
B)American Furniture Company collects accounts receivable faster than the industry average.
C)American Furniture Company may have a credit policy that is too lenient in granting credit to new customers.
D)American Furniture Company may have a lax credit department.
Q3) Usually new companies have a lower cost of capital.
A)True B)False
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