Introduction to Financial Accounting Final
Exam Questions
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of accounting principles and practices used in business today. The course explores the accounting cycle, including the recording, summarizing, and reporting of financial transactions, and emphasizes the preparation and interpretation of key financial statements such as the balance sheet, income statement, and cash flow statement. Students will learn how financial information is utilized in decision-making by various stakeholders and will develop essential skills in analyzing and interpreting financial data for effective business management.
Recommended Textbook
Financial Accounting 12th Edition by C. William Thomas
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) 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
Q2) The accounting process begins and ends with people making decisions.
A)True
B)False
Answer: True
Q3) In 1990,Johnson Company purchased a building for $170,000.In 2020,a real estate professional says the building has a fair value of $1,000,000.In 2020,a similar building down the street recently sold for $900,000.What value,before consideration of accumulated depreciation,is reported for the building on the balance sheet at December 31,2020?
A)$170,000
B)$585,000
C)$900,000
D)$1,000,000
Answer: A
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) Which account includes balances in multiple checking accounts?
A)Accounts Receivable
B)Notes Receivable
C)Cash
D)Prepaid Expenses
Answer: C
Q2) A partner in Sturm Company purchased a new yacht,for personal use,with his own funds.Sturm Company would:
A)debit an asset account.
B)credit a revenue account.
C)credit a liability account.
D)not record the transaction in its books.
Answer: D
Q3) A transaction is any event that has a financial impact on the business and that can be measured reliably.
A)True
B)False
Answer: True
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) At the end of the accounting period,a company has accrued interest revenue that will not be received until the next accounting period.The adjusting entry would include a:
A)debit to Interest Expense.
B)debit to Interest Payable.
C)debit to Interest Revenue.
D)debit to Interest Receivable.
Answer: D
Q2) In lieu of using the Trial Balance Worksheet to prepare the financial statements,an accountant can use the:
A)journal.
B)ledger.
C)prior period financial statements.
D)prior period audit report.
Answer: B
Q3) The adjusting entry,to recognize salaries that are owed to employees,increases net income and increases liabilities.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) ________ rearranges messages by a mathematical formula making the message impossible to read by someone who does not know the code.
A)Encryption
B)Firewall
C)Security wall
D)Access device
Q2) Enron Corporation committed fraudulent financial reporting by:
A)reporting expenses as plant assets.
B)overstating profits through bogus sales of nonexistent assets with inflated values.
C)bribing employees of the Securities and Exchange Commission.
D)all of the above
Q3) A company can limit employees' access to assets by:
A)keeping the supply of unused checks under lock and key.
B)processing the company's cash payments through one employee who handles the bookkeeping and the check preparation.
C)allowing persons who have record-keeping responsibilities be part of the mailroom function.
D)all of the above.
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6
Chapter 5: Receivables and Revenue
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Q1) A debtor and a creditor record the same note,respectively,as a:
A)note receivable and note payable.
B)note receivable and account receivable.
C)note payable and note receivable.
D)note payable and account payable.
Q2) Revenue should be recognized when it is earned,and not before.
A)True
B)False
Q3) Days' sales in receivables is also called:
A)days' sales outstanding
B)collection period
C)accounts receivable turnover
D)A and B
Q4) When goods are shipped FOB destination:
A)revenue is recognized when the goods leave the shipping dock.
B)revenue is recognized when the invoice is mailed to the customer.
C)revenue is recognized only after cash payment is received.
D)revenue is recognized when the goods are received by the customer.
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Chapter 6: Inventory Cost of Goods Sold
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Q1) A LIFO liquidation occurs when ________ fall(s)below the ending inventory quantities in the previous period.
A)beginning inventory quantities
B)ending inventory quantities
C)beginning inventory costs
D)ending inventory retail value
Q2) To determine the cost of ending inventory using the LIFO method:
A)the latest purchase costs are used.
B)the specific unit cost of the inventory is used.
C)the average cost of the inventory is used.
D)the beginning inventory and earliest purchase costs are used.
Q3) An inventory turnover of 3.65 means that,on average,items of inventory sat on a retailer's shelves for 100 days before being sold.
A)True
B)False
Q4) A company can use the cost-of-goods-sold model to determine how much inventory to purchase.
A)True
B)False
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Chapter 7: Plant Assets, natural Resources, Intangibles
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Q1) Return on assets measures:
A)how much the entity earned for each dollar of assets invested by both stockholders and creditors.
B)net profit margin ratio times total asset turnover.
C)profitability of a company's core business operations.
D)A and B.
Q2) The impairment test for long-term assets applies to:
A)tangible long-term assets.
B)intangible long-term assets.
C)all assets.
D)A and B.
Q3) If a company has goodwill on its books,the goodwill:
A)is amortized over 40 years or useful life,whichever is less.
B)is tested for impairment annually.
C)may have been internally created.
D)may be written up to fair value.
Q4) The book value of an asset cannot be less than its residual value.
A)True
B)False
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Chapter 8: Current and Contingent Liabilities
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Q1) At January 1,2019,the Accrued Warranty Payable is $1,000.During 2019,the company recorded Warranty Expense of $19,100.During 2019,the company replaced defective products in accordance with product warranties at a cost of $12,400.What is the Accrued Warranty Payable at December 31,2019?
A)$6,700
B)$7,700
C)$20,100
D)$19,100
Q2) When calculating accounts payable turnover,if there is not a material difference between the company's beginning inventory and ending inventory,then the accounts payable turnover will be ________ whether purchases or cost of goods sold are used.
A)similar
B)unavailable
C)drastically different
D)noncomparable
Q3) Accounts payable turnover is an important measure of liquidity for a retail business.
A)True
B)False
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Chapter 9: Long-Term Liabilities
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Q1) Under the effective-interest method,the amount of bond discount amortized each interest period is equal to the:
A)amount of interest expense less the cash paid for interest.
B)amount of interest expense plus the cash paid for interest.
C)face value of the bond times the stated interest rate.
D)face value of the bond times the market interest rate at the date of issue.
Q2) The carrying amount of bonds issued at a discount is calculated by:
A)subtracting Discount on Bonds Payable from Bonds Payable.
B)subtracting the sum of Discount on Bonds Payable and Interest Payable from Bonds Payable.
C)subtracting Interest Payable from Bonds Payable.
D)subtracting Interest Expense from Bonds Payable.
Q3) If bonds are issued at a premium,the carrying value of the bonds will be greater than the face value of the bonds for all interest periods prior to the bond's maturity date.
A)True
B)False
Q4) Lease payments are paid by the lessor.
A)True
B)False
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Chapter 10: Stockholders Equity
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Q1) Smith Corporation purchases 50,000 shares of its own $10 par value common stock for $60 per share.What will be the effect on stockholders' equity?
A)increase $500,000
B)decrease $500,000
C)increase $3,000,000
D)decrease $3,000,000
Q2) Miller Corporation issued 6000 shares of its $5 par value common stock in payment for attorney services billed at $54,000.Miller Corporation's stock has been actively trading at $9 per share.The journal entry for this transaction would include a credit to:
A)Paid-in Capital in Excess of Par-Common for $54,000.
B)Paid-in Capital in Excess of Par-Common for $24,000.
C)Legal Expense for $54,000.
D)Common Stock for $54,000.
Q3) In most cases,stockholders are more concerned about the par value of a stock than any other value.
A)True
B)False
Q4) What is the formula for the price-earnings ratio? What does this ratio measure?
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Page 12
Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) On January 1,2019,plant assets,net are $200,000.On December 31,2019,plant assets,net are $250,000.Depreciation expense for the year is $20,000.During the year,plant assets were acquired for $155,000 with cash.There is a Gain on sale of plant asset of $8000.What is the book value of the plant asset sold during the year?
A)$0
B)$77,000
C)$85,000
D)$105,000
Q2) Zimbalist Corporation reports a decrease in salaries payable of $3000.If salaries expense totaled $189,000 for the year,the cash paid to employees is:
A)$3000.
B)$186,000.
C)$189,000.
D)$192,000.
Q3) If a company reports high net income,it may still have difficulty paying its bills.
A)True B)False
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) When computing trend percentages:
A)the current year is always equal to 100%.
B)the base year is always the current year.
C)the base year is always equal to 100%.
D)the base year is equal to the current year plus the previous year divided by two.
Q2) Benchmarking common size variables against a key competitor provides meaningful information only if the companies are similar in size.
A)True
B)False
Q3) The amount of a company's net income earned for each share of its outstanding common stock is termed the:
A)return on equity.
B)price/earnings ratio.
C)earnings per share.
D)dividend yield.
Q4) In general,the larger the working capital,the better the ability to pay debts.
A)True
B)False
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Page 14
Chapter 13: Investments
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Questions
Q1) On January 1,2018,Winston Company purchased 4% bonds with a face value of $80,000 for par.Winston Company intends to hold the bonds until maturity and has the ability to do so.Interest is payable semiannually on July 1 and January 1.The company's fiscal year ends on December 31.The company uses the straight-line amortization method for discounts and premiums.The journal entry on December 31,2018 is:
A)debit Interest Receivable for $3,200 and credit Held-to-Maturity Investment in Bonds $3,200.
B)debit Cash for $1,600 and credit Interest Revenue for $1,600.
C)debit Interest Receivable for $1,600 and credit Interest Revenue for $1,600.
D)debit Interest Receivable for $1,600 and credit Held-to-Maturity Investment in Bonds $1,600.
Q2) In consolidation accounting,a year-end elimination entry is required to add the subsidiary company's stockholders' equity accounts to those of the parent company.
A)True B)False
Q3) At maturity,the carrying amount of a bond should be equal to its face value. A)True B)False
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Chapter 14: Time Value of Money
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Sample Questions
Q1) The future value of an investment that pays interest will always be:
A)equal to the investment.
B)greater than the investment.
C)less than the investment.
D)equal to the interest rate.
Q2) The term future value means the sum of money that an investment will be "worth" at a specified time in the future,assuming a certain interest rate.
A)True
B)False
Q3) The time value of money plays a key role in measuring the value of certain long-term investments as well as long-term debt.
A)True
B)False
Q4) Most businesses ignore compound interest when calculating interest on debt or investments.
A)True
B)False
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