Introduction to Financial Accounting Study Guide
Questions
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and techniques used to measure, process, and communicate financial information about economic entities. The course covers key topics such as the accounting cycle, preparation and interpretation of financial statements, the role of Generally Accepted Accounting Principles (GAAP), and the analysis of transactions impacting assets, liabilities, and equity. Emphasis is placed on real-world applications, ethical considerations, and the decision-making value of accounting information for internal and external stakeholders.
Recommended Textbook
Financial Accounting Information for Decisions 6th Edition by John Wild
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16 Chapters
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3236 Flashcards
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Page 2
Chapter 1: Introducing Accounting in Business
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Sample Questions
Q1) Identify the users and uses of accounting information.
Answer: There are two general types of users of accounting information.(1)Internal users are managers and officers of the business.They require information about business activities in order to make decisions about planning,monitoring and control.(2)External users rely on financial statements to make business decisions.These users include lenders and shareholders.Lenders need information for measuring the risk and return of loans.Shareholders need information for assessing the risk and return for owning shares.
Q2) Which of the following statements regarding account classification is true?
A)Assets and revenues are the same thing
B)If employees have not yet been paid for their work,the company has wages payable
C)Retained earnings equal cash which the company has earned and kept
D)Revenue is another term for profit
E)Revenue minus expense equals retained earnings
Answer: B
Q3) The accounting equation can be restated as: Assets - Equity = Liabilities.
A)True
B)False
Answer: True
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3
Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) Unearned revenues are:
A)Revenues that have been earned and received in cash
B)Revenues that have been earned but not yet collected in cash
C)Liabilities created when a customer pays in advance for products or services before the revenue is earned
D)Recorded as an asset in the accounting records
E)Increases to retained earnings
Answer: C
Q2) The trial balance can serve as a replacement for the balance sheet,since debits must balance with credits.
A)True
B)False
Answer: False
Q3) The chart of accounts is a list of all the accounts used by a company and a corresponding identification number.
A)True
B)False
Answer: True
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Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) What are the types of adjusting entries used for accrued expenses and accrued revenues?
Answer: Accrued expenses are expenses that have been incurred but not yet paid for.Adjusting entries for accrued expenses increase expenses and also increase liabilities to recognize that an expense has been incurred but not yet paid.Accrued revenues are revenues that have been earned but not yet received in cash.The adjusting entry recognizes the revenue and also establishes a receivable.
Q2) A post-closing trial balance is a list of permanent accounts and their balances from the ledger after all closing entries are journalized and posted. A)True
B)False Answer: True
Q3) When expenses exceed revenues,there is a net loss and the Income Summary account would have a credit balance. A)True
B)False
Answer: False
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Page 5
Chapter 4: Reporting and Analyzing Merchandising Operations
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Sample Questions
Q1) The adjusting entry to reflect inventory shrinkage is a debit to Income Summary and a credit to Inventory Shrinkage Expense.
A)True
B)False
Q2) A wholesaler is an intermediary that buys products from manufacturers or other wholesalers and sells them to consumers.
A)True
B)False
Q3) Total Company has current liabilities in the amount of $1,250,000 and an acid test ratio of 3 and a current ratio of 7.What is the amount of quick assets that Total Company has on the balance sheet?
A)$8,750,000
B)$ 416,667
C)$3,750,000
D)$1,250,000
E)$2,500,000
Q4) The gross margin ratio equals net sales less ___________ divided by net sales.
Q5) What is inventory shrinkage? How do managers account for shrinkage?
Q6) List the steps of the operating cycle for a merchandiser with credit sales.
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Chapter 5: Reporting and Analyzing Inventories
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Sample Questions
Q1) Given the following information,determine the cost of goods sold at November 30 using the LIFO perpetual inventory method.
November 3: 15 units were purchased at $8 per unit.
November 11: 18 units were purchased at $9.50 per unit.
November 15: 15 units were sold at $45 per unit
November 18: 30 units were purchased at $10.75 per unit
November 30: 20 units were sold at $55 per
Q2) Apply the retail method to the following company information to calculate the cost of the ending inventory for the current period.
\(\begin{array}{|l|r|r|}
\hline &\text { Cost } & \text { Retail } \\
\hline \text { Beginning inventory } & \$ 20,224 & \$ 31,600 \\
\hline \text { Net purchases } & 59,508 & 97,000 \\
\hline \text { Sales } & & 89,000 \\
\hline
\end{array}\)
Q3) Goods on consignment are goods that are shipped by the owner,who is referred to as the _______________,to another party referred to as the
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Page 7
Chapter 6: Reporting and Analyzing Cash and Internal Controls
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Sample Questions
Q1) A company established a petty cash fund in May of the current year and experienced the following transactions affecting the fund during May:
May 1 Establish petty cash account in the amount of $300
May 5 Paid for miscellaneous office supplies in the amount of $53.22
May 9 Reimbursed Human Resource Manager for business lunch,$45.09
May 15 Paid for minor landscaping services,$75.00
May 22 Paid $65.00 for postage
May 31 Counted remaining cash and discovered that $56.34 remained The company decided to increase the petty cash balance to $450.Prepare the journal entry to increase the fund on May 31.
Q2) An NSF check for $17.50 would be recorded as a debit to Cash and a credit to Accounts Receivable.
A)True
B)False
Q3) A company established a petty cash fund of $100 on September 1.On September 10,the petty cash fund was replenished when there was $16 remaining and there were petty cash receipts for: office supplies,$27; courier,$32; and postage,$22.On September 15,the petty cash fund was increased to $125 in total.Record the above transactions in general journal form.
Page 8
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Chapter 7: Reporting and Analyzing Receivables
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Sample Questions
Q1) The accounts receivable turnover ratio indicates how often account receivables are received and collected during the period.
A)True
B)False
Q2) As long as a company accurately records total credit sales information,it is not necessary to have separate accounts for specific customers.
A)True
B)False
Q3) The interest accrued on $3,600 at 7% for 60 days is:
A)$36
B)$42
C)$252
D)$180
E)$420
Q4) If a credit card sale is made,the seller can either debit Cash or debit Accounts receivable when the sale occurs.
A)True
B)False
Q5) Explain the options a company has when converting its receivables to cash.
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Chapter 8: Reporting and Analyzing Long-Term Assets
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Sample Questions
Q1) On April 1,2010,a company discarded a computer that cost $15,000 and that had a useful life of 4 years and a salvage value of $1,000.Using straight-line depreciation,the accumulated depreciation as of December 31,2009 was $10,700.
a. Prepare the journal entry to record depreciation up to the date of disposal of the computer
b. Prepare the journal entry to record the disposal of the computer.
Q2) Most companies use accelerated depreciation for tax purposes as it reduces taxable income due to higher depreciation expense in the early years of an asset's life. A)True B)False
Q3) Ordinary repairs are expenditures that keep assets in normal,good operating condition.
A)True B)False
Q4) ______________________ depreciation charges a varying amount to expense for each period of an asset's useful life depending on its usage.
Q5) Why is the useful life of a plant asset so difficult to predict?
Q6) _____________ are the federal income tax rules for depreciating assets.
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Chapter 9: Reporting and Analyzing Current Liabilities
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Sample Questions
Q1) Gross pay less all deductions is called ____________________.
Q2) Sales taxes payable:
A)Is an estimated liability
B)Is a contingent liability
C)Is a current liability for retailers
D)Is a business expense
E)Is a long-term liability
Q3) On December 1,Martin Company signed a $5,000 3-month 6% note payable,with the principle plus interest due on March 1 of the following year.What amount of interest expense is accrued at December 31 on the note?
A)$0
B)$25
C)$50
D)$75
E)$300
Q4) A company can have a liability even if the amount of the obligation is unknown.
A)True
B)False
Q5) Identify the types of payroll records prepared for each pay period and each employee.
11
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Chapter 10: Reporting and Analyzing Long-Term Liabilities
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Sample Questions
Q1) The _________________________ method of amortizing a bond discount allocates an equal portion of the total bond interest expense to each interest period.
Q2) A company borrowed $300,000 cash from the bank by signing a 5-year,8% installment note.The present value factor for an annuity at 8% for 5 years is 3.9927.Each annuity payment equals $75,137.The present value of the note is:
A)$75,137
B)$94,013
C)$300,000
D)$375,685
E)$1,197,810
Q3) On January 1,2010,Timley issues 2,200,000 of 6%,12-year bonds at a price of 105½.The straight-line method is used to amortize any bond discount.What is the journal entry to record the first interest payment?
Q4) ___________________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.
Q5) _____________________ bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.
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Page 12
Chapter 11: Reporting and Analyzing Equity
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Sample Questions
Q1) A corporation issued 6,000 shares of its $10 par value common stock in exchange for land that has a market value of $84,000.The entry to record this transaction would include:
A)A debit to Common Stock for $60,000
B)A debit to Land for $60,000
C)A credit to Land for $60,000
D)A credit to Contributed Capital in Excess of Par Value,Common Stock for $24,000
E)A credit to Common Stock for $84,000
Q2) A company has 2,000 shares of $1 par value common stock and 200 shares of 5%,$110 par,non-cumulative preferred stock outstanding.The balance in Retained Earnings at the beginning of the year was $500,000.Net income for the current year was $300,000.If the company paid a dividend of $2 per share on its common stock,what is the balance in Retained Earnings at the end of the year?
A)$800,000
B)$805,100
C)$794,900
D)$494,900
E)$194,900
Q3) _________________ is a corporation's own stock that has been reacquired.
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Page 13
Chapter 12: Reporting and Analyzing Cash Flows
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Sample Questions
Q1) Use the following company information to calculate its net cash provided or used by investing activities:
(a)Equipment with a book value of $125,000 and an original cost of $220,000 was sold at a gain of $22,000.
(b)Paid $49,000 cash for a new truck.
(c)Sold land costing $30,000 for $26,000 cash,realizing a $4,000 loss.
(d)Purchased treasury stock for $53,000 cash.
(e)Long-term investments in stock are sold for $41,000 cash,realizing a gain of $3,500.
Q2) The purchase of stock in another company is considered to be a financing activity.
A)True B)False
Q3) Cash paid out for merchandise is considered to be an operating activity.
A)True B)False
Q4) The cash flow on total assets ratio is defined as average total assets divided by operating income.
A)True
B)False
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Page 14
Chapter 13: Analyzing and Interpreting Financial Statements
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Sample Questions
Q1) Explain the purpose of financial statement analysis for both external and internal users.
Q2) The greater the times interest earned ratio,the greater the risk a company is exposed to.
A)True
B)False
Q3) Market prospects are the ability to provide financial rewards sufficient to attract and retain financing.
A)True
B)False
Q4) Ratios can be expressed as a percent,rate or proportion.
A)True
B)False
Q5) _______________ are reports where financial amounts are placed side-by-side in columns on a single statement for analytical purposes.
Q6) The comparison of a company's financial condition and performance to a base amount is known as _____________________________.
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Q7) Describe the purpose of horizontal financial statement analysis and how it is applied.
Chapter 14: Investments and International Operations
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Q1) Management's intent and the marketability of a security determine whether or not a security is classified as a long-term or short-term investment.
A)True
B)False
Q2) Savan Co.purchased 14,000 shares of Briton Corporation's 40,000 shares of common stock on December 31,2009.This represented 35% of Briton's outstanding shares and gave Savan Co.significant influence over Briton's management and operations.On October 11,2010,Briton declared and paid cash dividends of $30,000.On December 31,2010,Briton reported net income of $125,000 for the year.Prepare the journal entries Savan Co.should record to account for its investment in Briton Corporation during 2010.
Q3) Micron owns 35% of Martok.Martok pays a total of $47,000 in cash dividends for the period.Micron's entry to record the dividend transaction would include a:
A)Credit to Long-Term Investments for $16,450
B)Debit to Long-Term Investments for $16,450
C)Debit to Cash for $47,000
D)Credit to Cash for $16,450
E)Credit to Investment Revenue for $47,000
Q4) Explain how to record the sale of trading securities.
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Page 16
Chapter 15: Reporting and Analyzing Partnerships
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Q1) A _________________________ means that at least one partner has a debit balance in his/her capital account at the point of the final distribution of cash.
Q2) Partners can invest both assets and liabilities into a partnership.
A)True
B)False
Q3) Assets invested by a partner into a partnership remain the property of the individual partner.
A)True
B)False
Q4) A partnership agreement:
A)Is not binding unless it is in writing
B)Is the same as a limited liability partnership
C)Is binding even if it is not in writing
D)Does not generally address the issue of the rights and duties of the partners
E)Is also called the articles of incorporation
Q5) Discuss the options for the allocation of income and loss among partners,including with and without a partnership agreement.
Q6) How are partners' investments in a partnership recorded?
Q7) Partner return on equity is calculated as
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Chapter 16: Reporting and Preparing Special Journals
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Sample Questions
Q1) The Mid-west segment of a domestic company had a segment return on assets of 13%.If the revenues and operating income of this segment were $4 million and $1 million,respectively,what is the segment's average total assets amount?
A)$130,000
B)$52,000
C)$30,769,230
D)$7,692,308
E)$23,076,923
Q2) The segment return on assets:
A)Can only be determined for international companies
B)Reflects the profitability of a segment
C)Is difficult to calculate because companies with traded stock are not required to report segment information
D)Is calculated as segment average assets divided by segment operating income
E)Is calculated as segment sales divided by segment average assets
Q3) Account balances in the general ledger and the subsidiary ledgers should be proved for accuracy after posting is complete.
A)True
B)False
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