Introduction to Financial Accounting Final
Test Solutions
Course Introduction
Introduction to Financial Accounting provides students with a comprehensive foundation in the principles and practices of financial accounting. The course covers the accounting cycle, including the analysis and recording of business transactions, preparation of financial statements, and understanding of fundamental accounting concepts such as assets, liabilities, equity, revenue, and expenses. Emphasis is placed on the use of accounting information for decision-making by internal and external stakeholders, interpretation of financial reports, and adherence to generally accepted accounting principles (GAAP). Students also gain practical skills in using accounting software and develop a critical understanding of the ethical and regulatory framework governing financial reporting.
Recommended Textbook
Financial Accounting 1st Canadian Edition by
Jeffrey Waybright
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Page 2
Chapter 1: Business, Accounting, and You
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Sample Questions
Q1) A Canadian publicly traded enterprise use which reporting standard?
A) Accounting Standards for Private Enterprises.
B) International Financial Reporting Standards
C) Accounting Standards for Not-for-Profit Organizations
D) Accounting Standards for Pension Plans
E) Accounting Standards for Canadian Accounting
Answer: B
Q2) Financial statements are prepared primarily for internal company use.
A)True
B)False
Answer: False
Q3) Simon's Graphic Design Company had the following transactions in the month of April. After analyzing, state the impact on cash.
Example: April 5 Completed services for customers who paid cash.
Example:
Answer: April 8 No impact on cash. Increased in assets via account receivable.
April 20 No impact on cash. Increase in liabilities via account payable.
April 31 Increase in cash. No impact on assets. Already increased on April 8th with accounts receivable.
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Page 3
Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) Monies owed to a company on a written promise to pay a fixed amount of money by a certain date would be called a __________.
Answer: note payable
Q2) Prepare general journal entries for the following business transactions
Identify each transaction by date. Explanations and posting reference are not required.
Dec 1. Received $35,000 cash for issuing common shares.
2. Purchased machinery for $50,000, paying $15,000 in cash and giving a note payable for the remainder.
10. Paid $3,000 for a one-year insurance policy.
11. Billed customers for $21,500 of services provided on account.
15. Paid monthly rent of $2,500.
16. Performed $17,000 of services and immediately received $7,000 cash.
22. Hired an administrative assistant. Weekly wages are $750 per week.
25. Collected $8,000 from customers on account.
31. Paid the administrative assistant the first week's salary.
Answer: 11ea4bf1_a922_7300_a578_3bb5b584db70_TB2774_00
Q3) What is the normal account balance for revenue, accounts receivable, and common shares?
Answer: credit, debit, and credit, respectively.
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Page 4
Chapter 3: Adjusting and Closing Entries
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Sample Questions
Q1) The adjusted trial balance total:
A) is equal to the unadjusted trial balance total.
B) is greater than the unadjusted trial balance total.
C) is less than the unadjusted trial balance total.
D) has no direct relationship to the unadjusted trial balance total.
E) is equal to the unadjusted trial balance.
Answer: B
Q2) Which of the following accounts appear on the post-closing trial balance?
A) Rent Expense
B) Sales Revenue
C) Cash D) Dividends
E) Service Fees
Answer: C
Q3) The supplies account must be adjusted to reflect how many supplies were used during the period.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Ethics, Internal Control, and Cash
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Sample Questions
Q1) The Sarbanes-Oxley Act in the United States applies to __________-.
Q2) The Pumpkin Party Company deposited $1,000 into its bank account, but the bank statement does not show the deposit. This $1,000 is an example of a(n) __________.
Q3) A bank statement shows the:
A) ending book balance as of a specific date.
B) ending bank balance as of a specific date.
C) reconciled balance as of a specific date.
D) book errors as of a specific date.
E) beginning book balance.
Q4) Treasury bills and Treasury notes are considered cash equivalents if they mature within __________ days of the balance sheet date.
Q5) Based on the fraud triangle, the chance to commit a fraud, conceal it, and avoid punishment is an example of __________.
Q6) The __________ verifies the amount of the deposit and the total amount posted to the cash account.
Q7) After the mail room employee open the cash receipts, the remittance advices go to the __________.
Q8) Details that support business transactions make up a(n) __________.
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Chapter 5: Accounting for a Merchandising Business
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Sample Questions
Q1) An invoice states 5/15, n/60. What does the 15 refer to?
Q2) The account Sales Returns and Allowances is debited when items are returned from a customer.
A)True
B)False
Q3) Journalize the following transactions using the periodic inventory method.
Dec. 1 Purchased $4,900 worth of merchandise from Lolas on terms 2/10 n/30, FOB shipping point.
Dec. 5 Paid for $400 of shipping charges.
Dec. 9 Returned $900 worth of inventory to Lolas.
Dec. 10 Paid the invoice from Lolas.
Q4) What is the journal entry to record the company's cost of selling merchandise under a perpetual inventory system?
Q5) Current assets are listed on the balance sheet in:
A) alphabetical order.
B) order of liquidity.
C) ascending order of value.
D) descending order of value.
E) order of solvency.
Q6) On what financial statement does Sales Returns and Allowances appear?
Page 7
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Chapter 6: Inventory
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Q1) Merchandise inventory represents the goods that a merchandiser has available to sell to its customers.
A)True
B)False
Q2) Goods available for sale are $350,000; beginning inventory is $24,000; ending inventory is $32,000; and cost of goods sold is $275,000. The inventory turnover is __________.
Q3) Inventory is shown on the:
A) balance sheet as an asset.
B) income statement before gross profit.
C) statement of retained earnings.
D) income statement after gross profit.
E) balance sheet as a long-term asset.
Q4) Knowledgeable decisions that are made by outsiders who read financial reports are a result of the concept of conservatism.
A)True
B)False
Q5) After a physical count, the ending inventory is adjusted. Where on the balance sheet is the ending inventory shown?
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Chapter 7: Sales and Receivables
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Sample Questions
Q1) Bad Debts Expense is debited when writing off customer accounts under the Allowance method.
A)True
B)False
Q2) Mike Company has cash of $56,000; net accounts receivable of $67,000; short-term investments of $12,000; and inventory of $40,000. It also has $45,000 in current liabilities and $75,000 in long-term liabilities. What is the quick ratio for Mike Company ?
Q3) A company has a quick ratio of 1.23. What does this mean?
Q4) A 135-day note issued on May 17 will mature on:
A) September 28.
B) September 29.
C) September 30.
D) October 1.
E) October 2.
Q5) What is the maturity date of a note that is signed on April 15, 2011 at 9% for 216 days?
Q6) A retailer has 3% credit/debit card service fees deducted from the proceeds from each sale. The retailer has $1,700 in sales for the day. The journal entry to record these sales would be __________.
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Chapter 8: Long-Term Assets
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Q1) In computing depletion expense, residual value is not part of the computation.
A)True
B)False
Q2) Subtracting accumulated depletion from the asset account "coal mine" would yield the __________.
Q3) Assets that come from the earth and can ultimately be used up are called __________.
Q4) Do we record the sales taxes on the purchase of machinery to an asset or expense account? Be specific as to which asset or expense account.
Q5) Machinery that cost $57,000 and had accumulated depreciation of $46,000 was sold for $2,500. What is the journal entry to record this disposal?
Q6) Which of the following would be considered a natural resource?
A) Corn
B) Livestock
C) Timber
D) Wheat
E) Land
Q7) What type of marketable securities are reported at cost on the balance sheet date?
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Chapter 9: Current Liabilities and Long-Term Debt
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Q1) If the market rate of interest is greater than the bond's stated rate of interest, the bond will be issued at __________.
Q2) A mortgage is a special type of long-term note payable.
A)True B)False
Q3) Does the amount of an obligation need to be known in order for a liability to exist? Explain.
Q4) Journalize the following semi-annual bond interest payments on June 30:
June 30 a. 10-year 8% $250,000 bond that sold for $300,000.
June 30 b. 5-year 5% $300,000 bond that sold for $280,000.
June 30 c. 15-year 10% $500,000 bond that sold for $500,000.
Q5) Journalize the following annual bond interest payments on Apr 30:
April 30 a. 10-year 7% $250,000 bond that sold for $250,000.
April 30 b. 8-year 9% $450,000 bond that sold for $426,000.
April 30 c. 15-year 10% $500,000 bond that sold for $410,000.
Q6) Under IFRS, a __________ is a liability that has an uncertain timing or an uncertain amount.
Q7) A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the customer owe using a 360-day year?
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Chapter 10: Corporations: Share Capital and Retained Earnings
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Q1) What is the minimum number of voting class shares that a company must have?
Q2) What journal entry is recorded on the date of payment?
Q3) Under the Canada Business Corporations Act (CBCA), explain why shares must be no par value.
Q4) Paying dividends causes a decrease in total assets, but an increase in total shareholders' equity.
A)True B)False
Q5) Explain the difference between cumulative and non-cumulative preferred shares.
Q6) Corporations declare cash dividends from retained earnings.
A)True B)False
Q7) When a corporation issues shares for assets other than cash, how does it record the assets received?
Q8) Limited liability means that the shareholders of a corporation share a personal liability for all debts of the corporation.
A)True B)False
Q9) On which Statement is Accumulated Other Comprehensive Income reported? Page 12
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Chapter 11: The Cash Flow Statement
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Sample Questions
Q1) An increase in long-term mortgage payable would mean an increase in cash flow from __________ activities.
Q2) A decrease in prepaid insurance would be __________ to net income in the operating section of a cash flow statement using the indirect method.
Q3) A transaction acquiring land by issuing a note for the full purchase price would not appear on the cash flow statement because no cash was involved, but it may be disclosed in a separate section.
A)True
B)False
Q4) Operating expenses other than depreciation for the year were $400,000. Accrued expenses increased by $35,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:
A) $435,000.
B) $400,000.
C) $365,000.
D) $35,000.
E) $356,000.
Q5) How would depreciation of factory equipment be reported under the direct method?
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Chapter 12: Financial Statement Analysis
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Q1) What is other income/(expenses)? Provide three examples?
Q2) Rick's Sporting Goods reported $23,400 in A/R in 2010 and $25,100 in A/R in 2009. The percentage change for A/R from 2009 to 2010 was __________.
Q3) Basic earnings per share (EPS) is determined using:
A) authorized common shares.
B) issued common shares.
C) outstanding common shares.
D) treasury shares.
E) authorized preferred shares.
Q4) Tayler Company's cash reported on the balance sheets for 2009 and 2010 was as follows: $235,000 in 2009; $245,300 in 2010. The percentage change for cash from 2009 to 2010 was __________.
Q5) Amanda's has a cost of goods sold of $1,900,000. The beginning and ending merchandise inventories are $133,000 and $125,000, respectively. Amanda's merchandise inventory turnover ratio is __________.
Q6) A company with an accounts receivable turnover of four means that the company collects its receivables approximately every __________ days.
Q7) The ratio that measures the productivity of total assets used is the __________.
Page 15
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