Introduction to Financial Accounting Exam
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Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices of financial accounting. The course covers key topics such as the accounting cycle, preparation and analysis of financial statements, recording business transactions, and the application of generally accepted accounting principles (GAAP). Students will learn how to interpret financial information and use accounting data for decision-making, gaining essential skills needed to understand and communicate the financial health of organizations. Through a combination of theoretical concepts and practical exercises, this course prepares students for further study in accounting and related business fields.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) The most that the owner of a sole proprietorship can lose,as a result of business debts or lawsuits,is the amount he/she has invested in the business.
A)True
B)False
Answer: False
Q2) Under U.S.GAAP,the monetary unit assumption states that transactions are recorded in dollars.What is the basis for this assumption?
Answer: Under U.S.GAAP,transactions are recorded in dollars because accountants assume that the dollar's purchasing power is stable.
Q3) On the statement of cash flows,investing activities include purchases of land and equipment with the issuance of a note payable.
A)True
B)False
Answer: False
Q4) A statement of cash flows always represents a period of time.
A)True
B)False
Answer: True
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Chapter 2: Recording Business Transactions
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Q1) A business purchased land for $250,000 cash.Record the transaction in the journal.
Answer: 11ea8a75_426f_a179_a2a1_012b3fd67520_TB6701_00
Q2) Prepaid Rent is a(n)________ account and has a normal ________ balance.
A)asset;debit
B)liability;credit
C)liability;debit
D)asset;credit
Answer: A
Q3) A liability created when a business receives cash from customers in advance of providing services or delivering goods is called a(n)________.
A)notes receivable
B)unearned revenue
C)accrued liability
D)service revenue
Answer: B
Q4) A payable involves a future receipt of cash.
A)True
B)False Answer: False
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Chapter 3: The Adjusting Process
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Q1) What type of account is Prepaid Rent,and what is its normal balance?
A)It is an expense account and has a debit balance.
B)It is a liability account and has a credit balance.
C)It is a revenue account and has a credit balance.
D)It is an asset account and has a debit balance.
Answer: D
Q2) Marcy's Event Planning Services Company records deferred expenses and deferred revenues using the alternative treatments.The business makes adjusting entries as needed to bring its books to the full accrual basis once a year at the end of the year.On October 1,Marcy's paid $3,600 for insurance for a one-year period.Coverage begins on October 1.At the end of the year,it will make an adjusting entry that debits Insurance Expense for $1,500.
A)True
B)False
Answer: False
Q3) Adjusting entries may involve any account,including Cash.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Questions
Q1) Which of the following is TRUE of a completed worksheet?
A)The total debits in the unadjusted trial balance column equal the total debits in the adjusted trial balance column.
B)The total debits in the income statement column equal the total credits in the balance sheet column.
C)The total debits in the income statement column equal the total debits in the balance sheet column.
D)The total of all the debit columns is equal to the total of all the credit columns.
Q2) The time span during which cash is paid for goods and services,which are then sold to customers from whom the business collects cash,is called the ________.
A)production time
B)operating cycle
C)accounting cycle
D)sales time
Q3) The Accounts Receivable account is a permanent account.
A)True
B)False
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Chapter 5: Merchandising Operations
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Q1) A company using the perpetual inventory system purchased inventory worth $500,000 on account with credit terms of 3/15,n/45.Defective inventory of $50,000 was returned 3 days later,and the accounts were appropriately adjusted.If the company paid the invoice 25 days later,the journal entry to record the payment would be ________.
A)$500,000 debit to Accounts Payable and $500,000 credit to Cash
B)$450,000 debit to Accounts Payable and $450,000 credit to Cash
C)$500,000 debit to Accounts Payable,$486,500 credit to Cash,and $13,500 credit to Merchandise Inventory
D)$463,500 debit to Accounts Payable,$13,500 credit to Merchandise Inventory,and $450,000 credit to Cash
Q2) Revenue from contracts with multiple performance obligations is recognized as each performance obligation is satisfied.
A)True B)False
Q3) A wholesaler is a merchandiser who buys goods from a manufacturer and then sells the goods to retailers.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) An inventory error cancels out after two periods.
A)True
B)False
Q2) Which of the following inventory valuation methods should be used for unique items?
A)first-in,first-out
B)last-in,first-out
C)weighted-average
D)specific identification
Q3) Maintaining good controls over merchandise inventory ensures that inventory purchases and sales are properly authorized and accounted for by the accounting system.
A)True
B)False
Q4) When using the LIFO inventory costing method and the periodic inventory method,the ending inventory comes from the newest costs of the period.
A)True
B)False
Q5) What does inventory turnover measure? What does a high rate of inventory turnover indicate?
8
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Chapter 7: Accounting Information Systems
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Q1) Flexibility
A)Can accommodate changes in the business over time.
B)Provides information that will improve decision making and reduce uncertainty.
C)Benefits received outweigh the cost of the system.
D)Works smoothly with the business's employees and organization structure.
E)Provides safeguards for a business's assets and reduces the likelihood of fraud and errors.
Q2) The purchase of three computers for the sales staff,on account,is recorded in the ________ journal.
A)general
B)purchases
C)cash payments
D)equipment
Q3) Depreciation expense is recorded in a ________.
A)cash payments journal
B)sales journal
C)cash receipts journal
D)general journal
Q4) Describe the transactions recorded in the purchases journal.
Q5) Describe the transactions recorded in the cash payments journal.
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Chapter 8: Internal Control and Cash
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Q1) There are three parties to a check: the depositor,the maker,and the bank.
A)True
B)False
Q2) Electronic data interchange (EDI)allows a retailer's computers to communicate with the computers of suppliers.
A)True
B)False
Q3) The petty cash fund has a current balance of $250,which is the established fund balance.Based on activity in the fund,it is determined that the balance needs to be changed to $600.Which journal entry is needed to make this change?
A)Debit the Petty Cash account and credit the Cash account for $600.
B)No journal entry is needed because this change only involves cash.
C)Debit the Petty Cash account and credit the Cash account for $350.
D)Debit the Cash account and credit the Petty Cash account for $350.
Q4) An information system is one of the five components by which a company can achieve its internal control objectives.
A)True
B)False
Q5) Define internal control.
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Chapter 9: Receivables
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Q1) Notes receivable represent a written promise that a party will pay a fixed amount of principal plus interest on a stated maturity date.
A)True
B)False
Q2) Some companies promote and issue their own private label credit cards.
A)True
B)False
Q3) The Allowance for Bad Debts account has a debit balance of $8000 before the adjusting entry for bad debts expense.After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-of-receivables method,the company's management estimates that uncollectible accounts will be $15,000.What amount of bad debts expense will be reported on the income statement?
A)$4000
B)$23,000
C)$7000
D)$15,000
Q4) In counting the number of days in a note term,omit the date the note was issued.
A)True
B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) Brentwood Auto Repair purchased a new machine and placed it in service on June 14.Which of the following is NOT included in the cost of equipment?
A)cost of testing the machine on June 12
B)purchase commission
C)sales tax
D)a six month insurance policy which was paid on June 5 and became effective on June 15
Q2) Companies may choose to report plant assets as a single amount,with a note to the financial statements that provides detailed information,or companies may provide detailed information on the face of the statement.
A)True
B)False
Q3) Work Room Company purchased equipment for $45,000.Total depreciation of $36,000 was recorded.On January 1,2019,Work Room exchanged the equipment for new equipment,paying $65,000 cash.The market value of the new equipment is $65,000.Prepare the journal entry to record this transaction.Assume the exchange had commercial substance.Omit explanation.
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Chapter 11: Current Liabilities and Payroll
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Q1) Keith,an employee of Sunbeam,Inc. ,has gross salary for May of $15,000.The entire amount is under the OASDI limit of $118,500 and thus subject to FICA.He is also subject to federal income tax at a rate of 20%.Which of the following is a part of the journal entry to record the disbursement of his net pay? (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%. )(Round the final answer to the nearest dollar. )
A)debit to Cash for $10,852.50
B)credit to Cash for $10,852.50
C)debit to Employee Income Tax Payable of $10,852.50
D)debit to FICA Tax Payable of $10,852.50
Q2) Unearned revenue arises because the business receives goods or services before payment has been made.
A)True
B)False
Q3) Vacation pay is an example a liability that exists but the exact amount is not known. A)True
B)False
Q4) If the likelihood of a future event is reasonably possible,how should the company report the contingency?
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Chapter 12: Partnerships
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Q1) If elected,an S corporation pays no corporate income tax.
A)True
B)False
Q2) Nancy and Betty enter into a partnership agreement where they decide to share profits according to the following rules: (a)Nancy and Betty will receive salaries of $1700 and $14,500 respectively as the first allocation.
(b)The next allocation is based on 20% of each partner's capital balances.
(c)Any remaining profit or loss is to be allocated completely to Betty.
The partnership's net income for the first year is $50,000.Nancy's capital balance is $83,000 and Betty's capital balance is $11,000 at the end of the year.Calculate the share of profit/loss to be allocated to Betty.
A)$18,300
B)$31,700
C)$3760
D)$16,100
Q3) A partnership is a business with two or more owners that is legally organized as a corporation.
A)True
B)False
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Chapter 13: Corporations
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Q1) A small stock dividend,a large stock dividend and a stock split have no effect on total assets.
A)True
B)False
Q2) From its inception through the year of 2017,First Mart,Inc.was profitable and made strong dividend payments each year.In the year 2018,First Mart had major losses and paid no dividends.In 2019,the company started making large profits again,and they were able to pay dividends to all shareholders-both common and preferred.There are 2000 shares of cumulative,10% preferred stock outstanding.The preferred stock has a par value of $100.What is the total amount of dividends that should be paid to the preferred stockholders in December,2019?
A)$60,000
B)$90
C)$20,000
D)$40,000
Q3) The stock of public corporations cannot be purchased on a stock exchange.
A)True
B)False
Q4) List the four basic rights of stockholders.
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Chapter 14: Long-Term Liabilities
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Q1) The balance in the Bonds Payable account is a credit of $67,000.The balance in the Discount on Bonds Payable account is a debit of $2,650.The bond's carrying amount is $64,350.
A)True
B)False
Q2) Willson Glassware Company issues $1,014,000 of 10%,10-year bonds at 97 on February 28,2019.The bond pays interest on February 28 and August 31.On August 31,2019,how much cash did Willson pay to the bondholders?
A)$51,968
B)$50,700
C)$101,400
D)$49,432
Q3) Premium on Bonds Payable is additional Interest Expense of the company that issues the bond.
A)True
B)False
Q4) On January 1,2019,Drake Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued at par.Prepare the journal entry to issue bonds.Omit explanation.
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Chapter 15: Investments
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Q1) All available-for-sale (AFS)debt investments are reported on the balance sheet at
A)historical cost
B)replacement cost
C)current market value
D)net realizable value
Q2) Amex Corporation invests excess cash to purchase $25,000 in corporate bonds on March 30,2018.In addition to the $25,000,Amex also paid a brokerage fee of $1,000.Amex intends to hold the bonds until maturity and has the ability to do so.When the bonds mature on March 30,2020,Amex plans to use the cash for its business expansion.Which of the following is included in the journal entry on March 30,2018?
A)a debit to Held-to-Maturity Debt Investments for $25,000
B)a debit to Trading-Debt Investments for $25,000
C)a debit to Held-to-Maturity Debt Investments for $26,000
D)a debit to Trading-Debt Investments for $26,000
Q3) Provide the following information for controlling interest equity investments:
1.Which accounting method is used?
2.What is the balance sheet effect when using this accounting method?
3.What is the income statement effect when using this accounting method?
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Chapter 16: The Statement of Cash Flows
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Q1) Specialty Auto Parts Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for 2018: Net cash provided by operating activities: $109,000
Net cash used for investing activities: $(114,500)
Net cash provided by financing activities: $16,000 If the cash balance at the beginning of the year was $13,200,what is the ending cash balance?
A)$23,700
B)$10,500
C)$13,200
D)$5500
Q2) Planned investments and cash dividends are deducted from ________ to arrive at free cash flow.
A)net cash provided by operating activities
B)net cash provided by investing activities
C)net cash provided by financing activities
D)net income
Q3) The statement of cash flows shows where cash came from and how cash was spent.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Merchandise inventory and prepaid expenses are excluded from the acid-test ratio.
A)True
B)False
Q2) Which of the following best describes trend analysis?
A)calculating key ratios to evaluate performance
B)expressing each financial statement amount as a percentage of a budgeted amount
C)comparing a company's financial statements with that of other companies
D)expressing each year's financial statement line item as a percentage of the base year amount
Q3) The audit report in the annual report is prepared by an internal auditor of a company.
A)True
B)False
Q4) A high times-interest-earned ratio indicates difficulty in paying interest expense.
A)True
B)False
Q5) What is a common-size statement? Why are these statements useful?
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