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Introduction to Financial Accounting Exam Preparation Guide
Course Introduction
Introduction to Financial Accounting offers students a comprehensive foundation in the principles and practices of accounting used to record, summarize, and interpret financial information. The course explores key concepts such as the accounting cycle, preparation of financial statements, and the use of accounting data in decision-making. Students will develop skills in analyzing transactions, understanding balance sheets, income statements, and cash flow statements, and gain an appreciation for the ethical and regulatory environment surrounding financial reporting. By the end of the course, students will have a solid understanding of how financial information supports organizational management and external stakeholder decisions.
Recommended Textbook Cornerstones of Financial Accounting 2nd Edition by Jay Rich
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12 Chapters
1918 Verified Questions
1918 Flashcards
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Page 2
Chapter 1: Accounting and the Financial Statements
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202 Verified Questions
202 Flashcards
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Sample Questions
Q1) Refer to Baloon-E-Tunes.Calculate the current ratio at December 31,2013.What does this ratio tell you about the "composition" of the current assets?
Answer: 11ed9713_7745_3364_b27d_4567af7806d5_TB2046_11
The current ratio does not provide information about the composition of the company's current assets and current liabilities.Only totals are used to calculate the current ratio.
Q2) Refer to Benchmark Surveyors.Calculate Current Liabilities.
A)$ 97,000
B)$211,000
C)$354,000
D)$143,000
Answer: A
Q3) Refer to Bellweather Times.What is the company's Net Income?
A)$280,000
B)$220,000
C)$100,000
D)$40,000
Answer: B
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3
Chapter 2: The Accounting Information System
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Sample Questions
Q1) Services are provided for customers who pay for their services immediately.What effect does this transaction have on the accounting equation?
A)Assets and liabilities increase.
B)Assets and retained earnings increase.
C)Liabilities increase and retained earnings decreases.
D)Assets and liabilities decrease.
Answer: B
Q2) A debit entry increases assets and revenue accounts.
A)True
B)False
Answer: False
Q3) Refer to HVAC Service.The journal entry to record payment of the salaries will include a credit to
A)Salary Expense
B)Salary Payable
C)Prepaid Salaries
D)Cash
Answer: D
Q4) A revenue account has a normal ___________ balance.
Answer: credit
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Chapter 3: Accrual Accounting
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Sample Questions
Q1) When cash is paid before an expense is incurred,an accrual is necessary.
A)True
B)False
Answer: False
Q2) Which of the following concepts is important to accrual accounting?
A)Time period,because accrual accounting divides earnings into time periods
B)Market basis,because inflation is a big factor in the environment
C)Cash basis,because if cash is not received,revenue is not accrued
D)Entity concept,because personal transactions must be separated from business transactions
Answer: A
Q3) Three months before its year-end,a company signed a $250,000,12%,8-month note.Principal and interest will be paid at maturity.No interest should be accrued at year-end because the company has no obligation to pay the interest until the note matures.
A)True
B)False
Answer: False
Q4) The first step in the accounting cycle is to ________________ transactions. Answer: analyze
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Chapter 4: Internal Control and Cash
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162 Flashcards
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Sample Questions
Q1) Allowing only certain employees to order goods and services on behalf of the company is an example of what internal control activity?
A)Segregation of duties
B)Safeguarding of assets and records
C)Checks on recorded amounts
D)Clearly defined authority and responsibility
Q2) The best response to an employee caught stealing from the company is to say,"Don't ever let me catch you doing that again!"
A)True
B)False
Q3) What adjustments are often necessary after the reconciliation of a bank account?
Q4) Which of the following is a transposition error?
A)writing $89 as $98
B)writing $10 as $100
C)debiting or crediting an amount to the wrong account
D)debiting or crediting the right account with the wrong amount
Q5) A(n)____________________ is the process used by an accountant to ensure consistency between the balance shown on the bank statement for a particular account and the balance shown on the accounting records.
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Chapter 5: Sales and Receivables
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Sample Questions
Q1) ____________________ are receivables that generally specify an interest rate and a maturity date at which any interest and principal must be repaid.
Q2) The use of the allowance method is an attempt by accountants to match bad debts as an expense with the revenue of the period in which a sale on credit takes place.
A)True
B)False
Q3) Refer to A-One Construction.If the aging approach is used to estimate bad debts,what should the balance in the Allowance for Doubtful Accounts be after the bad debts adjustment?
A)$ 2,100
B)$31,100
C)$29,200
D)$27,100
Q4) Net Sales = Total credit sales - Sales Discounts - Sales Returns and Allowances
A)True B)False
Q5) A sales invoice that bears the notation 2/10 means ____________________.
Q6) Identify two methods of accelerating cash from sales.
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Chapter 6: Cost of Goods Sold and Inventory
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Sample Questions
Q1) Refer to the information provided for Stallworth Corp.How many units did the company sell during November?
A)240
B)140
C)100
D)50
Q2) Refer to the information provided for Klump Co.If the company uses the (moving)Average Cost inventory costing method,cost of goods sold for the month of June is:
A)$2,539.52
B)$2,541.89
C)$2,544.35
D)$2,555.00
Q3) Madlock Company,which started business at the beginning of 2013,selected the FIFO method for its inventory costing.In order to maximize profits for 2013 under this method,purchase prices must be:
A)Increasing
B)Decreasing
C)Stable
D)fluctuating up and down at the same amount consistently throughout the year.
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Chapter 7: Operating Assets
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Sample Questions
Q1) On January 1,2012,a company sold a machine for $5,000 that it had used for several years.The machine cost $11,000,and had accumulated depreciation of $4,500 at the time of sale.What gain or loss will be reported on the income statement for the sale of the machine?
A)Gain of $5,000
B)Loss of $6,500
C)Loss of $1,500
D)Gain of $1,500
Q2) Explain what costs are included in the acquisition cost of operating assets.
Q3) Refer to Fantasy Cruise Lines.What will be the book value of the ship at the end of its useful life?
A)$ -0-
B)$100,000
C)$200,000
D)Need more information to determine this answer.
Q4) All intangible assets are subject to amortization.
A)True
B)False
Q5) A ____________________ is a cost that improves an operating asset and is therefore added to the asset account.
Page 9
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Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) Federal income taxes payable is <b>not</b> a current liability.
A)True
B)False
Q2) The operating cash flow ratio is calculated by dividing current assets by cash flows from operating activities.
A)True
B)False
Q3) A(n)____________________ arises when a business purchases goods or services on credit.
Q4) When a company uses past experience to estimate the amount of likely warranty claims in the future,a current liability account must be created.
A)True
B)False
Q5) A current liability includes obligations which must be repaid
A)within one year.
B)within one year or within the operating cycle,whichever is shorter.
C)within one year or within the operating cycle,whichever is longer.
D)by the end of the operating cycle.
Q6) Why are unearned revenues considered current liabilities?
Page 10
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) Refer to Kalahari Limited.The semiannual cash payment on the bonds is
A)$50,000
B)$40,000
C)$42,400
D)$46,000
Q2) A Premium on Bonds Payable account would appear on the balance sheet as:
A)An increase to a long-term liability
B)Revenue
C)Long-term asset
D)Contra liability
Q3) Under the effective interest method of amortization,the interest expense for each period is the carrying value times the ____________________.
Q4) "You Decide" Essay
You are the Chief Financial Officer of Kyoto Mining Company.Your company issued $10,000,000 in bonds payable at the beginning of the year at a sizable discount.You are getting ready to make your December 31 adjusting entries.The owners,who are worried about their tax bill for the year,have asked you to select whichever method of amortizing bond discounts that maximizes interest expense. Respond to the owners.
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Par value is adjusted annually to reflect the current market value of the stock.
A)True
B)False
Q2) After a corporation declares a cash dividend,what takes place on the date of record?
A)Cash decreases.
B)Liabilities decrease.
C)Stockholders' equity decreases.
D)No entry is necessary.
Q3) Which of the following types of information is not set forth within the corporate charter?
A)Name and purpose of the corporation.
B)Names of those responsible for incorporating the business.
C)Dates of future dividend distributions.
D)Provisions describing how stock may be issued.
Q4) Identify and describe the four primary rights for the owners of common stock.
Q5) Distinguish between par value and market value.Which measure is the better indicator of the true value of the stock?
Q6) What is the difference between authorized,issued,and outstanding shares?
Q7) Distinguish between stock warrants and stock options.
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) During 2013,the accounts receivable balance increased.
A)This indicates that credit sales exceeded collections on account during the period.
B)This increase is added to net income in the operating activities section of a statement of cash flows prepared under the indirect method.
C)This increase is added to credit sales to determine the collections on account during the period.
D)This indicates that there were no cash sales during the period.
Q2) During 2014,the accounts payable balance decreased.
A)This decrease indicates that payments on account were less during the period than credit purchases.
B)This decrease is added to net income in the operating activities section of a statement of cash flows prepared under the direct method.
C)This decrease is deducted from net income in the operating activities section of a statement of cash flows prepared under the direct method.
D)This decrease indicates that payments on account exceeded credit purchases during the period.
Q3) What is the amount of cash and cash equivalents at the end of 2014?
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) A company declared and paid $1 million in dividends to its common stockholders.The effect of this transaction is that the
A)Earnings per share decreased.
B)Earnings per share increased.
C)Current ratio increased.
D)Debt-to-equity ratio increased.
Q2) The net profit margin percentage reflects the amount of income for each dollar of sales.
A)True
B)False
Q3) Measures of ____________________ evaluate how efficiently a company uses its assets,that is,the average length of time required for assets to be consumed or replaced.
Q4) Which of the following is an example of liquidity analysis?
A)Total liabilities are divided by total assets.
B)Net income is divided by average total assets.
C)Net income is divided by the average number of common shares outstanding.
D)Quick assets are divided by current liabilities.
Q5) ____________________ analysis compares one corporation to another corporation and to industry averages.
Page 14
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