Introduction to Financial Accounting Exam Bank
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices involved in recording, summarizing, and reporting financial transactions for business organizations. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, and the roles of assets, liabilities, equity, revenues, and expenses. Emphasis is placed on the application of generally accepted accounting principles (GAAP), the importance of accurate financial information for decision-making, and ethical considerations in financial reporting. Through theoretical learning and practical exercises, students gain the skills necessary to interpret and manage basic financial data within various organizational contexts.
Recommended Textbook
Corporate Financial Accounting 15th Edition by
Carl S. Warren
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Page 2
Chapter 1: Accounting and Business
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Sample Questions
Q1) Has three sections: operating, investing and financing
A)Income statement
B)Balance sheet
C)Statement of stockholder's equity
D)Statement of cash flows
Answer: D
Q2) The first statement prepared
A)Income statement
B)Balance sheet
C)Statement of stockholder's equity
D)Statement of cash flows
Answer: A
Q3) Managerial accounting information is used by external and internal users equally.
A)True
B)False
Answer: False
Q4) What are the three sections of the statement of cash flows?
Answer: Operating Activities, Investing Activities, and Financing Activities
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Chapter 2: Double-Entry Accounting
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Sample Questions
Q1) Accounts in the ledger are usually maintained in alphabetical order.
A)True
B)False
Answer: False
Q2) When a business receives a bill from the utility company, no entry should be made until the invoice is paid.
A)True
B)False
Answer: False
Q3) Which statement(s) concerning cash is (are) true?
A) cash will always have more debits than credits
B) cash will never have a credit balance
C) cash is increased with a debit
D) all are true
Answer: C
Q4) The cash account will always be debited.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Adjustments: Accruals and Deferrals
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Sample Questions
Q1) The balance in the unearned fees account, before adjustment at the end of the year, is $10,250. Journalize the adjusting entry required if the amount of unearned fees at the end of the year is $3,125.
Answer: 11ea84e6_b030_6ef3_9a63_ed99c1669ac6_TB2281_00_TB2281_00
Q2) The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods.
A)True
B)False
Answer: True
Q3) Using accrual accounting, expenses are recorded and reported only
A) when they are incurred, whether or not cash is paid
B) when they are incurred and paid at the same time
C) if they are paid before they are incurred
D) if they are paid after they are incurred
Answer: A
Q4) The financial statements are prepared from the unadjusted trial balance. A)True
B)False
Answer: False
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Chapter 4: The Accounting Cycle
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Sample Questions
Q1) The entry to close the appropriate insurance account at the end of the accounting period is
A) debit Income Summary; credit Prepaid Insurance
B) debit Prepaid Insurance; credit Income Summary
C) debit Insurance Expense; credit Income Summary
D) debit Income Summary; credit Insurance Expense
Q2) Utilities Expense 430 Cash 430
A)Journal entries
B)Adjusting journal entries
C)Closing journal entries
Q3) After all of the account balances have been extended to the Balance Sheet columns of the end-of-period spreadsheet, the totals of the Debit and Credit columns are $36,755 and $32,735, respectively. What is the amount of net income or net loss for the period?
A) $4,020 net income
B) $36,755 net loss
C) $4,020 net loss
D) $32,735 net income
Q4) Describe a classified balance sheet.
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Chapter 5: Accounting for Retail Businesses
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Q1) Under the periodic inventory system, the cost of goods sold is equal to the beginning inventory plus the cost of merchandise purchased plus the ending inventory.
A)True
B)False
Q2) As we compare a merchandising business to a service business, the financial statement that changes the most is the balance sheet.
A)True
B)False
Q3) Assume that the total inventory on hand at the end of the year as determined by taking a physical inventory is $62,000. Of the $62,000, $8,000 has been sold FOB destination and is awaiting pickup by the carrier. What is the cost of inventory reported on the balance sheet?
A) $70,000
B) $62,000
C) $58,000
D) $54,000
Q4) Prepare a balance sheet for Fernandez Company assuming the current portion of the notes payable is $30,000.
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Chapter 6: Inventories
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Sample Questions
Q1) One unit is sold on October 31 for $28. Using the table provided, determine gross profit under the FIFO method.
A) $28
B) $13
C) $15
Q2) Assume that three identical units of merchandise are purchased during October, as follows:
\[\begin{array} { | l | c | c | c | c | }
\hline & & & \text { Units } & \text { Cost } \\
\hline \text { October } & 5 & \text { Purchase } & 1 & \$ 5 \\
\hline & 12 & \text { Purchase } & 1 & 13 \\
\hline & 28 & \text { Purchase } & \underline { 1 } & \underline { 15 } \\
\hline \text { Total } & & & \underline { 3 } & \underline { \$ 33 } \\
\hline \end{array}\]
Assume one unit is sold on October 31 for $28. Determine cost of goods sold, gross profit, and ending inventory under the FIFO method.
Q3) List three different security measures taken to safeguard inventory.
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Chapter 7: Internal Control and Cash
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Q1) In preparing a bank reconciliation, the amount of an error indicating the recording of a check in the journal for an amount larger than the amount of the check is added to the balance per company's records.
A)True
B)False
Q2) The objectives of internal control are to
A) control the internal organization of the accounting department personnel and equipment
B) provide reasonable assurance that assets are safeguarded and used for business purposes, business information is accurate, and laws and regulations are complied with C) prevent fraud, and promote the social interest of the company
D) provide control over "internal-use only" reports and employee internal conduct
Q3) The amount of the "adjusted balance" appearing on the bank reconciliation as of a given date is the amount that is shown on the balance sheet for that date.
A)True
B)False
Q4) List the principal advantages of electronic funds transfers.
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Chapter 8: Receivables
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Q1) Dalton Company uses the allowance method to account for uncollectible receivables. Dalton has determined that the Irish Company account is uncollectible. To write off this account, Dalton should debit
A) Bad Debt Expense and credit Accounts Receivable
B) Bad Debt Expense and credit Allowance for Doubtful Accounts
C) Allowance for Doubtful Accounts and credit Accounts Receivable
D) Accounts Receivable and credit Allowance for Doubtful Accounts
Q2) The operating expense recorded from uncollectible receivables can be called all of the following except
A) accounts receivable
B) bad debt expense
C) doubtful accounts expense
D) uncollectible accounts expense
Q3) Indications that an account may be uncollectible include all of the following except A) the customer closes its business
B) the customer is making small but regular payments
C) the customer files for bankruptcy
D) the customer cannot be located
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Chapter 9: Long-Term Assets: Fixed and Intangible
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Q1) The cost of a patent with a remaining legal life of 10 years and an estimated useful life of 7 years is amortized over 10 years.
A)True
B)False
Q2) The name, term, or symbol used to identify a business and its products is called
A) goodwill
B) a patent
C) a trademark
D) a copyright
Q3) The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method.
A)True
B)False
Q4) The double-declining-balance rate for calculating depreciation expense is determined by doubling the straight-line rate. Assuming that an asset has a useful life of 25 years, determine the rate to be used if using the double-declining-balance method.
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Chapter 10: Liabilities: Current, Installment Notes, and Contingencies
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Sample Questions
Q1) An employee receives an hourly rate of $45, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 48; federal income tax withheld, $950; social security tax rate, 6.0%; and Medicare tax rate, 1.5%; state unemployment compensation tax, 5.4% on the first $7,000; federal unemployment compensation tax, 0.8% on the first $7,000.
Calculate the employer's payroll tax expense if:
(a) this is the first payroll of the year and the employee has no cumulative earnings for the year to date.
(b) the employee's cumulative earnings for the year prior to this week equal $6,200.
Q2) Payroll taxes levied against employees become liabilities
A) the first of the following month
B) when the payroll is paid to employees
C) when data are entered in a payroll register
D) at the end of an accounting period
Q3) Payroll taxes only include social security taxes and federal unemployment and state unemployment taxes.
A)True
B)False
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Chapter 11: Liabilities: Bonds Payable
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Q1) The interest expense recorded on an interest payment date is increased
A) only if the market rate of interest is less than the stated rate of interest on that date
B) by the amortization of premium on bonds payable
C) by the amortization of discount on bonds payable
D) only if the bonds were sold at face value
Q2) If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.
A)True
B)False
Q3) The journal entry a company records for the interest payment and amortization of bond discount is
A) debit Interest Expense, credit Cash and Discount on Bonds Payable
B) debit Interest Expense, credit Cash
C) debit Interest Expense and Discount on Bonds Payable, credit Cash
D) debit Interest Expense, credit Interest Payable and Discount on Bonds Payable
Q4) How should any unamortized premium be reported on the balance sheet of the issuing corporation?
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Chapter 12: Corporations: Organization, Stock Transactions, and Dividends
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Q1) When a corporation completes a 3-for-1 stock split
A) the ownership interest of current stockholders is decreased
B) the market price per share of the stock is decreased
C) the par value per share is decreased
D) the market price per share of the stock and the par value per share is decreased
Q2) Which statement below is not a reason for a corporation to buy back its own stock?
A) resale to employees
B) bonus to employees
C) for supporting the market price of the stock
D) to increase the shares outstanding
Q3) Treasury stock that was purchased for $3,000 is sold for $3,500. As a result of these two transactions combined
A) income will be increased by $500
B) stockholders' equity will be increased by $3,500
C) stockholders' equity will be increased by $500
D) stockholders' equity will not change
Q4) Nexis Corp. issues 1,000 shares of $15 par value common stock at $22 per share.
Journalize the transaction.
Page 14
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Chapter 13: Statement of Cash Flows
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Q1) Which of the following would not be on the statement of cash flows?
A) cash flows from investing activities
B) cash flows from financing activities
C) cash flows from operating activities
D) cash flows from contingent activities
Q2) To determine cash payments for income taxes for the statement of cash flows using the direct method, an increase in income taxes payable is added to the income tax expense.
A)True
B)False
Q3) Lamar Corporation purchased land for $150,000. Later in the year, the company sold land with a book value of $190,000 for $200,000. Show how the effects of these transactions are reported on the statement of cash flows using the indirect method.
Q4) Which of the following is not one of the four basic financial statements?
A) balance sheet
B) statement of cash flows
C) statement of changes in financial position
D) income statement
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) focuses on a company's ability to generate net income
A)solvency
B)leverage
C)times interest earned
D)horizontal analysis
E)vertical analysis
F)common-sized financial statements
G)current position analysis
H)profitability analysis
Q2) What is the asset turnover for Diane Company?
A) 1.00 B) 2.94
C) 0.18 D) 0.34
Q3) The number of days' sales in receivables is one means of expressing the relationship between average daily sales and accounts receivable.
A)True
B)False
Q4) The following data are available for Martin
Q5) Define solvency and profitability. How are they alike?
Page 16
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Chapter 15:Investments
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Q1) The account Unrealized Loss on Trading Investments should be included on the A) income statement as other revenue
B) income statement as other expense
C) balance sheet as an adjustment to the asset account
D) balance sheet as an adjustment to stockholders' equity
Q2) The income statement for Hudson Company reported net income of $345,000 for the year ended December 31 before considering the following:
\(\bullet\)During the year the company purchased trading securities.
\(\bullet\)At year end, the fair value of the investment portfolio was $23,000 less than cost.
\(\bullet\)The balance of Retained Earnings was $823,000 on January 1. \(\bullet\)Hudson Company paid $43,000 in cash dividends during the year.
Calculate the balance of Retained Earnings on December 31.
Q3) Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to
A) Investment in Vallerio Corporation Stock
B) Retained Earnings
C) Dividend Revenue
D) Dividend Receivables
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