Introduction to Financial Accounting Exam Bank
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of how financial information is collected, processed, and presented in business organizations. The course covers key accounting principles, the double-entry system, preparation and analysis of financial statements, and the regulatory environment governing external financial reporting. By examining real-world applications, students learn to interpret balance sheets, income statements, and cash flow statements, gaining insights into how businesses communicate financial performance and position to stakeholders. This course equips students with essential skills for making informed economic decisions and pursuing advanced studies in accounting and finance.
Recommended Textbook
Horngren's Accounting 11th Edition by
Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Lush Lawns Company earned $1,000 for lawn mowing services rendered.The customer promised to pay at a later time.Which of the following accounts increased as a result of this transaction?
A)Accounts Payable
B)Supplies
C)Cash
D)Accounts Receivable
Answer: D
Q2) Which of the following will be categorized as an operating activity on the statement of cash flows?
A)Cash received by selling old equipment
B)Cash paid for purchase of new machinery
C)Cash paid for purchase of office supplies
D)Cash received as a contribution from the owner
Answer: C
Q3) The balance sheet of a business summarizes an entity's revenues and expenses.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Q1) The Owner's Capital account is a separate account in the ________ category of the accounting equation.
A)equity
B)asset
C)liability
D)revenue
Answer: A
Q2) Which of the following statements is true of revenues?
A)Revenues decrease equity,so a revenue account's normal balance is a credit balance.
B)Revenues decrease equity,so a revenue account's normal balance is a debit balance.
C)Revenues increase equity,so a revenue account's normal balance is a debit balance.
D)Revenues increase equity,so a revenue account's normal balance is a credit balance.
Answer: D
Q3) A business renders services to its customer for $50,000 on account.Record the transaction in the journal.
Answer: 11ea8a42_4ef0_cd49_8b44_11e0655ffccf_TB5024_00
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Chapter 3: The Adjusting Process
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Q1) Which of the following is considered a fiscal year?
A)six months
B)three months
C)twelve months
D)four months
Answer: C
Q2) Ariel Tax Planning Service has the following plant assets: Communications equipment: Cost,$9,600 with useful life of 8 years;Furniture: Cost,$17,712 with useful life of 12 years;and Computer: Cost,$14,400 with useful life of 4 years.Assume the residual value of all the assets is zero and the straight-line method is used. Ariel's monthly depreciation journal entry will include a ________.
A)debit to Depreciation Expense of $6,276
B)credit to Depreciation Expense of $6,276
C)debit to Accumulated Depreciation of $523
D)credit to Accumulated Depreciation of $523
Answer: D
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5
Chapter 4: Completing the Accounting Cycle
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Q1) The balance sheet section of the worksheet includes the asset and liability accounts and all equity accounts.
A)True
B)False
Q2) Which of the following accounts will be included in a post-closing trial balance?
A)Service Revenue
B)Interest Payable
C)Interest Expense
D)Utilities Expense
Q3) The operating cycle is the time span required for a business to repay its long-term liabilities.
A)True
B)False
Q4) Under which of the following categories would Accounts Receivable appear?
A)Current assets
B)Current liabilities
C)Long-term assets
D)Long-term liabilities
Q5) List the steps of the accounting cycle that take place during the period.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) On November 1,2017,Rodgers Enterprises sold merchandise with a cost of $7,000 for $25,000,FOB destination,with payment terms of 2/10,n/40.The company paid transportation costs of $100.Customer returns on this sale were $5,000 (with a cost of $2,500).The merchandise was returned on November 6.The company received the payment for the balance amount on November 10,2017.Calculate the net sales revenue.
A)$19,600
B)$20,000
C)$4,500
D)$20,100
Q2) Best Value Company started its operations on January 1,2017.It engages in buying and selling different types of electronic gadgets.The first step in its operating cycle would be to ________.
A)collect cash from customers
B)sell goods to customers
C)purchase inventory from vendors
D)record the sales in accounts
Q3) Operating income is gross profit minus operating expenses.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample
Questions
Q1) Under the weighted-average method for inventory costing,the cost per unit is determined by ________.
A)dividing the cost of goods available for sale by the number of units available
B)dividing the cost of goods available for sale by the number of units in beginning inventory
C)multiplying the number of units purchased with the weighted-average cost
D)multiplying the cost of goods available for sale by the ending weighted-average cost of the previous accounting period
Q2) The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory.
A)True
B)False
Q3) A company discovers that its cost of goods sold is understated by an insignificant amount.It does not need to correct the error because of the materiality concept.
A)True
B)False
Q4) What does inventory turnover measure? What does a low rate of inventory turnover indicate?
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8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Liberty Corporation sells a product for $500 cash to Sarah Lewis.This transaction will be recorded in the ________.
A)cash payments journal
B)sales journal
C)cash receipts journal
D)purchase journal
Q2) An accounting information system has three basic components: source documents and input devices,processing and storage,and internal controls.
A)True
B)False
Q3) When using a periodic inventory system,the Merchandise Inventory DR column,in the purchases journal,is replaced with a column titled Cost of Goods Sold DR.
A)True
B)False
Q4) The cash receipts journal is a special journal used to record business transactions of all cash receipts and credit sales.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which one of the following is true of the bank reconciliation?
A)It should not be prepared by an employee who handles cash transactions.
B)It is prepared in place of the cash ledger.
C)It is a financial statement.
D)It guarantees that no errors have been made.
Q2) For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer. The movie theater has the following policy.Tickets are sold by the cashier.The ticket stubs are collected by the ticket taker.The ticket stubs are stored in a locked box,and the accounting personnel match the number of ticket stubs to the number of tickets sold.
Q3) A check for which a maker's bank account has inadequate money to pay the check is known as ________.
A)nonsufficient funds check
B)outstanding check
C)restrictive check
D)canceled check
Q4) Why is it necessary to journalize transactions from the bank reconciliation? List two examples of items that need to be journalized.
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Page 10
Chapter 9: Receivables
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Q1) Notes receivable represents 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) The entry to write off an account receivable under the allowance method will
A)reduce net income
B)have no effect on net income
C)increase total assets
D)increase net income
Q3) A company issues a 140-day,14% note for $18,000.What is the principal amount of the note? (Round your answer to the nearest dollar. )
A)$20,520
B)$18,000
C)$17,020
D)$18,980
Q4) What is net realizable value? How is net realizable value affected when a receivable is written off under the allowance method?
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) Clayton,Inc.purchased a van on January 1,2016,for $830,000.Estimated life of the van was five years,and its estimated residual value was $90,000.Clayton uses the straight-line method of depreciation.At the beginning of 2018,the company revised the total estimated life of the asset from five years to four years.The estimated residual value remained the same as estimated earlier.Calculate the depreciation expense for 2018.
A)$267,000
B)$222,000
C)$111,000
D)$133,500
Q2) Plant assets are reported at book value on the balance sheet. A)True B)False
Q3) Fleetwood Corp.purchased a mine in 2016 for $500,000 and estimated that 30,000 tons of iron ore could be extracted from it.There was no residual value.The business extracted and sold 2,500 tons of ore in 2016.How will the mine be reported on the balance sheet at the end of year 2016? (Round all intermediate calculations to the nearest cent. )
Q4) Prepare the journal entry to record the acquisition of a plant asset for $5,000 cash.
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Chapter 11: Current Liabilities and Payroll
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Q1) Larry,an employee of Ramsay's,Inc. ,has gross salary for March of $4,000.The entire amount is under the OASDI limit of $117,000 and thus subject to FICA.He is also subject to federal income tax at a rate of 18%.Larry has a deduction of $320 for health insurance and $80 for United Way.Which of the following is included in the entry to record the liability of payroll withholding deductions?
A)debit to Salaries Payable
B)credit to United Way Payable
C)debit to FICA Taxes Payable
D)debit to Cash
Q2) Which of the following is included in the entry to record accrual of warranty expense?
A)a debit to Warranty Expense
B)a credit to Merchandise Inventory
C)a credit to Warranty Expense
D)a debit to Estimated Warranty Payable
Q3) On December 31,2016,Circle,Inc.borrowed $500,000 by signing a five-year,8% note payable.The note is payable in five yearly installments of $100,000 plus interest,due at the end of every year beginning on December 31,2017.Which portion is classified as the long-term portion of Notes Payable at December 31,2016?
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Page 13
Chapter 12: Partnerships
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Sample Questions
Q1) Neil and Paul formed a partnership.During the year,Neil and Paul withdrew $13,000 and $6,000,respectively.Provide the journal entry to close the withdrawal accounts.
Q2) An S corporation is a corporation with 100 or fewer stockholders that can elect to be taxed as a partnership.
A)True
B)False
Q3) Which of the following is true of ownership changes in a partnership?
A)Admitting a new partner does not change the core structure of the old partnership.
B)The purchase of an existing partner's interest is a transaction between the new partner and the partnership firm.
C)Any time the partner mix changes,the old partnership ceases to exist and a new partnership begins.
D)A person can become a partner by purchasing an existing partner's interest,even without the approval of the other partners.
Q4) Capital deficiency refers to a partnership's claim against a partner.
A)True B)False
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Chapter 13: Corporations
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Q1) Peterson,Inc.issued 4,000 shares of preferred stock for $280,000.The stock has a par value of $70 per share.The journal entry to record this transaction would ________.
A)credit Cash $280,000,debit Preferred Stock-$70 Par Value $4,000,and debit Paid-In Capital in Excess of Par-Preferred $276,000
B)debit Cash $280,000,credit Preferred Stock-$70 Par Value $4,000,and credit Paid-In Capital in Excess of Par-Preferred $276,000
C)credit Cash $280,000 and debit Preferred Stock-$70 Par Value $280,000
D)debit Cash $280,000 and credit Preferred Stock-$70 Par Value $280,000
Q2) Preferred stockholders ________.
A)receive a dividend preference over common stockholders
B)are guaranteed that they will not have a loss on their investment
C)generally have voting rights
D)have more investment risk compared to common stockholders
Q3) If treasury stock is resold for more than cost,the difference is debited to the account Paid-In Capital from Treasury Stock Transactions.
A)True
B)False
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Chapter 14: Long-Term Liabilities
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Q1) On January 1,2017,Carter Sales issued $36,000 in bonds for $18,700.These are six-year bonds with a stated interest rate of 12%,and pay semiannual interest.Carter Sales uses the straight-line method to amortize the Bond Discount.What amount is debited to Interest Expense on June 30,2017?
A)$2,160
B)$3,602
C)$1,442
D)$35,320
Q2) When bonds are retired at maturity,assuming the last interest payment has already been recorded,the journal entry includes a debit to the Bonds Payable account and a credit to the Cash account.
A)True
B)False
Q3) Term bonds all mature at the same specified time.
A)True
B)False
Q4) On January 1,2017,Damron Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued for $19,000.Prepare the journal entry to issue bonds.
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Chapter 15: Investments
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Q1) The unrealized holding gains and losses on available-for-sale investments are recorded as an adjustment to the Unrealized Holding Gain-Available-for-Sale account or Unrealized Holding Loss-Available-for-Sale account.
A)True
B)False
Q2) An equity security does not represent an ownership interest in a corporation,although it pays dividends.
A)True
B)False
Q3) Gain on Disposal of a trading investment is an equity account and is reported in the Other Revenues and (Expenses)section of the income statement.
A)True
B)False
Q4) A parent company is a company that ________.
A)is controlled by another corporation
B)owns a controlling interest in another company
C)is the first to begin operations in an industry
D)has a trading investment in another company
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Chapter 16: The Statement of Cash Flows
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Q1) Which of the following statements is true?
A)The indirect method and the direct method will produce a different amount of net cash flow from investing activities.
B)The indirect method starts with net income and adjusts it to cash provided by (used for)operating activities.
C)The direct and indirect methods include different types of cash flows in the investing activities section.
D)The indirect method includes all non-cash activities,whereas the direct method includes only the cash activities.
Q2) Although the direct method is easier to use,the Financial Accounting Standards Board (FASB)prefers the indirect method of reporting cash flows from operating activities.
A)True
B)False
Q3) The statement of cash flows helps users ________.
A)predict future net income
B)evaluate management decisions
C)evaluate the company's earnings per share
D)predict the growth of a company's assets
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) If inventory turnover is too slow,a company may be unable to sell goods or it may be understating merchandise inventory.
A)True
B)False
Q2) Analysts look for red flags in financial statements that may signal financial trouble.Which of the following is a red flag that suggests that a company may be in trouble?
A)a significant increase in net income for several years in a row
B)a consistent movement in sales,merchandise inventory,and accounts receivable
C)a reduction in the debt ratio
D)operating activities as is a major source of cash flows
Q3) Which of the following items is a measure of a company's ability to collect receivables?
A)inventory turnover ratio
B)current ratio
C)days' sales in receivables
D)account receivable balance
Q4) The debt ratio is the ratio of total debt divided by total equity.
A)True
B)False
19
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Chapter 18: Introduction to Managerial Accounting
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Q1) In a manufacturing company,wages and benefits of assembly line workers are included in manufacturing overhead.
A)True
B)False
Q2) Period costs are the ________.
A)product costs that must be paid in the accounting period in which they are incurred
B)costs that are incurred and expensed during the same accounting period
C)costs related to production of products the company purchases and sells
D)same as manufacturing overhead costs
Q3) Repair and maintenance costs of vehicles used to deliver products to the customers are included in manufacturing overhead.
A)True
B)False
Q4) Which of the following will be included in manufacturing overhead costs?
A)indirect labor and indirect materials used
B)salaries of salesmen
C)direct materials and direct labor
D)delivery costs to ship goods to customers
Q5) Define product cost.How does a merchandising company treat these costs?
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Chapter 19: Job Order Costing
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Q1) Define a process costing system and list two types of businesses that would use a process costing system.
Q2) Job order costing is well suited for the service industry.
A)True
B)False
Q3) Sybil,Inc.uses a predetermined overhead allocation rate to allocate manufacturing overhead costs to jobs.The company recently completed Job 300X.This job used 10 machine hours and 3 direct labor hours.The predetermined overhead allocation rate is calculated to be $45 per machine hour.What is the amount of manufacturing overhead allocated to Job 300X using machine hours as the allocation base?
A)$450
B)$135
C)$585
D)$315
Q4) Manufacturing Overhead is a temporary account used to accumulate indirect production costs during the accounting period.
A)True
B)False
Q5) Why would the manager of a service company need to use job order costing?
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Chapter 20: Process Costing
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Q1) When indirect materials are issued to production,the Raw Materials Inventory account is credited.
A)True
B)False
Q2) Under process costing,the costs incurred by each department are reported in
A)a job cost sheet
B)the Finished Goods Inventory account
C)the Cost of Goods Sold account
D)a production cost report
Q3) Conversion costs include the costs of purchasing and converting raw materials into finished products.
A)True
B)False
Q4) Under process costing,a single Work-in-Process Inventory account is maintained for all processes,with a subsidiary ledger containing individual production cost reports for each process.
A)True
B)False
Q5) Provide the formula for (1)To account for and (2)Accounted for.
Page 22
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Cost-volume-profit (CVP)analysis assumes that the selling price per unit does not change as volume changes.
A)True
B)False
Q2) The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.
A)True
B)False
Q3) One of the assumptions of cost-volume-profit (CVP)analysis is that there are no changes in the ________.
A)accounts payable
B)cash balance
C)inventory levels
D)accounts receivables
Q4) If the selling price of Product A1 is $10.50 per unit and unit fixed cost is $5.50,its contribution margin per unit is $5.00.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) A budget is a financial plan that managers use to coordinate a business's activities.
A)True
B)False
Q2) Which of the following is an example of the benchmarking function of the budgeting process?
A)A budget demands integrated input from different business units and functions.
B)Budgeting requires close cooperation between accountants and operational personnel.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.
Q3) June sales were $22,000,while projected sales for July and August were $45,000 and $63,000,respectively.Sales are 60% cash and 40% credit.All credit sales are collected in the month following the sale.Calculate expected collections for July.
A)$31,200
B)$35,800
C)$8,800
D)$27,000
Q4) List the four budgeting objectives.Why is this process a loop?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Pierce Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor.Pierce uses standard costs to prepare its flexible budget.For the first quarter of the year,direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 2 pounds per unit;$3 per pound
Direct labor: 5 hours per unit;$16 per hour
Pierce produced 5,000 units during the quarter.At the end of the quarter,an examination of the labor costs records showed that the company used 30,000 direct labor hours and actual total direct labor costs were $381,000.What is the direct labor efficiency variance?
A)$80,000 U
B)$80,000 F
C)$19,000 F
D)$19,000 U
Q2) An unfavorable variance means more cost has been incurred than planned.
A)True
B)False
Q3) List the direct materials variances,and briefly describe each.
Q4) What does the fixed overhead volume variance measure?
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.
A)True
B)False
Q2) Brad Turret,one of the managers of a multi-national company,is responsible for generating revenues and controlling costs in order to increase the operating income of his division.However,he is not concerned about investment-related decisions.Brad is most likely to be the manager of a(n)________.
A)cost center
B)investment center
C)profit center
D)revenue center
Q3) If a company allows division managers to negotiate a cost-based transfer price,it is better to use actual costs rather than standard costs.Otherwise,the selling division has no motivation to control costs.
A)True
B)False
Q4) Explain the difference between a controllable and a noncontrollable cost.
Q5) List the primary goals of performance evaluation systems.
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Chapter 25: Short-Term Business Decisions
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Q1) Mickey Tire Company makes a special kind of racing tire.Variable costs are $221 per unit,and fixed costs are $30,000 per month.Mickey sells 500 units per month at a sales price of $310.If the quality of the tire is upgraded,the company believes it can increase the sales price to $349.If so,the variable cost will increase to $230 per unit,and the fixed costs will rise by 50%.If Mickey decides to upgrade,how will operating income be affected?
A)Operating income will decrease by $15,000.
B)Operating income will decrease by $4,500.
C)Operating income will increase by $4,500.
D)Operating income will remain the same.
Q2) Which of following statements is true of short-term decision making?
A)Fixed costs and variable costs must be analyzed separately.
B)All costs behave in the same way.
C)Unit manufacturing costs are variable costs.
D)All costs involved in a decision are considered relevant.
Q3) Define joint cost.Should joint costs be considered in the decision to sell or further process the product? Explain your answer.
Q4) Define the terms Relevant Cost and Sunk Cost.
Q5) Explain the difference between price-takers and price-setters.
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Chapter 26: Capital Investment Decisions
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Q1) Which capital budgeting method uses accrual accounting,rather than net cash flows,as a basis for calculations?
A)payback
B)accounting rate of return
C)net present value
D)internal rate of return
Q2) Both the payback and the accounting rate of return methods focus on cash flows that an asset generates.
A)True
B)False
Q3) Which of the following best describes the term capital rationing?
A)a method of determining the period within which the cash invested is recouped
B)a process of ranking and choosing among alternative capital investments based on the availability of funds
C)a method which shows the effect of an investment on a company's accrual-based income
D)a process of controlling operating costs when adequate funds are not available
Q4) If net cash inflows are unequal,how is the payback period (in years)of an investment is calculated?
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