Introduction to Financial Accounting Exam Preparation Guide
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices involved in preparing, analyzing, and interpreting financial statements. The course covers key topics such as the accounting cycle, accrual versus cash accounting, the structure and purpose of balance sheets, income statements, and cash flow statements. Students learn to apply generally accepted accounting principles (GAAP), develop critical thinking skills for financial decision-making, and gain practical experience through exercises and case studies. By the end of the course, students will be able to comprehend financial reports and assess an organizations financial health, equipping them with essential skills for further studies and careers in business and finance.
Recommended Textbook
Financial Accounting 7th Edition by Libby Libby
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14 Chapters
1652 Verified Questions
1652 Flashcards
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Page 2
Chapter 1: Financial Statements and Business Decisions
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) Which of the following statements is correct?
A)The statement of retained earnings always reports the same amount of dividend payments as does the statement of cash flows.
B)The statement of cash flows has a relationship with the balance sheet.
C)Dividends paid are reported on the statement of cash flows as an operating cash flow and on the income statement as a financing cash flow.
D)Net income is reported on the income statement but not on the statement of retained earnings.
Answer: B
Q2) Business managers utilize managerial accounting reports to plan and manage the daily operations.
A)True
B)False
Answer: True
Q3) Revenue is recognized within the income statement during the period in which cash is collected.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Investing and Financing Decisions and the Balance Sheet
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Sample Questions
Q1) At the beginning of April,Warren Corporation's assets totaled $240,000 and liabilities totaled $60,000.During April the following summarized transactions occurred: Additional shares of stock were sold for $20,000 cash.
A building costing $95,000 was purchased using $10,000 cash and by signing an $85,000 long-term note payable.
Short-term investments costing $9,000 were purchased using cash. $10,000 was lent to an employee; the employee signed a six-month note in exchange for the loan.
How much are Warren's total assets at the end of April?
A)$335,000
B)$249,000
C)$345,000
D)$250,000
Answer: C
Q2) Liability and stockholders' equity accounts have credit balances and are decreased by debiting the account.
A)True
B)False
Answer: True
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Chapter 3: Operating Decisions and the Income Statement
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) Application of generally accepted accounting principles requires that the accrual basis of accounting be used for reporting revenues and expenses on the income statement.
A)True
B)False Answer: True
Q2) The operating cycle is the time that elapses between a company's cash payment to suppliers for inventory purchases and the collection of cash from sale of inventory to customers.
A)True
B)False Answer: True
Q3) Which of the following would lengthen the operating cycle?
A)Faster collection of accounts receivables.
B)Selling inventory in a shorter period of time.
C)Increasing the number of customers who paid cash.
D)Relaxing credit terms and allowing customers more time to pay.
Answer: D
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Chapter 4: Adjustments,Financial Statements,and the
Quality of Earnings
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) A trial balance prepared after the closing entries have been posted would show a zero balance in which one of the following accounts?
A)Inventory
B)Accounts receivable
C)Accumulated depreciation
D)Income tax expense
Q2) The trial balance is similar to the balance sheet in that it is a listing of assets,liabilities,and stockholders' equity and is provided to external decision makers.
A)True
B)False
Q3) Income statement accounts often are called temporary accounts because their balances are closed out at the end of the accounting year.
A)True
B)False
Q4) The net profit margin ratio is calculated by dividing net sales by net income. A)True
B)False
Q5) Describe the adjusted trial balance.
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Chapter 5: Communicating and Interpreting Accounting Information
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Marino Company has provided the following information:
Net sales,$480,000
Net income,$24,000
Average total assets,$200,000
What is Marino's return on assets ratio?
A)240%
B)12%
C)5%
D)42%
Q2) Which of the following is not a responsibility of the chief executive officer (CEO)and the chief financial officer (CFO)?
A)The responsibility to oversee the financial statement external audit.
B)To ensure the accuracy and completeness of all reports provided to the Securities & Exchange Commission (SEC).
C)The certification of the strength of the internal control system.
D)The disclosure to the auditor committee of any frauds they are aware of.
Q3) In order for financial information to be relevant,it should be timely and accurate.
A)True
B)False
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Chapter 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash
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123 Verified Questions
123 Flashcards
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Sample Questions
Q1) Deposits in transit are deducted from the book balance when preparing the bank reconciliation.
A)True
B)False
Q2) Which of the following is not a component of the gross profit calculation?
A)Cost of goods sold
B)Sales returns and allowances
C)Allowance for doubtful accounts
D)Credit card discounts
Q3) When using the allowance method for accounting for bad debts,accounts receivable is reported on the balance sheet at the expected net realizable value.When a particular receivable from a customer ultimately is determined to be uncollectible and is written off,the recording of this event will
A)decrease the net realizable value of the accounts receivable.
B)have an effect that is not determinable from the information given.
C)increase the net realizable value of the accounts receivable.
D)have no effect on the net realizable value of the accounts receivable.
Q4) Why is the reconciliation of a company's cash account to the bank statement so important for effective internal control for cash?
Page 8
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Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Which of the following statements is correct when inventory prices are increasing?
A)LIFO will result in lower net income and a higher inventory valuation than will FIFO.
B)LIFO will result in higher net income and lower inventory valuation than will FIFO.
C)FIFO will result in lower net income and a lower inventory valuation than will LIFO.
D)FIFO will result in higher net income and a higher inventory valuation than will LIFO.
Q2) An overstatement of the 2011 ending inventory results in an overstatement of stockholders' equity as of the end of 2012.
A)True B)False
Q3) The LIFO inventory method will result in the highest gross margin when costs are increasing in comparison to the specific identification,FIFO and weighted average inventory methods.
A)True
B)False
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9
Chapter 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
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Sample Questions
Q1) Tangible long-lived productive assets differ from intangible long-lived productive assets in that tangible assets have physical substance whereas intangible assets have no physical substance.
A)True
B)False
Q2) Use of the double-declining-balance method of depreciation results in higher depreciation expense during the first year of an asset's life relative to use of the straight-line depreciation method.
A)True
B)False
Q3) Which of the following statements is incorrect?
A)Revenue expenditures decrease net income.
B)Capital expenditures decrease assets.
C)Ordinary repairs and maintenance are considered revenue expenditures.
D)Additions and improvements are considered capital expenditures.
Q4) Patents,trademarks,and franchises are examples of tangible assets.
A)True
B)False
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Chapter 9: Reporting and Interpreting Liabilities
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Sample Questions
Q1) Sharp Company borrowed $500,000 on a 6% one-year,interest bearing note dated November 1,2010 with interest payable at maturity.The annual accounting period ends on December 31.Assuming that adjusting entries are only made at December 31,the company's fiscal year-end,prepare journal entries for each of the following dates:
A.November 1, 2010.
B.December 31, 2010.
C.October 31, 2011.
Q2) Short Company purchased land by paying $10,000 cash on the purchase date and agreeing to pay $10,000 for each of the next ten years beginning one-year from the purchase date.Short's incremental borrowing rate is 10%.What amount of liability would be reported on the balance sheet as of the purchase date,after the initial $10,000 payment was made?
A)$100,000
B)$38,550
C)$61,446
D)$71,446
Q3) Working capital increases when a company accrues revenues at year-end.
A)True
B)False
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Page 11
Chapter 10: Reporting and Interpreting Bonds
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which of the following bonds does not have specific assets pledged to guarantee repayment?
A)Debenture bond
B)Callable bond
C)Discount bond
D)Convertible bond
Q2) On November 1,2009,Davis Company issued $30,000,ten-year,7% bonds for $29,100.The bonds were dated November 1,2009,and interest is payable each November 1 and May 1.Which of the following is incorrect assuming the straight-line method of amortization is utilized?
A)The market rate of interest exceeded the stated rate of interest when the bonds were issued.
B)The semi-annual interest expense is $1,095.
C)The book value of the bonds increases $45 every six months.
D)The semi-annual interest expense is less than the semi-annual cash interest payment.
Q3) A convertible bond can be called for early retirement at the option of the issuing company.
A)True
B)False
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Page 12
Chapter 11: Reporting and Interpreting Owners Equity
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Sample Questions
Q1) RKJ Company has provided the following:
100,000 shares of $5 par value common stock are authorized; 70,000 shares have been issued; 65,000 shares are outstanding.
Which of the following statements is correct?
A)RKJ has 35,000 shares of treasury stock.
B)RKJ has 30,000 shares of treasury stock.
C)RKJ can reissue an additional 35,000 shares of common stock.
D)RKJ can issue an additional 30,000 shares of common stock.
Q2) The dividend yield ratio is dividends per share divided by the number of shares outstanding.
A)True
B)False
Q3) Which of the following is not a primary advantage of a general partnership relative to a corporation?
A)The ease of formation.
B)The limited liability for the owners.
C)There isn't income taxation on the business itself.
D)The complete control of the business given to the partners.
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Page 13
Chapter 12: Reporting and Interpreting Investments in Other Corporations
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110 Flashcards
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Sample Questions
Q1) The extent of influence and control over another company is a critical factor in determining the proper method of accounting for a long-term investment in the common stock of another company.
A)True
B)False
Q2) Chang Corp.purchased $1,000,000 of bonds at par value on April 1,2010.The bonds pay interest at the rate of 10%.Chang intends to hold these bonds to maturity.Which of the following statements is false?
A)Since the bonds were issued at par value, the cash interest will be the same as interest revenue.
B)The bonds will earn $75,000 of interest by December 31, 2010.
C)The bond investment must be accounted for using the fair value approach.
D)Since they were classified as held-to-maturity, the company would recognize no unrealized gains or losses on the bonds over their lifetime.
Q3) If a bond is bought at a discount,then interest revenue will be less than the cash payment.
A)True
B)False
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Atkins Corporation has provided the following information for the year ended December 31,2010: The equipment account balance increased $200,000. The equipment accumulated depreciation account increased $35,000.
Equipment costing $50,000 was sold during the year resulting in a $10,000 gain. Depreciation expense on the equipment recorded during the year was $65,000. Which of the following statements is correct with respect to cash flow from investing activities determination? Assume that the equipment purchase and sale resulted in cash flows.
A)A $60,000 cash inflow is reported from the equipment sale.
B)A $200,000 cash outflow is reported for equipment purchases.
C)A $50,000 cash outflow is reported for the equipment sale.
D)A $250,000 cash outflow is reported for equipment purchases.
Q2) Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.
A)True
B)False
Q3) Describe the three cash flow classifications that are reported within a statement of cash flows.
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Page 15
Chapter 14: Analyzing Financial Statements
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Sample Questions
Q1) A primary objective of financial statements is to provide information to current and potential investors and creditors.
A)True
B)False
Q2) Which of the following statements is false?
A)When computing the component percentages for the income statement, net income is the base figure.
B)Time series analysis examines a company's performance over time.
C)It is often useful to compare a company's performance with that of a competitor.
D)The North American Industry Classification System assigns industry codes based on business operations.
Q3) Component percentages are used to express items on financial statements as a percentage of a single base amount.
A)True
B)False
Q4) A higher current ratio is preferable for companies with variable cash flows.
A)True
B)False
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