Introduction to Financial Accounting Exam
Questions
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of accounting principles and practices essential for measuring and communicating financial information. The course covers the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, and the application of Generally Accepted Accounting Principles (GAAP). Students will learn how to record business transactions, understand the components of balance sheets, income statements, and cash flow statements, and develop skills to interpret and use financial data for decision-making. This course equips students with the analytical tools required for comprehending the financial health and operations of businesses and organizations.
Recommended Textbook
Horngren's Accounting 11th Edition by Tracie L.
Miller
Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) Marsh Supply Services paid $350 cash to a materials supplier,the amount owed from the previous month.Which of the following accounts decreases?
A)Accounts Receivable
B)Accounts Payable
C)Owner's Capital
D)Office Supplies
Answer: B
Q2) The taxable income of a sole proprietorship is ________.
A)combined with the personal income of the proprietor
B)not combined with the proprietor's personal income
C)not taxable
D)handled similarly to that of a corporation
Answer: A
Q3) A publicly traded company in the United States does not come under Securities and Exchange Commission regulations as long as it follows the rules of GAAP.
A)True
B)False
Answer: False
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3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) All asset accounts and equity accounts increase with a debit.
A)True
B)False Answer: False
Q2) The normal balance of an account is the increase side of the account.
A)True
B)False Answer: True
Q3) A chart of accounts is a list of all of a company's accounts with their account numbers.
A)True
B)False Answer: True
Q4) The trial balance is also known as the balance sheet.
A)True
B)False Answer: False
Q5) 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
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The adjusted trial balance shows ________.
A)account balances after adjustments
B)revenue and expense accounts only
C)account balances before adjustments
D)balance sheet accounts only
Answer: A
Q2) The Brighton Dental Company prepays the rent on its dental office.On July 1,the business paid $18,000 for 6 months of rent.How much Rent Expense should Brighton Dental Company record the three months ended September 30 under the accrual basis?
Why?
Answer: Brighton Dental should report Rent Expense of $9,000 because expense is recorded when incurred.
Q3) The sum of all the depreciation expenses recorded to date for a depreciable asset is called residual value.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) The Depreciation Expense account is a temporary account.
A)True
B)False
Q2) Which of the following accounts has a balance equal to net income immediately before it is closed?
A)Income Summary
B)Owner,Withdrawals
C)Net Income
D)Owner,Capital
Q3) Which of the following accounts would appear in the income statement credit column?
A)Service Revenue
B)Prepaid Insurance
C)Unearned Revenue
D)Depreciation Expense
Q4) Which of the following is a plant asset?
A)Equipment
B)Patents
C)Trademark
D)Accounts Receivable
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Chapter 5: Merchandising Operations
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Q1) The term "freight out" refers to ________.
A)transportation costs on purchases
B)cost of inventory purchased
C)costs that are not actually paid in cash
D)transportation costs on sales
Q2) A merchandiser returned inventory worth $1,400 that was purchased on account.Under the periodic inventory system,the journal entry to record the return would include ________.
A)a debit to Purchase Returns and Allowances for $1,400 and a credit to Accounts Payable for $1,400
B)a debit to Accounts Payable for $1,400 and a $1,400 credit to Purchase Returns and Allowances
C)a debit to Purchases for $1,400 and a credit to Accounts Payable for $1,400
D)a debit to Accounts Payable for $1,400 and a credit to Purchases for $1,400
Q3) Oscar Packers received an allowance from the vendor for an amount of $400.Give the journal entry for this transaction.The company uses a perpetual inventory system.
Q4) The entry to close Cost of Goods Sold includes a debit to Income Summary.
A)True B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) A company that uses the periodic inventory provides the following information:
1.Beginning Inventory $11,000
2.Net Purchases $95,000
At the end of the period,the company does an inventory count and finds $10,000 of inventory on hand.
What is the amount of cost of goods sold?
A)$95,000
B)$116,000
C)$96,000
D)$85,000
Q2) If the historical cost of inventory is less than its current replacement cost,the business must write down the inventory cost.
A)True
B)False
Q3) Universal,Inc.purchased 500 units of inventory at $25 per unit by payment of cash.Provide the journal entry to record the purchase of inventory.(Assume a perpetual inventory system. )
Q4) What does inventory turnover measure? What does a high rate of inventory turnover indicate?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) In a perpetual inventory system,the credit columns of a typical cash payments journal are ________.
A)Merchandise Inventory column and Cash column
B)Other Accounts column and Accounts Payable column
C)Merchandise Inventory column and Accounts Payable column
D)Other Accounts column and Cash column
Q2) Which of the following is not typically shown as a separate column in a cash receipts journal that uses the perpetual inventory system?
A)Interest Revenue CR column
B)Cost of Goods Sold DR,Merchandise Inventory CR column
C)Sales Revenue CR column
D)Other Accounts CR column
Q3) Cash purchases are generally recorded in the ________.
A)sales journal
B)cash receipts journal
C)cash payments journal
D)purchases journal
Q4) Describe the transactions recorded in the cash payments journal.
Q5) Describe the transactions recorded in the purchases journal.
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Chapter 8: Internal Control and Cash
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Q1) For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer. The bookkeeper opens the mail,makes the deposit,and makes the journal entries to record receipt of the cash and checks.
Q2) At Cadmia Services,the cashier collects checks and cash from customers,and the junior accountant records the transactions in the journal.The controller approves the journal entries and bank reconciliations.The treasurer signs checks and approves contracts.
Which internal control procedure is exemplified in the above situation?
A)assignment of responsibilities
B)competent,reliable,and ethical personnel
C)separation of duties
D)documents
Q3) All items on the book side of the bank reconciliation require journal entries.
A)True
B)False
Q4) The payee is the issuer of a check.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) The Allowance for Bad Debts account has a credit balance of $3,000 before the adjusting entry for bad debts expense.The company's management estimates that 5% of net credit sales will be uncollectible for the year 2017.Net credit sales for the year amounted to $290,000.What is the amount of Bad Debts Expense reported on the income statement for 2017?
A)$14,500
B)$17,500
C)$7,250
D)$11,500
Q2) A method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see from which customers the company will not be able to collect is known as the allowance method.
A)True
B)False
Q3) The percent-of-sales method calculates bad debts expense based on a percentage of net cash sales.
A)True
B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) General,Inc.purchased a van on May 1,2016,for $800,000.Estimated life of the van was five years,and its estimated residual value was $80,000.General uses the straight-line method of depreciation.Prepare the journal entry to record the depreciation expense for 2016 on the van.
Q2) Plant assets are long-lived,tangible assets used in the operation of a business.
A)True
B)False
Q3) The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values.This method is known as the relative-market-value method.
A)True
B)False
Q4) Houlihan,Inc.purchased a van on January 1,2016,for $800,000.Estimated life of the van was five years,and its estimated residual value was $90,000.Houlihan uses the straight-line method of depreciation.Give the journal entry to record the depreciation expense for 2016 on the van.
Q5) Residual value is also known as depreciable cost. A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Gem Corp.had cash sales of $10,000.The state sales tax rate is 9.8%.What amount is debited to the Cash account?
A)$10,000
B)$10,980
C)$980
D)$1,000
Q2) Which of the following accounts will be credited by the borrower when a promissory note is issued?
A)Note Payable
B)Note Receivable
C)Interest Payable
D)Cash
Q3) Dana Appliances sells dishwashers with a four-year warranty.In 2017,sales revenue for dishwashers is $90,000.The company estimates warranty expense at 4.5% of revenues.What is the 2017 warranty expense? (Round your final answer to the nearest dollar. )
A)$4,050
B)$1,013
C)$0
D)$3,176
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Chapter 12: Partnerships
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Q1) Felix and Ian allocate 2/5 of their partnership's profits and losses to Felix and 3/5 to Ian.The net income of the firm is $20,000.The journal entry to close the Income Summary will include ________.
A)credit to Ian,Capital for $12,000
B)debit to Felix,Capital for $12,000
C)debit to Felix,Capital for $8,000
D)credit to Income Summary for $20,000
Q2) Upon liquidation of a partnership,gains and losses on the sale of assets are divided according to the partner's capital balances.
A)True
B)False
Q3) If the partnership agreement specifies a method for sharing profits but not losses,then losses are shared the same way as profits. A)True
B)False
Q4) Before the start of the liquidation process,the books are adjusted and closed. A)True
B)False
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Chapter 13: Corporations
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Sample Questions
Q1) Prior period adjustments ________.
A)always increase the beginning balance of retained earnings
B)are shown on the statement of retained earnings as corrections to the beginning balance
C)can be ignored because the financial statements have already been issued
D)must be recorded in the period in which the error occurred
Q2) Washington Enterprises had net income for 2016 of $109,000.Washington had 33,000 shares of common stock outstanding at the beginning of the year and 48,000 shares of common stock outstanding at the end of the year.There were 8,000 shares of preferred stock outstanding all year.During 2016,Washington declared and paid preferred dividends of $26,000.What is Washington's earnings per share? (Round the answer to two decimal places. )
A)$2.69
B)$2.27
C)$2.05
D)$1.73
Q3) A deficit occurs when a company has reoccurring losses and/or declares dividends in excess of retained earnings.
A)True
B)False
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Chapter 14: Long-Term Liabilities
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Q1) Which of the following is the amount the borrower must pay back to the bondholders at maturity?
A)market value
B)present value
C)stated interest value
D)principal amount
Q2) The balance in the Bonds Payable account is a credit of $72,000.The balance in the Discount on Bonds Payable is a debit of $3,600.The balance sheet will report the bond balance as $75,600.
A)True
B)False
Q3) The balance in the Bonds Payable account is a credit of $24,500.The balance in the Premium on Bonds Payable account is a credit of $1,000.The balance sheet will report the bond balance as $23,500.
A)True
B)False
Q4) If a bond is issued at a discount,the issue price is greater than face value.
A)True
B)False
Q5) When computing the present value of a bond,which interest rate is used? Why?
Page 16
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Chapter 15: Investments
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Q1) 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
Q2) A(n)________ represents stock ownership in another company and sometimes pays dividends.
A)debt security
B)forward contracts
C)futures contract
D)equity security
Q3) The rate of return on total assets is calculated by first subtracting interest expense from net income and then dividing the result by average total assets.
A)True
B)False
Q4) Under the equity method,dividend revenue is treated as ________.
A)a debit to revenue from investments
B)dividend revenue
C)a return of capital
D)a credit to current assets
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Chapter 16: The Statement of Cash Flows
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Q1) Which of the following sections from the statement of cash flows includes the cash paid for the purchase of Treasury Stock?
A)the financing activities section
B)the operating activities section
C)the investing activities section
D)the non-cash investing and financing section
Q2) Buying property,plant,and equipment for cash is considered a cash outflow for the financing activities section of the statement of cash flows.
A)True
B)False
Q3) Which of the following describes the financing activities section of the statement of cash flows?
A)It includes increases and decreases in long-term assets.
B)It includes cash inflows and outflows involved in long-term liabilities and equity.
C)It includes interest and dividend income and cash payments for interest expense.
D)It reports on activities that create revenue or expenses for the entity's business.
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Chapter 17: Financial Statement Analysis
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Q1) The acid-test ratio measures a company's ability to pay all its current liabilities if they came due immediately.
A)True
B)False
Q2) The debt ratio is the ratio of total debt divided by total equity.
A)True
B)False
Q3) Horizontal analysis is the study of percentage changes in comparative financial statements.
A)True
B)False
Q4) Which of the following is not a part of a corporation's annual report?
A)report of independent registered public accounting firm
B)MD&A
C)notes to financial statements
D)horizontal and vertical analysis
Q5) In a vertical analysis of the balance sheet,the base amount is (100%)is total liabilities. A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Q1) Which of the following is a product cost?
A)sales commissions
B)CEO's salary
C)delivery van depreciation
D)depreciation on production equipment
Q2) Managerial accounting focuses on providing information for internal planning and control.
A)True
B)False
Q3) How does a service company calculate unit cost per service? Why do managers need to know the unit cost per service?
Q4) Unit product costs can be used to measure operating income and determine the cost of Finished Goods Inventory.
A)True
B)False
Q5) For a manufacturer,rent paid for an office building is an example of a period cost.
A)True
B)False
Q6) Define planning.List and briefly discuss a planning tool that managers can use.
Page 20
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Chapter 19: Job Order Costing
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Q1) On June 30,Coral,Inc.finished Job 750 with total job costs of $4,200,and transferred the costs to Finished Goods Inventory.On July 6,it completed the sale of the goods to a customer for $5,900 cash.Which of the following is the correct journal entry to record the cost of goods sold?
A)debit Finished Goods Inventory $4,200 and credit Cost of Goods Sold $4,200
B)debit Cost of Goods Sold $4,200 and credit Work-in-Process Inventory $4,200
C)debit Work-in-Process Inventory $4,200 and credit Cost of Goods Sold $4,200
D)debit Cost of Goods Sold $4,200 and credit Finished Goods Inventory $4,200
Q2) For a service company,such as an accounting firm,each client is considered a job.
A)True B)False
Q3) Actual manufacturing overhead costs are credited to the Manufacturing Overhead account.
A)True B)False
Q4) Both job order and process costing systems use a four-step method to track product costs.List each of the four steps.
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) Under process costing,the costs incurred by each department are reported in a separate production cost report for each department.
A)True
B)False
Q2) The Assembly Department of Intuitive,Inc. ,manufacturer of computers,had 2,000 units of beginning inventory in September,and 8,000 units were transferred to it by the Production Department.The Assembly Department completed 4,000 units during the month and transferred them to the Packaging Department.Calculate the total number of units accounted for by the Assembly Department if it had 6,000 units in ending inventory.The weighted-average method is used.
A)6,000 units
B)8,000 units
C)2,000 units
D)10,000 units
Q3) In process costing,production costs are accumulated by process.At the end of the period,the total production costs incurred must be split into two components.What are these two components?
Q4) Why are extra journal entries required in a process costing system?
Q5) How is a production cost report prepared using the FIFO method?
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.
A)True
B)False
Q2) Which of the following the correct formula for calculating contribution margin ratio?
A)Contribution margin ratio = Contribution margin + Net sales revenue
B)Contribution margin ratio = Contribution margin / Net sales revenue
C)Contribution margin ratio = Contribution margin × Net sales revenue
D)Contribution margin ratio = Contribution margin - Net sales revenue
Q3) Lacey sells hand-knit scarves at the flea market.Each scarf sells for $50.Lacey pays $30 to rent a vending space for one day.The variable costs are $15 per scarf.What total revenue amount does she need to earn to break even?
A)$45
B)$43
C)$100
D)$93
Q4) Total variable costs change in direct proportion to changes in the volume of production.
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Chapter 22: Master Budgets
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Q1) 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
Q2) A master budget is a financial plan for a specific segment of an organization.
A)True
B)False
Q3) Budgetary slack occurs when managers intentionally overstate expected revenues or understate expected expenses.
A)True
B)False
Q4) The cost accountant works with the office and sales managers to develop the selling and administrative expense budget.
A)True
B)False
Q5) 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) Which of the following best describes a standard?
A)a sales price,cost,or quantity that is expected under normal conditions
B)costs incurred to produce a product
C)budgeted amount for total product cost
D)actual sales price,cost,or quantity
Q2) Western Outfitters projected sales of 79,000 units for the year at a unit sales price of $12.00.Actual sales for the year were 71,000 units at $18.00 per unit.Variable costs were budgeted at $4.25 per unit,and the actual variable cost was $4.80 per unit.Budgeted fixed costs totaled $378,000 while actual fixed costs amounted to $410,000.What is the flexible budget variance for operating income?
A)$172,250 unfavorable
B)$354,950 favorable
C)$354,950 unfavorable
D)$386,950 favorable
Q3) List three ways in which using a standard cost system helps managers.
Q4) A flexible budget summarizes revenues and costs for various levels of sales volume within a relevant range.
A)True
B)False
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) In selecting machine usage as the primary cost driver for the Production Department,management feels that there is a direct relationship between the number of machine hours used and the amount of overhead costs incurred.
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) Explain the difference between a controllable and a noncontrollable cost.
Q4) Investment center managers are responsible for generating profits and making use of the investment center's assets.
A)True
B)False
Q5) List and briefly discuss the two limitations of financial performance measures.
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Chapter 25: Short-Term Business Decisions
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Q1) Merrimack Tire Company makes a special kind of racing tire.Variable costs are $220 per unit,and fixed costs are $30,000 per month.Merrimack sells 500 units per month at a sales price of $300.If the quality of the tire is upgraded,the company believes it can increase the price to $325.If so,the variable cost will increase to $230 per unit,and the fixed costs will rise by 40%.If Merrimack decides to upgrade,how will operating income be affected?
A)Operating income will decrease by $12,500.
B)Operating income will decrease by $4,500.
C)Operating income will increase by $12,500.
D)Operating income will increase by $40.
Q2) Differential analysis is a common approach to making long-term business decisions.
A)True
B)False
Q3) Which of the following provides a key in analyzing short-term business decisions?
A)focus on costs that do not change under two alternatives and on historic costs
B)focus on qualitative data only and ignore future cash flows
C)focus on sunk costs and quantitative data
D)focus on relevant costs and use the contribution margin approach
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Chapter 26: Capital Investment Decisions
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Q1) Net present value represents the difference between the ________.
A)total net income of the project and the initial investment
B)initial investment and the residual value
C)future value of the cash flows and the present value of the cash flows
D)present value of the investment's net cash inflows and the investment's initial cost
Q2) Many service,merchandising,and manufacturing firms use discounted cash flow methods to make capital investment decisions.
A)True
B)False
Q3) Zane Set Designs Company has received an award which entitles it to receive annual payments of $10,000 at the end of each year for the next ten years.Which of the following is used to calculate today's value of this award?
A)Present Value of $1
B)Present Value of an Ordinary Annuity of $1
C)Future Value of $1
D)Future Value of an Ordinary Annuity of $1
Q4) If net cash inflows are unequal,how is the payback period (in years)of an investment is calculated?
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