Introduction to Financial Accounting Final
Exam
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of how financial information is measured, recorded, and communicated within organizations. This course covers the basic principles and concepts underlying financial accounting, including the accounting cycle, preparation of key financial statements (income statement, balance sheet, and cash flow statement), and the analysis and interpretation of reported financial data. Through practical exercises and real-world examples, students will develop the skills necessary to assess the financial health of organizations, make informed business decisions, and appreciate the regulatory and ethical environment governing financial reporting.
Recommended Textbook
Fundamental Accounting Principles 23rd Edition by John Wild
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Page 2
Chapter 1: Accounting in Business
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Q1) When expenses exceed revenues, the resulting change in equity is called:
A) Net assets.
B) Net loss.
C) Net income.
D) Negative equity.
E) A liability.
Answer: B
Q2) In accounting, the rule that requires that assets, services, and liabilities be recorded initially at the cash or cash-equivalent value of what was given up or of the item received is called the ________.
Answer: Measurement (Cost) principle
Q3) The income statement shows the financial position of a business on a specific date.
A)True
B)False
Answer: False
Q4) Identifying the proper ethical path is usually easy.
A)True
B)False Answer: False
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Chapter 2: Analyzing and Recording Transactions
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Q1) The balance column in a ledger account is:
A) A simple form of account that is widely used in accounting to illustrate the debits and credits required in recording a transaction.
B) Another name for the withdrawals account.
C) An account entered on the balance sheet.
D) An account used to record the transfers of assets from a business to its owner.
E) A column for showing the balance of the account after each entry is posted.
Answer: E
Q2) A general journal gives a complete record of each transaction in one place, and shows the debits and credits for each transaction.
A)True
B)False
Answer: True
Q3) The trial balance can serve as a replacement for the balance sheet, since total debits must equal total credits.
A)True
B)False
Answer: False
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4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Q1) A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the physical count of supplies indicates the cost of unused supplies is $3,200. The adjusting entry would include a $2,800 debit to Supplies.
A)True
B)False Answer: False
Q2) Accrued expenses reflect transactions where cash is paid before a related expense is recognized.
A)True
B)False Answer: False
Q3) Farmers' net income was $740,000 and its net sales were $8,000,000. Calculate its profit margin ratio.
Answer: Profit Margin Ratio = Net Income/Net Sales
$740,000/$8,000,000 = 9.25%
Q4) The accrual basis of accounting recognizes expenses when cash is paid. A)True
B)False Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) How is the current ratio calculated? How is it used to evaluate a company?
Q2) Reversing entries are recorded in response to external transactions that were created in error during the prior accounting period.
A)True
B)False
Q3) On a work sheet, the adjusted balances of revenues and expenses are sorted to the Income Statement columns of the work sheet.
A)True
B)False
Q4) Flo's Flowers' current ratio is 1.3. The industry average for the current ratio is 1.2. This indicates that Flo's can cover its short term liabilities with its short term assets.
A)True
B)False
Q5) A ________ is an optional working paper that helps in preparing financial statements, is useful in preparing interim statements, and is helpful in showing the effects of proposed transactions.
Q6) Explain the purpose of reversing entries.
Q7) The ________ refers to the steps in preparing financial statements for users.
Page 6
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Chapter 5: Accounting for Merchandising Operations
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Q1) A perpetual inventory system is able to directly measure and monitor inventory shrinkage and there is no need for a physical count of inventory.
A)True
B)False
Q2) KLM Corporation's quick assets are $5,888,000, its current assets are $11,700,000 and its current liabilities are $8,000,000. Its acid-test ratio equals:
A) 1.50.
B) 0.74.
C) 0.50.
D) 0.68.
E) 2.20.
Q3) Expenses related to accounting, human resource management, and financial management are known as selling expenses.
A)True
B)False
Q4) Purchase discounts are the same as trade discounts.
A)True
B)False
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Chapter 6: Inventories and Cost of Sales
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Q1) If obsolete or damaged goods can be sold, they will be included in inventory at their original cost.
A)True
B)False
Q2) The ________ ratio reflects how much inventory is available in terms of days' sales.
Q3) What advantages does a perpetual inventory system have over periodic inventory system?
Q4) When LIFO is used with the periodic inventory system, cost of goods sold is assigned costs from the most recent purchases at the point of each sale, rather than from the most recent purchases for the period.
A)True
B)False
Q5) An inventory error is sometimes said to be self-correcting because it yields an offsetting error in the next period.
A)True
B)False
Q6) Discuss the important accounting features of a periodic inventory system including accounts and procedures used.
Page 8
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Chapter 7: Accounting Information Systems
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Q1) After posting is completed, there may be an error if:
A) The sum of the supplier account balances does not equal the general ledger Accounts Payable controlling account balance.
B) The sum of the accounts receivable ledger does not equal the balance in the sales journal.
C) The sum of the accounts receivable ledger does not equal the balance in the Sales account.
D) The sum of the supplier account balances does not equal the total in the purchases journal.
E) The balance in the sales journal does not equal the Accounts Receivable account balance.
Q2) A list of all the accounts in the accounts receivable ledger with their balances and the total is a:
A) Schedule of accounts receivable.
B) Controlling account.
C) Subsidiary ledger.
D) Special journal.
E) Schedule of accounts.
Q3) What is the segment return on assets ratio? What is it used for?
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Chapter 8: Cash and Internal Controls
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Q1) On a bank reconciliation, an unrecorded debit memorandum for printing checks is:
A) Added to the book balance of cash.
B) Deducted from the book balance of cash.
C) Deducted from the bank balance of cash.
D) Noted as a memorandum only.
E) Added to the bank balance of cash.
Q2) The internal document prepared to notify the appropriate persons that goods ordered have been received, describing the quantities and condition of the goods is the:
A) Purchase requisition.
B) Invoice.
C) Purchase order.
D) Invoice approval.
E) Receiving report.
Q3) Explain the difference between cash and cash equivalents.
Q4) Basic bank services such as bank accounts, bank deposits, and checking contribute to the control of cash.
A)True
B)False
Q5) List the principles of internal control.
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Chapter 9: Accounting for Receivables
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Q1) Orman Co. sold $80,000 of accounts receivable to First Savings and incurred a 3% factoring fee. Prepare the journal entry for Orman Co. to record the sale.
Q2) Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is maturity value of the note?
Q3) The process of using accounts receivable as security for a loan is known as pledging accounts receivable.
A)True
B)False
Q4) A note that the maker is unable or refuses to pay at maturity is called a dishonored note.
A)True B)False
Q5) A company borrowed $10,000 by signing a six-month promissory note at 5% interest. The amount of interest to be paid at maturity is $25.
A)True
B)False
Q6) Define a note receivable and explain how to calculate the interest due on a short-term note receivable.
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Chapter 10: Plant Assets Natural Resoures and Intangibles
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Q1) Total asset turnover is calculated by dividing net sales by average total assets.
A)True
B)False
Q2) A company purchased a machine on January 1 of the current year for $750,000. Calculate the annual depreciation expense for each year of the machine's life (estimated at 5 years or 20,000 hours, with a salvage value of $75,000) using each of the below-mentioned methods. During the machine's 5-year life its hourly usage was: 3,000; 4,000; 5,000; 5,000; and 3,000 hours.
\[\begin{array} { l | l | l | l }
& \text { Straight-line } & \text { Uhits-of-production } & \text { Double-declining balance } \\
\hline \text { Year I } & & & \\
\hline \text { Year 2 } & & & \\
\hline \text { Yaar 3 } & & & \\
\hline \text { Year 4 } & & & \\
\hline \text { Year 5 } & & & \\
\hline \text { Totals } & & & \end{array}\]
Q3) The federal income tax rules for depreciating assets are known as ________.
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Page 12
Chapter 11: Current Liabilities and Payroll Accounting
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Q1) All of the following statements regarding long-term liabilities are true except?
A) Liabilities that do not have a fixed due date, but are payable on demand, are reported as long-term liabilities.
B) Long-term liabilities can be reported on the balance sheet in a single total or in multiple categories.
C) Long-term liabilities include long-term notes payable, warranty liabilities, lease liabilities, and bonds payable.
D) A single long-term liability can be divided between current and noncurrent sections on the balance sheet.
E) Liabilities not expected to be paid within the longer of one year or the company's operating cycle are reported as long-term liabilities.
Q2) To compute the amount of tax withheld from an employee's pay, employers can use a ________ table.
Q3) The state unemployment tax rates applied to an employer are adjusted according to an employer's merit rating.
A)True
B)False
Q4) Vacation benefits are a type of __________ liability.
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Page 13
Chapter 12: Accounting for Partnerships
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Q1) The Redtail Partnership agrees to dissolve. The cash balance after selling all assets and paying all liabilities is $56,000. The final capital account balances are: Paulson, $33,000; Gray, $27,000; and Chang, ($4,000). Chang agrees to pay $4,000 cash from personal funds to settle his deficiency. Prepare the journal entries to record the transactions required to dissolve this partnership.
Q2) A partnership designed to protect innocent partners from malpractice or negligence claims resulting from the acts of other partners is a __________ partnership.
Q3) Sharon and Nancy formed a partnership by making capital contributions of $130,000 and $195,000 respectively. The annual partnership income of $230,000 is to be allocated assuming a salary allowance of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their initial capital investments; and the balance shared equally. Prepare the entries to record the initial capital investments, the allocation of net income, and close the partner's withdrawal accounts assuming that Sharon withdrew $50,000 and Nancy withdrew $45,000.
Q4) During the closing process, each partner's withdrawals account is closed to ________.
Q5) When a partner invests in a partnership, his/her capital account is ________ for the invested amount.
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Chapter 13: Accounting for Corporations
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Q1) The company has no preferred stock. The company sold 3,000 shares before the end of the year. There were no other stock transactions. The company's earnings per share is:
A) $44.00.
B) $26.67.
C) $1.71.
D) $1.59.
E) $1.65.
Q2) Boron Company is authorized to issue 50,000 shares of $50 par value, 8%, cumulative, fully participating preferred stock, and 750,000 shares of $5 par value common stock. Prepare journal entries to record the following selected transactions that occurred during the company's first year of operations:
May 5 Exchanged 2,200 shares of preferred stock for a building with a market value of $135,000.
July 20 Sold 1,550 shares of preferred stock for $50 cash per share. Dec. 20 Sold 1,000 shares of preferred stock at $52 cash per share.
Q3) The number of shares that a corporation's charter allows it to sell is the ________ stock.
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Chapter 14: Long-Term Liabilities
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Q1) A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927.The present value of a single sum at 8% for 5 years is .6806. Each annual payment equals $75,000. The present value of the note is:
A) $299,452.50.
B) $110,196.89.
C) $56,352.84.
D) $375,000.00
E) $18,784.28.
Q2) ___________leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.
Q3) Payments on installment notes normally include accrued interest plus a portion of the principal amount borrowed.
A)True
B)False
Q4) A company issued 10-year, 9% bonds with a par value of $500,000 when the market rate was 9.5%. The company received $484,087 in cash proceeds. Prepare the issuer's journal entry to record the issuance of the bond.
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Page 16
Chapter 15: Investments
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Q1) If a U.S. company's credit sale to an international customer allows payment to be made in a foreign currency, the sale transaction is recorded using the exchange rate on the date of sale.
A)True
B)False
Q2) Investments in equity securities where the investor has a controlling influence are accounted for using the ________.
Q3) Strickland Corporation has invested in 10% of the outstanding stock of Nez Corporation. Strickland intends to actively manage this investment for profit. This investment is classified as:
A) a held-to-maturity security.
B) a significant influence security.
C) a trading security.
D) a controlling influence security.
E) an available-for-sale security.
Q4) Unrealized Loss-Equity and Unrealized Gain-Equity are permanent equity accounts.
A)True
B)False
Q5) Explain how to record the sale of trading securities.
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Chapter 16: Reporting the Statement of Cash Flows
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Q1) In preparing Marjorie Company's statement of cash flows for the most recent year, the following information is available: \(\begin{array}{llr}
\text { Purchase of equipment } &\$260,000\\
\text { Proceeds from the sale of equipment } &87,000\\
\text { Purchase of land } &91,000
\end{array}\)
Net cash flows from investing activities for the year were:
A) $438,000 of net cash provided.
B) $264,000 of net cash provided.
C) $438,000 of net cash used.
D) $351,000 of net cash used.
E) $264,000 of net cash used.
Q2) The gain or loss from retirement of debt is reported under cash flows from operating activities on the statement of cash flows using the indirect method.
A)True
B)False
Q3) The use of a spreadsheet for analysis is especially useful when preparing the statement of cash flows using the ________ method.
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Chapter 17: Analysis of Financial Statements
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Q1) The evaluation of company performance and financial condition includes evaluation of (1) past and current performance, (2) current financial position, and (3) future performance and risk.
A)True
B)False
Q2) External users of financial information:
A) Make operating decisions for a company.
B) Are not directly involved in operating the company.
C) Make strategic decisions for a company.
D) Include internal auditors and consultants.
E) Are those individuals involved in managing and operating the company.
Q3) Vertical analysis is a tool to evaluate individual financial statement items or groups of items in terms of a specific base amount.
A)True
B)False
Q4) A high level of expected risk suggests a low price-earnings (PE) ratio.
A)True
B)False
Q5) ________ ratios include the price-earnings ratio and dividend yield.
Q6) Describe ratio analysis including its purpose, application, and interpretation.
Page 19
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Chapter 18: Managerial Accounting Concepts and Principles
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Q1) Direct costs are incurred for the benefit of more than one cost object. A)True
B)False
Q2) Its conversion costs total:
A) $12,000,000.
B) $5,000,000.
C) $15,000,000.
D) $10,000,000.
E) $8,000,000.
Q3) A manufacturing company's finished goods inventory on January 1 was $68,000; cost of goods manufactured was $147,000; and the December 31 finished goods inventory was $77,000. What is the cost of goods sold for that year?
Q4) Costs may be classified by many different cost classifications. A)True B)False
Q5) Beginning finished goods inventory plus cost of goods manufactured minus ending finished goods inventory equals cost of goods sold.
A)True B)False
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Chapter 19: Job Order Costing
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Q1) If overhead is overapplied, it means that individual jobs have not been charged enough overhead during the year and the cost of goods sold reported is too low.
A)True
B)False
Q2) A source document that an employee uses to report how much time was spent working on a job or on overhead activities and that is used to determine the amount of direct labor to charge to the job or to determine the amount of indirect labor to charge to factory overhead is called a:
A) Factory Overhead Ledger.
B) Payroll Register.
C) Time ticket.
D) General Ledger.
E) Factory payroll record.
Q3) A job order costing system would be appropriate for a manufacturer of automobile tires.
A)True
B)False
Q4) _______________, or customized production, produces products in response to customer orders.
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Chapter 20: Process Costing
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Q1) Conversion cost per equivalent unit is the combined cost of direct materials, direct labor, and factory overhead per equivalent unit.
A)True
B)False
Q2) The third step in accounting for production activity in a period, before assigning and reconciling costs, is to compute the ________.
Q3) Calculate the equivalent units of conversion.
A) 144,000
B) 110,000
C) 165,000
D) 140,000
E) 130,250
Q4) Process operations, also called process manufacturing or process production, is the ________ production of similar products in a ________ flow of sequential steps.
Q5) Briefly explain the conditions under which job order cost accounting systems and process costing systems are commonly applied.
Q6) A ________ contains features of both process and job order costing systems.
Q7) What are the four steps in accounting for production activity in a period?
Page 22
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) The ratio (proportion) of the sales volumes of the various products sold by a company is called the
Q2) Compute the number of units of Product Z McCoy must sell to break even.
A) 1,350.
B) 6,200.
C) 10,463.
D) 6,750.
E) 3,100.
Q3) To determine the slope of the variable cost from a scatter diagram, divide the change in units by the change in cost.
A)True
B)False
Q4) A cost-volume-profit (CVP) chart is a graph that plots number of units produced on the horizontal axis and dollars of costs and sales on the vertical axis.
A)True
B)False
Q5) The unit contribution margin divided by the selling price per unit is the ________.
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Chapter 22: Master Budgets and Planning
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Q1) List the three important guidelines that should be followed in the budgeting process.
Q2) Webster Corporation is preparing a master budget for the first quarter of the year. The company budgets production of 2,680 units in January, 2,600 units in February and 2,740 units in March. Each unit requires 0.6 hours of direct labor. The direct labor rate is $12 per hour. Compute the budgeted direct labor cost for the first quarter budget.
A) $57,744.
B) $56,160.
C) $48,120.
D) $96,240.
E) $93,600.
Q3) The budgeted balance sheet and income statement are normally completed after preparation of operating and capital expenditure budgets.
A)True B)False
Q4) Guidance for the budget process is usually supplied by a ________ of department heads and other executives responsible for seeing that budgeted amounts are realistic and coordinated.
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) When there is a difference between the actual volume of production and the standard volume of production, which of the following, based solely on fixed overhead, occurs:
A) Volume variance.
B) Production variance.
C) Quantity variance.
D) Overhead cost variance.
E) Controllable variance.
Q2) Should both favorable and unfavorable variances be investigated, or only the unfavorable ones? Explain.
Q3) The fixed overhead variance can be broken down into the ________ variance and the ________ variance.
Q4) How are unfavorable variances recorded? How are favorable variances recorded?
Q5) Companies promoting continuous improvement strive to achieve ________ standards by eliminating inefficiencies and waste.
Q6) Lavoie Company planned to use 18,500 pounds of material costing $2.50 per pound to make 4,000 units of its product. In actually making 4,000 units, the company used 18,800 pounds that cost $2.54 per pound. Calculate the direct materials price variance.
Page 25
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) The amount of the advertising cost that should be allocated to Grinding for the current period is:
A) $45,000.
B) $16,250.
C) $325,000.
D) $54,250.
E) $23,750.
Q2) What is the purpose of a departmental accounting system?
Q3) Administration is allocated based on workers in each department; maintenance is allocated based on square footage. The amount of administration expenses that should be allocated to the Painting Department for the current period is:
A) $ 48,000.
B) $ 32,000.
C) $ 55,000.
D) $103,000.
E) $110,000.
Q4) The investment center return on investment is ________ divided by ________.
Q5) Define joint costs and explain how joint costs can be allocated.
Q6) What is the purpose of a responsibility accounting system?
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) In evaluating capital budgeting alternatives, there are two primary methods that do not consider the time value of money. These methods are ________ and ________. There are also two primary methods that consider the time value of money; these are ________ and ________.
Q2) What is the amount of incremental revenue from rebuilding?
A) $0.60 per unit.
B) $7.00 per unit.
C) $2.40 per unit.
D) $5.00 per unit.
E) $3.00 per unit.
Q3) The payback period method of evaluating an investment fails to consider cash inflows after the point where an investment's costs are fully recovered.
A)True
B)False
Q4) When the amount invested differs substantially across projects, NPV is of limited value for comparison purposes. You have evaluated three projects of substantially different investment amounts using the net present value (NPV) method. How would you decide which one of the projects to select?
Q5) Identify the five steps involved in managerial decision making.
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Chapter 26: Present and Future Values in Accounting
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Q1) Garcia Brass Fixtures is planning on replacing one of its machines in five years by making aone-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1. The deposits will earn 10% interest. How much money will Garcia have accumulated at the end of five years to replace the machine?
Q2) An annuity is a series of equal payments occurring at equal intervals.
A)True
B)False
Q3) An _ _ is a series of equal payments occurring at equal intervals.
Q4) At an annual interest rate of 8% compounded annually, $5,300 will accumulate to a total of $7,210.65 in 5 years. (<sup>PV</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, <sup>FV</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, <sup>PVA</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, and <sup>FVA</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>) (Use appropriate factor(s) from the tables provided.)
A)True
B)False
Q5) Explain the concept of the present value of an annuity.
Q6) Explain the concept of the future value of a single amount.
Page 28
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Chapter 27: Activity-Based Costing
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Source URL: https://quizplus.com/quiz/69634
Sample Questions
Q1) Activity-based costing can be especially effective in situations where many different types of products are manufactured in the same department or departments.
A)True
B)False
Q2) An activity-based costing system usually involves a fewer number of allocation bases compared with a traditional cost allocation system.
A)True
B)False
Q3) How much overhead cost would be assigned to Product KJ22 using the activity-based costing System?
A) $157.87
B) $16,640.87
C) $10,385.22
D) $5,485.50
E) $91,722.47
Q4) Why would a firm use activity-based costing (ABC) rather than traditional methods of cost allocation for overhead?
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