Introduction to Financial Accounting Final
Test Solutions
Course Introduction
Introduction to Financial Accounting provides students with a foundation in the principles and practices of financial accounting, focusing on how organizations record, summarize, and report financial information. The course covers essential topics such as the accounting cycle, preparation of financial statements, measurement of assets and liabilities, and the interpretation of financial information for decision-making. Students will gain practical skills in bookkeeping, transaction analysis, and the use of accounting information systems, equipping them to understand and evaluate the financial health of businesses and organizations.
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 doesn't represent a professional accounting certification?
A)Certified Management Accountant
B)Certified Public Accountant
C)Certified Internal Auditor
D)Certified Tax Accountant
Answer: D
Q2) Atlantic Corporation reported the following amounts at the end of the first year of operations:
Contributed capital $200,000; sales revenue $800,000; total assets $600,000; dividends declared $40,000; and total liabilities $320,000.What are Atlantics' retained earnings at the end of the year and how much expenses were incurred during the year?
A)Retained earnings are $80,000 and expenses incurred totaled $680,000.
B)Retained earnings are $80,000 and expenses incurred totaled $720,000.
C)Retained earnings are $280,000 and expenses incurred totaled $480,000.
D)Retained earnings are $280,000 and expenses incurred totaled $520,000.
Answer: A
Q3) Describe the elements of the balance sheet equation.
Answer: Answer will vary
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3
Chapter 2: Investing and Financing Decisions and the Balance Sheet
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) Selling stock to investors for cash would result in which of the following?
A)A debit to contributed capital and a credit to cash.
B)A credit to both cash and contributed capital.
C)A debit to cash and a credit to contributed capital.
D)A debit to cash and a credit to retained earnings.
Answer: C
Q2) Which of the following direct effects on the accounting equation isn't possible as a result of a single business transaction?
A)An increase in an asset and a decrease in another asset.
B)An increase in an asset and an increase in stockholders' equity.
C)A decrease in stockholders' equity and an increase in an asset.
D)An increase in a liability and an increase in an asset.
Answer: C
Q3) Current liabilities are defined as obligations to be paid within six months. Bloom's Remember
A)True
B)False
Answer: False
Q4) What is the primary objective of financial reporting?
Answer: Answers will vary
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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) A landlord collected $5,000 cash from a tenant for December 2011's rent but the tenant's rent for December is $8,000.Which of the following is true with respect to the landlord's financial statements?
A)$8,000 would be reported on the statement of cash flows.
B)$8,000 would appear on the balance sheet as rent receivable.
C)$8,000 would appear on the income statement as rent revenue earned.
D)$5,000 would appear on the balance sheet as prepaid rent.
Answer: C
Q2) Top Company's 2011 sales revenue was $200,000 and 2010 sales revenue was $180,000.Top's total assets as of December 31,2011 were $150,000 and total assets as of January 1,2011 were $130,000.What is Top's total asset turnover ratio?
A)1.48
B)1.33
C)1.36 D)1.43
Answer: D
Q3) Describe the difference(s)with respect to the cash basis of accounting and the accrual basis of accounting.
Answer: Answers will vary
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Page 5
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) The following income statement was reported for Bauer Inc.for the first year of operations ending December 31,2010 reported (in thousands of dollars):
\[\begin{array} { l r r }
\text { Sales revenue } & & \$ 24,500 \\
\text { Expenses: } & & \\
\text { Cost of Sales } & \$ 12,100 & \\
\text { Salaries and Wages } & 5,300 & \\
\text { Rent } & 900 & \\
\text { Utilities } & 500 & \\
\text { Miscellaneous } & 600 & \\
\text { Total Expenses } & & 19,400 \\
\text { Income before taxes } & & 5,100 \\
\text { Income tax expense } & & 1,785 \\
\text { Net income } & & \$ 3,315
\end{array}\] Requirements:
A.Calculate net profit margin
B.Calculate earnings per share if there are 200,000 shares of common stock outstanding
Q2) Describe the adjusted trial balance.
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Page 6
Chapter 5: Communicating and Interpreting Accounting Information
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111 Verified Questions
111 Flashcards
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Sample Questions
Q1) Common stock and additional-paid in capital represent the capital contributed by shareholders.
A)True
B)False
Q2) The Financial Accounting Standards Board (FASB)oversees the work of the Public Company Accounting Oversight Board (PCAOB).
A)True
B)False
Q3) Intangible assets are reported on the balance sheet as a current asset.
A)True
B)False
Q4) Contributed capital consists of which of the following two accounts?
A)Common stock and Additional paid in capital
B)Common stock and Retained earnings
C)Additional paid in capital and Retained earnings
D)Retained earnings and Cash
Q5) The return on assets ratio will increase when sales increase.
A)True
B)False
Q6) Describe relevance and reliability as they pertain to financial reporting. Page 7
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Page 8
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) Which of the following transactions will result in a decrease in the receivable turnover ratio?
A)The journal entry to record bad debt expense.
B)Writing off an uncollectible account receivable.
C)Selling inventory on account.
D)Collecting an account receivable.
Q2) When completing the bank reconciliation,bank service charges should be deducted from the company's cash balance.
A)True
B)False
Q3) Which of the following is correct when bad debt expense is recorded at year-end?
A)Current assets are not affected.
B)Gross profit will decrease.
C)Income from operations will decrease.
D)Current liabilities will increase.
Q4) When a particular account receivable is determined to be uncollectible,the journal entry to write-off the account reduces net income.
A)True
B)False
9
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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) During periods of decreasing prices,use of the LIFO inventory method will result in a larger amount of inventory than will the use of the FIFO inventory method.
A)True
B)False
Q2) How much were inventory purchases when cost of goods sold was $250,000,beginning inventory was $20,000,and ending inventory was $25,000?
Q3) During the audit of Montane Company's 2010 financial statements,the auditors discovered that the 2010 ending inventory had been overstated by $8,000 and that the 2010 beginning inventory was overstated by $5,000.Before the effect of these errors,2010 pretax income had been computed as $100,000.What should be reported as the correct 2010 pretax income before taxes?
A)$113,000
B)$87,000
C)$105,000
D)$97,000
Q4) The average days to sell inventory decreases as inventory turnover increases.
A)True
B)False
Page 10
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Chapter 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
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125 Verified Questions
125 Flashcards
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Sample Questions
Q1) During 2010,a company purchased a mine at a cost of $3,000,000.The company spent an additional $600,000 getting the mine ready for its intended use.It is estimated that 300,000 tons of mineral can be removed from the mine and the residual value of the mine will be $600,000.During 2010,45,000 tons of mineral were removed from the mine and 35,000 tons were sold.Which of the following statements is correct with respect to the accounting for the mine?
A)The 2010 net income decreased $450,000 as a result of the mining during the year.
B)The book value of the mine decreased $350,000 during 2010.
C)The inventory of minerals increased $450,000 during 2010.
D)The 2010 cost of goods sold was $350,000.
Q2) Which method of depreciation results in periodic depreciation expense that fluctuates from one period to the next,not necessarily in a steadily upward or downward direction?
A)Straight-line
B)Units-of-production
C)Modified accelerated cost recovery system
D)Declining balance
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11
Chapter 9: Reporting and Interpreting Liabilities
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) Which of the following correctly describes the accounting for leases?
A)A capital lease is not reported on the balance sheet as a liability.
B)A capital lease reports an asset on the balance sheet.
C)An operating lease reports an operating asset on the balance sheet.
D)An operating lease reports a liability on the balance sheet.
Q2) Border Company purchased a truck that cost $17,000.The company signed a $17,000 note payable that specified four equal annual payments (at each year-end),each of which includes a payment on the principal and interest on the unpaid balance at 10% per annum.
Requirements:
A.Calculate the amount of each equal payment (round to the nearest dollar).
B.Prepare the journal entry to record the purchase of the truck.
C.Prepare the journal entry to record the first annual payment on the note (assume no interest has been accrued during the year).
D.Will the interest paid with the first annual payment be more or less than the interest paid with the second annual payment? Explain your answer.
Q3) Purchasing inventory on account decreases the quick ratio.
A)True
B)False
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Page 12
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 statements best describes callable bonds?
A)They can be turned in for early retirement at the option of the bondholder.
B)They can be converted to common stock at the option of the bondholder.
C)They can be called for early retirement at the option of the issuer.
D)They can be called for early retirement at the option of the lien holder.
Q2) A bond issued at a premium will pay cash interest in excess of the amount of interest expense recognized for accounting purposes.
A)True
B)False
Q3) Skylar Corporation issued $50,000,000 of its 10% bonds at par on January 1,2010.On December 31,2010 the bonds were trading on the bond exchange at 102.5.Since the issue date,what has happened to the market rate of interest?
A)The market rate increased.
B)The market rate decreased.
C)The market rate stayed the same.
D)The change in the market rate can't be determined.
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Page 13
Chapter 11: Reporting and Interpreting Owners Equity
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101 Verified Questions
101 Flashcards
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Sample Questions
Q1) Which of the following statements doesn't correctly describe preferred stock?
A)Preferred shareholders have a preference with respect to dividend payments.
B)Preferred shareholders have a preference with respect to assets in the event of liquidation.
C)Preferred shareholders have voting rights on a per share basis.
D)Preferred stock typically has a fixed dividend rate.
Q2) A company reported total stockholders' equity of $170,000 on its balance sheet dated December 31,2010.During the year ended December 31,2011,the company reported net income of $20,000,declared and paid a cash dividend of $4,000,declared and distributed a 10% stock dividend with a $5,000 total market value,and issued additional common stock for $40,000.What is total stockholders' equity as of December 31,2011?
A)$234,000
B)$226,000
C)$231,000
D)$221,000
Q3) The issue of $5 par value common stock for $10 per share results in a $10 credit to the common stock account for each share issued.
A)True
B)False
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Page 14
Chapter 12: Reporting and Interpreting Investments in Other Corporations
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) An investment accounted for under the equity method would record an increase in the investment account and create net income for an amount equal to the proportionate share of the investee's reported net income.
A)True
B)False
Q2) Phillips Corporation purchased 1,000,000 shares of Martin Corporation's common stock which constitutes 10% of Martin's voting stock on June 30,2010 for $42 per share.Phillips' intent is to keep these shares beyond the current year.On December 20,2010,Martin paid a $4,000,000 cash dividend.On December 31,Martin's stock was trading at $45 per share and their reported 2010 net income was $52 million.What method of accounting will Phillips use to account for this investment?
A)Amortized cost method.
B)Equity method.
C)Fair value method.
D)Consolidation.
Q3) Held-to-maturity bond investments have to be reported on the balance sheet at fair value.
A)True
B)False
Page 15
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Chapter 13: Statement of Cash Flows
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) The payment of interest on a note payable is a cash flow from a financing activity.
A)True
B)False
Q2) Collection of principal on a note receivable is a cash flow from financing activities.
A)True
B)False
Q3) Bold Company's 2010 income statement reported total sales revenue of $250,000.During 2010,accounts receivable decreased by $20,000 and accounts payable increased $10,000.How much cash was collected from customers during 2010?
A)$230,000
B)$270,000
C)$250,000
D)$280,000
Q4) Cash flows from financing activities include those cash flows with respect to paying previously declared dividends.
A)True
B)False
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16
Chapter 14: Analyzing Financial Statements
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119 Flashcards
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Sample Questions
Q1) The debt to equity ratio is a risk measure used by both investors and lenders.
A)True
B)False
Q2) There are several fundamental purposes decision makers consider when they use financial data.Which of the following statements is not one of those fundamental purposes?
A)Measurement of the current condition of the business.
B)Measurement of past performance of the business.
C)Measurement of the book value of the assets.
D)Prediction of future potential of the business.
Q3) The following data were available for Holiday Company: Sales revenue,$225,000 (including $75,000 cash sales)
Cost of goods sold,$175,000
Average balance in inventory,$20,000
Average balance in accounts receivable,$20,000
Assume 365 days in the year
Calculate each of the following ratios:
Q4) A higher current ratio is preferable for companies with variable cash flows.
A)True
B)False
Page 17
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