Introduction to Financial Accounting
Midterm Exam
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of accounting principles and practices used to record, report, and analyze financial transactions. The course covers the accounting cycle, preparation of financial statements, and the interpretation of key financial reports such as the balance sheet, income statement, and cash flow statement. Students will explore topics including double-entry bookkeeping, accrual accounting, and the impact of financial transactions on business decisions. Designed for those new to accounting, the course emphasizes comprehension of underlying concepts, real-world applications, and ethical considerations in financial reporting.
Recommended Textbook
Financial Accounting 12th Edition by C.
William Thomas
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14 Chapters
2062 Verified Questions
2062 Flashcards
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) The balance sheet includes the:
A)amount of net income or net loss.
B)beginning balance in retained earnings.
C)ending balance in retained earnings.
D)amount of cash dividends paid to stockholders.
Answer: C
Q2) The owner of a ________ is personally liable for all the business's debts.
A)proprietorship
B)corporation
C)limited-liability company
D)All of the above are correct.
Answer: A
Q3) When analyzing a company's income statement,a fact to remember is that:
A)the cost of products sold is another term for gross profit.
B)operating expenses are the costs of everyday operations such as selling expenses.
C)companies are not allowed to offset items such as interest income and interest expense against each other.
D)all expenses will have the word expense after their titles.
Answer: B
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Page 3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) The double-entry system of accounting records the dual effects of transactions on the entity.
A)True
B)False
Answer: True
Q2) A company receives an utility bill and immediately pays it.With this transaction:
A)stockholders' equity is decreased.
B)expenses are decreased.
C)assets are increased.
D)liabilities are increased.
Answer: A
Q3) A business received the current month's utility bill for $2,125,and immediately paid it.Which journal entry is prepared?
A)Debit Accounts Payable for $2,125 and credit Cash for $2,125.
B)Debit Utilities Payable for $2,125 and credit Cash for $2,125.
C)Debit Utilities Expense for $2,125 and credit Cash for $2,125.
D)Debit Operating Expense for $2,125 and credit Accounts Payable for $2,125.
Answer: C
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4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) The revenue principle determines when to record revenue and the amount of revenue to record.
A)True
B)False
Answer: True
Q2) A current ratio of less than 1.0 means that current assets exceed current liabilities.
A)True
B)False
Answer: False
Q3) Prepaid Rent and Unearned Service Revenue are examples of accounts that do not need to be adjusted at the end of the accounting period.
A)True
B)False
Answer: False
Q4) Every adjusting entry must affect both the income statement and the balance sheet.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) If a bookkeeper mistakenly records a disbursement as $69 instead of the correct amount of $96,the error should be shown on the bank reconciliation as a:
A)$27 addition to the balance per books.
B)$27 deduction from the balance per books.
C)$165 addition to the balance per books.
D)$165 deduction from the balance per books.
Q2) Smart hiring practices include:
A)background checks.
B)clear job descriptions.
C)proper training and supervision.
D)all of the above.
Q3) One of the most common types of fraud that impacts the financial statements is the misappropriation of assets.
A)True
B)False
Q4) Managers can use records produced by point-of-sale terminals to check inventory levels.
A)True
B)False
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Chapter 5: Receivables and Revenue
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Sample Questions
Q1) The balance in the Allowance for Uncollectible Accounts is considered prior to the year-end adjustment under:
A)the direct write-off method.
B)the percent-of-sales method.
C)the aging-of-receivables method.
D)both the percent-of-sales and aging-of-receivables methods.
Q2) The entry to write off an Account Receivable under the allowance method:
A)reduces total assets and increases net income.
B)reduces net income and total assets.
C)has no effect on total assets and net income.
D)increases net income and total assets.
Q3) The maturity value of a 6 month,7% note for $70,000,dated May 12 is: (Round your final answer to the nearest dollar. )
A)$2,450.
B)$70,000.
C)$74,900.
D)$72,450.
Q4) The higher the quick ratio,the easier it is to pay current liabilities.
A)True
B)False
Page 7
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) If inventory costs are rising and a company is using LIFO,large purchases of inventory near the end of the year will:
A)increase income taxes paid.
B)decrease income taxes paid.
C)not change the amount of income taxes paid.
D)cannot be determined.
Q2) On May 1,Santelle Company purchased $700 of inventory on account with credit terms of 4/10,net 30.Santelle uses the perpetual inventory system.On May 2,the seller gave Santelle a $100 allowance due to a product defect.What journal entry did Santelle Company prepare on May 2?
A)debit Accounts Payable for $100 and credit Purchase Returns and Allowances for $100
B)debit Accounts Payable for $100 and credit Purchase Discounts for $100
C)debit Cash for $100 and credit Accounts Payable for $100
D)debit Accounts Payable for $100 and credit Inventory for $100
Q3) The LIFO Reserve is the difference between the LIFO cost of inventory and what the cost of that inventory would be under FIFO.
A)True
B)False
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8
Chapter 7: Plant Assets, natural Resources, Intangibles
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Sample Questions
Q1) On June 1,Roadway's Trucking Company paid $9,000 to overhaul the engine on a delivery truck to allow it to be used for two additional years.It also paid $8,000 to change the storage capacity of the truck so that it could haul more merchandise.Which of the following statements is TRUE?
A)The $9,000 is a capital expenditure and the $8,000 is an expense.
B)The $9,000 is an expense and the $8,000 is a capital expenditure.
C)Both items are capital expenditures.
D)Both items are expenses.
Q2) Land is purchased for $300,000.Back taxes paid by the purchaser were $8,500;total costs to demolish an existing building were $12,000 and the cost to clear the land was $22,000.The cost of paving the parking lot was $8,100.The cost of land is ________ and the cost of land improvements is ________.
A)$320,500;$30,100
B)$342,500;$8,100
C)$350,600;$0
D)$342,100;$8,500
Q3) The book value of an asset cannot be less than its residual value.
A)True
B)False
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Page 9
Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) Large companies,like Amazon,typically purchase all of their inventory through accounts payable.
A)True
B)False
Q2) Accounts payable turnover is an important measure of liquidity for a retail business.
A)True
B)False
Q3) Which account is NOT an example of an accrued liability?
A)sales tax payable
B)wages payable
C)interest payable
D)accounts payable
Q4) Failure to record an accrued liability for wages earned by employees causes a company to:
A)understate net income.
B)overstate assets.
C)overstate liabilities.
D)overstate stockholders' equity.
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Page 10
Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) A leverage ratio of exactly 1.0 would mean that assets exactly equal total liabilities.
A)True
B)False
Q2) Schmid Corporation issues $450,000,12%,5-year bonds on January 1,2019 for $439,000.Interest is paid semiannually on January 1 and July 1.If Schmid uses the straight-line method of amortization of bond discount,the amount of bond interest expense on July 1,2019 is:
A)$25,900.
B)$27,000.
C)$28,100.
D)$55,100.
Q3) Generally accepted accounting principles encourage companies to report the fair value of their long-term debt.
A)True
B)False
Q4) Callable bonds allow the issuer to pay off the bonds whenever the issuer chooses.
A)True
B)False
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11
Chapter 10: Stockholders Equity
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Sample Questions
Q1) The chronological order of dates for cash dividends are:
A)date of record,date of declaration,date of payment.
B)date of annual Board of Directors meeting,date of payment,date of record,date of declaration.
C)date of annual Board of Directors meeting,date of record,date of declaration,date of payment.
D)date of declaration,date of record,date of payment.
Q2) The charter reveals the number of shares of common stock a corporation is authorized to issue.
A)True
B)False
Q3) Before a company can pay dividends to the common stockholders,the owners of cumulative preferred stock must receive:
A)the current year's dividends,but not dividends in arrears.
B)neither the current year's dividends nor dividends in arrears.
C)all dividends in arrears plus the current year's dividends.
D)all dividends in arrears,but not the current year's dividends.
Q4) What is the formula for the price-earnings ratio? What does this ratio measure?
Q5) List three reasons why corporations purchase their own stock.
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) The statement of cash flows provides information about:
A)a company's ability to pay interest and dividends.
B)a company's future cash flows.
C)decisions made by a company's management.
D)all of the above.
Q2) The statement of cash flows will NOT help predict future cash flows.
A)True
B)False
Q3) On a statement of cash flows prepared with the indirect method,investing activities do NOT include:
A)sale of investments that are not cash equivalents.
B)receipt of interest on investments.
C)collection of note receivable.
D)lending money to an employee.
Q4) A statement of cash flows accomplishes all of the following EXCEPT:
A)determines the ability of the company to pay dividends and interest.
B)provides information about the cash receipts and cash payments during a period.
C)lists revenues and expenses.
D)predicts future cash flows.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Carey's Department Store had net sales of $20 million and cost of goods sold of $16 million for the year.The beginning inventory for the year was $3 million.The ending inventory for the year was $5 million.What was the days' inventory outstanding? (Round any intermediary calculations to two decimal places and your final answer to the nearest day. )
A)23 days
B)122 days
C)91 days
D)73 days
Q2) A firm's ability to pay current liabilities can be evaluated using the quick ratio and the current ratio.
A)True
B)False
Q3) The financial statements are the responsibility of ________,and the responsibility of the ________ is to express an opinion on the financial statements based on the audit.
A)auditor,management
B)SEC,auditor
C)management,SEC
D)management,auditor
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Chapter 13: Investments
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Sample Questions
Q1) On January 1,of the current year,Rod Corporation purchased 40% of the outstanding stock of Alamo Corporation for $480,000.Net income reported by Alamo for the year was $210,000.Dividends declared and paid by Alamo during the year were $40,000.The amount of investment revenue that Rod should recognize for the current year is:
A)$16,000.
B)$68,000.
C)$84,000.
D)$100,000.
Q2) Under the equity method,when the investee reports net income,the Equity-method Investment account increases.
A)True
B)False
Q3) At maturity,the carrying amount of a bond should be equal to its face value. A)True
B)False
Q4) A noncontrolling interest arises in all consolidations,regardless of the parent's level of ownership.
A)True
B)False
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Chapter 14: Time Value of Money
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Sample Questions
Q1) You are calculating the present value of $10,000 that you will receive five years from now. Which table will you use to calculate the present value of that $10,000?
A)Present Value of $1 table
B)Future Value of $1 table
C)Present Value of Ordinary Annuity of $1 table
D)Future Value of Ordinary Annuity of $1 table
Q2) A single amount of $4700 is to be received in 3 years.If the single amount is discounted at 6% for 3 periods,the present value is ________.The present value of $1 for 3 periods at 6% is 0.840.The present value of an ordinary annuity of $1 for 3 periods at 6% is 2.673.(Round your final answer to the nearest dollar. )
A)$3948
B)$4418
C)$4700
D)$12,563
Q3) An ordinary annuity is an investment that provides multiple receipts of an equal amount at fixed year-end intervals over the investment's duration.
A)True
B)False
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Page 16