Introduction to Financial Accounting
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Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles, concepts, and techniques used to record, classify, and report financial transactions of a business. This course covers the accounting cycle, preparation and analysis of financial statements, and the application of accounting standards to real-world scenarios. Emphasis is placed on understanding how financial information is used by external stakeholders such as investors, creditors, and regulatory agencies to make informed decisions. Through practical exercises and case studies, students develop the skills necessary to analyze financial data, maintain accounting records, and ensure the accuracy and integrity of financial reports.
Recommended Textbook Principles of Accounting 12th Edition by Belverd E. Needles
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Chapter 1: Accounting Principles and the Financial Statements
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Q1) Corporations represent the largest number of businesses in the United States. A)True
B)False Answer: False
Q2) The personal resources of any partner can be called upon to pay the obligations of the partnership.
A)True
B)False Answer: True
Q3) The personal assets and liabilities of an owner are not shown on the business's financial statements because of the
A)separate entity concept.
B)sole proprietorship concept.
C)financial position concept.
D)objectivity concept.
Answer: A
Q4) Buying and selling goods and services are examples of operating activities.
A)True
B)False Answer: True
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) The double-entry system
A)requires that each transaction be recorded with at least one debit and one credit.
B)requires that the total amount of the debits must always equal the total amount of the credits.
C)is based on the principle of duality.
D)All of these choices.
Answer: D
Q2) A $155 credit item is posted as a debit.The trial balance column totals therefore will differ by
A)$310
B)$620
C)$155
D)$0
Answer: A
Q3) All sales transactions generate immediate cash.
A)True
B)False
Answer: False
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Chapter 3: Adjusting the Accounts
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Sample Questions
Q1) Which of the following accounts probably would not appear in a trial balance but probably would appear in an adjusted trial balance?
A)Accumulated Depreciation-Equipment
B)Cash
C)Office Supplies Expense
D)Owner's Withdrawals
Answer: C
Q2) A customer's promise to pay for goods or services
A)increases the company's liabilities.
B)decreases the company's Cash account.
C)creates a liability for the company.
D)increases the assets of the company.
Answer: D
Q3) The adjusted trial balance may contain accounts that did not appear in the trial balance.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Q1) The preparation of adjusting entries
A)is easy because they are simply copied from the work sheet.
B)is difficult,and therefore they must first be entered into the journal in pencil.
C)typically precedes preparation of the work sheet.
D)typically succeeds the preparation of the financial statements.
Q2) Despite the many uses of laptop computers,they cannot be used to prepare work sheets.
A)True
B)False
Q3) When a company has net income,the Income Summary account appears as a credit on the post-closing trial balance.
A)True
B)False
Q4) Preparing the work sheet and recording closing entries are important steps that save money and prevent mistakes.
A)True
B)False
Q5) Briefly distinguish between adjusting and closing entries.
Q6) What two broad purposes do closing entries serve?
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Chapter 5: Foundations of Financial Reporting and the
Classified Balance Sheet
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Q1) Which of the following should be classified as an intangible asset?
A)Land held for future use
B)Long-term notes receivable
C)Special funds established to pay off a debt
D)Copyright
Q2) Intangible assets could include all except
A)Trademark
B)Land held for future use
C)Patent
D)Goodwill
Q3) A company's management can improve overall profitability by decreasing the profit margin, the asset turnover,or both.
A)True
B)False
Q4) The debt to equity ratio equals
A)owner's equity divided by total liabilities.
B)owner's equity divided by long-term liabilities.
C)total liabilities divided by owner's equity.
D)current liabilities divided by average owner's equity.
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Chapter 6: Accounting for Merchandising Operations
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Q1) Whalen Mining,a U.S company,purchases products from a British company for £1,000,000.Between the dates of purchase and payment,the exchange value of the pound decreased from $2.00 to $1.90.Compute Whalen Mining's exchange gain or loss.Where would the gain or loss be reported?
Q2) If a U.S.company purchases goods from a British supplier for a fixed number of U.S.dollars,an exchange gain or loss would not arise for the U.S.company,even if the exchange rate has changed between the time of purchase and the time of payment.
A)True
B)False
Q3) Interest paid on debt would be entered on the multistep income statement in the category called A)selling expenses.
B)other revenues and expenses.
C)general and administrative expenses.
D)operating expenses.
Q4) Wolf Equipment uses a perpetual inventory method.Discuss how Wolf Equipment accounts for purchase returns and allowances.
Q5) Describe how to compute the cost of goods available for sale.
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Chapter 7: Inventories
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Sample Questions
Q1) Which of the following accounts would not appear as an asset on a manufacturer's balance sheet?
A)Finished Goods
B)Work in Process
C)Factory Overhead
D)Raw Materials
Q2) Ending merchandise inventory for LIFO will be the same dollar amount under a periodic inventory system as under a perpetual inventory system.
A)True
B)False
Q3) In a period of rising prices,which inventory method is best to use for tax purposes?
A)FIFO
B)Average-cost
C)Specific identification
D)LIFO
Q4) What is the chief objective of supply-chain management? How is it accomplished?
Q5) In practice,why is it often difficult to apply the retail method in determining the cost of ending inventory?
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Chapter 8: Cash and Internal Control
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Sample Questions
Q1) At the end of each day,the cashier should be the one responsible for comparing the amount on the cash register tape with the day's cash additions to the cash register.
A)True
B)False
Q2) The Sarbanes-Oxley Act of 2002 requires management to acknowledge its responsibility for internal control
A)in the company's annual report.
B)in a public statement posted on social media.
C)in a posted notice at the front of company headquarters.
D)in all of these.
Q3) A purchase order is sent from a company's
A)purchasing department to the supplier.
B)requesting department to the supplier.
C)requesting department to its accounting department.
D)treasurer to the supplier.
Q4) The materiality concept dictates that no internal controls be established over petty cash.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) The direct charge-off method of recognizing uncollectible accounts is not in accordance with generally accepted accounting principles.
A)True
B)False
Q2) Which of the following statements is false regarding promissory notes?
A)They are sometimes used to extend past-due accounts.
B)They can be resold to banks.
C)They must be held by the maker until maturity.
D)They are often received upon the sale of machinery and automobiles.
Q3) A company that factors its receivables will have a less favorable receivable turnover than a company that does not factor.
A)True
B)False
Q4) The maturity value of a 60-day,9 percent,$4,000 note receivable is
A)$3,940.66.
B)$3,641.78.
C)$4,059.18
D)$4,360.24.
Q5) Explain the two methods used to estimate uncollectible accounts.
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Chapter 10: Long -Term Assets
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Sample Questions
Q1) Interest costs are included in the cost of an asset in conjunction with A)long-term assets being purchased.
B)long-term assets acquired for speculative purposes.
C)long-term assets being constructed.
D)natural resources and intangible assets.
Q2) A revenue expenditure results in a
A)debit to an expense account.
B)credit to an expense account.
C)debit to an asset account.
D)credit to an asset account.
Q3) Customer lists are classified as intangible assets.
A)True
B)False
Q4) A capital expenditure will result in an immediate increase in long-term assets.
A)True
B)False
Q5) In accounting,depreciation means the decline in value of an asset. A)True
B)False
Q6) What commitments must a company account for in determining its free cash flow?
Page 12
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Chapter 11: Current Liabilities and Fair Value Accounting
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Q1) Contrast the accounting problems presented by definitely determinable liabilities and those associated with estimated liabilities.
Q2) A liability for dividends exists only when the board of stockholders requests them.
A)True
B)False
Q3) Days' payable is the shortest in which of the following industries?
A)Grocery stores
B)Computers
C)Machinery
D)Auto and home supply
Q4) Which of the following statements is true regarding the time value of money?
A)Compound interest will produce equal amounts of interest each period on a fixed deposit.
B)Earning simple interest is more beneficial than earning compound interest.
C)When making a purchase,it is better to make payment as soon as possible.
D)It is better to receive $1 now than a year from now.
Q5) Only the unused portion of a line of credit is recognized as a liability.
A)True
B)False
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Chapter 12: Accounting for Partnerships
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Q1) Which of the following will not result in dissolution of a partnership?
A)Incapacitation of a partner
B)Negative capital balance of a partner
C)Bankruptcy of a partner
D)Admission of a new partner
Q2) A partnership agreement need not be in writing.
A)True
B)False
Q3) Each partner has a separate Capital,Withdrawals,and Income or Loss account.
A)True
B)False
Q4) Accounting for a partnership comes closer to accounting for a corporation than to accounting for a sole proprietorship.
A)True
B)False
Q5) By meeting certain conditions,a company that sets up an Special-purpose entity (SPE)can legitimately avoid including the debt of the SPE on its balance sheet A)True B)False
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Chapter 13: Accounting for Corporations
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Q1) The liability of a stockholder is usually limited to the stockholder's investment in the corporation.
A)True
B)False
Q2) How should dividends in arrears be shown on a corporation's balance sheet?
A)As an increase in liabilities.
B)In a note or in the body of the financial statements.
C)As a decrease in assets.
D)As an increase in stockholders' equity.
Q3) Firehawk Corporation had net income of $560,000 in 20x5 and paid dividends of $440,000 on 200,000 shares of outstanding common stock.Total stockholders' equity at the end of 20x5 was $2,060,000 and the market price for each share of Firehawk's stock was $58 throughout 20x5.Additionally,the company paid preferred dividends of $2.40 per share during 20x5.Based on this information,what is the dividend yield on Firehawk's stock?
A)21.36%
B)78.57%
C)3.79%
D)7.93%
Q4) Define outstanding stock.
Page 15
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Chapter 14: Long Term Liabilities
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Q1) The amortization of a bond discount will result in reporting an amount of interest expense for an interest period that
A)exceeds the amount of cash to be paid for interest for the period.
B)is less than the amount of cash to be paid for interest for the period.
C)has no predictable relationship with the amount of cash to be paid for interest for the period.
D)equals the amount of cash to be paid for interest for the period.
Q2) Interest on bonds usually is paid monthly.
A)True
B)False
Q3) Under a defined benefit pension plan,
A)the pension expense account must be determined by actuarial calculations.
B)the employer guarantees the employee certain benefits upon retirement.
C)the annual contribution is based on estimated future benefits.
D)All of these choices.
Q4) When the board of directors decides to issue bonds,it is necessary to make an entry to record the SEC's authorization of the bond issue.
A)True
B)False
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Chapter 15: The Statement of Cash Flows
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Q1) For purposes of preparing the statement of cash flows,cash is defined as including both cash and cash equivalents.
A)True
B)False
Q2) Issuance of notes,either long- or short-term,would be reflected in the financing activities section of the statement of cash flows.
A)True
B)False
Q3) If the indirect method is used to prepare a statement of cash flows,which of the following would be added to net income to arrive at net cash flows from operating activities?
A)Amortization expense.
B)Depreciatione expense.
C)Loss on sale of land.
D)All of these choices.
Q4) Determining net cash flows from operating activities using the indirect method reveals cash collected from customers.
A)True
B)False
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Chapter 16: Financial Statement Analysis
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Q1) When using an index number,one sets the most recent number in a series equal to 100.
A)True
B)False
Q2) Per the Sarbanes-Oxley Act of 2002,a compensation committee,comprised of a public corporation's top executives,must be established to determine the salaries and wages of its employees.
A)True
B)False
Q3) In horizontal analysis,the base year is the most current year being examined.
A)True
B)False
Q4) For details about the financial histories of companies,one could consult publications of Moody's and Standard & Poor's.
A)True B)False
Q5) Dividend yield is a liquidity ratio. A)True
B)False
Q6) Briefly explain a "big bath" including when it occurs and why it occurs.
Page 18
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Chapter 17: Managerial Accounting and Cost Concepts
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Q1) Managerial accounting information is primarily used by A)lenders.
B)supply-chain partners.
C)governmental agencies.
D)customers.
Q2) Which of the following is a difference between managerial and financial accounting?
A)Managerial accounting reports non-monetary information whereas financial accounting reports both monetary and non-monetary information.
B)Managerial accounting is used by government authorities whereas financial accounting is used by stockholders.
C)Managerial accounting prepares reports monthly whereas financial accounting prepares reports annually.
D)Managerial information is confidential whereas financial accounting information is publicly available.
Q3) Management accounting formats are identical for all companies.
A)True
B)False
Q4) Give two examples of each stage in the management process.
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Chapter 18: Costing Systems: Job Order Costing
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Q1) The balance in the Work in Process Inventory account on October 1 was $14,000,and the balance on October 31 was $85,400.Costs incurred during the month were as follows: direct materials,$55,820;direct labor,$58,420;and overhead,$40,000.What amount was transferred to the Finished Goods Inventory account during October?
A)$82,840
B)$154,240
C)$239,640
D)$140,240
Q2) Which of the following tasks succeeds the disposing under- or overapplied overhead?
A)Preparation of financial statements
B)Comparison of actual and allocated overhead amounts
C)Estimation of overhead costs
D)Establishment of predetermined overhead rate
Q3) Which of the following cannot be learned by analyzing job order cost cards?
A)The balance of Work in Process Inventory at the end of the period
B)The cost of all jobs done for a particular customer
C)The completion time of jobs yet to be completed
D)The type of products ordered by a particular customer
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Chapter 19: Costing Systems Process Costing
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Q1) Equivalent units for direct materials of Cloud Nine International are
A)180,000.
B)206,000.
C)176,000.
D)191,000.
Q2) During April,Department A started 400,000 units of product in a particular production process.The beginning work in process inventory was 40,000 units,and the ending inventory was 50,000 units.Direct materials are introduced at the start of processing,and beginning and ending inventories are considered to be 40 percent complete with respect to conversion costs.Department A uses the FIFO costing method. The number of units started and completed in Department A during April was
A)450,000.
B)350,000.
C)360,000.
D)160,000.
Q3) The number of equivalent units for direct materials is the same as the number for conversion costs.
A)True
B)False
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Chapter 20: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) Which of the four levels of the cost hierarchy would be used by a dress manufacturer using an activity-based management for the routine maintenance of sewing machines?
A)Unit-level activity
B)Batch-level activity
C)Product-level activity
D)Facility-level activity
Q2) Last year,Amanda Jones opened an ice cream parlor in a busy shopping center.She spent a lot on advertising and attracted many customers into the store,but a few customers made turned up and sales were declining.Amanda paid attention to questions and requests made by customers and determined that they often requested items that were within the scope of her business but that she did not carry.When she offered to order items for her customers,delivery was usually too late and,yet again,sales were lost.What measures should Amanda take to improve her business?
Q3) The JIT operating philosophy requires a push-through production system.
A)True
B)False
Q4) How do managers measure an activity's performance?
Q5) When using a just-in-time system,what qualities should be a supplier posses?
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) An organization's theoretical operating capacity is the level at which its management expects to operate during a normal business environment.
A)True
B)False
Q2) In a graph of cost-volume-profit analysis,the
A)total revenue line typically begins at a required minimum level.
B)slope of the total cost line is dependent on the variable cost per unit.
C)total cost line normally begins at zero.
D)sales level at which total cost and total revenue lines intersect is also equal to fixed costs.
Q3) In a breakeven graph,the slope the total cost line is dependent on the variable costs per unit.
A)True
B)False
Q4) The number of pizzas that must be sold to obtain a monthly profit of $20,000 is
A)2,000 pizzas.
B)5,000 pizzas.
C)2,500 pizzas.
D)7,500 pizzas.
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Chapter 22: The Budgeting Process
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Q1) Which of the following forms the base of all operating budgets?
A)Direct materials purchases in units
B)Production budget (units)
C)Capital expenditures budget
D)Unit sales forecast
Q2) The main difference in the master budget process for manufacturing,retail,and service organizations is found in the kinds of operating budgets prepared by the organization.
A)True
B)False
Q3) The direct labor budget is needed to prepare the production budget.
A)True
B)False
Q4) Evaluating the value chain and capacity issues are not part of the budgeting process.
A)True
B)False
Q5) Only the lowest levels of management can be evaluated using budgets.
A)True
B)False
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Chapter 23: Flexible Budgets and Performance Analysis
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Q1) For residual income figures to be comparable on a companywide basis,all investment centers must have equal access to resources and similar asset investment bases.
A)True
B)False
Q2) A flexible budget is derived by dividing actual unit costs by the standard unit costs.
A)True
B)False
Q3) The equation for economic value added excludes operating income and current liabilities.
A)True
B)False
Q4) Write a brief note on the performance-based pay.
Q5) Identify the following and show the formula for calculating each:
a.ROI
b.RI
c.EVA
Q6) Identify and describe the five different responsibility centers,and provide one example of each.
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Chapter 24: Standard Costing and Variance Analysis
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Q1) The Silent Door Company manufactures soundproof doors.Each door requires two pieces of 16-gauge sheet steel measuring 94 inches by 50 inches.The standard cost of each piece of steel is $150.During the month of July,2,040 doors were started and completed,and there were no beginning or ending work in process inventories.Accounting records revealed that 4,200 pieces of sheet steel were purchased during July at a cost of $623,700.All 4,200 pieces were used during the month.Compute the direct materials price and direct materials quantity variances for July production,assuming the price variance is isolated at the time of purchase.Note whether the variances are favorable or unfavorable.Round to the nearest dollar.
Q2) A standard unit cost can be determined after developing standard costs for direct materials,direct labor,and variable and fixed overhead.
A)True
B)False
Q3) The direct materials price standard is a carefully derived estimate of what a particular type of direct material will cost when purchased during the next accounting period.
A)True B)False
Q4) Mention a few reasons for an unfavorable direct labor cost variance.
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Chapter 25: Short-Run Decision Analysis and Capital Budgeting
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Q1) Kyle Inc.manufactures automobiles.In recent past,the company started buying brake shoes from an external vendor.Which of the following decisions is made by the company in this example?
A)Special order decision
B)Segment profitability decision
C)Outsourcing decision
D)Capital investment decision
Q2) What are the two steps in the analysis of a sales mix decision?
Q3) The minimum rate of return on a capital investment is set by the management of a company.
A)True
B)False
Q4) Managers rely strictly on financial information when faced with decisions. A)True
B)False
Q5) The carrying value of the old asset in a machine replacement decision is relevant. A)True
B)False
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