Introduction to Financial Accounting Practice
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Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles, concepts, and procedures used in financial accounting. The course covers the preparation, analysis, and interpretation of financial statements, including the balance sheet, income statement, and statement of cash flows. Emphasis is placed on the accounting cycle, double-entry bookkeeping, and the application of generally accepted accounting principles (GAAP). Students will also explore how financial information is used by stakeholders such as managers, investors, and regulators to make informed economic decisions. Throughout the course, real-world examples and exercises help students develop practical skills in recording transactions, adjusting accounts, and evaluating financial performance.
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Financial Accounting 15th Edition by Jan Williams
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Chapter 1: Accounting: Information for Decision Making
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Q1) A statement of cash flows depicts the way profits have changed during a designated period.
A)True
B)False
Answer: False
Q2) To understand and use accounting information in making economic decisions, you must understand:
A) The nature of economic activities that accounting information describes.
B) The assumptions and measurement techniques involved in developing accounting information.
C) Which information is relevant for a particular type of decision that is being made.
D) All of the above.
Answer: D
Q3) Return on investment is the same as return of investment.
A)True
B)False
Answer: False
Q4) The timeliness of the information is more critical than its completeness. Answer: Management
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Chapter 2: Basic Financial Statements
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Q1) If total assets equal $345,000 and total owners' equity equal $120,000, then total liabilities must equal:
A) $465,000.
B) $225,000.
C) $120,000.
D) Cannot be determined from the information given.
Answer: B
Q2) On January 6, total assets of the business amount to:
A) $826,650.
B) $994,950
C) $957,000.
D) $950,400.
Answer: B
Q3) The amount of owners' equity in a business is not affected by:
A) The percentage of total assets held in cash.
B) Investments made in the business by the owner.
C) The profitability of the business.
D) The amount of dividends paid to stockholders.
Answer: A
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Chapter 3: The Accounting Cycle: Capturing Economic Events
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Q1) On June 6, the bookkeeper for Creative Band, Inc makes this entry: This transaction:
A) Decreases total assets.
B) Involves the sale of equipment for $7,400.
C) Increases total assets $7,400.
D) Increases liabilities.
Answer: D
Q2) Liability accounts should only be debited and never credited.
A)True
B)False
Answer: False
Q3) If the number of debit entries in an account is greater than the number of credit entries, the account will have a debit balance.
A)True
B)False
Answer: False
Q4) When making a general journal entry, there can only be one debit and one credit.
A)True
B)False
Answer: False
Page 5
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Q1) Before making month-end adjustments, net income of Cardinal Company was $116,000 for March. Adjusting entries are necessary for the following items: -Depreciation for the month of March: $2,300.
-Interest income accrued to March 31, on deposits in banks: $800.
-Supplies used in March: $100.
-Fees earned in March that had been collected in advance: $2,600. After recording these adjustments, net income for March is:
A) $112,400.
B) $113,620.
C) $117,000.
D) $110,800.
Q2) Under accrual accounting, fees received in advance from customers should be shown as being earned:
A) When cash is collected.
B) When services are performed or goods delivered.
C) When tax rates are low.
D) When tax rates are high.
Q3) The adjusted trial balance may be used in place of the income statement.
A)True
B)False
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Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Q1) Dividends declared are an expense and reduce net income.
A)True
B)False
Q2) Refer to the information above. The total debits in the After-Closing Trial Balance will equal:
A) $25,375.
B) $29,125.
C) $40,875.
D) $18,125.
Q3) Which of the following journal entries is required to close the Income Summary account of a profitable company?
A) Debit Income Summary, credit Retained earnings.
B) Credit Income Summary, debit Retained earnings.
C) Debit Income Summary, credit Capital Stock.
D) Credit Income Summary, debit Capital Stock.
Q4) What is the total debits on the after-closing trial balance?
A) $222.
B) $372.
C) $233.
D) $161.
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Chapter 6: Merchandising Activities
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Q1) Operating income is:
A) A measure of profitability after deducting cost of sales from net sales.
B) A measure of profitability after deducting cost of sales and all expenses incurred in operating the business from net sales.
C) A measure of liquidity after deducting cost of sales from net sales.
D) The equivalent of net sales.
Q2) Which of the following businesses is most likely to use a periodic inventory system?
A) An aircraft manufacturer.
B) A supermarket that is part of a national chain.
C) An independently owned art gallery with a manual accounting system.
D) A beer bar.
Q3) If World of Sound uses a perpetual inventory system, the journal entry to record the purchase on May 18th would include which of the following?
A) A debit to the Purchases account for $38,250.
B) A debit to the Cost of Goods Sold for $38,250.
C) A credit to Inventory for $38,250.
D) A debit to Inventory for $38,250.
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Chapter 7: Financial Assets
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Q1) Under the direct write-off method of accounting for uncollectible accounts:
A) The current year uncollectible accounts expense is less than the expense would be under the income statement approach.
B) The relationship between the current period net sales and current period uncollectible accounts expense illustrates the matching principle.
C) The Allowance for Doubtful Accounts is debited when specific accounts receivable are determined to be worthless.
D) Accounts receivable are not stated in the balance sheet at net realizable value, but at the balance of the Accounts Receivable ledger account.
Q2) On October 1, 2011, Coast Financial lent Barr Corporation $300,000, receiving in exchange a nine-month, 12% note receivable. Coast ends its fiscal year on December 31, and makes adjusting entries to accrue interest earned on all notes receivable. The interest earned on the note receivable from Barr Corporation during 2012 will amount to:
A) $9,000.
B) $18,000.
C) $27,000.
D) $36,000.
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Chapter 8: Inventories and the Cost of Goods Sold
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Q1) An advantage to the LIFO method of accounting for inventory is that it values the cost of goods sold at current replacement costs.
A)True
B)False
Q2) In a periodic inventory system, recording a sale on account involves crediting which of the following accounts?
A) Only Sales.
B) Sales and Inventory.
C) Sales and Cost of Goods Sold.
D) Sales, Inventory, and Cost of Goods Sold.
Q3) What were the goods available for sale for the month?
A) $129,000.
B) $171,000.
C) $235,000.
D) $304,750.
Q4) During periods of inflation, the LIFO cost flow assumption will yield a lower inventory value than FIFO.
A)True B)False
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Chapter 9: Plant and Intangible Assets
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Q1) The gain on the disposal of equipment is recognized when:
A) The book value of the equipment is greater than the value received.
B) The book value of the equipment is less than the value received.
C) A salvage value exists.
D) A gain should not be recognized on the disposal of an asset.
Q2) Which depreciation method is most commonly used among publicly owned corporations?
A) Straight-line.
B) Double-declining balance.
C) Units-of-output.
D) All of the various depreciation methods are used equally.
Q3) Mayer Instrumentation sold a depreciable asset for cash of $300,000. The original cost of the asset was $1,200,000. Mayer recognized a gain of $45,000 on the sale. What was the amount of accumulated depreciation on the asset at the time of its sale?
A) $945,000.
B) $255,000.
C) $1,155,000.
D) $990,000.
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Chapter 10: Liabilities
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Q1) Which of the following is not true about postretirement benefits?
A) Postretirement costs should be recognized as expense as the workers earn the right to receive the benefits.
B) Most corporations have fully funded their postretirement benefits.
C) Unfunded postretirement costs are a non-cash expense.
D) A corporation's liability for postretirement benefits is equal to the present value of estimated future payments.
Q2) What is the total cash (including interest) paid for the building purchased by Able?
A) $800,000.
B) $836,000.
C) $854,000.
D) $816,000.
Q3) The term "junk bonds" describes bonds with:
A) Low interest rates.
B) Indefinite maturity dates.
C) Low maturity values.
D) High risk.
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Chapter 11: Stockholders Equity: Paid-In Capital
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Q1) Refer to the information above. What was the average issue price per share of common stock?
A) $2.75.
B) $1.25.
C) $1.50.
D) $3.75.
Q2) Financial reporting of net earnings and retained earnings
The 2012 annual report of Kirtland Products disclosed net earnings of approximately $87 million for the fiscal year ending March 31, 2012, and retained earnings of approximately $485 million as of March 31, 2012.
(a) Which financial statement shows computation of the net earnings?
(b) Which financial statement includes the retained earnings figure of $485 million?
(c) Explain why Kirtland reports $87 million as net earnings, but a much larger amount, $485 million, as retained earnings.
Q3) When a corporation fails to pay a dividend one year on its common stock, it is said to be "in arrears."
A)True
B)False
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Chapter 12: Income and Changes in Retained Earnings
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Q1) The statement of stockholders' equity:
A) Is a required financial statement.
B) May be issued as a substitute for the statement of retained earnings.
C) Shows the changes during the year in all stockholders' equity accounts except retained earnings.
D) Is a statement sent to each stockholder showing that person's return on equity.
Q2) A prior period adjustment appears in the financial statements of the current year when:
A) An error was made in computing the net income of the current period.
B) An error was made in measuring the net income of a previous year or years.
C) An extraordinary loss in a prior year was included among normal results of operations in the prior year.
D) Earnings per share figures from prior years are restated to reflect the increased number of shares outstanding due to a stock split or a stock dividend.
Q3) Discontinued operations should be shown on the statement of retained earnings net of taxes.
A)True
B)False
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Chapter 13: Statement of Cash Flows
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Q1) In a statement of cash flows, payments of dividends are classified as:
A) Operating activities.
B) Financing activities.
C) Investing activities.
D) Costs and Expenses
Q2) All of the following are considered cash equivalents except:
A) Marketable securities.
B) Money market funds.
C) Commercial paper.
D) Treasury bills.
Q3) Large cash flows from operations are more important to financial statement analysts over the long term than cash flows from financing or investing.
A)True
B)False
Q4) Compute the amount of cash received from customers during the current year.
A) $265,000.
B) $255,000.
C) $260,000.
D) $40,000.
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Chapter 14: Financial Statement Analysis
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Q1) Working capital equals:
A) $560,000.
B) $530,000.
C) $270,000.
D) $900,000.
Q2) Eleva Corporation's inventory turnover for 2011 is closest to:
A) 6.67 times.
B) 3.99 times.
C) 4.15 times.
D) 94 days.
Q3) How would a company's working capital be affected if a substantial amount of accounts payable were paid in cash?
A) It would be unaffected.
B) It would fall.
C) It would increase.
D) The change would depend on the relationship between the payables liquidated and current liabilities.
Q4) The lower the current ratio, the more liquid the company appears.
A)True
B)False
Page 16
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Chapter 15: Global Business and Accounting
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Q1) "Convergence" means abandoning a country's financial reporting standards and replacing them with:
A) International Accounting Standards.
B) International Financial Accounting Standards.
C) Generally Accepted Accounting Principles.
D) Securities and Exchange Commission Principles.
Q2) The statement that "the yen has fallen against the dollar" means that the yen has become less valuable relative to the dollar.
A)True
B)False
Q3) The Foreign Corrupt Practices Act allows Americans doing business in countries where bribes are legal to also negotiate bribes.
A)True
B)False
Q4) In a planned economy, the government uses central planning to allocate resources and determines output among various segments of the economy.
A)True
B)False
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Chapter 16: The Time Value of Money
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Q1) The lower the discount rate of an investment, the lower the present value of the investment.
A)True B)False
Q2) If you invested $10,000 at 6% on your 20<sup>th</sup> birthday how much would you have on your 40<sup>th</sup> birthday?
A) $32,071.40.
B) $31,180.00.
C) $36,785.59.
D) $12,158.12.
Q3) Joe Notsosmart invested $10,000 at 8% simple interest for 5 years. How much more would he have received if he had received compound interest annually at the same rate?
A) $4,000.
B) $4,693.
C) $693.
D) $400.
Q4) The market price of a bond is equal to its present value.
A)True B)False
Page 18
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