Introduction to Financial Accounting Solved
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Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices that govern the recording, summarizing, and reporting of financial transactions in business organizations. The course covers essential topics such as the accounting cycle, preparation and interpretation of financial statements, and the concepts of assets, liabilities, equity, revenues, and expenses. Emphasis is placed on understanding Generally Accepted Accounting Principles (GAAP), double-entry bookkeeping, and the role of accounting in effective decision-making. Through case studies and exercises, students develop analytical skills needed to evaluate financial information and communicate insights to stakeholders.
Recommended Textbook
Horngren's Accounting 11th Edition by Tracie L. Miller Nobles
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2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following can be an effect of a transaction that increased an asset of a business for the accounting equation to balance?
A)there is an equal decrease in another asset
B)there is an equal decrease in equity
C)there is an equal decrease in a liability account
D)both liabilities and equity decrease
Answer: A
Q2) Which of the following is true of assets?
A)Assets include cash,merchandise inventory,and accounts payable.
B)Assets are something of value the business owns or controls.
C)Assets do not need to provide future benefit to the business.
D)Assets can be recorded at the expected cost if acquired at a bargain.
Answer: B
Q3) Which of the following financial statements shows the amounts distributed to the owner?
A)Income statement
B)Statement of owner's equity
C)Budgeted balance sheet
D)Balance sheet
Answer: B
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A posting reference column is used ________.
A)while preparing the trial balance using the ledger
B)when the information is transferred from the journal to the ledger
C)when the information is transferred from the ledger to the post-closing trial balance
D)while preparing the balance sheet using the trial balance
Answer: B
Q2) A business purchases $500 of office supplies on account.Which of the following accounts is credited?
A)Cash
B)Accounts Payable
C)Office Supplies
D)Service Revenue
Answer: B
Q3) A trial balance is the list of only a company's debit accounts along with their account numbers at a point in time.
A)True
B)False
Answer: False
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4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The advance cash payments of future expenses are called ________.
A)accrued revenues
B)deferred expenses
C)deferred revenues
D)accrued expenses
Answer: B
Q2) Harvard Financial Services purchased computers that are to be used in its consultancy services.Based on the matching principle,what account,other than Computers,should appear on the balance sheet as of December 31,2016?
A)Depreciation Expense
B)Service Revenue
C)Accumulated Depreciation
D)Equipment Expense
Answer: C
Q3) Which of the following is a contra account?
A)Depreciation Expense
B)Accumulated Depreciation
C)Unearned Revenue
D)Earned Revenue
Answer: B
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts will be included in a post-closing trial balance?
A)Service Revenue
B)Interest Payable
C)Interest Expense
D)Utilities Expense
Q2) Which of the following accounts would appear in the balance sheet debit column?
A)Unearned Revenue
B)Accumulated Depreciation
C)Service Revenue
D)Prepaid Insurance
Q3) Prepaid Rent is always classified as a long-term asset.
A)True
B)False
Q4) The Supplies Expense account is a temporary account.
A)True
B)False
Q5) The Salaries Payable account is a permanent account.
A)True
B)False
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Nurix Company sold goods on credit terms n/20 to Jelly Harper Company.This means no discounts are offered,and the amount of the invoice is due 20 days after the invoice date.
A)True
B)False
Q2) On a multi-step income statement,the operating expenses are subtracted from ________ to arrive at operating income.
A)net sales
B)cost of goods sold
C)net profit
D)gross profit
Q3) When preparing financial statements under the periodic inventory system,a calculation of cost of goods sold must be made.
A)True
B)False
Q4) Operating income is gross profit minus operating expenses.
A)True
B)False
Q5) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Under the weighted-average method for inventory costing,the cost per unit is determined by ________.
A)dividing the cost of goods available for sale by the number of units available
B)dividing the cost of goods available for sale by the number of units in beginning inventory
C)multiplying the number of units purchased with the weighted-average cost
D)multiplying the cost of goods available for sale by the ending weighted-average cost of the previous accounting period
Q2) Given the same purchase and sales data,and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for net income.
A)True
B)False
Q3) A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000.Under the conservatism principle,it should choose to show it at $100,000.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) When posting entries from a purchases journal to the general ledger,________.
A)posting references are not shown in the subsidiary ledger
B)the Accounts Payable balance in the general ledger will be less than the sum of the individual vendor balances in the subsidiary ledger
C)the amounts in the Other Accounts DR column are posted individually to the specific accounts
D)entries are posted on a daily basis for all the accounts
Q2) The sales journal is used for all sales of merchandise inventory.
A)True
B)False
Q3) Which of the following is a column in a purchases journal?
A)Cost of Goods Sold CR
B)Accounts Payable CR
C)Sales Revenue DR
D)Interest Revenue CR
Q4) ________ refers to purchasing software and data storage from a third party.
A)Cloud computing
B)Resource planning
C)Networking
D)Entry-level software
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following is the first step in the purchasing and payment process?
A)The purchaser receives an invoice for the goods shipped by the supplier.
B)The purchaser sends a check to the supplier.
C)The purchaser sends a purchase order to the supplier.
D)The purchase receives the inventory and prepares a receiving report.
Q2) Which of the following statements describes a receiving report?
A)It is an order to purchase goods from a supplier.
B)It is a statement from the supplier showing the goods purchased and the amount due.
C)It is a report showing that the goods have been received in good condition,as ordered.
D)It is a document authorizing a payment to a supplier.
Q3) Which of the following items must be examined by the controller or treasurer before signing a check?
A)the ledger
B)the purchase order
C)the confirmation report
D)the journal entry
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Chapter 9: Receivables
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Sample Questions
Q1) The two major types of receivables are interest receivable and taxes receivable.
A)True
B)False
Q2) For a promissory note,the entity to whom the promise of future payment is made is the ________.
A)maker of the note
B)endorser of the note
C)banker of the note
D)payee of the note
Q3) When a company uses the allowance method to measure bad debts,________.
A)the Bad Debts Expense account is debited when an account is written off
B)the amount of bad debts expense is estimated at the end of the accounting period
C)the Allowance for Bad Debts account balance is added to the balance of the Accounts Receivable account to arrive at the net realizable value
D)the Allowance for Bad Debts account is debited when the bad debts expense is estimated
Q4) Prepare the journal entry to record an uncollectible account receivable of $10,000,using the direct write-off method.
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Page 11
Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) When a business uses the straight-line method of depreciation,the amount of depreciation is reduced from year to year.
A)True
B)False
Q2) Fred,Inc.owns a delivery truck.Which of the following costs,associated with the truck,will be capitalized and depreciated?
A)modification for new use
B)change of oil filters
C)replacement of tires
D)normal engine repair
Q3) Depletion expense should not be recorded for natural resources because they do not decrease in value over time.
A)True
B)False
Q4) According to Generally Accepted Accounting Principles,if the fair value of goodwill decreases below its book value,an impairment loss must be recorded.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Kevin,an employee of Sunbeam,Inc. ,has gross salary for May of $8,000.The entire amount is under the OASDI limit of $117,000 and thus subject to FICA.He is also subject to federal income tax at a rate of 20%.Which of the following is a part of the journal entry to record the disbursement of his net pay? (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%. )
A)debit to Cash for $5,788.00
B)credit to Cash for $5,788.00
C)debit to Employee Income Tax Payable of $5,788.00
D)debit to FICA Tax Payable of $5,788.00
Q2) Gross pay is the total amount of compensation earned by an employee after the deductions are made.
A)True
B)False
Q3) Statewide Sales,Inc.has gross pay for March of $45,000.Which of the following is included in the journal entry to record salaries expense?
A)credit Salaries and Wages Expense
B)debit Cash
C)debit Salaries and Wages Payable
D)debit Salaries and Wages Expense
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Page 13
Chapter 12: Partnerships
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Sample Questions
Q1) The purchase of an existing partner's interest is a transaction between the partnership and the new partner,and not a personal transaction between the two individuals involved.
A)True
B)False
Q2) A partnership is a business with two or more owners that is legally organized as a corporation.
A)True
B)False
Q3) Like a sole proprietorship statement of owner's equity,the statement of partners' equity will show all the partners' capital accounts as one account.
A)True
B)False
Q4) An S corporation is a corporation with 100 or fewer stockholders that can elect to be taxed as a partnership.
A)True
B)False
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Chapter 13: Corporations
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Q1) Osbourne,Inc.issued 50,000 shares of common stock in exchange for manufacturing equipment.The equipment has a fair value of $1,210,000.The stock has a par value of $0.02 per share.The journal entry to record this transaction includes a ________.
A)debit to Cash for $12,090,000
B)credit to Gain on Sale of Common Stock for $1,260,000
C)credit to Paid-In Capital in Excess of Par-Common for $1,209,000
D)credit to Common Stock-$0.02 Par Value for $1,210,000
Q2) Ropers,Inc.purchases 11,000 shares of its previously issued $2 par value common stock for $160 per share.Which of the following is the correct journal entry to record this transaction?
A)Debit Common Stock-$2 Par Value $1,760,000,and credit Cash $1,760,000.
B)Debit Cash $1,738,000,and credit Paid-In Capital in Excess of Par-Common $1,738,000.
C)Debit Cash $1,738,000,and credit Treasury Stock-Common $1,738,000.
D)Debit Treasury Stock-Common $1,760,000,and credit Cash $1,760,000.
Q3) The issue price is the price the stock initially sells for the first time it is sold.
A)True
B)False
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) When computing a bond's cash flow for interest,which interest rate is used? Why?
Q2) On December 31,2017,Lopez Sales has a Bonds Payable balance of $79,000 and a Premium on Bonds Payable balance of $5,600.On the balance sheet,how will this information be shown?
A)$79,000 less premium of $5,600 for a net balance of $73,400
B)$79,000 less one-tenth of $5,600 for a net balance of $78,440
C)$79,000
D)$79,000 plus a premium of $5,600 for a net balance of $84,600
Q3) On July 1,2106,Jordan Equipment Dealer issued $510,000 of 6% bonds payable that mature in eight years.These bonds were issued at face value and pay interest each June 30 and December 31.Each semiannual interest payment is $15,300.
A)True
B)False
Q4) Debentures are backed only by the goodwill of the bond issuer.
A)True B)False
Q5) When a bond is matured,the carrying value always equals the face value. A)True B)False
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Chapter 15: Investments
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Q1) On the maturity date of a bond investment,the journal entry includes ________.
A)a debit to Cash and a credit to Long-term Investments - Held-to-Maturity
B)a debit to Long-term Investments - Held-to-Maturity and a credit to Cash
C)a debit to the Interest Revenue and a credit to Cash
D)a debit to Cash and a credit to Interest Revenue
Q2) Which of the following may pay dividends?
A)futures contracts
B)real estate securities
C)debt securities
D)equity securities
Q3) Realized gains or losses on available-for-sale investments represent the difference between the ________.
A)historical cost and the average market value of the investment
B)historical cost and the current market value of the investment
C)cash received at time of disposition and the fair value of the investment
D)cash received at time of disposition and the cost of the investment
Q4) If a debt security is purchased at a discount,the discount must be amortized when the interest revenue is earned.
A)True
B)False
Page 17
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Chapter 16: The Statement of Cash Flows
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Q1) The three major categories included on the statement of cash flows are ________.
A)investing,operating,and financing activities
B)investing,capital,and financing activities
C)investing,operating,and contracting activities
D)financial,operating,and internal control activities
Q2) Harrison Recyclers Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for 2017:
1.Retained Earnings,beginning balance,$142,000
2.Retained Earnings,ending balance,$121,000
3.There is a net loss of $15,000 for the year.
What is the amount of dividends declared during the year?
A)$36,000
B)$13,000
C)$6,000
D)$15,000
Q3) The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity's business.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Which of the following is not a part of a corporation's annual report?
A)report of independent registered public accounting firm
B)MD&A
C)notes to financial statements
D)horizontal and vertical analysis
Q2) When performing vertical analysis of a balance sheet,the base amount is ________.
A)total assets
B)total cash and cash equivalents
C)net income
D)gross profit
Q3) Investors and creditors can evaluate a company by examining only one year's data.
A)True
B)False
Q4) Horizontal analysis provides a year-to-year comparison of a company's performance in different periods.
A)True
B)False
Q5) What is an annual report? Briefly describe the key parts of the annual report.
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Chapter 18: Introduction to Managerial Accounting
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Q1) The three categories of period costs are direct materials,direct labor,and manufacturing overhead.
A)True
B)False
Q2) A manufacturer produced 10,500 total units.The cost of goods manufactured is $81,000 and the cost of goods sold is $67,000.The unit product cost is $6.38.
A)True
B)False
Q3) Manufacturing costs flow from Work-in-Process Inventory to Cost of Goods Sold to Finished Goods Inventory.
A)True
B)False
Q4) Which of the following describes a system in which suppliers deliver materials at the time they are needed and finished units are completed when customer orders need to be filled?
A)Supply Chain Management (SCM)
B)Just-in-Time (JIT)Management
C)Enterprise Resource Planning (ERP)
D)Total Quality Management (TQM)
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Chapter 19: Job Order Costing
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Q1) During the year,a company incurred $500,000 of manufacturing overhead costs and allocated $510,000 of manufacturing overhead costs.At the year-end,the adjustment entry needed to adjust the Manufacturing Overhead account balance to zero will include a debit to Cost of Goods Sold.
A)True
B)False
Q2) Mumbai Travel Services provided the following information: Direct labor rate: $40 per hour
Predetermined overhead allocation rate for indirect costs: $30 per direct labor hour If Mumbai Travel earns $600 for a job requiring 8 hours of direct labor,then Mumbai Travel will make a profit of $40.
A)True
B)False
Q3) Manufacturing overhead is allocated by debiting the Finished Goods Inventory account.
A)True
B)False
Q4) Why would the manager of a service company need to use job order costing?
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Chapter 20: Process Costing
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Q1) The production cost report for Department 2 shows that $452,000 was assigned to the 53,000 units transferred to Finished Goods Inventory.Cost of goods manufactured equals $452,000.
A)True
B)False
Q2) Caldwell,Inc.has two processes-Coloring Department and Mixing Department.The company sold 450 gallons on account at $110 per gallon.The total cost of processing was $385,000 for 5,500 gallons of paint.Throughout the year,the company used a predetermined overhead allocation rate to allocate $80,000 and $90,000 of indirect costs to the Coloring Department and Mixing Department,respectively.The actual overhead costs incurred amounted to $150,000 at the end of the year.What are the journal entries to record the sale of goods and the adjustment for over/underallocated manufacturing overhead at the end of the year if the company follows a process costing system?
Q3) If a business operates in an industry that experiences significant cost changes,should the business prepare its production cost report using the FIFO method or the weighted-average method? Explain your answer.
Q4) List five ways in which managers use a production cost report to make decisions for their companies.
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) If variable costs go up,and all other factors remain the same,the margin of safety will become smaller.
A)True
B)False
Q2) A(n)________ groups cost by behavior;that is,costs are classified as either variable costs or fixed costs.
A)balance sheet
B)contribution margin income statement
C)traditional income statement
D)absorption costing income statement
Q3) Patel Company incurs both fixed and variable production costs.Assuming the production is within the relevant range,if volume goes up by 15%,then the total fixed costs would ________.
A)increase by 15%
B)remain the same
C)increase by an amount less than 15%
D)decrease by 15%
Q4) The sales level at which operating income is zero is called the breakeven point.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) When preparing the cost of goods sold budget,________.
A)ignore balances in Finished Goods Inventory
B)start by calculating the projected cost to produce each unit
C)ignore the inventory costing method
D)multiply units produced by the total projected cost per unit
Q2) The budgeted production of Taurus,Inc.is 14,000 units per month.Each unit requires 40 minutes of direct labor to complete.The direct labor rate is $90 per hour.Calculate the budgeted cost of direct labor for the month.(Round any intermediate calculations to the nearest cent and your final answer to the nearest dollar. )
A)$840,000
B)$373,333
C)$1,260,000
D)$31,500
Q3) In the budgeted statement of cash flows,all cash receipts and payments are categorized into operating,financing,and ________ activities.
A)investing
B)merchandising
C)budgeting
D)controlling
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the previous month,the actual sales volume was lower than the expected sales volume as per the static budget.This difference results in an unfavorable
A)flexible budget variance for variable costs
B)sales volume variance for variable costs
C)flexible budget variance for sales revenue
D)sales volume variance for sales revenue
Q2) What does the fixed overhead cost variance measure?
Q3) A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the previous month,the actual fixed costs were lower than the expected fixed costs as per the static budget.This difference results in a(n)________.
A)unfavorable flexible budget variance for fixed costs
B)favorable sales volume variance for fixed costs
C)favorable flexible budget variance for fixed costs
D)unfavorable sales volume variance for fixed costs
Q4) List the direct labor variances and briefly describe each.
Q5) What does the variable overhead cost variance measure?
Q6) What does the variable overhead efficiency variance measure?
Page 25
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) The performance evaluation system should provide incentives to segment managers for coordinating the activities of the subunits and directing them toward the overall company goals.Which of the following performance measurement goals has been described by this statement?
A)motivating segment managers
B)promoting goal congruence
C)providing feedback
D)benchmarking
Q2) The level of employee satisfaction is a key performance indicator of the ________ perspective of a balanced scorecard.
A)financial
B)learning and growth
C)internal business
D)customer
Q3) List and briefly discuss the two limitations of financial performance measures.
Q4) Both the sales volume variance and the flexible budget variance help revenue center managers understand why they have exceeded or fallen short of budgeted revenue.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) A company produces 200 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuits in-house but is considering outsourcing the circuits at a contract cost of $30 each.Currently,the cost of producing circuits in-house includes variable costs of $24 per circuit and fixed costs of $15,000 per month.Assume the company could cut fixed costs in half by outsourcing and that there is no alternative use for the facilities presently being used to make circuits.If the company outsources,operating income will ________.
A)increase by $6,300
B)decrease by $6,300
C)decrease by $1,200
D)stay the same
Q2) If a business is considering buying a new vehicle,the cost of the insurance premium is relevant to the business decision.
A)True
B)False
Q3) Differential analysis is a common approach to making short-term business decisions.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) Most capital budgeting methods focus on accrual-based income.
A)True
B)False
Q2) Which of the following is a capital budgeting method that ignores the time value of money?
A)payback
B)internal rate of return
C)return on assets
D)net present value
Q3) An operational asset used for a long period of time is known as a capital asset.
A)True
B)False
Q4) A post-audit in capital budgeting is a comparison of the actual results of capital investments with the projected results.
A)True
B)False
Q5) All else being equal,the shorter the investment period,the higher the total amount of interest earned.
A)True
B)False
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