Introduction to Financial Accounting Test Bank
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices of financial accounting. The course covers the accounting cycle, including the recording, classification, and summarization of business transactions, and the preparation of key financial statements such as the balance sheet, income statement, and statement of cash flows. Emphasis is placed on the application of generally accepted accounting principles (GAAP), the interpretation of financial information, and the ethical responsibilities of accountants. Students will develop practical skills for analyzing financial data and communicating financial information to stakeholders, preparing them for further study or entry-level roles in accounting and finance.
Recommended Textbook
Financial Accounting 8th Edition by Walter T. Harrison
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13 Chapters
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Stockholders' equity decreases as a result of:
A)owner investments.
B)a net loss during the period.
C)a net income during the period.
D)both A and C.
Answer: B
Q2) In an LLP, each partner is liable for partnership debts only to the extent of their investment in the partnership plus their share of the liabilities.
A)True
B)False
Answer: True
Q3) Managerial accounting information is used mainly by external users.
A)True
B)False
Answer: False
Q4) In accounting, the word "net" refers to an amount after a subtraction.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) A listing of all of the accounts that make up the ledger is called the:
A)T-account.
B)ledger.
C)journal.
D)chart of accounts.
Answer: D
Q2) A trial balance is a list of all accounts and their balances for a period of time.
A)True
B)False
Answer: False
Q3) A stockholder's investment of land and a building into the business would include a debit to:
A)Land and Building and a credit to Common Stock.
B)Land and a credit to Building.
C)Common Stock and a credit to Building.
D)Building and a credit to Retained Earnings.
Answer: A
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Page 4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Assume the beginning balance in the Retained Earnings account is zero. If a debit balance of $5,000 exists in Retained Earnings after closing out revenues and expenses at the end of the current period, it indicates:
A)that the company had net income of $5,000.
B)an increase in cash of $5,000.
C)the company had a net loss of $5,000.
D)a decrease in cash of $5,000.
Answer: C
Q2) The following accounts are listed in order of liquidity. Which of the following is CORRECT?
A)Cash, Inventory, Accounts Receivable, Furniture
B)Cash, Accounts Receivable, Inventory, Furniture
C)Furniture, Cash, Accounts Receivable, Inventory
D)Furniture, Cash, Inventory, Accounts Receivable
Answer: B
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) In a bank reconciliation, items recorded by the company, but not yet been recorded by the bank, include:
A)interest.
B)outstanding checks.
C)NSF checks.
D)bank service charges.
Q2) A bank charge of $40 for imprinting checks would appear on the bank reconciliation as a(n)__________ to (or from)the ____????______ balance.
A)addition; bank
B)deduction; bank
C)addition; book
D)deduction; book
Q3) A plan of organization and a system of procedures, implemented by company management and the board of directors, is called:
A)the budget.
B)the audit.
C)internal control.
D)the Sarbanes -Oxley Act.
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) An indication of how many days' sales remain in Accounts Receivable awaiting collection is the:
A)current ratio.
B)quick ratio.
C)days' sales in receivables.
D)accounts receivable turnover.
Q2) The journal entry to record the receivable from performing a service on account is:
A)debit notes receivable, credit service revenue.
B)debit notes receivable, credit cash.
C)debit service revenue, credit accounts receivable.
D)debit accounts receivable, credit service revenue.
Q3) Uncollectible-account expense is used to record the bad debts expense for the period.
A)True
B)False
Q4) An unrealized loss occurs when the current market value is more than the original cost of the investment.
A)True
B)False
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) The number of inventory units on hand during the year may be determined from the accounting records under a perpetual inventory system; therefore, using this method, it is never necessary to count inventory at the end of the year.
A)True
B)False
Q2) Harmon Fraiser Industries had beginning inventory of 20,000 candles and an ending inventory of 15,000 candles. Harmon originally paid $1.80 each when it purchased the candles. The current replacement cost of the candles is $2.20 each. Each candle retails for $3.00. Harmon uses the LIFO method to account for its inventory. How did the LIFO liquidation affect the company's taxable income?
A)Taxable income increased because of the liquidation.
B)Taxable income decreased because of the liquidation.
C)Taxable income remained the same despite the liquidation.
D)You cannot determine taxable income from the given data.
Q3) Under the perpetual inventory system, inventory shifts from an asset to an expense when the seller delivers the goods to the buyer.
A)True
B)False
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Chapter 7: Plant Assets Intangibles
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Sample Questions
Q1) An expenditure that increases an asset's capacity or efficiency or extends its useful life is a(n):
A)capital expenditure.
B)expense.
C)addition.
D)improvement.
Q2) GAAP determines the depreciation method used for financial reporting purposes and tax purposes.
A)True
B)False
Q3) Buildings depreciate, natural resources are amortized and intangible assets deplete.
A)True
B)False
Q4) An asset with no physical form, but that has special rights to current and expected future benefits is a(n):
A)intangible asset.
B)natural resource.
C)plant asset.
D)fixed asset.
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Chapter 8: Liabilities
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Sample Questions
Q1) Warranty expense is recognized in the same period that the sales revenue is recognized because of the conservatism principle.
A)True
B)False
Q2) When a bond is issued at a premium:
A)the carrying value of the bond increases each semiannual interest period.
B)the carrying value of the bond decreases each semiannual interest period.
C)the carrying value of the bond remains the same each semiannual interest period.
D)the carrying value is always equal to the par value each semiannual interest period.
Q3) 1.method of amortization. Interest is paid each June 30 and December 31. The interest expense recognized for the first semiannual interest payment on December 31 is:
A)$9,000.
B)$75,000.
C)$84,000.
D)$180,000.
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Chapter 9: Stockholders Equity
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Sample Questions
Q1) Mary, a shareholder in the Doggy Boutique, owns 500 share of their common stock. Mary receives a 10% stock dividend. After the stock dividend, Mary will have:
A)a total of 50 shares of Doggy Boutique common stock.
B)a total of 500 shares of Doggy Boutique common stock.
C)a total of 550 shares of Doggy Boutique common stock.
D)an undetermined number of shares, since the number of shares of stock cannot be determined from the information given.
Q2) The entry to record common stock issued at its par value includes a:
A)debit to the Common Stock account.
B)debit to Retained Earnings.
C)credit to the Common Stock account.
D)credit to Retained Earnings.
Q3) If treasury stock is sold at a price greater than its reacquisition costs, the difference is:
A)credited to Paid-in Capital from Treasury Stock Transactions.
B)debited to Paid-in Capital from Treasury Stock Transactions.
C)credited to Retained Earnings.
D)debited to Retained Earnings.
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11
Chapter 10: Long-Term Investments International Operations
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Sample Questions
Q1) Realized gains and losses from available-for-sale investments arise from:
A)the sale of the investment.
B)changes in the market value of the investment.
C)both the sale of the investment and changes in the market value of the investment.
D)none of the above.
Q2) Available-for-sale investments in stock are reported on the balance sheet at:
A)their amortized cost.
B)their historical cost or current market value on the balance sheet date.
C)the lower-of-cost-or-market value on the balance sheet date.
D)their current market value.
Q3) A foreign-currency transaction gain or loss on a credit purchase is calculated as the difference between the exchange rates on the date:
A)the merchandise is ordered and the date it arrives.
B)the merchandise is purchased and the date it is sold.
C)of the purchase and the date of cash payment for the purchase.
D)the merchandise is ordered and the date payment is made for the merchandise.
Q4) Unrealized gains and losses result from sales of the investments.
A)True
B)False
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Chapter 11: The Income Statement the Statement of
Stockholders Equity
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Sample Questions
Q1) When computing earnings per share, preferred dividends are:
A)subtracted from net income and discontinued operations.
B)subtracted from net income.
C)added to net income.
D)added to net income and discontinued operations.
Q2) The value of a company's stock can be estimated by dividing the:
A)company's retained earnings by the estimated annual income in the future.
B)company's estimated annual income in the future by the investment capitalization rate.
C)company's current annual income by the future estimated investment capitalization rate.
D)company's investment capitalization rate by retained earnings.
Q3) The primary responsibility of the independent auditor is to decide whether the company's:
A)management has complied with all applicable laws and regulations during the fiscal year under audit.
B)financial statements are free from errors.
C)financial statements comply with generally accepted accounting principles (GAAP).
D)internal controls are effective.
Page 13
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Changes in the current asset and current liability accounts are reported on the statement of cash flows, using the indirect method, as:
A)operating activities.
B)financing activities.
C)investing activities.
D)a mix of all of these.
Q2) A statement of cash flows:
A)is typically prepared at the request of major creditors.
B)may be combined with the balance sheet.
C)may be combined with the income statement at the option of management.
D)is a basic financial statement required for publicly-held companies.
Q3) If the cash collections from customers amounted to $529,700 and the Accounts Receivable account decreased $19,400 during the same period, sales for the period (assuming all sales are on credit):
A)were $529,700.
B)were $510,300.
C)were $547,200.
D)cannot be determined from the information given.
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) 1.ratio for the year ended December 31, 2011, was:
A)11.88.
B)11.38.
C)22.75.
D)10.88.
Q2) On the statement of cash flows of a healthy company, net cash from operating activities generally exceeds net income.
A)True
B)False
Q3) The debt ratio is an indicator of a company's:
A)percentage of assets financed with debt.
B)relationship between current liabilities and current assets.
C)relationship between interest expense and income.
D)relationship between debt and interest expense.
Q4) If over a period of time, a company's major source of cash is from the sale of plant assets, this may be a sign of financial difficulty.
A)True
B)False
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Page 15