Introduction to Financial Accounting Test Bank
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of accounting principles and practices essential for financial reporting and decision-making in organizations. The course covers the accounting cycle, including journal entries, ledger accounts, trial balances, and the preparation of basic financial statements such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on the interpretation and analysis of financial information and the role of accounting in the broader context of business operations and ethics. By the end of the course, students will be equipped with the skills needed to record, summarize, and analyze financial transactions and understand the relevance of accounting information to business stakeholders.
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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Sample Questions
Q1) Which of the following accounts is not considered an asset?
A)Accounts Receivable
B)Inventory
C)Accounts Payable
D)Trademark
Answer: C
Q2) The Sarbanes-Oxley Act of 2002 applies to all except
A)quarterly statements
B)annual reports
C)internal management reports
D)none of these are exceptions
Answer: C
Q3) The stockholders of a corporation elect the board of directors.
A)True
B)False Answer: True
Q4) Net income is a measure of profitability.
A)True
B)False Answer: True
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) Which of the following business events is not a transaction
A)Signing a contract.
B)Paying wages.
C)Receiving goods.
D)Purchasing a service.
Answer: A
Q2) Purchasing office supplies on account is an example of one way a company can take advantage of deferring a cash payment.
A)True
B)False
Answer: True
Q3) When a business reports an asset at an inflated dollar amount,is has violated the measurement issue of A)recognition.
B)valuation.
C)classification.
D)realization.
Answer: B
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Chapter 3: Adjusting the Accounts
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Sample Questions
Q1) Which of the following is not an application of accrual accounting?
A)Recognizing revenues when earned and expenses when incurred.
B)Applying the matching rule.
C)Adjusting the accounts.
D)Recording on the basis of actual receipt and payment of cash.
Answer: D
Q2) Major assumptions made in measuring business income include all of the following except
A)continuity.
B)periodicity.
C)matching.
D)accrual accounting.
Answer: D
Q3) An adjusted trial balance must be prepared before the adjusting entries can be recorded.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The amount placed opposite the Land account in the Balance Sheet columns of the work sheet is the amount to be reflected for Land on the balance sheet.
A)True
B)False
Q2) The amount placed opposite the owner's Capital account in the Balance Sheet columns of the work sheet is the amount to be reflected for owner's Capital on the balance sheet.
A)True
B)False
Q3) The adjusting entries involving Depreciation Expense-Buildings and Supplies Expense could be reversed.
A)True
B)False
Q4) All of the following items are associated with a purpose of the work sheet except
A)Recording adjusting entries.
B)Preparing financial statements.
C)Preparing budgets.
D)Recording closing entries.
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Chapter 5: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) A debt to equity ratio of 1.0 means that half of the company's assets are financed by creditors.
A)True
B)False
Q2) A company with a profit margin of 6 percent earns sixty cents profit for every dollar of net sales.
A)True
B)False
Q3) The asset turnover ratio equals
A)revenues divided by average total assets.
B)average total assets divided by net income.
C)average total assets divided by total liabilities.
D)net income divided by average total assets.
Q4) The main difference between intangible assets and property,plant,and equipment is physical substance.
A)True
B)False
Q5) State the definition of a current asset.
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Chapter 6: Accounting for Merchandising Operations
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Q1) Interest expense on a mortgage would be classified on a multistep income statement under the heading
A)general and administrative expenses.
B)selling expenses.
C)cost of goods sold.
D)other revenue and expenses.
Q2) Taking a physical inventory refers to making a count of all merchandise on hand at a particular time.
A)True
B)False
Q3) Under the periodic inventory system,Cost of goods sold must be computed because it is not updated for sales and other transactions during the accounting period.
A)True
B)False
Q4) The use of major credit cards does not require sellers to establish the customer's credit.
A)True
B)False
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) The lower the inventory turnover,the lower the days' inventory on hand.
A)True
B)False
Q2) A company has cost of goods available for sale of $250,000,sales of $305,000,and a gross profit percentage of 30 percent.Using the gross profit method,what is the ending inventory?
A)$95,000
B)$50,000
C)$36,500
D)$158,500
Q3) Despite its advantages,the just-in-time operating environment produces increased carrying costs for inventory.
A)True
B)False
Q4) Why are cost flow assumptions made when accounting for merchandise inventory?
Q5) Specific identification is a very popular inventory method because it is very easy to apply.
A)True
B)False
Q6) How is the matching rule applied when accounting for merchandise inventory?
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Chapter 8: Cash and Internal Control
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Sample Questions
Q1) Mandisa Sounds,Inc. ,a specialty retailer of customized audio systems for automobiles,installed a perpetual inventory system in the second quarter of 2011.The new system allowed the firm to adjust its merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.Although the system led to an improvement in sales and income,the gross margin on the monthly income statements was falling below both management's expectations and the industry average.At the end of 2014,a physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual inventory records indicated.The merchandise inventories of some stores were off more than others,but all had deficiencies.What probably caused these losses and what steps could be taken to prevent them in the future?
Q2) A very small company would have the most difficulty in implementing which of the following internal control activities?
A)Sound personnel procedures
B)Periodic independent verification
C)Limited access to assets
D)Separation of duties
Q3) A check authorization would be prepared after a receiving report.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) Bad debts are considered as an expense of selling on credit.
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) Using the percentage of net sales method,Uncollectible Accounts Expense would be debited for
A)$9,000.
B)$11,000.
C)$1,000.
D)$10,000.
Q4) Because bad debt losses are incurred to generate sales,they should be charged against the sales that they helped generate.
A)True
B)False
Q5) Why should a dishonored note receivable be transferred to an individual account receivable for the debtor?
11
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Chapter 10: Long -Term Assets
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Sample Questions
Q1) Which of the following is not classified properly as property,plant,and equipment?
A)Land improvements,such as parking lots and fences
B)Natural resources
C)Land used in ordinary business operations
D)A truck held for resale by an automobile dealership
Q2) All of the following are possible reasons for using accelerated depreciation except A)greater efficiency of assets when new.
B)increasing repair costs in later years.
C)rapid changes in technology.
D)increasing use of an asset over the years.
Q3) Group depreciation is an appropriate method for a large company calculating depreciation on office equipment.
A)True
B)False
Q4) Fair value is the amount for which an asset could be bought or sold in a current transaction.
A)True
B)False
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Chapter 11: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) You win the grand prize and can choose between receiving $100,000 today or $20,000 per year for seven years.Ignoring income taxes,how would you go about making your decision?
Q2) The entry that includes a debit to Payroll Taxes and Benefits Expense would also include credits to Social Security Tax Payable and Medicare Tax Payable.
A)True
B)False
Q3) A business accepts a 12 percent,$94,000 note due in three years.Assuming simple interest,how much will the business receive when the note falls due?
A)$105,280
B)$127,840
C)$116,560
D)$94,000
Q4) Current liabilities are debts that are expected to be satisfied within A)one year or the normal operating cycle,whichever is shorter.
B)one year or the normal operating cycle,whichever is longer.
C)one year.
D)the normal operating cycle.
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) The division of income is one area in which a partnership differs from a corporation.
A)True
B)False
Q2) Which of the following statements is correct regarding partnerships?
A)Accounting for a partnership is similar to accounting for a sole proprietorship.
B)If the partnership assumes a liability related to an asset invested in the partnership,the asset is debited,the partner's capital account is credited and a liability account is credited.
C)It is necessary to maintain separate Capital and Withdrawals accounts for each partner.
D)All of these choices.
Q3) When a new partner invests less than the proportionate share he or she receives in the partnership,a bonus is recorded to his or her account.
A)True
B)False
Q4) Describe how a dissolution of a partnership is different from a liquidation of a partnership.
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) A stock dividend increases the total amount of stockholders' equity.
A)True
B)False
Q2) Which of the following is involved in assisting a corporation with its initial public offering (IPO)?
A)Registrar.
B)Underwriter.
C)Transfer agent.
D)Incorporator.
Q3) Use the following information to obtain the ratios requested below.Where necessary,carry answers to one decimal place.
Dividends per share: $1.14
Market price per share: $54
Net income: $118,000
Stockholders' equity,beginning of year: $500,000
Stockholders' equity,end of year: $530,000
Earnings per share: $1.75
a.Dividends yield = _____________%
b.Return on equity = _____________%
c.Price/earnings (P/E)ratio = __________ times
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Chapter 14: Long Term Liabilities
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Sample Questions
Q1) The debt to equity ratio is a measure of financial leverage.
A)True
B)False
Q2) The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period.
A)True
B)False
Q3) When the effective interest method of amortization is used for a bond premium,the amount of interest expense for an interest period is calculated by multiplying the A)carrying value of the bonds at the beginning of the period by the face interest rate.
B)face value of the bonds at the beginning of the period by the effective interest rate.
C)carrying value of the bonds at the beginning of the period by the effective interest rate.
D)face value of the bonds at the beginning of the period by the face interest rate.
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) During 20x5,Oates Company had sales of $250,000,net income of $25,000,average total assets of $350,000,dividend payments of $17,500,net cash flows from operating activities of $26,000,purchases of plant assets of $37,500,and sales of plant assets of $45,000.Cash flow yield equals (Round amounts to one decimal place)
A)1.5 times.
B)1.0 times.
C)2.1 times.
D)1.3 times.
Q2) Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Increase in Accounts Payable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.
Q3) Which accounts are analyzed to determine cash flows from financing activities?
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Chapter 16: Financial Statement Analysis
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Sample Questions
Q1) Rule-of-thumb measures are the most precise and best standards of comparison in financial performance evaluation.
A)True
B)False
Q2) Examples of one-time items include
A)nonoperating items.
B)uncollectible accounts receivable.
C)warranty claims.
D)environmental cleanup costs.
Q3) Areas that require accounting estimates include all of the following except A)executive compensation.
B)residual value of assets.
C)amortization periods.
D)environmental cleanup costs.
Q4) The inventory turnover amount is needed to calculate the A)days' sales uncollected.
B)days' inventory on hand.
C)receivables turnover.
D)interest coverage ratio.
Q5) Briefly explain a "big bath" including when it occurs and why it occurs.
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Chapter 17: Managerial Accounting and Cost Concepts
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Q1) Direct labor cannot be traced to products as it is invisible.
A)True
B)False
Q2) The product is the cost object when assigning indirect product costs.
A)True
B)False
Q3) In a manufacturing environment,direct labor costs initially flow
A)into the Materials Inventory account.
B)into the Cost of Goods Sold account.
C)into the Work in Process Inventory account.
D)into the Finished Goods Inventory account.
Q4) In a manufacturing company,the cost of direct materials,direct labor,and overhead will most likely become a part of the Cost of Goods Sold account balance.
A)True
B)False
Q5) Total manufacturing costs and the change in the Work in Process Inventory are used to compute the cost of goods sold.
A)True
B)False
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Chapter 18: Costing Systems: Job Order Costing
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Q1) In a job order costing system,when the goods are sold,the Cost of Goods Sold account is increased,and the Finished Goods Inventory account is decreased for the selling price of the goods sold.
A)True
B)False
Q2) Overhead applied is calculated by multiplying predetermined activity rate and actual cost driver activity.
A)True
B)False
Q3) Teddy's To Hug,produces Teddy Bears for heart patients.Last month the company produced 500 bears.Using job order costing,determine the product unit cost for one bear based on the following costs: production facility utilities,$600;depreciation on production equipment,$550;indirect materials,$450;direct materials,$1,300;indirect labor,$900;direct labor,$2,500;sales commissions,$3,000;president's salary,$5,000;insurance on production facility,$700;advertising expense,$600;rent on production facility,$5,000;rent on sales office,$3,000;and legal expense,$300.Round your answer to two decimal places.
Q4) Explain how the unit cost information is used by managers in the management process.
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Chapter 19: Costing Systems Process Costing
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Q1) Which of the following costing methods combines the cost of units in beginning inventory with the current period costs to determine the unit production cost?
A)LIFO
B)Average cost
C)FIFO
D)Direct
Q2) Equivalent production is a measure of productive output of units for a period of time,expressed in terms of fully completed or equivalent whole units produced.
A)True
B)False
Q3) The FIFO process costing method assumes that the items in ending work in process inventory were started and completed during the current period.
A)True
B)False
Q4) The product unit cost is the sum of the cost elements added in all production department processes.
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 sewing seams on a garment?
A)Unit-level activity
B)Batch-level activity
C)Product-level activity
D)Facility-level activity
Q2) In a just-in-time environment,managing the production process focuses on
A)total processing time per unit.
B)allocating overhead more accurately.
C)reducing inventories.
D)units produced per direct labor hour.
Q3) A manufacturing chain is a path that leads from the suppliers of the materials from which a product is made to the final customer.
A)True
B)False
Q4) The JIT operating philosophy requires a push-through production system.
A)True
B)False
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Q5) When using a just-in-time system,what qualities should be a supplier posses?
Chapter 21: Cost-Volume-Profit Analysis
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Q1) If fixed costs are $24,000,variable costs are $25 per unit,and the product sells for $45,the total contribution margin at the breakeven point is $24,000.
A)True
B)False
Q2) Within the relevant range,total fixed cost and variable cost per unit remain constant.
A)True
B)False
Q3) Using the contribution margin approach,find the contribution margin ratio for Consumer Products if the selling price per unit is $15,the variable cost per unit is $7.50,and the fixed costs are $8,000.
A)25%
B)75%
C)50%
D)100%
Q4) Unit fixed costs will be the same regardless of how many units are produced. A)True
B)False
Q5) Explain what cost-volume-profit analysis is and how managers use it.
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Chapter 22: The Budgeting Process
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Q1) Budgets identify potential constraints before they become problems.
A)True
B)False
Q2) Fantastic Futons buys direct materials for the futons in cloth rolls priced at $80 each.Each roll provides direct material for 40 futons.There was one roll in the direct materials inventory at the beginning of January,and the company expects to have four rolls in inventory at the end of the month.Assuming the production budget calls for 60,000 units to be produced in January,what would be the amount of the cloth rolls direct materials purchases budget for that month?
A)$119,760
B)$114,000
C)$120,000
D)$120,240
Q3) A master budget consists of a set of operating budgets and a set of financial budgets for a specific accounting period.
A)True
B)False
Q4) Describe three benefits budgeting provides to an organization's success.
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Chapter 23: Flexible Budgets and Performance Analysis
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Q1) Which of the following is a common assumption in the balanced scorecard?
A)An organization will get only what it measures
B)An organization will achieve the benchmark set
C)Organization goals can be set only for a short-term period
D)An organization does not the follow traditional costing method
Q2) While measuring performance,managers must be able to distinguish between what is being measured and the actual measures used to monitor performance and compare results.
A)True
B)False
Q3) Managers at all levels are evaluated in terms of their ability to manage their areas of responsibility in keeping with organizational goals.
A)True
B)False
Q4) A performance management and evaluation system allows a company to identify how well it is doing,where it is going,and what improvements will make it more profitable.
A)True
B)False
Q5) Write a brief note on the performance-based pay.
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Chapter 24: Standard Costing and Variance Analysis
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Q1) Using the above information provided for Candy Stores,compute the direct materials quantity variance for Candy Stores.
A)$42,000 (F)
B)$42,000 (U)
C)$186,000 (F)
Q2) The total overhead cost variance is the difference between what actual overhead cost is and what it should have cost according to the flexible budget for the good units produced.
A)True
B)False
Q3) If the actual amount of direct materials used equals the standard amount of direct materials that should have been used,the difference between the standard cost and actual cost of direct materials is called the
A)price variance.
B)rate variance.
C)quantity variance.
D)efficiency variance.
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) The accounting rate-of-return method is widely used to measure the estimated performance of a capital investment,primarily because it uses time value of money concepts.
A)True
B)False
Q2) Outsourcing production help in reducing a company's investment in physical assets and human resources.
A)True
B)False
Q3) Qualitative factors used by decision makers include all of the following except A)social issues.
B)tax implications.
C)timeliness.
D)competition.
Q4) Which of the following is not an appropriate method used in evaluating proposed capital investments?
A)Net present value
B)Payback period
C)Carrying value of equipment
D)Accounting rate of return
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