Introduction to Financial Reporting
Midterm Exam
Course Introduction
Introduction to Financial Reporting offers students a comprehensive understanding of how organizations communicate their financial performance and position to external stakeholders. This course covers the basic principles, conventions, and standards underlying the preparation and presentation of financial statements, with a focus on the accounting cycle, revenue recognition, balance sheets, income statements, and cash flow statements. Students will learn to interpret and analyze financial reports, understand the regulatory environment, and appreciate the ethical considerations in financial reporting. By the end of the course, students will be equipped with foundational skills essential for further studies in accounting and finance, and for making informed business decisions.
Recommended Textbook
Atrills Accounting for Business Students 1st Australian Edition by Atrill McLaney
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Page 2
Chapter 1: Introduction to Accounting
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Q1) The most complete description of the planning process for a business is:
A)setting objectives and short-term plans.
B)setting objectives, long-term plans, and short-term plans.
C)setting objectives and detailed budgets.
D)setting long-term objectives and long-term plans.
Answer: B
Q2) What does a statement of financial position show?
A)The details of how much profit was earned in the period
B)The cash movements that took place over a particular period
C)The financial position at the end of the period
D)The change in financial position over a particular period
Answer: C
Q3) What is the primary goal of management accounting?
A)Provide information that can be quantified in monetary terms
B)Provide information that improves the quality of managers' decisions
C)Provide information that conforms to the accounting regulations
D)Provide information to shareholders
Answer: B
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Chapter 2: Measuring and Reporting Financial Position
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Q1) Application of the (prudence)conservatism assumption can produce:
A)higher profits.
B)higher values for assets.
C)higher amounts for liabilities.
D)lower amounts for expenses.
Answer: C
Q2) What are the possible approaches to presenting a narrative statement of financial position?
A)Entity
B)Proprietary
C)Horizontal
D)Both A and B
Answer: D
Q3) If liabilities are $45 000 and equity is $68 900, assets are:
A)$23 100
B)$23 900
C)$113 900
D)$113 100
Answer: C
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Page 4
Chapter 3: Measuring and Reporting Financial Performance
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Q1) What is the estimated residual value of an asset?
A)Its estimated disposal value at the end of its useful life
B)Its carrying value
C)Its historical cost
D)Its book value
Answer: A
Q2) Accrued expenses are classified in the statement of financial position as a:
A)current liability.
B)non-current asset.
C)non-current liability.
D)current asset.
Answer: A
Q3) Which statement about net profit is not true?
A)Net profit normally represents the amount of cash generated from operations for the period.
B)Net profit is a measure of achievement or productive effort.
C)Net profit increases equity.
D)None of the statements, i.e., all are true.
Answer: A
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Page 5
Chapter 4: Recording Transactionsthe Journal and Ledger Accounts
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Q1) The book that is used to record transactions in a double-entry accounting system is the:
A)journal.
B)ledger.
C)profit and loss book.
D)subsidiary book.
Q2) Which of the following is a contra account?
A)Depreciation expense
B)Bad debt expense
C)Cost of sales
D)Accumulated depreciation
Q3) A sale on account results in a debit to cash and a credit to sales.
A)True
B)False
Q4) On the worksheet, a loss would appear as a credit in the profit and loss columns.
A)True
B)False
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Chapter 5: Accounting Systems and Internal Control
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Sample Questions
Q1) C. Palmer opens a new computer sales and repair business. His assets are: Premises $700 000, Equipment $100 000, Inventory $150 000, and Cash $30 000. His liabilities are: Payables - M Rice $25 000. The journal entry to record the opening would include:
A)a credit to Capital for $955 000.
B)a debit to Capital for $955 000.
C)a credit to Capital for $1 050 000.
D)a debit to Capital for $1 050 000.
Q2) While, in practice, most transactions are recorded in a subsidiary record, any transaction could be posted in the general journal.
A)True
B)False
Q3) Define segregation of duties and explain how it benefits internal control.
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Chapter 6: Introduction to Limited Companies
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Q1) The company 'Raider Limited' must be:
A)a proprietary company.
B)a public company.
C)a private company.
D)none of the above.
Q2) If the tax rate is 30%, interest expense is $15 000 and operating profit is $82 000, what is the profit for the year?
A)$63 000
B)$44 100
C)$46 900
D)None of the above
Q3) A company issued 120 000 fully paid, 5% preference shares priced at $2 each. The dividend to be paid on the shares for a financial year is:
A)$5 000
B)$10 000
C)$20 000
D)$12 000
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Chapter 7: Regulatory Framework for Companies
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Q1) Which of the following groups is not an intended audience for general purpose financial reporting?
A)Lenders
B)Investors
C)Customers
D)Other creditors
Q2) Which of the following statements is true about the order of repayment for a company in liquidation?
A)Creditors rank before ordinary shareholders.
B)Ordinary shareholders rank before preference shareholders.
C)Wages owing to employees rank last.
D)All of the statements are true.
Q3) Which of the following is not typically included in the notes to the financial statements?
A)All insignificant disclosures
B)Explanations of measuring bases used
C)Details of asset subclassifications
D)Confirmation that accounting standards have been adhered to
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9
Chapter 8: Measuring and Reporting Cash Flows
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Q1) If the opening balance of equity is $45 000, the closing balance is $60 000 and profit is $27 000, calculate the amount of dividends paid (assume all dividends declared have been paid)which will appear as a financing outflow in the statement of cash flows.
A)$15 000
B)$42 000
C)$12 000
D)Nil
Q2) What is the total cost of machinery purchased during the year?
A)$370 000
B)$200 000
C)$280 000
D)$300 000
Q3) Which of the following statements is not true?
A)If a firm is operating profitably, it will automatically have plenty of cash.
B)The concept of cash underpinning the statement of cash flows is 'cash and cash equivalents'.
C)A bank overdraft is an example of a 'cash equivalent'.
D)Cash is the pre-eminent asset as it is the medium with which claims are normally settled.
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Page 10
Chapter 9: Corporate Social Responsibility and Sustainability Accounting
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Q1) In evaluating the business perspective under the balanced scorecard approach, possible measures that could be employed are:
A)percentage of production completed which meets the set standards.
B)percentage of systems automated.
C)production days lost.
D)All of the above
Q2) Which of these is an example of an environmental disclosure in an annual report?
A)Implementation of tree planting schemes
B)Introduction of environmental audits
C)Sponsoring environmental achievement awards
D)All are examples
Q3) The GRI Guidelines relating to reporting content covers the areas of sustainability context and:
A)materiality.
B)completeness.
C)shareholder inclusiveness.
D)All of the above
Q4) Briefly outline the essence of the balance scorecard approach.
Page 11
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Chapter 10: Analysis and Interpretation of Financial Statements
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Q1) Dividend yield is calculated as:
A)market price per share/dividend per share.
B)dividend per share/market price per share.
C)dividend/ number of issued shares.
D)net profit/market price per share.
Q2) From the following information, calculate Todd Ltd's rate of return on ordinary shareholders' funds. Ordinary share capital \(\$ 600,000\).
Retained profits and reserves \(\$ 200,000\).
180,000 fully paid \(\$ 2.0010 \%\) Preference shares.
Net profit after tax and before preference dividend \(\$ 276,000\).
A)30.0%
B)16.0%
C)20.0%
D)26.0%
Q3) Which of these is not a limitation of ratio analysis?
A)Different accounting methods used by competitors
B)Firms of different size cannot be compared
C)One ratio is not enough information to make an overall judgement
D)All are limitations
Page 12
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Chapter 11: Costvolumeprofit Analysis and Relevant Costing
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Q1) Wombat World is a small zoo displaying native animals. The entrance fee is $15 per person. Variable costs of running the zoo are $8 per visitor and fixed costs are $200 000 per annum. The number of visitors that would be needed to make a profit of $20 000 per annum is:
A)1 333
B)31 429
C)14 667
D)27 500
Q2) Why may management justifiably hesitate to close a service:
A)because of emotional attachment to providing the service.
B)because the loss made in providing one service can be compensated by the profit made by providing other services.
C)because closing one service may lead to a decline in the demand of other services.
D)All of the above
Q3) Semi-fixed costs are best defined as:
A)having both fixed and variable elements.
B)varying over time.
C)costs ignored in cost-volume-profit analysis.
D)None of the above
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Page 13
Chapter 12: Full Costing
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Q1) In general, in recent times compared to the past, overhead as a percentage of a firm's total costs:
A)has decreased.
B)has remained the same.
C)has increased.
D)Cannot tell
Q2) Anything for which a separate measurement of cost is desired is called a:
A)cost unit.
B)job.
C)article.
D)fixed cost object.
Q3) Which of these is not another name for overhead costs?
A)Indirect costs
B)Common costs
C)Fixed costs
D)None of the above, i.e., all are other names for overhead costs
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Chapter 13: Planning and Budgeting
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Q1) What does management by exception refer to in the budgeting process?
A)Rewarding exceptional effort
B)Delegating responsibility, leaving management free for other things
C)Concentrating most of management's efforts on those who do not achieve the budget
D)Motivating staff to boost the reputation of the business
Q2) What is the calculation of closing inventory for a finished goods inventory budget?
A)(Opening balance plus inventories manufactured)less sales of finished goods
B)(Opening balance plus sales of finished goods)less inventories manufactured
C)(Opening balance plus inventories manufactured)plus cash sales of finished goods
D)None of the above
Q3) Coordination between budgets refers to a situation when:
A)activities of one department match and are complementary to those of other departments.
B)different parts of the organisation operate at cross-purposes.
C)more than one entity in an industry adopts similar goals.
D)a plan comes together with industry and government targets.
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Chapter 14: Capital Investment Decisions
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Q1) Which of the following is not a method for appraising potential investments?
A)Payback method
B)Return on assets
C)Accounting rate of return
D)Net present value
Q2) What is the factor in Net Present Value analysis that normally involves the least degree of uncertainty?
A)The future cash flows
B)The cost of the initial investment
C)The life of the project
D)The discount rate
Q3) Container Ltd, a manufacturing firm, is considering investing $110 000 in a new mainframe computer. It is estimated that net cash flow per year will be $30 000 and the computer will have a 10-year useful life and zero residual value. The machine will be depreciated on a straight-line basis. What is the accounting rate of return?
A)10.55%
B)30.0%
C)22.72%
D)15.86%
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