Introductory Financial Accounting Review Questions
Course Introduction
Introductory Financial Accounting provides a foundation in the principles and practices of accounting as applied to businesses and organizations. Students will learn how to record, summarize, and interpret financial transactions, prepare basic financial statements such as the balance sheet, income statement, and cash flow statement, and understand the fundamental concepts of assets, liabilities, equity, revenues, and expenses. The course emphasizes the importance of accuracy, ethics, and compliance with accounting standards, equipping students with the skills necessary to analyze and communicate financial information for effective decision-making in professional settings.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) An investor is someone who lends money to a business.
A)True
B)False Answer: False
Q2) The balance sheet shows whether or not a business is earning a profit.
A)True
B)False Answer: False
Q3) An auditor has been offered a gift of golf clubs as a token of appreciation by a manager in the firm being audited.Which of the following principles in the APESB Code of Conduct would be most relevant in deciding whether to accept the gift?
A) Confidentiality
B) Professional competence and due care
C) Objectivity
D) Integrity
Answer: C
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A trial balance is a list of all of the accounts with their balances.
A)True
B)False Answer: True
Q2) When a business records revenue earned,the revenue account is always credited.
A)True
B)False Answer: True
Q3) An owner invests $20 000 in her new business by depositing the cash in the business bank account.Which account is debited?
A) Accounts payable
B) Cash
C) Accounts receivable
D) Capital Answer: B
Q4) When recording a transaction in a journal,the credit side is entered first,followed by the debit side.
A)True
B)False Answer: False
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Healthy Living,a diet magazine,collected $1,440,000 in subscription revenue on 31 May.Healthy Living earns a minimum of $1,080,000 from the buyers who are not the subscribers.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.By the end of December,what is the amount of Subscription revenue that has been earned?
A) $1,080,000
B) $840,000
C) $600,000
D) $1,440,000
Answer: B
Q2) Under accrual basis accounting,an expense is recorded ONLY when the cash is paid out.
A)True
B)False Answer: False
Q3) Under accrual basis accounting,revenue is recorded ONLY when cash is received.
A)True
B)False Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which account has a balance equal to profit immediately before it is closed?
A) The Capital account
B) The Income summary account
C) The Drawings account
D) The Profit account
Q2) The Drawings account is copied to the Income statement columns on the worksheet.
A)True
B)False
Q3) A company has $140,000 in current assets; $600,000 in total assets; $80,000 in current liabilities,and$120,000 in total liabilities.The company has a current ratio of:
A) 1.76
B) 1.17
C) 1.57
D) 1.75
Q4) Under which of the following categories would Land appear?
A) Non-current liabilities
B) Non-current assets
C) Current liabilities
D) Current assets
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Chapter 5: Retailing Operations
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Sample Questions
Q1) What is the difference between a sales return and a sales allowance?
A) A sales return involves an adjustment to Inventory, but a sales allowance does not.
B) A sales return requires a debit to Sales returns and allowances, but a sales allowance does not.
C) A sales return reduces the amount receivable from the customer, but an allowance does not.
D) A sales allowance is deducted from Sales revenue to calculate net sales, but a sales return is not.
Q2) The general ledger shows a balance of $23 678 in the Inventory account at the end of the period.A physical inventory shows a count of $22 078.The adjusting entry would be a:
A) debit to Inventory and a credit to Cash.
B) debit to Cost of sales and a credit to Inventory.
C) debit to Cost of sales and a credit to Cash.
D) debit to Inventory and a credit to Cost of sales.
Q3) A sales return is recorded with a credit to Inventory.
A)True
B)False
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Chapter 6: Retail Inventory
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Sample Questions
Q1) Rubal Ltd earned revenue of $600,000 and incurred cost of sales of $340,000.Calculate the gross profit percentage.
A) 21.65%
B) 56.7%
C) 100%
D) 43.3%
Q2) Which of the following is used for net realisable value when valuing inventory at lower-of-cost-and-net-realisable-value?
A) Sales price less the company's normal markup percentage
B) Sales price
C) Sales price less costs of completing, marketing, selling and distributing the inventory to customers
D) Cost plus the company's normal markup percentage
Q3) Estimated ending inventory can be computed by subtracting Estimated Cost of sales from Cost of goods available for sale.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The combination of personnel,records and procedures that a business uses to meet its need for financial data is referred to as the:
A) accounting information system.
B) management system.
C) input system.
D) collecting and reporting system.
Q2) The accounts receivable credit column of the cash receipts journal is:
A) posted in summary only at the end of the month.
B) posted in summary at the end of the month and by individual amounts on a daily basis.
C) posted by individual amounts at the end of the accounting period.
D) posted by individual amounts at the end of the month.
Q3) Posting the entries in the sales journal to the accounts receivable subsidiary ledger should be done:
A) at the end of each month.
B) only at the end of the accounting period.
C) on a daily basis.
D) on a weekly basis.
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9
Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following is retained by the customer as proof of a deposit transaction?
A) A deposit slip
B) A bank reconciliation
C) A cancelled cheque
D) A signature card
Q2) A company received a bank statement with a balance of $6300.Reconciling items included a bookkeeper error of $300-a $300 cheque recorded as $500-two outstanding cheques totalling $800,a service charge of $22,a deposit in transit of $250 and interest revenue of $19.What is the adjusted bank balance?
A) $5247
B) $5591
C) $5750
D) $5450
Q3) A company makes a legitimate,properly authorised payment to a supplier.The accountant changes the date of the transaction to shift it to a later time period.Because the transaction is legitimate,this action would not be considered unethical.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) Martin Sales provides the following information:
Net credit sales: $800,000
Beginning net accounts receivable: $40,000
Ending net accounts receivable: $23,000
Calculate the accounts receivable turnover ratio.(Round to the nearest whole number.)
A) 25 times
B) 33 times
C) 20 times
D) 35 times
Q2) Which of the following is the party lending funds on a bill?
A) The debtor of the bill
B) The principal of the bill
C) The acceptor of the bill
D) The drawer of the bill
Q3) Interest revenue must be reported for a bill receivable that is outstanding at the end of the accounting period.
A)True
B)False
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11
Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Sample Questions
Q1) Plant and equipment are more likely to decrease in value than increase.
A)True
B)False
Q2) Which of the following types of expenses result from a decline in the utility of an intangible asset?
A) Depreciation
B) Amortisation
C) Depletion
D) Obsolescence
Q3) Albatross Services scrapped a van.The van originally cost $40 000,had an estimated residual value of zero and an estimated life of 10 years.At the time it was scrapped,it was fully depreciated.What was the effect of scrapping the van?
A) loss of $1 000
B) loss of $2 000
C) no gain or loss
D) gain of $2 000
Q4) When an asset is fully depreciated,the residual value must be written off.
A)True
B)False
12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Gross pay is the total amount of compensation earned by an employee,before any deductions are made.
A)True
B)False
Q2) PAYG tax is paid by the employer only and is not deducted from gross pay.
A)True
B)False
Q3) Which of the following is associated with cash received in advance for services to be performed in the future?
A) Accrued expense
B) Unearned revenue
C) Estimated warranty payable
D) Accounts payable
Q4) The Statewide Sales Company has gross pay for March of $45 000.Which of the following would be included in the first journal entry in the payroll cycle to record salary expense?
A) Debit Salary payable
B) Credit Salary expense
C) Debit Cash
D) Debit Salary expense
Page 13
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Chapter 12: Non-Current Liabilities,debentures Payable and
Classification of Liabilities on the Balance
Sheet
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Sample Questions
Q1) On 1 November 2016,Archangel Services issued $332,000 of 8-year debentures with a stated rate of 11% at par.The debentures make semiannual payments on 30 April and 31 October.At 31 December 2016,Archangel made an adjusting entry to accrue interest at year-end.How much Interest expense will be recorded at 31 December 2016? (Round to the nearest dollar.)
A) $6087
B) $36,520
C) $761
D) $18,260
Q2) The current portion of notes payable is the principal amount that will be paid within one year of the balance sheet date.
A)True
B)False
Q3) When a long-term note payable that requires annual instalment payments is initially recorded,it is first recorded as a long-term note payable.Then,at the same date,a second entry is made to reclassify the current portion.
A)True
B)False
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Chapter 13: Partnerships
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Sample Questions
Q1) When a new person wishes to be admitted into an existing partnership that consists of two partners and wishes to obtain an equal share (1/3 share)of the new partnership,the amount that the new person must invest is required to be the average of the capital balances of the existing partners.
A)True
B)False
Q2) Mathew,Patrick and Robin and have capital balances of $78,000,$125,000 and $90,000,respectively.As per the partnership agreement,Mathew gets a profit share of 2/9; Patrick gets 4/9; and Robin gets 3/9.Partnership agrees to pay $62,000 as final settlement to Mathew.How much bonus will Robin receive as a result of this transaction?
A) $8889
B) $6857
C) $7111
D) $9143
Q3) When a partnership makes profit and the accounts are closed,the partner capital accounts will be credited with their designated shares of the profit.
A)True
B)False
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Chapter 14: Companies: Formation and Shareholders
Equity
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Sample Questions
Q1) Which of the following statements describes the company characteristic of transferability of company ownership?
A) The liabilities of the company cannot be extended to the personal assets of the shareholder.
B) Shareholders are not authorised to sign contracts or make business commitments on behalf of the company.
C) Companies pay income tax on company earnings, and shareholders pay personal income tax on company dividends and gains from sale of shares.
D) Shares can be readily bought and sold by investors on the open market.
Q2) Which of the following would be included in the entry to record the payment of a previously declared dividend of $1.75 per share on 19,500 ordinary shares?
A) Retained earnings would be credited for $34,125.
B) Cash would be debited for $34,125.
C) Dividends payable would be debited for $34,125.
D) Retained earnings would be debited for $34,125.
Q3) All forms and classes of shares carry voting rights.
A)True
B)False
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Chapter 15: Companies: Capital Management and the Income Statement
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Sample Questions
Q1) Comprehensive income is equal to the profit for the period,excluding the effects of discontinued operations and extraordinary items.
A)True
B)False
Q2) Which of the following occurs when a company distributes a share dividend?
A) Shareholders' equity increases.
B) Shareholders' equity remains unchanged.
C) Total liabilities increase.
D) Total assets decrease.
Q3) Which of the following will decrease the balance in Retained earnings?
A) Share split
B) Share issue
C) Share dividend
D) Repayment of debenture principal
Q4) Share dividends are declared by the:
A) board of directors of the company.
B) shareholders of the company.
C) chief financial officer of the company.
D) chief executive officer of the company.
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Chapter 16: The Cash Flow Statement
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Sample Questions
Q1) Harrison Company uses the indirect method to prepare its cash flow statement.Refer to the following information for the year 2016:
1) Retained earnings, beginning balance, $141,000
2) Retained earnings, ending balance, $122,000
3) Company reported net loss of $15,000 for the year. What was the amount of dividends declared during the year?
A) $4000
B) $34,000
C) $3000
D) $19,000
Q2) Which would NOT be included in the operating activities section of an indirect method statement of cash flow?
A) Changes in accounts receivable
B) Changes in long-term bills payable
C) Changes in inventory
D) Changes in accounts payable
Q3) Issuing preference shares to shareholders would be a financing activity.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Sample Questions
Q1) The presumption is that a material item is one that is ________ of an appropriate base amount.
A) greater than 20%
B) greater than 10%
C) equal to or less than 5%
D) greater than 5%
Q2) Which of the following is not a characteristic used to judge whether an entity is a reporting entity that should prepare general purpose financial reports?
A) The structure of the entity, e.g. whether it is a sole trader or a company
B) Whether ownership and management are separate
C) Whether the entity has economic or political importance
D) The size or indebtedness of the entity
Q3) When both the total profit on the contract and the progressive degree of completion during construction can be reliably estimated,a construction firm should record income on a long-term construction project using the:
A) percentage of completion method.
B) sales method.
C) instalment method.
D) collection method.
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Chapter 18: Financial Statement Analysis
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Sample Questions
Q1) If you are comparing your company's results with those of other companies in the industry,the process is called:
A) a horizontal analysis.
B) a trend analysis.
C) sensitivity analysis.
D) benchmarking.
Q2) A company reports total assets of $900,000 and shareholders' equity of $600,000.Calculate the debt ratio.
A) 33.33%
B) 50%
C) 66.67%
D) 40%
Q3) The rate of return on ordinary shareholders' equity is used for which kind of evaluation?
A) Evaluating shares in a company from an investor's perspective
B) The overall profitability of a company
C) The ability of a company to pay its non-current liabilities
D) The ability of a company to pay its current liabilities
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Sample Questions
Q1) Advertising and marketing costs are included in manufacturing overhead. A)True
B)False
Q2) Which of the following formulas represents cost of sales for a retailing business?
A) Beginning inventory + purchases and freight in - ending inventory = cost of sales
B) Purchases and freight in - ending inventory = cost of sales
C) Ending inventory + purchases and freight in - beginning inventory = cost of sales
D) Beginning inventory - ending inventory = cost of sales
Q3) The cash budget may be used to determine whether a company will need additional financing for the coming period.
A)True
B)False
Q4) Inventoriable product costs are expensed in the period in which they are incurred. A)True B)False
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Chapter 20: Job Costing
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Sample Questions
Q1) When jobs are completed,the total cost of the job is recorded as a debit to Finished goods and a credit to Work in process.
A)True
B)False
Q2) Direct materials and direct labour are assigned to individual job cost records and are recorded with a debit to Work in process.
A)True B)False
Q3) Target costing starts with the price that customers are willing to pay and then subtracts the company's desired profit to determine the desired full-product cost.
A)True
B)False
Q4) Activity-based costing focuses on a single predetermined overhead rate for cost analysis.
A)True B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Colin was a professional classical guitar player until his motorcycle accident that left him disabled.After long months of therapy,he hired an experienced luthier (maker of stringed instruments)and started a small shop to make and sell Spanish guitars.The guitars sell for $720 and the fixed monthly operating costs are as follows:
\[\begin{array} { | l | l | }
\hline \text { Rent and electricity and gas } & \$ 1400 \\
\hline \text { Wages and benefits to luthier } & 2500 \\
\hline \text { Other expenses } & 300 \\ \hline
\end{array}\]
Colin's accountant told him about contribution margin ratios and he understood clearly that for every dollar of sales,$0.60 went to cover his fixed costs,and that anything past that point was pure profit.
What is the amount of revenue Colin should earn each month to break even?
A) $7834
B) $5500
C) $6500
D) $11,750
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Chapter 22: Short-Term Business Decisions
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Q1) Polynesia Company manufactures sonars for fishing boats.Model 70 sells for $300.Polynesia produces and sells 5 600 of them per year.Cost data are as follows: \[\begin{array} { | l | l | l | }
\hline \text { Variable manufacturing } & \$ 100 & \text { per unit } \\
\hline \text { Variable marketing } & \$ 16 & \text { per unit } \\
\hline \text { Fixed manufacturing } & \$ 280000 & \text { per year } \\
\hline \text { Fixed marketing \& admin } & \$ 150000 & \text { per year } \\
\hline \end{array}\]
The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats.He proposes a sale of 40 units at a special price of $150 per unit.He says it will not cannibalise the company's regular sales and is a one-time transaction.It will require the normal amount of variable costs,both marketing and manufacturing,but will not impact fixed costs in any way.The president of the company has some reservations,but finally agrees to make the deal if and only if it adds a minimum of $1 500 to operating profit.Based on the president's criteria,Polynesia will decline the offer.
A)True
B)False
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Chapter 23: Capital Investment Decisions and the Time Value of Money
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Q1) The accounting rate of return calculations ignores the time value of money,but the payback period does include consideration of the time value of money.
A)True
B)False
Q2) At the internal rate of return (IRR),the present value of cash inflows will be equal to:
A) initial investment.
B) average operating profit.
C) residual value.
D) profit from the project.
Q3) All else being equal,the shorter the investment period,the higher the total amount of interest earned.
A)True
B)False
Q4) All else being equal,investments with longer payback periods are more desirable.
A)True
B)False
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