Financial Accounting for Decision Makers
Pre-Test Questions
Course Introduction
Financial Accounting for Decision Makers introduces students to the fundamental principles and practices of financial accounting, emphasizing the use and interpretation of accounting information to support effective decision making within organizations. The course covers core accounting concepts, the preparation and analysis of financial statements, and the regulatory environment governing accounting practices. Students will develop skills in evaluating financial performance, understanding the impact of accounting choices on reported results, and applying accounting data to real-world business scenarios. Critical topics include revenue recognition, asset and liability valuation, and ethical considerations in financial reporting, equipping students with the knowledge to make sound financial decisions in both managerial and stakeholder roles.
Recommended Textbook
Financial Accounting 5th Canadian Edition by Walter T. Harrison
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13 Chapters
1520 Verified Questions
1520 Flashcards
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Chapter 1: The Financial Statements
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139 Verified Questions
139 Flashcards
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Sample Questions
Q1) Cash would appear on the:
A) income statement with the revenues
B) retained earnings statement with the net income
C) balance sheet with the current assets
D) balance sheet with the current liabilities
Answer: C
Q2) Which financial statement is based on the accounting equation?
A) statement of retained earnings
B) income statement
C) cash flow statement
D) balance sheet
Answer: D
Q3) The accounting equation can be stated as:
A) Assets + Liabilities = Shareholders' equity
B) Assets = Liabilities + Shareholders' equity
C) Assets = Liabilities - Shareholders' equity
D) Assets + Shareholders' equity = Liabilities
Answer: B
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Chapter 2: Recording Business Transactions
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164 Flashcards
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Sample Questions
Q1) The ledger provides a good indication of how much cash is available for the business to use.
A)True
B)False
Answer: True
Q2) The costs of operating a business are usually called:
A) expenses
B) liabilities
C) assets
D) revenues
Answer: A
Q3) Accounting transactions are first recorded in a book or record called a:
A) file
B) ledger
C) journal
D) source document
Answer: C
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Chapter 3: Accrual Accounting and the Financial Statements
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144 Flashcards
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Sample Questions
Q1) An accountant who uses the accrual basis of accounting receives cash in advance for services yet to be performed. The entry to record this transaction will include a credit to which of the following accounts?
A) Unearned Service Revenue
B) Prepaid Expense
C) Unearned Expense
D) Service Revenue
Answer: A
Q2) The adjusting entry for supplies used during the current period will involve a credit to:
A) Supplies
B) Supplies Expense
C) Accrued Supplies
D) Supplies Revenue
Answer: A
Q3) A liability that the business has incurred but has not yet paid is known as accrued revenue.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Internal Control and Cash
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110 Flashcards
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Sample Questions
Q1) The cheques that have been paid by the bank on behalf of the depositor and included with the bank statement are called:
A) cancelled cheques
B) cheques in transit
C) NSF cheques
D) outstanding cheques
Q2) Outstanding cheques are deposits you have recorded but the bank has not.
A)True
B)False
Q3) To maintain effective controls over cash, who should be the first person to handle cash received through the mail?
A) the accounts receivable clerk
B) a mail room employee
C) the controller
D) the bookkeeper
Q4) Bank charges are deducted from the ending bank balance in the general ledger when preparing the bank reconciliation.
A)True
B)False
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Chapter 5: Short-Term Investments and Receivables
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Sample Questions
Q1) Under the allowance method, the entry to write off a $1,425 uncollectible account includes:
A) a debit to Accounts Receivable for $1,425
B) a credit to Bad Debt Expense for $1,425
C) a credit to Allowance for Uncollectible Accounts for $1,425
D) a debit to Allowance for Uncollectible Accounts for $1,425
Q2) One method of establishing proper internal control over collections of accounts receivable is to:
A) make all disbursements by cheque
B) set up a petty cash fund
C) establish a bank lock-box
D) designate an authorized cheque signer
Q3) Using the percentage-of-sales method, you estimate that total uncollectible accounts are $4,500. The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $1,400. The amount of the adjusting entry is:
A) $5,900
B) $4,500
C) $3,100
D) $1,400
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Chapter 6: Inventory and Cost of Goods Sold
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106 Flashcards
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Sample Questions
Q1) FIFO tends to decrease cost of goods sold when:
A) costs are constant
B) costs are decreasing
C) costs are increasing
D) FIFO will always yield the lowest possible taxes
Q2) Technological advances in computers and inventory tracking have:
A) made perpetual inventory records less expensive to maintain
B) completely eliminated the need to physically count inventory
C) made journal entries unnecessary for inventory purchases
D) made perpetual inventory records more expensive to maintain
Q3) Sales commissions are not normally included in the cost of goods sold account.
A)True
B)False
Q4) Cash received from the sale of inventory is shown on a cash flow statement as:
A) an investing activity
B) a financing activity
C) an operating activity
D) either an operating activity or a financing activity
Q5) State some methods retailers might use to increase the gross margin on sales.
Page 8
Q6) Discuss methods companies could use to increase the rate of inventory turnover.
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Chapter 7: Property, Plant, and Equipment, and Intangible Assets
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Sample Questions
Q1) Blockware Corporation has selected to use the revaluation model for its assets. Recently it had its building appraised. The appraiser placed a $5.0 M value on the building. Back in 2012 this building was purchased for $4.0M. This increases in value over cost requires a:
A) Dr. to accumulated depreciation
B) Cr. to the building account
C) Cr. to revaluation surplus
D) Dr. to revaluation surplus
Q2) The cost of a tangible long-lived asset includes the purchase price, applicable taxes, purchase commissions, and all other amounts paid to acquire the asset and get it ready for its intended use.
A)True
B)False
Q3) The capital cost allowance form of depreciation is used for income tax purposes. A)True
B)False
Q4) Costs of land improvements are not included in the Land account. A)True B)False
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Chapter 8: Long-Term Investments and the Time Value of Money
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Sample Questions
Q1) Goodwill is a(n) ________ on the ________.
A) current asset, subsidiary's balance sheet
B) intangible asset, subsidiary's balance sheet
C) intangible asset, consolidated balance sheet
D) long-term investment, consolidated balance sheet
Q2) Amortizing a premium on a bond investment will cause the Investment account and interest revenue to respectively:
A) increase and increase
B) decrease and decrease
C) decrease and increase
D) increase and decrease
Q3) A gain or loss on sale of a long-term investment using the equity method is determined by comparing the cash received with the:
A) cost of the long-term investment
B) market value of the long-term investment
C) cost of the long-term investment adjusted for the investor's share of the investee's net income and cash dividends while the investment was held by the investor company
D) lower-of-cost-or-market value of the long-term investment
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Chapter 9: Liabilities
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Sample Questions
Q1) The excess of a bond's issue price over its face value is known as the:
A) discount
B) premium
C) contract interest
D) effective-interest
Q2) Describe the two interest rates included in setting the price of a bond.
Q3) Under the effective-interest method of amortization, the cash payment on each interest payment date is calculated by multiplying the:
A) carrying value of the bonds times the effective-interest rate for the appropriate time period
B) face value of the bonds times the stated interest rate for the appropriate time period
C) face value of the bonds times the effective-interest rate for the appropriate time period
D) carrying value of the bonds times the stated interest rate for the appropriate time period
Q4) Another name for the effective interest rate is the market interest rate.
A)True
B)False
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Chapter 10: Shareholders Equity
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Sample Questions
Q1) A retirement of common shares:
A) decreases the number of common shares issued
B) reduces the balance in the common shares account
C) produces a gain or loss reported on the income statement
D) decreases the number of common shares issued and reduces the balance in the common shares account
Q2) When a cash dividend is declared:
A) the Cash account is debited.
B) the Cash account is credited.
C) the Retained Earnings account is debited.
D) the Retained Earnings account is credited.
Q3) Which of the following statements regarding stock splits is incorrect?
A) A stock split increases total owners' equity.
B) A stock split involves a reduction in the share's issue value.
C) A stock split decreases the market price of the shares.
D) A stock split is an increase in the number of authorized, issued, and outstanding shares.
Q4) Explain the fundamental difference between retained earnings and share capital.
Q5) What type of shares would an investor purchase if he or she were primarily interested in a safe investment?
Page 12
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Statement of Shareholders Equity
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Sample Questions
Q1) The primary responsibility of the independent auditor is to decide whether the company's:
A) internal controls are effective
B) financial statements are free from errors
C) management has complied with all applicable laws and regulations during the fiscal year under audit
D) financial statements comply with generally accepted accounting principles (GAAP)
Q2) All of the following might be found on a statement of shareholders' equity except:
A) earnings-per-share information
B) cash dividends
C) repurchased share purchases
D) net income
Q3) Taxable income is found on the:
A) income statement
B) balance sheet
C) tax return
D) retained earnings statement
Q4) Explain what is meant by the phrase "the quality of earnings."
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Governance Corporation uses the direct method when preparing its statement of cash flows. Governance sold equipment with a book value of $13,000 at a loss of $3,000. The amount to be reported on the statement of cash flows under "proceeds from the sale of capital assets" is:
A) $16,000
B) $13,000
C) $10,000
D) $3,000
Q2) The statement of cash flows is a supplement to the balance sheet in a company's annual report.
A)True
B)False
Q3) In 2013 Phosphate Aurora Inc. reported an increase in Accounts Receivable of $7,500 and cash collections on account of $430,000. Sales on account for the period were:
A) $7,500
B) $437,500
C) $430,000
D) $422,500
Q4) Why is the statement of cash flows necessary?
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Inventory turnover is calculated as:
A) average inventory for the period / cost of goods sold
B) cost of goods sold / average inventory for the period
C) gross margin for the period / average inventory for the period
D) average inventory for the period / gross margin for the period
Q2) A company reported $75,000 of income for 2012, $80,000 for 2013, and $90,000 for 2014. The percentage change in net income from 2013 to 2014 was:
A) 9.1%
B) 11.1%
C) 12.5%
D) 16.7%
Q3) Analysts find the cash flow statement more helpful for spotting weakness in a company than for gauging success.
A)True
B)False
Q4) An efficient capital market is one in which market prices fully reflect all information available to the public.
A)True
B)False
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