Financial Accounting I Practice
Questions
Course Introduction
Financial Accounting I introduces students to the fundamental principles and concepts of financial accounting. The course focuses on the preparation, analysis, and interpretation of financial statements, including the balance sheet, income statement, and statement of cash flows. Topics covered include the accounting cycle, recording transactions, adjusting entries, and understanding generally accepted accounting principles (GAAP). Students will gain foundational knowledge in measuring business activities, ensuring accuracy in financial reporting, and communicating financial information for decision-making purposes.
Recommended Textbook
Financial Accounting 4th Canadian Edition by Robert; Libby
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Chapter 1: Financial Statements and Business Decisions
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Sample Questions
Q1) How are the differing claims of creditors and investors recognized by a corporation?
A)The claims of creditors are liabilities; those of investors are assets.
B)The claims of both creditors and investors are liabilities,but only the claims of investors are considered to be long term.
C)The claims of creditors are liabilities; the claims of investors are recorded as shareholders' equity.
D)The claims of creditors and investors are considered to be essentially equivalent.
Answer: C
Q2) If Bender Corporation recently purchased goods from you on account,which of Bender's financial statements would you look at to determine whether Bender has sufficient resources to be able to pay for the goods when payment is due in 30 days?
A)Income statement.
B)Statement of financial position.
C)Statement of changes in equity.
D)Statement of cash flows.
Answer: B
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3
Chapter 2: Investing and Financing Decisions and the Accounting System
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Sample Questions
Q1) Payment of a liability would do which of the following?
A)Decrease shareholders' equity.
B)Decrease assets.
C)Not affect assets.
D)Increase shareholders' equity.
Answer: B
Q2) The statement of cash flows provides information that not only shows the sources and uses of cash but also helps both investors and creditors predict future cash flows.
A)True
B)False
Answer: True
Q3) The collection of a trade receivable from a customer would do which of the following?
A)Increase liabilities.
B)Decrease liabilities.
C)Not affect liabilities.
D)Decrease shareholders' equity.
Answer: C
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Chapter 3: Operating Decisions and the Accounting System
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Sample Questions
Q1) Revenue is always recognized when which of the following occurs?
A)expenses are paid.
B)cash is collected.
C)it is earned.
D)the end of the period arrives.
Answer: C
Q2) The revenue principle recognizes revenue from the sale of goods when ownership passes from the seller to the buyer.In the sale of services,revenue is recognized when the services are completed.
A)True
B)False
Answer: True
Q3) Which of the following costs is most likely to be the largest expense item on the income statement of a merchandising chain such as Walmart?
A)Wage,salary and benefits expense
B)Advertising
C)Cost of Sales
D)Income tax expense
Answer: C
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Chapter 4: Adjustments,financial Statements,and the Quality of Earnings
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Sample Questions
Q1) Profit under accrual timing is subject to more distortion than cash flow from operations because of large accruals and deferrals that can impact reported profit.
A)True
B)False
Q2) Joe Company purchased supplies inventory for $5,000.Due to an error in posting,the inventory account was debited for only $500 when trade payables was credited for $5,000.During which phase of the accounting information cycle would this error be discovered?
A)Recording transaction in the journal.
B)Preparation of the financial statements.
C)Preparation of the trial balance.
D)Analysis of each transaction.
Q3) Both the adjusting entries and the closing entries usually are dated as of the last day of the accounting period.
A)True
B)False
Q4) Is the adjusted trial balance a financial statement? Explain why or why not.
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Chapter 5: Communicating and Interpreting Accounting Information
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Sample Questions
Q1) Cash collected from customers is a cash flow from a financing activity.
A)True
B)False
Q2) Billton Company purchased a machine in the current year for $18,000.Payment included cash,$5,000; a one-year note payable,$5,000; and a 2-year,$8,000 note payable.This decreases cash by $5,000 in the current year.
A)True
B)False
Q3) The statement of cash flows is the only financial statement prepared on the cash basis of accounting rather than on the accrual basis of accounting.
A)True
B)False
Q4) Which of the following transactions is not a typical use of cash?
A)Payment of short-term debt with cash.
B)Purchase of treasury shares for cash.
C)Acquisition of a building for cash.
D)Sale of equipment for less than book value.
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Chapter 6: Reporting and Interpreting Sales Revenue, receivables,
and Cash
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Sample Questions
Q1) Which of the following is an example of a noncurrent asset?
A)long term investments
B)trade receivables
C)prepaid expenses
D)inventory
Q2) Which of the following websites provides access to the Ontario Securities Commission's (OSC)reports filed by companies?
A)First Call
B)Lexis-Nexis
C)SEDAR
D)Compustat
Q3) Determining if an item is material to the users of financial statements requires professional judgement.
A)True
B)False
Q4) Return on equity (ROE)primarily measures which of the following?
A)the ability to generate revenue while holding assets steady
B)the ability to generate sufficient profit on total assets
C)the ability to earn profit for the common shareholders
D)the ability to earn profit for the preferred shareholders
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Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory
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Sample Questions
Q1) The change in trade receivables is reported as a cash flow adjustment on the statement of cash flows under investing activities according to the indirect method. A)True B)False
Q2) What is the impact of treating sales returns and allowances as a contra revenue but treating sales discounts and credit card discounts as selling expenses?
A)Gross margin is reduced by sales returns and allowances,sales discounts and credit card discounts
B)Gross margin is reduced by sales returns and allowances but all three accounts cause a decrease in profit from operations
C)Gross margin is reduced by sales returns and allowance but operating profit is only reduced by sales discounts and credit card discounts
D)Gross margin is reduced by sales discounts and credit card discounts but all three accounts cause a decrease in profit from operations.
Q3) Why is the reconciliation of a company's cash account to the bank statement so important for effective internal control for cash?
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Chapter 8: Reporting and Interpreting Property, plant, and Equipment; Intangibles; and Natural Resources
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Sample Questions
Q1) Maxell Company uses the periodic FIFO method to value inventory and had the following transactions in the period.What are the cost of goods sold and ending inventory balances in dollars for the period?
A)Choice A
B)Choice B
C)Choice C
D)Choice D
Q2) If beginning inventory is understated by $1,300 and ending inventory is understated by $700,pretax profit for the period will be which of the following?
A)Understated by $600.
B)Understated by $2,000.
C)Overstated by $600.
D)Overstated by $2,000.
Q3) Ownership of goods passes from the seller to the buyer after the buyer has paid for the goods.
A)True
B)False
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Chapter 9: Reporting and Interpreting Liabilities
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Sample Questions
Q1) The apportionment of the acquisition cost of an operational asset to future periods in which the benefits contribute to earning revenue must be which of the following?
A)Random
B)Impaired
C)Revised annually.
D)Rational.
Q2) If a company classifies an expenditure as a capital expenditure instead of a revenue expenditure,which of the following will be false?
A)Profit for the year of acquisition will be higher.
B)The initial cost basis of the asset will be higher.
C)Depreciation expense will be higher over the asset's life.
D)It will be expensed in the year in which the expenditure takes place.
Q3) Ordinary repairs and maintenance of operational assets should be capitalized and depreciated over the remaining useful life of the related asset.
A)True
B)False
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Chapter 10: Reporting and Interpreting Bond Securities
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Sample Questions
Q1) When a company increases trade payables from one year to the next,what is the effect on cash flows?
A)A decrease in cash caused by paying down our debt to vendors.
B)An increase in cash because we have not paid cash for all the inventory and services purchased on credit during the period.
C)A decrease to cash because we will have to pay these liabilities in the future.
D)An increase to cash because we have received cash from vendors.
Q2) G Co,a biotechnology company,reported current assets of $1,326.5 million and current liabilities of $484.1 million in 2012 and in 2011,current assets of $1,242.0 million and $291.3 million of current liabilities.Therefore,working capital for G Co.increased from 2011 to 2012.
A)True
B)False
Q3) The federal government requires which of the following?
A)Only the employer to pay CPP contributions.
B)Only the employee to pay CPP contributions.
C)Neither the employer nor the employee to pay CPP contributions.
D)Both the employer and the employee to pay CPP contributions.
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Chapter 11: Reporting and Interpreting Stockholders Equity
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Sample Questions
Q1) A characteristic of a callable bond is the payment of the principal by the issuing corporation in instalments on several specified dates.
A)True
B)False
Q2) On December 31,20A,Bennett recorded an adjusting entry to account for interest that had accrued on the note.What is the approximate amount of interest expense that would have accrued at December 31,20A?
A)$25,400
B)$32,000
C)$76,200
D)$96,000
Q3) How much would Kristen have to deposit in the bank today if she will be earning a 6% annual rate of return and wants to have $5,000 in the bank at the end of five years? (Round to the nearest dollar).
A)$3,736
B)$4,212
C)$4,737
D)$5,637
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Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) The date on which a cash dividend becomes a binding legal obligation is on the A)declaration date.
B)date of record.
C)payment date.
D)last day of the fiscal year end.
Q2) The effect of a stock dividend is to
A)change the composition of shareholders' equity.
B)decrease total assets and shareholders' equity.
C)decrease total assets and total liabilities.
D)increase the book value per share of common shares.
Q3) Which of the following is a requirement that must be fulfilled in order to declare and pay a cash dividend?
A)Sufficient cash.
B)Sufficient prepaid expenses.
C)No dividends in arrears.
D)Relatively low trade payables.
Q4) Some preferred share issues are redeemable at the option of the shareholder.
A)True
B)False
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Chapter 13: Analyzing Financial Statements
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Sample Questions
Q1) The records of Twain Company include the following: What is the financial leverage factor (rounded to the nearest percent)?
A)4%
B)5%
C)7%
D)9%
Q2) The price-earnings ratio reflects investors' expectations about the future profitability of the company.
A)True
B)False
Q3) Calculate C Co's quick ratio for 2020 and 2011 respectively.
A).30 and .32
B).37 and .40
C).55 and .64
D).56 and .54
Q4) The current ratio is one indicator of the liquidity of a company.
A)True
B)False
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