Financial Accounting I
Test Preparation
Course Introduction
Financial Accounting I introduces the fundamental principles and concepts of accounting, focusing on the systematic recording, summarizing, and reporting of financial transactions. Students learn to prepare and interpret basic financial statements, including the balance sheet, income statement, and statement of cash flows, and gain an understanding of the accounting cycle. The course also covers essential topics such as accruals, deferrals, revenue recognition, and the ethical standards of financial reporting, providing a strong foundation for further studies in accounting and business.
Recommended Textbook
Financial Accounting 12th Edition by C. William Thomas
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14 Chapters
2062 Verified Questions
2062 Flashcards
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) The balance sheet reports information about:
A)revenues,expenses,and equity.
B)liabilities,equity,and expenses.
C)assets,revenues,and liabilities.
D)assets,liabilities,and equity.
Answer: D
Q2) With regard to cash dividends:
A)they must be paid on a yearly basis.
B)the Board of Directors of the corporation determines if a dividend will be paid.
C)developmental-stage companies will pay large dividends to their shareholders.
D)a corporation must have enough additional paid-in capital and cash to pay dividends.
Answer: B
Q3) The two main components of stockholders' equity are paid-in capital and dividends.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) A company received a utility bill for $2,300 and decided to pay it next month due to a shortage of cash.How does this transaction affect the accounting equation?
A)Add $2,300 to Utilities Expense and add $2,300 to Cash.
B)Subtract $2,300 from Cash and add $2,300 to Accounts Payable.
C)Add $2,300 to Accounts Receivable and subtract $2,300 from Retained Earnings.
D)Add $2,300 to Accounts Payable and subtract $2,300 from Retained Earnings.
Answer: D
Q2) Which transaction decreases stockholders' equity?
A)Inventory was purchased on account.
B)Services were performed on account.
C)Services were performed and cash was immediately received from the customers.
D)Employees worked one week and were paid at the end of the week.
Answer: D
Q3) The ledger:
A)is a grouping of all of the balance sheet accounts only.
B)is a grouping of all the income statement accounts only.
C)contains all the accounts used by a business.
D)contains only the permanent accounts used by a business.
Answer: C
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Page 4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Under accrual-basis accounting,if a company fails to record a sale on account:
A)revenue will be understated.
B)assets will be understated.
C)net income will still be correct.
D)A and B.
Answer: D
Q2) The adjusting entry to record the accrual of income tax expense includes a:
A)debit to Income Tax Payable.
B)credit to Income Tax Expense.
C)credit to Accounts Payable.
D)credit to Income Tax Payable.
Answer: D
Q3) The amount of revenue to record is the amount of cash or its equivalent that is transferred from the customer to the seller.
A)True
B)False
Answer: True
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5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) Cash and cash equivalents include accounts receivable expected to be collected within 90 days or less.
A)True
B)False
Q2) Cash and Cash equivalents are assets.
A)True
B)False
Q3) The general rule that all major groups of transactions should be supported by either hard copy documents or electronic records is part of the control procedure of:
A)limited access.
B)segregation of duties.
C)adequate records.
D)proper approvals.
Q4) The sum of the cash in the petty cash fund and the total of the paid vouchers should equal the opening balance in the petty cash account at all times.
A)True
B)False
Q5) List the five internal control procedures.
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Chapter 5: Receivables and Revenue
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Sample Questions
Q1) The shipping terms in the sales contract determine when ownership of goods changes hands between the buyer and the seller.
A)True
B)False
Q2) Days' sales in receivables is also called:
A)days' sales outstanding
B)collection period
C)accounts receivable turnover
D)A and B
Q3) Which of the following is considered to be a more stringent measure of a company's ability to pay its current liabilities than the current ratio?
A)accounts payable
B)quick ratio
C)liquidity ratio
D)collection period
Q4) The maker of a note is the borrower.
A)True
B)False
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Page 7
Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) A LIFO liquidation occurs when ________ fall(s)below the ending inventory quantities in the previous period.
A)beginning inventory quantities
B)ending inventory quantities
C)beginning inventory costs
D)ending inventory retail value
Q2) Gross profit will be the:
A)highest if LIFO is used and inventory costs are decreasing.
B)lowest if LIFO is used and inventory costs are increasing.
C)highest if FIFO is used and inventory costs are increasing.
D)all of the above.
Q3) On May 1,Santelle Company purchased $700 of inventory on account with credit terms of 4/10,net 30.Santelle uses the perpetual inventory system.On May 2,the seller gave Santelle a $100 allowance due to a product defect.What journal entry did Santelle Company prepare on May 2?
A)debit Accounts Payable for $100 and credit Purchase Returns and Allowances for $100
B)debit Accounts Payable for $100 and credit Purchase Discounts for $100
C)debit Cash for $100 and credit Accounts Payable for $100
D)debit Accounts Payable for $100 and credit Inventory for $100
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Page 8
Chapter 7: Plant Assets, natural Resources, Intangibles
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Sample Questions
Q1) Which intangible asset is NOT amortized?
A)patents
B)trademarks
C)copyrights
D)goodwill
Q2) A lump-sum purchase of multiple,long-term plant assets requires the company to:
A)record the assets purchased as a single asset.
B)divide the total cost among the various assets according to values estimated by the company's management.
C)divide the total cost among the various assets according to their market values.
D)divide the total cost among the various assets according to their book values.
Q3) If a company has goodwill on its books,the goodwill:
A)is amortized over 40 years or useful life,whichever is less.
B)is tested for impairment annually.
C)may have been internally created.
D)may be written up to fair value.
Q4) All intangible assets must be amortized.
A)True
B)False
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Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) Some accrued liabilities,such as sales taxes and commissions,are incurred at the point of sale and must be recognized in the same period as those sales are made.
A)True
B)False
Q2) Current liabilities are expected to be paid within one year or the operating cycle,whichever is shorter.
A)True B)False
Q3) Wisconsin Bank lends Local Furniture Company $110,000 on November 1.Local Furniture Company signs a $110,000,6%,4-month note.The fiscal year end of Local Furniture Company is December 31.The journal entry made by Local Furniture Company on December 31 is:
A)debit Interest Expense and credit Interest Payable for $1,100.
B)debit Interest Payable and credit Interest Expense for $1,100.
C)debit Interest Expense and credit Cash for $1,100.
D)debit Interest Payable and credit Cash for $1,100.
Q4) Employee compensation is the major expense for most service companies.
A)True
B)False
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) A ________ may allow the company leasing the asset to own it after a period of time.
A)operating lease
B)convertible lease
C)finance lease
D)all of the above
Q2) The journal entry to record the conversion of bonds payable into common stock will include a:
A)debit to Bonds Payable and a credit to Common Stock.
B)debit to Bonds Payable and a credit to Cash.
C)debit to Cash and a credit to Common Stock.
D)debit to Cash and a credit to Paid-in Capital in Excess of Par.
Q3) Which of the following statements regarding leases is CORRECT?
A)Finance leases lower the debt ratio.
B)A debit balance in the Leased Asset account on the balance sheet indicates an operating lease that is less than one year.
C)Title is transferred to the lessee at the end of an operating lease term.
D)If a lease does not meet one of the five criteria provided by U.S.GAAP guidelines,it is classified as an operating lease by default.
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Page 11
Chapter 10: Stockholders Equity
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Sample Questions
Q1) The purchase of treasury stock has the same effect on stockholders' equity as issuing stock.
A)True
B)False
Q2) When treasury stock is purchased,accountants record treasury stock at:
A)the stock's par value.
B)the stock's original selling price.
C)the stock's cost which is current market value.
D)the difference between the original selling price and the par value.
Q3) Nichols,Inc.has 1000 shares of 4%,$100 par value,cumulative preferred stock and 75,000 shares of $1 par value common stock outstanding at December 31 of the current year.What is the annual dividend that will be paid to the preferred stockholders?
A)$1000
B)$4000
C)$100,000
D)$0.Preferred stockholders are not guaranteed an annual dividend payment.
Q4) What is the formula for the price-earnings ratio? What does this ratio measure?
Q5) List three reasons why corporations purchase their own stock.
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) When preparing the statement of cash flows using the indirect method,which statement is INCORRECT?
A)Gains on the sale of long-term assets are subtracted from net income.
B)Losses on the sale of long-term assets are subtracted from net income.
C)Depreciation expense is added to net income.
D)Increases in current liabilities are added to net income.
Q2) When converting net income to net cash provided by operating activities on the statement of cash flows,indirect method,which of the following is NOT added to net income?
A)gain on sale of land
B)decrease in inventory
C)decrease in accounts receivable
D)depreciation expense
Q3) Investing and financing activities for the statement of cash flows may differ when using the direct method instead of the indirect method.
A)True
B)False
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13
Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) The primary focus of horizontal analysis is:
A)percentage changes in line items from comparative financial statements.
B)the balance sheet only.
C)the amount of individual financial statement line items as a percentage of some related total,such as total assets.
D)the income statement only.
Q2) Which of the following is typically used as the base in a vertical analysis of an income statement?
A)gross profit
B)operating income
C)net income
D)net sales
Q3) MD&A stands for:
A)Management's Discussion and Analysis.
B)Management's Decisions and Analysis.
C)Marketing Discussion and Analysis.
D)Marketing Decisions and Analysis.
Q4) Common-size financial statements report only dollar amounts.
A)True
B)False
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Chapter 13: Investments
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Sample Questions
Q1) Both trading and available-for-sale investments in debt securities are accounted for using the fair value method in a way that is similar to how investments in equity securities with insignificant influence are accounted for.
A)True
B)False
Q2) At the beginning of the year,an investment in equity securities with insignificant influence was purchased for $400,000,and it has a fair value of $420,000 at the end of the year.The year-end journal entry will have a credit to:
A)Retained Earnings.
B)Unrealized Gain on Equity Securities.
C)Investment in Equity Securities.
D)Gain on Sale of Equity Securities.
Q3) The face interest rate of a bond determines the cash amount of interest the debtor company is expected to pay annually or semiannually.
A)True
B)False
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Chapter 14: Time Value of Money
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Sample Questions
Q1) Most business decision makers solve present-value problems with Excel because the present-value tables are limited to the interest rates in the columns and the number of periods in the rows.
A)True
B)False
Q2) A single amount of $4700 is to be received in 3 years.If the single amount is discounted at 6% for 3 periods,the present value is ________.The present value of $1 for 3 periods at 6% is 0.840.The present value of an ordinary annuity of $1 for 3 periods at 6% is 2.673.(Round your final answer to the nearest dollar. )
A)$3948
B)$4418
C)$4700
D)$12,563
Q3) The principal,when investing in a bond,is a single amount to be received by the investor and paid by the debtor at maturity.
A)True
B)False
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