Financial Accounting II
Exam Practice Tests
Course Introduction
Financial Accounting II builds upon foundational accounting principles to explore more advanced topics such as long-term liabilities, equity transactions, intercompany investments, cash flow statements, and the nuances of financial statement analysis. This course emphasizes the recognition, measurement, and disclosure requirements for complex financial instruments, as well as the implications of various accounting standards on corporate financial reporting. Students will develop proficiency in preparing and interpreting comprehensive financial statements, gain insights into ethical considerations in accounting, and enhance their analytical skills for informed decision-making in a business environment.
Recommended Textbook
Financial Accounting 2nd Edition by J. David Spiceland
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15 Chapters
1948 Verified Questions
1948 Flashcards
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Page 2
Chapter 1: Accounting Information and Decision Making
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165 Verified Questions
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Sample Questions
Q1) If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,then total assets equal $7,000.
A)True
B)False
Answer: False
Q2) If accounting information is considered to have faithful representation,then which of the following is true?
A)The information represents to users what it claims to represent.
B)The information follows conservatism principles and is also material.
C)The information is considered pertinent to or affects decisions.
D)The information will have predictive value,feedback value,and is timely.
Answer: A
Q3) Which of the following is not a balance sheet item?
A)Assets.
B)Retained Earnings.
C)Expenses.
D)Liabilities.
Answer: C
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3
Chapter 2: The Accounting Information System
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Sample Questions
Q1) Revenues have the effect of increasing retained earnings.
A)True
B)False
Answer: True
Q2) External transactions are transactions the firm conducts with a separate economic entity,such as selling products to a customer,purchasing supplies from a vendor,paying salaries to an employee,and borrowing money from a bank.
A)True
B)False Answer: True
Q3) For each transaction,there must be at least one debit amount and one credit amount.
A)True
B)False Answer: True
Q4) Revenue accounts increase with a debit and decrease with a credit.
A)True
B)False Answer: False
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Chapter 3: The Financial Reporting Process
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Sample Questions
Q1) Accrued revenues involve the receipt of cash after the revenue has been earned and an asset has been recorded.
A)True
B)False
Answer: True
Q2) On November 1,2012,a company receives $1,800 for services to be provided evenly over the next six months.The December 31,2012,adjusting entry for the company would include a credit to Unearned Revenue for $600.
A)True
B)False
Answer: False
Q3) Adjusting entries should be prepared after financial statements are prepared.
A)True
B)False
Answer: False
Q4) What is an accrued expense?
Answer: An accrued expense results from an expense being incurred and a liability recorded prior to cash payment.Examples include interest payable and salaries payable. To view all questions and flashcards with answers, click on the resource link above. Page 5
Chapter 4: Cash and Internal Controls
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Sample Questions
Q1) When preparing a bank reconciliation,a deposit outstanding would be:
A)Added to the company's cash balance.
B)Added to the bank's cash balance.
C)Subtracted from the company's cash balance.
D)Subtracted from the bank's cash balance.
Q2) A company's general ledger shows a cash balance of $4,570.Comparing the company's cash records with the monthly bank statement reveals several additional cash transactions such as checks outstanding of $2,840,bank service fees of $110,and interest earned of $15.Calculate the correct balance of cash.
Q3) Keeping supplies in a locked room with access allowed only to authorized personnel is an example of which preventive control?
A)Separation of duties.
B)Physical controls.
C)Proper authorization.
D)Employee management.
Q4) A company's free cash flows equal operating cash flows plus financing cash flows during the period.
A)True
B)False
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Chapter 5: Receivables and Sales
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Sample Questions
Q1) On February 23,a company provides services on account to a customer for $4,500.The customer pays in full for those services on March 4.Record the transactions for the company when the services are provided on February 23 and when the cash is collected on March 4.
Q2) Under the allowance method,which of the following does not change the balance in the Accounts Receivable account?
A)Returns on credit sales.
B)Collections on customer accounts.
C)Bad debt expense adjustment.
D)Write-offs.
Q3) The primary difference between a note receivable and an account receivable is:
A)A note receivable cannot be classified as a current asset.
B)Borrowers have the option of not paying a note receivable.
C)An account receivable is more likely to be collected.
D)A note receivable is evidenced by a written debt instrument.
Q4) The direct write-off method is used for tax purposes but is generally not permitted for financial reporting.
A)True
B)False
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) During periods when inventory costs are rising,cost of goods sold will most likely be:
A)Higher under FIFO than LIFO.
B)Higher under FIFO than average cost.
C)Lower under average cost than LIFO.
D)Lower under LIFO than FIFO.
Q2) In a perpetual inventory system,the purchase of inventory is debited to:
A)Purchases.
B)Cost of Goods Sold.
C)Inventory.
D)Accounts Payable.
Q3) Northwest Fur Co.started the year with $94,000 of merchandise inventory on hand.During the year,$400,000 in merchandise was purchased on account with credit terms of 1/15,n/45.All discounts were taken.Northwest paid freight-in charges of $7,500.Merchandise with an invoice amount of $5,000 was returned for credit.Cost of goods sold for the year was $380,000.What is ending inventory?
A)$112,490.
B)$112,550.
C)$116,500.
D)$120,300.
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Page 8
Chapter 7: Long-Term Assets
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Sample Questions
Q1) Which of the following intangible assets is not amortized?
A)Patents.
B)Copyrights.
C)Franchises.
D)Goodwill.
Q2) Productive assets that are physically used up,or depleted are:
A)Equipment.
B)Land.
C)Land improvements.
D)Natural resources.
Q3) Using the double-declining balance method,depreciation expense for 2013 would be:
A)$22,000.
B)$13,200.
C)$14,400.
D)$24,000.Depreciation rate = 2/5 = .40.
Q4) Explain how the accounting treatment differs between purchased and internally developed intangible assets.
Q5) Contrast the effects of the straight-line,declining-balance,and activity-based depreciation methods on annual depreciation expense.
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Chapter 8: Current Liabilities
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Sample
Questions
Q1) On November 1,Vacation Desinations borrows $1.5 million and issues a six-month,8% note payable.Interest is payable at maturity.Record the issuance of the note and the appropriate adjusting entry for interest expense at December 31,the end of the reporting period.
Q2) On November 1,2012,The Bagel Factory signed a $100,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2013.The Bagel Factory records the appropriate adjusting entry for the note on December 31,2012.In recording the payment of the note plus accrued interest at maturity on May 1,2013,The Bagel Factory would
A)Debit Interest Expense,$2,000.
B)Debit Interest Expense,$1,000.
C)Debit Interest Payable,$2,000.
D)Debit Interest Expense,$3,000.
Q3) Union Apparel has sales including sales taxes for the month of $551,200.If the sales tax rate is 6%,what are Union Apparel's sales for the month?
A)$500,000.
B)$518,128.
C)$520,000.
D)$551,200.
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Page 10
Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) Bonds payable should be reported as a long-term liability in the balance sheet at:
A)Face Value.
B)Current bond market price.
C)Carrying value.
D)Face value less accrued interest since the last interest payment date.
Q2) Magic Mountain retires its 8% bonds for $125,000 before their scheduled maturity.At the time,the bonds have a carrying value of $118,000.Record the early retirement of the bonds.
Q3) Interest expense on bonds payable is calculated as the:
A)Face amount times the stated interest rate.
B)Face amount times the market interest rate.
C)Carrying value times the market interest rate.
D)Carrying value times the stated interest rate.
Q4) Which of the following definitions describes a serial bond?
A)Matures on a single date.
B)Secured only by the "full faith and credit" of the issuing corporation.
C)Matures in installments.
D)Supported by specific assets pledged as collateral by the issuer.
Q5) Why do some companies issue bonds rather than borrow money directly from a bank?
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Par value has a direct relationship to the market value of the common stock.
A)True
B)False
Q2) Large stock dividends and stock splits are issued primarily to:
A)Lower the trading price of the stock per share.
B)Increase the number of authorized shares.
C)Increase legal capital.
D)Increase the number of outstanding shares.
Q3) Describe the primary advantages and disadvantages of a corporation in comparison to a sole-proprietorship or partnership.
Q4) Small stock dividends are recorded by debiting Retained Earnings for the par value per share.
A)True
B)False
Q5) Retained Earnings:
A)has a normal debit balance.
B)decreases stockholders' equity.
C)is equal to the balance in cash.
D)increases stockholders' equity.
Q6) Explain the difference between authorized,issued,and outstanding shares.
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Chapter 11: Statement of Cash Flows
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Sample Questions
Q1) Assume net income was $100,000,depreciation expense was $8,000,accounts receivable decreased by $7,500,and accounts payable decreased by $2,500.The amount of cash flows from operating activities is:
A)$103,000.
B)$100,000.
C)$108,000.
D)$113,000.
Q2) If no cash was exchanged in the purchase of equipment financed entirely with a note payable,we represent this as both an investing activity and a financing activity in the statement of cash flows.
A)True
B)False
Q3) Cash paid for financing activities would include cash paid for:
A)the stock of another company.
B)dividends to stockholders.
C)the purchase of treasury stock.
D)b and c.
Q4) Identify and briefly describe the three categories of cash flows reported in the statement of cash flows.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Changes in accounting estimates usually have no effect on a company's underlying cash flows.
A)True
B)False
Q2) When using a company's current earnings to estimate future earnings performance,investors normally should exclude discontinued operations and extraordinary items.
A)True
B)False
Q3) When a company sells land for cash and makes a $25,000 gain:
A)Its acid-test ratio decreases.
B)Its current ratio decreases.
C)Its debt to equity ratio decreases.
D)Cannot determine from the given information.
Q4) The acid-test ratio is most similar to the:
A)Current ratio.
B)Debt to equity ratio.
C)Times interest earned ratio.
D)Inventory turnover ratio.
Q5) Explain the difference between vertical and horizontal analysis.
Page 14
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Chapter 13: Time Value of Money
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Sample Questions
Q1) What is the value today of receiving $5,000 at the end of each year for the next 10 years,assuming an interest rate of 12% compounded annually?
A)$87,744.
B)$28,251.
C)$50,000.
D)$15,529.
Q2) The concept that interest causes the value of money received today to be greater than the value of that same amount of money received in the future is referred to as the:
A)Monetary unit assumption.
B)Historical cost principle.
C)Time value of money.
D)Matching principle.
Q3) The discount rate is the rate at which someone is willing to give up current dollars for future dollars.
A)True
B)False
Q4) Briefly describe the difference between simple interest and compound interest.
Q5) Explain the difference between present value and future value.
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Chapter 14: Investments
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Sample Questions
Q1) Unrealized gains and losses from changes in the fair value of trading securities are reported as part of current net income.
A)True
B)False
Q2) Investments in equity securities for which the investor has insignificant influence over the investee are classified for reporting purposes under the fair value method in one of two categories.What are these two categories? How do we report unrealized holding gains and losses under each of these two categories?
Q3) Gains and losses on the sale of equity investments are recorded in the income statement as part of net income.
A)True
B)False
Q4) When the investor has significant influence,the receipt of cash dividends is recorded as dividend revenue.
A)True B)False
Q5) Discuss the meaning of consolidated financial statements.When is it appropriate to consolidate financial statements of two companies?
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Chapter 15: International Financial Reporting Standards
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Sample Questions
Q1) By late 2007,over 100 jurisdictions,including China,Australia,and all of the countries in the European Union (EU),either require or permit the use of IFRS.
A)True
B)False
Q2) The primary objective of the IASB is to develop accounting standards in the U.S.
A)True
B)False
Q3) Suppose a company pays interest of $10,000 for the year on borrowed amounts due in two years.Under IFRS,what is the most the company can report as cash outflows from financing activities?
A)$10,000.
B)$2,000.
C)$5,000.
D)$0.
Q4) Why are some U.S.companies opposed to elimination of the LIFO inventory method?
A)Inventory amounts are more difficult to calculate under FIFO.
B)LIFO most likely matches actual flow of inventory.
C)Increased tax burden.
D)Most international companies use LIFO.
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