Financial Accounting Review
Questions
Course Introduction
Financial Accounting introduces the fundamental concepts, principles, and procedures used to record, classify, and summarize financial transactions for businesses and organizations. Students will learn how to prepare, interpret, and analyze key financial statements such as the balance sheet, income statement, and cash flow statement, in accordance with Generally Accepted Accounting Principles (GAAP). The course emphasizes the role of financial information in decision-making processes for internal and external users, and provides a foundation for further study in accounting, finance, and business management.
Recommended Textbook
Financial Accounting 6th Edition by Walter T. Harrison
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11 Chapters
1425 Verified Questions
1425 Flashcards
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Page 2
Chapter 1: The Financial Statements
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143 Verified Questions
143 Flashcards
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Sample Questions
Q1) Which of the following best describes a liability?
A) Liabilities are a form of share capital.
B) Liabilities are future economic benefits to which a company is entitled.
C) Liabilities are accounts receivable of the company.
D) Liabilities are economic obligations to creditors to be paid at some future date by the company.
Answer: D
Q2) Dividends:
A) always affect net income
B) are distributions to shareholders of assets (usually cash) generated by net income
C) are expenses
D) must be paid to shareholders when the company earns a profit
Answer: B
Q3) For business purposes,dividend payments are classified as expenses.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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170 Verified Questions
170 Flashcards
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Sample Questions
Q1) Where is information for each account stored?
Answer: Information for each account is stored in the ledger.The ledger becomes an accounting history for each account,since it details all of the transactions for each account.It also contains the dates of the transactions and references to the journal from which the transactions have been posted.
Q2) The normal balance of Accounts Receivable is a ________ because it is a(n)________ account.
A) credit; liability
B) debit; expense
C) credit; shareholders' equity
D) debit; asset
Answer: D
Q3) Assets include cash,land,and accounts payable.
A)True
B)False
Answer: False
Q4) In the journal you will find the total balance for each account.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Accrual Accounting and the Financial Statements
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) On September 1 of the current year,Prepaid Rent was debited for $3,000.This amount represents payment for one year of rent,paid in advance.The adjusting entry on December 31 will involve a:
A) debit to Rent Expense for $2,000
B) debit to Rent Expense for $1,000
C) debit to Rent Payable for $2,000
D) debit to Rent Payable for $1,000
Answer: B
Q2) Non-current assets are those debts payable in longer than 1 year or the entity's operating cycle which ever is longer.
A)True
B)False
Answer: False
Q3) Unearned Revenue is a(n):
A) revenue account
B) expense account
C) asset account
D) liability account
Answer: D
Page 5
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Chapter 4: Cash and Receivables
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155 Verified Questions
155 Flashcards
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Sample Questions
Q1) After a customer's account has been written off under the allowance method,the customer sends the company the amount owed.Before the receipt of cash can be recorded,the company must first:
A) debit Allowance for Uncollectible Accounts
B) credit Bad Debt Expense
C) debit Accounts Receivable
D) credit Accounts Receivable
Q2) If the bank records a deposit of $50 as $150,the error would be shown on a bank reconciliation as:
A) a deduction from the book balance of $100
B) an addition to the book balance of $100
C) a deduction from the bank balance of $100
D) an addition to the bank balance of $100
Q3) In a bank reconciliation,an EFT cash receipt is:
A) added to the bank balance on the bank statement
B) added to the bank balance in the general ledger
C) deducted from the bank balance in the general ledger
D) deducted from the bank balance on the bank statement
Q4) Identify and briefly describe four ways to improve cash flows from sales and receivables.
Page 6
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Chapter 5: Inventory and Cost of Goods Sold
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104 Verified Questions
104 Flashcards
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Sample Questions
Q1) In a perpetual inventory system,businesses maintain a continuous record for each inventory item.
A)True
B)False
Q2) Inventory errors counter balance in two consecutive periods.
A)True
B)False
Q3) Previously written down inventory does not need to be reassessed as it is at its lowest value.
A)True
B)False
Q4) Discuss methods companies could use to increase the rate of inventory turnover.
Q5) If ending inventory for the year ended December 31,2016,is understated,this error will cause owners' equity to be:
A) overstated at the end of 2016 and understated at the end of 2017
B) understated at the end of 2016 and overstated at the end of 2017
C) correctly stated at the end of 2016 and overstated at the end of 2017
D) understated at the end of 2016 and correctly stated at the end of 2017
Q6) What is the major expense shown on the income statement for a merchandising business?
Page 7
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Chapter 6: Property, plant, and Equipment, and Intangible Assets
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136 Verified Questions
136 Flashcards
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Sample Questions
Q1) Thompson Glacier Limited purchased a tract of land and contracted with a commercial developer to build an office building.Thompson Glacier Limited also engaged other contractors for fencing,paving,lighting,and landscaping.
Based on the following data,determine the cost of the land,the building,and the land improvements.
Purchased land for $100,000.
Paid $2,000 for seller's back property taxes.
Paid a builder $225,000 to design and build the office building.
Paid an excavation company $6,000 to grade and clear the land to make it suitable for building purposes.
Paid a landscaping company $6,500 for trees and shrubs.
Paid a lighting contractor $10,000 for outside lighting around the parking area and sidewalks.
Paid $15,000 to have the parking lot paved.
Paid a fence builder $12,000 to construct a security fence around the property.
Q2) Depreciation is calculated using full years only.
A)True
B)False
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Page 8
Chapter 7: Investments and the Time Value of Money
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Under ASPE a reporting an organization can use either the effective interest rate method or straight line to account for the amortization of their bond investment.
A)True
B)False
Q2) Yukon Electrical Company owns all of the stock of Simmons Corporation and 80% of the stock of I-Tek Corporation.In 2017,Yukon earned net income of $450,000,Simmons earned $120,000,and I-Tek earned $180,000.Yukon's consolidated income statement would report consolidated net income of:
A) $450,000
B) $570,000
C) $750,000
D) $714,000
Q3) Amortization of a discount on a long-term bond investment will decrease the amount of interest revenue recorded by the investor.
A)True
B)False
Q4) Briefly explain the meaning of the term "present value."
Q5) How does an investor account for a long-term investment in bonds?
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Chapter 8: Liabilities
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103 Verified Questions
103 Flashcards
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Sample Questions
Q1) Accrued interest on a short-term note payable is recorded by:
A) debiting Interest Expense and crediting Interest Payable
B) debiting Cash and crediting Interest Payable
C) debiting Interest Payable and crediting Cash
D) debiting Interest Payable and crediting Interest Expense
Q2) An example of a post retirement benefit provided by a company is medical insurance for retired workers.
A)True
B)False
Q3) During its first year of operations Keene Limited had sales of $76,500.The company offers a 2- year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of sales with an additional 1.5% in the second year.During the current year the company spent $1,200 on warranty repairs.
Required:
1.Prepare all journal entries related to the warranty for the current year.
2.How will the warranty liability be reported on the company's year-end balance sheet?
Q4) Describe the two interest rates included in setting the price of a bond.
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Chapter 9: Shareholders Equity
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) When shares are issued,their stated value is set by the board of directors.
A)True
B)False
Q2) What type of shares would an investor purchase if he or she were primarily interested in steady dividends?
Q3) All of the following are basic rights of a shareholder except:
A) the right to sell the shares
B) the right to vote
C) the right to collect dividends
D) the right to declare dividends
Q4) The financial statement that reports the changes in all categories of equity during the period is called the:
A) statement of income
B) statement of shareholders' equity
C) statement of retained earnings
D) statement of changes in financial position
Q5) Once a share is sold,it is consider issued.
A)True
B)False
Q6) Describe the rights typically enjoyed by common shareholders.
Page 11
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Chapter 10: The Statement of Cash Flows
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133 Verified Questions
133 Flashcards
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Sample Questions
Q1) The most important section of a statement of cash flows is the:
A) operating activities
B) investing activities
C) financing activities
D) all of the sections are equally important
Q2) Fertilizer Incorporated reports an increase in Accounts Payable of $9,200 and an increase in inventory of $45,000 for the current year.Accounts Payable relates solely to the purchase of merchandise.Sales on account were $532,100 and cost of goods sold was $358,000.The payments to suppliers for inventory during the period were:
A) $393,800
B) $322,200
C) $412,200
D) $303,800
Q3) On an indirect method statement of cash flows,a decrease in inventory would be:
A) netted against any decreases in accounts payable
B) deducted from net income
C) reflected in the investing activities section
D) added to net income
Q4) Why is the statement of cash flows necessary?
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Chapter 11: Financial Statement Analysis
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116 Verified Questions
116 Flashcards
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Sample Questions
Q1) When performing vertical analysis of an income statement,net income is usually used as the base.
A)True
B)False
Q2) On a statement of cash flows,which of the following is a sign of a healthy company?
A) Investing activities include more sales of long-term assets than purchases.
B) Financing activities are dominated by borrowing.
C) Operating activities are the major source of cash.
D) Net cash provided by operating activities is less than net income.
Q3) Common size statements include the relation of each item on the statement of earnings to net sales.
A)True
B)False
Q4) Based upon recent accounting scandals,identify potential red flags that may be discovered in financial analysis.
Q5) Identify three cash flow signs of a healthy company.
Q6) How is it possible for investors to compare two companies of different sizes or companies that operate in different industries?
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