Financial Accounting Review
Questions
Course Introduction
Financial Accounting introduces students to the fundamental concepts and principles of accounting used to record, summarize, and report financial transactions. The course covers essential topics such as the accounting cycle, preparation of financial statements, and the analysis and interpretation of accounting information. Emphasis is placed on understanding the role of financial accounting in decision-making by various stakeholders, including investors, creditors, and management. Through practical exercises and real-world examples, students gain skills to accurately measure business performance and ensure transparency and accountability in financial reporting.
Recommended Textbook Survey of Accounting 5th Edition by Thomas P Edmonds
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16 Chapters
1698 Verified Questions
1698 Flashcards
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Page 2
Chapter 1: An Introduction to Accounting
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101 Flashcards
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Sample Questions
Q1) If a company's total assets increased while liabilities and common stock were unchanged, then:
A) revenues were greater than expenses.
B) retained earnings were less than net income during the period.
C) no dividends were paid during the period.
D) the company must have purchased assets with cash.
Answer: A
Q2) In a market, creditors are resource providers.
A)True
B)False
Answer: True
Q3) Which of the following items appears in the investing activities section of the statement of cash flows?
A) Cash inflow from interest revenue.
B) Cash inflow from the issuance of common stock.
C) Cash outflow for the payment of dividends.
D) Cash outflow for the purchase of land.
Answer: D
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3
Chapter 2: Accounting for Accruals and Deferrals
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Sample Questions
Q1) A company may recognize a revenue or expense without a corresponding cash collection or payment in the same accounting period.
A)True
B)False
Answer: True
Q2) Revenue on account amounted to $9,000. Cash collections of accounts receivable amounted to $8,100. Cash paid for expenses was $7,500. The amount of employee salaries accrued at the end of the year was $900. Cash flow from operating activities was
A) $900.
B) $600.
C) $1,500.
D) $8,700.
Answer: B
Q3) Providing services to customers on account is an asset exchange transaction.
A)True
B)False
Answer: False
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4
Chapter 3: Accounting for Merchandising Businesses
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105 Flashcards
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Sample Questions
Q1) Assume the perpetual inventory method is used.
1) The company purchased $12,500 of merchandise on account under terms 2/10, n/30.
2) The company returned $1,200 of merchandise to the supplier before payment was made.
3) The liability was paid within the discount period.
"4) All of the merchandise purchased was sold for $18,800 cash. What effect will the return of merchandise to the supplier have on the accounting equation?"
A) Assets and equity are reduced by $1,176.
B) Assets and liabilities are reduced by $1,176.
C) Assets and liabilities are reduced by $1,200.
D) None. It is an asset exchange transaction.
Answer: C
Q2) The chief advantage of the periodic system is:
A) efficiency and ease of recording.
B) immediate feedback on the inventory on hand at any time during the period.
C) timely discovery of losses due to theft.
D) better control over inventory.
Answer: A
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Page 5
Chapter 4: Internal Controls, Accounting for Cash, and Ethics
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Sample Questions
Q1) In the reconciliation of the June bank statement, a deposit made on June 30 did not appear on the June bank statement. In preparing the bank reconciliation, this deposit in transit should be:
A) subtracted from the unadjusted book balance.
B) added to the unadjusted book balance.
C) subtracted from the unadjusted bank balance.
D) added to the unadjusted bank balance.
Q2) The ethical standards for certified public accountants only require that such accountants comply with applicable laws and regulations.
A)True
B)False
Q3) Preparing a bank reconciliation is a requirement to obtain an unqualified audit opinion, but is not an important internal control for a business.
A)True
B)False
Q4) An error is considered material if it would trigger an IRS audit.
A)True
B)False
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Chapter 5: Accounting for Receivables and Inventory Cost Flow
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Sample Questions
Q1) Indicate whether each of the following statements is true or false.
_____ a) Most companies expect to receive the full face value of their receivables.
_____ b) The estimated amount of uncollectible accounts is called the net realizable value.
_____ c) The direct write-off method of accounting for uncollectible accounts does not require the computation of the net realizable value of accounts receivable.
_____ d) The practice of reporting the net realizable value of receivables is the result of using the allowance method of accounting for uncollectible accounts.
_____ e) The materiality principle requires the computation of net realizable value for a company's liabilities.
Q2) In a period of rising prices, use of the FIFO cost flow method would cause a company to pay more income taxes than would use of LIFO.
A)True
B)False
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Chapter 6: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) An impairment of an intangible asset reduces the asset, stockholders' equity, and net income.
A)True
B)False
Q2) Which of the following would most likely not be expensed using the straight-line method?
A) A copyright.
B) A building.
C) A timber reserve.
D) A patent.
Q3) Title search and document costs incurred to purchase a building are expensed in the period the building is acquired.
A)True
B)False
Q4) Late in a plant asset's useful life, the amount of depreciation that would be recorded with the double-declining-balance method is less than the amount that would be recognized with straight-line depreciation.
A)True
B)False
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Chapter 7: Accounting for Liabilities
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Sample Questions
Q1) Monthly remittance of sales tax due has no impact on the income statement, but reduces cash flow from operating activities.
A)True
B)False
Q2) Indicate whether each of the following statements is true or false.
_____ a) Interest expense on long-term installment notes increases each year.
_____ b) Cash for machinery or buildings is often obtained by issuing long-term debt.
_____ c) Short-term notes payable normally mature within a year.
_____ d) Long-term installment notes are repaid all at once two to five years after the issue date.
_____ e) Most long-term loans are obtained from the corporation's stockholders.
Q3) Companies that issue bonds are required to pay the face value of the bonds at maturity and to make fluctuating periodic interest payments based on the market rate of interest.
A)True
B)False
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9
Chapter 8: Proprietorships, Partnerships, and Corporations
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Sample Questions
Q1) Ogilvie Corp. issued 12,000 shares of no-par stock for $40 per share. Ogilvie was authorized to issue 35,000 shares. What effect will this event have on the company's financial statements?
A) Increase assets by $1,400,000, increase equity by $1,400,000.
B) Increase assets by $480,000, increase equity by $480,000.
C) Increase cash flow from investing activities by $480,000.
D) None of these answer choices are correct.
Q2) A reason often given for a corporate stock split is to:
A) reduce the market price of the stock.
B) protect the interest of creditors.
C) increase the par value of the stock.
D) absorb the treasury stock.
Q3) A purchase of treasury stock is an asset use transaction. A)True B)False
Q4) The book value of a share of stock is equal to the market or selling price of the stock. A)True B)False
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Chapter 9: Financial Statement Analysis
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Sample Questions
Q1) Horizontal analysis is also known as:
A) Liquidity analysis.
B) Trend analysis.
C) Revenue analysis.
D) Variance analysis.
Q2) An analysis procedure that uses percentages to compare each of the parts of an individual statement to a key dollar amount from the financial statements is:
A) Ratio analysis.
B) Contribution analysis.
C) Horizontal analysis.
D) Vertical analysis.
Q3) The accounting concept or principle that is perhaps the greatest single culprit in distorting the results of financial statement analysis is the:
A) Matching principle.
B) Conservatism concept.
C) Historical cost principle.
D) Time value of money concept.
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11
Chapter 10: An Introduction to Management Accounting
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Sample Questions
Q1) Costs that are not classified as product costs are normally expensed in the period incurred.
A)True
B)False
Q2) Tucker Company's work in process account decreased by $1,000, while its Finished Goods Inventory account increased by $500. Assuming total manufacturing costs were $5,000, what was the company's cost of goods sold amount?
A) $3,500
B) $4,500
C) $4,000
D) $5,500
Q3) Which of the following costs should be recorded as an expense?
A) Administrative employee salaries
B) Depreciation of manufacturing equipment
C) Insurance for the factory building
D) All of these are expenses.
Q4) Unlike manufacturers, service companies do not have an inventory of products.
A)True
B)False
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Chapter 11: Cost Behavior, Operating Leverage, and Profitability Analysis
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124 Verified Questions
124 Flashcards
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Sample Questions
Q1) If managers of a company do not understand the behavior of its costs, they are likely to make poor decisions about the company's operations.
A)True
B)False
Q2) Select the incorrect statement regarding the contribution margin income statement.
A) The contribution margin approach for the income statement is unacceptable for external reporting.
B) Contribution margin represents the amount available to cover product costs and thereafter to provide profit.
C) The contribution margin approach requires that all costs be classified as fixed or variable.
D) Assuming no change in fixed costs, a $1 increase in contribution margin will result in a $1 increase in profit.
Q3) For a mixed cost, total cost increases in direct proportion to volume.
A)True
B)False
Q4) Variable cost
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Chapter 12: Cost Accumulation, Tracing, and Allocation
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Sample Questions
Q1) Sturbridge Company manufactures fine furniture and grandfather clocks. Sturbridge has an excellent reputation, and each grandfather clock sells for several thousand dollars. Which of the following is an indirect cost, assuming the cost object is the Clock Department?
A) Salary of the clock production supervisor
B) Depreciation on the factory building
C) Depreciation on clock-making equipment
D) All of the answers are correct.
Q2) Cost objects may be:
A) Products.
B) Services.
C) Departments.
D) All of the answers are correct.
Q3) Which of the following statements is false?
A) Both direct and indirect costs can be assigned to a cost object.
B) Cost drivers are often selected based on the availability of information.
C) Volume measures are good drivers for fixed overhead costs.
D) Fixed costs that do not have a definitive cost driver are allocated using an allocation base that distributes a rational share of the cost to each product.
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Page 14
Chapter 13: Relevant Information for Special Decisions
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Sample Questions
Q1) The market value of equipment owned by a company is a sunk cost and should not be taken into account in deciding whether or not to replace the equipment.
A)True
B)False
Q2) For purposes of decision making, avoidable costs are costs that:
A) were incurred in the past.
B) will not be incurred in the future, regardless of the alternative chosen.
C) differ between alternatives.
D) None of the above.
Q3) For decision-making purposes, qualitative factors are relevant if they differ among the alternatives and relate to the future.
A)True
B)False
Q4) When evaluating alternatives, what type of costs should be considered?
A) Relevant costs
B) Sunk costs
C) Prevention costs
D) Fixed costs
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Chapter 14: Planning for Profit and Cost Control
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Sample Questions
Q1) Which of the following items is not needed to prepare an inventory purchases budget for a merchandising business?
A) Expected unit selling price
B) Beginning inventory
C) Expected unit sales
D) Desired ending inventory
Q2) Budgeting that involves decisions such as whether to buy or lease equipment or build a new factory is referred to as:
A) capital budgeting.
B) operations budgeting.
C) facilities planning.
D) strategic planning.
Q3) Which of the following is generally included in a sales budget?
A) Schedule of cash receipts for the projected sales
B) Desired ending inventory
C) Budgeted cost of goods sold
D) Schedule of cash payments for inventory purchases
Q4) The master budget generally starts with a sales forecast.
A)True
B)False
Page 16
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Chapter 15: Performance Evaluation
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Sample Questions
Q1) If Pascal Company's turnover (asset utilization) measure is 2.5 and its margin is 7.5%, its ROI is 18.75%.
A)True
B)False
Q2) Which of the following statements about return on investment (ROI) is false?
A) ROI equals margin divided by investment turnover.
B) ROI is used to measure the performance of investment centers.
C) Seeking to maximize ROI can result in a conflict between the interest of a particular manager and the interest of the business as a whole.
D) Companies may minimize motivational problems by using original cost instead of book value in the denominator of the ROI formula.
Q3) Which of the following applications is most suited for developing flexible budgets?
A) Database
B) Graphics
C) Spreadsheet
D) Word processing
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Chapter 16: Planning for Capital Investments
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Sample Questions
Q1) Sources of cash outflows from capital investments include incremental expenses and installation costs.
A)True
B)False
Q2) Generro Company is considering the purchase of equipment that would cost $36,000 and offer annual cash inflows of $10,500 over its useful life of 5 years. Assuming a desired rate of return of 12%, is the project acceptable?
A) No, since the negative net present value indicates the investment will yield a rate of return below the desired rate of return.
B) Yes, since the investment will generate $52,500 in future cash flows, which is greater than the purchase cost of $36,000.
C) Yes, since the positive net present value indicates the investment will earn a rate of return greater than 12%.
D) The answer cannot be determined.
Q3) The assumption regarding ordinary annuities is that cash flows occur at the end of each period.
A)True
B)False
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