Financial Accounting Review
Questions
Course Introduction
Financial Accounting is an essential course that introduces students to the principles and practices of recording, summarizing, analyzing, and reporting financial transactions for various types of organizations. Emphasizing the preparation and interpretation of financial statements, the course covers key concepts such as the accounting cycle, accrual versus cash accounting, revenue recognition, and the role of financial information in decision-making. Students will develop skills in using accounting systems, applying relevant accounting standards, understanding the ethical aspects of financial reporting, and interpreting the financial health of organizations through analysis of balance sheets, income statements, and cash flow statements.
Recommended Textbook
Fundamental Financial Accounting Concepts 9th Edition by Thomas P Edmonds
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13 Chapters
1874 Verified Questions
1874 Flashcards
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Chapter 1: An Introduction to Accounting
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Santa Fe Company was started on January 1,2016,when it acquired $9,000 cash by issuing common stock.During 2016,the company earned cash revenues of $4,500,paid cash expenses of $3,750,and paid a cash dividend of $250.Based on this information,
A)The December 31,2016 balance sheet would show total equity of $8,750.
B)The 2016 income statement would show net income of $500.
C)The 2016 statement of cash flows would show net cash inflow from operating activities of $4,500.
D)The 2016 statement of cash flows would show a net cash flow from financing activities of $8,750.
Answer: D
Q2) Which financial statement matches asset increases from operating a business with asset decreases from operating the business?
A)Balance sheet.
B)Statement of changes in equity.
C)Income statement.
D)Statement of cash flows.
Answer: C
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Page 3
Chapter 2: Understanding the Accounting Cycle
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149 Verified Questions
149 Flashcards
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Sample Questions
Q1) Total assets on Carolina's December 31,2016 balance sheet would amount to:
A)$12,600.
B)$13,800.
C)$7,200.
D)$10,600.
Answer: D
Q2) Which of the following would cause net income on the accrual basis to be different from (either higher or lower than)"cash provided by operating activities" on the statement of cash flows?
A)Purchased land for cash.
B)Purchased supplies for cash.
C)Paid advertising expense.
D)Paid dividends to stockholders.
Answer: B
Q3) The ethical standards for certified public accountants only require that such accountants comply with applicable laws and regulations.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Double-Entry Accounting System
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) Indicate whether each of the following statements concerning the debit-credit feature of the accounting model is true or false.
_____ a)Upon payment of an account payable,the liability account should be credited. _____ b)Payment of a cash expense requires a debit to cash and a credit to the expense.
_____ c)On a T-account debits are entered on the left and credits are entered on the right.
_____ d)A credit entry decreases an asset account.
_____ e)Increases in revenues are recorded as debits.
Answer: a)False b)False c)True d)True e)False
Q2) What does the debt to assets ratio indicate with regard to the degree of a company's debt risk? Who would normally be most interested in this ratio?
Answer: With a high debt to assets ratio,a company experiences a great degree of debt risk.A company with a high debt to assets ratio may be forced into bankruptcy if it is unable to meet the required payments on its outstanding debt.The company's creditors would likely be most interested in this ratio.
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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153 Verified Questions
153 Flashcards
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Sample Questions
Q1) The purpose of common size financial statements is to:
A)compare the amount of common stock to other types of stock.
B)make comparisons between firms of different sizes.
C)make comparisons between different time periods.
D)Make comparisons between firms of different sizes and between different time periods.
Q2) Which of the following account titles is normally used in a periodic inventory system?
A)Transportation-in.
B)Purchases.
C)Purchase Returns and Allowances.
D)All of these answer choices are normally used.
Q3) With a periodic inventory system,inventory purchases are recorded in the Purchases account at the time of purchase.
A)True
B)False
Q4) Costs charged to the Merchandise Inventory account are product costs.
A)True
B)False
Q5) If goods are shipped FOB destination,who is responsible for the shipping costs?
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Chapter 5: Accounting for Inventories
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134 Verified Questions
134 Flashcards
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Sample Questions
Q1) When the cost of purchasing inventory is declining,which inventory cost flow method will produce the highest amount of cost of goods sold?
A)Weighted average
B)LIFO
C)FIFO
D)LIFO,FIFO,and weighted average will all produce the same amount of cost of goods sold.
Q2) Misty Mountain Outfitters is a merchandiser of specialized fly fishing gear.Its cost of goods sold for 2016 was $295,000,and sales were $690,000.The amount of merchandise on hand was $50,000,and total assets amounted to $585,000.Using this information,which of the following answers correctly states the average days in inventory ratio? Round to the nearest day.
A)26 days
B)62 days
C)31 days
D)40 days
Q3) Discuss the significance of the average number of days to sell inventory.
Q4) What ratio (usually an average from prior periods)can be used in estimating the current period's ending inventory?
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Chapter 6: Internal Control and Accounting for Cash
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141 Verified Questions
141 Flashcards
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Sample Questions
Q1) Which of the following is not a motive for the embezzlement of cash by employees?
A)Cash is the common unit of measurement.
B)Ownership of cash is difficult to prove.
C)Cash has universal appeal.
D)Small quantities of high denomination can represent significant amounts of value.
Q2) In a company's bank reconciliation,an outstanding check is a check that:
A)has been issued by the company but has not been presented to the bank for payment.
B)is guaranteed for payment by the bank.
C)has been presented to the bank for payment but has not been reported on the bank statement.
D)has been written for an amount that is greater than the balance in the account holder's bank account.
Q3) A business learns about customers' NSF checks through debit memos that are included with the bank statement.
A)True
B)False
Q4) For internal control purposes,what is meant by "separation of duties?"
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Page 8
Chapter 7: Accounting for Receivables
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) How is the accounts receivable turnover computed? What information does this ratio provide?
Q2) On January 1,2016,Burton Company had a balance in Accounts Receivable of $90,000 and a balance in the Allowance for Doubtful Accounts account of $2,400.During 2016 Burton had credit sales of $244,000 and ended the year with a balance in Accounts Receivable of $48,000.During 2016 Burton also wrote off $1,100 of receivables.Burton uses the allowance method for uncollectible accounts and assumes that 2% of the sales on account will not be collected.
a)After adjusting entries on 12/31/16,what will be the balance in the Allowance for Doubtful Accounts?
b)By what amount did net realizable value of accounts receivable decrease in 2016 due to the write-off of the receivable?
c)What amount of cash was collected from customers during 2016?
Q3) After the accounts are adjusted at the end of the year,Accounts Receivable has a balance of $225,000,Uncollectible Accounts Expense for the year was $17,500,and Allowance for Doubtful Accounts has a balance of $12,500.What is the net realizable value of the accounts receivable?
Q4) Explain the computation of the length of the operating cycle.
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Page 9
Chapter 8: Accounting for Long-Term Operational Assets
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157 Flashcards
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Sample Questions
Q1) At the beginning of 2018,Furst revised the expected life to eight years.The annual amount of depreciation expense for each of the remaining years would be:
A)$6,240.
B)$4,400.
C)$7,040.
D)$3,900.
Q2) Monroe Minerals Company purchased a copper mine for $120,000,000.The mine was expected to produce 50,000 tons of copper over its useful life.During 2016,the company extracted 6,000 tons of copper.The copper was sold for $4,500 per ton.Assume that the company incurred $8,040,000 in operating expenses during 2016.Based on this information,how much net income would Monroe report in 2016?
A)$12,600,000.
B)$4,560,000.
C)$6,360,000.
D)$14,400,000.
Q3) What is the name of the tax rule that requires six months of depreciation expense to be taken in the year of purchase of the asset and the year of disposal regardless of the purchase date?
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Chapter 9: Accounting for Current Liabilities and Payroll
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122 Verified Questions
122 Flashcards
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Sample Questions
Q1) On October 1,2015,Harrison Company borrowed money by issuing a $24,000 face value discount note to its bank.The note had an 8% discount rate and had a term of 1 year.The amount of cash that Harrison received on that date was $22,080.
A)True
B)False
Q2) Zirkle Company borrowed $100,000 from Plains Bank on July 31,2016.The note carried a 6% interest rate with a one-year term to maturity.
Required:
1)Show the effects of borrowing the money and the December 31,2016 adjustment on the accounting equation.
2)What is the amount of interest expense for 2016?
3)Prepare a statement of cash flows for the Zirkle Company for 2016.
Q3) On a classified balance sheet,the financial statement user will be able to distinguish between:
A)cash flow from operations and cash flow from investing activities.
B)current and noncurrent assets.
C)product and period costs.
D)none of these answer choices are correct.
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11
Chapter 10: Accounting for Long-Term Debt
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157 Verified Questions
157 Flashcards
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Sample Questions
Q1) If a company uses the effective interest method of amortizing a bond premium,the carrying value of the bond
A)will decrease by equal amounts each year.
B)will decrease by smaller amounts each year.
C)will decrease by larger amounts each year.
D)will be lower than the face value of the bond until maturity.
Q2) If a bond is sold at 101,its stated rate of interest would be:
A)equal to the market rate.
B)unrelated to the market rate.
C)higher than the market rate.
D)lower than the market rate.
Q3) Discuss the purpose of a sinking fund.
Q4) Regardless of the specific type of long-term debt,which of the following is normally required with debt transactions?
A)to repay the debt
B)to pay dividends
C)to pay interest
D)to repay the interest and repay the debt
Q5) Discuss the tax advantage of long-term debt financing.
Q6) Discuss one advantage of issuing bonds versus borrowing money from a bank.
Page 12
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Chapter 11: Proprietorships,partnerships,and Corporations
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154 Flashcards
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Sample Questions
Q1) On January 1,2016,the organizers of the Fredonia Corporation obtained their charter authorizing 400,000 shares of $2 par common stock.Fredonia issued 30,000 shares of $2 par common stock for $8 per share.During 2016,the corporation earned $820,000 in cash revenue and paid $700,000 in cash expenses,not including income tax.The company declared and paid cash dividends totaling $28,000.Fredonia Corporation is in the 30% tax bracket.Using the above information,prepare an income statement and a balance sheet for the Fredonia Corporation.
Q2) Indicate whether each of the following statements is true or false.
_____ a)Double taxation refers to the fact that both a partnership and its partners must pay income tax on the earnings of the partnership.
_____ b)A sole proprietorship is an accounting entity separate from its owner.
_____ c)Limited liability is a benefit to both corporations and partnerships,but not to sole proprietorships.
_____ d)Unlike a partnership,a corporation is not terminated when a major stockholder withdraws his or her investment.
_____ e)Sole proprietorships are,generally,subject to fewer governmental regulations than corporations.
Q3) Which type of stock,common or preferred,must all corporations have?
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13
Chapter 12: Statement of Cash Flows
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129 Flashcards
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Sample Questions
Q1) How is depreciation expense classified on the statement of cash flows?
Q2) The direct method of preparing the operating activities section of the statement of cash flows shows increases and decreases in noncash current assets and current liabilities to arrive at cash flows from operating activities.
A)True
B)False
Q3) Which of the following would not be presented in the financing section of the statement of cash flows?
A)Purchased a new office building by issuing a note payable.
B)Purchased treasury stock.
C)Repayment of long-term bonds payable.
D)Issuing of preferred stock.
Q4) When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows,what is the proper disposition of depreciation expense?
A)Subtract depreciation from net income.
B)Add depreciation to net income.
C)Disregard depreciation because it relates to an investing activity.
D)Disregard depreciation because it is a noncash expense.
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Chapter 13: Financial Statement Analysis
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129 Verified Questions
129 Flashcards
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Sample Questions
Q1) A vertical analysis uses percentages to compare each of the parts of an individual statement to the whole.For example,on an income statement each item would be shown as a percentage of net sales.
A)True
B)False
Q2) Cost of goods sold/average inventory is the formula for which of these analytical measures?
A)Inventory turnover
B)Number of days' sales in inventory
C)Return on investment
D)Debt to assets ratio
Q3) Two ratios that provide insight on the relationship between credit sales and receivables are:
A)Current ratio and inventory turnover ratio.
B)Accounts receivable turnover and current ratio.
C)Average days to collect receivables and asset turnover.
D)Accounts receivable turnover and average days to collect receivables.
Q4) The current ratio is one of the most common measures of liquidity.
A)True
B)False
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