Financial Accounting
Test Questions
Course Introduction
Financial Accounting introduces students to the fundamental principles and techniques used to record, classify, and interpret financial transactions in organizations. The course covers the preparation and analysis of financial statements, including the balance sheet, income statement, and cash flow statement, with a focus on generally accepted accounting principles (GAAP). Students will learn how financial information supports decision-making for internal and external stakeholders, understand the accounting cycle, and develop skills in ethical financial reporting and disclosure practices. This foundational course lays the groundwork for advanced study in accounting, finance, and business management.
Recommended Textbook
Corporate Financial Accounting 15th Edition by Carl
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15 Chapters
3080 Verified Questions
3080 Flashcards
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Page 2
S. Warren
Chapter 1: Accounting and Business
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Sample Questions
Q1) Proper ethical conduct implies that you only consider what's in your best interest.
A)True
B)False
Answer: False
Q2) The Sarbanes-Oxley Act established standards for corporate responsibility and disclosure.
A)True
B)False
Answer: True
Q3) Land, originally purchased for $30,000, is sold for $62,000 in cash. What is the effect of the sale on the accounting equation?
A) assets increase by $62,000; stockholders' equity increases by $62,000
B) assets increase by $32,000; stockholders' equity increases by $32,000
C) assets increase by $62,000; liabilities decrease by $30,000; stockholders' equity increases by $32,000
D) assets increase by $30,000; no change in liabilities; stockholders' equity increases by $62,000
Answer: B
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3
Chapter 2: Double-Entry Accounting
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216 Flashcards
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Sample Questions
Q1) Which of the following entries records the payment of dividends?
A) debit Common Stock; credit Cash
B) debit Dividends; credit Cash
C) debit Salaries Expense; credit Cash
D) debit Salaries Expense; credit Salaries Payable
Answer: B
Q2) Journalizing is the process of entering amounts in the ledger.
A)True
B)False
Answer: False
Q3) A journal with a debit and credit column for recording transactions is known as a A) debit and credit journal
B) normal journal
C) two-column journal
D) summary journal
Answer: C
Q4) On October 30, JumpStart pays $3,330 in dividends to its stockholders. Provide the journal entry for this transaction.
Answer: 11ea84e6_b038_378d_9a63_d32ea8b4ec6d_TB2281_00_TB2281_00
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Chapter 3: Adjustments: Accruals and Deferrals
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Sample Questions
Q1) Supplies are recorded as assets when purchased. Therefore, the credit to Supplies in the adjusting entry is for the amount of supplies
A) still on hand
B) purchased
C) used
D) required for the next accounting period
Answer: C
Q2) Accrued expenses are ordinarily reported on the balance sheet as A) assets
B) liabilities
C) fixed assets
D) prepaid expenses
Answer: B
Q3) Even though GAAP requires the accrual basis of accounting, some businesses prefer using the cash basis of accounting.
A)True
B)False
Answer: True
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Chapter 4: The Accounting Cycle
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Sample Questions
Q1) During the end-of-period processing, which of the following best describes the logical order of steps?
A) preparation of adjustments, adjusted trial balance, financial statements
B) preparation of income statement, adjusted trial balance, balance sheet
C) preparation of adjusted trial balance, cross-referencing, journalizing
D) preparation of adjustments, adjusted trial balance, posting
Q2) Determine the total assets.
A) $25,130
B) $16,830
C) $22,930
D) $24,030
Q3) The current ratio is more useful than working capital in comparing across companies or with industry averages.
A)True
B)False
Q4) Accumulated Depreciation is a permanent account.
A)True
B)False
Q5) List and describe the purpose of the four closing entries.
Q6) Describe a classified balance sheet.
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Chapter 5: Accounting for Retail Businesses
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Sample Questions
Q1) If the buyer bears the freight costs related to a purchase, the terms are said to be FOB destination.
A)True
B)False
Q2) Dollar Co. sold merchandise to Pound Co. on account, $25,500, terms 2/15, net 45. Pound Co. paid the invoice within the discount period. What is the sales amount to be recorded in the above transactions?
A) $25,500
B) $26,010
C) $24,990
D) $16,000
Q3) Purchased goods in transit, shipped FOB destination, should be excluded from ending inventory of the buyer.
A)True
B)False
Q4) Because many companies use computerized accounting systems, periodic inventory is widely used.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) If ending inventory for the year is overstated, stockholders' equity reported on the balance sheet at the end of the year is understated.
A)True
B)False
Q2) For the year ended December 31, Depot Max's cost of goods sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Depot Max's number of days' sales in inventory is closest to A) 42
B) 46
C) 8
D) 44
Q3) Use of the retail inventory method requires taking a physical count of inventory.
A)True B)False
Q4) A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Which of the following should not be considered cash by an accountant?
A) money orders
B) bank checking accounts
C) postage stamps
D) travelers' checks
Q2) Accompanying the bank statement was a debit memo for an NSF check received from a customer. What entry is required in the company's accounts?
A) debit Other Income; credit Cash
B) debit Cash; credit Other Income
C) debit Cash; credit Accounts Receivable
D) debit Accounts Receivable; credit Cash
Q3) For a strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.
A)True
B)False
Q4) A voucher is a written authorization to make a cash payment.
A)True
B)False
Q5) List and define each of the five elements of internal control.
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Chapter 8: Receivables
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Sample Questions
Q1) Under the direct write-off method of uncollectible accounts, if a written off account is later collected, the effect on the accounting equation is
A) an increase in assets and an increase in liabilities
B) an increase in liabilities and a decrease in stockholders' equity (expense)
C) a decrease in assets and an increase in stockholders' equity (expense)
D) a decrease in assets and a decrease in stockholders' equity (expense)
Q2) If a note receivable is dishonored, what is the effect on the accounting equation?
Q3) Under the allowance method of uncollectible accounts, the entry to write off a customer's account affects the accounting equation by
A) increasing an asset and decreasing an asset
B) increasing a liability and decreasing a liability
C) decreasing an asset and decreasing stockholders' equity (expense)
D) decreasing a liability and increasing stockholders' equity (revenue)
Q4) Under the direct write-off method of uncollectible accounts, what is the effect on the accounting equation of writing off a customer's account?
Q5) What is the effect on the accounting equation when a company receives payment on a note receivable, including interest?
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Page 10
Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Equipment was acquired at the beginning of the year at a cost of $75,000. The equipment was depreciated using the straight-line method based upon an estimated useful life of 6 years and an estimated residual value of $7,500. (a) What was the depreciation expense for the first year?
(b) Assuming the equipment was sold at the end of the second year for \(\$ 59,000\), determine the gain or loss on sale of the equipment.
(c) Journalize the entry to record the sale.
Q2) On June 1, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years and 30,000 hours, which ends on December 31.
Using straight-line depreciation, calculate depreciation expense for the final (partial) year of service.
A) $17,500
B) $30,000
C) $12,500
D) $40,000
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Chapter 10: Liabilities: Current, Installment Notes, and Contingencies
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Sample Questions
Q1) The following totals for the month of June were taken from the payroll register of Arcon Company: \[\begin{array} { l r }
\text { Sal aries expense } & \$ 14,000 \\
\text { Social security and Medicare taxes withheld } & 1,050 \\
\text { Income taxes withheld } & 2,600 \\
\text { Retirement savings } & 1,000
\end{array}\] The entry to record the payment of net pay would include a
A) debit to salaries payable for $14,000
B) debit to salaries payable for $9,350
C) credit to salaries expense for $9,350
D) credit to salaries payable for $9,350
Q2) Chang Co. issued a $50,000, 120-day, discounted note to Guarantee Bank. The discount rate is 6%. Assuming a 360-day year, the cash proceeds to Chang Co. are
A) $49,750
B) $47,000
C) $49,000
D) $51,000
Q3) List five internal controls that relate directly to payroll.
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) If the market rate of interest is greater than the contractual rate of interest, bonds will sell
A) at a premium
B) at face value
C) at a discount
D) only after the stated rate of interest is increased
Q2) The Glenn Corporation issues 1,000, 10-year, 8%, $2,000 bonds dated January 1 at 96. The journal entry to record the issuance will show a
A) debit to Discount on Bonds Payable for $80,000
B) debit to Cash of $2,000,000
C) credit to Bonds Payable for $1,920,000
D) credit to Cash for $1,920,000
Q3) Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.
A)True
B)False
Q4) Bondholders are creditors of the issuing corporation.
A)True
B)False
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Chapter 12: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) Which of the following amounts should be disclosed in the stockholders' equity section of the balance sheet?
A) the number of shares of common stock outstanding
B) the number of shares of common stock issued
C) the number of shares of common stock authorized
D) all of these
Q2) When Wisconsin Corporation was formed on January 1, the corporate charter provided for 100,000 shares of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 8,500 shares of stock at a price of $16 per share.
The entry to record the above transaction would include a
A) debit to Cash for $85,000
B) credit to Common Stock for $136,000
C) credit to Paid-In Capital in Excess of Par for $51,000
D) debit to Common Stock for $85,000
Q3) The amount of capital paid in by the stockholders of the corporation is called legal capital.
A)True
B)False
Page 14
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) If land costing $145,000 was sold for $205,000, the $60,000 gain on the sale would be added to net income in the operating activities section of the statement of cash flows (prepared by the indirect method).
A)True
B)False
Q2) Which of the following is not one of the four basic financial statements?
A) balance sheet
B) statement of cash flows
C) statement of changes in financial position
D) income statement
Q3) The order of presentation of activities on the statement of cash flows is
A) operating, investing, and financing
B) operating, financing, and investing
C) financing, operating, and investing
D) financing, investing, and operating
Q4) Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the financing activities section of the statement of cash flows would be $85,000.
A)True
B)False
Page 15
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) The relationship of each asset item as a percent of total assets is an example of vertical analysis.
A)True
B)False
Q2) What is the dividend yield for Diane Company?
A) 7.5%
B) 0.75%
C) 13.3%
D) 1.3%
Q3) All of the following are typically included in the management's discussion and analysis in annual reports except
A) explanations of any significant changes between the current and prior years' financial statements
B) management's assessment of liquidity
C) journal entries
D) off-balance-sheet arrangements
Q4) Define solvency and profitability. How are they alike?
Q5) The denominator of the return on total assets ratio is the average total assets.
A)True
B)False
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Chapter 15:Investments
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Sample Questions
Q1) The equity method of accounting for investments
A) requires a year-end adjustment to revalue the stock to lower of cost or market
B) requires the investment to be reported at its original cost
C) requires the investment be increased by the reported net income of the investee
D) requires the investment be increased by the dividends paid by the investee
Q2) To record a bond investment made between interest payment dates, Investment in Bonds would be debited and Cash and Interest Revenue would be credited.
A)True
B)False
Q3) For accounting purposes, the method used to account for investments in common stock is determined by
A) the amount paid for the stock by the investor
B) whether the acquisition of the stock by the investor was "friendly" or "hostile"
C) the extent of an investor's influence over the operating and financial affairs of the investee
D) whether the stock has paid dividends in past years
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