Financial Reporting
Final Exam
Course Introduction
Financial Reporting is a foundational course that explores the principles and practices of preparing and presenting financial statements in accordance with generally accepted accounting standards. Students learn how to analyze, record, and report a variety of financial transactions for both internal and external stakeholders. The course covers essential topics such as the accounting cycle, recognition and measurement of assets and liabilities, revenue recognition, and the preparation of balance sheets, income statements, and cash flow statements. By the end of the course, students will be able to interpret financial reports and understand their significance in decision-making processes for businesses and regulatory bodies.
Recommended Textbook
Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition by Gary
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Chapter 1: Accounting As a Form of Communication
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196 Flashcards
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Sample Questions
Q1) The Securities and Exchange Commission (SEC)is concerned with A)companies that issue securities to the general public.
B)all companies in the U.S.regardless of size.
C)accounting reports issued by government entities.
D)all domestic and international companies that issue accounting reports.
Answer: A
Q2) The second step in the ethical decision-making model is to
A)list alternatives and evaluate the impact of each on those affected.
B)select the best alternative.
C)recognize an ethical dilemma.
D)analyze the key elements in the situation.
Answer: D
Q3) The income statement is sometimes called the statement of financial position. A)True
B)False
Answer: False
Q4) A department store is an example of a manufacturer.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Financial Statements and the Annual Report
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Sample Questions
Q1) An advantage of the current ratio is that it considers the makeup of the current assets.
A)True
B)False
Answer: False
Q2) _________________________ are cash and other assets that are reasonably expected to be converted to cash during the normal operating cycle of the business. Answer: Current assets
Q3) ____________________ is the magnitude of an omission or misstatement in accounting information that will affect the judgment of someone relying on the information.
Answer: Materiality
Q4) Which of the following represents the correct sequence of the three business activities on the statements of cash flows?
A)Financing,Operating,Investing
B)Investing,Operating,Financing
C)Operating,Investing,Financing
D)Financing,Investing,Operating
Answer: C
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Chapter 3: Processing Accounting Information
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Sample Questions
Q1) Owners of Tri-States Industries,Ralph and Maureen,are sent a dividend check from the company.For this transaction,what is the effect on the accounting equation for Tri-States Industries?
A)Assets decrease and stockholders' equity decreases.
B)Assets increase and stockholders' equity increases.
C)Liabilities increase and stockholders' equity decreases.
D)Liabilities decrease and stockholders' equity increases.
Answer: A
Q2) Which one of the following best defines an internal event in terms of accounting?
A)Every type of transaction is an internal event
B)An event recognized in a set of financial statements
C)A happening of consequence to an entity
D)An event occurring entirely within an entity
Answer: D
Q3) An external event involves interaction between an entity and its environment.
A)True
B)False
Answer: True
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5
Chapter 4: Income Measurement and Accrual Accounting
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Sample Questions
Q1) The names of the four major types of adjusting entries are
Q2) Failure to record the supplies used during the year would result in which of the following?
A)Net income being understated
B)An overstatement of liabilities
C)Stockholders' equity being overstated
D)Total assets being understated
Q3) A(n)_________________________ results when cash is received before the related amount is reported on the income statement.
Q4) Describe the benefit(s)of using the accrual process as compared to the cash basis.
Q5) Which one of the following adjustments will increase assets?
A)Interest incurred on money borrowed during the period but not yet paid to the bank is accrued.
B)Rent revenue is recorded for amounts owed by a tenant but not yet paid.
C)The use of supplies is recorded.
D)Depreciation for the period is recorded.
Q6) Temporary accounts are also known as _________________ accounts.
Page 6
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Chapter 5: Inventories and Cost of Goods Sold
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Sample Questions
Q1) If a company overstates its ending inventory balance for 2018 by $10,000 and overstates its ending inventory balance for 2017 by $5,000,what are the effects on its net income for 2018 and 2017 if neither error is corrected?
\(\begin{array} { c c }
\text { Effect on 2018 Net Income } & \text { Effect on 2017 Net Income } \\\end{array}\)
a.\(\begin{array} { c c } \text { Overstated by } \$ 15,000 & \text { Overstated by } \$ 10,000 \\\end{array}\)
b. \(\begin{array} { c c } \text { Understated by } \$ 5,000 & \text { Overstated by } \$ 10,000 \\\end{array}\)
c. \(\begin{array} { c c } \text {Overstated by } \$ 5,000 & \text { Overstated by } \$ 5,000 \\\end{array}\)
d.\(\begin{array} { c c } \text { Overstated by } \$ 10,000 & \text { Overstated by } \$ 5,000
\end{array}\)
Q2) An error in assigning the proper amount to inventory on the balance sheet will affect the amount recognized as __________ on the income statement
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7
Chapter 6: Cash and Internal Control
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Sample Questions
Q1) Explain how a company can control small payments that must be made in cash rather than by check.
Q2) Administrative controls are
A)concerned with efficient operations and adherence to managerial policies.
B)concerned with the reliability of the financial statements.
C)the responsibility of the company's auditors.
D)concerned primarily with safeguarding assets.
Q3) __________ describes a form used by the accountant to reconcile or resolve any differences between the balance shown on the bank statement for a particular account with the balance shown in the accounting records.
Q4) Which of the following is considered one of the six most important internal control procedures?
A)Computerized accounting systems
B)The board of directors
C)Proper authorizations
D)Verification by government agencies
Q5) Deductions on a bank statement for items such as NSF checks and bank service charges are called __________.
Q6) What is meant by "cash equivalents"?
Page 8
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Chapter 7: Receivables and Investments
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Sample Questions
Q1) The comparative balance sheets for Flagler Co.for 2018 and 2017 indicate that accounts receivable decreased during 2018.Flagler uses the indirect method of preparing the Operating Activities section of its statement of cash flows.How will the decrease in accounts receivable be reported on the statement of cash flows?
A)It will be included in the amount of cash and cash equivalents at the end of 2018.
B)It will be deducted from net income in the Operating Activities section.
C)It will be added to net income in the Operating Activities section.
D)It will be reported as a cash outflow in the Investing Activities section.
Q2) Changes in accounts receivable are reported in the __________ Activities section of a statement of cash flows prepared using the indirect method.
Q3) Refer to the data for Mellon Corporation. ?
If Mellon uses 2% of net credit sales to estimate its bad debts,what will be the balance in the Allowance for Doubtful Accounts account after the adjustment for bad debts?
A)$33,000
B)$31,800
C)$27,000
D)$25,800
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Page 9
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
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Sample Questions
Q1) Did the company purchase any intangible assets during the year?
A)Income statement
B)Balance sheet
C)Statement of cash flows
D)Statement of retained earnings
Q2) A building with an appraisal value of $250,000 is made available at an offer price of $180,000.The purchaser acquires the property for $35,000 in cash,a 90-day note payable for $65,000,and a mortgage amounting to $63,000.The cost basis recorded in the buyer's accounting records to recognize this purchase is
A)$250,000.
B)$180,000.
C)$163,000.
D)$100,000.
Q3) The Loss on Sale of Asset indicates the amount by which the asset's sales price is less than its book value.
A)True
B)False
Q4) Relative to plant assets,how can a company report a net loss for a period and yet still have positive cash flows from operating activities?
Page 10
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Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
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Sample Questions
Q1) Estimated liability for product warranties to be paid in the upcoming year is a current liability.
A)True
B)False
Q2) A company has $200 in cash,$500 in accounts receivable,and $700 in inventory.If current liabilities are $400,then the quick ratio would be
A)1.75 to 1.
B)2.25 to 1.
C)3.00 to 1.
D)3.50 to 1.
Q3) For a given contingent liability,a company has the choice of either recording it on the balance sheet or disclosing it in the notes.
A)True
B)False
Q4) The classification of current liabilities is closely tied to the concept of __________.
Q5) The interest earned on the principal amount only is referred to as __________.
Q6) What is the purpose of the current ratio? How does the quick ratio differ from the current ratio?
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) If an investor has the right to retire the bonds,they are referred to as callable.
A)True
B)False
Q2) Callable bonds may be retired by the issuer before their specified due date.
A)True
B)False
Q3) The attitude of the Financial Accounting Standards Board toward deferred tax liabilities is that they are
A)an amount that results in a future obligation and meets the definition of a liability.
B)a bookkeeping item that is used merely to maintain equality of the accounting equation.
C)not true liabilities because the balance increases every year.
D)not payable in the immediate future so it is not necessary to record them.
Q4) Bonds were issued at a(n)__________ when the issue price exceeds the face value.
Q5) The bond issue price equals the __________ of the cash flows that the bond will produce.
Q6) All liabilities that are not classified as current liabilities are classified as __________.
Page 12
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Chapter 11: Stockholders Equity
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Sample Questions
Q1) Authorized stock represents the
A)maximum number of shares that can be issued.
B)number of shares that have been sold.
C)number of shares that are currently held by stockholders.
D)number of shares that have been repurchased by the corporation.
Q2) What is substance over form,and how does this concept relate to the presentation of preferred stock?
Q3) When the owner of a sole proprietorship withdraws assets from the business for personal use,
A)it is treated like a noncash dividend.
B)it is illegal because the assets belong to the separate entity,the proprietorship.
C)it would be recorded as a loss by the proprietorship.
D)it is recorded as a reduction of owner's equity.
Q4) What is the difference between par value and market value? Which is the better indicator of the true worth of the stock?
Q5) The Treasury Stock account should be considered an asset account.
A)True
B)False
Q6) Explain the difference between authorized,issued,and outstanding shares.
Page 13
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Operating,investing,and financing activities affect certain balance sheet accounts.Which of the following statements is true?
A)Operating activities primarily involve transactions that affect noncurrent assets.
B)Investing activities primarily involve U.S.government securities and long-term productive assets.
C)Financing activities primarily involve transactions that affect current liabilities.
D)Different balance sheet accounts are affected depending on whether the direct or indirect method is used.
Q2) Singer Corp.began the year with a balance in its Income Taxes Payable account of $10,000.The year-end balance in the account was $15,000.The company uses the indirect method in the Operating Activities section of the statement of cash flows.Therefore,it presents the amount of income taxes paid at the bottom of the statement as a supplemental disclosure.The amount of taxes paid during the year was $12,000.What amount of income tax expense will appear on Singer's income statement?
Q3) __________ activities involve long-term liabilities and stockholders' equity.
Q4) The purchase of merchandise is an important __________ activity for a retailer.
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Page 14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Refer to the financial statements for Culinary Delights Company.
Required
(A)Culinary Delights' cash flow from operations for 2018 is $323,847 (in thousands).Evaluate Culinary Delights' short-term cash flow position during 2018.Is the company in danger of problems? Explain.
(B)Evaluate Culinary Delights' inventory management during 2018.
Q2) A company that uses leverage is attempting to earn an overall return that is higher than the cost of funds received from
A)preferred and common stockholders.
B)common stockholders only.
C)preferred stockholders and borrowed funds.
D)borrowed funds only.
Q3) Apple Company had terms of net 60 days for customers.The number of days' sales in accounts receivable for Apple was 42 days.Apple is efficient in the collection of its receivables.
A)True
B)False
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Page 15
Chapter 14: International Financial Reporting Standards
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Sample Questions
Q1) Explain the two primary legal systems used around the world and what these differences have to do with accounting standards.
Q2) How does the application of the lower-of-cost-or-market rule differ between U.S.GAAP and IFRS?
Q3) When analyzing foreign statements,all of the following are accurate positions of noncurrent liabilities listings except A)after total equity.
B)before current liabilities.
C)after share capital.
D)after current liabilities.
Q4) When did the SEC drop its longstanding rule that required foreign companies that filed financial statements with it to adjust those statements to conform with U.S.GAAP and allow them to use IFRS?
A)2001
B)2007
C)2009
D)2016
Q5) Discuss at least four reasons that accounting standards currently differ between countries.
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