Financial Reporting
Pre-Test Questions
Course Introduction
Financial Reporting is a comprehensive course designed to equip students with the skills and knowledge required to understand, prepare, and analyze financial statements in accordance with applicable accounting standards. The course covers essential topics such as the conceptual framework of accounting, the preparation and presentation of key financial statements (balance sheet, income statement, statement of cash flows, and statement of changes in equity), and the disclosure requirements set by regulatory bodies. Emphasis is placed on ethical considerations, recent developments in International Financial Reporting Standards (IFRS) or Generally Accepted Accounting Principles (GAAP), and the interpretation of financial information to inform decision-making by various stakeholders, including management, investors, and regulators. Through real-world case studies and practical applications, students gain a solid foundation for careers in accounting, finance, and related fields.
Recommended Textbook
Financial Accounting 15th Edition by Carl Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) The business entity concept means that
A)the owner is part of the business entity
B)an entity is organized according to state or federal statutes
C)an entity is organized according to the rules set by the FASB
D)the entity is an individual economic unit for which data are recorded, analyzed, and reported
Answer: D
Q2) A business paid $7,000 to a creditor in payment of an amount owed.The effect of the transaction on the accounting equation was to
A)increase an asset, decrease another asset
B)decrease an asset, decrease a liability
C)increase an asset, increase a liability
D)increase an asset, increase owner's equity
Answer: B
Q3) Has three sections: operating,investing and financing
A)Income statement
B)Balance sheet
C)Statement of owner's equity
D)Statement of cash flows
Answer: D
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) The accounts payable account is listed in the chart of accounts as an asset.
A)True
B)False Answer: False
Q2) Accounts Receivable
A)Credit side
B)Debit side Answer: B
Q3) In accordance with the debit and credit rules,which of the following is true?
A)Debits increase assets.
B)Credits increase assets.
C)Debits increase both assets and capital.
D)Credits increase both assets and liabilities.
Answer: A
Q4) When an account payable is paid with cash,the owner's equity in the business decreases.
A)True
B)False Answer: False
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Explain the difference between the accrual basis of accounting and the cash basis of accounting.
Answer: The accrual basis of accounting reports revenues and expenses in the period in which a service has been performed or a product has been delivered,regardless of when cash was received.The cash basis of accounting reports revenues and expenses when cash is received or paid.
Q2) A contract to provide tutoring services beginning next month was signed.
A)Prepaid expense
B)Accrued expense
C)Unearned revenue
D)Accrued revenue
E)None of these choices
Answer: E
Q3) The systematic allocation of land's cost to expense is called depreciation.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following statements indicates that a company earned a net income for the period?
A)The sum of the credits exceeds the sum of the debits in the Balance Sheet columns on the end-of-period spreadsheet.
B)The sum of the credits exceeds the sum of the debits in the Income Statement columns on the end-of-period spreadsheet.
C)The sum of the debits exceeds the sum of the credits in the Income Statement columns on the end-of-period spreadsheet.
D)Cash inflows exceed cash outflows.
Q2) Use the end-of-period spreadsheet for Finley Company.The first closing entry would include a
A)debit to C. Finley, Capital for $155,000
B)debit to C. Finley, Capital for $50,000
C)credit to C. Finley, Capital for $50,000
D)credit to C. Finley, Capital for $155,000
Q3) All income statement accounts will be closed at the end of the period.
A)True
B)False
Q4) Describe a classified balance sheet.
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Chapter 5: Accounting Systems
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Sample Questions
Q1) Which of the following is true about the revenue journal?
A)Cash revenues and revenues on account are recorded in the revenue journal.
B)Only cash revenues are recorded in the revenue journal.
C)Only revenues on account are recorded in the revenue journal.
D)Unearned revenues are also recorded in the revenue journal.
Q2) The methods and procedures for collecting,classifying,summarizing,and reporting a business's financial and operating information are called the accounting system.
A)True
B)False
Q3) When posting column totals in the purchases journal,a credit should be posted to
A)Merchandise Inventory
B)Accounts Payable
C)Sales Returns and Allowances
D)Cash
Q4) Which of the following is always recorded in the general journal?
A)services rendered for cash
B)correction of error in billing client
C)purchases of equipment on account
D)purchases of equipment for cash
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) Closing entries for a merchandising business are not similar to those for a service business.
A)True
B)False
Q2) In a merchandise business,sales minus operating expenses equals net income.
A)True
B)False
Q3) During the current year,merchandise is sold for $137,500 cash and $425,600 on account.The cost of the merchandise sold is $322,325.What is the amount of the gross profit?
Q4) Bountiful Company had sales of $650,000 and cost of merchandise sold of $200,000 during the year.The total assets balance at the beginning of the year was $175,000 and at the end of the year was $167,000.Calculate the ratio of sales to total assets.
A)3.00
B)3.80
C)0.29 D)0.26
Q5) On March 29,customers who owe $10,500 on account to Sonic Sales Company submit payments of $4,250.Journalize this event.
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Chapter 7: Inventories
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Sample Questions
Q1) If a company mistakenly counts more items during a physical inventory than actually exist,how will the error affect its bottom line?
A)There will be no change to net income.
B)Net income will be overstated.
C)Net income will be understated.
D)Only gross profit will be affected.
Q2) When merchandise sold is assumed to be in the order in which the purchases were made,the company is using
A)first-in, last-out
B)last-in, first-out
C)first-in, first-out
D)average cost
Q3) During periods of increasing costs,an advantage of the LIFO inventory cost method is that it matches more recent costs against current revenues.
A)True
B)False
Q4) A physical inventory should be taken at the end of every month.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) You began your new job as the accountant at Bolivar Industries during the month of December.During your first month,you found several interesting issues.1)While looking through the invoices,you found Invoices 213-242,245-271,and 275-290.It appears that invoices243,244,272,273,and 274 are missing.2)During the month,Clerk # 3 issued $250 in refunds as compared to Clerks #1,#2,and #4 who issued less than$50 each.3)The daily cash receipts and bank deposits reconcile,except on Tuesdays during the month.4)Business is generally brisk during the holiday season,but two weeks before Christmas there was a suddenincrease in slow payments.Required (a)What kind of warning signs could be associated with these issues? (b)What control could you put in place regarding cash refunds mentioned in (a) (2)?
Q2) In preparing a bank reconciliation,the amount indicated by a credit memo for a note receivable collected by the bank is added to the balance per company's records. A)True
B)False
Q3) Why would a bank require a company to maintain a compensating balance?
Q4) List the principal advantages of electronic funds transfers.
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Chapter 9: Receivables
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Sample Questions
Q1) If the direct write-off method of accounting for uncollectible receivables is used,what general ledger account is credited to write off a customer's account as uncollectible?
A)Uncollectible Accounts Expense
B)Accounts Receivable
C)Allowance for Doubtful Accounts
D)Interest Expense
Q2) Under the allowance method,when a year-end adjustment is made for estimated uncollectible accounts
A)liabilities decrease
B)net income is unchanged
C)total assets are unchanged
D)total assets decrease
Q3) Journalize the following transactions using the direct write-off method of accounting for uncollectible receivables.Feb.20 Received $1,000 from Andrew Warren and wrote off the remainder owed of $4,000 as uncollectible.May 10 Reinstated the account of Andrew Warren and received $4,000 cash in full payment.
Q4) List at least three indicators that a receivable may be uncollectible.
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11
Chapter 10: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) On April 15,Compton Co.paid $2,800 to upgrade a delivery truck and $125 for an oil change.Journalize the entries for the upgrade to the delivery truck and oil change expenditures.
Q2) Costs to survey a new piece of land for a new business location
A)Buildings
B)Machinery and equipment
C)Land
D)Land improvements
Q3) Factors contributing to a decline in the usefulness of a fixed asset may be divided into which of the following two categories?
A)salvage and functional
B)physical and functional
C)residual and salvage
D)functional and residual
Q4) When exchanging equipment,if the trade-in allowance is greater than the book value a loss results.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Amounts withheld from each employee for social security and Medicare vary by state.
A)True
B)False
Q2) The proceeds of a discounted note are equal to the face value of the note.
A)True
B)False
Q3) On June 8,Williams Company issued an $80,000,5%,120-day note payable to Brown Industries.Assuming a 360-day year,what is the maturity value of the note?
A)$82,600
B)$84,000
C)$81,333
D)$88,200
Q4) On June 8,Smith Technologies issued a $75,000,6%,140-day note payable to Johnson Company.What is the due date of the note?
A)October 28
B)October 27
C)October 26
D)October 25
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) When a limited liability company is formed,
A)the partnership activities are limited
B)all partners have limited liability
C)some of the partners have limited liability
D)none of the partners has limited liability
Q2) When compared to a corporation,one of the major advantages of a partnership is its relative ease of formation.
A)True
B)False
Q3) Based on this information,the statement of partners' equity would show what amount in the capital account for Martin on December 31?
A)$173,000
B)$211,000
C)$201,000
D)$232,000
Q4) An advantage of the partnership form of business is that each partner's potential loss is limited to that partner's investment in the partnership.
A)True
B)False
14
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Chapter 13: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) A class of stock having first rights to dividends of a corporation
A)Authorized shares
B)Issued shares
C)Outstanding shares
D)Par value
E)Common stock
F)Preferred stock
G)Paid-In Capital in Excess of Par
H)Transfer agent
Q2) A disadvantage of the corporate form of business entity is
A)mutual agency for stockholders
B)unlimited liability for stockholders
C)corporations are subject to more governmental regulations
D)the ease of transfer of ownership
Q3) 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 choices
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Bondholders' claims on the assets of the corporation rank ahead of stockholders' claims.
A)True
B)False
Q2) Using the following table,what is the present value of $15,000 to be received in 10 years,if the market rate is 5% compounded annually?
Q3) The face amount of each bond
A)Contract rate
B)Effective rate
C)Bond discount
D)Bond premium
E)Bond
F)Bond indenture
G)Principal
Q4) The interest rate specified in the bond indenture is called the A)discount rate
B)contract rate
C)market rate
D)effective rate
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Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) On February 12,Addison,Inc.purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee.This purchase represents less than 20% ownership of Lucas Company.On August 22,Lucas paid a dividend per share of $0.42.On November 10,4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.Prepare the journal entries for the original purchase,dividend,and sale.
Q2) The company whose stock is more than 50% owned by another company is called the
A)controlling company
B)investee company
C)subsidiary company
D)sibling company
Q3) Foreign currency translation adjustment is an example of an item that would be included in other comprehensive income.
A)True
B)False
Q4) Accounting for the sale of stock is the same for both the cost and the equity methods of accounting for investments.
A)True
B)False
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Which of the following would not be on the statement of cash flows?
A)cash flows from investing activities
B)cash flows from financing activities
C)cash flows from operating activities
D)cash flows from contingent activities
Q2) The direct method of preparing the operating activities section of the statement of cash flows reports major classes of cash receipts and cash payments related to the day-to-day operations of the business.
A)True
B)False
Q3) Decrease in inventory
A)Operating activities
B)Financing activities
C)Investing activities
D)Schedule of noncash financing and investing
Q4) If 800 shares of $40 par common stock are sold for $43,000,the $43,000 would be reported in the Cash flows from financing activities section of the statement of cash flows.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) Based on the data for Privett Company,what is the quick ratio,rounded to one decimal point?
A)1.7
B)2.9
C)1.1
D)1.0
Q2) Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
A)True
B)False
Q3) The analysis of increases and decreases in the amount and percentage of comparative financial statement items is referred to as horizontal analysis.
A)True
B)False
Q4) When you are interpreting financial ratios,it is useful to compare a company's ratios to the same ratios from a prior period or to the ratios of another company in the same industry.
A)True
B)False
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