Financial Reporting
Study Guide Questions
Course Introduction
Financial Reporting is a comprehensive course designed to introduce students to the principles, standards, and practices underlying the preparation and presentation of financial statements. The course covers key topics such as the accounting cycle, revenue recognition, asset and liability measurement, and the analysis of income and cash flow statements in accordance with relevant national and international standards. Emphasis is placed on understanding the conceptual framework of financial reporting, interpreting the significance of financial statements, and developing the analytical skills necessary to evaluate an organization's financial health for various stakeholders, including management, investors, and regulatory bodies.
Recommended Textbook
Financial Accounting 1st Canadian Edition by Jeffrey Waybright
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12 Chapters
1471 Verified Questions
1471 Flashcards
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Page 2
Chapter 1: Business, Accounting, and You
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Sample Questions
Q1) Financial statements are prepared primarily for internal company use.
A)True
B)False
Answer: False
Q2) The net income figure is needed to prepare a financial statement. Name the financial statement.
Answer: A statement of retained earnings.
Q3) International Financial Reporting Standards (IFRS) became effective in Canada on what date?
Answer: January 1, 2011
Q4) Accounting principles include:
A) cost, revenue recognition, and going concern.
B) cost, revenue recognition, and timeliness.
C) cost, revenue recognition, and full disclosure.
D) cost, economic entity, and full disclosure.
E) cost, economic entity, and revenue recognition.
Answer: C
Q5) A business purchases a computer for cash. What effect does this have on the accounting equation?
Answer: No change in total assets. Both cash and computer equipment are assets.
Page 3
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) Only the __________ and __________accounts from the trial balance will be used to prepare the income statement.
Answer: revenue; expense
Q2) Obligations owed by a company to banks, for instance, are called __________. Answer: notes payable
Q3) Accounts that decrease on the credit side are liabilities, common shares, revenues, and retained earnings.
A)True
B)False
Answer: False
Q4) A T-account is a way to visualize the increases and decreases to the value of an account.
A)True
B)False
Answer: True
Q5) Tonga Corporation purchased $350 of office supplies on account and treated the supplies as a prepaid expense. The journal entry would require a __________. Answer: debit to office supplies $350 and a credit to accounts payable $350
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Chapter 3: Adjusting and Closing Entries
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Sample Questions
Q1) Rick Company bought a 2-year insurance policy on August 1 for $150 per month. Prepare the adjusting entry on December 31.
Answer: 11ea4bf1_a926_e019_a578_1f4891669eb5_TB2774_00
Calculation:
August 1 to December 31 is equal to 5 months. 5 months x $150 per month = $750
Q2) Supplies on hand were $777 of the original $1,034. Calculate the adjusting amount for supplies for the year 2.
Answer: $257.
Calculation:
1,034 - 777 = 257
Q3) Respectively, dividends, revenues, and expenses are:
A) temporary, permanent, and temporary accounts.
B) temporary, temporary, and permanent accounts.
C) all temporary accounts.
D) all permanent accounts.
E) permanent, temporary, and permanent accounts.
Answer: C
Q4) The account to which dividends are closed is called __________.
Answer: retained earnings
Page 5
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Chapter 4: Ethics, Internal Control, and Cash
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Sample Questions
Q1) Ethics is defined as principles of right and wrong.
A)True
B)False
Q2) In Canada, external auditors must now report to __________.
Q3) If possible, the bank reconciler should have no other duties relating to cash transactions in the business.
A)True
B)False
Q4) A bank statement shows the:
A) ending book balance as of a specific date.
B) ending bank balance as of a specific date.
C) reconciled balance as of a specific date.
D) book errors as of a specific date.
E) beginning book balance.
Q5) The Audit Committee's responsibilities are assigned by the:
A) Chief Executive Officer.
B) Chief Financial Officer.
C) Board of Directors.
D) company Controller.
E) Finance Manager.
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Chapter 5: Accounting for a Merchandising Business
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Sample Questions
Q1) ABC Corporation pays an invoice for $350 in time to take a 3% discount. The journal entry to record the payment of this invoice under a periodic system is:
Q2) If an invoice shows a total of $4,000 with terms 2/10, n/30, the customer may pay $3,920 within 10 days to satisfy the bill.
A)True
B)False
Q3) Most businesses today use the periodic inventory method.
A)True
B)False
Q4) The current ratio is computed by dividing current liabilities by current assets. A)True B)False
Q5) A debit memorandum acknowledges the receipt of returned goods from a customer.
A)True B)False
Q6) Sales Discounts and Sales Returns and Allowances are contra-accounts of the Sales account.
A)True
B)False
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Chapter 6: Inventory
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Sample Questions
Q1) Inventory errors cancel out at the end of the________ accounting period(s).
A) 1st
B) 2nd
C) 3rd
D) 4th
E) 5th
Q2) Which of the following would probably NOT need to be disclosed in a footnote?
A) A change of inventory methods
B) A material change in estimated shrinkage
C) A change in depreciation method
D) A 10% increase in sales
E) The accounting policy used
Q3) 2012 ending inventory is $27,000; 2013 ending inventory is $19,000;2014 ending inventory is $21,000; and cost of goods sold is $63,500 for 2014 and $65,900 for 2013. What is the inventory turnover for 2013 and 2014? Has the inventory turnover improved?
Q4) __________ produces the lowest cost of goods sold and the highest gross profit when prices are increasing.
Q5) What is the method used to estimate the cost of ending inventory?
Q6) What does a manufacturer's goods available for sell represent?
Page 8
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Chapter 7: Sales and Receivables
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Sample Questions
Q1) A retailer has 5% credit/debit card service fees deducted from the business's bank account on a monthly basis. The retailer has $43,500 in sales for the month. What is the journal entry to record these sales?
Q2) Another name for the quick ratio is the acid-test ratio.
A)True
B)False
Q3) The aging method of calculating uncollectible accounts considers the existing balance in the Allowance for Doubtful Accounts.
A)True
B)False
Q4) Which method for accounting for uncollectible accounts is not acceptable for financial reporting purposes?
Q5) A company with an accounts receivable turnover of 11.78 would be collecting its receivables about __________.
Q6) Accounts receivable may be reported "net of allowance for doubtful accounts."
A)True B)False
Q7) What is the maturity date of a 4-month promissory note dated on July 17?
Page 9
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Chapter 8: Long-Term Assets
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Sample Questions
Q1) Replacing an engine on a delivery truck would be considered a betterment.
A)True
B)False
Q2) Dimitri Company has a delivery truck that was purchased for $42,000 and has a residual value of $5,000. It expects the truck to last 125,000 kilometres. During Year 1, the truck traveled 32,500 kilometres and during Year 2, the truck traveled 28,500 kilometres. What is the depreciation expense for Year 2 to the nearest dollar using the units-of-production method? (Round to three decimal places to get the unit rate.)
Record the journal entry required in year 2 to record depreciation.
Q3) If an asset generates revenue evenly over time, the depreciation method best suited for this asset would be the:
A) double-declining balance method.
B) straight-line method.
C) units-of-production method.
D) expense method.
E) capitalization method.
Q4) A company replaced tires on a vehicle and debited the amount to "vehicle" instead of repairs expense. What is the effect on the income statement as a result of this error?
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Page 10
Chapter 9: Current Liabilities and Long-Term Debt
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Sample Questions
Q1) Casey Industries issues a $250,000, 6%, 20-year mortgage note to finance the purchase of a new building on Jan. 1, 2012. Payments of $9,375 are made on June 30 and December 31 of each year. Prepare the amortization schedule for the first 5 payments of this mortgage note. (Round amounts to nearest dollar when necessary.)
Q2) Identify the general ledger accounts that would be debited and credited when making a payment on account, such as a telephone bill.
Q3) What is a major difference between an account payable and a note payable?
Q4) According to the text, which current liability is generally listed first?
Q5) Operating lease payments are expenses to the lessee and revenue to the lessor. A)True
B)False
Q6) On June 30, Hanson Company purchased a building for $600,000. The company made a cash payment of $200,000 and signed a twenty-year, 8% mortgage note payable for the remainder. Payments of $40,000 are made every June 30 and December 31. The building has a useful life of twenty years and a residual value of $100,000. Hanson uses the straight-line depreciation method and prepares its adjusting entries on an annual basis. Journalize the June 30 transactions, any annual adjusting entries for December 31, and the mortgage payment on December 31.
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Chapter 10: Corporations: Share Capital and Retained Earnings
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Sample Questions
Q1) Identify and explain the four basic rights of a shareholder.
Q2) What are the three dates associated with a stock dividend?
Q3) Explain the difference between cumulative and non-cumulative preferred shares.
Q4) Which of the following business types dominates by the amount of business transacted?
A) Partnerships
B) Proprietorships
C) Corporations
D) Government entities
E) Other
Q5) Shareholders receiving their proportionate share of any assets left after a company goes out of business is an example of which shareholder right?
Q6) The liability "dividend payable" is recognized on the date of __________.
Q7) Cody's Western Wear has 2,000 common shares outstanding. During the current year, the company distributed a 10% stock dividend. The market value of the stock at that time was $16/share. After the distribution, should Cody's total shareholders' equity change? If so, by how much?
Page 12
Q8) Under IFRS and Canadian ASPE, how should non-monetary exchanges be measured?
Q9) What accounts are affected by a stock dividend and how?
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Chapter 11: The Cash Flow Statement
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Sample Questions
Q1) In order to be successful over the long run, the main source of a company's cash must come from __________.
Q2) Which financial statement represents a point in time?
Q3) All current assets EXCEPT __________ are adjusted to net income in the operating section of an indirect cash flow statement.
Q4) Even though depreciation, depletion, and amortization are expenses, they are considered non-cash transactions and must be subtracted from net income in the operating activities section of an indirect method cash flow statement.
A)True
B)False
Q5) Operating cash flows under the indirect method starts with the net income for the period from the income statement.
A)True
B)False
Q6) Changes in long-term liabilities belong in the __________ section of a cash flow statement using the indirect method.
Q7) What is the formula for inventory turnover in days?
Q8) How would depreciation of factory equipment be reported under the direct method?
Page 14
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) What is the rate of return on equity if net income is $22,700; preferred dividends are $3,000; sales are $100,000; and average common shareholders' equity is $86,000?
Q2) A company with an accounts receivable turnover of four means that the company collects its receivables approximately every __________ days.
Q3) In order to do a complete financial analysis, you should have at least five years of figures available for comparison.
A)True
B)False
Q4) Reporting income from continuing operations helps investors make predictions about a company's future earnings.
A)True
B)False
Q5) What is other income/(expenses)? Provide three examples?
Q6) For vertical analysis purposes, the base item on the balance sheet is __________.
Q7) Working capital is defined as total assets divided by total liabilities.
A)True
B)False
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