Financial Statement Analysis
Exam Practice Tests
Course Introduction
Financial Statement Analysis provides students with a comprehensive understanding of how to interpret and evaluate financial statements for decision-making purposes. The course covers fundamental concepts such as balance sheets, income statements, and cash flow statements, delving into ratio analysis, trend analysis, and the assessment of profitability, liquidity, and solvency. Students will learn how to identify financial strengths and weaknesses of organizations, understand the impact of accounting choices, and make informed judgments about corporate performance. Emphasis is placed on using real-world examples and case studies to develop practical analytical skills essential for careers in finance, accounting, and management.
Recommended Textbook
Fundamental Financial Accounting Concepts 10th Edition by Thomas P Edmonds
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13 Chapters
1246 Verified Questions
1246 Flashcards
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Chapter 1: An Introduction to Accounting
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94 Flashcards
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Sample Questions
Q1) Hazeltine Company issued common stock for $200,000 cash.What happened as a result of this event?
A)Assets increased.
B)Equity increased.
C)Claims increased.
D)Assets,claims,and equity all increased.
Answer: D
Q2) At the time of liquidation,Fairchild Company reported assets of $200,000,liabilities of $120,000,common stock of $70,000 and retained earnings of $10,000).What is the maximum amount of Fairchild's assets that the shareholders are entitled to receive?
A)$200,000
B)$80,000
C)$90,000
D)$100,000
Answer: B
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3
Chapter 2: Accounting for Accruals and Deferrals
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Sample Questions
Q1) The term "accrual" describes an earnings event that is recognized before cash is received or paid.
A)True
B)False
Answer: True
Q2) On December 1,Year 1,Jack's Snow Removal Company received $6,000 of cash in advance from a customer and promised to provide services for that customer during the months of December,January,and February.How will the Year 1 year-end adjustment to recognize the partial expiration of the contract impact the elements of the financial statements model?
A)Total assets will increase by $2,000.
B)Equity will increase by $2,000.
C)Total liabilities will increase by $2,000.
D)Total assets will increase by $2,000 and equity will increase by $2,000.
Answer: B
Q3) Two of the steps in the accounting cycle are adjusting the accounts and closing the accounts.
A)True
B)False
Answer: True
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Chapter 3: The Double-Entry Accounting System
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106 Verified Questions
106 Flashcards
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Sample Questions
Q1) Posting is the process of determining the balance in an account by subtracting debits and credits.
A)True
B)False
Answer: False
Q2) To record the purchase of supplies on account,an accountant would credit Supplies.
A)True
B)False
Answer: False
Q3) The balance in Retained Earnings is decreased by debiting the account.
A)True
B)False
Answer: True
Q4) Double entry accounting requires that every entry must include at least one debit and at least one credit.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) Net income is not affected by a purchase of merchandise.
A)True
B)False
Q2) What is Sanchez's gross margin for Year 2?
A)$6,200
B)$24,200
C)$21,800
D)$32,800
Q3) Gross margin is equal to the amount of change (increase or decrease)in Merchandise Inventory during a period.
A)True
B)False
Q4) With a periodic inventory system,the cost of goods sold is recorded at the time of a sale of merchandise.
A)True
B)False
Q5) A company using a perpetual inventory system treats transportation-out as an operating expense.
A)True
B)False
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) What happens when a company is operating in an inflationary environment?
A)The company's net income will be higher if it uses LIFO than if it uses FIFO.
B)The company's cost of goods sold will be lower if it uses LIFO as opposed to FIFO.
C)The company's net income will be the same regardless of whether LIFO or FIFO is used.
D)The company's assets will be lower if it uses LIFO as opposed to FIFO cost flow.
Q2) One of the disadvantages of the specific identification inventory cost flow method is that it can allow managers of a business to manipulate the amount of income the business reports.
A)True
B)False
Q3) If a company uses the FIFO cost flow method for its income tax return it must also use FIFO for financial reporting.
A)True
B)False
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Chapter 6: Internal Control and Accounting for Cash
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82 Flashcards
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Sample Questions
Q1) Which of the following is not an example of a common control activity?
A)Required absences
B)Collusion
C)Procedures manual
D)Use of prenumbered documents
Q2) Which of the following is not a common internal control procedure over cash payments?
A)A receipt should be provided to each cash customer
B)Checks should be properly authorized with approval signatures
C)All checks should be prenumbered
D)Voided checks should be defaced and retained
Q3) Which of the item(s)would be added to the unadjusted bank balance to determine the true cash balance?
A)Item numbers 3 and 3
B)Item number 2
C)Item numbers 3,4,and 6
D)Item number 3
Q4) A well-designed system of internal controls will eliminate all fraud.
A)True
B)False
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) What is the net realizable value of receivables that will be reported on Kincaid's Year 2 balance sheet?
A)$29,075
B)$27,725
C)$28,950
D)$28,400
Q2) If a company estimates uncollectible accounts based on a percentage of receivables,the resulting estimate will be presented on the balance sheet as the ending balance in Allowance for Doubtful Accounts.
A)True
B)False
Q3) What is the net realizable value of Miller's receivables at the end of Year 1?
A)$54,000
B)$49,920
C)$59,700
D)$48,300
Q4) The collection of an account receivable is an asset source transaction.
A)True B)False
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) At the beginning of Year 4,Farmer revised the expected life to eight years.What is the annual amount of depreciation expense for each of the remaining years in the machine's life?
A)$6,240
B)$4,400
C)$7,040
D)$3,900
Q2) Which of the following intangible assets does not convey a specific legal right or privilege?
A)Copyrights
B)Franchises
C)Goodwill
D)Trademarks
Q3) Depletion of a natural resource is usually calculated using the straight-line basis.
A)True
B)False
Q4) The purchase of a new delivery truck for cash is an asset use transaction.
A)True
B)False
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Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) The issuer of a note payable is also known as the maker.
A)True
B)False
Q2) Recording an adjusting entry for product warranties is a claims exchange transaction.
A)True
B)False
Q3) Indicate whether each of the following statements is true or false.
________ a)The amount of warranty expense is an estimate that is based on the amount of merchandise sold.
________ b)A warranty obligation only occurs if a buyer purchases an extended warranty.
________ c)When a warranty claim is settled,the seller's equity decreases.
________ d)When a warranty claim is settled,the seller's liabilities increase.
________ e)Product warranties usually represent legal liabilities that must be reported in the financial statements.
Q4) The current ratio is calculated as total current assets divided by total assets.
A)True
B)False
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) Currie Company borrowed $20,000 from Sierra Bank by issuing a 10% three-year note.Currie agreed to repay the principal and interest by making annual payments in the amount of $8,042.Based on this information,what is the amount of the interest expense associated with the second payment? (Round your answer to the nearest dollar. )
A)$730
B)$1,396
C)$2,000
D)$8,042
Q2) Which of the following statements about installment notes is correct?
A)With each subsequent payment on an installment note,the amount of interest expense decreases.
B)With each subsequent payment on an installment note,the amount of interest expense increases.
C)With each subsequent payment on an installment note,the amount of the principal paid decreases.
D)With each subsequent payment on an installment note,the amount of the principal paid remains unchanged.
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Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) Which of the following would not be a reason to expect an increase in the market price of the stock of Carlyle Corporation?
A)Carlyle Corp.has a history of earnings growth.
B)Investors expect that revenue and earnings growth in the future will not be as great as revenue and earnings growth has been in the past.
C)The market price has been influenced by positive financial information that is not provided in the financial statements.
D)Investors believe Carlyle Corp.has potential for earnings growth.
Q2) What is the amount of retained earnings that will be transferred to paid-in capital as a result of the stock dividend issued by Gilligan Corporation?
A)$60,500
B)$16,500
C)$44,000
D)$108,500
Q3) Preferred stockholders generally have no voting rights in a corporation.
A)True
B)False
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Page 13
Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) Which method of reporting cash flows from operating activities is used by most businesses in preparing the statement of cash flows?
A)Accrual method
B)Direct method
C)Indirect method
D)Computational method
Q2) If a company sells equipment at a loss,the loss from selling the equipment is reported in the investing activities section of the statement of cash flows.
A)True
B)False
Q3) 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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14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Milton Company has total current assets of $46,000,including inventory of $10,000,and current liabilities of $20,000.The company's current ratio is:
A)0.4.
B)1.8.
C)2.8.
D)2.3.
Q2) While horizontal analysis examines one item over many time periods,vertical analysis examines many items in the same interval of time.
A)True
B)False
Q3) Jenkins Company's current ratio is higher than the average for its industry,while its quick ratio is below the industry average.One possible interpretation for these results is that Jenkins carries less inventory than most companies in its industry.
A)True
B)False
Q4) The current ratio is one of the most common measures of solvency.
A)True
B)False
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