Financial Statement Analysis
Final Exam Questions
Course Introduction
Financial Statement Analysis is a comprehensive course designed to equip students with the skills necessary to interpret, analyze, and utilize financial statements for informed decision-making in business and investment contexts. The course covers key financial reporting concepts, ratio analysis, and assessment of financial performance, profitability, liquidity, and solvency. Students will learn techniques for evaluating corporate financial health, comparing companies across industries, and identifying potential red flags in financial reports. Through real-world case studies and practical exercises, the course prepares students to critically assess the information presented in balance sheets, income statements, and cash flow statements, enabling them to make sound economic and strategic recommendations.
Recommended Textbook
Financial Accounting 3rd Edition by Robert Kemp
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Page 2
Chapter 1: Business, Accounting, and You
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Sample Questions
Q1) Which of the following is a FALSE statement?
A)Revenues provide inward flows of assets.
B)Revenue is categorized as an asset.
C)Revenue is categorized as part of Retained Earnings.
D)Revenues are generated from the sale of goods and services.
Answer: B
Q2) If Total Assets remain the same and Total Stockholders' Equity increases,Liabilities will:
A)increase by the same amount.
B)decrease by the same amount.
C)remain the same.
D)increase by a different amount.
Answer: B
Q3) A business may be either a for-profit business or a not-for-profit business.
A)True
B)False Answer: True
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Page 3
Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) Which is NOT a part of Stockholders' Equity?
A)Revenues
B)Expenses
C)Accounts Receivable
D)Dividends
Answer: C
Q2) Where is the best place for a company's accountant to find the information necessary to review the activity in the cash account?
A)General journal
B)General ledger
C)Trial balance
D)Bank statement
Answer: B
Q3) Collection of money from a cash customer represents a(n):
A)liability.
B)expense.
C)revenue.
D)stock.
Answer: C
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Page 4
Chapter 3: Adjusting and Closing Entries
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Sample Questions
Q1) A 20-month insurance policy was purchased for $1,500 on May 1.How much insurance will be expensed on December 31?
A)$1,500
B)$75
C)$300
D)$600
Answer: D
Q2) Net income or net loss can be determined by the adjusted trial balance figures.
A)True
B)False
Answer: True
Q3) During a recent week,incurred wages were $700.However,$280 of the wages had not been paid.The adjusting entry for wages would be:
A)debit Wages Payable,$280;credit Wages Expense,$280.
B)debit Wages Expense,$280;credit Wages Payable,$280.
C)debit Wages Payable,420;credit Wages Expense,$420.
D)debit Wages Expense,$420;credit Wages Payable,$420.
Answer: B
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Chapter 4: Accounting for a Merchandising Business
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Sample Questions
Q1) Inventory for a merchandising business is classified as a(n): A)liability.
B)revenue.
C)part of Stockholders' Equity.
D)asset.
Q2) When a company repays the seller for shipping costs on an FOB shipping point transaction,which of the following is TRUE?
A)A purchase discount can still be taken net of the prepaid shipping charges.
B)A purchase discount can still be taken on the gross amount of the invoice.
C)A purchase discount cannot be taken when shipping charges are prepaid.
D)The shipping costs do not affect the invoice value.
Q3) Retailers may buy goods from the manufacturer and then sell the goods to consumers.
A)True B)False
Q4) The Statement of Retained Earnings for a merchandiser is prepared differently than that of a service business.
A)True B)False
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Chapter 5: Inventory
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Sample Questions
Q1) A new car lot would probably cost its inventory using the:
A)LIFO method of inventory costing.
B)FIFO method of inventory costing.
C)moving average method of inventory costing.
D)specific-identification method of inventory costing.
Q2) Which of the following would cause inventory shrinkage?
A)Employee theft
B)Spoilage of items
C)Spills of items
D)All of the above
Q3) Beginning inventory + Net purchases =
A)Cost of goods sold.
B)Cost of goods available for sale.
C)Gross profit.
D)Ending inventory.
Q4) Consistency is mandated by:
A)the IRS.
B)the SEC.
C)GAAP.
D)the federal government.
Page 7
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Chapter 6: The Challenges of Accounting: Standards, internal
Control, audits, fraud, and Ethics
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Sample Questions
Q1) A requirement that customers receive a receipt is an example of:
A)monitoring.
B)information and communication.
C)control activities.
D)risk assessment.
Q2) Joe was overlooked for a promotion and decides to embezzle money because he feels like he deserved that raise.This is an example of,respectively:
A)perceived opportunity,perceived pressure.
B)perceived pressure,rationalization.
C)perceived opportunity,rationalization.
D)rationalization,perceived pressure.
Q3) If an employee has a low incentive to commit fraud,the employee does NOT have: A)realization.
B)perceived opportunity.
C)rationalization.
D)perceived pressure.
Q4) US GAAP uses the cost principle and is less conservative than international standards.
A)True B)False
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) Piper,Inc.had credit sales for the period of $85,000.The balance in Allowance for Doubtful Accounts is a debit of $817.What is the credit to Allowance for Doubtful Accounts if Piper uses the aging method to estimate uncollectible accounts and an aging of Accounts Receivable reflected an estimated amount of uncollectible accounts of $6,342?
A)$7,159
B)$5,525
C)$6,342
D)$4,250
Q2) Which of the following would NOT be considered a 90-day cash equivalent?
A)Time deposits
B)Coin
C)Treasury notes
D)Certificates of deposits
Q3) The total of cash in the petty cash box plus the amount of the petty cash ticket receipts should total the beginning amount of the petty cash fund.
A)True
B)False
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9
Chapter 8: Long-Term and Other Assets
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Sample Questions
Q1) The process of allocating the cost of natural resources to an expense is called depletion.
A)True
B)False
Q2) GAAP requires that exchanges of assets must be categorized as like-kind or dissimilar assets.
A)True
B)False
Q3) Accumulated depletion is a(n):
A)contra-asset account.
B)contra-liability account.
C)expense account.
D)cash account.
Q4) When a company buys a building,realtor commissions are not included in the cost of the building.
A)True
B)False
Q5) Items such as minerals are considered natural resources.
A)True
B)False
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Chapter 9: Current Liabilities and Long-Term Debt
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Sample Questions
Q1) FUTA is paid by the employer on:
A)the first $106,800 of an employee's earnings.
B)the first $8,000 of an employee's earnings.
C)the first $7,000 of an employee's earnings.
D)all of the employee's earnings.
Q2) $500,000 of 8%,10-year bonds were sold for $530,000 on January 1.The bonds require semiannual interest payments on June 30 and December 31.The entry to record the June 30 interest payment on the bonds would be to:
A)debit Interest Expense
$18,500;debit Premium on bonds payable,$1,500;credit Cash,$20,000.
B)debit Interest Expense
$18,500;credit Cash,$18,500.
C)debit Interest Expense
$21,500;credit Premium on bonds payable,$1,500;credit Cash,$20,000.
D)debit Interest Expense
$20,000;credit Cash,$20,000.
Q3) Debentures are bonds that are backed only by the general credit of the company issuing the bond.
A)True
B)False
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11
Chapter 10: Corporations: Paid-In Capital and Retained Earnings
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Sample Questions
Q1) Which of the following is NOT an advantage of a corporation?
A)Unlimited liability
B)Ease of raising capital
C)Ease of transfer ownership
D)Continuous life
Q2) Which of the following is NOT a reason for a company to purchase treasury stock?
A)To reward valued employees
B)To avoid a takeover by an outside company
C)To buy the stock at a high price to increase total Stockholders' Equity
D)To support the company's stock price
Q3) A corporation is a separate legal entity from its owners.
A)True
B)False
Q4) A stockholder may have three basic rights.
A)True
B)False
Q5) The return on equity for a company that has sales of $43,000,net income of $13,000,and average Stockholders' Equity of $88,000 would be 48.86%.
A)True
B)False
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) Under the indirect method,which of the following is NOT a proper adjustment to net income under operating activities?
A)Adding a decrease in inventory
B)Subtracting an increase in salaries payable
C)Deducting an increase in prepaid expenses
D)Subtracting a gain on the sale of equipment
Q2) When preparing the Statement of Cash Flows by the indirect method,if current liabilities increase,the difference is:
A)added to net income.
B)added to investing activities.
C)deducted from net income.
D)deducted from investing activities.
Q3) The operating section of a Statement of Cash Flows using the indirect method is prepared differently from the operating section of a Statement of Cash Flows using the direct method.
A)True
B)False
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) The management discussion and analysis is typically located after the financial statements in a company's annual report.
A)True
B)False
Q2) Management discussion and analysis is:
A)part of a business's annual report.
B)prepared by the external auditors.
C)a summary of all the business's press releases for the year.
D)both A and B.
Q3) If management wishes to evaluate the delinquency of charge customers,they could use the:
A)rate of return on total assets.
B)rate of return on equity.
C)Accounts Receivable turnover.
D)quick ratio.
Q4) Net income belongs to a company's stockholders.
A)True
B)False
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Page 14