Fundamentals of Financial Accounting
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Course Introduction
Fundamentals of Financial Accounting introduces students to the key principles and practices of accounting used in business organizations. The course covers the accounting cycle, including recording transactions, preparing financial statements, and understanding the role of financial information in decision-making. Topics include the conceptual framework of accounting, analyzing and recording business transactions, adjustments, internal controls, and the preparation and interpretation of balance sheets, income statements, and cash flow statements. Practical exercises and case studies help students develop the skills necessary to accurately communicate and interpret financial information, laying the groundwork for more advanced accounting studies.
Recommended Textbook
Introductory Financial Accounting for Business 1st Edition by Thomas Edmonds
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Chapter 1: An Introduction to Accounting
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Q1) Liabilities are reported on which of the following financial statement(s)?
A) Income statement
B) Balance sheet
C) Statement of cash flows
D) Statement of changes in stockholders' equity
Answer: B
Q2) Yi Company provided services to a customer for $5,500 cash.Based on this information alone,which of the following statements is true?
A) Total assets increased and total equity decreased.
B) Total assets were unchanged.
C) Liabilities decreased and net income increased.
D) Total assets increased and net income increased.
Answer: D
Q3) When a business provides services for cash,which elements of the accounting equation are affected?
A) Revenue and Expense
B) Cash and Revenue
C) Cash and Expense
D) Cash and Dividends
Answer: B
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Chapter 2: Accounting for Accruals
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Q1) Which of the following is an asset source transaction?
A) Issued common stock
B) Paid a cash dividend to stockholders
C) Collected cash from customers in settlement of accounts receivable
D) Accrued salary expense
Answer: A
Q2) The internal controls of a business are designed to reduce the probability of occurrence of fraud.
A)True
B)False
Answer: True
Q3) If a company provides services to clients but has not yet collected any cash,how should that transaction be classified?
A) Claims exchange transaction
B) Asset use transaction
C) Asset source transaction
D) Asset exchange transaction
Answer: C
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Chapter 3: Accounting for Deferrals
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Sample Questions
Q1) Which of the following events involves a deferral?
A) Recording interest that has been earned but not received.
B) Recording revenue that has been earned but not yet collected in cash.
C) Recording supplies that have been purchased with cash but not yet used.
D) Recording salaries owed to employees at the end of the year that will be paid during the following year.
Answer: C
Q2) Calculating the debt-to-assets ratio measures how efficiently a company is using its assets in the normal scope of business.
A)True
B)False
Answer: False
Q3) An increase in revenue may be accompanied by a decrease in a liability. A)True
B)False
Answer: True
Q4) Purchasing supplies for cash is an asset exchange transaction.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) What type of account is the Cost of Goods Sold account?
A) Liability
B) Asset
C) Contra asset
D) Expense
Q2) Jake Co.purchased on account merchandise with a list price of $90,000.Payment terms were 1/15,n/45.If collection occurs within 18 days,what discount will Jake Co.recognize on the merchandise?
A) $13,500
B) $900
C) $500
D) $0
Q3) Three of the companies are upscale stores and one is a discount store.Which company is most likely to be the discount store?
A) Company A
B) Company B
C) Company C
D) Company D
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) What is the amount of ending inventory assuming the FIFO cost flow method?
A) $480
B) $440
C) $400
D) $940
Q2) What is Glasgow's ending inventory under LIFO?
A) $2,730
B) $2,460
C) $2,220
D) $1,950
Q3) Generally accepted accounting principles restrict or limit a company's freedom to change inventory cost flow methods from one year to the next.
A)True
B)False
Q4) A discount merchandiser is likely to have a higher inventory turnover than more upscale stores with higher merchandise prices.
A)True
B)False
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Chapter 6: Internal Control and Accounting for Cash
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Q1) Which of the following is not a motive for the embezzlement of cash by employees?
A) Cash is the common unit of measurement
B) Ownership of cash is difficult to prove
C) Cash has universal appeal
D) Small quantities of high-denomination currency can represent significant value
Q2) Which of the following describes an activity that increases a company's bank account balance?
A) Credit memo
B) Debit memo
C) Balance sheet
D) Certified check
Q3) What is the most favorable audit opinion that a company can receive on its financial statements?
A) Adverse opinion
B) Unqualified opinion
C) Disclaimer of opinion
D) Qualified opinion
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) Which of the following describes the effects of writing off the uncollectible accounts?
A) Increase assets and stockholders' equity
B) Increase assets and decrease stockholders' equity
C) Decrease assets and stockholders' equity
D) Does not affect assets or stockholders' equity
Q2) Which of the following best describes the percent of receivables method?
A) Income statement approach
B) Direct write-off approach
C) Credit sales approach
D) Balance sheet approach
Q3) When a company accepts a credit card payment for a sale,the amount of sales revenue to be recorded is reduced by the amount of the credit card company's fee.
A)True
B)False
Q4) Collecting a credit card 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) Which of the following is considered an accelerated depreciation method?
A) Double-declining balance
B) Units-of-production
C) MACRS
D) Both double-declining-balance and MACRS
Q2) Which of the following would not be classified as property,plant and equipment?
A) Computers
B) Buildings
C) Land
D) Office furniture
Q3) Gains and losses are reported as part of operating income on the income statement.
A)True
B)False
Q4) What value will be reported for the building on the balance sheet?
A) $175,000
B) $950,000
C) $800,000
D) $1,100,000
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Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) On September 1,Year 1,West Company borrowed $10,000 from Valley Bank.West agreed to pay interest annually at the rate of 6% per year.The note issued by West carried an 18-month term.West Company has a calendar year-end.What is the amount of interest expense that will be reported on West's income statement for Year 1?
A) $-0-
B) $150
C) $60
D) $200
Q2) Under what condition should a pending lawsuit be recognized as a liability on a company's balance sheet?
A) The amount can be reasonably estimated.
B) The outcome is probable.
C) The outcome is reasonably possible.
D) The outcome is probable and can be reasonably estimated.
Q3) If a company is in a region in which floods or earthquakes are deemed to be possible,the company should record a contingent liability.
A)True
B)False
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Chapter 10: Accounting for Long-Term Debt
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Q1) Which of the following describes what happens when bonds are issued when the market interest rate is less than the stated interest rate?
A) The bonds are issued at a premium.
B) The bonds are issued at less than their face value.
C) It raises the effective interest rate above the stated rate of interest.
D) The bonds are issued at a premium and the effective interest rate is higher than the stated rate.
Q2) If bonds are issued at a premium,the bond issuer will pay the bondholders an amount lower than the issue price at maturity.
A)True B)False
Q3) Amortization of a discount on bonds payable is an asset use transaction.
A)True B)False
Q4) Companies that issue bonds are required to pay the face value of the bonds at maturity and to make fluctuating periodic interest payments based on the market interest rate.
A)True B)False
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Chapter 11: Proprietorships, partnerships, and Corporations
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Q1) An advantage of the corporate form of business organization is that corporations are free from double taxation.
A)True
B)False
Q2) Weller Corporation issued 10,000 shares of no-par common stock for $25 per share.For this transaction,Common Stock should be increased by $250,000.
A)True
B)False
Q3) Napoli Industries had net income for Year 2 of $650,000.Napoli had an average number of shares outstanding at the end of the year of 500,000 shares.On January 1,Year 2,the market price of Napoli's stock was $20 per share.On December 31,Year 2,the market price was $22 per share.What is the price-earnings ratio for Napoli at the end of Year 2?
A) 16.9
B) 16.2
C) 15.4
D) None of these answer choices is correct
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Chapter 12: Statement of Cash Flows
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Q1) On January 1,Year 1,Chisolm Company purchased equipment for $36,000 cash.On December 31,Year 1,depreciation of $9,000 was recorded.Which of the following correctly shows the combined effect of these two events on the income statement and statement of cash flows? Chisolm uses the direct method. Cash Flows
Net Income Operating Investing Financing
A) \(( 45,000 ) \quad ( 45,000 ) \quad \text { NA } \quad \text { NA }\)
B) \(( 9,000 ) \quad \text { NA } \quad ( 36,000 ) \quad \text { NA }\)
C) \(( 9,000 ) \quad ( 9,000 ) \quad ( 27,000 ) \quad \text { NA }\)
D) \(( 9,000 ) \quad 9,000 \quad ( 27,000 ) \quad \text { NA }\)
Q2) What is the amount of interest expense and the total cash outflow related to the note during the year ending December 31,Year 2?
Interest Expense\(\quad\)\(\quad\)\(\quad\)Cash Outflow
A) \(\$ 3,000 \quad\quad\quad\quad\quad \$ 7,200\)
B) \(\$ 7,200 \quad \$ 80,000\)
C) \(\$ 7,200 \quad \$ 4,200\)
D) \(\$ 4,200 \quad \$ 87,200\)
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Chapter 13: The Double-Entry Accounting System
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Q1) To record the purchase of supplies on account,an accountant would credit Supplies.
A)True
B)False
Q2) Which of the following elements is increased with a debit?
A) Stockholders' Equity
B) Liabilities
C) Assets
D) None of the above are increased with a debit
Q3) Source documents provide information that serves as the basis for entries into the accounting system.Examples of source documents include invoices and deposit tickets.
A)True
B)False
Q4) The year for which companies prepare their financial statements is their fiscal year.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Q1) In terms of solvency,the larger the number of times interest is earned,the better.
A)True
B)False
Q2) Current financial reporting standards assume that users of accounting information:
A) Have an expert's understanding of economic and financial events and conditions.
B) Have a reasonably informed knowledge of business.
C) Have widely differing levels of knowledge about business, and that financial reporting must meet these differing needs.
D) Have only minimal knowledge of business.
Q3) Knell Company paid its sales employees $15,000 in sales commissions.What impact will this transaction have on the firm's working capital?
A) No impact
B) Increase it
C) Decrease it
D) Not enough information is provided to answer the question.
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