Fundamentals of Financial Accounting Solved Exam Questions
Course Introduction
Fundamentals of Financial Accounting introduces students to the basic concepts, principles, and procedures of accounting essential for understanding and preparing financial statements. The course covers the accounting cycle, including recording transactions, adjusting entries, and preparing balance sheets, income statements, and cash flow statements. Emphasis is placed on understanding the role of accounting information in business decision-making, mastering the use of debits and credits, and exploring the ethical considerations in financial reporting. This foundational knowledge equips students with the skills necessary to analyze financial data and communicate financial information effectively within an organization.
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Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition by Gary
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Chapter 1: Accounting As a Form of Communication
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Sample Questions
Q1) Native Dave's Consultants had the following balance sheet amounts at the beginning of the year:
\(\begin{array}{lr}
\text { Total assets } & \$ 400,000 \\ \text { Total owners' equity } & 150,000 \end{array}\) During the year,total assets increased by $100,000 and total liabilities increased by $40,000.The company also paid $30,000 in dividends.No other transactions occurred except revenues and expenses.How much is net income for the year?
A)$30,000
B)$60,000
C)$70,000
D)$90,000
Answer: D
Q2) Another name for net income of a business is _________________________. Answer: profits or earnings
Q3) Someone to whom a company has a debt is known as a creditor.
A)True
B)False
Answer: True
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Chapter 2: Financial Statements and the Annual Report
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Sample Questions
Q1) Harrison Company calculated the following amounts concerning its financial information for the years ending December 31,2018 and 2017:
\(\begin{array}{lrr}&2018&2017\\
\text { Current ratio } & 3.1 \text { to } 1 & 2.0 \text { to } 1 \\
\text { Profit margin } & 22 \% & 18 \% \end{array}\) Required:
Examine Harrison's ratios.Is the change in the current ratio favorable or not? Explain. Answer: The current ratio increased from 2.0 to 1 to 3.1 to 1.This is an unusually large increase for most companies.A larger current ratio means a company is more liquid.This increase is favorable,although care must be taken that the current ratio does not become too large which may indicate an inefficient cash management system.
Q2) A construction company that builds skyscrapers is likely to have an operating cycle longer than one year.
A)True
B)False Answer: True
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Page 4
Chapter 3: Processing Accounting Information
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Sample Questions
Q1) Which of the following would be a case where an event as a transaction is not supported by a source document?
A)Purchase of inventory on credit
B)Cash sale
C)Credit sale
D)None of these are correct
Answer: D
Q2) A debit entry increases assets,decreases liabilities,or decreases stockholders' equity.
A)True
B)False Answer: True
Q3) A cash register tape would be a source document for which of the following?
A)Recording a purchase of inventory on credit
B)Recognizing a cash sale
C)Recording an invoice
D)Recording payroll
Answer: B
Q4) The totaling of each side of a T account is known as ____________________. Answer: footing
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Chapter 4: Income Measurement and Accrual Accounting
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Sample Questions
Q1) A cost can be an asset or expense depending on whether the future economic benefits have expired or not.
A)True
B)False
Q2) Which one of the following steps in the accounting cycle is optional rather than required?
A)Business transactions are recorded
B)Adjustments are recorded
C)The accounts are closed
D)Work sheets are prepared
Q3) Revenue is always earned continuously over time.
A)True
B)False
Q4) Refer to the trial balance for Jenning Co. On July 31,the amount of supplies on hand is $520.What amount is reported in the July income statement for supplies expense?
A)$520
B)$1,400
C)$1,920
D)$880
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Chapter 5: Inventories and Cost of Goods Sold
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Sample Questions
Q1) The following information was taken from the Operating Activities category of the 2017 statement of cash flows for Limited Corp.: ?
\(\begin{array}{lr}
\text { Additions to net income: Change in accounts payable } & \$ 2,000 \\
\text { Deductions from net income: Change in inventories } & 8,000 \end{array}\)
Based on the information provided,which of the following conclusions is correct?
A)Accounts payable decreased by $2,000 in 2017.
B)Inventories increased by $8,000 in 2017.
C)The direct method was used to prepare the Operating Activities of the statement of cash flows.
D)Cash payments of merchandise exceeded cost of goods sold by $2,000.
Q2) The distinction between inventory and an operating asset is the intent of the owner. A)True B)False
Q3) Refer to the data for Share,Inc.
If the LIFO method is used,how much is cost of goods sold for May?
Q4) The cost of goods purchased is equal to net purchases plus __________.
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Page 7
Chapter 6: Cash and Internal Control
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Sample Questions
Q1) The IFRS definition of cash equivalents is very similar to that used by __________.
Q2) Realistic Sound's unadjusted bank balance amounted to $3,000.Outstanding checks amounted to $500 and deposits in transit totaled $300.Based on this information alone,Realistic's adjusted cash balance is
A)$3,200.
B)$3,300.
C)$2,800.
D)$2,700.
Q3) Typically the classification known as "readily available" refers to investments that are converted into cash in __________ months or less.
Q4) Deductions on a bank statement for items such as NSF checks and bank service charges are called __________.
Q5) Administrative controls are
A)concerned with efficient operations and adherence to managerial policies.
B)concerned with the reliability of the financial statements.
C)the responsibility of the company's auditors.
D)concerned primarily with safeguarding assets.
Q6) A(n)__________ is a form sent by the purchasing department to the supplier.
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Chapter 7: Receivables and Investments
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Sample Questions
Q1) Significant influence of one company over another has been defined by the accounting profession as the ownership of what minimum percent of the second company's stock?
A)20%
B)50%
C)100%
D)30%
Q2) The __________ the accounts receivable turnover ratio,the quicker each dollar of accounts receivable can be collected.
Q3) Refer to the data for Beatrice Equipment.
Assume that Beatrice Equipment estimates bad debts on an aging analysis,and the aging schedule indicates that $28,000 of the December 31,2017,accounts receivable will be uncollectible.
A) What amount will Beatrice Equipment recognize as bad debts expense for 2017 ?
B) How much is the net realizable value of the receivables to be reported on Beatrice Equipment's balance sheet at December 31,2017?
Q4) The party that receives the payment due from a note is called the __________.
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Page 9
Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
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Sample Questions
Q1) A change in estimate should be recorded __________.
Q2) Costs incurred related to plant assets that are already in use are called revenue expenditures if the cost increases the useful life or the asset's productivity.
A)True
B)False
Q3) Arena,Inc.uses straight-line depreciation for its equipment.Arena purchased equipment for $300,000 and estimated its useful life at eight years.The bookkeeper failed to consider the residual value of $50,000.What is the impact on earnings per share and operating income of failing to consider the residual value?
A)Earnings per share will be overstated and operating income will be understated.
B)Earnings per share will be understated and operating income will be overstated.
C)Both earnings per share and operating income will be overstated.
D)Both earnings per share and operating income will be understated.
Q4) Distinguish between current assets and operating assets.
Q5) Explain what costs are included in the acquisition cost of operating assets.
Q6) Acquisition cost is also referred to as __________.
Q7) Distinguish between tangible and intangible operating assets.
Page 10
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Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
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Sample Questions
Q1) An obligation that involves an existing condition for which the outcome is not known with certainty and depends on some event that will occur in the future is call a(n)__________.
Q2) Which of the following statements about current liabilities is true?
A)Current liabilities are listed in order of decreasing amounts in the Current Liabilities section of the balance sheet.
B)The amount of current liabilities has little implication for a company's liquidity.
C)The Current Liabilities section never contains any portion of long-term liabilities. D)The current ratio is defined as current assets divided by current liabilities.
Q3) You just purchased an automobile for $19,450 and must decide how to pay for it.Your local bank has granted you a five-year loan.Annual payments on the loan will be made at the end of each year and the amount of the loan payments,which include principal and interest,is $5,000 per year.What interest rate is being charged on the loan?
Q4) The current maturity of long-term debt is a current liability.
A)True B)False
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Page 11
Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) Surplus Mining Company has leased a machine from Craft Machinery Company.The annual payments are $6,000,and the life of the lease is eight years.It is estimated that the useful life of the machine is nine years.How would Surplus Mining record the acquisition of the machine?
A)The machine would be recorded as an asset with a cost of $48,000.
B)The company would not record the machine as an asset but would record rent expense of $6,000 per year.
C)The machine would be recorded as an asset,at the present value of the annual cash payments,$6,000 for eight years.
D)The machine would be recorded as an asset,at the present value of the annual cash payments,$6,000 for nine years.
Q2) Endeavor Company issued 20-year bonds with a coupon rate of 6% when the market rate of interest was 9%.This means that the bonds were issued
A)at a premium.
B)at a discount.
C)at the face value.
D)with an additional three years of interest.
Q3) An alternate term for a timing difference is a __________.
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Chapter 11: Stockholders Equity
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Sample Questions
Q1) When a company declares a 3-for-1 stock split,the number of outstanding shares
A)is tripled compared to the number of shares that were outstanding prior to the split.
B)stays the same,but,the number of issued shares triples.
C)is tripled,while the number of issued shares is reduced to one-third of the original issued shares.
D)is reduced,and the number of issued shares is tripled.
Q2) CarWorks Company has 100,000 authorized shares of $4 par common stock.The company issued 40,000 shares at $8.Subsequently,CarWorks declared a 2% stock dividend on a date when the market price was $11 a share.What is the amount transferred from the Retained Earnings account to paid-in capital accounts as a result of the stock dividend?
A)$8,800
B)$4,800
C)$3,200
D)$6,400
Q3) The characteristic where each partner is personally liable for the debts of the partnership is known as __________.
Q4) The maximum number of shares a company may issue is the number of __________.
Q5) Shares sold or distributed to stockholder are __________.
Page 13
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) When using the indirect method,how would the declaration and payment of cash dividends be shown on the statement of cash flows?
A)As an operating activities
B)As an investing activities
C)As a financing activities
D)As a noncash investing and financing activities
Q2) Craft Corp.began operations on January 1,2017.The statement of cash flows for the first year reported dividends paid of $160,000.The balance sheet at the end of the first year reported $40,000 in dividends payable and $580,000 in ending retained earnings.Determine Craft's net income for its first year of operations.
Q3) Cash flows from acquiring and selling products are classified as
A)operating activities.
B)investing activities.
C)financing activities.
D)distribution activities.
Q4) If the balance of accounts receivable decreases during the year,then cash collections will __________ sales on account for the period.
Q5) __________ activities involve long-term liabilities and stockholders' equity.
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Return ratios are measures of the relationship between the A)income earned and the investment made in the company by the various groups.
B)revenue earned and the total equity of a company.
C)total equity of a company and its cash flows for the period.
D)profitability and liquidity aspects of a company.
Q2) Which of the following is an example of liquidity analysis?
A)Bonds payable are divided by total liabilities and stockholders' equity.
B)Net income is divided by total assets.
C)Net income is divided by the number of shares of stock outstanding
D)Current assets are divided by current liabilities.
Q3) Would a banker be more interested in the liquidity or the solvency of a company? Explain.
Q4) Moonbeam Gift Shop's inventory turned over six times during the year.Similar gift shops have an inventory turnover equal to 12 times per year.What might explain Moonbeam's state of inventory management?
A)Moonbeam sold too much inventory during the year.
B)Moonbeam needs to increase sales and decrease the amount of inventory on hand.
C)Moonbeam is performing twice as well as its competitors.
D)Moonbeam should increase the amount of goods on hand to accommodate the additional inventory demand.
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Chapter 14: International Financial Reporting Standards
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Sample Questions
Q1) Which of the following countries do not use a common law system?
A)United States
B)Germany
C)United Kingdom
D)United States and United Kingdom
Q2) A single set of accounting standards could help a U.S.company save time and money in the acquisition of a German company.
A)True
B)False
Q3) During what year did the IASB and FASB reaffirm their commitment to achieving convergence of accounting standards in the United States?
A)2009
B)2007
C)2002
D)2008
Q4) Both U.S.GAAP and IFRS apply the lower-of-cost-or-market rule in a similar manner to inventory.
A)True
B)False
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