Introduction to Financial Accounting Pre-Test
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Course Introduction
Introduction to Financial Accounting offers students a comprehensive overview of the fundamental principles and practices of financial accounting. The course explores the accounting cycle, including the recording, classification, and summarization of financial transactions. Students will learn how to prepare, analyze, and interpret essential financial statements such as the balance sheet, income statement, and cash flow statement while understanding concepts like accrual accounting, revenue recognition, and internal controls. Emphasis is placed on how accounting information supports decision-making by investors, creditors, and management, providing a strong foundation for further studies in business and finance.
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Financial Accounting An Integrated Approach 5th Australia Edition by Trotman
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Chapter 1: Introduction to Financial Accounting
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Q1) Which of the following may be a liability of a business enterprise?
A) share capital
B) wages payable
C) retained profits
D) marketable security.
Answer: B
Q2) The life of a business is divided into equal periods to determine profit or loss for that period.What assumption/concept underlies this procedure?
A) materiality
B) monetary
C) accounting period
D) accounting entity.
Answer: C
Q3) Which of the following is NOT an asset?
A) marketable securities
B) accounts receivable
C) provisions for employee entitlements
D) inventory.
Answer: C
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Page 3
Chapter 2: Measuring and Evaluating Financial Position and
Financial Performance
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Q1) What was the net profit or loss of Bull Ltd for the year?
A) net profit $150
B) net profit $500
C) net loss $150
D) net loss $500.
Answer: C
Q2) Which of the following statements about a balance sheet is true?
A) A balance sheet presents the financial performance of a company for a period of time.
B) A balance sheet presents the company's financial position at a point in time.
C) A balance sheet shows which source of finance produced each asset.
D) A balance sheet includes all the resources of a company.
Answer: B
Q3) Gross profit is the difference between:
A) sales revenue and operating expenses
B) sales revenue and cost of goods sold
C) operating profit before tax and income tax expense
D) sales and sales returns.
Answer: B
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Chapter 3: The Double-Entry System
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Q1) During the accounting period there were no share issues,liabilities increased by $45 000,assets increased by $90 000,expenses of $55 000 were incurred and net profit was $115 000.Therefore,dividends declared must have been:
A) $15 000
B) $60 000
C) $70 000.
Answer: C
Q2) Provision was made for income tax.
A) An asset increased and another asset decreased.
B) An asset decreased and an expense increased.
C) An asset decreased and a liability decreased.
D) A liability increased and an expense increased.
Answer: D
Q3) Which of the following accounts does NOT normally have a credit balance?
A) accounts payable
B) retained profits
C) tax payable
D) prepaid expenses.
Answer: D
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Page 5
Chapter 4: Record-Keeping
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Q1) Dawes Pty Ltd borrowed $10 000 from a finance company,promising to repay the debt in 3 years' time,together with interest at 12% p.a.Dawes Pty Ltd should record this transaction as:
A. DR Cash \(\quad \) CR Loan \(\quad \) CR Interest payable
B. DR Loan \(\quad \) CR Cash
C. DR Cash \(\quad \) DR Interest expense \(\quad \) CR Loan
D. DR Cash \(\quad \) CR Loan
Q2) What is the source document to support the sale of goods on credit?
A) a copy of a credit note issued by the vendor
B) a copy of an invoice issued by the vendor
C) the credit note issued by the purchaser
D) the invoice issued by the purchaser.
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Chapter 5: Accrual Accounting Adjustments
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Q1) Which of the following statements about prepaid expenses is NOT true?
A) Prepaid expenses arise because an expenditure has been made,but there is still value extending into the future.
B) Prepaid expenses are expenses that have been incurred during the current period,but will not be paid until the following period.
C) Prepaid expenses are usually classified as current assets.
D) Prepaid expenses arise when the payment schedule for an expense doesn't match the company's fiscal period.
Q2) What is the journal entry made by Data Ltd on 1 May 2011?
DR Insurance expense \(\$ 80\) \(\quad \) CR Prepaid insurance \(\$ 80\)
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A.
B. DR Insurance expense \(\$ 480\) \(\quad \) CR Prepaid insurance \(\$ 480\)
C. DR Prepaid insurance \(\$ 480\) \(\quad \) CR Cash \(\$ 480\)
D. DR Insurance expense \(\$ 480\) \(\quad \) CR Cash \(\$ 480\)
Chapter 6: Financial Reporting Principles, accounting
Standards and Auditing
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Q1) Which of the following is/are included in the corporate governance statement required under stock exchange regulations? (i)composition of audit committee (ii)statement of ethical standards (iii)procedures for identifying and managing business risks
A) (i)and (ii)only
B) (i)and (iii)only
C) (ii)and (iii)only
D) (i),(ii)and (iii).
Q2) Which of the following is an essential requirement for an asset to exist for accounting purposes?
A) An asset must be tangible.
B) An asset must have been exchanged for another asset.
C) An asset must be under the control of the entity.
D) An asset must have been acquired at a cost to the entity.
Q3) Assets are usually reported in the balance sheet at:
A) liquidation value
B) value in use
C) current or market value
D) historical cost.
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Chapter 7: Sustainability Reporting
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Q1) Absolute targets:
A) are expressed as ratio,emissions or energy relative to another measure
B) are expressed as a reduction of a specific quantity of emissions or energy over time
C) measure the efficiency of a process relative to its energy or emissions
D) express the energy or emission reduction target to be achieved by an organisation.
Q2) Which of the following is not an example of a fugitive emission source?
A) mineral products
B) oil and natural gas
C) coal mining
D) carbon capture and storage.
Q3) The stakeholder engagement process does NOT involve:
A) engaging stakeholders to identify and understand sustainability issues
B) determining the relevance of sustainability issues
C) stakeholders in identifying and evaluating sustainability issues
D
Reporting sustainability issues to shareholders.
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Chapter 8: Internal Control and Cash
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Q1) Which of the following is NOT correct? An effective internal control system for any organisation is one that:
A) discourages inefficient use of resources
B) helps management safeguard assets
C) assists management in controlling the enterprise
D) prevents collusion between employees.
Q2) Accompanying the bank statement was a debit memorandum for bank service charges.What entry is required in the company's accounts?
A) DR Bank charges\(\quad\)\(\quad\)\(\quad\)\(\quad\) CR Cash
B) DR Cash\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) CR Other revenue
C) DR Cash\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\)\(\quad\) CR Accounts payable
D) DR Accounts payable\(\quad\)\(\quad\)\(\quad\)CR Cash
Q3) The debit recorded in the journal to reimburse the petty cash fund is to:
A) petty cash
B) accounts receivable
C) cash
D) various accounts for which the petty cash was disbursed.
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Chapter 9: Inventory
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Q1) Which of the following ledger accounts is NOT found in the ledger of an enterprise employing the periodic count method?
A) purchases
B) purchases returns
C) cost of goods sold
D) discount expense.
Q2) A Cost of goods sold account is used in:
A) the periodic system only
B) the perpetual system only
C) both the periodic and the perpetual systems
D) either system if provision has been made in the chart of accounts.
Q3) A company discovered that inventory that cost $1000 and normally sells for $1200,has become obsolete and will be scrapped next month.The effect of the adjusting journal entry is to:
A) decrease profit by $1000 and decrease total assets by $1000
B) decrease profit by $1200 and decrease total assets by $1000
C) decrease profit by $1200 and decrease total assets by $1200
D) decrease profit by $1000 and not affect total assets.
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Chapter 10: Noncurrent Assets
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Q1) Which of the following statements about the capitalisation of goodwill is true?
A) Neither internally generated nor purchased goodwill may be capitalised.
B) Both internally generated and purchased goodwill may be capitalised.
C) Internally generated goodwill is never capitalised,but purchased goodwill is capitalised.
D) Internally generated goodwill may be capitalised,but purchased goodwill is never capitalised.
Q2) A truck that cost $250 000 and had accumulated depreciation of $180 000 was sold for $50 000 cash in June 2012.This transaction will:
A) increase assets and decrease profits
B) increase assets and increase profits
C) decrease assets and decrease profits
D) decrease assets and increase profits.
Q3) If the machine was sold for $70 000 on 1 July 2012,what was the gain or loss on disposal?
A) gain of $6000
B) loss of $10 000
C) gain of $10 000
D) loss 0f $6000.
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Page 12
Chapter 11: Liabilities
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Q1) Contingent liabilities are:
A) reported as current liabilities
B) reported as noncurrent liabilities
C) reported as either current or noncurrent liabilities,depending on the expected date of payment
D) not reported as liabilities.
Q2) If the company had recorded the lease as a capital lease instead of an operating lease:
A) total assets and total liabilities would be higher than under an operating lease
B) total assets but not total liabilities would be higher than under an operating lease
C) total liabilities but not total assets would be higher than under an operating lease
D) total assets and total liabilities would be lower than under an operating lease.
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Chapter 12: Completing the Balance Sheet
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Q1) Springtown Ltd issued 10 000 ordinary shares for $2.50 each,payable $1 on application,50 cents on allotment and $1 in calls as required.The journal entries to record the allotment of 10 000 shares would include a:
A) credit to cash,$5000
B) debit to allotment,$10 000
C) credit to share capital,$25 000
D) credit to share capital,$5000.
Q2) Cash dividends may NOT be paid out of:
A) share capital
B) general reserve
C) this year's profit
D) previous years' profits.
Q3) If Sky-High Ltd used the equity basis,which of the following accounting records would it make on 31 December 2012 in response to Down Ltd's earnings announcement?
A) It would increase investment in Down Ltd by $130 000.
B) It would increase cash by $130 000.
C) It would increase dividend revenue by $130 000.
D) It would increase investment in Down Ltd by $130 000 and increased dividend revenue by $130 000.
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Page 14
Chapter 13: Revenue and Expense Recognition: Additional Concepts
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Q1) At what point would you expect the builder of a football stadium to recognise revenue?
A) during production
B) on completion of production
C) at point of sale or delivery
D) when cash is received.
Q2) What profit was earned during the first year if the percentage of completion method was used?
A) $300 000
B) $750 000
C) $1 500 000
D) $1 600 000.
Q3) What profit was earned during 2011 if the percentage of completion method was used?
A) $3 281 250
B) $4 200 000
C) $4 900 000
D) $5 600 000.
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Chapter 14: The Statement of Cash Flows
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Q1) Shippers Ltd made a net operating loss of $42 000.Depreciation expense was $80 000 and loss on sale of vessels was $170 000.Accounts receivable increased by $65 000 and inventory decreased by $18 000.Accounts payable increased by $160 000 and expenses payable decreased by $1000.What was the cash flow from operations?
A) $404 000
B) $320 000
C) ($20 000)
D) none of the above.
Q2) The opening and closing balances of accounts receivable were $100 000 and $170 000 respectively.Sales on credit were $200 000.What was the amount of cash received from customers?
A) $130 000
B) $200 000
C) $270 000
D) $300 000.
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Chapter 15: Financial Statement Analysis
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Q1) Which of the following could explain a decrease in the quick ratio?
A) a change from FIFO to LIFO
B) a change in the depreciation method used
C) slow-moving inventory
D) increase in accounts payable
Q2) What is the effect of the loan on the debt-to-equity ratio?
A) There is an increase.
B) There is a decrease.
C) There is no effect.
D) It cannot be determined from the information provided.
Q3) Which of the following statements about a ratio is NOT true?
A) A ratio has little meaning on its own.
B) A ratio is always expressed as a percentage.
C) A ratio can be interpreted and used meaningfully only with a good understanding of the company.
D) Ratios are indicators that can be interpreted.
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Chapter 16: Accounting Policy Choices
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Q1) See-Saw Ltd uses moving weighted average for its inventory,which is valued at $276 000.It is considering a change to FIFO,which would decrease the valuation to $245 000.Which of the following would be increased by the change?
A) retained profits
B) income tax payable
C) cost of goods sold
D) sales.
Q2) In which of the following areas has choice largely been made by a standard-setting body,legislators or by accepted practice,so that companies are NOT free to make their own decisions?
A) selection of depreciation method
B) how to determine allowance for doubtful debts
C) inventory valuation method
D) whether to include goodwill in the balance sheet.
Q3) Changing the rate of depreciation does NOT affect:
A) the net book value of noncurrent assets
B) cash
C) net profit
D) retained profits.
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Page 18
Chapter 17: Appendix: Special Journals, subsidiary Ledgers and
Control Accounts
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Q1) Which of these items is the source document for the cash receipts journal?
A) cheque duplicate
B) invoice from supplier
C) duplicate of invoice sent to customer
D) copy of receipt given to customer.
Q2) What was the balance of the debtors control account at 31 January 2012?
A) $8400
B) $4100
C) $3900
D) $4400.
Q3) What was the balance of the debtors control account at 30 June 2012?
A) $39850
B) $39 200
C) $39 050
D) $40 000.
Q4) Which of the following is NOT a purpose served by special journals?
A) reduction in the number of postings to the general ledger
B) elimination of the general journal
C) reduction in number of entries requiring narrations
D) making it easier to find errors.
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