Introduction to Financial Accounting Final
Exam Questions
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the concepts, principles, and processes involved in preparing and interpreting financial statements. The course covers the accounting cycle, from recording transactions to producing income statements, balance sheets, and cash flow statements, emphasizing the role of accounting information in decision-making. Students will explore topics such as accrual accounting, internal controls, and ethical considerations, gaining practical skills to analyze and communicate financial data in a business context.
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Accounting Business Reporting for Decision Making 4th Edition by Jacqueline Birt
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Page 2
Chapter 1: Introduction to Accounting
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Q1) Management accounting reports are prepared:
A)based on GAAP and IASB accounting standards
B)to provide information for a wide range of stakeholders
C)to provide up to date information to managers for decision making
D)based only on historical figures
Answer: C
Q2) The external user of accounting information is the:
A)Purchasing officer.
B)Director of Research and Development.
C)Inventory clerk.
D)Customer.
Answer: D
Q3) A disclosing entity is an entity that
A)discloses the basis on which their financial reports are prepared
B)issues securities that are quoted on a stock market or made available to the public via a prospectus
C)is exempt under the Corporations Act 2001 from applying the AASB accounting standards
D)is involved in the accounting standard setting process
Answer: B
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Chapter 2: Business Sustainability
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Q1) The underlying concept of triple bottom line reporting is in line with:
A)agency theory
B)shareholder value
C)stakeholder theory
D)stewardship theory
Answer: C
Q2) _____________________ value is the view that the purpose of the corporation is to maximize shareholder wealth
Answer: Shareholder
Q3) Which of the following is \(\bold{not}\) a key factor in the effectiveness of a board of directors is:
A)diversity.
B)independence.
C)competence.
D)subjectivity.
Answer: D
Q4) An entity's obligations to society in general and also the environment are known as _________________________________.
Answer: corporate social responsibility
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Chapter 3: Business Structures
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Q1) Retained earnings at the end of the period is equal to:
A)assets plus liabilities.
B)profit earned for the period plus retained earnings at the start of the period.
C)retained earnings at the beginning of the period plus profit earned for the period minus dividends.
D)retained earnings at the beginning of the period plus profit earned for the period minus liabilities.
Answer: C
Q2) ABC Restaurant Pty Ltd started the year with total assets of $90 000 and total liabilities of $40 000.During the year the business earned $100 000 in income and incurred $55 000 in expenses.Dividends paid were $10 000.
Equity at the end of the period was:
A)$50 000.
B)$85 000.
C)$35 000.
D)$45 000.
Answer: B
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Page 5
Chapter 4: Business Transactions
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Q1) Income has a (positive/negative)____________________ effect on Equity.
Q2) If the value of Assets is equal to the value of Equity then Liabilities must be equal to ________________.
Q3) Income - Expenses = ___________________
Q4) Which of the numbers below,representing the difference in totals of debits and credits in a trial balance is most likely to be caused by a transposition error?
A)35
B)100
C)162
D)33
Q5) The statement that is incorrect is:
A)A debit entry is used to increase assets
B)A credit entry is used to increase liabilities
C)A credit entry is used to increase expenses
D)A debit entry is used to decrease equity
Q6) The accounting principle that requires separation of business transactions from any personal transactions of the owners is known as the _____________________ concept.
Q7) Profit is added to opening equity to calculate ending _________.
Page 6
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Chapter 5: Balance Sheet
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Q1) Which of the following measures of 'value' is not used under AASB accounting standards for property,plant and equipment?
A)fair value
B)written down value
C)historical cost
D)current cost
Q2) The statement concerning asset valuation is that is incorrect is:
A)Subject to a few exceptions,non-current assets,after acquisition,can be measured at either cost or fair value.
B)If non-current assets are measured using the cost basis,they cannot be valued at less than their recoverable amount.
C)If non-current assets are measured using the fair value basis fair value must be regularly reassessed.
D)Assets and liabilities are recorded initially at their historical cost.
Q3) The inventory valuation method that assumes that the first items bought are the first items sold is the first-in______________-______________ method.
Q4) Non-monetary assets without physical form are known as ________________ assets.
Q5) External claims on the assets of an entity are known as ___________________.
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Chapter 6: Income Statement and Statement of Changes in Equity
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Q1) Separately disclosing an income or expense item as an extraordinary item in the income statement
A)is a very common practice.
B)is popular with executives
C)is no longer permissible.
D)is popular with shareholders
Q2) The statement of __________ in equity is an additional statement to the income statement and the balance sheet that is required to be prepared under the accounting standards.
Q3) If sales = $45 000,purchases = $25 000,beginning inventory = $10 000 and ending inventory = $8000 gross profit is:
A)$18 000
B)$27 000
C)$7000
D)$20 000
Q4) The definition and recognition criteria for income and expenses are specified in the _________________ _________________ For a transaction to be recognised in the income statement the elements must satisfy both the definition and recognition criteria of an income or expense.
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Chapter 7: Statement of Cash Flows
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Q1) Which of these is not an example of cash or cash equivalents?
A)Deposit at call
B)Money market deposit with 6 months maturity
C)Bank overdraft
D)Bank and non-bank bills
Q2) The section of the statement of cash flows that is generally considered to be the best measure of a company's ability to continue as a going concern is
A)Cash flows from financing activities
B)Cash flows from investing activities
C)Cash flows from operating activities
D)Each gives an equal estimation
Q3) The payment of interest on bonds is classified as a cash outflow from ___________ activities.
Q4) On a statement of cash flows borrowing money and raising share capital are examples of ________________ activities.
Q5) For the purposes of the preparation and interpretation of the statement of cash flows,cash
Q6) ___________________ activities include the cash effects of income and expense transactions.
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Chapter 8: Analysis and Interpretation of Financial Statements
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Q1) The current ratio is a
A)Liquidity ratio.
B)Cash flow ratio.
C)Profitability ratio.
D)Market performance ratio.
Q2) Which statement is not correct?
A)Low liquidity ratios are not desirable
B)High liquidity ratios are not necessarily desirable
C)Low liquidity ratios can indicate liquidity problems
D)A current ratio of greater than 2:1 means that an entity must have sufficient liquidity to pay its debts as they fall due
Q3) If year one equals $800,year two equals $830 and year three equals $896 the value given to year three in a trend analysis,with year one as the base year,is
A)89%
B)100%
C)105%
D)112%
Q4) It is only necessary to calculate ________ version of the many variations of the gearing ratios.
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Chapter 9: Budgeting
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Q1) Budget targets should be:
A)set at the highest level of performance.
B)unachievable so that there is always an incentive to do better.
C)set from experience at a reasonable level of performance.
D)set at a low level so they will always be achieved.
Q2) The decision to set up a new branch of the firm in an overseas country is part of:
A)strategic planning.
B)master budgeting.
C)authoritarian budgeting.
D)all of the given options.
Q3) Which of the following strategies could be used to improve cash inflow?
A)discount obsolete inventory
B)improve collections of cash from debtors
C)seek ways of increasing sales or fees
D)all the options are strategies which could be used to improve cash inflows
Q4) The budget that is most helpful in identifying and preparing for any liquidity issues is the _____________ budget.
Q5) A ________________ is the differences between actual and budgeted results.
Q6) The control aspect of budgeting is achieved by calculating ______________.
Page 11
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Chapter 10: Cost-Volume-Profit Analysis
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Q1) Which of these is \(\bold{not}\) a fixed cost?
A)depreciation on buildings
B)supervisory salaries
C)direct labour
D)local government rates
Q2) A variable cost is a cost that
A)may or may not be incurred depending on management's discretion.
B)occurs at various times of the year.
C)varies with changes in activity.
D)all of the options are correct
Q3) A change in which item would not affect the break-even point?
A)total fixed costs
B)the number of units sold
C)the sales price per unit
D)variable cost per unit
Q4) The contribution margin ratio can be calculated as:
A)total contribution margin divided by selling price per unit
B)selling price per unit divided by contribution margin per unit.
C)contribution margin per unit divided by total sales
D)contribution margin per unit divided by the selling price per unit
Page 12
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Chapter 11: Costing and Pricing in an Entity
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Q1) The first step from the list below in the process of allocating indirect costs is to:
A)identify a cost driver that has a strong correlation to the cost pool.
B)compute the indirect cost rate per cost driver.
C)allocate the indirect costs to each cost object.
D)decide on the number of indirect cost pools.
Q2) To calculate the total cost of a cost object,________ costs need to be traced and indirect costs allocated.
Q3) Under Australia accounting standards,which of the following are inventoriable product costs?
A)office salaries
B)manufacturing costs
C)depreciation of office equipment
D)all the options are inventoriable product costs
Q4) Period costs are costs that:
A)are allocated over several accounting periods
B)non-manufacturing costs for the current period
C)manufacturing costs for the current period
D)none of the options is correct
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Chapter 12: Capital Investment
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Q1) Uncertainty in finance:
A)is defined as the unmeasurable variation in outcomes
B)can be measured with a degree of confidence
C)is defined as measurable variation in outcomes
D)none of the options explains uncertainty in finance
Q2) When deflation is a threat,which investment is favoured by defensive investors?
A)high quality bonds
B)defensive shares
C)dividend paying shares
D)all of the options are types of investments favoured by defensive investors
Q3) More risky investments have a higher discount rate which lowers the present value due to a _________ margin which is added to their opportunity interest rate.
Q4) Risk in finance is defined as measurable variation in outcomes while ___________ is the unmeasurable variation in outcomes.
Q5) The impact of tax on a simple investment
A)lowers cash outflows.
B)lowers cash inflows.
C)lowers cash inflows and outflows.
D)has no effect on cash flows.
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Chapter 13: Financing the Business
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Q1) Which is most likely concerning the level of inventory held by Telstra and Woolworths as a percentage of current assets?
A)Telstra has a slightly lower percentage than Woolworths
B)their percentages are similar
C)Woolworths has a slightly higher percentage than Telstra
D)Woolworths has a much higher percentage than Telstra
Q2) Which of the following is a way that entities can raise debt from the Australian market?
A)corporate bonds
B)unsecured notes
C)debentures
D)all the options are methods of raising debt from the Australian market
Q3) If company M&Z Ltd is wound up,the claim of the ordinary shareholders to the net assets comes
A)first.
B)second behind banks.
C)third behind banks and other financial institutions.
D)last.
Q4) There are two types of floor-plan lenders: captives and _________________.
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Chapter 14: Performance Measurement
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Q1) A short statement that sets out the overall philosophy and objectives of an entity is known as its ______________ statement.
Q2) Which one of these perspectives is not used by the balanced scorecard?
A)financial
B)employee
C)internal operations
D)innovation and improvement activities
Q3) Which of the following statements about the economic value added (EVA)performance measure is \(\bold{not}\) true?
A)EVA is a short term financial performance measure of the economic value created over a specific time period.
B)The formula to calculate EVA uses profit before tax.
C)Adjustments can be made to the components of the EVA formula to suit the specific circumstances of each division.
D)Using the EVA performance measure can assist in the minimisation of suboptimal decision making.
Q4) A responsibility centre that is responsible for generating a target level of revenue (e.g.a sales division)is known as a _____________ centre.
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