Introduction to Financial Accounting Practice Questions
Course Introduction
Introduction to Financial Accounting offers students a foundational understanding of how businesses record, summarize, and report financial transactions. The course covers essential accounting concepts and principles, including the accounting cycle, preparation and analysis of financial statements, and the regulatory framework governing financial reporting. Students learn to interpret key financial statements, such as the balance sheet, income statement, and cash flow statement, to assess an organizations financial health. Emphasis is placed on understanding the ethical responsibilities of accountants, the importance of transparency in financial reporting, and the role of accounting in business decision-making. Through practical exercises and real-world examples, students develop the skills necessary to analyze financial information and contribute to effective organizational management.
Recommended Textbook
Financial Accounting 4th Canadian Edition by Robert; Libby
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13 Chapters
1686 Verified Questions
1686 Flashcards
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Page 2
Chapter 1: Financial Statements and Business Decisions
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Sample Questions
Q1) A banker who is considering making a loan to a corporation would be one of the corporation's internal decision makers.
A)True
B)False
Answer: False
Q2) In what order are assets are listed on a statement of financial position?
A)dollar amount (largest first).
B)date of acquisition (earliest first).
C)ease of conversion to cash.
D)importance to the operation of the business.
Answer: C
Q3) What are the two categories of shareholders' equity usually found on the statement of financial position of a corporation?
A)share capital and long-term liabilities.
B)share capital and property,plant,and equipment.
C)retained earnings and notes payable.
D)share capital and retained earnings.
Answer: D
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3
Chapter 2: Investing and Financing Decisions and the Accounting System
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Sample Questions
Q1) On the income statement,assets should always equal liabilities plus shareholders' equity.
A)True
B)False
Answer: False
Q2) In what two places do amounts for transactions appear in the accounting system or "the books"? Describe them.
Answer: Transactions are first recorded in the journal.This is known as the book of original entry.Transactions are entered chronologically in a debit-credit format.After transactions are journalized,the amounts are posted to the ledger (the book of final entry).The ledger contains accounts for each financial statement element so that balances can be determined.
Q3) The equality of debits and credits is the basis for
A)the double-entry accounting system.
B)the single-entry accounting system.
C)the T account.
D)all accounting systems.
Answer: A
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Chapter 3: Operating Decisions and the Accounting System
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Sample Questions
Q1) The profit of a business is computed by subtracting revenues from expenses.
A)True
B)False Answer: False
Q2) On January 1,20B,Grover Inc.,started the year with a $22,000 credit balance in its retained earnings account.During 20B,the company earned profit of $40,000 and declared and paid dividends of $10,000.Also,the company received cash of $15,000 as an additional investment by its owners.Therefore,the balance in retained earnings on December 31,20B,would be which of the following?
A)$42,000.
B)$52,000.
C)$57,000.
D)$67,000.
Answer: B
Q3) The revenue principle recognizes revenues when the earnings process is complete or nearly complete,an exchange has taken place,and collection is probable.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Adjustments,financial Statements,and the Quality of Earnings
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127 Flashcards
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Sample Questions
Q1) An income statement reports which of the following?
A)revenues,expenses,assets,and liabilities during an accounting period.
B)profit of a business at a point in time.
C)profit of a business for a period of time.
D)resources,liabilities,and shareholders' equity of a business at a point in time.
Q2) Those firms that make relatively conservative estimates for their accrued and deferred adjustments are said to have financial reports disclosing a higher quality of earnings.
A)True
B)False
Q3) Of the following accounts,which one would not appear in the post-closing trial balance?
A)Supplies inventory.
B)Dividends declared.
C)Share capital.
D)Retained earnings.
Q4) Is the adjusted trial balance a financial statement? Explain why or why not.
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Chapter 5: Communicating and Interpreting Accounting Information
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108 Flashcards
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Sample Questions
Q1) Investing activities include cash proceeds from the sale of property,plant,and equipment,and short- and long-term investments.
A)True
B)False
Q2) WT Company reported sales revenue of $100,000 and total expenses of $90,000 (including depreciation)for the year ended December 31,20A.During 20A,trade receivables decreased by $4,000,merchandise inventory increased by $3,000,trade payables increased by $2,000,and depreciation expense of $6,000 was recorded.Assuming no other data are needed,what was the net cash inflow from operating activities for 20A?
A)$19,000.
B)$20,000.
C)$21,000.
D)$24,000.
Q3) Which of the following would not be a cash equivalent?
A)A $10,000,30 day certificate of deposit.
B)500 shares of RIM shares.
C)A three-month Treasury bill.
D)A ten-year Treasury note purchased two months before maturity.
Page 7
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Chapter 6: Reporting and Interpreting Sales Revenue, receivables,
and Cash
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135 Flashcards
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Sample Questions
Q1) Adherence to the same accounting principles from year to year is an example of the characteristic of
A)relevance.
B)faithful representation.
C)understandability.
D)comparability.
Q2) What is the primary purpose of hiring a public accounting firm to examine the financial statements of the company?
A)to assure no fraud has been committed by the company's management
B)to provide credibility that the financial information conforms with international financial reporting standards in all material respects
C)to detect all accounting errors made by the accounting system and employees
D)to detect fraud committed by employees
Q3) Public companies must file additional reports with the securities commissions (e.g.,OSC,SEC),which contain more details about the company.
A)True
B)False
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Page 8
Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory
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Sample Questions
Q1) For proper matching of expenses to revenues,bad debt expense should be recognized when the specific customer's account is determined to be uncollectible.
A)True
B)False
Q2) Upon completing an aging analysis of trade receivables,the accountant for Rosco Works estimated that $5,000 of the current $98,000 of trade receivables would be uncollectible.The allowance for doubtful accounts had a $400 credit balance at year-end prior to adjustment.What amount of bad debt expense should appear in Rosco's income statement for the year?
A)$0
B)$4,600.
C)$5,000.
D)$5,400.
Q3) When using the allowance method for bad debts,how should bad debt expense be recorded?
A)as an adjusting entry at the end of the accounting period.
B)when a particular account is written off.
C)whenever the allowance for doubtful accounts has a debit balance.
D)whenever the allowance for doubtful accounts has a zero balance.
Page 9
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Chapter 8: Reporting and Interpreting Property, plant, and Equipment; Intangibles; and Natural Resources
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Sample Questions
Q1) At the end of 20B,SAS Company failed to include some goods in its ending inventory and failed to record the purchase of these goods.For 20B,these two errors caused which of the following?
A)Goods available for sale,cost of goods sold,and income to be overstated.
B)Ending inventory,cost of goods sold,and retained earnings to be understated.
C)Ending inventory,goods available for sale,and retained earnings to be understated.
D)No effect on profit,working capital,or retained earnings.
Q2) "Toys 4 U" had cost of goods sold in 2012 of $8,191 million and $7,710 million in 2011.Their merchandise inventory in 2012 was $1,902 million and $2,464 million in 2011.What was their inventory turnover in 2012?
A)3.64
B)3.53
C)4.31
D)3.75
Q3) The qualitative characteristic,reliability,is the primary consideration to a business considering changing its inventory costing method.
A)True
B)False
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Chapter 9: Reporting and Interpreting Liabilities
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Sample Questions
Q1) Which of the following is true of depletion recorded for natural resources?
A)It recognizes increases in market value with the passage of time.
B)It matches the cost of resources used up with the revenues that are earned.
C)It is also recorded on buildings and equipment used in extracting the resource.
D)It is determined by a method similar to declining balance depreciation.
Q2) On January 1,2012,Stacy Company purchased the College Book Store for $350,000.At the date of purchase,it was determined the recorded assets had a total market value of $325,000,comprised of inventory (books),$275,000; fixtures,$30,000; and other assets
$20,000.It is estimated that the goodwill (if any)has an economic useful life of 20 years.What is the amount of amortization expense for goodwill for 2012?
A)$1,250
B)$0
C)$16,250
D)$17,500
Q3) It is illegal to maintain two sets of books so we must adopt the same amortization method for both financial reporting and tax reporting.
A)True
B)False
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11
Chapter 10: Reporting and Interpreting Bond Securities
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Sample Questions
Q1) If a company uses cash to pay off a current liability,the amount of working capital will decrease.
A)True
B)False
Q2) In 2012,C Co reported a trade payables turnover ratio of 1.85 and a current ratio of 0.66.Their statement of financial position shows $2.1 billion in marketable securities not included in their current assets and good cash flow from operations.Which of the following interpretations is most likely?
A)Since the two ratios are fairly high,it indicates C Co has little difficulty paying its bills in a timely manner.
B)Since both these ratios are low,it might indicate poor liquidity and inability to pay vendors in a timely manner.
C)C Co practices aggressive cash management policies including investing excess cash and using vendors to finance operations by making slow payment to them.
D)C Co must be carrying a low amount of current liabilities in comparison to its total liabilities.
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12
Chapter 11: Reporting and Interpreting Stockholders Equity
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Sample Questions
Q1) Companies which are investing heavily in fixed assets and acquiring other companies tend to use more debt financing.
A)True
B)False
Q2) When a bond investment is sold (issued)at a discount,subsequent amortization of the discount does which of the following?
A)Decreases interest expense.
B)Increases interest expense.
C)Has no effect upon interest expense.
D)Decreases interest in the bond.
Q3) A reciprocal relationship exists between the "future value of $1" and the "present value of $1."
A)True
B)False
Q4) The future value of $1 is always more than $1,whereas the present value of $1 is always less than $1.
A)True
B)False
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Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) From an investor's viewpoint,in today's litigious environment,what would be considered the most advantageous characteristic of the corporate form of organization?
A)Taxation.
B)Ease of capital assembly.
C)Continuity of life for the corporation.
D)Limited liability for shareholders.
Q2) To pay a cash dividend,a corporation needs adequate cash,authorization from the board of directors,and adequate retained earnings.
A)True
B)False
Q3) Casey Corporation has the following capital shares outstanding:
(a)Common shares,6,000 shares.
(b)$.80 preferred shares,2,000 shares,cumulative,with 2 years in arrears excluding the current year.
A cash dividend of $6,000 was declared and paid near the end of the current year.
(a)Total dividends received by the preferred shareholders would be $________.
(b)Total dividends received by the common shareholders would be $________.
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Chapter 13: Analyzing Financial Statements
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Sample Questions
Q1) Lyceum Co.reported profit of $8.3 million,interest expense of $.5 million and they are in a 30% tax rate bracket.Their average total assets are $65.8 million and average shareholders' equity is $48.6 million.What is Lyceum's financial leverage advantage or disadvantage?
A.3.7%
B.3.9%
C.4.0%
D.4.7%
Q2) The current ratio is one indicator of the liquidity of a company.
A)True B)False
Q3) Howard Corporation reported a quick ratio of 1.75,current assets of $50,000 and a current (working capital)ratio of 2.
(a)The total amount of quick assets was $_______.
(b)What is another name for the quick ratio? ___________
(c)Describe what type of assets are considered quick assets and give some examples. (d)How does the quick ratio compare to the current ratio?
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