Introduction to Financial Accounting Final
Exam Questions
Course Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles, concepts, and techniques used in the preparation and interpretation of financial statements. The course covers the accounting cycle, including recording, classifying, summarizing, and reporting business transactions in accordance with generally accepted accounting principles (GAAP). Students will learn how to prepare balance sheets, income statements, and cash flow statements, as well as how to analyze these documents to assess the financial health and performance of an organization. The course also explores the ethical and regulatory environment of accounting, preparing students for more advanced studies or careers in business and finance.
Recommended Textbook
Financial Managerial Accounting 16th Edition by Jan Williams
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Page 2
Chapter 1: Accounting: Information for Decision Making
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Q1) The set of standards, assumptions, and concepts that form the "ground rules" for financial reporting in the United States is termed:
A) The conceptual framework.
B) Generally accepted accounting principles.
C) Statements of Financial Accounting Concepts.
D) American standards for certified public accountants.
Answer: B
Q2) To understand and use accounting information in making economic decisions, you must understand:
A) The nature of economic activities that accounting information describes.
B) The assumptions and measurement techniques involved in developing accounting information.
C) Which information is relevant for a particular type of decision that is being made.
D) All of the above.
Answer: D
Q3) The timeliness of the information is more critical than its completeness.
Answer: Management
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Chapter 2: Basic Financial Statements
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Q1) Financial statements
A set of financial statements includes three related accounting reports, or statements. In the space provided, list the names of three primary statements, and give a brief description of the accounting information contained in each.
Answer: * Balance sheet. A report showing at a specific date the financial position of the company by reporting the assets (resources) that it owns, the liabilities (debts) that it owes, and the amount of the owners' equity in the business.
* Income statement. A report indicating the profitability (or net income) of the business over a specific time period.
* Statement of cash flows. A report summarizing the cash receipts and cash payments of the business over the same time period covered by the income statement. The cash flows from three activities are presented on the statement. In order of presentation, they include: (1) operating activities; (2) investing activities; and (3) financing activities.
Q2) The collection of an account receivable will cause total assets to decrease.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Accounting Cycle: Capturing Economic Events
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Q1) Eagle News has a $6,000 account receivable from one of its advertisers, Allwood Floors. When Eagle receives $3,600 from Allwood as partial payment:
A) Eagle should debit Accounts Receivable for $3,600.
B) Eagle should credit Cash for $3,600.
C) Eagle should credit Accounts Receivable for $3,600.
D) Eagle makes no journal entry until the total of $6,000 is received from Allwood.
Answer: C
Q2) On June 6, the bookkeeper for Creative Band, Inc makes this entry: This transaction:
A) Decreases total assets.
B) Involves the sale of equipment for $7,400.
C) Increases total assets $7,400.
D) Increases liabilities.
Answer: D
Q3) Liability accounts should only be debited and never credited.
A)True
B)False
Answer: False
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Page 5
Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Q1) In which of the following situations would Daystar Company record unearned revenue in May?
A) In April, Daystar Company received payment from a customer for services that are performed in May.
B) Daystar Company completes a job for a customer in May; payment will be received in June.
C) Daystar Company is paid on May 25 for work done in the first two weeks of May.
D) Daystar Company receives payment in May for work to be performed in June and July.
Q2) Unearned revenue may also be called:
A) Net income.
B) Deferred revenue.
C) Unexpired revenue.
D) Services rendered.
Q3) An expenditure that benefits year one but is paid for in year two should not be capitalized until year two.
A)True
B)False
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6
Chapter 5: The Accounting Cycle: Reporting Financial Results
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Q1) The closing entry for an expense account would consist of a:
A) Debit to Income Summary and a credit to the expense account.
B) Debit to the expense account and a credit to Income Summary.
C) Credit to Retained Earnings and a debit to the expense account.
D) Credit to Revenue and a debit to the expense account.
Q2) In the notes to financial statements, adequate disclosure would typically not include:
A) The accounting methods in use.
B) Lawsuits pending against the business.
C) Due dates of major liabilities.
D) The optimism of the CFO regarding future profits.
Q3) Income Summary appears on which financial statement:
A) Income statement.
B) Balance sheet.
C) Retained Earnings statement.
D) Income summary does not appear on any financial statement.
Q4) The report form of the balance sheet lists liabilities and owners' equity below assets.
A)True
B)False
Page 7
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Chapter 6: Merchandising Activities
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Q1) All of the following accounts normally have debit balances except:
A) Transportation-in.
B) Cost of Goods Sold.
C) Sales Returns & Allowances.
D) Purchase Returns & Allowances.
Q2) Regal Artworks Co. records purchases net of all available purchase discounts. If the company makes payment after the discount has expired, the entry to record the payment should include a:
A) Debit to Purchase Discounts Lost.
B) Credit to Purchase Discounts Lost.
C) Debit to Sales Discounts.
D) Credit to Sales Discounts.
Q3) A customer purchased merchandise for $450 which cost the seller $200. The customer was dissatisfied with some of the goods and thus returned $100 worth and received a cash refund.
(a) What journal entries should the seller make when the merchandise is sold and at the time of the return? Assume that the seller uses a perpetual inventory system.
(b) If the seller uses a periodic inventory system, what entries would be made?
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8
Chapter 7: Financial Assets
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Q1) In preparing a bank reconciliation, a service charge shown on the bank statement should be:
A) Added to the balance per the bank statement.
B) Deducted from the balance per the bank statement.
C) Added to the balance per the depositor's records.
D) Deducted from the balance per the depositor's records.
Q2) The journal entry made by Salem to record this transaction on November 1, 2010, includes:
A) A debit to Notes Receivable of $927,000.
B) A debit to Interest Receivable of $27,000.
C) A credit to Interest Revenue of $27,000.
D) A debit to Notes Receivable of $900,000.
Q3) Under the allowance method, when a receivable that had been previously written off is collected:
A) Income is recognized.
B) An expense is reduced.
C) Net income is not affected.
D) Net assets are increased.
Q4) What is the adjusted cash balance in the September 30 bank reconciliation?
Q5) What is the amount of the deposit in transit?
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Chapter 8: Inventories and the Cost of Goods Sold
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Q1) Ace Auto Supply uses a perpetual inventory record. On March 10, the company sells two Shelby four-barrel carburetors. Immediately prior to this sale, the perpetual inventory records indicate three of these carburetors on hand, as shown below: With respect to the sale on March 10: (More than one of the following answers may be correct.)
A) If the average cost method is used, the cost of goods sold is $460.
B) If these carburetors have identification num?bers, Ace must use the specific identification method in determining the cost of goods sold.
C) If the company uses LIFO, the cost of goods sold will be $15 higher than if it were using FIFO.
D) If the company uses LIFO, the carburetor remaining in inventory after the sales will be assumed to have cost $220.
Q2) Assume that Castle TV, Inc. uses the LIFO flow assumption. The cost of the 200 units in the year-end inventory is:
A) $37,000.
B) $46,000.
C) $41,500.
D) $83,000.
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Chapter 9: Plant and Intangible Assets
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Q1) Under the half-year convention, six months' depreciation is recorded on an asset in the year of acquisition and in the year of retirement regardless of the month in which the asset is actually purchased or retired.
A)True
B)False
Q2) For the financial statements of publicly traded companies, MACRS:
A) Is recommended.
B) Is required.
C) Is optional.
D) Is not considered to be in conformity with GAAP.
Q3) Straight-line is the most widely used depreciation method in financial statements, and MACRS is the most widely used method in federal income tax returns.
A)True
B)False
Q4) In accounting, depreciation refers to a decline in the asset's current market value, not the allocation of the cost of an asset to expense.
A)True
B)False
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Chapter 10: Liabilities
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Q1) U. S. GAAP requires that convertible bonds be classified on the balance sheet as:
A) Part liability, part equity.
B) A liability.
C) Either a liability or equity.
D) As an asset.
Q2) When bonds are sold by one investor to another, they sell at market price plus accrued interest since the last payment date.
A)True
B)False
Q3) An employer's total payroll-related costs always exceed the wages and salaries earned by employees by:
A) Amounts withheld from employees' pay.
B) Payroll taxes and mandated programs such as workers' compensation insurance. C) 50%.
D) Employers' payroll-related costs actually are less than the gross wages and salaries earned by employees, because of amounts withheld from employees' checks.
Q4) Payroll-related expenses
Shown below is a summary of the annual payroll data of Revere Ironworks:
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Chapter 11: Stockholders Equity: Paid-In Capital
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Q1) Which of the following is not a characteristic of the corporate form of organization?
A) The owners of a corporation cannot lose more than the amount of their investment.
B) Shares of stock in a corporation are more readily transferable than is an interest in a partnership.
C) Stockholders have authority to decide by majority vote the amount of dividends to be paid.
D) The corporation is a very efficient vehicle for obtaining large amounts of capital required for large-scale production.
Q2) Which of the following is not a characteristic of most preferred stock?
A) Dividends that vary as income changes.
B) Preference as to dividends.
C) Preference as to assets in the event of liquidation of the company.
D) No voting power.
Q3) A stockholders' subsidiary ledger will have entries made for each stockholder showing the number of shares held.
A)True
B)False
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13
Chapter 12: Income and Changes in Retained Earnings
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Q1) Extraordinary items are found on the income statement:
A) Before discontinued operations.
B) After discontinued operations.
C) Before income from continuing operations.
D) After prior period adjustments.
Q2) Treasury stock appears as:
A) An asset account.
B) A liability account.
C) An expense account.
D) An equity account.
Q3) A company failed to make an adjusting entry in the prior year to accrue earned revenue. To correct this they should:
A) Correct last year's statement by increasing net income.
B) Correct this year's statements with a prior period adjustment increasing beginning retained earnings.
C) Correct this year's statements with a prior period adjustment decreasing beginning retained earnings.
D) Correct this year's statements with a prior period adjustment increasing ending retained earnings.
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Page 14
Chapter 13: Statement of Cash Flows
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Q1) Based solely on the data provided above, Hierarchy's net cash flow from investing activities for the current year is:
A) $264,000 net cash provided by investing activities.
B) $264,000 net cash used by investing activities.
C) $201,600 net cash provided by investing activities.
D) $1,200,000 net cash provided by investing activities.
Q2) Free cash flow arises out of:
A) Operating activities.
B) Investing activities.
C) Financing activities.
D) All three types of activities.
Q3) Rag Dolls' cash flow from operating activities during 2010 is:
A) $45,000 net cash provided by operating activities.
B) $1,155,000 net cash used by operating activities.
C) $240,000 net cash provided by operating activities.
D) $195,000 net cash provided by operating activities.
Q4) The indirect method of computing cash flows from operations begins with net income.
A)True
B)False
Page 15
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Chapter 14: Financial Statement Analysis
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Q1) Noble's return on equity was:
A) 10%.
B) 13%.
C) 21%.
D) 1.73.
Q2) Noble's price-earnings ratio at year end was:
A) .07.
B) 13.5.
C) 17.
D) 1.42.
Q3) What was Supreme's operating income? (in millions):
A) $710.
B) $390.
C) $270.
D) $520.
Q4) Which of the following is not a measure of long-term credit risk?
A) Quick ratio.
B) Debt ratio.
C) Interest coverage ratio.
D) Trend in net cash provided by operating activities.
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Chapter 15: Global Business and Accounting
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Q1) In Japan, financial reporting requirements are based primarily on the need to provide information to:
A) Investors.
B) Government agencies.
C) Banks.
D) U.S. subsidiaries of Japanese companies.
Q2) Which of the following is true about foreign trade zones?
A) They are illegal in the United States.
B) Goods imported into these designated U.S. areas are duty free until they leave the zone.
C) They have a special excise tax.
D) They are areas outside the United States that offer special tax treatments.
Q3) Assume the exchange rate for the Canadian dollar is rising relative to the U.S. dollar. An American company will incur losses from this rising exchange rate if it is making:
A) Credit sales to Canadian companies at prices stated in Canadian dollars.
B) Credit purchases from Canadian companies at prices stated in U.S. dollars.
C) Credit sales to Canadian companies at prices stated in U.S. dollars.
D) Credit purchases from Canadian companies at prices stated in Canadian dollars.
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17
Chapter 16: Management Accounting: a Business Partner
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Q1) A product cost is deducted from revenue in the period in which:
A) The related finished goods are sold.
B) The expenditure is made.
C) Production of the product begins.
D) The production process is completed.
Q2) Since manufacturing costs (direct materials, direct labor, and overhead) are incurred in the process of manufacturing units of product, these costs are debited to:
A) The Direct Materials Inventory, Direct Labor, and Manufacturing Overhead accounts.
B) Expense accounts.
C) The Work in Process Inventory account.
D) The Cost of Goods Sold account.
Q3) Which of the following is a period cost?
A) Depreciation on a factory building.
B) The cost of direct materials used.
C) Depreciation on a sales showroom.
D) The cost of disposing of hazardous waste materials from factory operations.
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18
Chapter 17: Job Order Cost Systems and Overhead
Allocations
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Q1) Job order cost system
Century Pools designs and builds custom pools and spas to the customer's order and uses a job order system. The predetermined overhead rate for the current year is 60% of direct labor cost.
At the end of the current year, Century Pools' direct labor cost totaled $170,000 and actual overhead amounted to $105,000.
A pool built for F. Becker required $32,000 of direct materials and $6,500 of direct labor. It was completed in May of the current year.
(a) Compute the total cost of the Becker pool as shown on the job cost sheet at date of completion.
(b) Compute the amount of under- or over-applied manufacturing overhead for Century's operations for the current year.
(c) What disposition is made of over- or under-applied overhead at the end of the year (assume that the amount is not material)?
Q2) What is the work in process inventory at October 31? $___________
Q3) What is the finished goods inventory at October 31? $___________
Q4) What is the cost of goods sold during November? $___________
Page 19
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Chapter 18: Process Costing
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Q1) The number of equivalent full units of production during a period may be greater than, equal to, or smaller than the actual number of units completed and transferred to the finished goods warehouse.
A)True
B)False
Q2) In most process costing systems, the number of units "in process" at any one time is usually significant relative to the total production output of the period.
A)True
B)False
Q3) United Construction Company, which manufactures residential buildings, would most likely use a process costing system.
A)True
B)False
Q4) Manufacturing overhead is not applied to products when a process costing system is used.
A)True
B)False
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Chapter 19: Costing and the Value Chain
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Q1) During cycle time, value is added only during:
A) Processing time.
B) Storage and waiting time.
C) Movement time.
D) Inspection time.
Q2) The following are all characteristics of target costing except:
A) Understanding the pricing process in order to increase selling prices.
B) Driving costs down while satisfying customer needs.
C) Emphasizing the product's functional characteristics and their importance to the customer.
D) Reducing development time.
Q3) The just-in-time manufacturing system:
A) Contrasts with the supply push system.
B) Complements the supply push systems.
C) Neither complements nor contrasts with the supply push system.
D) Contrasts the demand pull system.
Q4) Cost of quality
Name four components of the cost of quality and list three examples of each.
Q5) Can be eliminated without affecting the desirability of the product from the perspective of the customer. _______________________________
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) The higher the unit contribution margin, the higher the volume of unit sales required to cover a given amount of fixed costs.
A)True
B)False
Q2) Refer to the information above. In order to earn an operating income of $252,000, Grayson's monthly sales must be:
A) $1,700,000.
B) $1,750,000.
C) $1,800,000.
D) $1,850,000.
Q3) If the unit sales price is $12, variable costs are $6 per unit and fixed costs are $36,000 what are the sales in dollars necessary to break-even?
A) $90,000.
B) $72,000.
C) $70,000.
D) $60,000.
Q4) What monthly sales level must be achieved for Rhinefold to earn a monthly operating income of $350,000? $___________
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Chapter 21: Incremental Analysis
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Q1) Joint products are similar products that serve the same exact function.
A)True
B)False
Q2) The net change in operating income resulting from a decision to manufacture MB-2 is (specify whether the change is an increase or a decrease): $_____________
Q3) All incremental revenue or incremental costs are relevant.
A)True
B)False
Q4) Assuming that the MR Corporation has an inventory of 200 defective motors costing $450,000 to produce and $150,000 to repair, if the company receives an offer to purchase these motors for $100,000, the company's decision should be to sell the motors at the offered price.
The $450,000 production costs are sunk costs and therefore irrelevant to the decision. The relevant costs are the repair costs of $150,000 compared to the offer to purchase for $100,000. Since the offer is less than the repair costs, the decision should be not to sell the motors at the offered price.
A)True
B)False
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Chapter 22: Responsibility Accounting and Transfer Pricing
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Q1) Old Jeans, Inc. has two divisions or profit centers, one makes regular fit jeans and the other makes relaxed fit jeans. The information for the two centers follows:
\[\begin{array} { | l | r | r | }
\hline & \text { Regular fit } & \text { Relaxed fit } \\
\hline \text { Sales } & \$ 400,000 & \$ 175,000 \\
\hline \text { Variable cost (as a \% of Sales) } & 40 \% & 50 \% \\
\hline \text { Traceable fixed costs } &\$40,000&\$70,000\\
\hline \end{array}\]
There are also common fixed costs of $27,500.
Required:
Prepare a responsibility income statement by profit center and in total.
Q2) In a responsibility income statement, the term common fixed costs describes fixed costs that:
A) Occur every month.
B) Jointly benefit several responsibility centers of the business.
C) Occur in virtually every responsibility center of the business (such as salaries).
D) Are easily traceable to specific profit centers.
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Chapter 23: Operational Budgeting
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Q1) The behavioral approach to budgeting has as its goal the complete elimination of inefficiency.
A)True
B)False
Q2) For the year, budgeted purchases of direct materials amounted to:
A) $344,000.
B) $328,000.
C) $360,000.
D) $370,000.
Q3) Flexible budgeting may be viewed as combining the concepts of budgeting and:
A) Incremental analysis.
B) Product costing.
C) Cost-volume-profit analysis.
D) Financial statement analysis.
Q4) A flexible budget is one that:
A) Is revised monthly in the light of changing business conditions.
B) Is a compromise plan reflecting diverse views of various supervisors.
C) Contains estimated cost data for several different levels of activity.
D) Separates factory overhead between the variable and fixed portions.
Q5) Discuss the benefits that a company may derive from a formal budgeting process.
Page 25
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Chapter 24: Standard Cost Systems
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Q1) What is the standard cost for direct labor?
A) $100.
B) $287.
C) $180.
D) $285.
Q2) Standard costs are typically reviewed once per year.
A)True
B)False
Q3) A standard cost is the per unit cost actually incurred under normal operating conditions.
A)True
B)False
Q4) In establishing standard costs for labor, management must look at all of the following except:
A) Time allowed to produce each product.
B) Direct labor requirements for each product.
C) The wage rate of a direct laborer.
D) The quantity of materials for each product.
Q5) In the space below, provide the journal entry to record the cost of direct materials used on job no. 007.
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Chapter 25: Rewarding Business Performance
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Q1) Explain the importance of incentive systems for motivating performance.
Q2) Which of the following is not one of the balanced scorecard lenses?
A) Financial perspective.
B) Learning and growth perspective.
C) Production perspective.
D) Business process perspective.
Q3) Residual income can be defined as:
A) That income left over after dividends are paid out.
B) Operating earnings minus return on investment.
C) Operating earnings minus a minimum acceptable return.
D) Operating earnings minus a minimum acceptable return, times invested capital.
Q4) Capital turnover can be improved by reducing invested capital while keeping sales constant.
A)True B)False
Q5) The value chain starts with the supplier and ends with the consumer.
A)True B)False
Q6) Identify the criticisms of using ROI (Return on investment) as the only performance measure.
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Chapter 26: Capital Budgeting
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Q1) To determine the average investment over the life of an asset, divide the total depreciation of the investment by two.
A)True
B)False
Q2) Ignoring income taxes, what is the estimated annual net operating income increase/decrease?
A) $9,375.
B) $12,875.
C) $43,125.
D) $54,125.
Q3) If an investment costs $140,000 with no residual value, an expected increase in net income of $35,000 and a 5 year useful life, the payback period would be:
A) 2.2 years.
B) 4 years.
C) 5 years.
D) 2 years.
Q4) Most capital budgeting techniques involve analysis of net operating profits.
A)True B)False
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Chapter 28: Forms of Business Organization
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Q1) A corporation, as well as a partnership, must file a corporate income tax return and pay tax on its earnings.
A)True
B)False
Q2) The Board of Directors of a corporation:
A) Are not responsible for hiring other professional managers.
B) Do not decide whether profits will be distributed to stockholders.
C) Make major policy decisions.
D) Are members of a government agency.
Q3) Limited personal liability is a characteristic of a sole proprietorship.
A)True
B)False
Q4) John's Metalworks Incorporated recently issued 10,000 shares of stock in exchange for $100,000. Metalworks' journal entry to record this transaction included:
A) A debit to Capital Stock for $10,000.
B) A debit to Cash for $100,000.
C) A credit to Capital Stock for $10,000.
D) A credit to Cash for $100,000.
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Chapter 27: The Time Value of Money: Future Amounts and
Present Values Answer Key
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
Source URL: https://quizplus.com/quiz/78576
Sample Questions
Q1) Annuities may provide equal amounts to an investor at fixed periods of time over the life of an investment.
A)True
B)False
Q2) Financial instruments are recorded at:
A) Future values.
B) Present values plus interest.
C) Present values less interest.
D) Present values.
Q3) To determine the present value of a single amount to be received or paid at a future time you need to know all of the following except:
A) The interest rate or discount rate.
B) The number of periods.
C) The future value.
D) The time between periods.
Q4) An annuity due assumes the cash flow will occur at the beginning of the period. A)True
B)False
Q5) Explain what is meant by the "time value of money." Provide examples.
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