Introduction to Financial Accounting Exam Practice Tests
Course
Introduction
Introduction to Financial Accounting provides students with a foundational understanding of the principles and practices of financial accounting. The course covers key topics such as the accounting cycle, preparation and analysis of financial statements, and the measurement and reporting of assets, liabilities, and equity. Emphasis is placed on understanding generally accepted accounting principles (GAAP), the role of accounting in business decision-making, and developing the skills needed to interpret financial information for external stakeholders. By the end of the course, students will be equipped to analyze financial data, prepare basic financial statements, and appreciate the importance of ethical accounting practices in organizational contexts.
Recommended Textbook
Accounting 9th Canadian Edition Volume I by Charles T. Horngren
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Many liabilities have the word "receivable" in their titles.
A)True
B)False Answer: False
Q2) A creditor is a party that has an ownership interest in a business.
A)True
B)False Answer: False
Q3) Assets are $150,000 and total liabilities are $90,000.Total owners' equity will be:
A) $180,000.
B) $300,000.
C) $240,000.
D) $60,000.
Answer: D
Q4) A proprietor may have to pay self-employment tax in addition to income tax.
A)True
B)False Answer: True
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) For Capital,the category of account and its normal balance are:
A) Owner's equity and a credit balance.
B) Assets and a debit balance.
C) Liabilities and a credit balance.
D) Owner's equity and a debit balance.
Answer: A
Q2) A business purchases equipment by paying cash of $8,000 and issuing a note payable of $12,000.Which of the following occurs?
A) Cash is credited for $8,000; Equipment is credited for $20,000; and Notes payable is debited for $12,000.
B) Cash is credited for $8,000; Equipment is debited for $20,000; and Notes payable is credited for $12,000.
C) Cash is debited for $8,000; Equipment is debited for $12,000; and Notes payable is credited for $20,000.
D) Cash is credited for $8,000; Equipment is credited for $12,000; and Notes payable is debited for $4,000.
Answer: B
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Chelsea Services Company pays its staff their wages every Friday.The staff works a five-day work week and the payroll amounts to $25,000 per week.The last day of January falls on a Tuesday,and an adjustment entry is needed to accrue wage expense as of January 31.Please provide that entry.
\[\begin{array} { | l | r | r | }
\hline \quad\quad\quad&\quad&\quad \\ \hline \\
\hline
\end{array}\]
Answer: \[\begin{array} { | l | r | r | }
\hline \text { Wages expense } & 10,000 & \\
\hline \text { Wages payable } & & 10,000 \\
\hline
\end{array}\]
Q2) Under accrual basis accounting,revenue is recorded ONLY when cash is received.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) On December 31,Axle Services posted the following accrual adjustment:
\[\begin{array} { | l | r | r | }
\hline \text { Salary expense } & 1,000 & \\
\hline \text { Salary payable } & & 1,000 \\
\hline \end{array}\] Axle uses reversing entries.What reversing entry would be needed on January 1?
\[\begin{array} { | l | r | r | }
\hline \quad\quad\quad&\quad&\quad \\ \hline \\
\hline \end{array}\]
Q2) The current ratio and the debt ratio are shown on the income statement.
A)True
B)False
Q3) What is the key distinction between current and non-current liabilities?
A) Current liabilities will be paid off within one year or one operating cycle.
B) Non-current liabilities are permanent debts of the business.
C) Current liabilities always have lower balances than non-current liabilities.
D) Non-current liabilities always increase over time.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Please provide the fourth closing entry.
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\hline \quad\quad\quad&\quad&\quad \\
\hline \\
\hline \end{array}\]
Q2) A company's net sales revenue is $20,000,000.Its cost of goods sold is $15,000,000.Its beginning inventory is $100,000,and its ending inventory is $200,000.Which of the following is its rate of inventory turnover?
A) 01
B) 0.1
C) 10
D) 100
Q3) What is the first step in the accounting cycle for a merchandising company?
A) The company sells inventory to customers, creating accounts receivable.
B) The company collects cash.
C) The company buys inventory.
D) The company delivers inventory to customers.
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Chapter 6: Merchandising Inventory
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Sample Questions
Q1) Which of the following is used for market when valuing inventory at lower-of-cost-or-market?
A) Sales price less the company's normal mark-up percentage
B) Current replacement price
C) Cost plus the company's normal mark-up percentage
D) Sales price
Q2) What would the company's Cost of goods sold be on the December 31,2013 income statement if the perpetual First-In,First-Out costing method is used? (Answers are rounded to the nearest dollar.)
A) $1,760
B) $1,610
C) $1,740
D) $1,840
Q3) Complete the inventory record through the January 14 sale,and calculate the Cost of goods sold for the January 14 sale.(Please round to the nearest whole dollar.)
A) $38
B) $33
C) $43
D) $40
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Which of the following is a benefit of online banking?
A) The business can reconcile to the bank's balance at any time.
B) The bank reconciliation is not necessary.
C) The business can reduce their internal controls over cash receipts.
D) A company's book balance will always equal the bank's balance.
Q2) Please prepare the adjusting entry for the first reconciling item (note collected by bank.)
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\hline \quad\quad\quad&\quad&\quad \\ \hline \\
\hline \end{array}\]
Q3) As long as the same person deposits customer checks and records the deposits into the ledger,there will be good internal control over cash receipts.
A)True
B)False
Q4) Cash in the bank is more liquid than a petty cash fund.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) On January 1,Ajax Company accepted a one-year note for $5,000 at 4% from one of its customers.When the note matured on December 31,the customer was unable to pay,and Ajax treated it as a dishonored note.Please provide the journal entry needed by Ajax.
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\hline \quad\quad& \quad&\quad \\
\hline & & \\\hline & & \\ \hline \end{array}\]
Q2) At the end of the year,what is the ending balance in the Allowance for uncollectible accounts?
A) $150
B) $800
C) $200
D) $1,450
Q3) Interest rates are generally stated on a monthly basis.
A)True
B)False
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Chapter 9: Plant Assets and Intangibles
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Sample Questions
Q1) Tangible assets are assets with no physical form that have value because of the special rights they carry.
A)True
B)False
Q2) Job Sales traded a truck they had owned for some time plus $2,500 cash in exchange for another truck of similar type.The original truck had been purchased by Job for $36,000,and had accumulated depreciation of $30,000 at the time it was exchanged.Please provide the journal entry for this transaction.
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\hline \quad\quad& \quad&\quad \\
\hline & & \\\hline & & \\\hline & & \\
\hline
\end{array}\]
Q3) Normal expenditures for repairs and maintenance should be capitalized.
A)True
B)False
Q4) Goodwill is amortized each year,similar to other intangible assets.
A)True
B)False
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Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) In which of the following periods should the expense for warranty costs be recorded?
A) The period when the product is sold
B) The period when the product is repaired or replaced
C) The period when cash is paid to repair or replace the product
D) The period when cash is collected for the sale of the product
Q2) Notes payable are considered short-term if they are due within the current operating cycle.
A)True
B)False
Q3) Art Parrish,the sole employee of Parrish Sales,has gross salary for March of $4,000.The entire amount is under the OASDI limit of $106,800,and thus subject to FICA.He is also subject to federal income tax at a rate of 18%.Art has a deduction of $320 for health insurance and $80 for United Way.The second entry in the payroll cycle to record the disbursement of his net pay should include which of the following?
A) Credit to Salary payable
B) Debit to Payable to the United Way
C) Debit FICA tax payable
D) Credit Cash
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Page 12
Chapter 11: Long-Term Liabilities, bonds Payable, and
Classification of Liabilities on the Balance Sheet
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Sample Questions
Q1) McDonald Sales prepared a bond issue of $20,000 dated January 1,2013.The bonds have a stated rate of 3% and a term of 6 years.The bond issue was delayed,and the bonds were finally sold on March 1,2013 at par.The journal entry to record the issuance of the bonds on March 1,2013 will include which of the following?
A) Credit to Interest payable of $100
B) Credit to Bonds payable for $20,100
C) Debit to Cash for $20,300
D) Credit to Cash for $20,110
Q2) On January 2,2014,Mahoney Sales issued $10,000 in bonds for $9,400.They were 5-year bonds with a stated rate of 4%,and pay semiannual interest payments.Mahoney Sales uses the straight-line method to amortize the bond discount.After the first interest payment on June 30,2014,what was the bond carrying amount?
A) $10,000
B) $9,400
C) $9,460
D) $9,880
Q3) If a bond is issued at a discount,it will sell for more than face value.
A)True
B)False
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