Introduction to Financial Accounting
Exam Answer Key
Course Introduction
Introduction to Financial Accounting provides a foundational understanding of how organizations record, report, and interpret financial information. This course covers the fundamental accounting principles, the accounting cycle, preparation and analysis of financial statements, and the role of ethics in financial reporting. Students will develop practical skills in tracking business transactions, understanding assets, liabilities, equity, revenues, and expenses, and applying accounting concepts to real-world scenarios. By the end of the course, students will be equipped to analyze financial information and understand its implications for business decision-making.
Recommended Textbook
Financial Accounting 8th Edition by Walter T. Harrison
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13 Chapters
1996 Verified Questions
1996 Flashcards
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) The accounting equation expresses the idea that Resources - Insider claims = Outsider claims.
A)True
B)False
Answer: True
Q2) Owners of an LLC are called:
A)partners.
B)sole proprietors.
C)members.
D)stockholders.
Answer: C
Q3) The income statement is prepared to determine:
A)the change in cash due to results of operations.
B)the change in retained earnings due to the results of operations.
C)the change in assets and liabilities due to the results of operations.
D)all of the above.
Answer: B
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Page 3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) The entry to record the payment of salaries to employees would include a:
A)credit to Salary Expense.
B)debit to Accounts Payable.
C)debit to Salary Expense.
D)debit to Accounts Receivable.
Answer: C
Q2) The payment of an amount owed to a creditor would:
A)decrease assets.
B)increase net income.
C)decrease liabilities.
D)both decrease assets and decrease liabilities.
Answer: D
Q3) When the trial balance is out of balance due to a slide-type error, the difference between total debits and total credits will be evenly divisible by 9.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) The book value of an asset that cost $20,000 and has accumulated depreciation of $6,000 is:
A)$20,000.
B)$ 6,000.
C)$26,000.
D)$14,000.
Answer: D
Q2) Which of the following is a temporary (or nominal)account?
A)Salaries Payable
B)Rent Expense
C)Unearned Revenue
D)Dividends Payable
Answer: B
Q3) Cash accounting provides some ethical challenges that accrual accounting avoids. A)True
B)False
Answer: False
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) If a company is too small to separate the cash handling from the cash recording, they must hire external auditors.
A)True
B)False
Q2) If a bank reconciliation included deposits in transit amounting to $3,700, the journal entry to record this reconciling item:
A)should debit Deposit in Transit and credit Cash for $3,700.
B)should debit Cash and credit Deposit in Transit for $3,700.
C)should debit Accounts Receivable and credit Cash for $3,700.
D)is not required.
Q3) A system of handling cash receipts by mail whereby customers remit payments directly to the bank, rather than through the company's mail is a(n):
A)imprest system.
B)lock-box system.
C)phishing system.
D)online banking system.
Q4) A cash budget helps a company manage cash by planning for receipts and payments.
A)True
B)False
Page 6
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) To record estimated bad debts under the direct write-off method:
A)debit Allowance for Uncollectible Accounts and credit Accounts Receivable.
B)debit Accounts Receivable and credit Allowance for Uncollectible Accounts.
C) debit Uncollectible Accounts Expense and credit Allowance for Uncollectible Accounts.
D) you do need require a journal entry.
Q2) Formal monetary claims against others acquired mainly by lending money are:
A)accounts receivable.
B)notes receivable.
C)accounts payable.
D)notes payable.
Q3) Current assets are listed on the balance sheet in order of their liquidity.
A)True
B)False
Q4) The journal entry to record a note received from a customer for the sale of services is:
A)debit Note Receivable and credit Service Revenue.
B)debit Service Revenue and credit Note Receivable.
C)debit Note Payables and credit Note Receivable.
D)debit Note Receivable and credit Accounts Receivable.
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) Net sales is computed as:
A)sales revenue less freight-out.
B)sales revenue less sales returns and allowances plus sales discounts.
C)sales less cost of goods sold.
D)sales revenue less sales returns and allowances less sales discounts.
Q2) A company purchased inventory for $800 per unit. The inventory was marked up to sell for $1,000 per unit. The entries to record the sale for cash and the cost of a unit of inventory would include debits to which of the following accounts?
A)Sales, $1,000; Inventory, $800
B)Cash, $1,000; Cost of Goods Sold, $800
C)Cash, $800; Cost of Goods Sold, $1,000
D)Sales, $800; Inventory, $800
Q3) To record the cost of inventory sold under a perpetual inventory, a debit to Cost of Goods Sold and a credit to Inventory is required.
A)True
B)False
Q4) Inventory is presented on the balance sheet at the selling price of the item.
A)True
B)False
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Chapter 7: Plant Assets Intangibles
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Sample Questions
Q1) Patents are amortized over a period:
A)of 40 years or the expected useful life, whichever is less.
B)of 20 years or the expected useful life, whichever is less.
C)that must exceed 40 years.
D)of 1 year-that is, patents are expensed immediately.
Q2) All amounts paid to acquire a plant asset and to get it ready for its intended use are referred to as:
A) set up costs.
B) expenditures .
C)maintenance expense.
D)the cost of an asset.
Q3) The purchase of equipment on account will appear on the statement of cash flows as a financing activity.
A)True
B)False
Q4) An example of a long-term tangible asset would be:
A)office supplies.
B)furniture.
C)investment in LQH company.
D)patents.
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Chapter 8: Liabilities
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Sample Questions
Q1) Conversion of bonds payable into common stock will:
A)decrease liabilities and decrease equity.
B)increase liabilities and increase equity.
C)decrease liabilities and increase equity.
D)increase liabilities and decrease equity.
Q2) The amount to invest now to receive more later is the:
A)present value.
B)future value.
C)maturity value.
D)time value.
Q3) The principle on a callable bond must be paid upon the demand of the bond holder.
A)True
B)False
Q4) The straight-line method of computing interest expense is preferred over the effective interest method because it is easier to calculate and is more precise.
A)True
B)False
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10
Chapter 9: Stockholders Equity
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Sample Questions
Q1) Dividends in arrears plus the current year dividend must be paid to the holders of preferred stock before common shareholders can receive a dividend.
A)True
B)False
Q2) Hillerbert Company declared a 2-for-1 stock split on its 200,000 shares of $10 par value common stock. As a result of this transaction:
A)Paid-in Capital increases by $2,000.
B)Common Stock increases to $4,000,000.
C)both A and B are correct.
D)none of these answers is correct.
Q3) Jenny's Lawn Service issued 100 shares of $10 par value stock and received a lawnmower with a fair market value of $2,500. The entry to record this transaction would include:
A)a debit to Equipment for $2,500.
B)a credit to Common Stock for $1,000.
C)a credit to Paid-in Capital in Excess of Par-Common Stock for $1,500
D)all of the above.
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Page 11
Chapter 10: Long-Term Investments International Operations
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Sample Questions
Q1) Which of the following terms represents a decrease in foreign currency value relative to the U.S. dollar between the dates of purchase and payment?
A)Exchange gain
B)Exchange loss
C)Exchange decrease
D)Exchange translation
Q2) ABC receives a stock dividend of 50 shares from XYZ Company. ABC previously owned 500 shares of XYZ stock that had a cost basis of $3,135. The cost basis per share of XYZ stock is:
A)$60.
B)$6.96.
C)$6.00.
D)$5.70.
Q3) Which of the following terms represents more than 50% interest in a subsidiary company?
A)Directing interest
B)Equity interest
C)Minority interest
D)Controlling interest
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Chapter 11: The Income Statement the Statement of
Stockholders Equity
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Sample Questions
Q1) When management issues a statement of responsibility, management declares its responsibility for the financial statements and states that they conform to GAAP.
A)True
B)False
Q2) Financial statement fraud can include the improper recognition of expenses.
A)True
B)False
Q3) A statement of stockholder's equity reports all items affecting stockholders' equity for a period.
A)True
B)False
Q4) The higher the risk of the investment, the higher the investment capitalization rate.
A)True
B)False
Q5) The existence of the Deferred Tax Liability account indicates that the company lacked sufficient cash to pay its tax bill.
A)True
B)False
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Under the direct method of preparing the statement of cash flows, cash receipts from operating activities do NOT include:
A)collections from customers.
B)receipt of dividends on investments.
C)payments to suppliers.
D)receipt of interest on investments.
Q2) Cash sales and sales on account were $190,000 and $650,000, respectively. During the year Accounts Receivable increased by $10,000. Cash received from customers was:
A)$200,000.
B)$830,000.
C)$850,000.
D)$840,000.
Q3) All increases in other current assets decreases cash in the statement of cash flows. A)True
B)False
Q4) Operating activities are related to the transactions that make up net income. A)True
B)False
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14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) On a statement of cash flows of a financially healthy company, net income should ordinarily be:
A)less than cash provided by operating activities.
B)less than depreciation expense.
C)more than depreciation expense.
D)more than cash provided by operating activities.
Q2) When analyzing the statement of cash flows, which of the following statements is TRUE?
A)A company with a large cash balance is ensured success.
B)A shortage of cash can lead a company to bankruptcy.
C)Cash has no affect on the success of the company.
D)Cash is ignored when analyzing a company.
Q3) The ratio that measures the percentage of a stock's market value that the company returns to the stockholders as dividends is the:
A)dividend yield.
B)return on equity.
C)price/earnings ratio.
D)earnings per share.
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