Lesson 1
Financial Accounting
When you feel confident that you have mastered the material in
Lesson 1, go to http://www.takeexamsonline.com and submit
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this examination as soon as you complete it. Do not wait until
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1. When planning for retirement, _______ assess the company’s
ability to offer long-term job prospects and an attractive
retirement benefits package.
A. social clubs C. state governments
B. not-for-profit entities D. employees
2. Which of the following is not a kind of accounting considered
in your textbook?
A. Financial C. National
B. Managerial D. Public
3. Which classification of accounting is most concerned with the
use of economic and financial information to plan and control
many of the activities of the entity?
A. Managerial C. Financial
B. Public D. Income tax
4. Cost accounting is a subset of
A. internal auditing. C. cost analysis.
B. public auditing. D. managerial accounting.
5. During the 1970–1980 period, the _______ operated as a governmental body to
establish standards applicable to government contracts. It was abolished in 1981,
although its standards remained in effect.
A. NASB C. CASB
B. CANN D. AICPA
6. The balance sheet equation can be represented by all of the following except which
one?
A. A = L + OE
B. Assets – Liabilities = Owners’ Equity
C. Net Assets = Owners’ Equity
D. A = L – OE
7. The time frame associated with an income statement is a
A. point in time in the past.
B. past period of time.
C. future period of time.
D. function of the information included in it.
8. On January 31, an entity’s balance sheet showed total assets of $750 and liabilities of
$250. Owners’ equity at January 31 was
A. $250. C. $750.
B. $500. D. $1,000.
9. The return on investment measure of performance
A. isn’t as important a measure of management effectiveness as the amount of net
income.
B. relates dividends paid to the entity’s assets.
C. involves net income divided by sales, which is called margin.
D. is calculated by dividing average assets for a period by the amount of net income
for the period.
10. Rate of return and _______ related to an investment go hand in hand.
A. asset assessment C. falling interest
B. riskiness D. time signature
11. An advantage of the DuPont model for calculating ROI is that it
A. focuses on asset utilization as well as net income.
B. is easier to use than the straightforward ROI formula.
C. uses average assets, and the straightforward ROI formula doesn’t.
D. uses owners’ equity.
12. Which of the following best states what return on equity is?
A. It will be the same as return on investment.
B. It relates dividends and turnover.
C. It relates dividends and owners’ equity.
D. It relates net income and average owners’ equity.
13. Which of the following will a debit entry do?
A. Decrease an asset account C. Increase paid-in capital
B. Increase a liability account D. Increase an expense account
14. The journal is sometimes referred to as the book of
A. original entry. C. dead letters.
B. final answer. D. raw materials.
15. _______ accounting is historical scorekeeping; it is not future oriented.
A. Comptroller C. Budget
B. Financial D. Entity
16. _______ are distributions of earnings that have been made to the owners, and reduce
retained earnings.
A. Dividends C. Cash flows
B. Assets D. Par values
17. Financial statement ratios support informed judgments and decision making most
effectively when
A. viewed for a single year.
B. viewed as a trend of entity data.
C. compared to an industry average for the most recent year.
D. the trend of entity data is compared to the trend of industry data.
18. What could an expanded version of the accounting equation be?
A. A + Rev = L + OE – Exp
B. A – L = Paid-in Capital – Rev – Exp
C. A = L + Paid-in Capital + Beginning Retained Earnings + Rev – Exp
D. A = L + Paid-in Capital – Rev + Exp
19. To _______an account is to make a debit entry to the account.
A. charge C. balance
B. take D. post
20. The bookkeeping/accounting process begins with
A. decreases. C. increases.
B. transactions. D. questions
Lesson 2
The Balance Sheet
1. The principal reason for reconciling the cash balance per
books with the balance shown on the bank statement is to
A. determine the amount of cash in the account actually
available to the entity.
B. satisfy generally accepted accounting principles.
C. verify the amount of petty cash on hand.
D. determine whether the entity has issued an NSF check.
2. The allowance for uncollectible accounts is a/an
A. debit. C. expense.
B. contra asset. D. contra revenue.
3. _______ is/are frequently combined with _______ in the
balance sheet for reporting purposes.
A. Interest Receivable; Notes Receivable
B. Uncollectibles; collectibles
C. Working capital; retired capital
D. Customer expense; company collateral
4. The balance sheet valuation of inventories is
A. lower of selling price or cost.
B. lower of cost or market.
C. lower of realizable value or selling price.
D. cost, regardless of the cost of replacing the inventory.
5. Which inventory accounting system has been made much more feasible as a result of
computer system developments?
A. Physical C. Perpetual
B. Periodic D. Just-in-time
6. When a firm buys land on which there’s a building, and the building is torn down so
that an appropriate new building can be constructed on the land,
A. any of the purchase cost allocated to the old building is reported as a loss.
B. the cost assigned to the land excludes the cost of the old building.
C. the total cost of the land and old building are capitalized as land cost.
D. any of the purchase cost allocated to the old building is capitalized as part of the
cost of the new building.
7. In financial accounting, _______ is an application of the matching concept.
A. depreciation C. acquisition
B. appreciation D. recognition
8. The net book value of a depreciable asset is the
A. fair-market value of the asset.
B. amount for which the asset should be insured.
C. difference between the asset’s cost and accumulated depreciation.
D. difference between the asset’s cost and depreciation expense.
9. If an organization has an obligation to pay $5,000 to a supplier two years from now,
the present value of the obligation
A. is less than $5,000.
B. is $5,000.
C. is more than $5,000.
D. could be calculated using an annuity factor from the present-value tables.
10. Depreciation, in accounting, is a process that results in
A. depreciable assets being reported in the balance sheet at their fair-market value.
B. accumulating cash for the replacement of the asset.
C. an accurate measurement of the economic usefulness of an asset.
D. spreading the cost of an asset over its useful life to the entity.
11. A transaction that’s likely to cause an increase in a current liability is
A. payment of accrued wages. C. depreciation of equipment.
B. accrual of interest expense. D. accrual of bad-debts expense.
12. Another name for bonds payable reported on the balance sheet at their carrying value
is the bonds’
A. increased net income. C. semiannual premium.
B. decreased working capital. D. book value.
13. When the financial statements of the parent company and its subsidiaries are
combined, this process is called
A. common stock. C. retainment.
B. capital stock. D. consolidation.
14. _______ are potential claims on a company’s resources arising from pending litigation,
environmental hazards, casualty losses to property, and product warranties.
A. Contingent liabilities C. Paid-in capital items
B. Gross assets D. Noncontingent liabilities
15. Which of the following is one of the two generally practiced methods for electing
corporate directors?
A. Democratic voting C. Cumulative voting
B. Representative voting D. Census voting
16. In most states, the par value of the issued shares represents the _______ of the
corporation.
A. bonds C. legal capital
B. common stock D. stock dividends
17. Which of the following do retained earnings represent?
A. Net income that has been reinvested in the company
B. The total net income of the firm since its beginning
C. Cash that’s available for dividends
D. Net income plus gains (or minus losses) on treasury stock transactions
18. Another term for owners’ equity is _______, which is assets minus liabilities.
A. retained earnings C. consolidated earnings
B. capital accounts D. net assets
19. In today’s business world, _______ has virtually no economic significance with respect
to common stock.
A. par value C. a noncontrolling amount
B. an authorized share D. corporate value
20. The declaration date pertains to the date
A. used to determine who receives dividends.
B. on which the board of directors declares it’s going to liquidate the firm.
C. on which the board of directors declares a dividend.
D. a dividend is paid.
Lesson 3
Additional Financial Statements
1. The first caption in most income statements in annual reports is
A. gross sales.
B. net sales.
C. earned revenues.
D. sales, less sales returns, and allowances.
2. _______ are decreases in an entity’s net assets resulting
from incidental transactions, or nonoperating activities, and
aren’t included with expenses.
A. Revenues C. Shrinkages
B. Losses D. Deferrences
3. The reduction in basic earnings per share of common stock is
called
A. revenue. C. net sales.
B. cost of goods sold. D. dilution.
4. Which of the following statements about income from operations is correct?
A. It’s sometimes called the “bottom line.”
B. It’s frequently used in the ROI calculation.
C. It’s frequently used in the ROE calculation.
D. It’s usually calculated after income tax expense.
5. Recognition of revenue in accrual accounting requires
A. that cash be received.
B. only that the amount of cash to be received from the sale of a product or service
be known.
C. only that a product be delivered or a service be performed.
D. that the revenue be realized or realizable, and earned.
6. Corporate governance includes concerns about all of the following except
A. business ethics and social responsibility.
B. the responsibilities of the board of directors.
C. equitable treatment of stakeholders.
D. reporting of company holidays.
7. The explanatory notes to financial statements
A. should be referred to if more than a cursory, and perhaps misleading, impression of
a firm’s financial position and its results of operations is to be achieved.
B. aren’t an integral part of financial statements.
C. include a great deal of detailed information that’s potentially useful only to a
financial analyst making a detailed appraisal of the future prospects of the entity.
D. are used by many entities to hide information from the reader of financial statements
by including in the explanatory notes information that should be shown in
detail on the financial statements themselves.
8. Which of the following is not one of the seven financial shenanigans criticized in your
textbook?
A. Recording bogus revenue
B. Subtracting income with multiple-time losses
C. Shifting current revenue to a later period
D. Improperly reducing liabilities
9. Significant accounting policies are described in the explanatory notes to financial
statements because
A. there isn’t enough space for them to be included in the captions of financial
statements.
B. if the accrual basis of accounting is used, “matching” of revenues and expenses
may not take place.
C. the reader must be aware of which of the alternative generally accepted accounting
practices have been used.
D. it’s required by federal law.
10. Mergers and acquisitions are accounted for using _______ accounting.
A. ratio C. purchase
B. debt D. equity
11. A _______ is provided by the company or the broker through whom the securities are
being sold.
A. proxy C. profitability statement
B. liquidity account D. prospectus
12. The _______ ratio is computed by dividing the dividend per share of common stock by
the earnings per share of common stock.
A. dividend payout C. dividend yield
B. fiscal leverage D. price/earnings
13. The significance of the _______ is that it indicates to stockholders that they shouldn’t
expect to receive the larger amount every year.
A. dividend yield C. price/earnings ratio
B. extra dividend D. price per share label
14. Which of the following statements about a common-size income statement is true?
A. It uses the same dollar amount of revenues for each year.
B. It expresses items as a percentage of revenues.
C. It makes comparisons between years more difficult.
D. It’s useful in estimating the impact of inflation.
15. Which of the following statements about financial leverage is correct?
A. It arises because most borrowed funds have a fixed interest rate.
B. It arises because most borrowed funds have a variable interest rate.
C. It usually has no bearing on the risk associated with a company.
D. It’s a concept that doesn’t apply to individuals.
16. Gains differ from revenues because gains
A. aren’t a result of the entity’s ongoing, central operations.
B. don’t have to be realized.
C. are reported as income from operating activities.
D. don’t involve any offsetting costs or expenses.
17. Under most circumstances, in order to recognize revenue,
A. cash must have been received.
B. the entity must expect to receive cash in the future.
C. the entity must have paid for all expenses incurred in generating the revenue.
D. the revenue must be realized or realizable, and earned.
18. The most powerful corporate governance legislation to date has been the
A. Sarbanes-Oxley Act (SOX) of 2002.
B. creation of the American Institute of Certified Public Accountants.
C. Corporate Ethics Code of 2007.
D. regulation of inventory management practices by the SEC.
19. In _______, a total of 1,195 amended SEC filings for financial restatements were
made because of accounting errors.
A. 1960 C. 2005
B. 1980 D. 2010
20. _______ measures focus primarily on the relationship between asset levels and sales.
A. Liquidity C. Leverage
B. Activity D. Book value
Lesson 4
Managerial Accounting
1. Activities included in a generally accepted definition of
management accounting include
A. planning, organizing, and controlling.
B. planning, operating, and reporting.
C. preparing, operating, and creating.
D. preparing, organizing, and converting.
2. Performance analysis in the planning and control cycle relates
to the act of
A. planning. C. controlling.
B. managing. D. revising plans.
3. What is the relationship of total cost to volume of activity
called?
A. Variable cost analysis
B. Cost behavior pattern
C. Provisional attitude
D. Historical time frame
4. Raw materials and direct labor costs of manufacturing units of product are _______
costs.
A. fixed C. variable
B. distributional D. required
5. Cost _______ is the process of collecting and recording transaction data through the
accounting information system.
A. aggregation C. assignment
B. pooling D. accumulation
6. The sequence of functions and related activities, that, over the life of a product or
service, can ultimately make a difference to the customer is called a
A. value process.
B. chain of production event.
C. value chain.
D. strategic cost initiative.
7. Estimated total overhead cost is divided by the estimated total direct labor hours to
get a _______ rate per direct labor hour.
A. finished goods inventory
B. predetermined overhead application
C. customer service
D. research and development
8. Direct costs pertain to costs that are
A. traceable to a cost object.
B. not traceable to a cost object.
C. commonly incurred.
D. variable costs.
9. A/An _______ quantifies future financial plans.
A. performance C. rolling period
B. budget D. functional coordination
10. The budgeting process that most likely creates an attitude supportive of achieving
organization goals among lower-level managers is the _______ approach.
A. top-down C. proportionate-increase
B. zero-based D. participative
11. A _______ budget involves planning for segments of a year on a repetitive basis.
A. rolling C. proportionate-increase
B. zero-based D. single-period
12. _______ budgets are generally more expensive to maintain than single-period budgets
because more time and effort is required in their preparation.
A. Zero-based C. Discretionary
B. Continuous D. Production
13. A budget adjusted to reflect a budget allowance based on actual activity achieved
rather than the planned level of activity in the original budget is a _______ budget.
A. static C. controllable
B. rolling D. flexible
14. The _______ variance explains the effect of treating fixed overhead costs differently
for planning and control purposes than for product-costing purposes.
A. material C. manufacturing
B. labor D. volume
15. A _______ cost is a cost that has been incurred and cannot be unincurred, or
reversed, by some future action.
A. allocated C. sunk
B. relevant D. opportunity
16. _______ costing is a cost-management technique in which the firm determines the
required cost for a product or service to earn a desired profit when the marketplace
establishes the product’s selling price.
A. Relevant C. Differential
B. Product D. Target
17. _______ cost can be measured as the income that could have been earned on an asset,
based on the potential rate of return that’s lost or sacrificed when one alternative use of
the asset is chosen over another.
A. Target C. Opportunity
B. Sunk D. Allocated
18. Target cost equals market price minus
A. opportunity cost. C. desired profit.
B. differential cost. D. capital gains.
19. Because _______ cost relates to a transaction that didn’t occur, no record of it is made
in the financial accounting process.
A. period C. controllable
B. opportunity D. inventoriable
20. The _______ cost is the maximum cost that can be incurred, which—when added
to the desired amount of return on investment—results in an amount equal to the
marketplace selling price.
A. opportunity C. differential
B. incremental D. target
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