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FINANCIAL ACCOUNTING IVY SOFTWARE FINAL
FINANCIAL ACCOUNTING PRE-ASSESSMENT
FINANCIAL ACCOUNTING -MBA PREPWORKS
COMBINED SETS COMPLETE SOLUTION FOR EASY PASS!!
"CPA stands for certified private accountant T/F - Correct Answer FALSE - it stands for certified public
accountant" "The owner is responsible for all debt incurred by the business regardless of how much he has
invested - Correct Answer Proprietorship"
"Partnership - Correct Answer the same as a proprietorship except that it is owned by two or more
individuals"
“From a banker’s perspective, the most important ratio on the customers financial statement is -
Correct Answer Current Ratio"
"Economic Entity - Correct Answer one firm, one set of books"
"Going Concern - Correct Answer a firm has value beyond the liquidation value of its assets"
"Horizontal analysis compares the components of a balance sheet with a base item. T/F - Correct
Answer False"
"Monetary Unit - Correct Answer financial transactions are denominated in a stable unit of measure"
"There are two ratios that help define the operating cycle. They are: receivables and inventory turnover receivables and accounts payable inventory and accounts payable turnover
none of these - Correct Answer Receivables and accounts payable"
"Revenue/Epense matching - Correct Answer accounting entities should aspire to recognize expenses
in the same accounting periods as the revenues they generate"
"Net Sales / Average Accounts Receivable - Correct Answer receivables turnover"
"This principle of recognizing revenues and expenses only during the period in which they have occurred
is called the ______ method of accounting. - Correct Answer accrual"
"Who is FASB? - Correct Answer the authoritative body of the US accounting
profession" "The ratio that shows the markup in price over the cost of goods sold is profit margins gross margin ratio return on assets asset turnover
none - Correct Answer Gross margin ratio"
"Conservatism - Correct Answer given an uncertain and imprecise environment, it is better to
understate than overstate economic well-being" "The ratio that shows how investors value the stock is payout ratio earnings per share return on equity return on assets
none - Correct Answer None"
"Understandability - Correct Answer Financial conditions and results should be communicated so that
they are understandable by an educated user of financial information"
"Relevance - Correct Answer Financial data must also be relevant to a user to be of value, extraneous
information need not appear"
"Financial strength ratios are utilized to help predict the long-run solvency of a company. T/F - Correct
Answer True"
"Ratio analysis is popular because ratios: summarize important info are useful in comparisons within a company over time are useful in comparisons with other companies
comparable conservatism understandability
none - Correct Answer None - relevancy"
"Elson Inc estimated the useful life of a patent and amortized it over its useful life. This GAAP is known as: monetary concept matching economic entity going concern
none - Correct Answer Matching"
"Presenting an asset in the balance sheet at its historical cost less accumulated depreciation is an example of: managerial accounting tax accounting financial accounting
none - Correct Answer Financial accounting"
"The quality that assumes that information is reasonably free from error is relevant conservatism understandability consistency
none - Correct Answer None - reliability"
"Preparing a production plan would be an example of: tax accounting managerial accounting financial accounting
none of these - Correct Answer Managerial accounting"
"The capital stock account combined with the retained earnings account reflects the valuation the open
market places on the company. T/F - Correct Answer False"
"Current assets are properly listed in order of liquidity on a balance sheet as shown in the following
example: cash, accounts receivable, prepaid insurance, inventory. T/F - Correct Answer False"
"Capital stock represents the markets value of the company. T/F - Correct Answer False"
"The financial position at the end of a period is reflected on the: income statement balance sheet statement of retained earning
none - Correct Answer balance sheet"
"Which of the following statements represents a flow concept? Balance sheet statement of retained earnings inventory statement
none - Correct Answer none"
"Arrow Inc was incorporated in 1904. Land was purchased at that time for $10,000. This same land
would be carried on the balance sheet of Arrow, Inc in 2004 as $10,000. T/F - Correct Answer True"
"Which of the following accounts represents the original investment of the shareholders? Capital stock Retained earnings Liabilities Assets
None - Correct Answer Capital Stock"
"The balance maintained in a checking account (also called a demand deposit or DDA account) is
considered a part of a company's cash account. T/F - Correct Answer True"
"Which of the following is a snapshot of the financial position of the company? Income statement statement of retained earnings cash flow statement inventory statement
none - Correct Answer None - balance sheet"
"Prepaid items have already been converted to cash and therefore are the most liquid items in the
current assets portion go the balance sheet. T/F - Correct Answer FALSE"
"Blueline Inc had $10,000 in credit sales. The credit entry is to: Retained earnings Accounts payable
none - Correct Answer A liability account"
"Although dividends are not an expense of a company, they still impact retained earning T/F - Correct
Answer True"
"Whitestone Company collected $10,000 on a credit sale. The left hand side of the entry would be a debit to: accounts receivable accounts payable cash owners equity
none - Correct Answer cash"
"Which of the following is a source of cash? increase in accounts receivable increase in inventories decrease in accounts payable decrease in accounts payable
none - Correct Answer none"
"Which of the following decreases cash? increase in accounts receivable increase in inventories decrease in accounts payable
none - Correct Answer none"
"Which of the following decreases cash? increase in accounts receivable increase in inventories increase in accounts payable increase in taxes payable
both a and b - Correct Answer both - increase in accounts receivable and increase in inventories"
"Dividends to stockholders is a use of cash T/F - Correct Answer True"
"Which of the following increases cash? issuance of debt issuance of stock purchase of stock acquisition of assets
both a and b - Correct Answer issuance of debt and stock"
"If a company bought and manufactured more than the cost of goods shipped the effects on cash is a: decrease increase no effect
none - Correct Answer decrease"
"If a company pays out less than the costs incurred, the effect on cash is a: decrease increase no effect
none - Correct Answer increase"
"Non-cash expenses include the amortization of intangibles T/F - Correct Answer True"
"Depreciation is added back to net income because depreciation is a non-cash expense T/F - Correct
Answer True"
"What is the impact on cash of purchasing inventory on 60 day credit: cash increases cash decreases no effect on cash
none - Correct Answer no effect on cash"
"Net income includes any gains from the sale of equipment T/F - Correct Answer True"
"An accounting entity is considered to be any organization for which separate accounting data is
gathered and processed T/F - Correct Answer True"
"Bookkeeping is a: communication system measuring and recoding system dull and tedious job suited only for small, wiry med with word rim glasses and green eyeshades
system for recoding illegal bets by gamblers - Correct Answer measuring and recording system"
"Financial accounting, like managerial accounting, has no firm guidelines that it must follow T/F -
Correct Answer False"
"Congress has authorized the SEC to govern the financial reporting of public corporations T/F - Correct
Answer TRUE"
"Large corporations, like GM, are required to round off their figures to the nearest million dollars on
their financial reports T/F - Correct Answer FALSE"
"The statement of retained earnings shows the revenues, expenses and net income of an enterprise
over a period of time T/F - Correct Answer FALSE - it lists the beginning balance in retained earnings,
to which net income for the period are added and dividends paid during the same time period are deducted" "The statement of financial position shows how well a company has performed over a period of time T/F
- Correct Answer False - the statement of financial position (aka the balance sheet) lists a company's assets, liabilities, and owners equity"
"Liabilities = assets -owners equity T/F - Correct Answer TRUE"
"The net worth of a firm is shown on the company's balance sheet T/F - Correct Answer True"
"The operating expenses shown on an income statement usually include ____ cost of goods sold salaries
administration - Correct Answer salaries and administration"
"Liabilities are the claims of creditors to a company's resources T/F - Correct Answer True"
"Stockholders equity is the same as owners equity T/F - Correct Answer TRUE"
"Current assets almost always equal current liabilities T/F - Correct Answer FALSE"
"A company's property holdings are usually listed at fair market value on the balance sheet T/F -
Correct Answer False - property is carried on the books at its original purchase price"
"Which of the following is a liability? accounts payable inventory investments prepaid insurance
none - Correct Answer Accounts payable"
"One application of the conservatism principle is that inventory is valued on the balance sheet at either
its original cost or market value, whichever is lower. T/F - Correct Answer TRUE - valuing inventories at
the lower of cost or mark is conservatism" "The statement of retained earning shows the revenues, expenses and net income of an enterprise over
a period of time T/F - Correct Answer FALSE - the statement of retained earnings shows the retained
earnings at the beginning of the period, plus net income, less dividends" "Retained earnings are the earnings that a company saves and reinvests; they can be used whenever the
company needs cash T/F - Correct Answer FALSE - retained earnings is the total net income of a
company since it was incorporated, less any dividends paid over that time; accumulated successes of the enterprises"
"The money spent to buy equipment is called an expense T/F - Correct Answer FALSE - money spent to
bu equipment is called capital expenditure; each year a portion of the cost of equipment is charged against income in the form of depreciation expense" "Owners equity can also be shown on the balance sheet as ____ net worth net assets
stockholders equity - Correct Answer net worth, assets, and stockholder's equity"
"Dividends can be paid to stockholders only following a year in which a company has generated net
income T/F - Correct Answer False - a company can pay dividends any time its board of directors
chooses"
"Depreciation can be considered an allocated cost of using an asset with a life of more than a year T/F -
Correct Answer True - depreciation is a process of systematically and rationally allocating the cost of
an asset over its useful life"
"A company's operating cycle is measurement of the average length of time from the point of a sale to the collection of an account receivable. This measure is an important tool used in measuring operating
efficiency and in forecasting the cash requirements of the firm. T/F - Correct Answer TRUE"
"The inventory turnover ratio is one indicator of a firms operating efficiency. Typically, faster turns
means that management is doing a better job of buying and controlling inventory. T/F - Correct
Answer True"
"Two major elements of return on assets are profit margin and asset turnover. An analysis of these two
component parts can provide valuable insights into a firms performance T/F - Correct Answer TRUE -
ROA = profit margin x asset turnover or net income/assets = net income/sales x sales/assets" "Analysts can rely principally on ratio analysis and other quantitative measures for enough information to make informed decisions. Qualitative techniques provide interesting but non-essential data, icing on
the cake, as it were. T/F - Correct Answer False"
"The statement of cash flows is considered a "funds statement". T/F - Correct Answer True - statement
of cash flows complements the balance sheet and income statement" "The statement of cash flows is a substitute for the statement of changes in financial position and is an
optional financial statement that may be presented at management's discretions T/F - Correct Answer
False" "Increasingly, financial analysis are using cash flow analysis to evaluate and predict the performance of
companies. T/F - Correct Answer true"
"Earnings are always the best measure of evaluating and predicting the performance of a company T/F -
Correct Answer False"
"An increase in cash is good. T/F - Correct Answer True - depending on the source of cash"
"Liquidity has become a major concern to managers and investors because of volatile interest rates and
an uncertain economy T/F - Correct Answer TRUE"
"A well-presented statement of cash flows can provide all of the information found in a balance sheet
and income statement T/F - Correct Answer False"
"The statement of cash flows as presented under FASB statement No. 95 is the only measure of a
company's cash flow T/F - Correct Answer FALSE"
"Comparative balance sheets do not show the liquidity effects of a company's operations during a period
T/F - Correct Answer TRUE"
"In the statement of cash flows, funds is usually described as cash working capital (current assets - current liabilities) cash and cash equivalents
all the above - Correct Answer Cash and cash equivalents"
"The statement of cash flows does not detail a company's sources and uses of cash
report which balance sheet accounts increased and decreased during a period - Correct Answer "
"What 3 types of people require the information that accounting systems provide? - Correct Answer
Managers, Investors, and Creditors"
"Economic event that affects the financial position of a company. - Correct Answer Accounting
Transaction" "The company's financial position at a given date and its results of operations and changes in retained
earnings for a period of time are based upon these 3 things - Correct Answer Accrual basis balance
sheet, income statement and statement of retained earnings." "Using an accelerated depreciation method for tax purposes would be an example of... a. Managerial accounting b. Financial accounting c. Tax accounting
d. None of the above - Correct Answer c. Tax accounting"
"These financial statement users can be divided into three major groups: - Correct Answer investors,
creditors, and managers." "The Financial Accounting Standards Board
has stated that a complete set of financial statements for an entity should show its: - Correct Answer
- Financial position at the end of the period
- Cash flows for the period
- Earnings for the period
- Comprehensive income for the period
e. None of the above - Correct Answer e. None of the above"
"Accounting - Correct Answer the process of recording, classifying and communicating financial
information concerning the economic activity of an enterprise" "Accounting theory usually divides the study of the field into three areas differentiated by the type of
user: - Correct Answer Financial, managerial, and tax accounting."
"The SEC is the rule-making body for generally accepted accounting principles. a. TRUE
b. FALSE - Correct Answer b. FALSE"
"the statement of retained earnings - Correct Answer shows the distribution to owners during a
period."
"the increase in value of the stock over its original investment cost. - Correct Answer capital gains"
"T/F Most accounting trnansactions are external - Correct Answer True. they concern economic events
between an enterprise and an entity external to it."
"Statement of cash flows could be presented in what two ways? - Correct Answer working capital flow
basis or a cash flow basis" "The purchase of equipment, the sale of goods or services, and the borrowing of money are common
examples of ___________ transactions. - Correct Answer external"
"Which is easier to prepare? Working capital basis or cash basis? - Correct Answer working capital"
"The key to financial statement analysis is - Correct Answer comparability."
"Presenting an asset in the balance sheet at its historical cost less accumulated depreciation is an example of a. Managerial accounting b. Tax accounting c. Financial accounting
d. None of the above - Correct Answer c. Financial accounting"
"financial accounting - Correct Answer geared for the users outside the firm"
"Assets - Correct Answer economic resources of a
firm, and they are generally used to help produce, either directly or indirectly, future cash inflows for the firm"
"managerial accounting - Correct Answer accounting style used by managers inside the firm"
"The annual report is a good example of tax accounting. a. TRUE
b. FALSE - Correct Answer b. FALSE"
"These can be tangible, like inventory or equipment, or they can represent control of future
benefits, such as accounts receivable due from customers or patent rights to a profitable product. -
Correct Answer assets"
"the two major forms of financial statement analysis - Correct Answer percentage and ratio
comparisons" "The depreciation expense that a firm charges itself is
a good example of an ___________ transaction. - Correct Answer internal"
"Why did companies shift from working capital basis to cash flow basis? - Correct Answer working
capital could not explain where money was moving to and from and the public wanted more info from businesses."
"The value of every __________ must be measurable with some degree of accuracy in monetary terms. -
Correct Answer asset"
"The vertical stem of the "T" on the T Account divides the account into two columns: - Correct Answer
Increases and Decreases"
"net income plus its depreciation expense - Correct Answer cash flow"
"Stapling Incorporated projects sales revenues will exceed $100 million next year. This is an example of a. Managerial accounting b. Tax accounting c. Financial accounting
d. None of the above - Correct Answer a. Managerial accounting"
"The two most common percentage approaches
are called - Correct Answer horizontal analysis and vertical analysis."
"Identifies key components of the income statement and the balance sheet and expresses their
relationship in ratio form. - Correct Answer Ratio analysis"
"Describe the T Account for an Owners Equity Account - Correct Answer Decrease, left, debit T
Increase, right, credit"
"accrued revenues that have not been collected during a prior period. - Correct Answer noncash
revenues"
"Creditor - Correct Answer An entity that provides an asset to a firm in exchange for future
reimbursement, usually in the form of cash." "Managerial accounting is involved in a. external reports. b. internal reports. c. tax reports.
d. economic reports. - Correct Answer b. internal reports."
"Revolves around what is known as an accounting entity - Correct Answer Financial Accounting"
"Accounting entity can be a - Correct Answer non-profit organization, an individual, or a business"
"Which of the following is a liability? a. Cash b. Accounts Receivable c. Inventory
d. None of the above - Correct Answer d. None of the above"
"Almost all _______ are incurred to acquire assets. - Correct Answer liabilities"
"Analysts usually evaluate companies in three main
areas: - Correct Answer operating performance, liquidity, and financial strength."
"Asset accounts typically have _____________ balances, - Correct Answer left-hand-side"
"if a company's short-term debt (such as accounts payable) increases during a period, then its cash
payments for expenses would be ______ than the expenses incurred - Correct Answer less"
"Net Income / Net Sales - Correct Answer Profit Margin Ratio"
"liabilities and owners' equity accounts typically have __________________ - Correct Answer right-
hand-side balances." "increases in accounts receivable and decreases in short-term debt during a period would cause cash flow to
________________. - Correct Answer decrease"
"Owners Equity - Correct Answer the residual claim of the owners on the assets of a firm"
"Current assets are properly listed in order of liquidity on a balance sheet as shown in the following example: Cash, Accounts Receivable, Prepaid Insurance, Inventory a. TRUE
b. FALSE - Correct Answer b. FALSE"
"If the accounting entity is a business it can be a - Correct Answer proprietorship, partnership, or
corporation"
"Proprietorship - Correct Answer unincorporated business organizations with one owner"
"The retained earnings account is a part of which of the following accounts? a. Owners' equity b. Liabilities c. Capital stock d. Long-term assets
e. None of the above - Correct Answer a. Owners' equity"
"Can also be called proprietor's equity, net assets, partners'
equity, or stockholders' equity, depending on the type of entity. - Correct Answer Owners Equity"
"Describes the operating efficiency of a company by showing how much of each sales dollar ends up as
net income - Correct Answer Profit Margin Ratio"
"T/F All data necessary to prepare an income statement is contained in the retained earnings account -
Correct Answer TRUE."
"whenever noncash assets decrease or liabilities increase, cash is flowing _______ the business -
Correct Answer into"
"whenever noncash assets increase or liabilities decrease, cash is flowing _______ the business. -
Correct Answer out of"
