Financial Accounting: Principles and Practices
1. Financial Accounting Fundamentals
Financial accounting is:
B) An information system for business decision-making
Which of the following users is more interested in profitability?
A) Stockholders
Which of the following users is more interested in liquidity?
B) Creditors
Which is not a financial statement?
C) Ledger
The activity of raising funds for the company is known as:
C) Financing
The activity of purchasing the necessary assets is known as:
A) Investing
The statement which reports the economic and financial situation is:
D) Balance sheet
Which financial statement reports the net result of the period?
A) Income statement
Which statement provides information about inflows and outflows of cash and cash equivalents?
C) Cash flow statement
Which statement reports the total changes in internal finance?
D) Change in net equity
2. Accounting Standards and Principles
Apple group, a technological business traded in the NY Exchange market, must report its financial statements according to:
C) USGAAP
Inditex group, a fashion retail business traded in European exchange markets, must report its financial statements according to:
A) IFRS adopted by EU
Inditex Company, traded in European exchange markets, must report its individual annual accounts according to:
D) SGAP
A Spanish company has the following data over two consecutive periods: total assets 250,000. According to this information:
C) The firm can use the SMEs SGAP
A service provided by a delivery company in December 2012, but collected in January 2013, should be accounted for using the:
B) Accrual basis
Due to the prudence principle, if a company has a plot of land that cost 1,000,000 and its market value is 1,200,000, the company:
D) Should register neither benefit nor losses
Company A has a receivable of 10,000 with company B and at the same time company A has a payable of 12,000 with company B. In this situation, company A should register:
A) A receivable of 10,000 € in the asset and a payable of 12,000 € in the liabilities
Recognition of an asset entails simultaneous recognition of:
D) All the answers are correct
Recognition of liability entails simultaneous recognition of:
C) Increase of an expense
The amount for which an asset can be exchanged, or liability settled, between knowledgeable, willing parties in an arm’s length transaction is the:
B) Fair value
An investment in shares of other companies has a price in the Spanish exchange market of 2,000. This is the:
B) Fair Value
An investment in shares of other companies has a price in the Spanish exchange market of 2,000 €, the sale commission is worth in 50 €. The 1,950 € is the:
D) Net realizable value
Carrying amount is also known as:
D) All the answers are correct.
3. Assets, Liabilities, and Equity
Which of the following items is not an asset?
C) Account payable
Which of the following items is a property, plant and equipment?
A) Building
Liabilities are:
D) Present obligations arising from past events.
Obligations with others for goods, supplies, and services purchased on open account are:
B) Account payable
The portion of net income which is retained by the corporation rather than distributed to shareholders as dividends is:
B) Reserves
A business has the following items: cash 10,000 €, vehicles 40,000 €, bank loan 20,000 €. Its equity is:
C) 25,000
A business has the following items: assets 10,000 €, liabilities 40,000 €, equity 50,000 €. In this situation:
D) There is an accounting error
A characteristic of current assets is:
D) All the answers are correct
Which is not a current asset in a supermarket?
C) Delivery truck
Which is a non-current asset in a supermarket?
C) Cash registers
Which is a typical current liability in a business?
B) Loan with suppliers
The loss of the period:
D) Decreases equity
4. Debits, Credits, and Accounting Entries
What do we mean by debiting an account?
A) Making an entry on the debit side of the account, that is, on its left side
If an account presents a debit balance, it means:
A) ∑debit side>∑Credit side
According to the debit and credit procedures for liabilities, increase in liabilities should be recorded by:
B) An entry on the credit side
What do liabilities accounts included?
C) Currents obligations arising as a result of past events
When a loan is settled, registration must be:
B) On the loan account on the debit side
Purchasing a car on credit, registration must be:
B) On the car account on the debit side
If the stockholders make a contribution of capital, this accounting record should be made:
B) On common stock account credit side
What does it mean “to close “an account?
C) Making an annotation for the amount of the balance on the side that sums the least amount
If a company pays 15,000 € cash to the suppliers, this accounting record should be made:
D) Both A) and C) are correct
If a loan account presents a credit balance for 20,000 €, that means:
A) The company has a debt of 20,000 €
5. Intangible Assets, Financial Resources, and Income
Which of these items must not be registered as an intangible asset?
B) Company culture
Which of the following is not necessary characteristic for an item to be recognized as an intangible asset?
C) Can be used in operations for at least 5 years.
Calculate capital at a period ending 31-Dec-2010 using the following data: Assets = 100,000; Liabilities = 30,000
B) 70,000
An automobile manufacturer presents the following information. Which of the following is not an intangible asset?
B) Commitment to purchase vehicles after a month
If you want to know the financial resources of a company, you must look in:
B) The right part of the balance sheet called “equity and liabilities”
Which of the following items is a current asset?
A) Account receivables
Select the correct answer using the following items: Revenues = 10,000; Cost of goods sold = 4,500; Interest expenses = 1,000; Income taxes = 1,300
B) Operating result 5,500 €. Financial result -1,000. Net income 3,200
Which is an item of the financial result?
C) Interest bonds
An exceptional revenue from the sale of a property, plant or equipment should be included in the:
A) Operating result
A company has the following inflows and outflows: Money received from customers = 100,000; Money paid to suppliers = 30,000; Money paid to acquire a machine = 50,000; Money received from a bank loan = 25,000; Money paid to shareholders as dividends = 20,000. According to this information, the cash flows are:
C) Operating C-F 70,000 €; Investing C-F -50,000. Financial C-F +5,000…
Issuing shares in exchange for money is a:
B) Financial activity
Which of the followings must be reported in the notes?
D) All answers are correct
The statement of recognized income and expense is part of:
C) Change in net equity
Changes arising from transactions with equity holders should be reported in the:
A) Change in equity
6. Accounting Cycle and Trial Balance
The journal entry that turns around the closing entry is the:
C) Opening entry
The opening entry in an old company is:
B) Debit the balances of assets and credit the balances of liabilities and equity
The last issue of the accounting cycle is:
A) Making the annual accounts
Posting means:
B) Transferring the journal information to the ledger
Which of the following is a principal statement?
D) All the answers are correct
The trial balance reports:
D) A list of the entire chart of account of the company…
Which of the following errors may you find using a trial balance?
D) Only posted a part of the journal information
Cash accounts has the following information at the end of the period: Debit side = 1,000; Credit side = 300. According to this information:
A) The company has 700 € in cash at the end of the period
Interpret the following accounting entry in the journal: Debit side: Car = 20,000; Credit side: Cash = 5,000; Bank loan = 15,000
B) The business purchased a vehicle, paying 5,000 € in cash and signing…
A company has a debit balance in the 129 profit/loss of the period account for 10,000. This means:
A) The company has got losses
When closing temporary accounts, the company:
A) Closes revenues and expense accounts and obtains the net …
The accounting cycle last:
C) 365 days
The accounting cycle is compulsory:
D) For every company
7. Inventory Valuation and Gross Profit Calculation
Gross profits is calculated by the following formula:
C) Sales revenues – cost of food sold
In the initial valuation, goods included in inventories should be valued at:
D) A and B are correct
Select the wrong answer:
B) Freight costs assumed by the seller reduces the account 700 merchandise sold
If the account 610 changes in inventories of merchandise has a debit balance:
A) Financial inventory is lower than beginning inventory
Obtain the gross profit with the following data: net sales = 120,000; cost of goods sold = 20,000
C) 100,000 €
Select the correct answer with the following data: beginning inventory = 1,000; purchases = 5,000; ending inventory = 2,000; sales = 10,000
D) All answers are correct
A company has the following information: beginning inventory = 1,000 units at 10 €/unit; purchases = 500 units at 15 €/unit; sales = 250 units at 30 €/unit. Using the weighted average cost method, the ending inventory is:
A) 1,250 units
Select the correct answer. Following a periodic system:
D) Company doesn’t keep record of the foods on hand. It only knows …
Valuation allowances shall be made when:
B) The purchased price or production cost of inventories exceed the net…
Let’s assume you are the financial director of a company. You want to increase the gross profit. To do so, you should use the:
B) Cost average method.
2º part: Invoice:
- Rappel discount > Supplier
- Prompt Payment Discount (Shipping Paid) > Bank
- Defective merchandise > Purchase returns
- Issued a credit note with rappel discount > Rappel discount
- Promotional discount > Trade receivable
Closing temporary accounts:
- Close expense: (129) Profit (Group 6 debits in credit and result = 129 profit in debit)
- Close revenue: (129) (Group 7, debits in positive, result in negative = 129 profit)
- Calculate total in table 129 profit: Permanent account: Table trial balance without sum credit debit in groups 6 and 7.
- Add account 129 profit.
Accumulated: +units * their price / +units purchased (units).
Ending Inventory: Beginning Inventory (units) + Purchase units (rest of units) – Sales.
Cost of Ending Inventory: Accumulated * Ending Inventory.
Journalize:
- Change in inventory: 610 debit 300 credit (Beginning Inventory * its cost)
- Change in inventory: 300 debit 610 credit (= cost of Ending Inventory).
Gross Profit: Net sales – Cost of goods sold.
Net sales: Total sales * their price.
Cost of goods sold: Beginning Inventory * cost + Purchases * costs – cost of Ending Inventory.