Financial Reporting Mechanics

Test Code: R22 FIRM Q-Bank

Number of questions: 28

Question Q-Code: L1-FR-FIRM-001 LOS a Section 2

1 AIM Inc. recently issued common stock. This transaction should most likely be classified as:

A) financing.
B) investing.
C) operating.

Question Q-Code: L1-FR-FIRM-028 LOS a Section 2

2 XYZ Inc. is planning to sell its surplus equipment. This transaction should most likely be classified as:

A) financing.
B) investing.
C) operating.

Question Q-Code: L1-FR-FIRM-002 LOS b Section 3

3 Which of the following is a residual claim on a company’s resources?

A) Assets.
B) Liabilities.
C) Owner’s equity.

Question Q-Code: L1-FR-FIRM-003 LOS b Section 3

4 Unearned fees are most likely to be categorized as:

A) an asset.
B) a liability.
C) owner’s equity.

Question Q-Code: L1-FR-FIRM-004 LOS b Section 3

5 Which of the following is least likely to provide information regarding an activity during a period of time?

A) Balance sheet.
B) Income statement.
C) Statement of cash flow.

Question Q-Code: L1-FR-FIRM-005 LOS b Section 3

6 Which of the following is not classified as a financial statement element?

A) Net income.
B) Asset.
C) Revenue.

Question Q-Code: L1-FR-FIRM-006 LOS c Section 3

7
Beginning retained earnings $40,000

Ending retained earnings $58,000

Dividends paid $16,000

Based on the information given above, the estimated net income is closest to:

A) $2,000.
B) $24,000.
C) $34,000.

Question Q-Code: L1-FR-FIRM-007 LOS c Section 3

8 Given below is an excerpt from a company’s financial statements:

Assets, December 31, 2014 $6,750,000

Liabilities, December 31, 2014 $3,250,000

 Contributed capital, December 31, 2014 $1,300,000

Retained earnings, January 1, 2014 $700,000

Dividends during 2014 $200,000

The net income for 2014 would be closest to:

A) $400,000.
B) $800,000.
C) $1,700,000.

Question Q-Code: L1-FR-FIRM-008 LOS c Section 3

9 The table below presents information on a company (in ‘000s):

Revenues for the year 15,000

Total expenses for the year 12,500

Total current assets at year-end 8,500

Total non-current assets at year-end 13,750

Contributed capital at the beginning of 2,000

the year

Proceeds from shares issued during the 500

year

Retained earnings at the beginning of 7,750

the year

Total liabilities at year-end 11,400

The amount of dividends declared (£ ‘000s) during the year is closest to

A) 1,400.
B) 1,450.
C) 1,900.

Question Q-Code: L1-FR-FIRM-009 LOS c Section 3

10 At the beginning of the year, a company had total shareholders’ equity consisting of ¥500,000 in common share capital and ¥100,000
in retained earnings. Following details are given for the year:

Net income reported ¥35,000

Dividends paid 3,500

Proceeds from new shares issued 5,000

The total shareholders’ equity at the end of the year is closest to:

A) ¥626,500.
B) ¥631,500.
C) ¥636,500.

Question Q-Code: L1-FR-FIRM-010 LOS c Section 3

11 The following information is available about a company:

Contributed capital, beginning of the $60,000

year

Retained earnings, beginning of the 250,000

year

Sales revenues earned during the year 400,000

 Investment income earned during the 9,000
year

Total expenses paid during the year 300,000

Dividends paid during the year 10,000

Total assets, end of the year 700,000

Total liabilities at the end of the year are closest to:

A) $290,000.
B) $291,000.
C) $300,000.

Question Q-Code: L1-FR-FIRM-011 LOS c Section 3

12 Which of the following relationships is most accurate?

A) Ending retained earnings = Beginning retained earnings – Expenses – Dividends.

B) Owners’ equity = Contributed capital – Retained Earnings.
C) Assets = Liabilities + Contributed capital + Beginning retained earnings + Revenue – Expenses – Dividends.

Question Q-Code: L1-FR-FIRM-012 LOS c Section 3

13 Which of the following relationships is most accurate?

A) Owners’ equity = Assets + Liabilities.

B) Owners’ equity = Contributed capital – Retained earnings.
C) Liabilities = Assets - Owners’ equity

Question Q-Code: L1-FR-FIRM-013 LOS d Section 4

14 At the start of a month, an auto retailer paid 50, 000incashfordifferenttypesofcars. Hesoldcarscosting$25, 000for35,000 during the
month. The most likely effect of these transactions on the auto retailer’s accounting equation for the month is that assets will:

A) be unchanged.
B) increase by $10,000.
C) decrease by $20,000.

Question Q-Code: L1-FR-FIRM-014 LOS d Section 6

15 A finance manager wants to look at the company’s transactions by the order in which they occur. The accounting document that she
would most likely refer to is the:​

A) general journal.
B) general ledger.
C) trial balance.

Question Q-Code: L1-FR-FIRM-015 LOS d Section 4

16 A company purchases inventory with cash. What is the most likely effect of this transaction on the accounting equation?

A) Assets increase, and liabilities increase.

B) There is no effect on the accounting equation.
C) Assets decrease, and owners’ equity decreases.

Question Q-Code: L1-FR-FIRM-016 LOS d Section 4

17 Jennifer Jones owns a bakery. On June 1 2013, Jones delivered 50 loaves of bread at a rate of $10 per loaf. The cost of each loaf is $8.
The invoice attached with the delivery has the terms that payment is due within 20 days. Which of the following accounting entries
would Jones make in her books?

A) Increase in accounts receivable by $500, increase in revenue by $500.

B) Increase in cost of goods sold by $400, and decrease in inventory by $400.
C) Both A and B.

Question Q-Code: L1-FR-FIRM-017 LOS d Section 6

18 Data is sorted out by account rather than by date in the:

A) general ledger.
B) general journal.
C) adjusted trial balance.

Question Q-Code: L1-FR-FIRM-018 LOS d Section 5

19 Jonathan Trott is a manager at UFLP Ltd. He receives $1000 in cash for services which are to be delivered in the next period. In order to
 balance the accounting equation, which of the following is Trott most likely to do?

A) Record an asset.
B) Record a liability.
C) Record revenue.

Question Q-Code: L1-FR-FIRM-019 LOS e Section 5

20 Which of the following statements is least accurate ?

A) Accrued revenue arises when revenue has been earned but not yet received.
B) A valuation adjustment for an asset converts its historical cost to its depreciated value.
C) Accrued expenses arise when a company incurs expenses that have not yet been paid at the end of accounting period.

Question Q-Code: L1-FR-FIRM-020 LOS e Section 5

21 In accrual accounting, an adjusting entry is made that resulted in the reduction of an asset and a recording of an expense. The
originating entry was most likely a(n):

A) accrued expense.
B) deferred revenue.
C) prepaid expense.

Question Q-Code: L1-FR-FIRM-021 LOS e Section 5

22 David Retta is an accountant at G&P Ltd. The originating entry he makes is the establishment of a liability and record of an expense.
Which of the following is most likely to be the nature of the activity for which Retta has made the entry?

A) Accrued expense.
B) Prepaid expense.
C) Unbilled revenue.

Question Q-Code: L1-FR-FIRM-022 LOS e Section 5

23 Which of the following entries most likely involves a valuation adjustment?

A) Record cash receipt and establish a liability for deferred revenue.

B) Increase an asset and record the gain on the income statement or increase in other comprehensive income.
C) Sell an asset; record cash receipt and revenue.

Question Q-Code: L1-FR-FIRM-023 LOS f Section 3

24 The following information is available about XYX Company:

Contributed Capital, beginning of the £100,000

year

Retained earnings, beginning of the 450,000

year

Sales revenues earned during the 900,000

year

Investment income earned during 10,000

the year

Total expenses paid during the year 804,000

Dividends paid during the year 20,000

Total assets, end of the year 1,600,000

Total liabilities at the end of the year closest to:

A) £974,000
B) £944,000.
C) £964,000.

Question Q-Code: L1-FR-FIRM-024 LOS f Section 3

25 Nina Nasser wants to estimate the worth of Lily Flowers Corporation’s liabilities. She has the following information available.

Income Statement Extract

Net Revenue $5,000

Net Expenses $4,200

 Dividends Paid Out $0

Additional information

Assets at year end $12,000

Capital at year beginning $5,000

Retained earnings at year $1,200

beginning

Which of the following is most likely to be Nasser’s estimate of Lily Flowers Corporation’s liabilities?

A) 5,000.
B) 7,000.
C) 19,000.

Question Q-Code: L1-FR-FIRM-025 LOS g Section 6

26 A trial balance is best described as a document that:

A) contains business transactions recorded in the order in which they occur.

B) lists account balances at a particular point in time.
C) shows all business transactions by account.

Question Q-Code: L1-FR-FIRM-026 LOS h Section 7

27 In security valuation, analysts least likely use the financial statements to:

A) identify the type of accruals and valuation entry.

B) detect fraudulent accounting.
C) assess the performance of economy.

Question Q-Code: L1-FR-FIRM-027 LOS h Section 7

28 The use of estimates in financial reporting:

A) is a limitation in the accounting model as they provide an opportunity for deliberate earnings manipulation.
B) can be avoided by using complex accounting models.
C) is an effort to misrepresent the economic performance of a company.