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Practice exam questions financial accounting

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Which of the following is the correct balance sheet presentation for current assets?
a. Cash, inventories, account receivables, prepaid expenses.
b. Cash equivalents, cash, other current assets, accounts receivable.
c. Accounts receivable, inventories, prepaid expenses, other current assets.
d. Marketable securities, cash, notes receivable, prepaid expenses.

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 or not the entity has issued an NSF check.

The accrual of interest on short-term marketable securities results in:
a. an increase in current assets and a decrease in net income.
b. an increase in current assets and an increase in net income.
c. an increase in noncurrent assets and an increase in liabilities.
d. an increase in current liabilities and an increase in net income.

The accounting concept or principle applied when an allowance is provided for estimated uncollectible accounts receivable is:
a. consistency.
b. matching revenue and expense.
c. original cost.
d. objectivity.

If an organization purchases $700 of supplies on account, with terms of 2/15, n50:
a. $650 must be paid within 15 days of the invoice date.
b. $698 must be paid within 50 days of the invoice date.
c. $686 can be paid within 15 days of the invoice date, or $700 must be paid within 50 days of the invoice date.
d. $686 can be paid within 15 days of the invoice date, or $714 must be paid within 50 days of the invoice date.

Accounts receivable are reported at:
a. Net realizable value.
b. Historical cost.
c. Weighted average cost.
d. Market value

The inventory cost flow assumption describes the flow of product cost:
a. from the warehouse to the customer.
b. into the asset (inventory) account and out to the expense (cost of goods sold) account.
c. into the revenue (sales) account and out to the expense (cost of goods sold) account.
d. into the asset (inventory) account and out to the revenue (sales) account.

One of the principal reasons for selecting the LIFO cost flow assumption instead of the FIFO cost flow assumption in an inflationary economic environment is that:
a. net income will be higher.
b. income taxes will be lower.
c. balance sheet inventory values will be higher.
d. a higher selling price can be established.

Which of the following is true regarding notes receivables (N/R)?
a. A N/R is always a long-term asset.
b. A N/R t is always a current asset.
c. A note is a more formal document than an account receivable.
d. A note is a less formal document than an account receivable.

One of the most important reasons for having a system of internal control is to:
a. improve the effectiveness and efficiency of the operations of the organization.
b. ensure no employees have ever been convicted of stealing.
c. eliminate any temptations that may be presented to employees that could lead to theft from the company.
d. prevent a salesperson from using a company car for personal transportation.

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Multiple Choice Practice Questions for Review

Which of the following is the correct balance sheet presentation for current assets?
a. Cash, inventories, account receivables, prepaid expenses.
b. Cash equivalents, cash, other current assets, accounts receivable.
c. Accounts receivable, inventories, prepaid expenses, other current assets.
d. Marketable securities, cash, notes receivable, prepaid expenses.

Coaching tip: Always present in order of liquidity! C

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 or not the entity has issued an NSF check.

Coaching tip: To find the correct cash balance by fixing the bank and books to be what is on hand. A

The accrual of interest on short-term marketable securities results in:
a. an increase in current assets and a decrease in net income.
b. an increase in current assets and an increase in net income.
c. an increase in noncurrent assets and an increase in liabilities.
d. an ...

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Auditor reports practice exam questions

50. An explanation of reliance on the reports of other auditors is an illustration of report departures referred to as
A. Qualifications.
B. Divisions of responsibility.
C. Expansions of scope.
D. Scope limitations.

1. If management fails to provide adequate justification for a change from one generally accepted accounting principle to another, the auditors should
A. Add an explanatory paragraph and express a qualified or an adverse opinion on the entity's financial statements for lack of conformity with generally accepted accounting principles.
B. Disclaim an opinion on the entity's financial statements because of uncertainty.
C. Disclose the matter in a separate explanatory paragraph but not modify the opinion paragraph on the entity's financial statements.
D. Neither modify the opinion on the entity's financial statements nor disclose the matter because both principles are generally accepted accounting principles.

2. Independent auditors must consider whether the entity has the ability to continue as a going concern. If a substantial doubt exists but disclosure is adequate and no other basis exists for modifying the report, the auditors would normally
A. Disclaim an opinion.
B. Express an adverse opinion.
C. Qualify the opinion.
D. Express an unqualified opinion with another paragraph describing the going-concern uncertainty.

3. Which of the following is not included in the introductory paragraph of the standard report on the entity's financial statements?
A. The names of the financial statements audited.
B. The auditors' responsibility to express an opinion on the entity's financial statements.
C. Management's responsibility for the financial statements.
D. The fact that an audit provides a reasonable basis for an opinion.

4. When disclaiming an opinion due to a client-imposed scope limitation, auditors should indicate in a separate paragraph why the audit did not comply with the standards of the PCAOB. The auditors should also omit the
A. Scope Paragraph: No; Opinion Paragraph: Yes
B. Scope Paragraph: Yes; Opinion Paragraph: Yes
C. Scope Paragraph: No; Opinion Paragraph: No
D. Scope Paragraph: Yes; Opinion Paragraph: No

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