Question 1

Which of the following is NOT an underlying assumption of the financial accounting model?

Accepted Answer

The market value assumption

Question 2

A company uses the FIFO method for inventory costing. If prices are rising, which of the following statements is TRUE?

Accepted Answer

FIFO will result in higher ending inventory and higher net income.

Question 3

Which equation correctly calculates Gross Profit Margin?

Accepted Answer

$$Gross\ Profit\ Margin = \frac{Net\ Sales - Cost\ of\ Goods\ Sold}{Net\ Sales}$$

Question 4

Which of the following items would NOT be included in the calculation of Cost of Goods Manufactured (COGM)?

Accepted Answer

Ending finished goods inventory

Question 5

A company purchased $$\10$$,000$$ of direct materials, used $$\$$8,000 in $$production, and had $$\2$$,000$ left in ending direct materials inventory. What was the beginning direct materials inventory?

Accepted Answer

$$\0$ (since 10$$,000$$ purchased = 8$$,000$$ used + 2$$,000$ ending)

Question 6

Which of the following best describes the purpose of footnotes in financial statements?

Accepted Answer

To provide additional information and disclosures not found in the main statements

Question 7

Which of the following is classified as a period cost?

Accepted Answer

Selling and administrative expenses

Question 8

A company uses the straight-line method for depreciation. If an asset costs $$\50$$,000$$, has a useful life of 10 years, and a residual value of $$\$$5,000$$, what is the annual depreciation expense?

Accepted Answer

$$\4$$,500$

Question 9

Which of the following is NOT a component of comprehensive income?

Accepted Answer

Dividends paid to shareholders

Question 10

Which formula correctly calculates ending balance of cash on the Statement of Cash Flows?

Accepted Answer

$$Ending\ Cash = Beginning\ Cash + Cash\ from\ Operating + Cash\ from\ Investing + Cash\ from\ Financing$$

Question 11

Which of the following is an example of an indirect cost?

Accepted Answer

Factory supervisor’s salary

Question 12

Which of the following is the correct equation for Cost of Goods Sold (COGS)?

Accepted Answer

$$COGS = Beginning\ Inventory + Purchases - Ending\ Inventory$$

Question 13

A company has beginning finished goods inventory of $$\5$$,000$$, cost of goods manufactured of $$\$$20,000$$, and ending finished goods inventory of $$\4$$,000$. What is the cost of goods sold?

Accepted Answer

$$\21$$,000$

Question 14

Which of the following is a characteristic of variable costs?

Accepted Answer

They increase in total as production volume increases.

Question 15

Which of the following accounts belongs to Stockholders’ Equity?

Accepted Answer

Retained Earnings

Question 16

Which of the following is the correct formula for Net Income?

Accepted Answer

$$Net\ Income = Revenues - Expenses$$

Question 17

Which of the following is NOT a section of the Statement of Cash Flows?

Accepted Answer

Earnings activities

Question 18

A company’s trial balance shows Accounts Receivable of $$\12$$,000$$ and an Allowance for Doubtful Accounts of $$\$$1,000. $$What is the net realizable value of Accounts Receivable?

Accepted Answer

$$\11$$,000$

Question 19

Which of the following is an example of a fixed cost?

Accepted Answer

Factory rent

Question 20

Which of the following best describes the matching principle in accounting?

Accepted Answer

Expenses should be matched with revenues in the period in which they are incurred.

Financial Accounting Midterm Review: Structured Study Notes

Study Guide - Practice Questions

Study Guide - Flashcards