FINANCIAL ACCOUNTING EXAM 2
QUESTIONS WITH CORRECT ANSWERS
Perpetual mmInventory mmSystem mm- mmANS-Inventory mmis mmconstantly mmupdated mmfor
mmitems mmsold.
Periodic mmInventory mmSystem mm- mmANS-Inventory mmis mmonly mmupdated mmat mmthe
mmend mmof mmthe mmaccounting mmperiod, mmeither mmby mmestimating mmwhat mmwas
mmsold mmor mmby mmcounting mmwhat mmis mmleft.
LIFO mm- mmANS-last mmin mmfirst mmout
FIFO mm- mmANS-first mmin mmfirst mmout
specific mmidentification mmmethod mm- mmANS-An mmactual mmphysical-flow mmcosting
mmmethod mmin mmwhich mmparticular mmitems mmsold mmand mmitems mmstill mmin
mminventory mmare mmspecifically mmcosted mmto mmarrive mmat mmcost mmof mmgoods mmsold
mmand mmending mminventory.
What mmare mmthe mmfour mmprimary mmaccounting mmprinciples? mm- mmANS-1.)
mmconsistency
2.) mmmateriality
3.) mmconservatism
4.) mmfull mmdisclosure
Consistency mm- mmANS-when mma mmcompany mmhas mma mmchoice mmof mmaccounting,
mmmethods, mmthey mmmust mmuse mmthe mmsame mmmethod mmevery mmtime mmfor
mmconsistency
What mmare mmsome mmexample mmof mmconsistency? mm- mmANS-LIFO mmor mmFIFO
if mmthey mmchoose mmto mmLIFO mmfor mminventory mmaccounting, mmthey mmmust mmuse
mmLIFO mmevery mmmonth
True mmor mmFalse:
A mmchange mmin mmmethod mmis mmallowed mmif mmthe mmcompany mmcan mmjustify mmthe
mmchange. mm- mmANS-true
, True mmof mmFalse:
the mmchange mmin mmconsistency mmmust mmbe mmnoted mmin mmthe mmfinancial
mmstatements mmand mmthe mmjustification mmfor mmthe mmchange mmmust mmbe mmclearly
mmexplained. mm- mmANS-true
Materiality mm- mmANS-if mmthe mmcompany mmbuys mman mmasset mmthat mmcosts mmvery
mmlittle, mmthey mmare mmallowed mmto mmexpense mmthe mmcost, mmrather mmthan
mmrecording mmit mmas mman mmasset
Conservatism mm- mmANS-if mmthe mmcompany mmspends mmmoney mmon mmresearch,
mmdesign, mma mmnew mmventure, mmetc., mmand mmthere mmis mmsignificant mmdoubt
mmabout mmwhether mmit mmwill mmresult mmin mmfuture mmsales, mmthen mmthey mmshould
mmexpense mmthe mmcosts mmand mmnot mmrecord mmthe mmcost mmas mman mmasset
Full mmDisclosure mm- mmANS-anything mmabout mmthe mmcompany mmthat mmwould
mmsignificantly mmaffect mman mmoutside mminvestor's mmopinion mmof mmthe mmcompany
mmmust mmbe mmdisclosed mmin mmthe mmnotes mmto mmthe mmfinancial mmstatements
Net mmSales mm= mm- mmANS-sales mm- mmsales mmreturns mmand mmallowances mm-
mmsales mmdiscounts
Costs mmof mmGoods mmSold mm= mm- mmANS-costs mmof mmgoods mmsold mm+ mmfreight
mmin
Gross mmMargin mm= mm- mmANS-net mmsales mm- mmcosts mmof mmgoods mmsold
Operating mmExpenses mm= mm- mmANS-selling mmexpenses mm+ mmgeneral mm&
mmadministrative mmexpenses
What mmall mmdoes mmselling mmexpenses mminclude? mm- mmANS-sales mmsalaries,
mmwages, mmand mmcommissions; mmadvertising; mmfreight mmout; mmall mmcosts mmof
mmmaintaining mmstores mmand mmwebsites; mmcosts mmrelated mmto mmsales mmvehicles,
mmsales mmtravel mmand mmentertainment
What mmall mmdoes mmthe mmgeneral mmand mmadministrative mmexpenses mminclude? mm-
mmANS-all mmoffice mmsalaries mmand mmwages; mmall mmcosts mmof mmmaintaining
mmoffices; mmcosts mmrelated mmto mmoffice-use mmvehicles, mmoffice mmpersonnel mmtravel
mmand mmentertainment
Other mmRevenues mmand mmExpenses mm= mm- mmANS-interest mmrevenue mm+
mmdividend mmrevenue mm+ mmgrains mm(on mmsale mmof mmnon-inventory mmassets) mm-
mminterest mmexpense mm- mmlosses mm(on mmsales mmof mmnon-inventory mmassets)
What mmare mmthe mm9 mmaccounts mminvolved mmin mmcalculating mmthe mmnumbers mmon
mma mmmulti-step mmincome mmstatement? mm- mmANS-1.) mmnet mmsales
QUESTIONS WITH CORRECT ANSWERS
Perpetual mmInventory mmSystem mm- mmANS-Inventory mmis mmconstantly mmupdated mmfor
mmitems mmsold.
Periodic mmInventory mmSystem mm- mmANS-Inventory mmis mmonly mmupdated mmat mmthe
mmend mmof mmthe mmaccounting mmperiod, mmeither mmby mmestimating mmwhat mmwas
mmsold mmor mmby mmcounting mmwhat mmis mmleft.
LIFO mm- mmANS-last mmin mmfirst mmout
FIFO mm- mmANS-first mmin mmfirst mmout
specific mmidentification mmmethod mm- mmANS-An mmactual mmphysical-flow mmcosting
mmmethod mmin mmwhich mmparticular mmitems mmsold mmand mmitems mmstill mmin
mminventory mmare mmspecifically mmcosted mmto mmarrive mmat mmcost mmof mmgoods mmsold
mmand mmending mminventory.
What mmare mmthe mmfour mmprimary mmaccounting mmprinciples? mm- mmANS-1.)
mmconsistency
2.) mmmateriality
3.) mmconservatism
4.) mmfull mmdisclosure
Consistency mm- mmANS-when mma mmcompany mmhas mma mmchoice mmof mmaccounting,
mmmethods, mmthey mmmust mmuse mmthe mmsame mmmethod mmevery mmtime mmfor
mmconsistency
What mmare mmsome mmexample mmof mmconsistency? mm- mmANS-LIFO mmor mmFIFO
if mmthey mmchoose mmto mmLIFO mmfor mminventory mmaccounting, mmthey mmmust mmuse
mmLIFO mmevery mmmonth
True mmor mmFalse:
A mmchange mmin mmmethod mmis mmallowed mmif mmthe mmcompany mmcan mmjustify mmthe
mmchange. mm- mmANS-true
, True mmof mmFalse:
the mmchange mmin mmconsistency mmmust mmbe mmnoted mmin mmthe mmfinancial
mmstatements mmand mmthe mmjustification mmfor mmthe mmchange mmmust mmbe mmclearly
mmexplained. mm- mmANS-true
Materiality mm- mmANS-if mmthe mmcompany mmbuys mman mmasset mmthat mmcosts mmvery
mmlittle, mmthey mmare mmallowed mmto mmexpense mmthe mmcost, mmrather mmthan
mmrecording mmit mmas mman mmasset
Conservatism mm- mmANS-if mmthe mmcompany mmspends mmmoney mmon mmresearch,
mmdesign, mma mmnew mmventure, mmetc., mmand mmthere mmis mmsignificant mmdoubt
mmabout mmwhether mmit mmwill mmresult mmin mmfuture mmsales, mmthen mmthey mmshould
mmexpense mmthe mmcosts mmand mmnot mmrecord mmthe mmcost mmas mman mmasset
Full mmDisclosure mm- mmANS-anything mmabout mmthe mmcompany mmthat mmwould
mmsignificantly mmaffect mman mmoutside mminvestor's mmopinion mmof mmthe mmcompany
mmmust mmbe mmdisclosed mmin mmthe mmnotes mmto mmthe mmfinancial mmstatements
Net mmSales mm= mm- mmANS-sales mm- mmsales mmreturns mmand mmallowances mm-
mmsales mmdiscounts
Costs mmof mmGoods mmSold mm= mm- mmANS-costs mmof mmgoods mmsold mm+ mmfreight
mmin
Gross mmMargin mm= mm- mmANS-net mmsales mm- mmcosts mmof mmgoods mmsold
Operating mmExpenses mm= mm- mmANS-selling mmexpenses mm+ mmgeneral mm&
mmadministrative mmexpenses
What mmall mmdoes mmselling mmexpenses mminclude? mm- mmANS-sales mmsalaries,
mmwages, mmand mmcommissions; mmadvertising; mmfreight mmout; mmall mmcosts mmof
mmmaintaining mmstores mmand mmwebsites; mmcosts mmrelated mmto mmsales mmvehicles,
mmsales mmtravel mmand mmentertainment
What mmall mmdoes mmthe mmgeneral mmand mmadministrative mmexpenses mminclude? mm-
mmANS-all mmoffice mmsalaries mmand mmwages; mmall mmcosts mmof mmmaintaining
mmoffices; mmcosts mmrelated mmto mmoffice-use mmvehicles, mmoffice mmpersonnel mmtravel
mmand mmentertainment
Other mmRevenues mmand mmExpenses mm= mm- mmANS-interest mmrevenue mm+
mmdividend mmrevenue mm+ mmgrains mm(on mmsale mmof mmnon-inventory mmassets) mm-
mminterest mmexpense mm- mmlosses mm(on mmsales mmof mmnon-inventory mmassets)
What mmare mmthe mm9 mmaccounts mminvolved mmin mmcalculating mmthe mmnumbers mmon
mma mmmulti-step mmincome mmstatement? mm- mmANS-1.) mmnet mmsales
