Exam content for CLEP Financial Accounting exam, which covers the basics of introductory financial accounting course: General Topics (20%–30%) Generally accepted accounting principles Rules of double-entry accounting/transaction analysis/accounting equation The accounting cycle Business ethics Purpose of, presentation of, and relationships between financial statements Forms of business The Income Statement (20%–30%) Presentation format issues Recognition of revenue and expenses Cost of goods sold Irregular items (e.g., discontinued operations, extraordinary items,... Show more

Exam content for CLEP Financial Accounting exam, which covers the basics of introductory financial accounting course:

General Topics (20%–30%)
Generally accepted accounting principles
Rules of double-entry accounting/transaction analysis/accounting equation
The accounting cycle
Business ethics
Purpose of, presentation of, and relationships between financial statements
Forms of business

The Income Statement (20%–30%)
Presentation format issues
Recognition of revenue and expenses
Cost of goods sold
Irregular items (e.g., discontinued operations, extraordinary items, etc.)
Profitability analysis

The Balance Sheet (30%–40%)
Cash and internal controls
Valuation of accounts and notes receivable (including bad debts)
Valuation of inventories
Acquisition and disposal of long-term assets
Depreciation/amortization/depletion
Intangible assets (e.g., patents, goodwill, etc.)
Accounts and notes payable
Long-term liabilities (e.g., bonds payable)
Owner's equity
Preferred and common stock
Retained earnings
Liquidity, solvency, and activity analysis

Statement of Cash Flows (5%–10%)
Indirect method
Cash flow analysis
Operating, financing, and investing activities

Miscellaneous (Less than 5%)
Investments
Contingent liabilities

 

Related test: CLEP Financial Accounting Exam Practice Test 1

Show less

CLEP Financial Accounting Exam Practice Test 2

Time left 00:00

25 Questions

1. The authoritative accounting standards a business must follow are known as

GASBIRSFASBGAAPSEC

2. Which of the following statements is most likely one of the reasons X-Corp obtains an audit?

Auditors guarantee the accuracy of the financial statements.The auditor’s opinion will help X-Corp get a loan from a bank.The IRS requires an audit report along with the corporate tax return.Auditing is a free service provided by most states.Investors often want an opinion from someone who is not a CPA.

3. X-Corp, which has a June 30 fiscal year-end, keeps its books according to GAAP. It paid $1,200 for a year’s worth of insurance on June 1, 20x1. Assume X-Corp makes all the correct journal entries at the end of the fiscal year. What is the correct adjusting entry on July 31, 20x1, concerning this insurance?

Credit cash $100; debit insurance expense $100.Debit insurance expense $100; credit prepaid insurance $100.Debit insurance expense $1,100; credit prepaid insurance $1,100.Debit prepaid insurance $100; credit cash $100.Debit insurance expense $1,100, credit insurance payable $1,100.

4. Which of the following statements is TRUE about a very famous trade name that cost $50,000 and a copyright worth $100,000 on a book about presidential candidates in an election two years from now?

Amortize the book over the estimated life of the author plus 70 years.Amortize the trade name over 15 years.The trade name may never amortize, but amortize the cost of the copyright over no more than 3 years.Neither the trade name nor the book copyright should be amortized.Amortize the $100,000 value of the book copyright over the useful life.

5. Which of the following would be missing in a computerized general journal entry that would be included with a handwritten general journal entry?

The date of the transactionA short explanation of the entryThe account numberA checkmark to indicate the entry had been posted to the general ledgerThe credits to the cash account

6. X-Corp has a December 31 year end. Mr. X is the sole officer/ stockholder, and owns all 40,000 shares outstanding. Late in December 20x1, Mr. X determined that X-Corp earned $300,000 of net income for 20x1 even after paying Mr. X’s $100,000 salary. Mr. X determined that he could take out $200,000 additional cash for himself. What is the best way to give Mr. X the additional $200,000?

Give Mr. X a $200,000 salary bonus.Give Mr. X a $200,000 cash dividend.Split the stock 5-for-1.Give Mr. X a $200,000 stock dividend.Let Mr. X take a $200,000 draw.

7. Owner Al started his petty cash with $200 and put Steve in charge of it. He set no spending limit. When he checked the petty cash box it had $80 in cash and only the following slips of paper: (1) $4 Tipped pizza man, (2) $60 Bought repair parts, and (3) $26 Hospital flowers. Which statement below is TRUE?

The journal entry to replenish petty cash includes a credit to cash for $90.The person in charge of petty cash should not have spent the $60 on repair parts.Steve has some explaining to do.All the money is accounted for.The journal entry to replenish petty cash includes a debit to petty cash for $90.

8. Below is X-Corp’s bank reconciliation. Which answer correctly reflects the journal entry to record the bank reconciliation?

The journal entry will include a credit of $4 to bank fees.The journal entry will contain a credit to cash of $5.The journal entry will include a debit to cash of $100.The only credit in the journal entry will be a credit to interest revenue.The journal entry will reflect the $295 of extra checks written.

9. Which statement below is TRUE about the T-account for cash?

There are separate T-accounts for increases and decreases of cash.The T-account usually reveals the bank interest rate.The right side of the T-account for cash records increases of cash.The T-account shows both the ups and downs of cash.The T-account is for keeping track of cash investments in short-term securities.

10. Refer to the following loan amortization schedule:



On January 1, 20x1, ABC Co. borrowed money and agreed to make semi-annual payments of $6,000 to repay the loan. Above is part of the loan amortization schedule for that loan. What is the current portion of the loan on December 31, 20x1?

(E) $2,261(B) $9,740(C) $6,000(D) $2,153(A) $12,000

11. Which item below is NOT an intangible asset?

A patent on a machine developed in-housePieces of paper representing stock in a corporationA famous trade name$40,000 spent to get a restaurant franchiseGold coins with historic value

12. X-Corp has 100,000 shares outstanding. Its net income was $200,000. It paid $10,000 of common stock dividends and $20,000 of preferred stock dividends. Calculate the earnings per share of common stock.

$0.50$1.70$2.20$2.00$1.80

13. Which of the following is NOT a standard internal control for employees?

Checking personal references and prior employers before you hire any employeeCommunicating to new employees, “I trust you.”Supervising employeesHiring people who have their personal financial lives under controlHiring bonded people if they are going to handle money

14. Mr. X gives Miss Y a $10,000 one-year non-interest-bearing note in exchange for $9,000 of merchandise. Six months later, Miss Y discounts the note at a bank that charges a 6% discount. How much will the bank give Miss Y?

$10,000$9,730$10,600$9,700$10,300

15. The following are from X-Corp’s financial statements.
Total sales on account for the year: $365,000
Net accounts receivable at the beginning of the year: $37,500
Net accounts receivable at the end of the year: $36,500

Which of the following is the correct days’ sales in accounts receivable?(A) 100 days(B) 36.5 days(C) 10 days(D) 37 days(E) 1,000 days . (D)
Average net accounts receivable = (BOY + EOY) / 2 =
(37

Inventories

16. Which of the following is part of the closing entries for a corporation?

Credit assetsDebit assetsCredit revenuesDebit expensesCredit dividends

17. The journal entry to record $100 of cash sales includes

a credit to income summarya debit to salesa closing entry to bring sales to zeroa debit to casha debit to income summary

18. Which of the following is TRUE concerning the presentation of financial statements?

Place a double underline under the answer of every calculation.Negative numbers may be shown inside parentheses.Report accumulated depreciation in the liability section.Start the main calculation in the left column and indent to the right for sub-calculations.All dollar amounts should contain a dollar sign.

19. Which of the following is TRUE about reflecting the sale of land on the cash flow statement?

The gain on the sale of the land will appear separately in cash flow from operations.The gain on the sale of the land will already be included in the net income number at the beginning of the cash flow from operations section.The cash received from the sale of land will be a positive adjustment under cash flow from investing activities.The cash received from the sale of land will appear under cash flow from operations.The cash received from the sale of the land will be a negative adjustment under cash flow from financing activities.

20. A coal company uses the LIFO system. In 20y2 the company purchased 101 tons of coal @ $51 per ton ($5,151), and sold 100 tons. Using the inventory record below, what is the coal company’s 20y2 cost of goods sold (CGS) and ending inventory (EI)?20x1 10 tons @ $20 = $200
20x2 15 tons @ $22 = $330
20x8 5 tons @ $40 = $200
20y1 20 tons @ $50 = $1,000
Total inventory 50 tons and $1,730

CGS = $4,300 and EI is $2,581CGS = $4,441 and EI is $2,440CGS = $5,100 and EI is $1,781CGS = $4,280 and EI is $2,601CGS = $5,151 and EI is $1,730

21. The Machine Shop, Inc. bought three machines for $17,000 and spent $3,000 shipping them to the shop. When they got to the shop, Machine A was found to be almost worthless, and was sold for $1,000 scrap. Machine B was worth $6,000 and Machine C was worth $3,000. When The Machine Shop, Inc. recorded the purchase, at what price were the three machines recorded?

AEDB'C"

22. Using the following information, estimate ABC Co.’s ending inventory using the gross profit method.



Beginning merchandise inventory:

$80,000Purchases:

$220,000Gross profit:

(unknown but usually 50% of sales)

Sales:

$400,000

$40,000$120,000$80,000 $60,000$100,000

23. ABC Co. has a $100,000 accounts receivable with a $2,000 allowance for doubtful accounts. ABC was not sure Newclient, Inc. would pay its $1,000 bill on time, but it did. Which of the following is part of the journal entry to record receiving Newclient’s money?

Credit accounts receivable $1,000 and debit the allowance for $20Credit the allowance for $1,000Credit accounts receivable $1,000Credit cash for $1,000Debit the allowance for $1,000

24. On January 1, 20x1, X-Corp bought a building for $400,000. It depreciated the building using straight-line depreciation over 40 years. On January 1, 20z1 (exactly 20 years later), it sold the building for $250,000 in exchange for a $100,000 3-month note and the rest cash. Which of the following is part of the journal entry to record this transaction?

Debit cash $100,000Credit accumulated depreciation—building $200,000Debit cash from sale of building $250,000Credit building $200,000Credit gain on sale of building $50,000

25. ABC Co. bought a $30,000 pickup truck. ABC estimates that the truck has a 3-year or 100,000-mile life and a residual value of $3,000. ABC drives the truck 40,000 miles the first year and 30,000 miles the second year. ABC selects the units of production method, full-year convention. What is the depreciation expense in the second year?

(C) $10,800(E) $15,400(A) $12,000(D) $9,000(B) $8,100