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

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CLEP Financial Accounting Exam Practice Test 2

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25 Questions

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

GASBGAAPSECFASBIRS

2. Mega Manufacturing, Inc. has on its books a $100,000 bond payable and a credit to premium on bonds payable of $10,000. The bonds were issued when the market interest was 8%. The bonds have a face interest rate of 9% and make semi-annual periodic payments. Which of the following is part of the journal entry to make the next periodic payment required by the bond?

Credit cash $4,400Debit interest expense $4,500Debit interest expense $4,400Debit premium on bonds payable $400Credit premium on bonds payable $100

3. 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 trade name over 15 years.Amortize the $100,000 value of the book copyright over the useful life.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 book over the estimated life of the author plus 70 years.

4. Which is TRUE about the statement of cash flows indirect method?

Buying a car will appear as a positive number on the statement of cash flows.One of the sections of the statement of cash flows is cash flows from sales.The statement of cash flows is broken into four sections.The statement of cash flows reports the ending balance in the balance sheet accounts.The statement of cash flows does not show the individual revenue and expense accounts.

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

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

6. 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?

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

7. ABC Co. owned $10,000 of $1 par treasury stock. It sold the stock for $14,000. Which of the following is part of the journal entry to record the sale of the treasury stock?

Credit gain on sale of treasury stock $4,000Credit additional paid-in capital $14,000Debit treasury stock $10,000Credit additional paid-in capital $4,000Credit common stock $10,000

8. Which of the following documents will NOT have a period of time in the heading?
I. Balance sheet
II. Income statement
III.. Statement of owner’s equity
IV.. Chart of accounts

I, III, and IV. onlyI, II, III, and IV.I. and IV. onlyIV. onlyII. and III only

9. Which item below is NOT an intangible asset?

A famous trade nameA patent on a machine developed in-house$40,000 spent to get a restaurant franchiseGold coins with historic valuePieces of paper representing stock in a corporation

10. Max, a business owner, took all of the following steps when hiring a new bookkeeper. Which step listed below was a mistake?

Max rejected one applicant for being bonded.Max did not give the new bookkeeper the key to the cash register drawer.Max asked another employee to open the mail and record the checks and cash that arrived.Max gave the new bookkeeper no spending authority.Max did a background check on the applicant he hired.

11. Refer to the following loan amortization schedule:



Referencing the same loan amortization schedule as used in Question #60, which of the following is part of the adjusting entry to accrue interest expense on this loan on December 31, 20x1?

Credit interest payable $1,103Debit interest expense $9,740Debit interest expense $4,898Credit interest payable $6,000No adjusting entry is necessary.

12. Owner Lauren looked at a journal entry and smiled happily. Which transaction listed below caused that smile when Lauren saw it?

A debit to cashA debit to an expenseA credit to accounts payableA debit to equityA credit to short-term investments

13. 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 = $5,100 and EI is $1,781CGS = $4,441 and EI is $2,440CGS = $4,300 and EI is $2,581CGS = $4,280 and EI is $2,601CGS = $5,151 and EI is $1,730

14. At the end of the fiscal year, Smith & Co. made the following journal entry:

Wages expense$1,000

Wages payable

$1,000

(To accrue wages expense owed employees on 12/31/20x1)

On January 1, 20x2, Smith & Co.’s accountant made a reversing entry. On the next payday, Smith & Co. paid $6,000 of wages—the $1,000 of wages incurred in 20x1 and $5,000 of wages from 20x2. Which of the following is part of the journal entry to record the $6,000 payroll?

Credit cash $5,000Debit wages expense $6,000Debit wages payable $1,000Debit prepaid wages, $1,000Debit wages expense $5,000

15. 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

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

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

Debit expensesCredit assetsCredit dividendsDebit assetsCredit revenues

17. ABC Co. bought an $11,000 machine with an estimated salvage value of $1,000 and an estimated life of 7 years. The IRS considers the machine 5-year property. ABC uses the half-year convention. Consult the IRS table below and calculate ABC’s tax depreciation expense for the asset’s first year.

$2,200$2,000$1,100$1,429$1,000

18. On the multi-step corporate income statement, which item below comes before “Income from continuing operations before provision for income tax”?

Discontinued operationsGain on sale of short-term investmentsExtraordinary gainCumulative effect of a change in accounting methodIncome taxes on continuing operations

19. ABC Co. has $100,000 in accounts receivable and NO allowance for uncollectible accounts. ABC’s history indicates that 1% of accounts receivable will probably not be collected. ABC uses the direct write-off method of handling bad debts. Which of the following is part of the journal entry to write off an $800 bad debt?

Debit uncollectible accounts expense $1,000Credit allowance for uncollectible accounts $800Debit accounts receivable $800Debit allowance for uncollectible accounts $800Debit uncollectible accounts expense $800

20. What is the balance of this T-account?
$300 credit balance
$300 debit balance
$400 credit balance
$700 debit balance
$700 credit balance

Cash
500	100
	100
200	200
700	400

'C"BEAD

21. 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?

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

22. X-Corp’s income statement shows $50,000 of net income, even after a $30,000 loss on sale of short-term investments. Cash flow from operations has been positive for the last five years. Which fact about “cash flow from investing activities” would make the owner the happiest?

Total cash flow from investing activities is a large negative number.Cash from sale of equipment (which X-Corp bought last year for $20,000) is $5,000.Positive and negative numbers net together to be exactly zero.Cash from sale of short-term investments is $100,000.Total cash flow from investing activities is a large positive number.

23. A sole proprietor must have a fiscal year that ends on

the date the sole proprietor selectsthe last day of any month the sole proprietor selectsthe date of the fiscal year-end defined on the incorporation papersthe date assigned by the state of incorporationDecember 31

24. 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?

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

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

A short explanation of the entryA checkmark to indicate the entry had been posted to the general ledgerThe account numberThe date of the transactionThe credits to the cash account