Accounting Concepts and Applications
Exam Preparation
Guide
Course Introduction
This course introduces fundamental accounting concepts and principles, emphasizing their practical applications in business environments. Students will learn to analyze, record, and report financial transactions, develop an understanding of the accounting cycle, and interpret financial statements for decision-making purposes. Topics include double-entry bookkeeping, accruals and deferrals, internal controls, and ethical considerations in accounting. By the end of the course, students will be equipped with the foundational knowledge necessary to apply accounting information for effective management and evaluation of organizational performance.
Recommended Textbook
Horngrens Accounting Global Edition 10th Edition by Tracie L. Nobles
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26 Chapters
3881 Verified Questions
3881 Flashcards
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Page 2
Chapter 1: Accounting and the Business Environment
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144 Flashcards
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Sample Questions
Q1) The income statement presents a summary of an entity's revenues and expenses for a period of time. Which of the following statements is true of an income statement?
A) There is net income when total revenues are lesser than total expenses.
B) There is a net loss when total expenses are lesser than total revenue.
C) There is a net loss when total expenses are greater than total liabilities.
D) There is net income when total revenues are greater than total expenses.
Answer: D
Q2) The total of amount of assets that a business possesses, may or may not equal the total of liabilities and equity of the business.
A)True
B)False
Answer: False
Q3) The Sarbanes-Oxley Act (SOX) requires companies to review internal control and take responsibility for the accuracy and completeness of their financial reports.
A)True
B)False
Answer: True
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) In a trial balance, total debits must always equal to total credits.
A)True
B)False
Answer: True
Q2) An amount owed but not paid is called a(n):
A) prepaid expense.
B) adjusted liability.
C) accrued liability.
D) note receivable.
Answer: C
Q3) Grace Company has a debt ratio of 25%; this means that 75% of the assets are financed by creditors of the corporation.
A)True
B)False
Answer: False
Q4) Unearned revenue is a liability account.
A)True
B)False Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The accountant of Ovenly Inc. failed to make an adjusting entry to record $6,000 of unearned service revenue that has now been earned. Assume the unearned revenue was initially recorded as a liability. Which of the following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
Answer: B
Q2) Hank's Tax Planning Service started business in January, 2014. He rented an office for $1,800 a month starting January 1. On January 1, he prepaid the rentals through June 30. He makes accrual adjustments monthly. What is the balance in the Prepaid Rent account as of April 30?
A) $3,600
B) $300
C) $1,800
D) $900
Answer: A
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5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The current ratio shows the profitability of a firm.
A)True
B)False
Q2) Refer to the table above.The insurance has been prepaid for the next half year. What are the total current assets that would be shown on the balance sheet?
A) $10,500
B) $5,700
C) $8,650
D) $6,150
Q3) Adjusting journal entries are prepared:
A) after preparing the adjusted trial balance.
B) after preparing the unadjusted trial balance.
C) after posting the closing entries.
D) after preparing the financial statements.
Q4) Generally Accepted Accounting Principles (GAAP) require every organization to prepare reversing entries.
A)True
B)False
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6
Chapter 5: Merchandising Operations
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Sample Questions
Q1) The revenue, expenses, Sales Returns and Allowances and Sales Discounts will be closed via the:
A) Income Summary account.
B) Owner's Name, Capital account.
C) Owner's Name, Withdrawals account.
D) Fixed asset account.
Q2) Which of the following is shown on a multi-step income statement, but not on a single-step income statement?
A) gross profit
B) net sales revenue
C) cost of goods sold
D) net income
Q3) Under the perpetual inventory system, two journal entries are used to record the sales of merchandise. One entry records the Sales Revenue and another entry records the Cost of Goods Sold.
A)True
B)False
Q4) Refer to the table above.Give the journal entry to close the Sales Revenue account.
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Chapter 6: Merchandise Inventory
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155 Flashcards
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Sample Questions
Q1) Sandra Company had 200 units of inventory on hand at the end of the year. These were recorded at a cost of $12 each using the last-in, first-out (LIFO) method. The current replacement cost is $10 per unit. The selling price charged by Sandra Company for each finished product is $15. In order to record the adjusting entry needed under the lower-of-cost-or-market rule, the Cost of Goods Sold will be:
A) debited by $2,000.
B) credited by $2,000.
C) debited by $400.
D) credited by $400.
Q2) Better Buy has six CD players in inventory on December 31. The players were purchased in November for $150. The price lists from Better Buy's supplier indicate that the same CD player would now cost the company $155. What would be the amount reported as Ending Merchandise Inventory on the balance sheet?
A) $1,740
B) $1,680
C) $900
D) $930
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Page 8
Chapter 7: Accounting Information Systems
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137 Verified Questions
137 Flashcards
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Sample Questions
Q1) An accounting information system has three basic components: source documents and input devices, processing and storage, and outputs.
A)True
B)False
Q2) Entries from the purchases journal are posted monthly to the accounts payable subsidiary ledger and daily to the general ledger.
A)True
B)False
Q3) Which of the following transactions is recorded in the "Invoices" function of QuickBooks?
A) A firm paying $2,500 electricity bill
B) A firm writing down the value of an impaired asset
C) A firm making a sale on account to a customer
D) A firm making accounting adjustments to depreciation expense
Q4) In a computerized accounting information system, the business does not have to record the transaction in debit and credit format.
A)True
B)False
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Page 9
Chapter 8: Internal Control and Cash
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Sample Questions
Q1) The bank statement reveals an EFT received from a customer that has not yet been recorded in the ledger. How would this information be included on the bank reconciliation?
A) an addition on the bank side
B) a deduction on the bank side
C) a deduction on the book side
D) an addition on the book side
Q2) A petty cash fund was established with a $500 balance. It currently has cash of $20 and petty cash tickets as shown below. \[\begin{array} { | l | r | }
\hline \text { Travel expense } & \$ 130 \\
\hline \text { Office supplies expense } & 300 \\
\hline \text { Equipment rental expense } & 50 \\
\hline
\end{array}\] Which of the following would be the journal entry to replenish the Petty Cash account?
A) debit various expenses $480; credit Cash $480
B) debit various expenses $480; credit Petty Cash $480
C) debit Cash $20; credit various expenses $20
D) credit Petty Cash $480; debit Cash $480
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Page 10
Chapter 9: Receivables
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Sample Questions
Q1) Companies that follow GAAP are required to use the direct write-off method for uncollectible accounts receivable.
A)True
B)False
Q2) The acid-test ratio is also known as the quick ratio.
A)True
B)False
Q3) Which of the following is included in the numerator of the acid-test ratio?
A) Cash including cash equivalents, inventory, short-term investments, net current receivables
B) Accounts receivable and inventory
C) Cash including cash equivalents, short-term investments, net current receivables
D) Total current assets
Q4) Sales through credit cards or debit cards transfer the risk of collection of receivables from the seller to the card issuer.
A)True
B)False
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11
Chapter 10: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) Acer Inc. plans to develop a shopping center. In the first quarter, they spent the following amounts: \[\begin{array} { | l | r | }
\hline \text { acquisition of land } & \$ 15,000 \\
\hline \text { Surveys and legal fees } & 600 \\
\hline \text { Land clearing } & 200 \\
\hline \text { Fencing } & 1,000 \\
\hline \text { Install lighting and signage } & 860 \\
\hline
\end{array}\] What amount should be recorded as the land improvements cost?
A) $1,200
B) $1,800
C) $1,860
D) $800
Q2) Black n White Company purchased equipment for $45,000. The company recorded total depreciation of $36,000 on the equipment. On January 1, 2015, Black n White traded in the equipment for new equipment, paying $54,000 cash. The fair market value of the new equipment is $65,000. Journalize the company's exchange of equipment. Assume the exchange had commercial substance.
Q3) Give journal entry to record the acquisition of a plant asset for cash.
Page 12
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Chapter 11: Current Liabilities and Payroll
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162 Verified Questions
162 Flashcards
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Sample Questions
Q1) Berkley's gross pay for the month is $5,400. His deduction for federal income tax is based on a rate of 18%. He has no voluntary deductions. His yearly pay is under the limit for OASDI. What is the amount of Berkley's net pay? (Assume a FICA-OASDI Tax of 4.2% and FICA-Medicare Tax of 1.45%.)
A) $4,122.90
B) $5,400.00
C) $5,094.90
D) $4,428.00
Q2) On August 31, 2013, Peter Services received $3,500 in advance from a customer. Which of the following would be the journal entry to record the receipt of cash?
A) debit Unearned Revenue $3,500 and credit Cash $3,500
B) debit Cash $3,500 and credit Service Revenue $3,500
C) debit Unearned Revenue $3,500 and credit Service Revenue $3,500
D) debit Cash $3,500 and credit Unearned Revenue $3,500
Q3) FICA tax is paid by the employee only and is deducted from gross pay.
A)True
B)False
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Chapter 12: Partnerships
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161 Flashcards
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Sample Questions
Q1) In a partnership, the income is taxed at the partnership level as well as at the personal level of the owners.
A)True
B)False
Q2) In a limited liability partnership, each partner is not personally liable for the malpractice committed by another partner.
A)True
B)False
Q3) Which of the following is true of ownership changes in a partnership?
A) Admitting a new partner does not change the core structure of the old partnership.
B) The purchase of an existing partner's interest is a transaction between the new partner and the partnership firm.
C) Any time the partner mix changes, the old partnership ceases to exist and a new partnership begins.
D) A person can become a partner by purchasing an existing partner's interest, even without the approval of the other partners.
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Chapter 13: Corporations
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158 Flashcards
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Sample Questions
Q1) Which of the following characteristics is an advantage of the corporate form of business?
A) less degree of government regulation
B) limited liability of stockholders
C) separation of ownership and management
D) low start-up costs
Q2) Which of the following statements is true?
A) Appropriations of retained earnings require journal entries, but restrictions on retained earnings do not.
B) No journal entries are needed to either appropriate or restrict retained earnings.
C) Both appropriations and restrictions of retained earnings require journal entries.
D) Restrictions on retained earnings must be journalized, but appropriations do not need to be journalized.
Q3) Stock dividends are declared by the:
A) chief financial officer of the company.
B) board of directors of the company.
C) chief executive officer of the company.
D) stockholders of the company.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On January 1, 2015, Carter Sales issued $15,000 in bonds for $15,800. They were 8-year bonds with a stated rate of 9%, and pay semiannual interest. Carter Sales uses the straight-line method to amortize the bond premium. On June 30, 2015, when Carter makes the first payment to bondholders, how much will they report as Interest Expense?
A) $625
B) $675
C) $275
D) $280
Q2) The Amazing Widget Company issues $500,000 of 6%, 10-year bonds at 103 on March 31, 2014. The bond pays interest on March 31 and September 30. Assume that the company uses the straight-line method for amortization. Calculate the net balance that will be reported for the bonds on the balance sheet on September 30, 2014.
A) $500,000
B) $515,000
C) $514,250
D) $515,250
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Chapter 15: Investments
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Sample Questions
Q1) Which of the following is true of trading investments?
A) They are held for more than two years.
B) They are always recorded at the current market value.
C) They must be adjusted and reported at fair value at the end of each period.
D) They are always recorded at the historical cost.
Q2) The Long-term Investments account is debited for the receipt of a dividend on an equity-method investment because the dividend increases the investee's equity.
A)True
B)False
Q3) Maurice Corporation invested $100,000 to acquire 20,000 shares of Delta Technologies on March 1, 2015. Delta pays a cash dividend of $0.25 per share on July 2, 2015. The investment is classified as an available-for-sale investment. Based on the information provided, which of the following is true of the balance sheet as of July 2, 2015?
A) Total assets in the balance sheet will remain unchanged.
B) Current assets in the balance sheet will remain unchanged.
C) Equity in the balance sheet will increase.
D) Total liabilities in the balance sheet will increase.
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Page 17
Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following is true of the statement of cash flows?
A) It indicates when long-term debt will mature.
B) It reports on the qualitative behavior of the company's performance.
C) It covers a specific span of time the same as the income statement.
D) It shows how the profits or losses of the company were generated.
Q2) Allen Services purchased 20 delivery vehicles by issuing a 20-year installment Note
Payable for $720,000. How would this transaction be shown on the statement of cash flows?
A) in the investing activities section
B) in the non-cash investing and financing activities section
C) in the operating activities section
D) in the financing activities section
Q3) Martin Company sold equipment for cash. The income statement shows a gain on sale of $920. The net book value of the asset prior to sale was $3,510. Which of the following statements describes the cash effect of the transaction?
A) negative cash flow of $4,430 for financing activities
B) negative cash flow of $2,590 for operating activities
C) positive cash flow of $4,430 from investing activities
D) positive cash flow of $2,590 from investing activities
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Page 18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) The times-interest-earned ratio measures the number of times that operating income can pay interest expense.
A)True
B)False
Q2) A high current ratio indicates that current liabilities are more than current assets.
A)True
B)False
Q3) Benchmarking is often done by comparing a company against either a key competitor or against the industry average.
A)True
B)False
Q4) A corporation's income statement includes some unique items that do not often apply to smaller businesses.
A)True
B)False
Q5) An annual report provides information about a company's financial condition.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) The whole sequence of activities that add value to a company's products and services is called:
A) the value chain.
B) the planning process.
C) TQM production chain.
D) enterprise resource planning (ERP).
Q2) Which of the following formulas represents cost of goods sold for a merchandising business?
A) Beginning Inventory - Ending Inventory = Cost of Goods Sold
B) Purchases and Freight In - Ending Inventory = Cost of Goods Sold
C) Ending Inventory + Purchases and Freight In - Beginning Inventory = Cost of Goods Sold
D) Beginning Inventory + Purchases and Freight In - Ending Inventory = Cost of Goods Sold
Q3) The primary activity of manufacturing businesses is to purchase goods from a wholesaler and resell them.
A)True
B)False
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Chapter 19: Job Order Costing
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Sample Questions
Q1) Fogelin Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances. Fogelin has 4 public relations specialists, plus an office staff. At the beginning of 2014, Fogelin estimated the total cost of salaries and benefits for the public relations specialists at $403,200, and a total of 7,200 billable hours for the year. The office and administrative costs were estimated at $676,800. What rate would Fogelin use for the cost of its specialists?
A) $94 per hour
B) $150 per hour
C) $68 per hour
D) $56 per hour
Q2) The entry to record the purchase of direct materials on account would include a:
A) debit to the Raw Materials Inventory account.
B) debit to the Work-in-Process Inventory account.
C) credit to the Work-in-Process Inventory account.
D) credit to the Raw Materials Inventory account.
Q3) On June 30, Cleopatra Company finished Job 70 with total job costs of $40,000 and transferred the costs to Finished Goods Inventory. On July 6, Cleopatra completed the sale of the goods to a customer for $55,000 on account. Provide the entry to record the cost of goods sold.
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Page 21
Chapter 20: Process Costing
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Sample Questions
Q1) Production cost reports prepared using first-in, first-out (FIFO) method assumes that the first units started in the production process are the first units completed and sold.
A)True
B)False
Q2) The Assembling Department of Mat Liners had 10,000 units in process in December beginning and received 30,000 units from the Sewing Department. During the month, it completed 20,000 units and transferred them to the Packaging Department. Calculate the number of units accounted for by the Assembling Department for December.
A) 20,000 units
B) 40,000 units
C) 10,000 units
D) 30,000 units
Q3) The task of summarizing the flow of physical units is one of the four steps involved in the preparation of the production cost report.
A)True
B)False
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22
Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) When a company produces more units than it sells, income under absorption costing will exceed income under variable costing.
A)True
B)False
Q2) Refer to the table above,Using absorption costing, how much is the net operating income for April?
A) $6,900
B) $7,480
C) $7,125
D) $6,250
Q3) Fixed costs per unit decrease as production levels decrease.
A)True
B)False
Q4) Which of the following statements is true if total fixed costs decreases while the sales price per unit and variable costs per unit remain constant?
A) The contribution margin increases.
B) The breakeven point increases.
C) The contribution margin decreases.
D) The breakeven point decreases.
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Chapter 22: Master Budgets
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Sample Questions
Q1) Sensitivity analysis is a what-if technique.
A)True
B)False
Q2) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.
A)True
B)False
Q3) The capital expenditures budget is prepared before the preparation of the cash budget.
A)True
B)False
Q4) Which of the following is true of the sales budget?
A) It provides sales values that are used to prepare financial statements for external reporting purposes.
B) It captures the variable and fixed expenses of the business.
C) It is used in the production budget.
D) It shows the value of expected production in a period.
Q5) A strategic budget will be as detailed as an operating budget.
A)True
B)False
24
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Sample Questions
Q1) Wood Designs Company, a custom cabinet manufacturing company, is setting standard costs for one of its products. The main material is cedar wood, sold by the square foot. The current cost of cedar wood is $4.00 per square foot from the supplier. Delivery costs are $0.25 per board foot. Carpenters' wages are $25.00 per hour. Payroll costs are $3.60 per hour and benefits are $5.00 per hour. How much is the direct labor cost standard (per hour)?
A) $25.00 per hour
B) $25.60 per hour
C) $28.00 per hour
D) $33.60 per hour
Q2) A company is setting its direct materials and direct labor standards for its leading product. Materials cost from the supplier are $5 per square foot, net of purchase discount. Freight-in amounts to $0.10 per square foot. Basic wages of the assembly line personnel are $10 per hour. Payroll taxes are approximately 20% of wages. How much is the direct labor cost standard (per hour)?
A) $2 per hour
B) $10 per hour
C) $12 per hour
D) $17 per hour
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Chapter 24: Cost Allocation and Responsibility Accounting
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Sample Questions
Q1) Which of the following internal business perspective key performance indicators (KPIs) is commonly used to assess the innovation process?
A) number of new products developed
B) number of warranty claims
C) employee turnover rate
D) rate of on-time deliveries
Q2) Operating income alone does not indicate how efficiently a segment is using its assets.
A)True
B)False
Q3) Direct material costs and direct labor costs cannot be easily traced to products. Therefore, they are allocated to products.
A)True
B)False
Q4) A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Sample Questions
Q1) Faros Hats, Etc. has two product lines-baseball helmets and football helmets. Income statement data for the most recent year follow: \[\begin{array} { | l | r | r | r | }
\hline & { \text { Total } } & \text { Baseball Helmets } & \text { Football Helmets } \\
\hline \text { Sales revenue } & \$ 850,000 & \$ 500,000 & \$ 350,000 \\
\hline \text { Variable expenses } & ( 530,000 ) & ( 250,000 ) & ( 280,000 ) \\
\hline \text { Contribution margin } & \$ 320,000 & \$ 250,000 & \$ 70,000 \\
\text { Fixed expenses } & ( 180,000 ) & ( 90,000 ) & ( 90,000 ) \\
\hline \text { Operating income (loss) } & \$ 140,000 & \$ 160,000 & \$ ( 20,000 \\
\hline
\end{array}\] Assuming the Football Helmet line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the Football Helmet line is used to double the production of Baseball Helmets, operating income will be:
A) $250,000.
B) $180,000.
C) $320,000.
D) $410,000.
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Chapter 26: Capital Investment Decisions
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Sample Questions
Q1) The following details are provided by a manufacturing company. \[\begin{array} { | l | r | }
\hline \text { Investment } & \text { Product line } \\
\hline \text { Useful life } & \$ 1,000,000 \\
\hline \text { Estimated annual net cash inflows for first year } & 12 \text { years } \\
\hline \text { Estimated annual net cash inflows for second year } & \$ 400,000 \\
\hline \text { Estimated annual net cash inflows for next ten years } & \$ 350,000 \\
\hline \text { Residual value } & \$ 300,000 \\
\hline \text { Depreciation method } & \$ 50,000 \\
\hline \text { Required rate of return } & \text { Straight-line } \\
\hline
\end{array}\] Calculate the payback period for the investment.
A) 2.5 years
B) 2.83 year
C) 3.0 years
D) 3.5 years
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Page 28