Accounting Concepts and Applications
Mock Exam
Course Introduction
This course introduces the fundamental concepts and principles of accounting, focusing on the preparation, interpretation, and application of financial statements. Students will explore key accounting processes, including recording transactions, adjusting entries, and closing accounts, while gaining an understanding of how accounting information supports business decision-making. Emphasis is placed on the practical application of accounting techniques in various business scenarios, including budgeting, internal controls, and the ethical considerations inherent in financial reporting. By the end of the course, students will have developed the foundational skills necessary to analyze financial data and communicate findings to stakeholders.
Recommended Textbook
Financial Accounting 13th Edition by
Carl S. Warren
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17 Chapters
3045 Verified Questions
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) How does receiving a bill to be paid next month for services received affect the accounting equation?
A) assets decrease; owner's equity decreases
B) assets increase; liabilities increase
C) liabilities increase; owner's equity increases
D) liabilities increase; owner's equity decreases
Answer: D
Q2) The unit of measurement concept requires that economic data be recorded in a common unit of measurement.
A)True
B)False
Answer: True
Q3) The statement of cash flows consists of three sections: cash flows from operating activities, cash flows from income activities, and cash flows from equity activities.
A)True
B)False
Answer: False
Q4) What are the three sections of the Statement of Cash Flows?
Answer: Operating Activities, Investing Activities, and the Financing Activities
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) The accounts in the ledger of Monroe Entertainment Co. are listed in alphabetical order. All accounts have normal balances. \(\begin{array}{llll}
\text { Accounts Payable } & 1,500 & \text { Fees Earned } & 3,600 \\
\text { Accounts Receivable } & 1,800 & \text { Insurnce Expense } & 1,300 \\
\text { Prepaid Insurance } & 2,000 & \text { Land } & 3,000 \\
\text { Cash } & 3,200 & \text { Wages Expense } & 1,400 \\
\text { Drawing } & 1,200 & \text { Capital } & 8,800
\end{array}\) The total of all the assets is:
A) $10,000
B) $8,000
C) $9,700
D) $9,800
Answer: A
Q2) The normal balance of a capital account is a debit.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The entry to adjust the accounts for wages accrued at the end of the accounting period is
A) debit Wages Payable; credit Wages Income
B) debit Wages Income; credit Wages Payable
C) debit Wages Payable; credit Wages Expense
D) debit Wages Expense; credit Wages Payable
Answer: D
Q2) Deferred revenue is revenue that is
A) earned and the cash has been received
B) earned but the cash has not been received
C) not earned and the cash has not been received
D) not earned but the cash has been received
Answer: D
Q3) Using accrual accounting, revenue is recorded and reported only
A) when cash is received without regard to when the services are rendered
B) when the services are rendered without regard to when cash is received
C) when cash is received at the time services are rendered
D) if cash is received after the services are rendered
Answer: B
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Explain how net income or loss is determined by using the work sheet.
Q2) Which of the following is not an essential part of the accounting records?
A) The journal
B) The ledger
C) The chart of accounts
D) The work sheet
Q3) What is the last account that should be listed in the Post Closing Trial Balance?
A) Income Summary
B) Capital account
C) Cash
D) Fees Earned
Q4) Liabilities that will be due within one year or less and that are to be paid out of current assets are called current liabilities.
A)True
B)False
Q5) Any twelve-month accounting period adopted by a company is known as its fiscal year.
A)True
B)False
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Chapter 5: Accounting Systems
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Sample Questions
Q1) After an accounting system has been set up, what is the next step?
A) Analysis
B) Feedback
C) Implementation
D) Internal controls
Q2) Which of the following transactions is recorded in the revenue journal?
A) sale of excess office equipment for cash
B) rendering services for cash
C) rendering services on account
D) sale of excess office equipment on account
Q3) Which of the following is not one of the three phases needed when changing an accounting system, either in its entirety or in part?
A) analysis
B) design
C) review
D) implementation
Q4) The methods or procedures used to record and report financial data are called the accounting system.
A)True
B)False
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) When companies use a perpetual inventory system, the recording of the purchase of inventory will include a debit to purchases.
A)True
B)False
Q2) Using a perpetual inventory system, the entry to record the purchase of $30,000 of merchandise on account would include a
A) debit to Accounts Payable
B) debit to Merchandise Inventory
C) credit to Merchandise Inventory
D) credit to Sales
Q3) Title to merchandise shipped FOB shipping point passes to the buyer upon delivery of the merchandise to the buyer's place of business.
A)True
B)False
Q4) Sales to customers who use nonbank credit cards, such as American Express, are generally treated as credit sales.
A)True
B)False
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8
Chapter 7: Inventories
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Sample Questions
Q1) If merchandise inventory is being valued at cost and the price level is steadily rising, the method of costing that will yield the highest net income is
A) periodic
B) LIFO
C) FIFO
D) average
Q2) The method of computing inventory that uses records of the selling prices of the merchandise is called
A) retail method
B) last-in, first-out
C) first-in, first-out
D) average cost
Q3) Cost flow is in the reverse order in which costs were incurred when using A) weighted average
B) last-in, first-out
C) first-in, first-out
D) average cost
Q4) Describe three inventory cost flow assumptions and how they impact the financial statements.
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Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals of the early 2000s.
A)True
B)False
Q2) A necessary element of internal control is
A) database
B) systems design
C) systems analysis
D) information and communication
Q3) Receipts from cash sales of $3,200 were recorded incorrectly in the cash receipts journal as $2,300. What entry is required in the company's accounts?
A) debit Sales; credit Cash
B) debit Cash; credit Accounts Receivable
C) debit Cash; credit Sales
D) debit Accounts Receivable; credit Cash
Q4) Money orders are considered cash.
A)True
B)False
Q5) List and define each of the five elements of internal control.
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Chapter 9: Receivables
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Sample Questions
Q1) When using the allowance method to estimate uncollectible accounts receivable based on an analysis of receivables shows that $640 of accounts receivables are uncollectible. The Allowance for Doubtful Accounts has a debit balance of $110. The adjusting entry at the end of the year will include a credit to Allowance for Doubtful Accounts in the amount of:
A) $110
B) $640
C) $530
D) $750
Q2) If the allowance method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?
A) Uncollectible Accounts Expense
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Interest Expense
Q3) Receivables currently collectible are reported in the investments section of the balance sheet.
A)True
B)False
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Chapter 10: Fixed Assets and Intangible Assets
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Sample Questions
Q1) A machine costing $57,000 with a 6-year life and $54,000 depreciable cost was purchased January 1, 2015. Compute the yearly depreciation expense using straight-line depreciation.
Q2) When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry (assuming the exchange was considered to have commercial substance):
A) debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal
B) debit Machinery and Accumulated Depreciation; credit Machinery and Cash
C) debit Cash and Machinery; credit Accumulated Depreciation
D) debit Cash and Machinery; credit Accumulated Depreciation and Machinery
Q3) The cost of a patent with a remaining legal life of 10 years and an estimated useful life of 7 years is amortized over 10 years.
A)True B)False
Q4) Capital expenditures are costs that are charged to Stockholders' Equity accounts. A)True B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Which statement below is not a determinate in calculating the amount of federal income taxes withheld from an individuals pay?
A) filing status
B) types of earnings
C) gross pay
D) number of exemptions
Q2) Most employers are required to withhold federal unemployment taxes from employee earnings.
A)True
B)False
Q3) On July 8, Alton Co. issued an $80,000, 6%, 120-day note payable to Seller Co. Assume that the fiscal year of Alton Co. ends July 31. Using the 360-day year in your calculations, what is the amount of interest expense recognized by Alton in the current fiscal year?
A) $1,200.00
B) $106.67
C) $306.67
D) $400.00
Q4) List five internal controls that relate directly to payroll.
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) When a new partner is admitted to a partnership, there should be a(n)
A) revaluation of assets
B) realization of assets
C) allocation of assets
D) return of assets
Q2) Antonio and Barbara are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $80,000. What amount of loss on realization should be allocated to Barbara?
A) $80,000
B) $10,000
C) $20,000
D) $30,000
Q3) Revenue per employee may be used to measure partnership (LLC) efficiency.
A)True
B)False
Q4) What is a partnership? List three advantages and three disadvantages of the partnership form of business organization.
Q5) Describe the items which should be covered in a partnership agreement.
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Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) When a stock dividend is declared, which of the following accounts is credited?
A) Common Sock
B) Dividend Payable
C) Stock Dividends Distributable
D) Retained Earnings
Q2) A company with 100,000 authorized shares of $4 par common stock issued 40,000 shares at $8. Subsequently, the company declared a 2% stock dividend on a date when the market price was $11 a share. What is the amount transferred from the retained earnings account to paid-in capital accounts as a result of the stock dividend?
A) $3,200
B) $6,400
C) $4,800
D) $8,800
Q3) The state charter allows a corporation to issue only a certain number of shares of each class of stock. This amount of stock is called
A) treasury stock
B) issued stock
C) outstanding stock
D) authorized stock
Page 15
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) If the amount of a bond premium on an issued 11%, 4-year, $100,000 bond is $12,928, the annual interest expense is $5,500.
A)True
B)False
Q2) The present value of $5,000 to be received in 4 years at a market rate of interest of 6% compounded annually is $3,636.30.
A)True
B)False
Q3) The unamortized Discount on Bonds Payable account is a contra-liability account. A)True B)False
Q4) Amortization is the allocation process of writing off bond premiums and discounts to interest expense over the life of the bond issue. A)True
B)False
Q5) (a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000. (b) Prepare the journal entry to issue $100,000 bonds which sold for $104,000.
Q6) (a) Prepare the joumal entry to issue $500,000 bonds which sold for $490,000 (b) Prepare the journal entry to issue $500,000 bonds which sold for $515.000
Page 16
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Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) The cumulative effects of other comprehensive income items is included in retained earnings, on the balance sheet.
A)True
B)False
Q2) Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to
A) Investment in Vallerio
B) Retained Earnings
C) Dividend Revenue
D) Dividend Receivables
Q3) It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.
A)True
B)False
Q4) Under the equity method, a stock purchase is recorded at its original cost and is adjusted to fair market value each accounting period.
A)True
B)False
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Cash dividends paid on capital stock would be reported in the statement of cash flows in
A) the cash flows from financing activities section
B) the cash flows from investing activities section
C) a separate schedule
D) the cash flows from operating activities section
Q2) Master Designs Company has cash flows for operating activities of $350,000. Cash flows used for investments in property, plant, and equipment totaled $65,000, of which 70% of this investment was used to replace machinery to maintain existing capacity.
What is the free cash flow for Master Designs?
Q3) Which of the following does not represent an outflow of cash and therefore would not be reported on the statement of cash flows as a use of cash?
A) purchase of noncurrent assets
B) purchase of treasury stock
C) discarding an asset that had been fully depreciated
D) payment of cash dividends
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18
Chapter 17: Financial Statement Analysis
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Q1) Which of the following should be classified as an extraordinary item on the income statement?
A) Gain on a sale of a long term investment.
B) Loss due to discontinued operations.
C) Restructuring charges.
D) Loss resulting from an infrequent natural disaster.
Q2) An extraordinary item results from
A) a segment of the business being sold.
B) corporate income tax being paid.
C) a change from one accounting method to another acceptable accounting method.
D) a transaction or event that is unusual and occurs infrequently.
Q3) In computing the rate earned on total assets, interest expense is subtracted from net income before dividing by average total assets.
A)True
B)False
Q4) The numerator used to calculate accounts receivable turnover is
A) total sales
B) net sales
C) accounts receivable at year-end
D) average accounts receivable
Page 19
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