Accounting Concepts and Principles
Practice Questions
Course Introduction
This course introduces students to the foundational concepts and principles of accounting, providing a thorough understanding of the accounting cycle and the framework that underpins financial reporting. Topics covered include the double-entry system, accrual accounting, the preparation and interpretation of basic financial statements, and an overview of the key principles such as relevance, reliability, consistency, and comparability. Emphasis is placed on understanding how these principles guide the recording and reporting of business transactions, as well as their importance in ensuring transparency and ethical standards in financial communication.
Recommended Textbook
Fundamental Financial Accounting Concepts 10th Edition by Thomas P Edmonds
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13 Chapters
1246 Verified Questions
1246 Flashcards
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Page 2
Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) Which resource providers lend financial resources to a business with the expectation of repayment with interest?
A)Consumers
B)Creditors
C)Investors
D)Owners
Answer: B
Q2) What happened as a result of this transaction?
A)The balance in the Cash account on Northern's books decreased,while the balance in the Cash account on South Company's books increased.
B)South Company has a cash inflow from investing activities.
C)Northern Corporation has a cash outflow from financing activities.
D)All of these statements are true.
Answer: A
Q3) Retained earnings reduces a company's commitment to use its assets for the benefit of its stockholders.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Accounting for Accruals and Deferrals
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Sample Questions
Q1) Which of the following types of accounts is not closed at the end of an accounting cycle?
A)Revenues
B)Retained earnings
C)Dividends
D)Expenses
Answer: B
Q2) Revenue on account amounted to $5,000.Cash collections of accounts receivable amounted to $2,300.Expenses for the period were $2,100.The company paid dividends of
$450.What was net income for the period?
A)$1,200
B)$2,900
C)$2,850
D)$2,450
Answer: B
Q3) Accrual accounting usually fails to match expenses with revenues.
A)True
B)False
Answer: False
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Chapter 3: The Double-Entry Accounting System
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Sample Questions
Q1) On October 1,Year 1,Senegal Company paid $1,200 in advance for rent of office space for one year and recorded a journal entry debiting Prepaid Rent and crediting Cash for $1,200.On December 31,Year 1,the required adjusting entry was recorded.What are the adjusted account balances at December 31,Year 1?
A)Prepaid Rent,$300;Rent Expense,$900
B)Prepaid Rent,$1,200;Rent Expense,$0
C)Prepaid Rent,$0;Rent Expense,$1,200
D)Prepaid Rent,$900;Rent Expense,$300
Answer: D
Q2) Which of the following accounts is increased with a debit?
A)Insurance Expense
B)Service Revenue
C)Accounts Payable
D)Common Stock
Answer: A
Q3) The T-account format is also called the chart of accounts.
A)True
B)False Answer: False
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Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) JJ Co.purchased on account merchandise with a list price of $10,000.Payment terms were 1/15,n/45.If collection occurs before the discount expires,what is the effect of the sales discount on the balance sheet?
A)Decreases accounts receivable
B)Decreases inventory
C)Increases accounts payable
D)Increases cash
Q2) What is Sanchez's gross margin for Year 2?
A)$6,200
B)$24,200
C)$21,800
D)$32,800
Q3) How is the net income percentage calculated?
A)Net Sales divided by net Income
B)Net Income divided by net Sales
C)Total stockholders' equity divided by net sales
D)Net Income divided by Gross Margin
Q4) Wholesale companies sell goods primarily to other businesses.
A)True
B)False
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) If Singleton uses the weighted-average cost flow method,its average cost per unit would be $8.00.
A)True
B)False
Q2) What is Glasgow's cost of goods sold under FIFO?
A)$1,650
B)$1,860
C)$2,310
D)$2,100
Q3) What effect will an overstatement of ending inventory at the end of Year 1 have on the amounts reported on the Year 1 financial statements?
A)Overstatement of cost of goods sold
B)Overstatement of total assets
C)Understatement of net income
D)Understatement of retained earnings
Q4) What is Glasgow's ending inventory under LIFO?
A)$2,730
B)$2,460
C)$2,220
D)$1,950
Page 7
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Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) Which of the following describes an activity that increases a company's bank account balance?
A)Credit memo
B)Debit memo
C)Balance sheet
D)Certified check
Q2) A savings account or certificate of deposit that imposes a substantial penalty for early withdrawals should not be classified as Cash on the balance sheet.
A)True
B)False
Q3) Duke Company's unadjusted bank balance at March 31 is $2,300.The bank reconciliation revealed outstanding checks amounting to $500 and deposits in transit of $400.What is the true cash balance?
A)$2,200
B)$2,000
C)$2,700
D)$2,400
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) How is the accounts receivable turnover ratio computed?
A)Sales ÷ Net accounts receivable
B)Net accounts receivable ÷ Sales
C)Cost of goods sold ÷ Inventory
D)365 days ÷ Net accounts receivable
Q2) Rosewood Company made a loan of $16,000 to one of the company's employees on April 1,Year 1.The one-year note carried a 6% rate of interest.What is the amount of interest revenue that Rosewood would report in Year 1 and Year 2,respectively?
A)$960 in Year 1 and $0 in Year 2
B)$0 in Year 1 and $960 in Year 2
C)$240 in Year 1 and $720 in Year 2
D)$720 in Year 1 and $240 in Year 2
Q3) Many businesses find it more efficient to offer credit directly to customers rather than to accept third-party credit cards.
A)True
B)False
Q4) Collecting a credit card receivable is an asset source transaction.
A)True
B)False
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) When using the modified accelerated cost recovery system (MACRS)the highest amount of depreciation expense will be recognized in the year the asset is acquired.
A)True
B)False
Q2) On January 1,Year 1,Friedman Company purchased a truck that cost $48,000.The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value.During Year 2,Friedman drove the truck 18,500 miles.Friedman uses the units-of-production method.What is depreciation expense in Year 2?
A)$8,880
B)$7,400
C)$6,000
D)$5,000
Q3) Which method of depreciation is used by most U.S.companies for financial reporting purposes?
A)Straight-line
B)Units-of-production
C)Double-declining-balance
D)MACRS
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10
Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) On September 1,Year 1,West Company borrowed $10,000 from Valley Bank.West agreed to pay interest annually at the rate of 6% per year.The note issued by West carried an 18-month term.West Company has a calendar year-end.What is the amount of interest expense that will be reported on West's income statement for Year 1?
A)$-0-
B)$150
C)$60
D)$200
Q2) At the end of Year 1,Durango Company recorded an adjusting entry for its obligation under product warranties.During Year 2,it paid cash to settle warranty claims from its customers.The Year 2 warranty settlements are asset use transactions.
A)True
B)False
Q3) When calculating interest expense on a 6-month note,multiply the principal by the interest rate,and then multiply by (6 ÷ 12).
A)True
B)False
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) The times-interest-earned ratio is calculated by which of the following?
A)Total assets divided by interest expense.
B)Net income divided by interest expense.
C)Earnings before interest and taxes divided by interest expense.
D)None of these answer choices are correct.
Q2) If a bond issuer's bond ratings drop,the company probably will have to pay higher interest rates on bonds that have already been issued.
A)True
B)False
Q3) The after-tax interest cost of debt equals total interest expense multiplied by the tax rate.
A)True
B)False
Q4) Park Enterprises issued bonds with a face value of $500,000,a stated rate of interest of 7%,and a 5-year term to maturity.The proceeds from the issuance were $508,000.Interest is payable in cash on December 31 of each year.Assuming straight-line amortization,the amount of interest expense for the first year would be $31,600.
A)True
B)False
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Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) An appropriation of retained earnings restricts the amount of dividends that a corporation can declare in the future.
A)True
B)False
Q2) What is the amount of retained earnings that will be transferred to paid-in capital as a result of the stock dividend issued by Gilligan Corporation?
A)$60,500
B)$16,500
C)$44,000
D)$108,500
Q3) In a closely held corporation,exchanges of stock are limited to transactions between individuals.
A)True B)False
Q4) A partner is responsible for his/her own actions,but not for actions taken by another partner on behalf of the partnership.
A)True
B)False
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13
Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) Hilliard Company,a small consulting firm,charges all of its operating expenses on Accounts Payable.On January 1,Year 2,Hilliard's Accounts Payable balance was $24,000 and,during Year 2,an additional $216,000 of operating expenses were charged on account.On December 31,Year 2,the Accounts Payable balance was $72,000.What is the amount of cash paid for expenses during Year 2?
A)$264,000
B)$240,000
C)$168,000
D)$64,000
Q2) Cash flow from operating activities is often less stable from year to year than the amount of net income reported on the income statement.
A)True
B)False
Q3) When the direct method is used to prepare the operating activities section of the statement of cash flows,cash inflows from customers and cash outflows for depreciation are among the categories of cash flows likely to be reported.
A)True
B)False
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14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) A limitation of financial statement analysis stems from the discretion of management to choose accounting procedures that cast the best light on the firm's performance.
A)True
B)False
Q2) Which of the following statements regarding net margin is not true?
A)Net margin refers to the percentage of each sales dollar remaining after all expenses are subtracted.
B)Net margin may be calculated in several ways.
C)The amount of net margin is affected by a company's choices of accounting principles.
D)The smaller the net margin the better.
Q3) The study of an individual financial statement item over several accounting periods is called:
A)Horizontal analysis.
B)Vertical analysis.
C)Ratio analysis.
D)Time and motion analysis.
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