Accounting for Non-Majors Practice Exam
Course Introduction
Accounting for Non-Majors is designed to introduce students from diverse academic backgrounds to the fundamental principles and practices of accounting. The course covers essential concepts such as the accounting cycle, financial statement preparation, and the interpretation of financial information for decision-making. Emphasis is placed on understanding how accounting impacts various functions within organizations and the role it plays in personal and business financial management. Through practical examples and real-world applications, students develop the skills necessary to analyze financial data, communicate financial information effectively, and make informed economic decisions, without requiring a background in accounting or business.
Recommended Textbook
Financial Accounting 7th Edition by Libby Libby
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Page 2
Chapter 1: Financial Statements and Business Decisions
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Sample Questions
Q1) A company's retained earnings balance increased $50,000 last year; therefore,net income last year must have been $50,000.
A)True
B)False
Answer: False
Q2) Willie Company's retained earnings increased $20,000 during 2010.What was Willie's 2010 net income or loss given that Willie declared $25,000 of dividends during 2010?
A)Net income was $5,000.
B)Net income was $45,000.
C)Net loss was $45,000.
D)Net loss was $5,000.
Answer: B
Q3) In what order would the items on the balance sheet appear?
A)Assets, retained earnings, liabilities, and contributed capital.
B)Contributed capital, retained earnings, liabilities, and assets.
C)Assets, liabilities, contributed capital, and retained earnings.
D)Contributed capital, assets, liabilities, and retained earnings.
Answer: C
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3
Chapter 2: Investing and Financing Decisions and the Balance Sheet
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Sample Questions
Q1) Borrowing cash from a bank would result in which of the following?
A)A debit to cash and a credit to notes payable.
B)A debit to notes payable and a credit to cash.
C)A debit to both cash and notes payable.
D)A debit to cash and a credit to contributed capital.
Answer: A
Q2) Describe the general journal and the general ledger.
Answer: Answers will vary
Q3) Why is the separate-entity assumption so important for balance sheet reporting?
Answer: Answers will vary
Q4) Which of the following transactions will cause both the left and right side of the accounting equation to decrease?
A)Collecting cash from a customer who owed us money.
B)Paying a supplier for inventory we previously purchased on account.
C)Borrowing money from a bank.
D)Purchasing equipment using cash.
Answer: B
Q5) Why is the continuity assumption so important for balance sheet reporting?
Answer: Answers will vary
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Chapter 3: Operating Decisions and the Income Statement
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Sample Questions
Q1) Which of the following transactions will result in an increase in operating income as of the date of the transaction?
A)The sale of plant and equipment at a gain.
B)Collection of cash from a customer for services to be provided at a later date.
C)Providing a service to a customer on account.
D)The receipt of cash dividends from an investment.
Answer: C
Q2) Revenue is recognized at the time that cash is collected from a customer for services to be provided in the future.
A)True
B)False
Answer: False
Q3) Which of the following is not reported as an operating expense on the income statement?
A)Salaries expense
B)Rent expense
C)Interest expense
D)Advertising expense
Answer: C
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Page 5
Chapter 4: Adjustments,Financial Statements,and the Quality of Earnings
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Sample Questions
Q1) Which of the following statements regarding the balance sheet is false?
A)Property and equipment is reported at book value.
B)Assets are reported in the order of liquidity.
C)Current liabilities are obligations to be paid with current assets.
D)It is a period of time financial statement.
Q2) On January 1,2011 the balance in the prepaid insurance account was $2,500.On December 31,2011,after the 2011 adjusting entries were made,the balance of the prepaid insurance account was $1,200.During 2011,cash payments for insurance premiums amounted to $5,000,which was debited to the prepaid insurance account.Prepare the adjusting entry which must have been made at December 31,2011.
Q3) Explain how adjusting entries provide for potential manipulation by managers.In addition,discuss how compensation arrangements may result in incentives for such manipulation to occur.
Q4) Prepaid expenses are reported as assets at the time of the initial cash flow and when they are consumed in the future,both expenses and liabilities increase.
A)True
B)False
Q5) Describe the adjusted trial balance.
Page 6
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Chapter 5: Communicating and Interpreting Accounting Information
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Sample Questions
Q1) Intangible assets are reported on the balance sheet as a noncurrent asset and include goodwill.
A)True B)False
Q2) The Callie Company has provided the following information: Operating expenses were $231,000; Cost of goods sold was $376,000; Net sales were $940,000; Interest expense was $32,000; Gain on sale of a building was $76,000; Income tax expense was $151,000. What was Callie's gross profit?
A)$564,000
B)$188,000
C)$333,000
D)$232,000
Q3) Discontinued operations and extraordinary items are reported on the income statement as a component of income from continuing operations. A)True B)False
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Chapter 6: Reporting and Interpreting Sales Revenue, Receivables, and Cash
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Sample Questions
Q1) When preparing the statement of cash flows,the reason that we must adjust net sales revenue for the change in accounts receivables to convert net sales to cash collected from customers is that accounts receivable represents sales revenue not collected from customers at the beginning and end of the accounting year.
A)True
B)False
Q2) What are "cash equivalents"? Specifically where would they appear on the financial statements?
Q3) The Conner Company's August 1,2010 cash balance on their books was $90,000.As of August 1,outstanding checks total $44,000 and deposits in transit total $30,000.How much was Conner's August 1,2010 cash balance on their bank statement?
A)$76,000
B)$90,000
C)$13,000
D)$104,000
Q4) Sales discounts are deducted from sales in the calculation of net sales.
A)True
B)False
Page 8
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Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory
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Sample Questions
Q1) The average days to sell inventory decreases as inventory turnover increases.
A)True
B)False
Q2) Which of the following is correct when beginning inventory is understated by $1,300 and ending inventory is understated by $700?
A)Net income is understated by $600.
B)Net income is understated by $2,000.
C)Net income is overstated by $600.
D)Net income is overstated by $2,000.
Q3) Hollander Company hired some students to help count inventory during their semester break.Unfortunately,the students added incorrectly and the 2010 ending inventory was overstated by $5,000.What would be the effect of this error in ending inventory?
A)2010 net income would be overstated.
B)2010 net income would be understated.
C)2010 ending retained earnings would be understated.
D)2010 cost of goods sold would be overstated.
Q4) How much were inventory purchases when cost of goods sold was $250,000,beginning inventory was $20,000,and ending inventory was $25,000?
Page 9
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Chapter 8: Reporting and Interpreting Property, Plant, and Equipment; Natural Resources; and Intangibles
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Sample Questions
Q1) In 2008,Landmark Restaurants reported the cost of property and equipment at $1,189.8 million and the accumulated depreciation at $224.2 million.In that same year,Coca Cola reported $10,149 million in long-lived,productive assets and accumulated depreciation on them of $4,058.
A.Estimate the approximate remaining life of the assets for Landmark and Coca Cola B.Which company appears to have newer assets with longer remaining lives?
Q2) Augie Corporation purchased a truck at a cost of $60,000.It has an estimated useful life of five years and estimated residual value of $5,000.At the beginning of year three,Augie's managers concluded that the total useful life would be four years,rather than five.There was no change in the estimated residual value.What is the amount of depreciation that Augie should record for year 3 under the straight-line depreciation method?
A)$15,500
B)$8,250
C)$11,000
D)$16,500
Q3) Patents,trademarks,and franchises are examples of tangible assets.
A)True
B)False
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Chapter 9: Reporting and Interpreting Liabilities
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Sample
Questions
Q1) Rachel Corporation purchased a building by paying $90,000 cash on the purchase date,agreeing to pay $50,000 every year for the next nine years and $100,000 ten years from the purchase date; the first payment is due one year after the purchase date.Rachel's incremental borrowing rate is 10%.At what amount would the liability be reported at on the balance sheet as of the purchase date,after the initial $90,000 payment was made?
A)$326,500
B)$460,000
C)$287,950
D)$416,500
Q2) The choice of inventory method has an impact on the accounts payable turnover ratio.
A)True B)False
Q3) Working capital increases when a company accrues revenues at year-end.
A)True B)False
Q4) Purchasing inventory on account decreases the quick ratio.
A)True B)False
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Chapter 10: Reporting and Interpreting Bonds
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Sample Questions
Q1) When a company prepares a bond indenture,certain provisions of the bonds are included.Which of the following is/are not specified in the indenture?
A)Dates of each interest payment.
B)The stated interest rate.
C)The maturity date.
D)The market rate of interest.
Q2) Which of the following statements regarding the effective-interest method of amortization is incorrect?
A)The amount of interest expense is different each period.
B)The amount of discount or premium that is amortized increases each period.
C)It is one of the options according to generally accepted accounting principles.
D)The total interest expense over the life of a bond is the same as that reported under the straight-line method of amortization.
Q3) The debt-to-equity ratio is calculated by dividing total liabilities by total liabilities plus stockholders' equity.
A)True
B)False
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Chapter 11: Reporting and Interpreting Owners Equity
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Sample Questions
Q1) Common stockholders have voting rights and can declare cash dividends.
A)True
B)False
Q2) Slickers,Inc.had the following capital structure during 2010:
Preferred stock,7%,$50 par value,1,000 shares issued and outstanding with dividends in arrears for 2008 and 2009.
Common stock,$100 par value,2,000 shares issued and outstanding. The total dividends declared and paid during 2010 totaled $25,000.How much of the dividend is paid to the preferred stockholders during 2010 assuming the preferred stock is noncumulative?
A)$3,500
B)$7,000
C)$10,500
D)$14,500
Q3) Which of the following is true about a proprietorship?
A)The capital account is used to record only the investments of the owner.
B)The drawing account records distribution of assets to the proprietor.
C)A proprietorship is a separate legal entity from the owner.
D)A proprietorship is subject to income tax.
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Page 13
Chapter 12: Reporting and Interpreting Investments in Other Corporations
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Sample Questions
Q1) A.Discuss the criteria for applying the equity method of accounting for long-term investments.
B.Discuss the rationale for the equity method procedures of accounting for long-term investments.
Q2) Paxton Corporation acquired all of the outstanding voting stock of Stanley Company.How should the assets and liabilities of the acquired company be reported on the consolidated financial statements immediately after the acquisition?
A)Nominal estimated values determined by the parent company.
B)Market values on the date of the acquisition.
C)The previously reported book values.
D)Market values on the date of the acquisition less accumulated depreciation.
Q3) Describe the difference in the calculation of the realized gain or loss on the sale of an investment when the trading security classification is used relative to use of the available-for-sale classification.
Q4) Goodwill is reported on a consolidated balance sheet only if it was acquired in the merger or acquisition.
A)True
B)False
Page 14
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) KJ Company,a manufacturer,has provided the following information pertaining to its recent year of operation: Cash flow from operating activities,$136,000; Accounts payable increased $11,000; Prepaid assets decreased $8,000; Depreciation expense was $12,000; Accounts receivable increased $23,000; Loss on sale of a depreciable asset was $6,000; Wages payable decreased $9,000; Unearned revenue decreased $19,000; Patent amortization expense was $3,000. How much was KJ's net income?
A)$185,000
B)$135,000
C)$147,000
D)$131,000
Q2) Most companies use the direct method for disclosing their cash flows from operating activities rather than the indirect method.
A)True
B)False
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Page 15
Chapter 14: Analyzing Financial Statements
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Sample Questions
Q1) The year-end adjusting entry to record bad debt expense will increase which of the following ratios?
A)Current
B)Quality of income
C)Quick
D)Profit margin
Q2) The cash payment of a previously declared dividend increases which of the following ratios?
A)Debt-to-equity
B)Earnings per share
C)Price earnings ratio
D)Asset turnover
Q3) Which of the following transactions will not increase the cash ratio?
A)Receiving cash from a common stock issue.
B)Refinancing a current liability with long-term debt.
C)Using cash to purchase a two-month treasury bill.
D)Collecting an account receivable.
Q4) At the end of 2010,Doran Corporation reported net income of $70,000,gross sales revenue of $1,525,000,and sales returns of $125,000.Calculate the profit margin ratio.
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