Accounting Foundations Exam Practice Tests
Course Introduction
Accounting Foundations introduces students to the fundamental concepts and principles of accounting, including the recording, summarizing, and reporting of financial transactions. Emphasizing the accounting cycle, this course covers essential topics such as double-entry bookkeeping, preparation of financial statements, and the use of accounting information for decision-making. Through hands-on exercises and real-world examples, students will develop a strong understanding of how financial information is generated and utilized by businesses and organizations. This foundational knowledge prepares students for more advanced accounting courses and equips them with essential skills for various roles in business and finance.
Recommended Textbook Principles of Accounting 12th Edition by Belverd E. Needles
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Chapter 1: Accounting Principles and the Financial Statements
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Sample Questions
Q1) A corporation is an economic unit that is legally separate from its owners.
A)True
B)False Answer: True
Q2) Which of the following transactions involves an exchange of value?
A)Accumulation of interest
B)Sale of services
C)Fire damage
D)Wear and tear on machinery Answer: B
Q3) Which of the following accounts is not considered an asset?
A)Accounts Receivable
B)Inventory
C)Accounts Payable
D)Trademark Answer: C
Q4) The stockholders of a corporation elect the board of directors.
A)True
B)False Answer: True
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) The controller for Tires and More,Inc.has recorded the following transactions during the month: the purchase of supplies on credit,$4,200;receipt of a bill for utilities for the month which is due on the 15th of the next month,$1,200;and,partial payment on the balance due for supplies,$800.What is the balance in the Accounts Payable account at the end of the month assuming a beginning balance of $0,and is the balance a debit or a credit?
A)$4,600 debit.
B)$4,600 credit.
C)$3,400 credit.
D)$5,400 credit.
Answer: B
Q2) Which of the following accounts might be placed first in a journal entry?
A)Interest Payable,when it has been decreased.
B)Accounts Receivable,when it has been decreased.
C)Unearned Revenue,when it has been increased.
D)Service Revenue,when it has been increased.
Answer: A
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Chapter 3: Adjusting the Accounts
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Sample Questions
Q1) When preparing financial statements,the accountant assumes that the business will continue to operate for at least 5 years,unless there is evidence to the contrary.
A)True
B)False
Answer: False
Q2) What is the adjusting entry for that portion of revenue received in advance which has now been earned?
A)Unearned Revenue - Debit;Cash - Credit
B)Unearned Revenue - Debit;Service Revenue - Credit
C)Service Revenue - Debit;Unearned Revenue - Credit
D)Cash - Debit;Unearned Revenue - Credit
Answer: B
Q3) Revenue is equal to the cash received by a company during an accounting period. A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The total amount of revenue earned for the period is
A)$300.
B)$600.
C)$700.
D)$900.
Q2) Which of the following items is used in preparing the statement of owner's equity?
A)Withdrawals.
B)Net income.
C)Additional investments.
D)All of these choices.
Q3) The adjusting entries involving Rent Receivable and Salaries Payable could be reversed.
A)True
B)False
Q4) The amount of withdrawals for the period is
A)$50.
B)$200.
C)$400.
D)$500.
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Chapter 5: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) In practice,accounting information is quite simple and precise.
A)True
B)False
Q2) Describe how the current ratio is calculated.If a company has a very low current ratio,what might this mean? If a company has a very high current ratio,what might this mean?
Q3) The debt to equity ratio for Cane Construction is
A)16-2/3 percent.
B)20 percent.
C)80 percent.
D)83-1/3 percent.
Q4) Accounting information should make a difference to the outcome of a decision,according to the qualitative characteristic of A)faithful representation.
B)relevance.
C)consistency.
D)understandability.
Q5) A material item is one that is likely to affect a user's decision.
A)True
B)False
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Chapter 6: Accounting for Merchandising Operations
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Sample Questions
Q1) When the periodic inventory system is used,a physical inventory should be taken at the end of the fiscal year.
A)True
B)False
Q2) Which of the following activities is not a component of the operating cycle?
A)Payment of employees' wages
B)Sale of merchandise
C)Purchase of merchandise
D)Collection of cash from merchandise sales
Q3) Purchase discounts are discounts that a buyer takes for the early payment of merchandise.
A)True
B)False
Q4) When the terms are FOB destination,the title passes at the destinationand the seller pays the transportation costs.
A)True
B)False
Q5) Adding freight-out expenses to net purchases gives net cost of purchases.
A)True
B)False
8
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Chapter 7: Inventories
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Sample Questions
Q1) Using the average-cost method,the cost assigned to ending inventory is
A)$3,036.
B)$3,168.
C)$3,384.
D)$8,556.
Q2) Average inventory equals $200,000,and cost of goods sold equals $442,000.Days' inventory on hand equals
A)165.2 days.
B)Not enough information available to answer the question.
C)154.3 days.
D)188.7 days.
Q3) A retail store had goods available for sale during the period of $250,000 at retail and $100,000 at cost.It has ending inventory of $28,500 at retail.What is the estimated cost of goods sold?
A)$71,500
B)$94,300
C)$88,600
D)$82,900
Q4) What is a LIFO liquidation,and what is its effect on income before income taxes?
Q5) How is the matching rule applied when accounting for merchandise inventory?
Page 9
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Chapter 8: Cash and Internal Control
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Sample Questions
Q1) Which of the following documents is prepared by a company's accounting department?
A)Bank statement
B)Receiving report
C)Check authorization
D)Invoice
Q2) A company establishes a $200 petty cash fund.The fund is replenished in the amount of $180,after petty cash vouchers of $80 for postage,$68 for donations,and $54 for meals had accumulated.Was there a cash shortage,overage,or neither? (State amount if overage or shortage. )
Q3) When payment is received by mail,a detailed list of such receipts would not be retained by the
A)receiving department.
B)accounting department.
C)person who opens the mail.
D)cashier.
Q4) The financial statements of nonpublic companies are not required to be audited by an independent CPA.
A)True
B)False
Page 10
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Chapter 9: Receivables
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Sample Questions
Q1) Each of the following is a characteristic of a promissory note except a(n)
A)maturity date that can be determined on the date the note is signed.
B)payee who has an unconditional right to receive a definite amount on a definite date.
C)maker who agrees to pay a definite sum subject to certain conditions.
D)amount to be paid that can be determined on the date the note is signed.
Q2) The debtor named in a promissory note is called the payee.
A)True
B)False
Q3) The receivables turnover is expressed in terms of A)times.
B)days.
C)a percentage.
D)dollars.
Q4) Which of the following topics involves a contingent liability?
A)Installment accounts receivable
B)A discounted note receivable
C)Securitization
D)Credit card sales
Q5) Explain the two methods used to estimate uncollectible accounts.
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Chapter 10: Long -Term Assets
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Sample Questions
Q1) The cost of assets acquired for a lump sum should be allocated equally among the acquired assets.
A)True
B)False
Q2) Book value is another term for carrying value.
A)True
B)False
Q3) Preston Corporation purchased a truck for $40,000.The company expected the truck to last four years or 100,000 miles,with an estimated residual value of $4,000 at the end of that time.During the second year,the truck was driven 27,500 miles.Compute the depreciation for the second year under each of the following methods: (a)straight-line, (b)production,and (c)double-declining-balance.(Show your work. )
Q4) The entire cost of developing computer software should be capitalized and amortized over the software's useful life.
A)True B)False
Q5) The cost of a sewage system should be included in the Land Improvements account. A)True B)False
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Chapter 11: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) The theoretical value of an asset is the future value of its expected benefits.
A)True
B)False
Q2) The classification of a liability as current or long-term is not important to the evaluation of a company's liquidity.
A)True
B)False
Q3) Days' payable is the shortest in which of the following industries?
A)Grocery stores
B)Computers
C)Machinery
D)Auto and home supply
Q4) Which of the following most likely is a definitely determinable liability during interim periods?
A)Estimated property tax payable
B)Accrued interest payable
C)Estimated product warranty liability
D)Estimated income taxes payable
Q5) Explain why a creditor would be concerned if your company had a current ratio of less than 1.0?
13
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) A partnership agreement should include the method of distributing income and loss.
A)True
B)False
Q2) Unlimited liability refers to
A)a claim to the partners' personal assets by creditors if the partnership cannot pay its debts.
B)the ability of any partner to bind the partnership to a business agreement as long as he or she acts within the scope of the company's normal operations.
C)co-ownership of partnership property.
D)the method of income and loss distribution.
Q3) In a liquidation,the liabilities of the partnership should be paid
A)after a revaluation of assets
B)before any sales of assets
C)before the distribution of cash to partners
D)before the distribution of gains and losses on the disposal of assets
Q4) There is no income tax imposed on a partnership.
A)True
B)False
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) Which of the following has an effect on total stockholders' equity?
A)Conversion of preferred stock into common stock
B)Cash dividend
C)Stock dividend
D)Stock split
Q2) On May 1,20x5,Ironwood Corporation had 200,000 shares of $10 par value common stock outstanding with a market value of $16 per share.On May 2,20x5,Ironwood announced a 4-for-1 stock split.After the split,the par value of the stock
A)remained the same as before the split.
B)was reduced to $2.50 per share.
C)was reduced by $4 per share.
D)was reduced by $2.50 per share.
Q3) The price/earnings (P/E)ratio is a measure of investors' confidence in a company's future.
A)True
B)False
Q4) Retained earnings are a component of contributed capital.
A)True
B)False
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Chapter 14: Long Term Liabilities
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Sample Questions
Q1) Any unamortized bond discount should be reported on the balance sheet of the issuing corporation as a(n)
A)asset.
B)direct deduction from retained earnings in the stockholders' equity section.
C)addition to the face amount of the bonds in the liability section.
D)direct deduction from the face amount of the bonds in the liability section.
Q2) On January 2,20x5,Clair Inc.signed a 9% mortgage payable for $200,000 with equal monthly payments of $2,400.When Clair makes the second payment,how much interest expense will be recorded?
A)$0
B)$1,494.
C)$1,500.
D)$1,482.
Q3) If the market interest rate at the date of issuance of a bond exceeds the face interest rate,the present value of the face value plus the present value of all the future interest payments will equal an amount less than the face value of the bond.
A)True
B)False
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) Lincoln Company engaged in this transaction: Accrued employee wages earned but not yet paid at year-end.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Financing activities section.
B)Investing activities section.
C)Does not represent a cash flow.
D)Operating activities section.
Q2) Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Increase in Prepaid Expenses-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.
Q3) What does it mean when a company has positive free cash flow? What does it mean when a company has negative free cash flow?
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Chapter 16: Financial Statement Analysis
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Sample Questions
Q1) Cash flows to sales and cash flows to assets are measured in terms of A)times.
B)a percentage.
C)dollars.
D)days.
Q2) Contrast the circumstances where horizontal analysis would be an effective analysis tool with those where common-sized analysis would be more useful.
Q3) Days' inventory on hand is used to analyze A)cash flow adequacy.
B)operating asset management.
C)profitability.
D)long-term solvency.
Q4) How would the collection of an account receivable affect the current ratio and the quick ratio,respectively?
A)No effect on current ratio;increase in quick ratio
B)Increase in current ratio;increase in quick ratio
C)No effect on current ratio;no effect on quick ratio
D)Decrease in current ratio;decrease in quick ratio
Q5) Briefly explain a "big bath" including when it occurs and why it occurs.
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Chapter 17: Managerial Accounting and Cost Concepts
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Sample Questions
Q1) Which of the following is not a stage in the management process?
A)Evaluating
B)Communicating
C)Planning
D)Recording
Q2) Which of the following is not a product cost?
A)Depreciation on office furniture
B)Manufacturing overhead
C)Direct labor
D)Direct materials
Q3) Although some management accountants strive to update their knowledge and skills,such updating is within the realm of management accountants' ethical standards.
A)True
B)False
Q4) A materials request form is prepared whenever the purchasing department orders materials.
A)True
B)False
Q5) Give two examples of each stage in the management process.
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Chapter 18: Costing Systems: Job Order Costing
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Sample Questions
Q1) The applied overhead is
A)$31,000.
B)$30,000.
C)$18,000.
D)$62,300.
Q2) Under a job order costing system,the dollar amount of the entry to record the transfer of goods from Work in Process Inventory to Finished Goods Inventory is the total of the costs charged to all jobs
A)started during the period.
B)completed and sold during the period.
C)completed during the period.
D)started and completed during the period.
Q3) The _________ provides the most direct means of calculating unit costs for a job.
A)job order cost card
B)Finished Goods Inventory account
C)general ledger
D)Materials Inventory account
Q4) Explain how the unit cost information is used by managers in the management process.
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Chapter 19: Costing Systems Process Costing
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Sample Questions
Q1) It is not necessary to ascertain the portion of ending Work in Process Inventory applicable to direct materials costs versus conversion costs.
A)True
B)False
Q2) Equivalent units for conversion costs of Taylor Company are
A)207,800.
B)192,200.
C)181,800.
D)200,000.
Q3) During October,Department A of Answer Inc.started 320,000 units of product in a particular manufacturing process.The beginning work in process inventory was 50,000 units,and the ending inventory was 30,000 units.Direct materials are introduced at the start of processing,and beginning and ending inventories are considered to be 50 percent complete with respect to conversion costs.Department A uses the FIFO costing method. Units transferred out of Department A of Answer during October were
A)335,000.
B)370,000.
C)325,000.
D)340,000.
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Chapter 20: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Sample Questions
Q1) Reports and analyses prepared in traditional management settings will match the requirement of the new manufacturing environment.
A)True
B)False
Q2) Explain how a just-in-time operating philosophy reduces the time it takes to complete the production of a product.Include in your answer the classifications of time that are affected.How does such a change help to reduce product costs?
Q3) Last year,Amanda Jones opened an ice cream parlor in a busy shopping center.She spent a lot on advertising and attracted many customers into the store,but a few customers made turned up and sales were declining.Amanda paid attention to questions and requests made by customers and determined that they often requested items that were within the scope of her business but that she did not carry.When she offered to order items for her customers,delivery was usually too late and,yet again,sales were lost.What measures should Amanda take to improve her business?
Q4) How do managers measure an activity's performance?
Q5) The value chain analysis allows a company to focus on its core competencies.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Which of the following statements most accurately explains the behavior of costs?
A)Costs can be fixed,variable,or a combination of both.
B)The majority of costs are variable per unit of production.
C)The majority of costs are fixed per unit of production.
D)Mixed costs are treated as variable costs.
Q2) Depreciation cost of a controller's computer calculated using the straight-line method is an example of a variable cost.
A)True
B)False
Q3) Which of the following equations represents a breakeven point?
A)Sales Price + Variable Cost Fixed Cost = 0
B)Variable Cost Fixed Cost = Sales Price
C)Sales Price + Fixed Cost = Variable Cost
D)Sales Price Variable Cost = Fixed Cost
Q4) The sales mix is the proportion of each product's unit sales relative to the company's total unit sales.
A)True
B)False
Q5) Explain what cost-volume-profit analysis is and how managers use it.
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Chapter 22: The Budgeting Process
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Sample Questions
Q1) A budget can contain only financial information.
A)True
B)False
Q2) Which of the following is prepared directly after the cash budget?
A)Overhead budget
B)Production budget
C)Budgeted balance sheet
D)Capital expenditures budget
Q3) Each period's ending cash balance becomes the beginning cash balance for the next period.
A)True
B)False
Q4) Revising the budgets to include all planning decisions will improve the quality of the budgets.
A)True
B)False
Q5) In estimating cash receipts and cash payments for the cash budget,many organizations prepare supporting schedules.
A)True
B)False
Page 24
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Chapter 23: Flexible Budgets and Performance Analysis
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Q1) Cash bonuses are usually given to encourage short-term performance.
A)True
B)False
Q2) Which of the following is a common type of incentive compensation?
A)Health insurance
B)Profit-sharing plans
C)Pension plans
D)Flexible spending programs
Q3) Which of the following statements is true of performance measurement?
A)It measures only qualitative information.
B)It uses both qualitative and quantitative tools to measure the performance.
C)It helps in understanding a company's performance related to a specific goal.
D)It cannot be used by service companies.
Q4) Which of the following types of incentives encourages an employee to think as both investor and employee?
A)Profit-sharing plans
B)Awards
C)Cash bonuses
D)Stock option programs
Q5) Write a brief note on the performance-based pay.
Page 25
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Chapter 24: Standard Costing and Variance Analysis
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Q1) Using the above information provided for Underfoot Products,compute the variable overhead efficiency variance.
A)$10,000 (F)
B)$10,000 (U)
C)$40,000 (F)
D)$40,000 (U)
Q2) Corrective action is necessary even if a variance is insignificant.
A)True
B)False
Q3) During the current month,Thompson Company started 40,000 units of product and transferred 25,000 fully completed units to finished goods.The final work in process inventory was 50 percent complete as to labor operations.There was no initial work in process,and actual labor hours were 150,000 for the period.Each unit should have required 3 direct labor hours to be produced at standard.The total standard hours allowed for the period are
A)75,000 hours.
B)97,500 hours.
C)120,000 hours.
D)150,000 hours.
Q4) Mention a few reasons for an unfavorable direct labor cost variance.
Page 26
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Chapter 25: Short-Run Decision Analysis and Capital Budgeting
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Q1) In segment profitability analysis,avoidable costs are costs that A)are traceable to a specific segment of business.
B)cannot be eliminated if a segment is dropped.
C)are common to all the segments of a business. D)have not been incurred and hence are irrelevant.
Q2) The idea behind incremental analysis is to review decision data that differ between alternatives.
A)True
B)False
Q3) A sell or process-further decision is a decision about whether to sell a joint product at the split-off point or sell it after further processing.
A)True
B)False
Q4) Which of the following is true of segment profitability analysis?
A)It suggests eliminating all segments having positive margins.
B)It includes the preparation of a segmented income statement.
C)It traces common fixed costs to individual segments.
D)It treats common fixed costs as avoidable costs.
Q5) What are the two steps in the analysis of a sales mix decision?
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