Accounting Fundamentals Exam Review
Course Introduction
Accounting Fundamentals introduces students to the basic principles and concepts of accounting, focusing on the systematic recording, reporting, and analysis of financial transactions. The course covers the preparation and interpretation of financial statements, the accounting cycle, and the foundational elements such as assets, liabilities, equity, revenue, and expenses. Students will gain practical knowledge in using accounting tools, adhering to generally accepted accounting standards, and understanding the role of accounting in business decision-making. This foundational course prepares students for more advanced studies in accounting and finance, as well as for real-world business applications.
Recommended Textbook
Cornerstones of Financial Accounting 3rd Edition by Jay Rich
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14 Chapters
2651 Verified Questions
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Chapter 1: Accounting and the Financial Statements
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Sample Questions
Q1) Which of the following are Noncurrent assets?
A)machinery and equipment
B)accounts receivable
C)inventories
D)unearned revenues
Answer: A
Q2) Net sales less cost of goods sold expense
Answer: C
Q3) A non-classified balance sheet typically does not have a distinction between which of the following items?
A)assets and liabilities
B)current and noncurrent items
C)liabilities and stockholders' equity
D)Resources invested by the owners and amounts borrowed from creditors.
Answer: B
Q4) In a(n)____________________-step income statement, all expenses and losses are added together, then deducted from the sum of all revenues and gains.
Answer: single
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Chapter 2: The Accounting Information System
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Sample Questions
Q1) Refer to Happy Heights Country Club. Which of the following describes the transactions which occurred on July 7th?
A)sold club membership on credit
B)collected revenue in advance
C)collected accounts receivable
D)sold club membership for cash
Answer: C
Q2) Has the ultimate authority to set accounting standards, but has allowed the profession to do so.
Answer: C
Q3) Dividends
Answer: A
Q4) Refer to H&R Clock Company. Set up T-accounts and post each transaction to the T-accounts.
Answer: 11ea7daa_2cbb_0e18_b9bd_99fbf2c1b985_TB2047_00_TB2047_00
Q5) The going concern assumption infers that a company will continue to operate into the future.
A)True
B)False
Answer: True
4
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Chapter 3: Accrual Accounting
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Sample Questions
Q1) Inventory
Answer: B
Q2) In the worksheet, the first set of columns immediately following the account titles is for the Adjusted Trial Balance
A)True
B)False
Answer: False
Q3) Refer to California Condos. The company reported interest receivable of $2,500 at December 31, 2013, and $0 at the beginning of 2013. How much cash did the company collect for interest during the year?
Answer: $7,500
$10,000 (Interest Revenue) - $2,500 (Interest Receivable at December 31)= $7,500
Q4) Adjusting entries are recorded at the end of each accounting period so that net income is accurately reflected in the financial statements for the period.
A)True
B)False
Answer: True
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Chapter 4: Internal Control and Cash
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Sample Questions
Q1) Amounts on deposit with financial institutions and investments primarily held in money market accounts, with original maturities of less than 90 days
Q2) If the bank credits a customer's account, then that customer's cash account balance increases.
A)True
B)False
Q3) The amount of cash in the cash register from sales totals $534. The amount for sales recorded on the cash register tape was $530. Which journal entry is required?
A)Cash in Bank 530 Sales 530
B)Cash in Bank 534 Sales 534
C)Cash in Bank 534 Sales 530
Cash Over and Short 4
D)Cash in Bank 530 Cash Over and Short 4
Sales 534
Q4) A fund used to pay for small amounts to avoid the time and expense of paying by check
Q5) Explain how checking accounts, bank statements, and a bank reconciliation are used to help a company control its cash.
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Chapter 5: Sales and Receivables
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Sample Questions
Q1) Refer to A&B Foods. If the company uses the aging of accounts receivable method to estimate its bad debts, what will be the net realizable value of its accounts receivable after the adjustment for bad debt expense?
A)$343,000
B)$345,000
C)$420,000
D)$395,000
Q2) What should a company do to improve its accounts receivable turnover rate?
A)Lower its selling prices.
B)Increase its sales force.
C)Give customers credit terms of 2/10, n/30 rather than 1/10, n/30.
D)Reduce the number of employees working in the credit department.
Q3) If a company uses the direct write-off method of accounting for bad debts,
A)It establishes an estimate for the allowance for doubtful accounts.
B)It will record bad debt expense only when an account is determined to be uncollected.
C)It will reduce the accounts receivable account at the end of the accounting period for estimated uncollected accounts.
D)When an account is written off, total assets will stay the same.
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Chapter 6: Cost of Goods Sold and Inventory
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Sample Questions
Q1) Refer to the information provided for Aaron Corporation. Calculate gross margin.
A)$120,500
B)$137,500
C)$144,500
D)$212,500
Q2) The inventory turnover ratio is defined as cost of goods sold divided by average inventory.
A)True
B)False
Q3) Refer to the information provided for Yu Company. Explain the advantages to Yu Company for using the perpetual inventory system. Assume that Yu Company uses a computer system which is linked to its cash registers and that all products have bar codes that are read by bar code readers attached to the cash registers.
Q4) Items should be included as part of the company's inventory if they are
A)purchased from a creditor, although not paid for by year end.
B)held in anticipation of an increase in market value.
C)determined to be part of cost of goods sold.
D)sold during the period.
Q5) Transportation costs paid by the buyer.
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Chapter 7: Operating Assets
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Sample Questions
Q1) For Heaven Scapes purchased a trademark at the beginning of 2013 for $200,000. The trademark's legal life is 10 years. How much total amortization expense would have been recorded by January 2014?
A)$0
B)$20,000
C)$40,000
D)$60,000
Q2) Floors 4 U uses straight-line depreciation for its equipment. The company purchased equipment for $250,000 and estimated its useful life at 8 years. The bookkeeper failed to consider the residual value of $25,000. What is the impact on earnings per share and operating income of failing to consider the residual value?
A)Earnings per share will be overstated and operating income will be understated.
B)Earnings per share will be understated and operating income will be overstated.
C)Both earnings per share and operating income will be overstated.
D)Both earnings per share and operating income will be understated.
Q3) The cash purchase was made on March 8 with terms of 2/10, net 30.
Q4) Gain on disposal of plant asset
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Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) Which of the following would appear on the balance sheet as a current liability?
A)A loss that could be expected upon the occurrence of a strike by employees.
B)Potential damages from the risk of explosions in a fireworks factory.
C)Payments that are likely to occur for pension benefits to employees.
D)A possible loss from a threatened lawsuit.
Q2) Liabilities created by adjusting entries
Q3) Liquidity relates to a company's ability to sell its assets for amounts that exceed the assets' book values.
A)True
B)False
Q4) During January, Gaston Wholesalers experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a 30-day note that includes 9% interest. What journal entry is needed to record the retirement of the note on the maturity date?
A)Debit notes payable and credit cash
B)Debit notes payable, credit interest expense, and credit cash.
C)Debit notes payable, debit interest expense, and credit cash.
D)Debit accounts payable, debit interest expense, and credit notes payable.
Q5) State income taxes
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) In periods of inflation, debt financing is preferable to equity financing because the company is able to repay the lender in dollars that have declined in purchasing power.
A)True
B)False
Q2) A type of liability which requires the issuing entity to pay the face value to the holder on the maturity date and to pay interest periodically at a specified rate.
Q3) If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will
A)decrease as the bonds approach their maturity date.
B)increase as the bonds approach their maturity date.
C)remain constant throughout the bonds' life.
D)fluctuate throughout the bonds' life.
Q4) Refer to Kaleidoscope Paint. The interest expense on the bonds at June 30, 2013, is
A)$22,500.
B)$24,037.
C)$21,634.
D)$43,267.
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) ____________________ is the name of the account credited when a corporation issues common stock for a price greater than par.
Q2) A measure of the proportion of common stock dividends to the stock price.
Q3) Date on which shareholders receive dividends that have been declared.
Q4) Stated capital is the amount of capital that, under law, cannot be returned to the corporation's owners except upon liquidation.
A)True
B)False
Q5) Refer to Lakeshore Industries. What is the effect of a 2-for-1 stock split if the market value of the common stock is $20 per share at the time the stock split is declared?
A)A stock split has no impact on any of the stockholders' equity account balances.
B)Total stockholders' equity increases $750,000.
C)Cash increases $750,000.
D)$1,500,000 of retained earnings is transferred to the capital stock accounts.
Q6) An arbitrary monetary amount that has a stated value on each share of stock and establishes a minimum price for the stock when issued is the ____________________.
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) When using the direct method to determine operating cash flows, how is the purchase of equipment for cash shown on the Statement of Cash Flows?
A)operating activity
B)investing activity
C)financing activity
D)noncash investing and financing activity
E)not reported on the statement of cash flows
Q2) The statement of cash flows summarizes the operating, investing, and financing activities of a business for a period of time.
A)True
B)False
Q3) Which of the following measures can be used to evaluate a company's ability to meet future debt obligations after paying operating expenses, dividends and making capital expenditures?
A)earnings per share
B)net income
C)cash flow adequacy ratio
D)net increase or decrease in cash and cash equivalents
Q4) Received payments from accounts receivable.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Refer to Regency Lighting. Complete a common size horizontal analysis of the current assets section of the balance sheet for 2015. Your answers should be expressed as percentages and rounded to one decimal place. Provide a short explanation of this analysis.
Q2) ____________________ assets generally include cash, accounts receivable, and short-term investments.
Q3) Times interest earned ratio
Q4) each financial statement line item is expressed as a percent of the base year (typically the least recent year shown).
Q5) Dividend yield ratio
Q6) Which of the following would be generally viewed as a negative change?
A)Earnings per share increases.
B)The debt-to-total assets ratio decreases.
C)The acid test ratio increases.
D)The return on common equity decreases.
Q7) Form that companies must file with the SEC to announce major events that are important to investors and creditors.
Q8) Return on assets ratio
Q9) compares a single corporation across time.
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Chapter 13: Investments
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Sample Questions
Q1) On January 1, 2011, P Company purchased all of the outstanding common stock of S Company. Which of the following represents the worksheet entry needed to consolidate the balance sheets of the two companies?
A)Investment in S XXX Common stock XXX
Retained earnings XXX
B)Investment in S XXX Retained earnings XXX
C)Common stock XXX Retained earnings XXX
Investment in S XXX
D)Retained earnings XXX Investment in S XXX
Q2) The excess of the investor's acquisition cost over the current value of the investee's identifiable net assets is recorded as an intangible asset called
Q3) ____________________ securities are equity or debt investments that are bought and sold frequently and are typically owned for less than one month.
Q4) A passive investment is one in which the owner
A)is not attempting to exert influence over the company.
B)owns between 15-25% of the company's outstanding stock.
C)uses the equity method of accounting for the investment.
D)is gradually attempting to gain control over the company.
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Chapter 14: Time Value of Money
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Sample Questions
Q1) The _______________ treats the present value as a liability that will be paid through a series of equal payments.
Q2) Cash flows that are equal and occur multiple times, one period apart are called Annuities.
A)True
B)False
Q3) Tom Nelson invested $9,000 into an account yielding 6%. How long must he leave the money in the account to obtain $12,060.90?
A)2 years
B)3 years
C)4 years
D)5 years
Q4) Mark would like to retire in 25 years. If he deposits $10,000 at the end of each of the next 25 years into an account earning 7% interest, how much will he have in this account at the end of 25 years?
A)$250,000
B)$758,292.17
C)$632,490.40
D)$291,339.50
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