Accounting Fundamentals Exam Review
Course Introduction
Accounting Fundamentals introduces students to the basic principles and concepts of accounting, focusing on the foundational knowledge required for recording, summarizing, and interpreting financial information. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the use of ledgers and journals. Students will also explore the significance of generally accepted accounting principles (GAAP) and learn how to analyze financial transactions for both service and merchandising businesses. By the end of the course, students will have a thorough understanding of core accounting techniques, enabling them to accurately assess business performance and support effective decision-making.
Recommended Textbook
Financial Accounting Fundamentals 6th Edition by John J Wild
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Chapter 1: Accounting in Business
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Sample Questions
Q1) All of the following are classified as liabilities except:
A) Accounts Receivable.
B) Notes Payable.
C) Wages Payable.
D) Accounts Payable.
E) Taxes Payable.
Answer: A
Q2) ________,which is one part of accounting,is the recording of transactions and events,either manually or electronically.
Answer: Record-keeping or Bookkeeping
Q3) The financial statement that shows the beginning balance of retained earnings; the changes in equity that resulted from net income (or net loss); dividends; and the ending retained earnings balance,is the:
A) Statement of financial position.
B) Statement of cash flows.
C) Balance sheet.
D) Income statement.
E) Statement of retained earnings.
Answer: E
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Chapter 2: Analyzing for Business Transactions
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Sample Questions
Q1) Dividends are not reported on a business's income statement.
A)True
B)False
Answer: True
Q2) Identify the accounts that would normally have balances in the credit column of a business's trial balance.
A) Liabilities and expenses.
B) Assets and revenues.
C) Revenues and expenses.
D) Revenues and liabilities.
E) Dividends and liabilities.
Answer: D
Q3) The detail of individual revenue and expense accounts is reported on the statement of retained earnings.
A)True
B)False
Answer: False
Q4) In a seller's accounting records,________ are promises of payment waiting to be received from customers.
Answer: Accounts receivable
Page 4
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Chapter 3: Adjusting Accounts for Financial Statements
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Sample Questions
Q1) An unclassified balance sheet provides more information to users than a classified balance sheet.
A)True
B)False
Answer: False
Q2) Which of the following is classified as a plant asset?
A) Office equipment.
B) Patent.
C) Cash.
D) Office supplies.
E) Merchandise inventory.
Answer: A
Q3) An ________ is a listing of all of the accounts in the ledger with their account balances after adjustments are made.
Answer: adjusted trial balance
Q4) Plant assets are usually listed in order from most liquid to least liquid.
A)True
B)False
Answer: True
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Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) The acid-test ratio:
A) Is also called the quick ratio.
B) Measures profitability.
C) Measures inventory turnover.
D) Is generally greater than the current ratio.
E) Measures return on assets.
Q2) The profit margin ratio is the same as the gross profit ratio.
A)True
B)False
Q3) The current period's ending inventory is:
A) The next period's beginning inventory.
B) The current period's cost of goods sold.
C) The prior period's beginning inventory.
D) The current period's net purchases.
E) The current period's beginning inventory.
Q4) The ________ inventory system continually updates accounting records for merchandise transactions for the amounts of inventory available for sale and inventory sold.
Q5) Harley's Antique Shop had net sales of $772,000.The gross profit was $415,000.Calculate Harley's cost of goods sold.
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Chapter 5: Inventories and Cost of Sales
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Sample Questions
Q1) The inventory turnover ratio is calculated as:
A) Cost of goods sold divided by average merchandise inventory.
B) Sales divided by cost of goods sold.
C) Ending inventory divided by cost of goods sold.
D) Cost of goods sold divided by ending inventory.
E) Cost of goods sold divided by ending inventory times 365.
Q2) A company had inventory on November 1 of 5 units at a cost of $20 each.On November 2,they purchased 10 units at $22 each.On November 6 they purchased 6 units at $25 each.On November 8,8 units were sold for $55 each.Using the LIFO perpetual inventory method,what was the value of the inventory on November 8 after the sale?
A) $304
B) $296
C) $288
D) $280
E) $276
Q3) The ________ method of assigning costs to inventory and cost of goods sold requires that we divide the cost of goods available for sale by the units of inventory available at the time of each sale.
Q4) Explain why the lower of cost or market rule is used to value inventory.
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Chapter 6: Cash, fraud, and Internal Controls
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Sample Questions
Q1) On a bank reconciliation,an unrecorded debit memorandum for printing checks is:
A) Noted as a memorandum only.
B) Added to the book balance of cash.
C) Deducted from the book balance of cash.
D) Added to the bank balance of cash.
E) Deducted from the bank balance of cash.
Q2) Cash,not including cash equivalents,includes:
A) Postage stamps.
B) Customer checks, cashier checks, and money orders.
C) IOUs.
D) Two-year certificates of deposit.
E) Money market funds.
Q3) Collusion is a form of fraud where individuals collaborate to thwart separation of duties.
A)True
B)False
Q4) On June 1,a company established a $75 petty cash fund.On June 27,the petty cash fund contains $5.25 in cash and the following paid petty cash receipts: postage,$19.50; office supplies,$36.25; and miscellaneous expense $14.00.Give the general journal entry to reimburse the fund on June 27.
Page 8
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) A company has $90,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 4% of outstanding receivables are uncollectible.The current balance (before adjustments)in the allowance for doubtful accounts is an $800 credit.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for:
A) $2,800
B) $3,568
C) $3,632
D) $3,600
E) $4,400
Q2) At December 31 of the current year,a company reported the following:
Total sales for the current year: $980,000 includes $160,000 in cash sales
Accounts receivable balance at Dec.31,end of current year: $160,000
Allowance for Doubtful Accounts balance at January 1,beginning of current year: $7,300 Bad debts written off during the current year: $5,800.
Prepare the necessary adjusting entries to record bad debts expense assuming this company's bad debts are estimated to equal 1.5% of credit sales:
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Page 9
Chapter 8: Accounting for Long-Term Assets
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Sample Questions
Q1) Alternations or improvements to leased property made by the lessee.
A)Salvage value
B)Book value
C)Depletion
D)Leasehold improvements
E)Extraordinary repairs
F)Inadequacy
G)Land improvements
H)Patent
I)Obsolescence
J)Copyright
Q2) On January 1,Year 1,Naples purchased a computer system that cost $1,480,000.The estimated useful life of the computer is 3 years and salvage value is $40,000.Straight-line depreciation is to be used.On January 1,Year 2,Naples determined that the estimated useful life of the computer would be 4 years instead of 3 years.The estimated salvage value will only be $10,000.
Prepare the journal entry to record depreciation expense for Year 1.
Prepare the journal entry to record depreciation expense for Year 2.
Q3) How is the cost principle applied to plant asset acquisitions,including lump-sum purchases?
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Chapter 9: Accounting for Current Liabilities
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Sample Questions
Q1) The state unemployment tax rates applied to an employer are adjusted according to an employer's merit rating.
A)True
B)False
Q2) Income taxes payable
A)Long-term liability
B)Not a liability
C)Current liability
Q3) Contingent liabilities are recorded or disclosed unless they are:
A) Probable and estimable.
B) Remote.
C) Reasonably possible.
D) Probable and not estimable.
E) Possible and estimable.
Q4) What is the amount of this employee's net pay for the first week of January?
A) $784.00
B) $139.98
C) $724.02
D) $644.02
E) $923.98
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Chapter 10: Accounting for Long-Term Liabilities
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Sample Questions
Q1) Bonds issued in the names and addresses of their holders are ________ bonds.
Q2) On January 1,a company borrowed $70,000 cash by signing a 9% installment note that is to be repaid with 4 equal year-end payments of $21,607.The amount borrowed is $70,000 and 4 years of interest at 9% equals $25,200,for a total of $95,200,yet the total payments on the note amount to only $86,428.Explain.
Q3) A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into.The loan is at 8% interest compounded annually.The present value factor for 3 years at 8% is 0.7938.The present value of the loan (rounded)is:
A) $15,876.
B) $20,000.
C) $25,195.
D) $7,761.
E) $51,542.
Q4) A basic present value concept is that cash paid or received in the future has less value now than the same amount of cash today.
A)True
B)False
Q5) Describe installment notes and the nature of the typical payment pattern.
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Chapter 11: Corporate Reporting and Analysis
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Sample Questions
Q1) Boron Company is authorized to issue 50,000 shares of $50 par value,8%,cumulative,fully participating preferred stock,and 750,000 shares of $5 par value common stock.Prepare journal entries to record the following selected transactions that occurred during the company's first year of operations:
\(\begin{array}{|l|l|l}
\hline &\text { Exchanged } 2,200 \text { shares of preferred stock for a building with a market } \\
\text { May } 5 &\text { value of } \$ 135,000 \\
\hline \text { July } 20 & \text { Sold } 1,550 \text { shares of preferred stock for } \$ 50
\text { cash per share. } \\
\hline \text { Dec. } 20 & \text { Sold } 1,000 \text { shares of preferred stock at } \$ 52
\text { cash per share. }\\
\hline
\end{array}\)
Q2) A stock dividend does not reduce a corporation's assets or its stockholders' equity.
A)True
B)False
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Page 13
Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) Fernwood Company is preparing the company's statement of cash flows for the fiscal year just ended.The following information is available: \(\begin{array}{lc}
\text { Retained earnings balance at the beginning of the year } & \$ 233,000 \\
\text { Cash dividends declared for the year } & 50,000 \\
\text { Proceeds from the sale of equipment } & 85,000\\
\text { Gain on the sale of equipment } & 4,500 \\
\text { Cash dividends payable at the beginning of the year } & 22,000 \\
\text { Cash dividends payable at the end of the year } & 30,000 \\
\text { Net income for the year } & 110,000
\end{array}\)
A) $343,000.
B) $213,000.
C) $293,000.
D) $297,500.
E) $301,000.
Q2) The cash flow on total assets ratio is computed by dividing average total assets by operating income.
A)True
B)False
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Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) Net sales divided by average total assets is the:
A) Profit margin.
B) Total asset turnover.
C) Current ratio.
D) Sales return ratio.
E) Return on total assets.
Q2) Trend analysis is a form of horizontal analysis that can reveal patterns in data across successive periods.
A)True
B)False
Q3) Current assets divided by current liabilities is the:
A) Current ratio.
B) Quick ratio.
C) Debt ratio.
D) Liquidity ratio.
E) Solvency ratio.
Q4) The greater the times interest earned ratio,the greater the risk a company is exposed to.
A)True
B)False
Page 15
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Chapter 14: Time Value of Money
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Sample Questions
Q1) The Masterson family is setting up a vacation fund,and they plan on depositing $1,000 per quarter in an investment that will pay 12% annual interest.What amount will they have available for their vacation at the end of 2 years? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)
A) $8,000.00
B) $8,960.00
C) $8,892.30
D) $8,240.00
E) $8,487.20
Q2) A company has $50,000 today to invest in a fund that will earn 7%.How much will the fund contain at the end of 8 years?
Q3) The future value of an ________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.
Q4) A company borrows money from the bank by promising to make 8 semiannual payments of $9,000 each.How much is the company able to borrow if the interest rate is 10% compounded semiannually?
Q5) To calculate present value of an amount,two factors are required: The ________ and the________.
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Chapter 15: Investments
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Sample Questions
Q1) Accounting for long-term investments in equity securities with controlling influence uses the:
A) Controlling method.
B) Equity method with consolidation.
C) Investor method.
D) Investment method.
E) Consolidated method.
Q2) Profit margin is net sales divided by net income.
A)True
B)False
Q3) Long-term investments include:
A) Investments in bonds and stocks that are not readily convertible to cash or not intended to be converted to cash in the short term.
B) Investments in marketable stocks that are intended to be converted into cash in the short-term.
C) Investments in marketable bonds that are intended to be converted into cash in the short-term.
D) Only investments readily convertible to cash.
E) Investments intended to be converted to cash within one year.
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Chapter 16: Partnership Accounting
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Q1) If at the time of partnership liquidation,a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover the deficiency,then that partner is entitled to share in the final distribution of cash.
A)True
B)False
Q2) Olivia Greer is a partner in Made for You.An analysis of Greer's capital account indicates that during the most recent year,she withdrew $30,000 from the partnership.Her share of the partnership's net loss was $16,000 and she made an additional equity contribution of $10,000.Her capital account ended the year at $150,000.What was her capital balance at the beginning of the year?
A) $154,000
B) $170,000
C) $180,000
D) $186,000
E) $196,000
Q3) Darien and Hayden agree to accept Kevin into their partnership.Kevin will contribute $22,000 in cash.Prepare the journal entry to record this transaction.
Q4) Partner net income divided by average partner equity equals ________.
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