Accounting Fundamentals
Exam Solutions
Course Introduction
Accounting Fundamentals introduces students to the essential principles and practices of financial accounting. The course covers the accounting cycle, including the recording, summarizing, and reporting of business transactions, as well as the preparation of financial statements such as the balance sheet, income statement, and cash flow statement. Topics include double-entry bookkeeping, the use of ledgers and journals, adjusting entries, and basic internal controls. By the end of the course, students will have a solid understanding of how financial information is generated, analyzed, and used in decision-making for individuals and organizations.
Recommended Textbook
College Accounting A Practical Approach 12th Canadian Edition by Jeffrey Slater
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Chapter 1: Accounting Concepts and Procedures
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Sample Questions
Q1) Victoria received $400 from customers in partial payment for accounting services performed previously. The recording of this transaction would:
A)increase Cash and Victoria's Capital $400.
B)increase Cash and decrease Accounts Receivable $400.
C)increase Cash and increase Accounts Receivable $400.
D)decrease Accounts Receivable and increase Victoria's Capital $400.
Answer: B
Q2) A partnership is a business which is:
A)easy to form.
B)ends with the death of a partner.
C)owned by more than one person.
D)All of these answers are correct.
Answer: D
Q3) Cash investments by the owner increases both equity and assets.
A)True
B)False
Answer: True
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Chapter 2: Debits and Credits: Analyzing and Recording
Business Transactions
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Q1) What would be the effect on accounts if the business received the telephone bill but did not pay it immediately.
A)An expense would be debited and a liability credited.
B)Capital would be debited and revenue credited.
C)An expense would be debited and an asset credited.
D)An asset would be debited and Capital credited.
Answer: A
Q2) Accounts Payable indicates monies owed to us by our clients or customers.
A)True
B)False
Answer: False
Q3) Determine the beginning owner's equity of a business having an ending owner's equity of $3,500, additional investments of $600 withdrawals of $500, and net loss of $750.
$ ________
Answer: $4,150 [$3,500 - $600 + $500 + $750]
Q4) A T account is used for demonstration purposes.
A)True
B)False
Answer: True
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Chapter 3: Beginning the Accounting Cycle
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Sample Questions
Q1) If a trial balance is not equal, you should first:
A)re-compute the ledger balances.
B)trace all postings.
C)re-add the trial balance and calculate the difference.
D)look for missing transactions.
Answer: C
Q2) A credit to an asset account was posted to an expense account. This would cause:
A)assets to be overstated.
B)liabilities to be understated.
C)capital to be understated.
D)expenses to be overstated.
Answer: A
Q3) The first step of the accounting cycle is:
A)recording journal entries.
B)posting to the ledger.
C)preparing a trial balance.
D)analyzing business transactions.
Answer: D
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Chapter 4: The Accounting Cycle Continued
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Q1) The accrual of an expense was not recorded. This would:
A)overstate expenses and overstate liabilities.
B)overstate expenses and understate liabilities.
C)understate expenses and overstate liabilities.
D)understate expenses and understate liabilities.
Q2) Historical cost is the same as:
A)residual value.
B)original cost.
C)accumulated depreciation.
D)book value.
Q3) An important function of the worksheet is for the accountant to find and correct errors before the financial statements are prepared.
A)True
B)False
Q4) As accumulated depreciation is recorded, the book value: A)increases.
B)decreases.
C)remains the same.
D)is closed out.
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Chapter 5: The Accounting Cycle Completed
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Q1) After posting the closing entries, which of the following accounts is most likely not to have a zero balance?
A)Prepaid Insurance
B)Advertising Expense
C)J. Smith, Withdrawals
D)Medical Fees
Q2) The correct order for closing accounts is:
A)revenue, expenses, income summary, withdrawals.
B)revenue, income summary, expenses, withdrawals.
C)revenue, expenses, capital, withdrawals.
D)revenue, capital, expenses, withdrawals.
Q3) Nominal accounts are called temporary accounts because their balances are not carried forward to the next accounting period.
A)True
B)False
Q4) Closing entries will update the Capital account to the same figure that is on the balance sheet for that date.
A)True
B)False
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Chapter 6: Banking Procedure and Control of Cash
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Q1) ________ Owner withdrew money from the company for personal use
Q2) Any adjustment to the depositor's records because of an item on the bank statement requires a journal entry.
A)True
B)False
Q3) The entry to establish the petty cash fund debited Misc. Expense. This would cause:
A)revenues to be overstated.
B)revenues to be understated.
C)expenses to be overstated.
D)expenses to be understated.
Q4) A petty cash fund is set up:
A)to pay for large expenses.
B)to pay for small expenses.
C)for the owner to withdraw money for personal use conveniently.
D)None of these answers are correct.
Q5) What is the difference between a debit and credit memorandum?
Q6) What is the purpose of internal control?
Q7) List and describe some of the electronic conveniences that we are now provided when doing our banking.
Page 8
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Chapter 7: Calculating Pay and Payroll Taxes: The
Beginning of the Payroll Process
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Sample Questions
Q1) Which of the following would not typically be an employee payroll withholding?
A)Unemployment taxes
B)Medical Insurance
C)State income tax
D)Social Security
Q2) The cost of workers' compensation insurance must be estimated and paid in advance by the employer.
A)True
B)False
Q3) The two parts of FICA are OASDI and Medicare.
A)True
B)False
Q4) What is required of an employer by the Federal Insurance Contributions Act?
Q5) The payroll information for a pay period is found in the payroll register.
A)True B)False
Q6) What is the purpose of the Fair Labor Standards Act?
Q7) Net pay is equal to gross pay less deductions.
A)True
B)False Page 9
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Chapter 8: Paying, Recording, and Reporting Payroll and Payroll Taxes: the Conclusion of the Payroll Process
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Q1) FIT Payable has a credit normal balance.
A)True
B)False
Q2) The employer records deductions from the employee's paycheck:
A)as debits to expense accounts.
B)as credits to liability accounts until paid.
C)as debits to asset accounts until paid.
D)as credits to capital accounts.
Q3) A company must pay Form 941 taxes electronically if:
A)they do business in multiple states.
B)they pay more than $200,000 in a given year.
C)they pay less than $200,000 in a given year.
D)The company would never have to pay electronically.
Q4) Form 941 taxes include OASDI, Medicare, and federal unemployment tax.
A)True
B)False
Q5) Compute the total overtime earnings. ________
Q6) The payroll tax expense is recorded at the same time the payroll is recorded.
A)True
B)False Page 11
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Chapter 9: Sales and Cash Receipts
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Q1) Sales Tax Payable represents an asset on the books of the seller.
A)True
B)False
Q2) Logan's Art studio was moving and sold furniture that was no longer needed for cash. The entry would include:
A)a credit to Sales.
B)a debit to Sales.
C)a credit to Furniture.
D)a debit to Furniture.
Q3) The accounts receivable subsidiary ledger shows the amount owed from each customer.
A)True
B)False
Q4) When you record the entry to the subsidiary ledger and place the checkmark in the PR column, it is not necessary to post to the Accounts Receivable controlling account.
A)True
B)False
Q5) Explain why the account Sales Tax Payable is credited when a sale is made subject to a sales tax?
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Chapter 10: Purchases and Cash Payments
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Sample Questions
Q1) Tyler returned $500 of merchandise within the discount period. The entry to record the return is to:
A)debit Purchases for $500; credit Accounts Payable for $500.
B)debit Purchases for $500; credit Purchases Returns and Allowances for $500.
C)debit Accounts Payable/Suppliers Name for $500; credit Purchases Returns and Allowances for $500.
D)debit to Accounts Payable for $500, credit Purchases Discount for $500.
Q2) The recording of the cost of freight-in under the perpetual inventory system would include a:
A)debit to Freight-In.
B)credit to Merchandise Inventory.
C)debit to Merchandise Inventory.
D)credit to Freight-In.
Q3) Which of the following transactions will cause a liability to be credited and a cost account to be debited when the periodic inventory system is in use?
A)Recorded the adjustment for depreciation
B)Recorded the adjustment for the consumption of supplies
C)Purchased merchandise inventory on account
D)Purchased office supplies on account
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Chapter 11: Preparing a Worksheet for a Merchandise Company
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Sample Questions
Q1) What financial statement shows the amount for Freight-In?
A)Balance Sheet
B)Statement of Owner's Equity
C)Income Statement
D)Trial balance
Q2) Discuss the reasons a company would consider using a periodic inventory system.
Q3) Sales would be found on the worksheet in the:
A)income statement debit column.
B)income statement credit column.
C)balance sheet debit column.
D)balance sheet credit column.
Q4) Beginning and ending inventories for Webster's Books are $9,000 and $6,000, respectively. The debit amounts (not including Income Summary)in the income statement columns of the worksheet total $14,000, and the credit amounts (not including Income Summary)total $15,500. The firm has a:
A)net income of $1,500.
B)net loss of $1,500.
C)net loss of $3,000.
D)net income of $3,000.
Page 15
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Chapter 12: Completion of the Accounting Cycle for a Merchandise Company
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Q1) Liquidity is:
A)how quickly loans can be paid.
B)how easily an asset can be converted to cash.
C)how much cash a company has on its balance sheet.
D)None of the above are correct.
Q2) To determine how much merchandise a company has returned to its vendors, it should review the:
A)Purchases Returns & Allowances account.
B)Purchases Discount account.
C)Sales Returns & Allowances account.
D)Sales Discounts account.
Q3) Gross profit minus Operating Expenses equals Net Income.
A)True
B)False
Q4) The ending merchandise inventory was understated. This error would cause:
A)assets to be understated.
B)assets to be overstated.
C)net income to be overstated.
D)None of these are correct.
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Chapter 13: Accounting for Bad Debts
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Sample Questions
Q1) Before the accounts are adjusted and closed at the end of the year, Accounts Receivable has a normal balance of $200,000 and Allowance for Doubtful Accounts has a debit balance $20,000. What is the net realizable value of the accounts receivable?
A)$180,000
B)$20,000
C)$220,000
D)$200,000
Q2) The journal entry to write off an account judged to be uncollectible under the allowance would include a debit to:
A)Sales.
B)Accounts Receivable.
C)Allowance for Doubtful Accounts.
D)Bad Debts Expense.
Q3) The entry to adjust for bad debts was ignored. This error would cause:
A)total assets to be overstated.
B)total liabilities to be understated.
C)net income to be understated.
D)None of these are correct.
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Chapter 14: Notes Receivable and Notes Payable
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Sample Questions
Q1) Smyth Company borrows $5,000 by giving the bank its own 8%, 90-day note. The bank discounts the interest. The effective interest rate is
A)7.84%.
B)8.00%.
C)8.16%.
D)8.84%.
Q2) On March 15, Ben Jones negotiated a $25,000 bank loan for 270 days at an interest rate of 8%.
Required (show your calculations):
a)Determine the due date of the note.
b)Calculate the amount of interest charged by the bank.
c)Calculate the maturity value of the note.
Q3) Prepare the journal entries for Fit City Company for the following transactions:
a)Fit sold $9,500 of merchandise to AllSport Company on account.
b)Fit City received a 90-day, $9,500, 10% note for a time extension of past-due account of AllSport.
c)Collected the AllSport note on the maturity date.
Q4) A promissory note received in granting a time extension to a charge customer. Debit ________ & ________ Credit ________ & ________
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Chapter 15: Accounting for Merchandise Inventory
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Q1) If the ending inventory is overstated in period 1:
A)beginning inventory in period 2 is overstated.
B)goods available for sale in period 2 are overstated.
C)cost of goods sold in period 2 is overstated.
D)All of these answers are correct.
Q2) Last year's ending inventory was overstated. This error would cause:
A)this period's net income to be overstated.
B)this period's net income to be understated.
C)this period's end assets to be overstated.
D)None of these are correct.
Q3) Items that are very similar, such as canned goods in a grocery store would be costed using the ________ system of inventory valuation.
Q4) A credit customer purchased $450 worth of items. Two days later, the customer returned $300 worth of those items. The entry to record this under the perpetual inventory method would include:
A)a debit to Sales Returns and Allowances $300; credit Accounts Receivable $300.
B)a debit to Merchandise Inventory for our cost.
C)a credit to Cost of Goods Sold for our cost.
D)All of the above.
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Chapter 16: Accounting for Property, Plant, Equipment, and Intangible Assets
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Q1) Accumulated depletion should be reported as a(an)________ on the income statement.
Q2) The entry to record the purchase of a machine on account that costs $20,000, set-up fees, $1,000, and freight, $500, would be:
A)debit Machinery $20,000; credit Accounts Payable $20,000.
B)debit Machinery $21,500; credit Accounts Payable $21,500.
C)debit Machinery $20,000, debit Expenses $1,500; and credit Accounts Payable $21,500.
D)debit Machinery $20,500; credit Accounts Payable $20,500.
Q3) J. Long purchased computer equipment for $5,000 on January 1, 200x. It has a residual value of $500 with a useful life of 5 years. After the appropriate adjusting entries are made, the book value of the asset on December 31, 200x, under the double-declining-balance method, is:
A)$4,000.
B)$3,200.
C)$3,000.
D)$4,100.
Q4) The three categories of writing off plant assets, natural resources, and intangible assets are ________, ________, and ________.
Page 20
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Chapter 17: Partnership
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Sample Questions
Q1) The business bought store equipment on account.
Debit ________ & ________ & ________ Credit ________ & ________ &
Q2) Closed the income summary to the partners' accounts with a net income. Debit ________ & ________ & ________ Credit ________ & ________ &
Q3) Applying the profit and loss ratio method, compute Taylor and Timmy's share of net income if Taylor invested $200,000 and Timmy invested $800,000 and the profit and loss ratio is 3:2. Net income was $75,000.
A)Taylor, $15,000; Timmy, $60,000
B)Taylor, $37,500; Timmy, $37,500
C)Taylor, $45,000; Timmy, $30,000
D)None of these answers is correct.
Q4) When a partnership is dissolved:
A)it is implied that the business cannot form a different ownership structure.
B)it is implied that the business cannot continue with a new group of partners.
C)it is implied that it must be dissolved with any change in partnership structure.
D)it is implied that the business will halt operations.
Q5) A partnership is defined by the Uniform Partnership Act.
A)True
B)False
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Chapter 18: Corporations: Organizations and Stock
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Q1) Antiques.com Corporation's outstanding stock is 75 shares of $60, 8% cumulative nonparticipating preferred stock and 2,000 shares of $10 par value common stock. Antiques paid $2,400 cash dividends during the year. Common stockholders received:
A)$2,400.
B)$360.
C)$2,040.
D)$0.
Q2) Shares of outstanding stock always equal the number of shares of authorized stock.
A)True
B)False
Q3) Issued stock is:
A)authorized shares of stock that can be sold.
B)stock only sold to another company.
C)shares sold and in stockholders' possession.
D)stock sold to stockholders.
Q4) A stock certificate is released for authorized stock.
A)True
B)False
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Chapter 19: Corporations: Stock Values, Dividends, Treasury
Stocks, and Retained Earnings
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Q1) When the corporation has only common stock, the total of stockholders' equity divided by the number of shares issued equals:
A)redemption value.
B)book value per share.
C)dividend per share.
D)market value.
Q2) Most companies report restrictions by using a footnote to the Retained Earnings account.
A)True
B)False
Q3) Which of the following statements is false of treasury stock?
A)It has a right to dividends.
B)It has a right to vote.
C)It is stock that is outstanding.
D)All of the statements are false.
Q4) Market value is the price at which a share of stock is bought and sold.
A)True
B)False
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Q5) Explain some possible reasons a company may declare a stock dividend instead of a cash dividend.
Chapter 20: Corporations and Bonds Payable
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Q1) Northern Union Pacific is planning to issue 10-year, 10% semiannual interest bonds with a par value of $200,000.
Required: Prepare the necessary journal entry under each of the following assumptions.
a. The bonds are sold on issuance date at par.
b. The bonds are sold on issuance date at 96.
c. The bonds are sold on issuance date at 103.
Q2) Monies set aside to pay off bondholders at maturity are called:
A)discount funds.
B)maturity funds.
C)sinking funds.
D)annuity funds.
Q3) Issued bonds at face value in exchange for buildings and land. Debit ________ & ________ & ________ Credit ________ &
Q4) The interest rate specified in the bond indenture is called the:
A)market rate.
B)discount rate.
C)contract rate.
D)effective rate.
Q5) What is the purpose of a bond sinking fund?
Page 24
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Chapter 21: Statement of Cash Flows
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Q1) The Accounts Payable balance has decreased during the year. How would this event affect the statement of cash flows operations section-indirect method?
A)It is already included in the net income.
B)It would affect the operations section positively.
C)It would affect the operations section negatively.
D)Does not affect the cash flow from operations.
Q2) Which of the following items would be added to Net Income to compute Net Cash Flow from Operating Activities under the indirect method?
A)A decrease in Merchandise Inventory
B)A decrease in Accrued Payables
C)A decrease in Accounts Payable
D)An increase in Prepaid Insurance
Q3) If $12,000 was generated from operations, $6,000 was used for investing activities, and $4,000 was provided by financing activities, the cash balance would:
A)increase by $14,000.
B)decrease by $20,000.
C)increase by $10,000.
D)increase by $2,000.
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Chapter 22: Analyzing Financial Statements
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Q1) Scott Company had a current ratio of 2.76:1 in Year 1 and 2.57:1 in Year 2. This change in current ratio indicates:
A)the company's debt paying ability has improved.
B)the company's debt paying ability has weakened.
C)the company's customers are paying their accounts sooner.
D)the company is able to sell its inventory faster.
Q2) A common-size comparative statement shows:
A)percents.
B)dollar increases/decreases.
C)whole dollar amounts.
D)None of the above.
Q3) Debt management ratios measure:
A)how effectively a company is using its cash.
B)how well a company is using debt versus equity position.
C)a company's ability to earn profit.
D)a company's ability to meet payable obligations.
Q4) If the return on sales is 11% and the total assets turnover is 1.8, the rate of return on total assets would be 19.8%.
A)True
B)False
Page 26
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Chapter 23: The Voucher System
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Q1) The voucher system strengthens internal control because:
A)all the duties of preparing a voucher and the receiving reports are assigned to multiple employees.
B)certain payments, which are made on a regular basis, such as monthly rent payments, still need to be vouchered.
C)the employee who approves all vouchers then sends the approved vouchers to others who prepare the voucher register and the check register.
D)All of these answers are correct.
Q2) Items are listed in the voucher register in the order liabilities are incurred.
A)True B)False
Q3) Using the gross method approach, record the payment of the following transaction in time to take the discount. Connect Company bought $4,000 of merchandise, terms 3/10, n/30:
A)debit Cash $4,000; credit Vouchers Payable $4,000.
B)debit Vouchers Payable $4,000; credit Cash $3,880; credit Purchases Discount $120.
C)debit Vouchers Payable $3,880; credit Cash $3,880.
D)debit Vouchers Payable $4,000; credit Cash $4,000.
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Chapter 24: Departmental Accounting
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Q1) Explain the difference between a "cost center" and a "profit center."
Q2) Which of the following indirect expenses would most likely be allocated on the basis of gross sales?
A)Rent expense
B)Utilities expense
C)Miscellaneous expense
D)None of the above
Q3) To calculate departmental gross profit, separate accounts should be set up for Sales, Purchases, etc., for each department.
A)True
B)False
Q4) The sales department of a construction firm is a(n): A)profit center.
B)cost center.
C)investment center.
D)allocation center.
Q5) The toy department of a department store would be a cost center. A)True
B)False
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Chapter 25: Manufacturing Accounting
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Q1) If direct labor for the month is $40,000, overhead is applied based on direct labor, annual overhead is $600,000, and annual direct labor is $1,000,000, what is the entry to charge direct labor to production?
A)Debit Work-in-Process Inventory $40,000; credit Payroll $40,000
B)Debit Overhead-Applied $40,000; credit Work-in-Process Inventory $40,000
C)Debit Work-in-Process Inventory $24,000; credit Overhead-Applied $24,000
D)Debit Work-in-Process Inventory $66,000; credit Overhead-Applied $66,000
Q2) A document that is prepared to show how items have been shipped to customers is a:
A)receiving report.
B)bill of lading.
C)lot tickets.
D)clock card.
Q3) Transferred completed products to finished goods.
Debit ________ & ________ & ________ Credit ________ & ________ &
Q4) Cost of goods manufactured is determined before the income statement can be completed.
A)True
B)False
Q5) Describe the three elements of manufacturing cost.
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