Accounting Fundamentals
Mock Exam
Course Introduction
Accounting Fundamentals introduces students to the core principles and practices of financial accounting. The course covers essential topics such as the accounting cycle, recording financial transactions, preparing financial statements, and understanding the underlying concepts of assets, liabilities, equity, revenues, and expenses. Emphasis is placed on analyzing and interpreting financial information for decision-making, alongside the application of generally accepted accounting principles (GAAP). By the end of the course, students will have the foundational knowledge needed to understand business finances and the skills to pursue more advanced accounting studies.
Recommended Textbook
Introduction to Accounting An Integrated Approach 6th Edition by Penne Ainsworth
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Page 2
Chapter 1: Accounting and Business
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Sample Questions
Q1) A company which produces a product from raw materials is called a:
A)service firm
B)merchandising firm
C)manufacturing firm
D)distributor firm
Answer: C
Q2) All of the following are basic functions of a business except:
A)marketing
B)external auditing
C)finance
D)human resources
Answer: B
Q3) Which of the following is the ratio for calculating the current ratio?
A)Current Assets / Current Liabilities
B)Current Assets / Total Liabilities
C)Current Liabilities / Current Assets
D)Current Assets / Total Sales
Answer: A
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3
Chapter 2: Business Processes and Accounting Information
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Sample Questions
Q1) Which of the following businesses would have the longest customer response time?
A)Dell Computers
B)General Motors Company
C)Furniture Manufacturer
D)Apple Grower
Answer: D
Q2) Riga Corp borrowed $1,000,000 to buy a new manufacturing plant is part of their
A)operating activities
B)financing activities
C)investing activities
D)planning activities
Answer: B
Q3) Which of the following is not one of the four business processes?
A)Performance Measurement and Management Process
B)Capital Resources Process
C)Internal Control Process
D)Business organization and Strategy Process
Answer: C
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Chapter 3: Operating Processes: Planning and Control
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Sample Questions
Q1) Which of the follow statements is true about a regression's r<sup>2</sup>?
A)The greater the r<sup>2 </sup>the greater the relationship between the independent and dependant variable.
B)An r<sup>2</sup> that is greater than 1 means that there is more than a 100 percent relationship between the independent and dependant variable.
C)When a r<sup>2</sup> has a negative value the independent variable is inversely related to the dependent variable.
D)When<sup> </sup> a r<sup>2</sup> is less than 1 the greater the inverse relationship between the independent and dependant variables.
Answer: A
Q2) A cost that is constant per unit but varies in total is called a(n):
A)Activity cost
B)Variable cost
C)Fixed cost
D)Mixed cost
Answer: B
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Chapter 4: Short-Term Decision Making
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Sample Questions
Q1) Explain the effect on breakeven point of an (a)increase in sales price,(b)a decrease in materials cost,and (c)an increase in insurance cost on the factory.
Q2) True Fruit,Inc.sells frozen raspberry fruit bars for $2.50 each.The variable cost per bar is $1.35.Total fixed costs are $25,645.The contribution margin ratio is:
A).54
B).46
C).22
D).19
Q3) The salary of an executive who decides to quit her job and return to school full time is a(n):
A)sunk cost
B)incremental cost
C)opportunity cost
D)incremental revenue
Q4) Your firm is involved in a make or buy decision for an important component of its single product.The quantitative analysis results in a small advantage for the buy option.Would you accept this alternative? Why or why not?
Q5) Explain why contribution margin is all profit above the breakeven point.
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Chapter 5: Strategic Planning Regarding Operating Processes
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Sample Questions
Q1) Which of the following is not withheld from the employee's check?
A)Union Dues
B)Federal Income Tax
C)Social Security
D)All of the above are withheld
Q2) Which of the following companies would be a good candidate for a JIT system?
A)Grocery Store
B)Macys
C)Construction company
D)Sporting Goods Store
Q3) What is the distinction between penetrating and predatory pricing?
Q4) Malsom Corp's monthly payroll is $100,000.If the FICA rate is 7.65% ,income tax is withheld at a 15% rate,the State Unemployment (SUTA)
A)rate is 2.8% and the Federal Unemployment (FUTA)
A)tax rate is .8%,how much is withheld from the workers' wages and how much does Malsom have to pay in payroll taxes?
Q5) It is said that one of the benefits of the Just-In-Time (JIT)system is that it can't hide defective products.What does this mean?
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Chapter 6: Planning, The Balanced Scorecard, and Budgeting
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Sample Questions
Q1) A plan for the future expressed in quantitative terms is called a:
A)cycle
B)budget
C)commentary
D)mathematical model
Q2) Which of the following is not part of expenditure process planning?
A)Direct labor and overhead budget
B)Direct materials purchases budget
C)Cash disbursements schedule
D)Production budget
Q3) The unit production requirements for February are:
A)245,500
B)295,000
C)300,250
D)344,500
Q4) Which of the following is part of conversion process planning?
A)Production budget
B)Cash receipts schedule
C)Direct materials purchase budget
D)Direct labor and overhead budget
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) As a result of closing entries which of the following is true?
A)Cash is increased.
B)Retained earning is increased by the amount of income earned during the year.
C)Total assets are increased by the amount of income earned during the year.
D)Liabilities are decreased by the amount of income earned during the year.
Q2) The entry to record a purchase of supplies on account would include a:
A)debit to cash
B)debit to accounts receivable
C)credit to supplies
D)credit to accounts payable
Q3) A firm billed a customer for services but did not collect cash.What is the effect of this transaction?
A)Increases assets,increases revenues
B)Increases assets,decreases assets
C)Decreases assets,increases expenses
D)Decreases assets,decreases liabilities
Q4) How would the balance sheet and income statement be affected if a $2,000 accrued expense was recorded as $3,000?
Q5) Any event reported on the income statement has impacted the balance sheet.Explain why this is true.
Page 9
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Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Sample Questions
Q1) The purchase discount lost accounts is used when with -
A)The gross method is used with periodic system and the terms of the discount are not met.
B)The net method is used with the perpetual system and the terms of the discount are met.
C)The gross method is used with the periodic system the terms of the discount are not met.
D)The net method applied to either the periodic or perpetual systems and the terms of the discount are not met.
Q2) The purpose of the account payable subsidiary ledgers is:
A)Keep track of the various products being manufactured
B)Monitor the balance in the various cash accounts at banks
C)Identify individuals and companies who the company owes money
D)Identify the cash inflow expected from people who owe money to the company
Q3) In a perpetual inventory system that uses the gross method which of the following is true?
A)When a discount is taken the Purchase Discount account is credited.
B)The Accounts Payable account is debited for the cash paid.
C)The Inventory account is reduced when the discount is taken.
Page 10
D)The Purchase Discount Lost account is debited when the discount is not taken.
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Chapter 9: Recording and Evaluating Conversion Process Activities
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Sample Questions
Q1) The predetermined manufacturing overhead rate per move is:
A)$37
B)$38
C)$41
D)$42
Q2) Assuming the over-underapplied manufacturing overhead was considered small and,therefore,closed out to Cost of Goods Sold,the cost of goods sold reported on the income statement for the period was:
A)$646,500
B)$675,100
C)$683,600
D)$703,300
Q3) The direct materials inventory variance is:
A)$ 750U
B)$ 780F
C)$3,000U
D)$3,750F
Q4) Describe the flow of costs through the conversion cycle.[This can also be stated as: Draw a picture showing the flow of costs through the conversion cycle.]
11
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Chapter 10: Recording and Evaluating Revenue Process Activities
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Sample Questions
Q1) Graphite Industries sells tennis racquets to sporting goods stores throughout the northeastern U.S.Selected transactions relating to accounts receivable are presented below.Prepare journal entries as appropriate and indicate how each transaction affected the net accounts receivable balance. Identified the Borg Company account as uncollectible and wrote off the $6,700 balance. Identified the Connors Company account balance of $2,500 as uncollectible,and wrote it off.
Allowance for Doubtful Accounts had a $1,000 credit balance at December 31,2008 prior to adjustment.An analysis of the accounts receivables indicates that the company expects $19,000 of the receivables will be uncollectible.
Q2) The journal entry to remove a specific customer's account,once it identified as uncollectible,would ______ net accounts receivable.
A)increase
B)decrease
C)not affect
D)eliminate
Q3) Briefly describe the makeup of ending inventory under the FIFO and LIFO methods.
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Page 12
Chapter 11: Time Value of Money
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Sample Questions
Q1) Kelly Smith deposited $8,500 in an account which pays interest at the rate of 8% compounded quarterly.At the end of 3 years,Smith will have:
A)$10,540.00
B)$10,780.05
C)$ 6,747.30
D)$10,707.45
Q2) Casey Cohen would like to have $24,500 in 5 years time to buy a car.The amount that Cohen would have to invest today,assuming an interest rate of 4% compounded annually,in order to reach his goal is:
Q3) Adam Gross invested $2,500 on July 1,2009,and in return he received a total of $2,850,which he collected on July 1,2010.The rate of return on Adam's investment was:
A)13.1%
B)12.3%
C)7.1%
D)14.0%
Q4) Why does the future value of an amount increase when interest is compounded semiannually instead of annually?
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13
Chapter 12: Planning Investments: Capital Budgeting
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Q1) Calculating Net Present Value requires the four steps listed below,identify the sequence in which the steps occur starting with 1 and ending with 4.
A.Calculate the present value of expected future cash flow using the cost of capital
B.Estimate the amount an timing of future cash flows associated with the potential investment.
C.Decide on whether or not to make the investment
D.Calculate the Net Present Value
Q2) The first step in the capital budgeting process is:
A)Evaluating the investments
B)Financing the selected investments
C)Selecting the appropriate investments
D)Identifying long-term investment opportunities
Q3) What are the four reasons a company will make operating investments and how does management know what investments to select?
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Page 14
Chapter 13: Planning Equity Financing
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Sample Questions
Q1) An individual stockholder's interest in a corporation does not change when the company declares a:
A)stock split
B)stock dividend
C)both a and b
D)neither a nor b
Q2) Which of the following statements about a limited liability partnership (LLP)is true?
A)an LLP has one or more general partners and one or more limited partners
B)partners in an LLP are liable only for their investments in the partnership
C)partners in an LLP are not liable for the misdeeds of another partner
D)only the general partners in an LLP can participate in management
Q3) The redeemable feature of preferred stock allows the preferred stockholder:
A)To buy more shares of preferred stock at a set price.
B)To redeem preferred stock for common stock with the right to vote.
C)To sell the preferred stock for a set price at certain times in the future.
D)To buy shares of common stock for cash and the preferred stock
Q4) Explain why the combination of mutual agency and unlimited liability create a great deal of risk for partnerships.
Q5) What is par value? Why do corporations usually select a low par value?
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Chapter 14: Planning Debt Financing
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Sample Questions
Q1) Grainfield Corporation first payment on an 8 percent,$40,000,10 year installment,that has quarterly payments is $1,462.23.How much of this first payment is interest?
A)$116.98
B)$800
C)$633.56
D)$320
Q2) Ellis Corporation wants to raise $500,000 by issuing a five year,noninterest-bearing note when the market rate is 8 percent compounded quarterly.What will the face value of the note be?
A)$336,486
B)$742,974
C)$734,664
D)$340,291
Q3) When the proceeds of a note are less than the face value of the note,which of the following is true.
A)The market rate was less than the face rate of interest.
B)The note was issued at a premium.
C)The market rate of interest was greater than the face rate of interest.
D)The market rate of interest was the same as the face rate of interest.
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Page 16
Chapter 15: Recording and Evaluating Capital Resource
Process Activities: Financing
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Sample Questions
Q1) Where in the balance sheet is preferred stock usually reported?
A)long-term liabilities
B)stockholders' equity
C)contra stockholders' equity
D)After long-term liabilities but before stockholders' equity
Q2) Darvin Company purchased equipment with a fair value of $100,000 on a 6 percent,4-year installment note.What would be Darvin's annual payment on the note,assuming that payments are made at year end?
A)$25,000
B)$27,226
C)$28,859
D)unable to determine from the information given
Q3) How does the declaration and payment of a cash dividend affect a firm?
A)decreases stockholders' equity
B)increases stockholders' equity
C)no effect on stockholders' equity or assets
D)decreases stockholders' equity and total assets
Q4) Why are operating leases sometimes referred to as "off-the-balance-sheet financing".
Q5) Explain how a corporation's income is taxed twice.
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Sample Questions
Q1) Cost to repair damage to machine incurred when installing the machine should be:
A)capitalized
B)expensed immediately
C)capitalized once machine is in use.
D)expensed at the end of the life of the machine
Q2) Jackson Corporation has a forklift that it paid $40,000 for and that has a book value today of $14,000.Jackson is going to trade this forklift for a newer forklift with a market value of $55,000.Jackson Corporation is going to give its forklift and $25,000 cash to acquire the newer forklift.Make the entry to record the acquisition of the new forklift.
Q3) Gfeller Corporation had a machine,which initially cost $25,000 and had accumulated depreciation of $11,000 when it decided to sell the machine for $8,000 cash.Make the entry to record the sale of the machine.
Q4) Which of the following describes "depreciable cost"?
A)original cost minus accumulated depreciation
B)depreciation expense times the income tax rate
C)original cost minus salvage value
D)accumulated depreciation
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Chapter 17: Company Performance: Profitability
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Q1) The amount of extraordinary items that would appear on the 2010 income statement of Kaiser Corporation is:
A)$0
B)$312,000
C)$552,500
D)$850,000
Q2) Under unit-variable costing, A)companies can increase income by increasing the number of units produced B)all product and period costs are included in cost of goods sold
C)only costs that vary per unit are included in cost of goods sold
D)only direct material costs are included in cost of goods sold
Q3) Advance Systems,Inc.had 840,000 shares of common stock outstanding on January 1,2010,and repurchased 75,000 shares on June 1,2010.Net income for the year ended December 31,2010,was $2,662,625,and preferred stock dividends for the year amounted to $35,000.The earnings per share for 2010 were:
A)$3.30
B)$3.34
C)$3.48
D)$3.53
Q4) What is comprehensive income and how does it differ from net income?
Page 19
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Sample Questions
Q1) Explain how reporting a long-term,non-cancelable lease that provides most of the benefits of ownership as an operating lease instead of a capital lease affects the usefulness of the lessee's balance sheet.
Q2) Matrix and Associates reports depreciation expense of $100,000 but deducts $150,000 depreciation on its tax return.Which of the following statements is correct?
A)Matrix is breaking the law
B)Matrix will report a deferred tax asset
C)Matrix will report a deferred tax liability
D)Matrix will report income tax expense equal to income tax payable
Q3) The allowance for Uncollectible Accounts would be reported on the balance sheet in the:
A)plant asset section
B)investment section
C)current asset section
D)intangible asset section
Q4) Create the current asset section of the balance sheet.Include a heading and a list of at least 5 accounts typically found in the current asset section of the balance sheet.
Q5) How can a balance sheet predict a company's future net income?
Page 20
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Chapter 19: Company Performance: Cash Flows
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Q1) Which of the following is subtracted from net income in computing cash flows from operating activities using the indirect method?
A)increases in accounts receivable
B)decreases in accounts receivable
C)decrease in taxes payable
D)depreciation expense
Q2) Using the indirect method (statement of cash flows),a decrease in interest receivable would:
A)be subtracted from net income
B)be added to net income
C)have no adjustment made to net income
D)be added to the investing section of the statement of cash flows
Q3) Which of the following activities is correctly associated with its cash flow classification?
A)Operating - Sale of company's own common stock
B)Financing - Purchase of Treasury Stock
C)Investing - Payment of rent for next two months
D)Financing - Payment of interest on bonds payable
Q4) Do you consider the direct or indirect method more useful? Why?
Q5) What are the four primary purposes of the statement of cash flows?
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Chapter 20: Company Performance: Comprehensive Evaluation
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Sample Questions
Q1) In a common-sized income statement,each item is shown as a percentage of A)income from continuing operations
B)comprehensive income
C)net income
D)net sales
Q2) The return on assets for 2010 was:
A)10.5%
B)11.6%
C)18.8%
D)20.7%
Q3) The DuPont ROI for 2010 was:
A)53.6 x 32.0% = 17.2%
B)73.1 x 9.5% =6.9%
C)74.8 x 14.5% = 10.8%
D)84.3 x 10.8% = 9.1%
Q4) The dividend payout ratio was:
A)65%
B)70%
C)75%
D)80%
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