Accounting Fundamentals
Question Bank
Course Introduction
Accounting Fundamentals introduces students to the essential principles and practices of financial and managerial accounting. The course explores the foundational concepts such as the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, and the role of accounting in business decision-making. Students learn to record business transactions, understand key accounting terminology, and apply basic financial analysis techniques to interpret data. Emphasis is placed on the ethical considerations in accounting and the importance of accurate, transparent financial reporting. This course lays the groundwork for further study in accounting and related business disciplines.
Recommended Textbook
Introduction to Accounting An Integrated Approach 6th Edition by Penne Ainsworth
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Chapter 1: Accounting and Business
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Q1) What distinguishes partnerships from sole proprietorships?
A)Involvement in day-to-day business activities by owners.
B)The extent of liability for the debts of the business
C)The amount of income tax the entity has to pay
D)Mutual agency (each partner can act for other partners)
Answer: D
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) The accounting concept which assumes that,absent any information to the contrary,the business will continue into the foreseeable future is the:
A)business entity concept
B)future entity concept
C)going concern concept
D)periodicity concept
Answer: C
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Chapter 2: Business Processes and Accounting Information
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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) A burger shop requires employees to ring up sales and place all cash receipts in the cash register.This is an application of which of the following internal controls:
A)requiring proper authorization
B)separating incompatible duties
C)physically controlling assets and documents
D)maintaining adequate documents and records
Answer: C
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) Using regression determine the cost estimation equation and the R<sup>2</sup> for the equation.If Tempo expects to produce 7,000 units in February what cost should Tempo budget for?
Answer: Slope = $5.66
Intercept = $2,222.83
R<sup>2</sup> = .973596
Cost Estimation Equation: Y = $5.66(X)+ $2,222.83
Y = $5.66(7,000)+ $2,222.83
Y = $41,842
Q2) A cost that increases in total but decreases per unit as the cost driver increase is a(n):
A)Activity cost
B)Variable cost
C)Fixed cost
D)Mixed cost
Answer: D
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Chapter 4: Short-Term Decision Making
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Sample Questions
Q1) Bug-Ez Corporation manufactures one product,Itch-A-Way,which,when applied to a bug bite,soothes the itch.The unit contribution margin for Itch-A-Way is $4.20,while total fixed costs amount to $537,000.Given a selling price of $8.25 per unit and a target profit of $147,000,Bug-Ez must sell:
A)35,000 units
B)168,889 units
C)82,909 units
D)162,858 units
Q2) Managers of Prestissimo Corporation are thinking about eliminating one of their products,EasyGlo.EasyGlo sells for $8 per unit.Unit-related costs are $5,batch-related costs are $300 per batch,and 3 batches of EasyGlo have been required each month.Prestissimo spends $3,000 each month to advertise EasyGlo.Rent and insurance on the factory allocated to EasyGlo total $4,000.If Prestissimo is currently producing and selling 1,500 units of EasyGlo each month,what is the relevant profit for the product-elimination decision?
A)$4,500
B)$3,600
C)$ 600
D)($3,400)
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Chapter 5: Strategic Planning Regarding Operating Processes
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Sample Questions
Q1) Model bakers have developed a snack cake that it wants to compete with Hostess Twinkies and has set their introductory price 10 cents below the price of a Twinkie.This Is an example of which of the following?
A)Penetrating pricing
B)Skimming pricing
C)Life-cycle pricing
D)Competitive cycle pricing
Q2) Which of the following is not involved in Pure Competition
A)Cotton farmer in Texas
B)National Basketball Association franchise
C)Starbucks
D)Macy's
Q3) Which of the following companies would not be a good candidate for a JIT system?
A)Ford Motor Company
B)The GAP
C)A company that manufactures yachts
D)Dell computers
Q4) What is the distinction between penetrating and predatory pricing?
Page 7
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Chapter 6: Planning, The Balanced Scorecard, and Budgeting
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Q1) Budgets are prepared by the top-level executives of Phififfer Company.This is an example of which type of budgeting?
A)participative
B)zero-based
C)mandated
D)ideal
Q2) What information must a firm have to prepare a sales budget? How does it get this information?
Q3) Describe how the sales budget is related to the production budget.
Q4) The Piante Company has an accounts receivable balance of $256,000 at the beginning of the year.Credit sales for the year are projected at $923,000.Management estimates that 98% of the beginning accounts receivable plus 82% of the credit sales will be collected during the period.The projected balance of accounts receivable at year-end equal to:
A)$161,020
B)$166,140
C)$171,260
D)$256,000
Page 8
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Chapter 7: Accounting Information Systems
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Q1) Which of the following is an index for the accounts listed in the ledger?
A)Chart of Accounts
B)Trial balance
C)Adjusted Trial Balance
D)Ledger Account index
Q2) The adjusting entry to accrue interest earned would include a:
A)credit to interest payable
B)debit to interest receivable
C)debit to cash
D)credit to interest expense
Q3) Net income would decrease as a result of which of the following adjustments?
A)Adjusting unearned revenue
B)Accruing a revenue
C)Accruing an expense
D)Recording revenue earned but not received
Q4) Which of these steps in the accounting cycle comes first?
A)posting
B)adjusting entries
C)financial statements
D)closing entries
Page 9
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Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Sample Questions
Q1) Explain the difference between a periodic inventory system and a perpetual one.If a firm uses a perpetual inventory system,it still has to physically count the inventory on hand at least once a year.Why?
Q2) Park Corp had a beginning balance in its prepaid rent account of $10,000 and an ending balance of $7,500.Rent expense for the year was $12,000.How much cash did Park pay for rent during the year?
A)$14,500
B)$9,500
C)$12,000
D)$7,500
Q3) Payroll deductions are a(n)______ to the employer at the time they are withheld.
A)expense
B)loss
C)liability
D)revenue
Q4) Which of the following could not be net pay?
A)Gross pay less FICA,union dues,income tax withheld
B)Gross pay less FICA,health insurance,income tax withheld
C)Gross pay less FICA,income tax withheld
D)Gross pay less FICA,income tax withheld,federal unemployment taxes
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Chapter 9: Recording and Evaluating Conversion Process Activities
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Sample Questions
Q1) The unadjusted cost of goods sold was:
A)$854,900
B)$717,600
C)$675,100
D)$660,800
Q2) The journal entry to record the requisition of indirect materials from the raw materials storeroom and the transfer of the materials to the factory would include a:
A)credit to Cost of Goods Manufactured
B)debit to Work-in-Process Inventory
C)debit to Manufacturing Overhead
D)credit to Accounts Payable
Q3) When a product has completed the manufacturing process what is the journal entry to record the transfer of its cost?
A)debit to Cost of Goods Sold credit Work-in-Process
B)debit to Finished Goods credit of Work-in-Process
C)debit to Cost of Good Sold credit to Finished Goods Inventory
D)debit to Work-in-Process Inventory credit to Finished Good Inventory
Q4) Explain how a favorable direct labor usage variance might indicate with the production process.
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Chapter 10: Recording and Evaluating Revenue Process
Activities
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Q1) In times of rising prices,______ generally result(s)in the ______ ending inventory.
A)LIFO and FIFO,same
B)LIFO,higher
C)FIFO,lower
D)LIFO,lower
Q2) The Customer Deposits account is reported on the balance sheet as a:
A)contra asset
B)current asset
C)current liability
D)long-term asset
Q3) One example of a contra-asset is:
A)Sales Discount
B)Sales Returns and Allowances
C)Uncollectible Accounts Expense
D)None of the above are contra assets.
Q4) Briefly describe the makeup of ending inventory under the FIFO and LIFO methods.
Q5) If prices don't change over time,what will be the differences between LIFO and FIFO?
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Chapter 11: Time Value of Money
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Q1) You are trying to decide whether to buy a machine today.The machine will generate $12,000 cash at the end of each of the next 5 years.If you must have a 10% rate of return on your investments,what is the most you would pay for this machine?
Q2) You have $3,000 and are going to put it into a savings account.How much will you have in 10 years if you can earn:
(A.)7% compounded semi-annually? (B.)10% compounded monthly?
Q3) What if the present value of $2,000 received nine years from today,assuming an interest rate of 8% compounded semiannually?
A)$987.26
B)$12,493.80
C)$ 3,998.00
D)$ 1,000.40
Q4) If someone offered to give you a $500,000 noninterest-bearing note that was due 5 years from today (you will receive only one $500,000 payment three years from today)how much would you loan them if you wanted to earn an 6% annual interest rate that is compounded semiannually?
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Chapter 12: Planning Investments: Capital Budgeting
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Sample Questions
Q1) Ignoring income taxes,the net-present-value of the investment in the machine is:
A)$(16,500)
B)$(499)
C)$ 14,614
D)$ 17,160
Q2) The capital budgeting process uses the four processes listed below,identify the sequence in which the processes occur starting with 1 and ending with 4.
A.Financing the selected investment.
_____
B.Identifying long-term investment opportunities.
C.Evaluating the investments.
D.Selecting appropriate investment.
Q3) Which of the following is an operational investment?
A)Selling the company's own stock for cash
B)Buying the stock of another company
C)Buying a patent
D)Buying office supplies
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Chapter 13: Planning Equity Financing
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Q1) During the current year,Jacob,Alicia,and Shawn,who are partners in the JAS Company,had average capital balances of $57,000,$49,000,and $64,000,respectively.The partners share profits and losses by allowing a 12% return on average capital,with any remaining income or loss divided in a ratio of 5:3:2.If the company's income for the current year was $73,800,Shawn's capital account would increase by:
A)$14,760
B)$18,360
C)$22,440
D)$27,784
Q2) Which of the following is a disadvantage of partnerships?
A)Ease of formation
B)Income is not taxed twice
C)Mutual agency
D)Owners manage the firm
Q3) Financial risk is the risk associated with:
A)debt financing
B)equity financing
C)financing activities
D)ownership in a corporation
Q4) 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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Q1) A bond issue which specifies that certain portions of the total bond issue are due periodically over the life of the bond is called a:
A)serial bond
B)bond indenture
C)registered bond
D)redeemable bond
Q2) What does discount on a note payable represent?
A)loss from borrowing
B)gain from borrowing
C)additional interest expense over the term of the note
D)additional interest revenue over the term of the note
Q3) Once the capital budgeting decision has identified the asset the firm wants to acquire and the decision is made to use debt financing,how does the firm decided between a non-interest bearing note,an installment note,or an interest bearing note?
Q4) When the market rate of interest is less than a note's face rate of interest:
A)the note is issued at a discount
B)the note is issued at a premium
C)the proceeds of the note are less than the face value of the note
D)unable to determine from the information given
Page 16
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Chapter 15: Recording and Evaluating Capital Resource
Process Activities: Financing
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Q1) 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
Q2) Under which of the following situations would a firm repurchasing bonds in the secondary market report a loss?
A)the current market rate of interest is greater than the market rate when the bonds were issued
B)the current market rate of interest is greater than the stated rate on the bonds
C)the current market price of the bonds is greater than carrying value of the bonds
D)the current market price of the bonds is greater than face value of the bonds
Q3) Reissuing treasury stock at a price higher than the price paid to acquire the stock results in a(n):
A)increase in contributed capital
B)decrease in contributed capital
C)loss reported on the income statement
D)gain reported on the income statement
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Q1) 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.
Q2) Safeco,Inc.owns a jet airplane with an original cost of $958,500 and accumulated depreciation of $644,800.The company exchanged the airplane for 50,000 shares of stock held by another company as an investment.The stock is valued at $7 per share.The gain or loss recognized on the exchange would be:
A)$294,800 loss
B)$313,700 gain
C)$ 36,300 gain
D)no gain or loss should be recognized
Q3) A loss due to impairment is recorded when:
A)The asset is sold for less than its book value.
B)An asset's fair value temporarily drops below its book value.
C)An asset is damaged during operations.
D)An asset's fair value permanently drops below its book value
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Chapter 17: Company Performance: Profitability
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Q1) What item would not be part of the cost of inventory under the variable costing method?
A)depreciation on the manufacturing building
B)direct materials
C)direct labor
D)all of the above would be included in the variable cost of inventory
Q2) Comprehensive income is also referred to as:
A)earnings
B)net income
C)income from continuing operations
D)none of the above
Q3) The amount of income from operations of the Telecommunications Division that would appear on the 2010 income statement of Kaiser Corporation is:
A)$297,500
B)$312,000
C)$552,500
D)$850,000
Q4) Explain how a firm can manipulate income by increasing inventory under full absorption costing.
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Q1) Brentwood,Inc.'s Statement of Changes in Owners' Equity for the year ended December 31,2010 showed a reduction to prior period adjustment,net of taxes,equal to $41,250.The company has an effective tax rate of 45%.The gross amount of the error was an:
A)understatement of income in the prior year of $18,563
B)overstatement of income in the prior year of $75,000
C)understatement of income in the current year of $22,688
D)overstatement of income in the prior year of $91,667
Q2) Preferred Stock issued by a company would be reported on that company's balance sheet as:
A)retained earnings
B)contributed capital
C)other owners' equity
D)a long-term investment
Q3) Customer Deposits would generally be reported on the balance sheet as a(n):
A)investment
B)current asset
C)current liability
D)long-term liability
Q4) How can a balance sheet predict a company's future net income?
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Chapter 19: Company Performance: Cash Flows
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Q1) 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
Q2) On a statement of cash flows using the indirect format,amortization of the premium on investments in bonds is:
A)deducted from net income in the operating activities section
B)included as an inflow in the financing activities section
C)added to net income in the operating activities section
D)ignored,since it is a noncash expenditure
Q3) Using the indirect method (statement of cash flows),an increase in current assets 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
Q4) What are the four primary purposes of the statement of cash flows?
Q5) Do you consider the direct or indirect method more useful? Why?
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Chapter 20: Company Performance: Comprehensive Evaluation
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Q1) The gross margin percentage for 2010 was:
A)33.0%
B)40.1%
C)42.2%
D)45.6%
Q2) What are the two elements of return on assets?
A)return on equity and return on sales
B)return on equity and asset turnover
C)return on sales and asset turnover
D)return on sales and profit margin
Q3) The times interest earned ratio is generally used to assess a firm's:
A)liquidity
B)efficiency
C)profitability
D)creditworthiness
Q4) The current ratio at the end of 2010 was:
A)1.76
B)1.56
C)1.45 D)1.03
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