Accounting Fundamentals
Test Questions
Course Introduction
Accounting Fundamentals introduces students to the basic concepts and principles underlying the preparation and interpretation of financial information. This course covers the accounting cycle, including the recording of transactions, adjusting entries, preparation of financial statements, and closing procedures. Topics such as assets, liabilities, equity, revenues, expenses, and internal controls are explored to provide a foundational understanding of how businesses track, measure, and report their financial activities. Emphasis is placed on the analysis and communication of financial information for decision-making by stakeholders. This course is ideal for students new to accounting or those seeking a practical understanding of financial recordkeeping in business environments.
Recommended Textbook
Fundamentals of Financial Accounting 5th Canadian Edition by Fred Phillips
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Chapter 1: Business Decisions and Financial Accounting
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Q1) There are four basic financial reports that comprise financial statements.These will differ slightly depending upon whether the company is operating under IFRS or ASPE.List the names of these statements,in order of preparation,and categorize them as either ASPE or IFRS.
Answer: \[\begin{array} { | l | l | }
\hline \text { ASPE } & \text { IFRS } \\
\hline \text { 1. Income Statement } & \text { 1. Staternent of Comprehensive Income } \\
\hline \begin{array} { l }
\text { 2. Statement of Retained } \\
\text { Earnings }
\end{array} & \text { 2. Staternent of Charnges in Equity } \\
\hline \text { 3. Balarice Sheet } & \text { 3. Statement of Financial Position } \\ \hline \text { 4. Statement of Cash Flows } & \text { 4. Statement of Cash Flows } \\ \hline \end{array}\]
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Chapter 2: The Balance Sheet
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Sample Questions
Q1) To maintain consistency,the accounting profession requires companies to use the same chart of accounts,whether operating under IFRS or ASPE.
A)True
B)False
Answer: False
Q2) A company purchases $23,000 of supplies in the current month and promises to pay for them next month.How would the company record a liability for the supplies?
A)This liability is not a recognized liability until the payment is due.
B)$23,000 would be posted as a credit to Accounts Payable.
C)$23,000 would be posted as a debit to Accounts Payable.
D)$23,000 would be posted as a debit to Note Payable.
Answer: B
Q3) A chart of accounts is a list of account titles used to record financial transactions. A)True
B)False
Answer: True
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4
Chapter 3: The Income Statement
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Sample Questions
Q1) During April,the Grass is Greener Company buys and pays for a six-month supply of fertilizer in order to receive a bulk discount.The cost of fertilizer is recorded:
A)immediately as an expense.
B)as a liability,which will later be reduced as the fertilizer used.
C)partially as an expense and partially as a liability.
D)as an asset,which will later be reduced as the fertilizer is used.
Answer: D
Q2) Austin Insurance (AI)earned $10,000 revenue for services provided.Which of the following is correct?
A)AI would credit Accounts Receivable,regardless of the timing of cash receipts.
B)AI would credit Accounts Receivable,but only if cash has not been received.
C)AI would credit Revenue,regardless of the timing of cash receipts.
D)AI would credit Revenue,but only if cash has been received.
Answer: C
Q3) Net income of a company is the same as the amount of cash flow generated by the business during the period.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Adjustments, financial Statements, and Financial Results
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Sample Questions
Q1) Closing journal entries are only recorded at the end of each accounting year.
A)True
B)False
Q2) The sales revenue account has a credit balance of $367,200 at year end.After closing entries are made,the account will:
A)have a debit balance of $367,200.
B)have a zero balance.
C)still have a credit balance of $367,200.
D)be removed entirely from the general ledger.
Q3) On the balance sheet,accumulated depreciation is:
A)added to property and equipment.
B)subtracted from property and equipment.
C)added to total liabilities.
D)subtracted from total liabilities.
Q4) Which of the following would appear in the credit column of an adjusted trial balance?
A)Income tax payable.
B)Cost of goods sold.
C)Prepaid insurance.
D)Interest receivable.
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Chapter 5: Fraud, internal Control, and Cash
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Q1) When preparing this month's bank reconciliation,you find that you failed to record a $95 deposit for a payment you received from a customer.You immediately prepare a journal entry to record the deposit.Which of the following describes the actions to be taken when preparing next month's bank reconciliation?
A)You must decrease the balance per bank by $95.
B)You must increase the balance per bank by $95.
C)You must increase the balance per books by $95.
D)No further action is necessary.
Q2) Which of the following situations would cause the balance per bank to be more than the balance per books?
A)Deposits in transit.
B)Service charges.
C)Outstanding cheques.
D)Cheques from customers returned as NSF.
Q3) Internal control will always detect fraud.
A)True
B)False
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Chapter 6: Merchandising Operations and the Multi-Step
Income Statement
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Q1) Which is the best form of inventory control for inventory?
A)Establish responsibility.
B)Use a periodic inventory system.
C)Use a perpetual inventory system.
D)Document procedures.
Q2) A credit card discount is applied to a sales transaction.
A)debited (Dr)
B)Bedited (Cr)
C)Ceither (N)
Q3) Customers are the biggest source of shrinkage in the retail industry.
A)True
B)False
Q4) Your store buys ice cream for $1.50 a half litre (not including general and administrative expenses of $0.75)and sells it for $4 a half litre.Which of the following statements is true?
A)Your gross profit per half litre is $2.50.
B)Your gross profit per half litre is $1.75.
C)$2.50 is recorded in an account titled Gross Profit.
D)$1.75 is recorded in an account titled Gross Profit.
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Chapter 7: Inventory and Cost of Goods Sold
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Q1) Companies that are both manufacturers and merchandisers must list their finished goods inventory and merchandise inventory separately.
A)True
B)False
Q2) Inventory may include materials used in producing goods for sale.
A)True
B)False
Q3) An increase in inventory levels is always a sign of inefficiency in inventory management.
A)True
B)False
Q4) All of the following are types of inventory,except A)consignment.
B)raw materials.
C)Goods in transit.
D)FOB.
Q5) A company has beginning inventory of $128,400 and an ending inventory of $89,100.The company purchased $67,900 during the accounting period.Assuming no returns,calculate the goods available for sale and the cost of goods sold.
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Chapter 8: Receivables, bad Debt Expense, and Interest
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Q1) Your company lent a customer $5,000 to satisfy the customer's overdue accounts receivable.The loan is for one year at an annual interest rate of 5%.Six months later the customer repays the principal and interest.The principal part of the repayment should be recorded as a:
A)debit to Cash and credit to Notes Receivable.
B)debit to Notes Receivable and credit to Interest Revenue.
C)debit to Cash and credit to Accounts Receivable.
D)debit to Allowance for Bad Debts and credit to Cash.
Q2) In normal circumstances,the allowance for doubtful accounts for a company should be a fairly consistent percentage of gross accounts receivable.
A)True
B)False
Q3) The balance in the Allowance for Bad Doubtful Accounts
A)will never equal the balance in Bad Debt Expense.
B)will equal the balance in Bad Debt Expense in the first year of use.
C)will equal the balance in Bad Debt Expense in its last year of use.
D)will always equal the balance in Bad Debt Expense.
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Page 10
Chapter 9: Long-Lived Tangible and Intangible Assets
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Q1) If a company produces the same number of units per period over an asset's useful life,straight-line depreciation expense per period will be the same as the depreciation expense recorded using the units-of-production method.
A)True
B)False
Q2) How will the costs of an intangible asset being develop internally or self-constructed be reported?
A)As capital expenditure
B)As research and development expenses
C)As marketing expenses
D)As a liability
Q3) If the double-declining balance method were used to depreciate a building that has a 10-year useful life and a residual value equal to 10% of the building's original cost,what depreciation rate would be used?
A)9%
B)10%
C)18%
D)20%
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Chapter 10: Liabilities
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Q1) If a company records a discount or premium with the Bonds Payable in a single account called Bonds Payable,Net,it must use the effective interest method of amortization.
A)True
B)False
Q2) Which of the following is a standard of recognition of contingent liabilities required by IFRS:
A)recognize the liability if the occurrence of the future event is likely meaning it is highly probable.
B)recognize the liability if the occurrence of the future event is more likely than not meaning its probable and it is also measurable.
C)does not require that it be measurable.
D)Recognize the liability if the occurrence of the future event is certain
Q3) As time passes,a bond liability creates interest expense,which
A)need not be matched to each period in which the liability is owed.
B)is matched to each period in which the liability is owed.
C)may be matched to each period in which the liability is owed,but it depends on whether the company is following ASPE or IFRS.
D)all of the answers are acceptable in certain situations.
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Chapter 11: Shareholders Equity
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Q1) A restriction on retained earnings will:
A)decrease assets.
B)decrease retained earnings.
C)be included in the liabilities section of the balance sheet.
D)be disclosed in the notes to the financial statements.
Q2) Dividends in arrears do not appear on the balance sheet or require a journal entry.
A)True
B)False
Q3) A corporate charter specifies that the company may sell up to 20 million shares of stock.The company sells 12 million shares to investors and later buys back 3 million shares.Of the 3 million shares bought back,the company cancels 2 million and holds 1 million.The number of issued shares after these transactions are:
A)12 million shares.
B)9 million shares.
C)10 million shares.
D)18 million shares.
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Chapter 12: Statement of Cash Flows
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Q1) Free cash flow is a positive cash flow:
A)beyond what is needed to replace current property,plant,and equipment and pay dividends.
B)across all three activity components of the statement of cash flows.
C)beyond what has been allotted for future property,plant,and equipment replacement and expansion.
D)across both financing and investing activities.
Q2) Noncash revenues and expenses must be included in net cash flow from operating activities when preparing a Statement of Cash Flows using the direct method.
A)True
B)False
Q3) Which of the following represent cash inflows from financing activities?
A)Issuing shares in exchange for another company's shares.
B)Paying a bond's face value at maturity.
C)Issuing long-term bonds at a discount.
D)Receiving interest on promissory notes.
Q4) Under ASPE every company is required to report a statement of cash flows.
A)True
B)False
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Chapter 13: Measuring and Evaluating Financial Performance
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Q1) The going-concern assumption states that the: A)company will always maximize the profit for shareholders.
B)company is not expected to go out of business in the near future.
C)company is a separate concern from the shareholders.
D)company's results will be reported in a consistent manner from period to period.
Q2) Solvency ratio data are primarily concerned with the ability of a company to: A)produce profits.
B)handle its debt.
C)manage its cash flow.
D)provide income for shareholders.
Q3) Analysts typically use a running four-week average for the shares price in the P/E ratio.
A)True
B)False
Q4) Trend data can be measured in dollar amounts or percentages.
A)True
B)False
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