Accounting I
Chapter
Exam Questions
Course Introduction
Accounting I introduces students to the fundamental principles and practices of financial accounting. The course covers the basics of recording financial transactions, preparing and interpreting financial statements, and understanding the role of accounting in business decision-making. Topics include the accounting cycle, double-entry bookkeeping, accruals and deferrals, and internal controls. Emphasis is placed on the use of Generally Accepted Accounting Principles (GAAP) and the ethical responsibilities of accountants. This foundational course equips students with the essential skills needed to analyze and communicate financial information in various business environments.
Recommended Textbook
Financial Accounting Information for Decisions 6th Edition by John Wild
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Chapter 1: Introducing Accounting in Business
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Sample Questions
Q1) The amounts reported in the accounts for assets used in operations are based on their costs.This practice is best justified by the:
A)Cost principle
B)Going-concern principle
C)Objectivity principle
D)Business entity principle
E)Revenue recognition principle
Answer: A
Q2) Ending Liabilities are 67,000,Beginning Equity was $87,000,Common Stock sold during year totaled $31,000,Expenses for the year were $22,000,Dividends declared totaled $13,000,Ending Equity for the year is $181,000 and Beginning Assets for the year were $222,000.
What was Beginning Liabilities for the year?
A)$154,000
B)$155,000
C)$212,000
D)$248,000
E)$135,000
Answer: E
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3
Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) On December 3,the Matador Company paid $5,400 cash in salaries to office personnel.Prepare the general journal entry to record this transaction.
Answer: \[\begin{array} { | l | l | l | l | }
\hline 12 / 3 & \text { Office Salaries Expense } & 5,400 & \\
\hline & \text { Cash } & & 5,400 \\ \hline \end{array}\]
Q2) A column in journals and ledger accounts used to cross reference journal and ledger entries is the:
A)Account balance column
B)Debit column
C)Posting reference column
D)Credit column
E)Description column
Answer: C
Q3) The debt ratio reflects the risk of a company to both its owners and creditors. A)True
B)False
Answer: True
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Page 4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) The Unadjusted Trial Balance columns of a work sheet total $84,000.The Adjustments columns contain entries for the following:
Office supplies used during the period,$1,200.
Expiration of prepaid rent,$700. Accrued salaries expense,$500.
Depreciation expense,$800. Accrued service fees receivable,$400. The Adjusted Trial Balance columns total is:
A)$80,400
B)$84,000
C)$85,700
D)$85,900
E)$87,600
Answer: C
Q2) Profit margin can also be called return on sales.
A)True
B)False Answer: True
Q3) Profit margin = ___________________ divided by net sales. Answer: Net income
Page 5
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Chapter 4: Reporting and Analyzing Merchandising Operations
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Sample Questions
Q1) Describe the recording process (including costs)for sales of merchandise inventory using a perpetual inventory system.
Q2) A company has sales of $1,500,000,sales discounts of $102,000,sales returns and allowances of $123,000,shipping charges of $15,000,sales commissions of $34,000,net income totaled $263,500,and cost of goods sold of $420,000.What is the gross profit/margin ratio?
A)72.0%
B)53.7%
C)67.1%
D)81.7%
E)17.6%
Q3) The gross margin ratio reflects the relation between sales and cost of goods sold. A)True
B)False
Q4) A company's current ratio is 1.2 and its quick ratio is 0.25.This company is probably an excellent credit risk because the ratios reveal no indication of liquidity problems.
A)True B)False
Page 6
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Chapter 5: Reporting and Analyzing Inventories
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Q1) Three key variables determine the dollar value of inventory: (1)inventory quantity, (2)costs of inventory and (3)cost flow assumption.
A)True
B)False
Q2) Given the following items and costs as of the balance sheet date,determine the value of Faltron Company's merchandise inventory.
$1,000 goods sold by Faltron to another company.The goods are in transit and shipping terms are FOB destination.
$2,000 goods sold by another company to Faltron.The goods are in transit and shipping terms are FOB destination.
$3,000 owned by Faltron but in the possession of another company the consignee. Damaged goods owned by Faltron which originally cost $4,000,but which now have a $500 net realizable value.
A)$10,000
B)$6,500
C)$5,500
D)$5,000
E)$4,500
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Page 7
Chapter 6: Reporting and Analyzing Cash and Internal Controls
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Q1) In order to streamline the purchasing process,department managers should place orders directly with suppliers.
A)True
B)False
Q2) A properly designed internal control system is a key part of accounting information systems design,analysis and performance.
A)True
B)False
Q3) Liquidity refers to a company's ability to pay its short-term obligations.
A)True
B)False
Q4) A company's internal control system:
A)Eliminates the risk of loss
B)Monitors and controls business activities
C)Eliminates human error
D)Eliminates the need for audits
E)Is not necessary in large companies
Q5) Checking accounts are also called demand deposits.
A)True
B)False
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Chapter 7: Reporting and Analyzing Receivables
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Sample Questions
Q1) Prepare the adjusting journal entry to record the estimate for bad debts assuming: On December 31,of the current year,a company's unadjusted trial balance revealed the following: Accounts receivable of $185,600; Sales Revenue of $1,280,000; (75% were on credit)and Allowance for Doubtful Accounts of $1,600 (credit balance).
1.Bad debts expense is estimated to be 1.5% of credit sales.
2.6% of the accounts receivable balance is assumed to be uncollectible.
Q2) A promissory note:
A)Is a short-term investment for the maker
B)Is a written promise to pay a specified amount of money at a certain date
C)Is a liability to the payee
D)Is another name for an installment receivable
E)Cannot be used in payment of an account receivable
Q3) Under the allowance method of accounting for uncollectible accounts receivable,no estimate is made to predict bad debts expense.
A)True
B)False
Q4) What is the maturity date of a 6-month note receivable dated February 5?
Q5) Explain the options a company has when converting its receivables to cash.
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Chapter 8: Reporting and Analyzing Long-Term Assets
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Q1) An ore deposit costing $800,000 is expected to produce 1,600,000 tons of ore.A total of 70,000 tons are mined and sold in the current year.The depletion expense for the current year is $35,000.
A)True
B)False
Q2) Both the straight-line depreciation method and the double-declining-balance depreciation method:
A)Produce the same total depreciation over an asset's useful life
B)Produce the same depreciation expense each year
C)Produce the same book value each year
D)Are acceptable for tax purposes only
E)Are the only acceptable methods of depreciation for financial reporting
Q3) Coors reported net sales of $2,463 million and average total assets of $1,546 million.Its total asset turnover is equal to 1.59.
A)True
B)False
Q4) Plant assets are assets that are held for sale.
A)True
B)False
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Chapter 9: Reporting and Analyzing Current Liabilities
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Q1) The deferred income tax liability:
A)Represents income tax payments that are deferred until future years because of temporary differences between GAAP rules and tax accounting rules
B)Is a contingent liability
C)Can result in a deferred income tax asset
D)Is never recorded
E)Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary
Q2) A liability does not exist if there is any uncertainty about whom to pay,when to pay or how much to pay.
A)True
B)False
Q3) The rate for FICA-social security is 6.2% and the rate for FICA-Medicare is 1.45%.Calculate the total amount of FICA withholding for an employee whose pay is $2,400 and is entirely subject to these FICA taxes.
Q4) If Steve Company paid $820,000 in bonuses,and net income before bonus was $3,850,000,what was the bonus percentage offered to the employees during 2010?
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Chapter 10: Reporting and Analyzing Long-Term Liabilities
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Q1) On June 1,a company issued $200,000 of 12% bonds at their par value plus accrued interest.The interest on these bonds is payable semiannually on January 1 and July 1.Prepare the issuer's journal entry to record the bond issuance of June 1.
Q2) If the borrower fails to pay a mortgage,most mortgage contracts grant the lender the right to foreclose on the property that is identified as security in the contract.
A)True
B)False
Q3) What is an annuity?
Q4) A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.
A)True B)False
Q5) A bond listed at 103 on a stock exchange is selling at 103% of its par value. A)True B)False
Q6) What methods can a company use to retire its bonds?
Q7) A bond with a par value of less than $1,000 is called a ______________ bond.
Page 12
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Chapter 11: Reporting and Analyzing Equity
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Q1) Stocks that pay relatively large cash dividends on a regular basis are referred to as:
A)Small capital stocks
B)Mid capital stocks
C)Growth stocks
D)Large capital stocks
E)Income stocks
Q2) Explain the preparation of journal entries to record the issuance of par value,stated value and no-par value common stock.
Q3) A corporation reported net income of $3,730,000 and paid preferred cash dividends of $100,000 during the current year.There were 600,000 shares of common stock outstanding and the market price per common share was $88.33 at year-end.Calculate the company's price-earnings ratio.
Q4) A company issued 7% preferred stock with a $100 par value.This means that:
A)Preferred shareholders have a guaranteed dividend
B)The amount of the potential dividend is $7 per year per preferred share
C)Preferred shareholders are entitled to 7% of the annual income
D)The market price per share will approximate $100 per share
E)Only 7% of the total contributed capital can be preferred stock
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Chapter 12: Reporting and Analyzing Cash Flows
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Q1) Use the following information and the indirect method to calculate the net cash provided or used by operating activities:
\(\begin{array}{|l|r|}
\hline \text { Net income } & \$ 12,300 \\
\hline \text { Depreciation expense } & 12,000 \\
\hline \text { Payment on mortgage payable } & 15,000 \\
\hline \text { Gain on sale of land } & 7,500 \\
\hline \text { Increase in merchandise inventory } & 2,050 \\
\hline \text { Increase in accounts payable } & 6,150 \\
\hline \text { Proceeds from sale of land } & 8,000\\
\hline \end{array}\)
A)$12,700
B)$13,900
C)$20,900
D)$28,400
E)$35,900
Q2) The cash flow on total assets ratio is computed by dividing _____________ by
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Chapter 13: Analyzing and Interpreting Financial Statements
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Q1) The current ratio is calculated as current liabilities divided by current assets.
A)True
B)False
Q2) The "cumulative effect of a change in accounting principles" is shown below extraordinary items section on the income statement.
A)True
B)False
Q3) Comparative financial statements in which each amount is expressed as a percentage of a base amount and in which the base amount is expressed as 100%,are called:
A)Comparative statements
B)Common-size comparative statements
C)General-purpose financial statements
D)Base line statements
E)Index statements
Q4) ____________ is a method of analysis used to evaluate individual financial statement items or groups of items in terms of a specific base amount.
Q5) Explain the form and content of a complete income statement.
Page 15
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Chapter 14: Investments and International Operations
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Q1) Sanuk purchased on credit £20,000 worth of parts from a British company when the exchange rate was $1.66 per British pound.At the year-end balance sheet date the exchange rate increased to $1.69.Sanuk must record a gain of $600.
A)True
B)False
Q2) Long-term investments in available-for-sale securities are reported at market value on the balance sheet.
A)True
B)False
Q3) Morgan Company purchased 2,000 shares of Asta's common stock for $143,000 as a long-term investment and is considered available-for-sale.The par value of the stock was $1 per share.Morgan paid $375 in commissions on the transaction.The entry to record the transaction would include a:
A)Credit to Common Stock for $2,000
B)Credit to Common Stock for $143,000
C)Credit to Common Stock for $143,375
D)Debit to Long-Term Investments for $143,000
E)Debit to Long-Term Investments for $143,375
Q4) Return on total assets is computed by dividing ___________ by __________.
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Chapter 15: Reporting and Analyzing Partnerships
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Q1) Armstrong plans to leave the FAP Partnership.The recorded balance in her capital account is $48,000.The remaining partners,Peters and Floyd,agree to pay Armstrong $58,000 cash.The partners have agreed to share income and loss equally.Prepare the journal entry to record the transaction.
Q2) When partners invest in a partnership,their capital accounts are credited for the amount invested.
A)True B)False
Q3) Partners in a partnership are taxed on _______________________,not on their withdrawals.
Q4) Durango and Verde formed a partnership with capital contributions of $150,000 and $190,000,respectively.Their partnership agreement called for Durango to receive a $50,000 annual salary allowance.They also agreed to allow each partner a share of income equal to a 10% of their initial capital investments.The remaining income or loss is to be divided equally.If the net income for the current year is $120,000,what are Durango's and Verde's respective shares?
Q5) Discuss the options for the allocation of income and loss among partners,including with and without a partnership agreement.
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Chapter 16: Reporting and Preparing Special Journals
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Q1) Coca-Cola's Latin American segment had revenues of $2,089 million,operating income of $1,033 million and average total assets of $1,443 million.The Latin American segment return on assets is:
A)49.4%
B)69.0%
C)71.6%
D)139.7%
E)144.8%
Q2) When a company uses special journals,the general journal is used for selected transactions and events including:
A)Recording adjusting transactions
B)Posting transactions to special journals
C)Accumulating debits and credits
D)Collecting detailed listings of amounts
E)Recording cash receipts
Q3) _____________________ are systems that interpret,transform and summarize information for use in Analysis and reporting.
Q4) What are controlling accounts and subsidiary ledgers? What is the relationship between them?
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