Accounting I Exam Materials
Course Introduction
Accounting I introduces students to the fundamental principles and concepts of financial accounting. The course covers the accounting cycle, including the recording, summarizing, and reporting of financial transactions for various types of business organizations. Students will learn how to prepare and analyze basic financial statements such as the balance sheet, income statement, and statement of owner's equity. Key topics include the double-entry system, journal entries, ledger accounts, trial balances, adjusting entries, and the ethical responsibilities of accountants. By the end of the course, students will have a solid foundation in financial accounting practices and an understanding of how accounting information supports business decision-making.
Recommended Textbook Principles of Accounting 11th Edition by Belverd E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) A primary user of accounting information with a direct financial interest in the business is a
A) regulatory agency.
B) creditor.
C) taxing authority.
D) labor union.
Answer: B
Q2) The Internal Revenue Service is responsible for issuing accounting standards for state and local governments.
A)True
B)False Answer: False
Q3) Knowledge of the exchange rate is necessary to apply the money measure concept in case of international transactions.
A)True
B)False
Answer: True
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) For each item below, indicate whether a debit or a credit applies.
a. Decrease in Accounts Payable
b. Decrease in Land
c. Increase in Owner's Capital
d. Increase in Unearned Revenue
e. Decrease in Interest Payable
f. Increase in Prepaid Insurance
g. Increase in Wages Expense
h. Decrease in Art Supplies
i. Increase in Advertising Fees Earned
Answer: a. Debit
b. Credit
c. Credit
d. Credit
e. Debit
f. Debit
g. Debit
h. Credit
i. Credit
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4
Chapter 3: Measuring Business Income
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Sample Questions
Q1) Which of the following accounts could increase as a result of adjusting entries?
A) Prepaid Insurance
B) Accounts Receivable
C) Unearned Fees
D) Office Equipment
Answer: B
Q2) When expenses exceed revenues,
A) a net income will result.
B) a net loss occurs.
C) owner's equity increases.
D) a liability is created.
Answer: B
Q3) On December 9, A issues a 60-day promissory note to B. The December 31 adjusting entry for A is
A) Interest Payable - Debit; Cash - Credit
B) Interest Receivable - Debit; Interest Income - Credit
C) Interest Expense - Debit; Cash - Credit
D) Interest Expense - Debit; Interest Payable - Credit
Answer: D
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) A work sheet is more useful for a small company than for a large one.
A)True
B)False
Q2) In the accounting cycle, closing entries are prepared before adjusting entries.
A)True
B)False
Q3) Which of the following accounts might appear in the adjusted trial balance but not in the post-closing trial balance?
A) Depreciation Expense-Equipment
B) Owner's Capital
C) Unearned Revenue
D) Income Summary
Q4) The entry to close the Withdrawals account is
A) debit owner's Capital and credit Withdrawals.
B) debit Withdrawals and credit owner's Capital.
C) debit Income Summary and credit Withdrawals.
D) debit Withdrawals and credit Income Summary.
Q5) The heading of a work sheet might contain the line "As of February 28, 20xx."
A)True
B)False
6
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Chapter 5: Financial Reporting and Analysis
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Sample Questions
Q1) General and administrative expenses are a category of operating expense.
A)True
B)False
Q2) A company should classify land held for a planned manufacturing facility as A) an intangible asset.
B) an investment.
C) a current asset.
D) property, plant, and equipment.
Q3) It is possible for an asset to be a current asset even though the expected conversion of that asset into cash is to be longer than one year.
A)True
B)False
Q4) Accounting information contains numerous estimates, classifications, summarizations, judgments, and allocations.
A)True
B)False
Q5) Asset turnover measures how efficiently assets are used to produce sales.
A)True
B)False
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Chapter 6: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) If creditors' payment terms are 60 days, financing period is 20 days, and it takes 30 days to collect the amount from customers. What time does it take to sell the inventory?
A) 60 days.
B) 20 days.
C) 30 days.
D) 50 days.
Q2) Financing period represents the time during which merchandizing company has to finance its customers.
A)True
B)False
Q3) Which of the following goods would not be included in merchandise inventory for a purchasing company?
A) Goods in transit shipped FOB shipping point
B) Goods on hand in the showroom
C) Goods in transit shipped FOB destination
D) Goods ordered and received from the supplier
Q4) On the income statement, freight-out is included as part of cost of goods sold.
A)True
B)False
8
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Chapter 7: Internal Control
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Sample Questions
Q1) A good system of internal control is designed to achieve each of the following, except A) efficiency of operations.
B) reliability of financial reporting.
C) compliance with relevant laws and regulations.
D) attainment of target sales.
Q2) As the controller of a large company, you notice that the Cash Short or Over account is consistently debited for fairly large sums of cash when the petty cash fund is replenished. You probably will want to
A) increase the amount of the fund.
B) decrease the amount of the fund.
C) find a new custodian for the fund.
D) offer the custodian your congratulations.
Q3) Effective internal control requires a department to purchase supplies on its own. A)True
B)False
Q4) A check authorization would be prepared before a receiving report.
A)True
B)False
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Chapter 8: Inventories
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Sample Questions
Q1) A retail store has beginning inventory of $30,000, purchases of $220,000, sales of $200,000, and a normal gross margin of 25 percent. What is estimated inventory based on these facts and the gross profit method?
A) $50,000
B) $150,000
C) $100,000
D) $200,000
Q2) The determination of the balance sheet cost of merchandise inventory is important to the determination of net income.
A)True
B)False
Q3) The specific identification method is well suited for a discount department store.
A)True
B)False
Q4) Supply-chain management helps companies maintain lower levels of inventory. A)True
B)False
Q5) How is the matching rule applied when accounting for merchandise inventory?
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Page 10
Chapter 9: Cash and Receivables
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Q1) Which of the following would be deducted from the balance per books on a bank reconciliation?
A) Notes collected by the bank
B) Deposits in transit
C) Service charges
D) Outstanding checks
Q2) Under what specific circumstance will application of the direct charge-off method be in accordance with the matching principle?
Q3) A successful credit policy balances an acceptable level of credit losses with the potential for profit from total credit sales.
A)True
B)False
Q4) On a balance sheet, what items normally are included in Cash?
Q5) Why do businesses need to keep some currency on hand?
Q6) Under the allowance method, uncollectible accounts must be estimated if the matching rule is to be followed.
A)True
B)False
Q7) What is a compensating balance? By whom is it required?
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) The costs associated with coupons and rebates are usually reflected in contra-revenue accounts.
A)True
B)False
Q2) To find the days' payable,
A) divide 365 by the payables turnover.
B) multiply the payables turnover by 365.
C) divide the payables turnover by 365.
D) subtract 365 from the payables turnover.
Q3) The annual interest earned on an amount deposited into a bank account will be the same each year when compound interest is used.
A)True
B)False
Q4) The amount recorded for Payroll Taxes and Benefits Expense is borne entirely by the employee.
A)True
B)False
Q5) Accrued liabilities often arise as a result of the passage of time.
A)True
B)False
12
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Chapter 11: Long Term Assets
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Sample Questions
Q1) Failure to record depletion for a given accounting period will result in A) understated total assets.
B) understated total liabilities.
C) overstated net income.
D) overstated total liabilities.
Q2) A contract limiting the rights of others to go into business in a specific industry or line of business for a specified period is called a A) noncompete covenant.
B) patent.
C) copyright.
D) trademark.
Q3) Accelerated methods of depreciation result in lower net income in the last years of an asset's life compared to the straight-line method.
A)True
B)False
Q4) A tractor held by a farm equipment company for sale to farmers is classified as a long-term asset.
A)True B)False
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Chapter 12: Contributed Capital
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Q1) Dividends on cumulative preferred stock do not become a liability of the corporation until they are declared by the board of directors.
A)True
B)False
Q2) Once an owner of convertible preferred stock has converted to common, he or she cannot convert back to preferred.
A)True
B)False
Q3) Start-up and organization costs include all of the following except A) goodwill.
B) cost of printing stock certificates.
C) attorney's fees.
D) state incorporation fees.
Q4) The cost of treasury stock is deducted from total Contributed Capital and Retained Earnings in determining total stockholders' equity.
A)True
B)False
Q5) Why must a corporation have sufficient retained earnings before it may declare cash dividends?
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Chapter 13: Long Term Liabilities
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Sample Questions
Q1) The debt to equity ratio is expressed in terms of A) a percentage.
B) dollars.
C) units.
D) times.
Q2) Technically, what is meant by the amortization of a bond discount, and why is it necessary?
Q3) Issuing bonds between interest payment dates will have the effect of decreasing a bond issuance discount or increasing a bond issuance premium.
A)True
B)False
Q4) The amount of unamortized discount at the end of an interest period is equal to the amount of the unamortized discount at the beginning of the period minus the amount of discount that was amortized during the period.
A)True
B)False
Q5) Bondholders are creditors of the issuing corporation.
A)True
B)False
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Chapter 14: The Corporate Income Statement and the Statement of
Stockholders Equity
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Questions
Q1) Which of the following is not true about a 35 percent stock dividend?
A) The market value of the stock is needed to record the stock dividend.
B) Retained earnings decreases.
C) Contributed capital increases.
D) Par value per share remains the same.
Q2) An extraordinary loss of $250,000 that results in income tax savings of $60,000 should be reported as an extraordinary loss (net of tax) of $190,000 on the income statement.
A)True
B)False
Q3) Which of the following items should be classified as an extraordinary item on a corporate income statement?
A) Excess of the selling price over the cost of treasury stock
B) Loss due to takeover of property by a foreign government
C) Gain on the sale of a long-term investment
D) Loss due to discontinued operations
Q4) Par value or stated value is arbitrarily set when stock is authorized.
A)True
B)False
Q5) Specifically, what gives rise to the Deferred Income Taxes account?
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) Royer Corporation engaged in this transaction: Amortization of a patent. Assume use of the indirect approach.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.
A) Schedule of noncash investing and financing transactions
B) Financing activities section
C) Investing activities section
D) Operating activities section
Q2) Interest received is one item deducted from net income as per the income statement to arrive at net cash flows from operating activities.
A)True
B)False
Q3) Cash flows to sales is a measure of free cash flow. A)True
B)False
Q4) Dividends paid are reflected in the financing activities section of the statement of cash flows.
A)True B)False
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Chapter 16: Financial Performance Measurement
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Sample Questions
Q1) It is in the best interests of a company to base executive compensation on a single performance measure.
A)True
B)False
Q2) In a common-size income statement, net income is represented by 100 percent.
A)True
B)False
Q3) Common-size statements are useful in assessing the changes in the composition of statements over time.
A)True
B)False
Q4) The receivable turnover and inventory turnover ratios are used to analyze A) leverage.
B) long-term solvency.
C) profitability.
D) liquidity.
Q5) The operating cycle is equal to days' sales uncollected plus days' inventory on hand. A)True
B)False
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Chapter 17: Partnerships
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Q1) A partnership is easy to form and to dissolve.
A)True
B)False
Q2) In a partnership gain or Loss from Realization is debited for a loss.
A)True
B)False
Q3) In a liquidation, one partner may have to make up the deficit in another partner's account.
A)True
B)False
Q4) A partner will not bind the partnership to an outside purchase contract when the A) the item purchased is considered immaterial in amount
B) item purchased is not within the normal scope of the business
C) partner was not authorized by the other partners to make the purchase
D) partner who made the purchase withdraws from the partnership
Q5) A partnership is dissolved when a new partner is admitted to the partnership.
A)True
B)False
Q6) Describe how a dissolution of a partnership is different from a liquidation of a partnership.
Page 19
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Chapter 18: The Changing Business Environment-A
Managers Pers
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Q1) In analyzing nonfinancial data, it is important to link the performance measures to the four perspectives of the balanced scorecard and to the objectives that are to be achieved.
A)True
B)False
Q2) The objectivity standards of management accountants state that management accountants must communicate information fairly and objectively. This means essentially that accountants must perform each task
A) as professionals, possessing the degree of skill of those management accountants who held the position before them.
B) to provide relevant information, both positive and negative, to the recipients of their reports.
C) in conformity with generally accepted accounting principles.
D) to the satisfaction of government regulators.
Q3) In today's competitive business environment, managers
A) need only be concerned with quality.
B) must provide the highest value at the highest cost to customers.
C) must provide the highest value at the lowest cost to customers.
D) need not be concerned with the cost to the customers.
Page 20
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Chapter 19: Cost Concepts and Cost Allocation
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Q1) For a manufactured product, all costs incurred to get the product ready for sale are included in the inventory value of the product.
A)True
B)False
Q2) Nonvalue-adding costs increase the cost of a product.
A)True
B)False
Q3) Property taxes and equipment depreciation are examples of indirect manufacturing costs.
A)True
B)False
Q4) Which of the following is the formula used to compute a product's unit cost?
A) (Direct Materials + Direct Labor) / Number of Units Produced
B) (Direct Materials + Direct Labor + Overhead) / Number of Units Produced
C) (Direct Labor + Overhead) / Number of Units Produced
D) (Indirect Materials + Indirect Labor + Overhead) / Number of Units Produced
Q5) Period costs are not considered when costing products for inventory.
A)True
B)False
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Chapter 20: Costing Systems: Job Order Costing
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Q1) In a job order costing system, when overhead costs are applied, they increase the Work in Process Inventory account.
A)True
B)False
Q2) Explain the similarities and differences between job order costing and process costing. Focus on the characteristics of each type of system.
Q3) Companies that produce custom-made products usually use a process costing system.
A)True
B)False
Q4) In a job order costing system, indirect labor costs are transferred to the Overhead account by increasing the Factory Payroll account and decreasing the Overhead account.
A)True
B)False
Q5) Unlike a job order costing system, a process costing system is not restricted to one Work in Process Inventory account.
A)True
B)False
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Chapter 21: Costing Systems Process Costing
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Q1) Total product costs for the period include direct materials, direct labor, and overhead.
A)True
B)False
Q2) The reason for combining direct labor and overhead costs together and calling them "conversion costs" is that
A) they both are direct costs of production.
B) the equivalent unit amount for direct materials will be the same as that for direct labor and overhead costs.
C) both types of costs usually are incurred uniformly throughout the production process.
D) the costs for direct labor and overhead are not accounted for separately.
Q3) A measure of productive output of units for a period of time, expressed in terms of completed whole units, is the definition of
A) conversion costs..
B) ending work in process inventory.
C) equivalent units
D) units started and completed.
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Chapter 22: Activity-Based Systems-Abm and Lean
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Q1) A goal of process value analysis (PVA) is to reduce nonvalue-adding activities. Outline a procedure a company could use to accomplish this goal.
Q2) Activity-based management and lean operations can be used either together or separately to eliminate waste and manage activities.
A)True
B)False
Q3) The JIT operating philosophy must be adopted by everyone in a company before its total benefits can be realized.
A)True
B)False
Q4) The three inventory accounts used in traditional costing are replaced by two inventory accounts in backflush costing.
A)True B)False
Q5) In a just-in-time environment, a manager is interested in trends in inventory turnover.
A)True B)False
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Chapter 23: Cost Behavior Analysis
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Q1) Cost-volume-profit analysis cannot be used to estimate a targeted profit for service businesses.
A)True
B)False
Q2) In a graph of cost-volume-profit analysis, the
A) total revenue line typically begins at a required minimum level.
B) slope of the total cost line is dependent on the variable cost per unit.
C) total cost line normally begins at zero.
D) sales level at which total cost and total revenue lines intersect is also equal to fixed costs.
Q3) A contribution margin income statement is formatted to emphasize cost behavior rather than organizational functions.
A)True
B)False
Q4) Cost-volume-profit analysis assumes a constant sales mix.
A)True
B)False
Q5) "Breakeven" is the point at which a company will begin to earn a profit.
A)True
B)False
25
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Chapter 24: The Budgeting Process
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Q1) Fantastic Futons goes through two departments in the production process. Each futon requires two direct labor hours in Department A and one hour in Department B. Labor cost is $8 per hour in Department A and $10 per hour in Department B. The budgeted overhead rate is $5 per direct labor hour. What is the budgeted overhead cost for January given a budgeted production of 30,000 units?
A) $450,000
B) $150,000
C) $330,000
D) $300,000
Q2) The first budget to be prepared when making a master budget is the A) sales budget.
B) production budget.
C) cash budget.
D) direct labor budget.
Q3) Which of the following budgets should be prepared before the others listed?
A) Cost of goods manufactured budget
B) Cash budget
C) Production budget
D) Overhead budget
Q4) Describe three benefits budgeting provides to an organization's success.
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Chapter 25: Performance Management and Evaluation
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Q1) Which of the following represents the number of sales dollars generated by each dollar invested in assets?
A) Asset turnover
B) Assets invested
C) Profit margin
D) Operating income
Q2) Which of the following performance measures is most concerned with long-term financial performance?
A) Economic value added
B) Residual income
C) ROI
D) None of these choices
Q3) Why might stock options not be the best way to promote coordination of goals?
A) Stock prices can fluctuate quickly.
B) Many of the variables that affect stock prices are beyond a manager's control.
C) Employees generally do not value stock options very highly.
D) None of these choices
Q4) What are some items that can affect an investment center's EVA calculation, and how can EVA be improved?
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Chapter 26: Standard Costing and Variance Analysis
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Q1) Direct labor time standards express the hourly labor cost per function or job classification that exists during the current accounting period.
A)True
B)False
Q2) The importance of direct labor standards and variances has been reduced.
A)True
B)False
Q3) If a company's flexible budget formula is $9.50 per unit plus $67,900, what would be the total budget for evaluating operating performance if 23,850 units were sold and 28,460 units were produced?
A) $294,475
B) $338,270
C) $309,335
D) $226,575
Q4) When actual capacity exceeds expected capacity, the result is a(n)
A) favorable fixed overhead volume variance.
B) favorable materials quantity variance.
C) unfavorable overhead variance.
D) unfavorable materials quantity variance.
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Chapter 27: Short Run Decision Analysis
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Q1) The term incremental cost refers to
A) the difference in total costs between alternatives.
B) a cost that does not entail any dollar outlay but that is relevant to the decision-making process.
C) the profit forgone by selecting one choice instead of another.
D) a cost that constitutes expenses to be incurred even though there is no activity.
Q2) The cost of a previously purchased machine is an example of a sunk cost.
A)True
B)False
Q3) The idea behind incremental analysis is to review decision data that differ between alternatives; information that is the same for all alternatives is considered irrelevant to the decision process.
A)True
B)False
Q4) Qualitative factors used by decision makers include all of the following except A) social issues.
B) revenue from fees.
C) timeliness.
D) competition.
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Chapter 28: Capital Investment Analysis
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Q1) The accounting rate-of-return method does not consider the time value of money.
A)True
B)False
Q2) Which of the following evaluation methods disregard the time value of money?
A) The accounting rate-of-return and discounted cash flow methods
B) The net present value and discounted cash flow methods
C) The payback period and net present value methods
D) The accounting rate-of-return and payback period methods
Q3) When using the net present value method to compare keeping an old building or disposing of it and acquiring a new building, the current cash residual value of the old building should be
A) a subtraction from the price paid for the new building.
B) viewed as a cash flow.
C) an addition to the price paid for the new building.
D) irrelevant to the decision.
Q4) When two or more capital investment proposals are being evaluated using the accounting rate-of-return method, the proposal that yields the highest ratio of net income to average cost of investment is selected.
A)True
B)False
Page 30
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