Accounting I Exam Practice Tests
Course Introduction
Accounting I introduces 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 organizations. Students learn how to prepare and interpret financial statements such as the balance sheet, income statement, and statement of cash flows. Emphasis is placed on the use of generally accepted accounting principles (GAAP), ethical responsibilities in accounting, and the importance of accurate financial reporting for decision-making. This foundational course equips students with the essential skills needed to analyze and understand the financial health of a business.
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) It has been said that the periodicity concept "causes all the in accounting".What is the periodicity concept and how does it "cause "?
Answer: The periodicity concept requires business to measure its performance at regular intervals,rather than waiting until the business ceases to operate and then measuring whether it made money.Periodically measuring performance can create measurement when the time period measured does not capture a firm's long-term performance.For example,if a business signs a significant contract just days after the end of the fiscal year that event will not be reported on in financial statements.However,in the long-run the sum of the periodic measures will sum to the performance of the company over time. Therefore,periodic measurement should not be viewed as a single assessment but part of a collection of assessments over time.
Q2) The primary objective of financial reporting is to
A)determine taxable income and income tax of a business.
B)provide management with information needed to run the day-to-day operations of a business.
C)keep businesses from going bankrupt.
D)provide information useful for making economic decisions.
Answer: D
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Chapter 2: Business Processes and Accounting Information
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Q1) A bookcase manufacturer purchases brackets to install on the bookcases in production.This is an example of a(n):
A)financing activity
B)investing activity
C)planning activity
D)operating activity
Answer: D
Q2) Customer response time is part of which of the following balanced scorecard perspectives?
A)Financial Perspective
B)Learning and Growth Perspective
C)Customer Perspective
D)Internal Perspective
Answer: D
Q3) A health-food retailer buys food for resale.This is an example of a(n):
A)financing activity
B)operating activity
C)investing activity
D)planning activity
Answer: B
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Chapter 3: Operating Processes: Planning and Control
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Q1) The accounting department at Alaska Enterprises,Inc.is running low on office supplies.The accounting manager has asked you to obtain additional supplies.Describe all the steps necessary to arrange for the acquisition and payment for the supplies.Identify all documents that would be utilized during this process,as well as the person or department that would prepare the document.
Answer: The accounting clerk would prepare a purchase requisition listing the supplies needed.The requisition would be signed by the accounting manager and sent to the purchasing department.The purchasing department would prepare a purchase order and send it to the vendor to order the supplies.The supplies would arrive in the receiving department where a receiving report would be prepared.Finally,an invoice would arrive from the vendor and payment would be made after verifying the accuracy of the invoice by reference to the purchase requisition,purchase order and receiving report.
Q2) Manufacturing products is associated with which of the following processes?
A)Revenue process
B)Expenditure process
C)Conversion process
D)Evaluation process
Answer: C
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Chapter 4: Short-Term Decision Making
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Q1) Cameron Company is considering discontinuing production of one of its products and buying the product instead.Which of the following would not be relevant to this decision?
A)opportunity costs
B)incremental costs
C)product quality
D)sales price
Q2) Explain why the total amount of loss increases as the number of units sold falls below the breakeven point?
Q3) Assuming Knockdown has enough excess gloves on hand to fill the special order,it should:
A)reject the offer since income will decrease by $7,500
B)accept the offer since income will increase by $7,500
C)reject the offer since income will decrease by $10,500
D)accept the offer since income will increase by $10,500
Q4) If JJ Enterprises adds Product C,the total incremental cost will be:
A)$740,000
B)$330,000
C)$137,500
D)$130,000
Page 6
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Chapter 5: Strategic Planning Regarding Operating Processes
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Q1) Which of the following is not a key feature of a JIT inventory system?
A)Quality and reliable suppliers
B)Adequate safety stock
C)Well-trained employees
D)Customer demand pulls the system
Q2) Which of the following best describes the competitive environment for Sony high definition TVs?
A)monopolistic competition
B)pure competition
C)free competition
D)monopoly
Q3) The seller of a product is a price taker in which of the following environment?
A)Monopolistic competition
B)Pure Competition
C)Monopoly
D)Oligopoly
Q4) What is the distinction between penetrating and predatory pricing?
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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Q1) Each finished unit requires 2 direct labor hours.The average direct labor rate is $14 per hour.What amount should Hepburn budget for direct labor for April?
A)$1,596,000
B)$1,464,400
C)$ 732,200
D)$ 104,600
Q2) Cash collections during March are estimated at:
A)$608,000
B)$524,260
C)$550,000
D)$692,000
Q3) Which of the following budgets is completed last?
A)raw materials purchases
B)cash payments
C)production
D)sales
Q4) Describe the relationship between the Production Budget used in Conversion Process Planning and the Direct Materials Purchase Budget and the Direct Labor and Overhead Budget used in the Expenditure Planning Process.
Chapter 7: Accounting Information Systems
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Q1) An example of a permanent account is the:
A)utilities expense account
B)unearned revenue account
C)service revenue account
D)depreciation expense account
Q2) Palisades Corporation purchased equipment by signing a long-term note payable.What was the effect of this transaction?
A)Increased assets and increased liabilities
B)Increased assets and increased owners' equity.
C)Increased assets and decreased owners' equity.
D)Increased owners' equity and decreased liabilities
Q3) After closing entries are made which of the following grouping of accounts will all have balances?
A)Assets,Revenue,Liability
B)Liabilities,Assets,Expenses
C)Owners' Equity,Assets,Liabilities
D)Assets,Liabilities,Expenses
Q4) Describe the difference between a computer-based transaction system and a database system.What are the advantages of the database system?
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Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Q1) 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
Q2) Kinsey Company had beginning inventory of $50,000,ending inventory of $54,000,and cost of goods sold of $240,000.What was the cost of goods purchased?
A)$294,000
B)$290,000
C)$244,000
D)$236,000
Q3) If a firm overstates its ending inventory,how are its income statement and balance sheet affected for the current and next year?
Q4) Purchase Discounts does all of the following except:
A)Decrease cost of goods sold
B)Decrease net purchase purchases
C)Increases net income
D)Decreases ending inventory
Q5) Why are subsidiary ledgers used?
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Chapter 9: Recording and Evaluating Conversion Process Activities
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Q1) The direct materials inventory variance is:
A)$ 750U
B)$ 780F
C)$3,000U
D)$3,750F
Q2) The direct labor price variance is:
A)$2,850U
B)$2,925F
C)$4,125F
D)$4,200U
Q3) Which of the following statements about variance analysis is correct?
A)All variances should be investigated
B)Favorable price variances should be rewarded
C)Unfavorable quantity variances are the fault of production
D)Management should investigate only variances that are relatively large
Q4) Determine the cost of direct materials issued into production.
A)$524,000
B)$306,000
C)$258,000
D)$250,000
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Chapter 10: Recording and Evaluating Revenue Process
Activities
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Q1) Prepare all journal entries necessary to record the following transactions of Zion Enterprises for the month of May.
May 4 Sold a \( \$ 2,000 \) rug to Grand \& Associates on account, terms \( 2 / 10, n / 30 \). The rug had a cost of \( \$ 750 \).
7 Received a \( \$ 100 \) deposit from Canyon Industries for a rug which was to be cleaned. An additional balance of \( \$ 100 \) will be collected at the time of pick-up.
11 Sold a rug for \( \$ 1,450 \) cash. The rug had a cost of \( \$ 800 \).
13 Received payment from Grand \& Associates for the rug purchased on May 4th, less the applicable discount.
16 Canyon Industries picked up its cleaned rug and paid the balance due.
18 Sold a \( \$ 4,500 \) rug to Bryce Corporation on account, terms \( 1 / 10, n / 60 \). The rug had a cost of \( \$ 2,900 \).
21 Bryce Corporation requested a reduction in the price of the rug because of a defect. Zion granted a \$200 allowance to Bryce.
28 Received payment from Bryce for the May 18 th sale, less the allowance and the discount.
Q2) Briefly describe the makeup of ending inventory under the FIFO and LIFO methods.
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Chapter 11: Time Value of Money
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Q1) All of the following are primary risk factors that generate risk premiums except:
A)inflation risk
B)business risk
C)relative risk
D)liquidity risk
Q2) How much must you invest today to receive ten,$6,000 payments every 3 months (quarterly)if you can earn 10% annual interest?
Q3) You have just purchased a new BMW for $40,000 to determine your monthly payments which of the following would you use?
A)future value of an annuity of $1 per period
B)present value of an annuity of $1 per period
C)future value of the amount of $1 at compound interest
D)present value of the amount of $1 at compound interest
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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Q1) Ness Corporation purchased a machine with a cost of $100,000 and paid $500 in freight charges and $1,000 to have it installed.Ness failed to take advantage of a $2,000 discount it would have received if it had paid $98,000 cash within ten days of the purchase.How much is the cost of the machine?
A)$98,500
B)$101,500
C)$99,500
Q2) 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
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Chapter 13: Planning Equity Financing
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Q1) All of the following are features frequently applicable to preferred stock except:
A)cumulative
B)recumulative
C)redeemable
D)participating
Q2) Nutritech Corporation has 500,000 shares of 7.5%,$100 par value cumulative preferred stock issued with 45,000 shares issued and 40,000 outstanding,as well as 275,000 shares of $1 par value common stock issued and 250,000 shares outstanding.Dividends relative to the preferred stock are three years in arrears.If Nutritech declares a $2,887,500 dividend during the current period,the per share dividend applicable to the preferred and common stockholders is:
A)$7.50 and $1.00,respectively
B)$22.50 and $7.95,respectively
C)$30.00 and $6.75,respectively
D)$40.00 and $1.00,respectively
Q3) What is par value? Why do corporations usually select a low par value?
Q4) Explain the relationship between a stock's par value and its market value.
Q5) What is a DRIP? How can it be advantageous to both a corporation and its stockholders?
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Chapter 14: Planning Debt Financing
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Q1) Convertible bonds may dilute existing stockholders' interest in the corporation.This means
A)convertible bonds reduce common stockholders' earnings because they must pay a higher interest rate than nonconvertible bonds
B)the amount of cash paid out when the convertible bonds are converted will reduce common stockholders' dividends
C)the shares issued for convertible bonds have a preference over other common shares
D)conversion of the bonds would increase the number of common shares outstanding
Q2) Why would a lessee rather have an operating lease than a capital lease?
A)operating leases do not require reporting long-term liabilities.
B)capital leases would require larger lease payments
C)operating leases permit a tax deduction for depreciation
D)noncancelable operating leases involve less risk
Q3) Alhambra Corporation is trying to decide between raising needed money by borrowing on a non-interest-bearing note,issuing an ordinary bond,or issuing convertible bonds.Which will probably result in the smallest interest expense?
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Chapter 15: Recording and Evaluating Capital Resource
Process Activities: Financing
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Q1) The face value of a noninterest-bearing note less the discount on notes payable is called the ________ of the note.
A)contra value
B)market value
C)interest value
D)carrying value
Q2) On January 2,2010,Cardy Computers purchased machinery by paying $15,000 down and signing a 4-year,10% installment note for the $60,000 balance.The loan agreement called for 8 semiannual payments beginning July 1,2010.Determine the amount of each semiannual payment (round to the nearest dollar)and prepare journal entries for the first two payments,including the accrual at year end.Cardy has a December 31 year end.
Q3) Treasury stock is shown in a company's financial statements as a(n):
A)intangible asset
B)contra equity
C)current asset
D)contra asset
Q4) If a firm has a normal balance in its retained earnings account,does that mean it has an equal amount of cash? Explain.
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Q1) Wynn Distributing wants to trade in its old delivery truck for a new one.The old truck is on the books at a cost of $84,500,and it has a carrying value of $19,300.The new truck has a list price of $108,700.Determine the gain or loss to be recognized on the disposal of the delivery truck,as well as the dollar amount recorded on the books for the new truck under each of the following situations:
(
A)the dealer has agreed to reduce the price of the new truck by $10,000 in exchange for the old truck
(b)the dealer has agreed to reduce the price of the new truck by $30,000 in exchange for the old truck
Q2) Why might the returns on assets of two firms in the same industry not be useful in comparing the firms?
Q3) Mallory Technical Services obtained a new machine.Which of the following would not be included in the cost of the machine?
A)penalty for failure to obtain transport permit
B)cost of installation
C)cost of testing
D)invoice price
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Chapter 17: Company Performance: Profitability
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Q1) Riegle Inc.'s income from continuing operations before taxes was $4,000,000 for the year ended December 31,2010.The company's effective tax rate is 30% and during the year the following events also took place: The company sold one of its divisions at a gain of $500,000.The division had an operating loss of $325,000 through the date of disposal. Riegle is located in Chicago and a small earthquake damaged a warehouse owned by the company.The amount of the uninsured loss was $575,000.
Required: Prepare the lower portion of the income statement,from "income from continuing operations before taxes" through "net income",for the year ended 12/31/10.All during 2010 1,000,000 shares of stock were authorized and 850,000 were issued and 800,000 were outstanding.
Q2) Under throughput 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) Why might the use of return on assets to evaluate investment centers lead to bad decisions?
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Q1) Prepaid Insurance would generally be reported on the balance sheet as a(n):
A)plant asset
B)investment
C)current asset
D)intangible asset
Q2) Assets are shown on the balance sheet at
A)historical cost
B)fair market value
C)net realizable value
D)all of the above
Q3) A discount on bonds payable would be reported on the balance sheet as part of the:
A)long-term investment section
B)other owners' equity section
C)long-term liability section
D)current liability section
Q4) Comment on this statement: "Dividends are paid out of retained earnings; so,obviously,retained earnings is the cash generated by earnings".
Q5) 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) The beginning balance in accounts receivable is $ 8,000.Sales during the period equaled $ 15,000.The ending balance in accounts receivable equals $ 2,000.What was the cash received from customers?
A)$ 7,000
B)$ 8,000
C)$ 15,000
D)$ 21,000
Q2) Cash flows resulting from a company's normal earnings process are reported on the statement of cash flows in the:
A)financing activities section
B)investing activities section
C)operating activities section
D)noncash investing and financing activities section
Q3) Using the indirect method (statement of cash flows),a decrease in inventory 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) 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) Write out the dividend yield ratio ( Show your work here).
Explain how the dividend yield ratio is used.
Q2) Which of the following helps analysts understand the relationships among the items in a financial statement?
A)common-sized financial statements
B)performance analysis
C)ratio analysis
D)trend analysis
Q3) The entire group of creditors and investors who provide capital to businesses to allow them to finance their investments is collectively referred to as a:
A)comparative market
B)capital market
C)stock market
D)free market
Q4) Write out the dividend payout ratio ( Show your work here).
Explain how is the dividend payout ratio is used.
Q5) You know that a firm has a current ratio of 2.2 to 1.What other information do you need in order to determine whether that's good or bad?
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