Accounting I Practice Exam

Course Introduction

Accounting I introduces students to the foundational principles and practices of financial accounting. The course covers essential topics such as the accounting cycle, the preparation and analysis of financial statements, recording business transactions, managing accounts receivable and payable, and the basics of adjusting and closing entries. Emphasis is placed on understanding generally accepted accounting principles (GAAP) and their application in real-world business scenarios, equipping students with the skills needed to interpret financial data and make informed business decisions.

Recommended Textbook

Fundamentals of Financial Accounting 5th Edition by Fred Phillips

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13 Chapters

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Chapter 1: Business Decisions and Financial Accounting

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Sample Questions

Q1) Which of the following statements below is correct about a corporation and a partnership?

A) A partnership is comprised of two or more owners, whereas a corporation must have only one owner.

B) A corporation is legally responsible for its own taxes and debts.

C) Owners of both entities are legally responsible for the taxes and debts of the business.

D) Both entities issue shares of stock to owners.

Answer: B

Q2) Which of the following is not an expense?

A) Wages of employees

B) Interest incurred on a note payable

C) Dividends

D) Corporate income tax

Answer: C

Q3) Accounts Payable,Notes Payable,and Salaries and Wages Payable are examples of liabilities.

A)True

B)False

Answer: True

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Page 3

Chapter 2: Reporting Investing and Financing Results on the Balance Sheet

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Sample Questions

Q1) A journal does all of the following except:

A) summarizes all of the transactions that affect one account.

B) records all purchases and sales of assets of a company.

C) records each day's transactions.

D) records all the revenues and expenses of a company.

Answer: A

Q2) Who has first claim to a business's assets should the company go out of business?

A) Creditors

B) Stockholders

C) Customers

D) Management

Answer: A

Q3) The standard formatting for a journal entry lists the dollar amounts for:

A) credits underneath and to the right of the dollar amounts for debits.

B) debits and credits aligned equally to the right.

C) debits underneath and to the right of the dollar amounts for credits.

D) debits and credits aligned equally to the left.

Answer: A

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Chapter 3: Reporting Operating Results on the Income Statement

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Sample Questions

Q1) The journal entry to record the purchase of supplies on account includes a debit to:

A) Supplies and a credit to Accounts Payable.

B) Supplies and a credit to Cash.

C) Supplies Expense and a credit to Accounts Payable.

D) Supplies Expense and a credit to Cash.

Answer: A

Q2) Which of the following statements about net income is correct?

A) Net income equals the amount of cash generated by the business during the reporting period.

B) Net income represents the change in the market value of the company's stock during the period.

C) Measurement of net income involves only counting.

D) Measurement of net income involves estimations.

Answer: D

Q3) It is possible for a company to be profitable,yet not have enough cash to pay its bills.

A)True

B)False

Answer: True

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Chapter 4: Adjustments,financial Statements,and Financial

Results

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Sample Questions

Q1) A deferral adjustment may involve one asset and one expense account.

A)True

B)False

Q2) The unadjusted trial balance is a key starting point for the adjustment process.Which of the following accounts is unlikely to be affected by an adjusting entry?

A) Interest Payable

B) Supplies

C) Unearned Revenue

D) Cash

Q3) As a company uses supplies,an adjustment should be made to decrease an asset account and increase an expense account.

A)True

B)False

Q4) Which of the following is not a term for the value at which an asset is reported on a financial statement?

A) Carrying value

B) Book value

C) Equipment, net

D) Accrual value

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Chapter 5: Fraud, Internal Control, and Cash

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Sample Questions

Q1) Why was the Sarbanes-Oxley Act (SOX)enacted?

A) To bring GAAP closer to global financial reporting standards

B) The lack of significant corporate frauds during the late 1990s and early 2000s warranted less monitoring for external stakeholders

C) To improve the financial reporting and restore investor confidence

D) Accounting rules had become so complex that investors could no longer understand them

Q2) Which of the following is not an internal control procedure relating to cash payments?

A) Using an voucher system

B) Using an imprest system

C) Preparing a bank reconciliation

D) The use of cash count sheets

Q3) Cash sales rung up by cashiers totaled $117,000.Cash in the drawer was counted and found to be $119,000.The journal entry to record the day's sales would include a:

A) debit to Cash for $117,000.

B) credit to Cash Overage for $2,000.

C) credit to Sales Revenue for $119,000.

D) debit to Sales Revenue for $117,000.

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Page 7

Chapter 6: Internal Control and Financial Reporting for Cash and

Merchandising

Operations

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Sample Questions

Q1) On July 1,Darin Company sold inventory costing $4,500 to Dee Company for $6,000,terms 2/10,n/30.Both companies use the perpetual inventory system.Dee Company pays the invoice on July 8 and takes the appropriate discount.What journal entry will be recorded by Dee Company on July 8?

A) Debit Accounts Payable and credit Cash for $6,000

B) Debit Accounts Payable for $5,880, credit Inventory for $120, and credit Cash for $6,000

C) Debit Accounts Payable for $6,000, credit Cash for $5,880, and credit Inventory for $120

D) Debit Cost of Goods Sold and credit Cash for $4,500

Q2) West Co.returned $500 of merchandise that was purchased on account.As a result of this transaction,assets will:

A) decreased and liabilities will decrease.

B) decreased and net income will decrease.

C) stay the same and net income will decrease.

D) stay the same and liabilities will decrease.

Q3) Which inventory system (periodic or perpetual)inventory system provides the best inventory control?

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Chapter 7: Reporting and Interpreting Inventories and Cost of Goods Sold

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Sample Questions

Q1) Allsop Company had no beginning inventory.The company purchases 300 units of inventory in January at $5 each,500 units at $4 each in August,and 200 units at $6 each in November.The company sells 150 units during the year.Allsop uses a periodic inventory system and the LIFO inventory costing method.What is the cost of goods sold?

A) $600

B) $934

C) $750

D) $900

Q2) A $15,000 overstatement of the current year's ending inventory was discovered after the financial statements for the year were prepared.How would that inventory error impact the current year's financial statements?

A) Current assets were overstated and net income was understated.

B) Current assets were understated and net income was understated.

C) Current assets were overstated and net income was overstated.

D) Current assets were understated and net income was overstated.

Q3) An understatement of beginning inventory causes net income to be understated.

A)True

B)False

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Chapter 8: Reporting and Interpreting Receivables,bad

Debt Expense,and Interest Revenue

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Sample Questions

Q1) The direct write-off method for uncollectible accounts: A) violates the expense recognition principle. B) is an acceptable alternative method of recognizing Bad Debt Expense under GAAP. C) results in higher Bad Debt Expense for most companies. D) may only be used by companies that do not extend credit to their customers.

Q2) Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?

A) Debit Notes Receivable and credit Accounts Receivable for $2,060

B) Debit Accounts Receivable and credit Notes Receivable for $2,000

C) Debit Notes Receivable for $2,000, debit Interest Receivable for $60, credit Accounts Receivable for $2,000, and credit Interest Revenue for $60

D) Debit Notes Receivable and credit Accounts Receivable for $2,000

Q3) The allowance method for uncollectible accounts is used for accounts receivable,but not for notes receivable.

A)True

B)False

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Page 10

Chapter 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets

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Sample Questions

Q1) Sunny Sky paid $30,000 cash for piece of land to be used for a new corporate headquarters building.What is the effect of this transaction on the accounting equation?

A) One asset increases, while another asset decreases.

B) Total assets increase and total liabilities increase.

C) Total assets increase and total stockholders' equity increases.

D) Total assets decrease and total liabilities decrease.

Q2) The Three Little Pigs built three houses for a total cost of $160,000.Appraisal values for the three completed houses were: straw house,$40,000,wood house $60,000,and brick house $100,000.Using the basket purchase allocation,the recorded value of the brick house should be:

A) $80,000.

B) $100,000.

C) $53,333.

D) $66,667.

Q3) The carrying value of a long-lived asset is referred to as its:

A) residual value.

B) book value.

C) market value.

D) sales value.

Page 11

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Chapter 10: Reporting and Interpreting Liabilities

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Sample Questions

Q1) No mention is required in the financial statements for contingent liabilities that are:

A) probable.

B) remote.

C) possible.

D) likely.

Q2) The gross earnings for all employees is credited to Salaries and Salaries and Wages Payable.

A)True

B)False

Q3) Using the simplified effective-interest amortization,the credit to Cash each interest payment is calculated as:

A) Bonds Payable, Net x Market Interest Rate x Time.

B) Bonds Payable, Net x Stated Interest Rate x Time.

C) Face Value x Stated Interest Rate x Time.

D) Face Value x Market Interest Rate x Time.

Q4) Payroll taxes paid by employees include which of the following?

A) Federal income tax, federal unemployment tax, and Medicare

B) Social security, federal unemployment tax, and state unemployment tax

C) Federal income tax withheld, state income tax withheld, and Medicare

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Chapter 11: Reporting and Interpreting Stockholders Equity

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Sample Questions

Q1) Stock dividends and stock splits are similar in all of the following ways except:

A) they both involve a pro rata distribution of shares to existing stockholders.

B) they both reduce the stock price.

C) they both decrease Retained Earnings.

D) have no effect on cash.

Q2) Corporations can raise large amounts of money because:

A) shares of stock in public companies can easily be bought and sold by investors.

B) the unlimited liability feature makes corporate ownership attractive to investors.

C) corporate earnings are not taxed.

D) all investments in corporate stock earn money for investors.

Q3) Which of the following would be the best investment?

A) A company that pays no dividends, but has substantial net income.

B) A company that pays substantial dividends, but whose earnings per share has been declining over the past several years.

C) A company whose stock price has increased steadily, but pays no dividends.

D) It depends on one's investment objectives.

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Chapter 12: Reporting and Interpreting the Statement of Cash Flows

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Sample Questions

Q1) In calculating the net cash provided by or used in operations using the indirect method,which of the following items would be subtracted from net income?

A) A decrease in Prepaid Rent

B) An increase in Accounts Receivable

C) An increase in long-lived assets

D) An increase in Salaries and Wages Payable

Q2) The purchase of $100,000 of equipment by issuing a note would be reported:

A) as a $100,000 investing inflow, and a $100,000 financing outflow.

B) as a$100,000 investing outflow, and a $100,000 financing inflow.

C) as a $100,000 operating inflow, and a $100,000 financing outflow.

D) in a supplementary schedule.

Q3) Under the indirect method,changes in current assets are used in determining cash flows from operating activities and changes in current liabilities are used in determining cash flows from financing activities.

A)True

B)False

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Chapter 13: Measuring and Evaluating Financial Performance

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Sample Questions

Q1) To analyze changes in a company's sales over the last five years,you should perform:

A) vertical analysis.

B) ratio analysis.

C) horizontal analysis.

D) cross-sectional analysis.

Q2) Which of the following will not improve a company's gross profit percentage?

A) An increase in the sales price

B) A decrease in the cost of inventory

C) A decrease in the shipping cost for merchandise purchased

D) Collecting cash from customers in advance

Q3) A company's sales are $285,000 and $200,000 during the current and prior years,respectively.The percentage change is:

A) 42.5%.

B) 70%.

C) 29.8%.

D) 130%.

Q4) The general goal of horizontal analyses is to identify significant trends.

A)True

B)False

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