Accounting I Practice Exam
Course Introduction
Accounting I introduces students to the fundamental principles and concepts of financial accounting. The course covers the accounting cycle, including the preparation and analysis of financial statements such as the balance sheet, income statement, and cash flow statement. Students learn the basics of recording business transactions, understanding debits and credits, and applying Generally Accepted Accounting Principles (GAAP). Emphasis is placed on the role of accounting in decision-making, the ethical responsibilities of accountants, and the significance of accurate financial reporting in various business environments.
Recommended Textbook
Accounting 9th Global Edition by Charles T. Horngren
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) There are four major forms of business organizations.
A)True
B)False
Answer: False
Q2) A business receives a bill for services rendered from one of its suppliers. The business will pay the supplier next month. When the business receives the bill from its supplier, how does this affect the accounting equation?
A)Assets decrease; owner's equity decreases.
B)Liabilities increase; owner's equity decreases.
C)Assets increase; liabilities increase.
D)Liabilities increase; owner's equity increases.
Answer: B
Q3) The income statement shows whether or not a business can generate enough cash to pay its liabilities.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Q1) Which of the following statements is TRUE?
A)A trial balance is in the same format as a balance sheet.
B)A trial balance presents data in debit and credit format, but a balance sheet does not.
C)A trial balance shows total amounts for assets, liabilities, and equity.
D)A trial balance is created after the balance sheet is prepared.
Answer: B
Q2) A business purchases equipment for cash in the amount of $8,000. Which account is debited?
A)Cash
B)Accounts payable
C)Utilities expense
D)Equipment
Answer: D
Q3) The last step before preparing financial statements is to:
A)post all entries.
B)record all transactions in the journal.
C)prepare the trial balance.
D)review source documents.
Answer: C
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Page 4
Chapter 3: The Adjusting Process
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Q1) What is the effect of the adjusting entry for Depreciation expense?
A)The entry increases total liabilities and increases total expenses.
B)The entry increases total assets and increases total expenses.
C)The entry decreases total assets and increases total expenses.
D)The entry decreases total liabilities and increases total expenses.
Answer: C
Q2) To accrue revenue means that the cash receipt is recorded before the revenue is earned.
A)True
B)False
Answer: False
Q3) ABC Company signed a one-year $12,000 note payable at 8% interest on May 1, 2012. If ABC only adjusts their accounts once a year at year-end, how much interest expense must be accrued on December 31, 2012?
A)$960.
B)$320.
C)$640.
D)$474.
Answer: C
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The Drawing account is copied to the income statement columns on the worksheet.
A)True
B)False
Q2) Supplies is a temporary account.
A)True
B)False
Q3) The adjusting process zeroes out all revenues and all expenses.
A)True
B)False
Q4) What is TRUE if the income statement credit column exceeds the income statement debit column on a worksheet?
A)The company has a net income.
B)The company has a net loss.
C)The capital account decreased during the period.
D)Total liabilities exceed total assets.
Q5) Which of the following does the debt ratio measure?
A)The company's overall ability to pay its liabilities
B)The company's ability to pay current liabilities with current assets
C)The proportion of the company's assets that are financed with equity
D)The company's ability to invest in growth
6
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Chapter 5: Merchandising Operations
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Q1) Freight in should be added to the inventory account if the company uses the perpetual inventory method.
A)True
B)False
Q2) On a merchandising balance sheet, Merchandise inventory is listed as a(n):
A)current asset.
B)current liability.
C)expense.
D)revenue.
Q3) Which of the following is subtracted from Gross profit to arrive at Operating income?
A)Cost of goods available for sale
B)Cost of goods sold
C)Sales discounts and Sales returns and allowances
D)Operating expenses
Q4) Merchandising consists of:
A)manufacturing products.
B)providing a service.
C)buying and selling products.
D)purchasing raw materials.
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Chapter 6: Merchandising Inventory
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Sample Questions
Q1) One hundred units of inventory on hand at the end of the year are recorded at their cost of $10 each using LIFO. Current replacement cost is $8.00. How would the Gross profit be affected by the adjusting entry needed under lower-of-cost-or-market?
A)Gross profit would not be affected.
B)Gross profit would go down by $80.
C)Gross profit would go up by $200.
D)Gross profit would go down by $200.
Q2) A company purchased 100 units for $20 each on January 31. It purchased 100 units for $30 on February 28. It sold 150 units for $45 each from March 1 through December 31. If the company uses the Last-In, First-Out inventory costing method, what is the amount of Cost of goods sold on the December 31 income statement?
A)$4,000
B)$3,750
C)$6,750
D)$3,500
Q3) The lower-of-cost-or-market rule demonstrates accounting conservatism in action. A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) The bank collected a note receivable of $1,000. How would this information be included on the bank reconciliation?
A)An addition on the bank side
B)A deduction on the book side
C)An addition on the book side
D)A deduction on the bank side
Q2) The bank recorded a $2,000 deposit as $200. How would this information be included on the bank reconciliation?
A)A deduction on the bank side
B)A deduction on the book side
C)An addition on the book side
D)An addition on the bank side
Q3) Which of the following statements describes an invoice from a supplier?
A)It is an order to purchase goods from a supplier.
B)It is a statement from the supplier showing the goods purchased and the amount due.
C)It is a report showing that the goods have been received in good condition, as ordered.
D)It is a document authorizing a payment to a supplier.
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Chapter 8: Receivables
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Q1) The Allowance for uncollectible accounts currently has a debit balance of $200. The company's management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are $115,000. What will be the balance of the Allowance for uncollectible accounts reported on the balance sheet?
A)$2,675
B)$2,875
C)$3,275
D)$3,075
Q2) A newly created design business called Smart Art is just finishing up its first year of operations. During the year, there were credit sales of $40,000 and collections of $36,000. One account for $650 was written off. Smart Art uses the percent-of-sales method to account for uncollectible account expense, and has decided to use a factor of 2% for their year-end adjustment of uncollectible account expense. At the end of the year, what is the balance in Uncollectible account expense?
A)$150
B)$800
C)$250
D)$1,450
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Chapter 9: Plant Assets and Intangibles
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Sample Questions
Q1) Normal expenditures for repairs and maintenance should be capitalized.
A)True
B)False
Q2) In 2012, Azimuth Company purchased a small business for $500,000. The market value of the business's assets were $850,000, and the market value of the liabilities were $400,000. Azimuth recorded goodwill of $50,000 at time of acquisition. At the end of 2013, they measured the goodwill and found it had a remaining value of only $20,000. What will Azimuth have to do at year-end 2013?
A)Record a loss on sale of assets.
B)Record a loss on goodwill.
C)Record accumulated depletion.
D)Record a gain in goodwill.
Q3) Which of the following is the expense resulting from a decline in the utility of a natural resource?
A)Depletion
B)Amortization
C)Depreciation
D)Obsolescence
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Chapter 10: Current Liabilities and Payroll
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Q1) Good internal controls over payroll would include all of the following EXCEPT that:
A)accounting for payroll should be separate from hiring and firing of employees.
B)disbursement of paychecks should be separate from the function of maintaining payroll records.
C)employees should clock in and out to insure accuracy of work hours.
D)cash receipts from customers should be separated from the accounting for accounts receivable.
Q2) The entry to estimate warranty payable includes a credit to Warranty expense. A)True B)False
Q3) Dan Jones and Pat Smith are the only two employees of Lone Star Company. In January, 2012, Dan's gross pay was $4,400 and Pat's gross pay was $5,200. All earnings are subject to FICA taxes of 7.65%. Which of the following would be included in the entry to record the salary expense for January?
A)A debit to Salary payable to employees for $734.40
B)A debit to FICA tax payable for $734.40
C)A credit to FICA tax payable for $734.40
D)A credit to Salary expense for $734.40
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Chapter 11: Long-Term Liabilities, Bonds Payable, and
Classification of Liabilities on the Balance Sheet
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Q1) The current portion of notes payable must be reported on the balance sheet combined with the long-term portion under long-term liabilities.
A)True
B)False
Q2) Accounts payable is always shown on the balance sheet in current liabilities.
A)True
B)False
Q3) Premium on bonds payable is spread over the term of the bonds and reduces total interest expense.
A)True
B)False
Q4) When a company accrues interest payable on a long-term note at year-end, the interest payable must be shown as a long-term liability on the balance sheet, along with the long-term note payable balance.
A)True
B)False
Q5) If a bond is issued at a discount, it will sell for more than face value.
A)True
B)False
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Chapter 12: Corporations: Paid-In Capital and the Balance Sheet
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Sample Questions
Q1) A dividend's declaration date is the date the board of directors announces the intention to pay the dividend.
A)True
B)False
Q2) Chaney Corporation issued 20,000 shares of common stock on January 1, 2014. The stock has par value of $1.00 per share and was sold at $30 per share. The journal entry for this transaction would:
A)credit Cash $600,000, debit Common stock $20,000, and debit Paid-in capital $580,000.
B)debit Cash $600,000 and credit Paid-in capital $600,000.
C)debit Cash $600,000, credit Common stock $20,000, and credit Paid-in capital $580,000.
D)debit Cash $600,000 and credit Common stock $600,000.
Q3) If a company has a strong rate of return on common stockholders' equity, that is an indication of good cash flow.
A)True
B)False
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Page 14
Chapter 13: Corporations: Effects on Retained Earnings and the Income Statement
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Q1) Alexander Company reported the ending balance of Retained earnings as $400,000 on December 31, 2013. During the first month of 2014, they discovered an error in the ledger which had the effect of overstating net income in 2013 by $45,000. At the end of 2014, they included this item as a prior period adjustment. Year 2014 results included $52,000 of net income and $15,000 of dividends paid. What amount would be shown as the ending balance of Retained earnings on the December 31, 2014 financial statements?
A)$430,000
B)$347,000
C)$437,000
D)$392,000
Q2) Preferred Products started business on March 1, 2012, and issued 100,000 shares of $2 par value common stock at a market price of $50 per share. One year later, the share price had soared to $120. If Preferred Products does a 3-for-1 stock split, the balance sheet will show that there are 200,000 shares issued.
A)True
B)False
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) Transnational Company just started in business and was looking for additional capital in order to purchase a property to build their headquarters. They found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company. This transaction would be shown in the investing activities section of the statement of cash flows.
A)True
B)False
Q2) Which of the following items would be included as an operating activity on the statement of cash flows?
A)A purchase of treasury stock
B)A payment of dividends
C)An issuance of stock
D)A payment of interest
Q3) Which one of the following is a principal function of the statement of cash flows?
A)To predict future profit growth
B)To calculate the turnover of inventory
C)To evaluate the level of debt and leverage of a company
D)To predict the ability to pay debts and dividends
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16
Chapter 15: Financial Statement Analysis
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Q1) In a vertical analysis of the income statement, each line item is shown as a percentage of net income.
A)True
B)False
Q2) Which of the following factors might suggest that a company is having difficulty selling its inventory?
A)An increase in receivables
B)A buildup of inventory balances
C)An increase in total debt
D)An increase in interest expense
Q3) Earnings per share is used for which kind of evaluation?
A)The ability of a company to pay its current liabilities
B)The ability of a company to pay its long-term liabilities
C)The overall profitability of a company
D)Evaluating stock in a company from an investor's perspective
Q4) The acid-test ratio is used for which kind of evaluation?
A)The ability of a company to pay its current liabilities
B)The ability of a company to collect its receivables
C)The overall profitability of a company
D)Evaluating stock in a company from an investor's perspective
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Chapter 16: Introduction to Management Accounting
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Q1) Which of the following events would NOT be considered unethical under IMA standards?
A)An inventory shipment was received on January 2, but was booked 3 days earlier in order to boost the year-end inventory balance.
B)An accountant coded an expense to a fixed asset account so that the expense budget would not be overrun at year-end.
C)A scheduled maintenance service originally planned for late December was delayed until the following year to reduce expenses recorded in the year just ended.
D)A company shipped products to a customer on January 2, but recorded the transaction on the last day of December to boost revenues in the year just ended.
Q2) Your company is doing well and you tell your sister that the company will report earnings that are significantly higher than the financial analysts' estimated. Which IMA guideline has been violated?
A)Objectivity
B)Competence
C)Confidentiality
D)Integrity
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18
Chapter 17: Job Order and Process Costing
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Q1) The entry to record the purchase of materials on account using a job order costing system would include a:
A)debit to materials inventory.
B)debit to accounts payable.
C)debit to work in process inventory.
D)credit to materials inventory.
Q2) Lakeside Company estimated manufacturing overhead costs for 2012 at $378,000, based on 180,000 estimated direct labor hours. Actual direct labor hours for 2012 totaled 195,000. The manufacturing overhead account contains debit entries totaling $391,500. The manufacturing overhead for 2012 was:
A)$31,500 underallocated.
B)$31,500 overallocated.
C)$18,000 underallocated.
D)$18,000 overallocated.
Q3) Job order costing is used primarily in the manufacturing and industrial sectors, but is not well suited for the service industry.
A)True
B)False
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Chapter 18: Activity-Based Costing and Other Cost Management Tools
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Q1) Business managers can use activity-based costing data to assist them in pricing and product mix decisions, and in cost management.
A)True
B)False
Q2) Costs incurred after the company sells poor-quality goods to the customer are considered external failure costs.
A)True
B)False
Q3) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid $6,000 for factory repair and maintenance costs in cash. Which of the following journal entries correctly records this transaction?
A)Debit $6,000 to Cash, credit $6,000 to Manufacturing overhead.
B)Debit $6,000 to Raw and in-process inventory, credit $6,000 to Cash.
C)Debit $6,000 to Conversion costs, credit $6,000 to Cash.
D)Debit $6,000 to Manufacturing overhead, credit $6,000 to Cash.
Q4) Full-product cost includes both manufacturing and non-manufacturing costs.
A)True
B)False
Page 20
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) Which of the following statements is CORRECT with respect to total fixed costs, within the relevant range?
A)They will remain the same as production levels change.
B)They will increase as production decreases.
C)They will decrease as production decreases.
D)They will decrease as production increases.
Q2) Taizhong Semiconductor Company mass produces several common computer chips. Type A sells for $1.20 per unit. Variable cost was $0.95 per unit and the fixed costs were $32,000 per month. Taizhong currently sells 140,000 units per month. Because of volatility in the precious metals market, the variable cost per unit has just gone up by $0.05, but the company does not believe it can pass the extra cost on to the customer. To offset higher variable costs, the production manager has developed a plan which will reduce fixed costs by 20%. How will these combined changes affect net operating income?
A)It will go up 10%.
B)It will go down 20%.
C)It will go up 12%.
D)It will go down 110%.
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Chapter 20: Short-Term Business Decisions
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Q1) Nordin Avionics makes aircraft instrumentation. Their basic navigation radio requires $80 in variable costs and requires $2,000 per month in fixed costs. If they process the radio further to enhance its functionality, it will require an additional $25 per unit of variable costs, but no change to the fixed costs. The marketing manager believes they would be able to boost their price of the radio from $260 to $280. If they do so, how would the change affect operational income?
A)It would remain the same.
B)It would go up by $25 per unit.
C)It would go up by $20 per unit.
D)It would go down by $5 per unit.
Q2) If a company is a price-taker, which of the following is probably TRUE?
A)The company is in a highly competitive market.
B)The company's product is unique.
C)The company has considerable flexibility in setting prices of its products.
D)The company clearly differentiates its product from the competitors.
Q3) A sunk cost is a cost that was previously incurred and is irrelevant to the decision making process.
A)True
B)False
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Page 22
Chapter 21: Capital Investment Decisions and the Time
Value of Money
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Q1) The term net present value means the difference between:
A)the total net income of the project and the initial investment.
B)the initial investment and the residual value.
C)the future value of the cash flows and the present value of the cash flows.
D)present value of the net inflows and the investment's cost.
Q2) The payback method and the rate of return method are powerful, comprehensive evaluation tools, and would normally be sufficient to make a final investment decision.
A)True
B)False
Q3) Sullivan Company is considering the purchase of a new machine costing $80,000. Sullivan's management is estimating that the new machine will generate additional cash flows of $12,000 a year for ten years and have a salvage value of $3,000 at the end of ten years. What is the machine's payback period?
A)7 years
B)6.7 years
C)6 years
D)5.33 years
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Page 23
Chapter 22: The Master Budget and Responsibility Accounting
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Q1) Fast Foods has budgeted sales for June and July at $520,000 and $480,000, respectively. Sales are 80% credit, of which 50% is collected in the month of sale and 50% is collected in the following month. What is the accounts receivable balance on July 31?
A)$192,000
B)$240,000
C)$384,000
D)$400,000
Q2) Which of the following is an example of the planning function of a budget?
A)A budget demands integrated input from different business units and functions.
B)Employees are motivated to achieve the goals set by the budget.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.
Q3) One of the key functions of responsibility accounting is to evaluate the performance of company managers and the units they manage.
A)True
B)False
Q4) The capital expenditure budget is part of the operating budget.
A)True
B)False
Page 24
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) When a manufacturing company uses standard costing methodology in their journal entries and accounts, a favorable variance has the effect of being a contra expense.
A)True
B)False
Q2) An unfavorable flexible budget variance in operating income might be due to a(n):
A)increase in price.
B)decrease in volume.
C)increase in variable expenses per unit.
D)decrease in fixed costs.
Q3) Western Outfitters Mountain Sports projected 2011 sales of 75,000 units at a unit sale price of $12.00. Actual 2011 sales were 72,000 units at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual amount was $4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the sales volume variance for operating income?
A)$41,000 unfavorable
B)$24,000 unfavorable
C)$24,000 favorable
D)$65,000 unfavorable
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25
Chapter 24: Performance Evaluation and the Balanced Scorecard
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Q1) Which of the following is a disadvantage of decentralization?
A)Promotes use of specialized skills and knowledge
B)Helps business keep closer relationships with customers
C)May duplicate costs and functions across multiple business units
D)Helps prepare and train managers at lower levels for higher positions later on
Q2) ROI is used to compare various units of a company to other companies in the industry, but is NOT used to compare various divisions within the same company because that would hinder creative management and competitiveness within the company.
A)True
B)False
Q3) Companies benchmark their performance against the performance of their competitors and also against their own past performance.
A)True
B)False
Q4) When companies use the management by exception approach, ONLY unfavorable variances are investigated.
A)True
B)False
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