Accounting I Question Bank
Course Introduction
Accounting I introduces students to the fundamental principles and concepts of financial accounting. The course covers the accounting cycle, including the identification, recording, and reporting of financial transactions for service and merchandising businesses. Students will learn to prepare and interpret basic financial statements such as the balance sheet, income statement, and statement of owner's equity. Emphasis is placed on understanding the rules of double-entry bookkeeping, the use of journals and ledgers, and the importance of ethical standards in accounting. By the end of the course, students will be equipped with the foundational skills necessary for further study in accounting and responsible financial decision-making.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) The balance sheet of a business summarizes an entity's revenues and expenses.
A)True
B)False
Answer: False
Q2) Which of the following events is NOT recorded by accountants?
A)purchase of a building for $200,000 cash
B)effects of an economic boom
C)sale of merchandise on account
D)signing a $400,000 note to purchase land
Answer: B
Q3) Jackson Electric Services Company incurred $800 as a repair expense and paid for it in cash.The company is a sole proprietorship.This transaction will ________.
A)decrease the owner's equity
B)increase the assets of the business
C)increase the liabilities of the business
D)decrease the liabilities of the business
Answer: A
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A business renders services to a client and issues a sales invoice.The amount will be collected from the customer at a later time.Which of the following is TRUE at the time the invoice is issued?
A)Equity will decrease.
B)Total liabilities will increase.
C)Total assets will decrease.
D)Net income will increase.
Answer: D
Q2) ________ represents a debt owed for renting a building.
A)Prepaid Rent
B)Rent Payable
C)Rent Revenue
D)Rent Expense
Answer: B
Q3) In a trial balance,total debits must always equal total credits.
A)True
B)False
Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Under cash basis accounting,revenue is recorded when it is earned,regardless of when cash is received.
A)True
B)False
Answer: False
Q2) Which of the following accounting principles does NOT help to explain the timing and recognition of revenues and expenses?
A)time period concept
B)revenue recognition principle
C)economic entity concept
D)matching principle
Answer: C
Q3) A good or service is considered transferred when the customer places an order or requests a service.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts will be closed by crediting the Income Summary account?
A)Service Revenue
B)Depreciation Expense
C)Accounts Payable
D)Accumulated Depreciation
Q2) Which of the following accounts will be included in a post-closing trial balance?
A)Service Revenue
B)Rent Expense
C)Interest Expense
D)Unearned Revenue
Q3) A current ratio that has increased from the prior period indicates an improvement in the company's ability to pay its current debts.
A)True
B)False
Q4) The Gonzalez,Capital account is a temporary account.
A)True
B)False
Q5) List the steps of the accounting cycle that take place during the period.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) When using the periodic inventory system,the process of recording the ending Merchandise Inventory is completed by making an adjusting entry.
A)True
B)False
Q2) Gift Shops Unlimited's unadjusted Merchandise Inventory at December 31,2019 was $7,600.The cost associated with the physical count of inventory on hand on December 31,2019 was $7,350.In addition,Gift Shops Unlimited estimated approximately $800 of merchandise sold on account will be returned with a cost of $450.Assume a perpetual inventory system is used.
Requirements:
1.Journalize the adjustment for inventory shrinkage.Omit explanation.
2.Journalize the adjustment for estimated sales returns.Omit explanation.
Q3) Journalize the following transactions for a merchandiser that uses the gross method for recording sales and a perpetual inventory system. On January 8,inventory was sold for $7,000 on account.Credit terms were 2/15,n/30 (cost $5,500).On January 31,cash was received in full settlement of the January 8 sale.Omit explanations.
Q4) What does the gross profit percentage measure? How is it computed?
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Page 7
Chapter 6: Merchandise Inventory
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Q1) The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory.
A)True
B)False
Q2) When using the LIFO inventory costing method,ending merchandise inventory will be the lowest,as compared to FIFO and weighted-average inventory costing methods,when costs are increasing.
A)True
B)False
Q3) An overstatement of ending merchandise inventory in the current period results in an overstatement of cost of goods sold in the current period.
A)True
B)False
Q4) For all four inventory costing methods,cost of goods sold is always equal to the sum of beginning inventory plus net purchases.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) In a purchases journal,the total of the ________ column is not posted to the general ledger.
A)Merchandise Inventory DR
B)Other Accounts DR,Amount
C)Accounts Payable CR
D)Office Supplies DR
Q2) The accounting is the same regardless of whether a business uses a manual or a computerized accounting information system.
A)True
B)False
Q3) When posting entries from a purchases journal to the general ledger,________.
A)posting references are not shown in the subsidiary ledger
B)the Accounts Payable balance in the general ledger will be less than the sum of the individual vendor balances in the subsidiary ledger
C)the amounts in the Other Accounts DR column are posted individually to the specific accounts
D)entries are posted on a daily basis for all the accounts
Q4) Define enterprise resource planning (ERP)systems and state one advantage and one disadvantage of ERP systems.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) A(n)________ is a device that enables members of a local network to access the network while keeping nonmembers out of the network.
A)burglar alarm
B)firewall
C)fireproof vault
D)electronic sensor
Q2) Banks must return physical copies of the maker's canceled checks.
A)True
B)False
Q3) A check of $300,000,deposited by a company,was returned to the bank for nonsufficient funds.How would this information be included on the bank reconciliation?
A)a deduction on the bank side
B)an addition on the bank side
C)an addition on the book side
D)a deduction on the book side
Q4) In addition to the account number,a check shows the 9-digit routing number.
A)True
B)False
Q5) List the five components of internal control.
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Chapter 9: Receivables
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Sample Questions
Q1) Bad Debt Expense is not debited when a company writes off an account receivable when using the allowance method because the company has already recorded the Bad Debt Expense as an adjusting entry.
A)True
B)False
Q2) If the maker of the note does not pay at maturity,the note has expired and is no longer in force.
A)True
B)False
Q3) Businesses must maintain a single Accounts Receivable control account regardless of the number of customers.
A)True
B)False
Q4) On July 1,2019,Landscape Equipment Sellers accepted a 3-month,15% note for $6,000 in settlement of an overdue account receivable.Prepare the journal entry to record the acceptance of the note.Omit explanation.
Q5) A five-month note dated October 15,2019 would mature on February 15,2020.
A)True
B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) The cost of an asset is $1,110,000,and its residual value is $110,000.Estimated useful life of the asset is eight years.Calculate depreciation for the second year using the double-declining-balance method of depreciation.(Do not round any intermediate calculations,and round your final answer to the nearest dollar. )
A)$138,750
B)$125,000
C)$250,000
D)$208,125
Q2) Which of the following is NOT recorded as the cost of a building?
A)building permits
B)fencing
C)architectural fees
D)contractor charges
Q3) Which of the following asset categories would include the cost of clearing land and removing unwanted buildings?
A)land
B)buildings
C)land improvements
D)machinery and equipment
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Page 12
Chapter 11: Current Liabilities and Payroll
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Q1) The Social Security system is funded by contributions from both the employer and employee.
A)True
B)False
Q2) Gross pay is the total amount of compensation earned by an employee after the deductions are made.
A)True
B)False
Q3) Ron is an employee of Panache,Inc.Panache pays a portion of his health insurance premium and also contributes to a retirement plan in his name.The company's share of the health insurance premium is $600,and the company's contribution to the retirement plan is $860.The journal entry to record the employee benefits to be paid by the company should include a debit to Employee Health Insurance Payable for $1,460.
A)True
B)False
Q4) If the likelihood of a future event is probable and the amount of the expense can be estimated,how should the company report the contingency?
Q5) What is a contingent liability? Provide two examples of contingencies.
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Page 13
Chapter 12: Partnerships
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Q1) Like a sole proprietorship's statement of owner's equity,the statement of partners' equity will show all the partners' capital accounts as one account.
A)True
B)False
Q2) While liquidating a partnership,the cash remaining after paying all liabilities is paid to the partners based on their profit-and-loss-sharing agreement.
A)True
B)False
Q3) If a partner's capital account is credited with the amount that he or she contributed in cash,which of the following financial statements will be affected?
A)the withdrawal statement
B)the bank reconciliation statement
C)the statement of partners' equity
D)the interest payment schedule
Q4) If elected,an S corporation pays no corporate income tax.
A)True
B)False
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Chapter 13: Corporations
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Q1) Which of the following statements regarding income from continuing operations is incorrect?
A)Income from continuing operations represents the part of the business that should continue from period to period.
B)Income from continuing operations helps investors make predictions about future earnings.
C)Income tax expense is subtracted to arrive at income from continuing operations.
D)A gain on sale of equipment is outside the business's core business and is not part of other income.
Q2) The declaration of a cash dividend does not create an obligation for the corporation. A)True B)False
Q3) When stock is issued for assets other than cash,the transaction is recorded at the market value of the stock issued or the market value of the assets received,whichever is more clearly determinable.
A)True B)False
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Chapter 14: Long-Term Liabilities
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Q1) If a company is financing more assets with debt than with equity,the ________.
A)debt to equity ratio will be more than 1
B)debt to equity ratio will be between 0 to 1
C)debt to equity ratio will be equal to 1
D)debt to equity ratio will be negative
Q2) Which of the following statements is TRUE of a bond that is issued at a discount?
A)The bond will be issued at par.
B)The stated interest rate is higher than the prevailing market interest rate.
C)At maturity,the bond will repay an amount that is less than the face value.
D)The bond will be issued for an amount less than the face value.
Q3) When using the effective-interest amortization method,the amount of the interest expense is calculated using the carrying value of the bonds and the market interest rate.
A)True
B)False
Q4) The current portion of notes payable is reported on the balance sheet under current liabilities.
A)True
B)False
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Page 16
Chapter 15: Investments
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Questions
Q1) Regarding accounting entries for debt securities,which of the following is TRUE?
A)The receipt of interest revenue is recorded with a debit to Interest Revenue and a credit to Cash.
B)Investments in debt securities are recorded at cost,including any brokerage fees paid.
C)The receipt of interest revenue is recorded with a debit to Cash and a credit to Held-to-Maturity Debt Investments.
D)Debt securities disposed of at maturity are recorded with a debit to the Short-term or Long-term Investments account and a credit to Cash.
Q2) Investments accounted for by the equity method are recorded at cost at the time of purchase.
A)True
B)False
Q3) Investments in debt securities are recorded at cost.Brokerage fees paid are treated as expenses.
A)True
B)False
Q4) List and discuss two common reasons why companies invest in debt or equity securities.
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17
Chapter 16: The Statement of Cash Flows
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Q1) Most public companies use the indirect method to prepare their statement of cash flows because it is the method the FASB prefers.
A)True
B)False
Q2) Trinity Coatings Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for 2018: The beginning balance in the Cash account was $2900.
Net cash provided by operating activities: $40,000
Net cash used for investing activities: $(25,500)
Net cash provided by financing activities: $1700
The statement of cash flows will show ________.
A)ending cash of $16,200
B)net cash provided by operating activities $42,900
C)net cash provided by investing and financing activities $(23,800)
D)ending cash of $19,100
Q3) Under IFRS,interest revenue and dividend income may be reported either as an operating activity or an investing activity.
A)True
B)False
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Page 18
Chapter 17: Financial Statement Analysis
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Q1) Benchmarking is the practice of comparing a company with other leading companies.
A)True
B)False
Q2) To accurately determine the financial performance of a company,it is necessary to compare its performance from year to year,with a competing company,and with the same industry as a whole.
A)True
B)False
Q3) In regards to benchmarking,which of the following statements is correct?
A)The two main types of benchmarks in financial statement analysis include benchmarking against a prior year of the same company and benchmarking against a key competitor.
B)Benchmarking is the practice of comparing a company with information provided by the Financial Standards Accounting Board.
C)The Risk Management Association provides common-size statements for most industries.
D)It is not helpful to provide common-size percentages in a graphical manner.
Q4) What is an annual report? Briefly describe the key parts of the annual report.
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