Accounting I Solved Exam Questions
Course Introduction
Accounting I introduces students to the fundamental principles and concepts of accounting, focusing on the systematic recording, reporting, and analysis of financial transactions. The course covers topics such as the accounting cycle, preparation of financial statements, and the use of journals and ledgers. Students will gain practical skills in analyzing business transactions, understanding the double-entry system, and interpreting the impact of accounting decisions on financial statements. Emphasis is placed on ethical practices, accuracy, and the importance of accounting information for effective business decision-making. This foundational course prepares students for more advanced studies in accounting and related fields.
Recommended Textbook
Financial Accounting 5th Canadian Edition by Walter T. Harrison
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Chapter 1: The Financial Statements
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Sample Questions
Q1) The owners' equity of proprietorships and partnerships is different.
A)True
B)False
Answer: True
Q2) What are the three forms of business organizations? How do they differ?
Answer: A proprietorship has a single, or sole, owner who is responsible for the business and its operations. A partnership has two or more individuals who operate together as co-owners of the business. In both of these forms of organization, the owners are individually liable for the debts of the business. A corporation is a business owned by shareholders, who may or may not have a part in the day-to-day operations of the business. The shareholders of a corporation are not legally liable for the debts of the business.
It is easier to sell one's ownership of a corporation, since the ownership is evidenced by shares of stock, which can be traded. There are legal rules to be considered when a partner wishes to sell his or her interest in a partnership. Such rules make it more difficult to sell a partnership interest. A sole proprietor who sells his or her business may encounter difficulty since the business owner may be the business itself (such as a consultant or other independent contractor).
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) If a trial balance is in balance, the accountant is assured that no mistakes were made either in recording or posting.
A)True
B)False
Answer: False
Q2) A balance sheet is a required financial statement that reports the financial position of the company as of a given day in time.
A)True
B)False
Answer: True
Q3) The account credited when supplies are purchased on account is:
A) Cash
B) Supplies
C) Supplies Expense
D) Accounts Payable
Answer: D
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Page 4
Chapter 3: Accrual Accounting and the Financial Statements
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Sample Questions
Q1) When considering making a loan to a company, a bank will look for:
A) a high debt ratio and a low current ratio
B) a high debt ratio and a high current ratio
C) a low debt ratio and a low current ratio
D) a low debt ratio and a high current ratio
Answer: D
Q2) A company using the accrual basis of accounting receives its utility bill which will be paid in two weeks. The entry will involve a debit to:
A) Utilities Expense
B) Utilities Payable
C) Prepaid Utilities
D) Prepaid Revenue
Answer: A
Q3) The current ratio is computed by:
A) dividing current assets by current liabilities
B) dividing current assets by non-current liabilities
C) dividing current liabilities by current assets
D) dividing current assets by non-current assets
Answer: A
Page 5
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Chapter 4: Internal Control and Cash
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Sample Questions
Q1) If a bank reconciliation included $600 of outstanding cheques, the journal entry to record this reconciling item would include:
A) a credit to Cash of $600
B) a debit to Cash of $600
C) a credit to Accounts Payable of $600
D) no entry is required
Q2) The cost of printing cheques should be deducted from the bank side of a bank reconciliation.
A)True
B)False
Q3) If the balance on the bank statement does not equal the balance in the company's Cash account, then you can conclude that:
A) the company accountant made an error in the accounting process
B) the bank made an error
C) both the company accountant and the bank made errors
D) there are some reconciling items that, when identified, will explain the differences between the balances
Q4) Identify and briefly describe the two most common types of fraud that impact financial statements.
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Chapter 5: Short-Term Investments and Receivables
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Sample Questions
Q1) Waterloo Limited accepts a note to settle an overdue account from a customer. The journal entry on Waterloo Limited's books will include a:
A) debit to Accounts Receivable
B) debit to Note Receivable
C) credit to Note Receivable
D) debit to Note Payable
Q2) A company has $50,000 in cash, $85,000 in short-term investments, $120,000 in net current receivables, and $145,000 in inventory. The total current liabilities of the firm are $275,000. The acid-test ratio of the company is:
A) 0.64
B) 0.93
C) 1.45
D) 1.76
Q3) Smart-T has just sold their accounts receivables of $260,000 to Colleen Collect Inc on a non-recourse basis for 95% of their balance. Prepare the journal entry for this transaction.
Q4) Briefly state the main issues in controlling and managing the collection of receivables.
Q5) What are 'held-for-trading investments'?
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Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) The gross margin percentage can be calculated by dividing cost of goods sold by net sales revenue.
A)True
B)False
Q2) The gross profit method may aid in detecting large ending inventory errors.
A)True
B)False
Q3) All of the following are deducted from the purchase price of inventory in determining cost of goods sold except:
A) purchase returns
B) purchase allowances
C) freight in
D) purchase discounts
Q4) Inventory errors can be ignored because they counter balance fix themselves.
A)True
B)False
Q5) FIFO income typically is less realistic compared to the net income under weighted-average cost.
A)True
B)False
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Chapter 7: Property, Plant, and Equipment, and Intangible Assets
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Sample Questions
Q1) Hot Wort Ltd. purchased equipment on April 1, 2014, for $140,000. The residual value is $20,000 and the estimated life is 6 years or 55,000 hours. Compute depreciation expense for the year ending December 31, 2014 if Hot Wort Ltd. uses the straight-line method of depreciation.
A) $15,000
B) $20,000
C) $14,988
D) $19,983
Q2) In which of the following depreciation methods is annual depreciation calculated as the difference between the asset's historical cost and its residual value, divided by the asset's useful life in years?
A) double-declining-balance
B) straight-line
C) units-of-production
D) depletion
Q3) Explain how a company should decide which depreciation method to use for income tax purposes.
Q4) Explain how a company should decide which depreciation method to use for financial reporting purposes.
Page 9
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Chapter 8: Long-Term Investments and the Time Value of Money
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Sample Questions
Q1) Goodwill arises when a parent company:
A) pays less to acquire a subsidiary company than the market value of the subsidiary's net assets
B) pays more to acquire a subsidiary company than the market value of the subsidiary's net assets
C) pays less to acquire a subsidiary company than the book value of the subsidiary's net assets
D) pays more to acquire a subsidiary company than the book value of the subsidiary's net assets
Q2) Small Track Corporation purchased on account a new grooming machine on September 13, 2015, from a Welsh company for 250,000 British pounds. Small Track paid the Welsh company on September 26, 2015. The British pound was worth $1.75 on September 13, 2015, and $1.77 on September 26, 2015.
Prepare entries for Small Track Corporation needed on September 13 and September 26, 2015.
Q3) Briefly explain the meaning of the term "present value."
Q4) How does an investor account for a long-term investment in bonds?
Q5) What are consolidated financial statements? What are some of the benefits and limitations of them for ATCO Ltd.?
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Chapter 9: Liabilities
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Sample Questions
Q1) When the discount on bonds payable is amortized, the carrying value of the bonds:
A) will always remain unchanged
B) will increase
C) will decrease
D) may increase or decrease depending on the face value of the bonds
Q2) An unearned revenue arises when a company receives cash from its customers in advance of earning the revenue.
A)True
B)False
Q3) The journal entry to record accrued interest on a short-term note payable must include a:
A) debit to Interest Payable
B) debit to Note Payable
C) debit to Interest Expense
D) credit to Interest Expense
Q4) The interest paid to a bond holder is tax deductible.
A)True
B)False
Q5) Describe the two interest rates included in setting the price of a bond.
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Chapter 10: Shareholders Equity
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Sample Questions
Q1) Which of the following is the best measure as to whether a company is successful in using its assets to earn income for the individuals who finance the business?
A) current ratio
B) acid-test ratio
C) return on equity
D) return on assets
Q2) What type of shares would an investor purchase if he or she were primarily interested in a safe investment?
Q3) Prevage Corporation has 10,000 shares of $10 cumulative preferred shares outstanding and 50,000 common shares outstanding. As of the beginning of this fiscal year, there were 2 years' dividends in arrears on the preferred shares. The board of directors wants to give the common shareholders a $1.50 dividend per share at the end of this fiscal year. The total dividends to be declared by the Prevage Corporation are:
A) $105,000
B) $120,000
C) $175,000
D) $375,000
Q4) Explain the fundamental difference between retained earnings and share capital.
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Page 12
Chapter
Statement, the Statement of Comprehensive Income, and the Statement of Shareholders Equity
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Sample Questions
Q1) The deprecation method used by a company for income tax purposes will not normally be the same as the method used for financial reporting.
A)True
B)False
Q2) Corporations generally credit Income Tax Payable based on the amount of pretax accounting income multiplied by the income tax rate.
A)True
B)False
Q3) When a company sells a segment of its business, the gain or loss on the disposal of the segment is shown as:
A) other gains or losses on the income statement
B) part of the discontinued operations section on the income statement
C) an extraordinary item appearing on the income statement
D) an adjustment to the beginning balance of retained earnings
Q4) JetNew has a tax rate of 35%. The controller has just calculated JetNew's accounting income (pre-tax) to be $560,000 for 2013. Taking into account the differences in calculation, JetNew's taxable income is $440,000. Prepare the journal entry to record JetNew's taxes for 2013 under IFRS.
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following activities increase and decrease the non-current assets available to a company?
A) operating activities
B) investing activities
C) financing activities
D) warehousing activities
Q2) Which of the following would appear on a direct method statement of cash flows?
A) Depreciation Expense
B) loss on sale of assets
C) increase in Accounts Receivable
D) cash payments for inventory
Q3) Under the direct method, cash receipts from dividend revenue affect both the statement of cash flows and the income statement.
A)True
B)False
Q4) The purchase of land for cash and the sale of a capital asset are viewed as:
A) a negative and positive item on the statement of cash flows
B) a positive and negative item on the statement of cash flows
C) both positive items on the statement of cash flows
D) neither positive nor negative items on the statement of cash flows
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Inventory turnover measures the number of times a company sells its average inventory level during a year.
A)True
B)False
Q2) Accounts receivable turnover is calculated as:
A) total cost of goods sold / 365 days
B) total net credit sales / average net accounts receivable
C) average net accounts receivable / 365 days
D) total net credit sales / cost of goods sold
Q3) Name some common financial ratios used by investors to compare different companies.
Q4) The form of analysis that looks at trend percentages over a representative period is known as:
A) trend analysis, which is considered a form of horizontal analysis
B) trend analysis, which is considered a form of vertical analysis
C) ratio analysis
D) economic value added analysis
Q5) Identify three cash flow signs of a healthy company.
Q6) Based upon recent accounting scandals, identify potential red flags that may be discovered in financial analysis.
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