Course Introduction
Accounting I Study Guide Questions
Accounting I introduces the fundamental principles and concepts of financial accounting, focusing on the preparation, analysis, and interpretation of financial statements. Students learn the accounting cycle, including recording transactions, adjusting entries, and closing procedures. The course covers essential topics such as assets, liabilities, equity, revenues, and expenses, while emphasizing Generally Accepted Accounting Principles (GAAP). Through practical exercises and real-world examples, students gain foundational skills in maintaining accurate financial records and understanding their significance for effective business decision-making.
Recommended Textbook
Introduction to Accounting An Integrated Approach 6th Edition by Penne Ainsworth
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Page 2
Chapter 1: Accounting and Business
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Sample Questions
Q1) According to Concept Statement #2 accounting information should be:
A)Relevant and Reliable
B)Responsible and Reconcilable
C)Accurate and Meaningful
D)Accurate and Timely
Answer: A
Q2) The cash held by a company at the end of the year is found on which of the following two statements?
A)Balance Sheet and Income Statement
B)Balance Sheet and Statement of Cash Flows
C)Income Statement and Statement of Cash Flows
D)Statement of Stockholders' Equity and Cash Flows Statement
Answer: B
Q3) Which of the following is has limited liability for all owners and is not subject to double taxation?
A)Corporation
B)Sole Proprietorship
C)Limited Liability Corporation
D)Limited Partnership Answer: C
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Chapter 2: Business Processes and Accounting Information
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Q1) Scherzo Company purchased equipment from Rondo Corporation for $20,000.Scherzo paid no cash at the time of purchase.Instead Rondo permitted Scherzo to pay for the equipment by making four annual payments of $5,000.For Scherzo and for Rondo what processes are being used by these events? Explain your answer.
Answer: For Scherzo,the capital resources process is being used.The purchase of equipment is an investing activity,while borrowing money is a financing activity.For Rondo,both the operating and an capital resources processes are being impacted.The sale of the equipment is part of the operating process while lending the money to Scherzo is part of the capital resources process.
Q2) At May 31,Allegro Company had a general ledger cash balance of $7,400.At the end of May,the bank statement had a balance of $7,500.Deposits in transit amounted to $1,000 and there was a service charge of $10.Outstanding checks totaled $1,110.What is the correct amount of cash?
A)$7,390
B)$7,000
C)$6,390
D)$6,380
Answer: A
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Page 4
Chapter 3: Operating Processes: Planning and Control
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Sample Questions
Q1) Which of the following activity bases would be the best cost driver for flour costs for a pizzeria?
A)Number of customers
B)Hours of operation
C)Number of employees
D)Number of pizzas
Answer: D
Q2) Which of the following is not part of the revenue process?
A)Receive and accept order for goods and services
B)Receive goods and services
C)Receive payments for goods and services rendered
D)Provide customer support
Answer: B
Q3) In linear regression analysis,the dependent variable is:
A)Labeled X in the linear equation
B)Referred to as the intercept
C)The cost driver
D)The total cost
Answer: D
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Page 5
Chapter 4: Short-Term Decision Making
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Sample Questions
Q1) All of the following are steps in incremental analysis except:
A)identify the alternative actions
B)determine the incremental revenue
C)determine the relevant costs of each alternative
D)choose the alternative that produces the highest revenue
Q2) Brio Company is considering eliminating a product line.If it eliminates the product,equipment,which originally cost $250,000,will be disposed of for $6,000.The equipment has a book value of $75,000 and annual depreciation of $25,000.Ignoring income tax,what is the relevant amount for the product-elimination decision?
A)$250,000
B)$75,000
C)$25,000
D)$6,000
Q3) The breakeven point is the point at which:
A)total contribution margin equals total fixed costs
B)total fixed costs equal total variable costs
C)the total revenue line intersects the Y axis
D)the total cost line intersects the X axis
Q4) Explain why contribution margin is all profit above the breakeven point.
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Chapter 5: Strategic Planning Regarding Operating Processes
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Q1) Mobile phone providers that offer no or low cost phones when customers sign up for service is an example of which pricing strategy?
A)penetration pricing
B)pioneer price
C)life-cycle pricing
D)price skimming
Q2) Lead time in an inventory system is:
A)The time it takes to sell inventory
B)The time it takes to move raw materials inventory from the warehouse to the manufacturing facility
C)The time between placing an order for inventory and the when the inventory is received
D)The time it takes to manufacture a product plus the time it takes to ship the product to the customer.
Q3) Which of the following companies would be a good candidate for a JIT system?
A)Grocery Store
B)Macys
C)Construction company
D)Sporting Goods Store
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Chapter 6: Planning, The Balanced Scorecard, and Budgeting
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Sample Questions
Q1) Which of the following is not part of expenditure process planning?
A)Direct labor and overhead budget
B)Direct materials purchases budget
C)Cash disbursements schedule
D)Production budget
Q2) Clyde,Inc.sells two products,X and Y.Clyde sells twice as much X as Y,and projects the sale of 57,000 units of X during the coming year.Product Y sells for three times as much as product X,which sells for $2.75 per unit.The estimated sales revenue for Clyde for the coming year is:
A)$182,970
B)$340,005
C)$391,875
D)$548,625
Q3) Ideal standards used in the budgeting process -
A)Do not factor in operating inefficiencies in the budgeting process
B)Allows for small deviations from perfection
C)Is based on ideal working conditions but will permit some slack in operations
D)Requires that deviations between actual and budgeted results be minimized.
Q4) What information must a firm have to prepare a sales budget? How does it get this information?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) After closing entries are made which accounts not have balances?
A)Assets Liabilities and Owners' Equity
B)Revenues Expenses and Liabilities
C)Assets Revenues and Owners' Equity
D)Revenues,Expenses,Gains and Losses
Q2) Which of the following is not a part of the formal process of recording accounting events?
A)general journal
B)general ledger
C)T-Accounts
D)All of the above are part of the formal process of recording accounting events.
Q3) Which of the following is not a characteristic of an accounting event?
A)Must be the result of a management decision.
B)Must be specific to the entity for which records are being kept.
C)Must be measurable in monetary term.
D)Must impact the entity's assets,liabilities,and/or owners' equity.
Q4) How would the balance sheet and income statement be affected if a $2,000 accrued expense was recorded as $3,000?
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Page 9
Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Q1) In a purchases journal only one amount is recorded but that amount is posted by
A)Debiting Accounts Payable and crediting Inventory
B)Debiting Inventory and crediting cash
C)Debiting cash and crediting accounts payable
D)Debiting inventory and crediting accounts payable
Q2) Ogallah Corporation purchased $100,000 inventory on account with terms of 1/10 net 30 on November 1,2010.
Required:
Assume periodic inventory system and gross method
(A.)Make the entries to record the purchase of the inventory and subsequent payment of amount due on Nov 9,2010
Assume perpetual inventory system and net method
(B.)Make the entries to record the purchase of the inventory and subsequent payment of the amount due on Nov 30,2010.
Q3) Which of the following is not a special journal?
A)Depreciation journal
B)Sales journal
C)Cash receipts journal
D)Purchases journal
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Chapter 9: Recording and Evaluating Conversion Process Activities
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Sample Questions
Q1) The estimated amount of overhead per cost driver is referred to as the:
A)predetermined overhead rate
B)accounting cost rate
C)overhead cost pool
D)activity cost pool
Q2) Reynolds Company has estimated its finished goods inventory-handling costs at $240,000.It has determined that an appropriate cost driver is the number of units completed.It estimates that 500,000 units will be completed this year.If 40,000 units are completed during the current month,what amount of inventory-handling cost should be recognized?
A)$83,333
B)$24,000
C)$20,000
D)$19,200
Q3) The journal entry to record the sale of a product,assuming a perpetual inventory system,would include a:
A)debit to Sales Revenue
B)credit to Cost of Goods Sold
C)debit to Work-in-Process Inventory
D)credit to Finished Goods Inventory
Page 11
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Chapter 10: Recording and Evaluating Revenue Process Activities
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Q1) Cady,Inc.,had beginning and ending accounts receivable balances of $35,000 and 32,000,respectively.During the period,$100,000 was collected from credit customers.What was the amount of credit sales during the period?
A)$135,000
B)$132,000
C)$100,000
D)$97,000
Q2) Sedlacek Corporation reported sales revenue of $785,000,accounts receivable of $42,600 at the beginning of the year,and accounts receivable of $66,200 at the end of the year.Cash collections from customers during the year were:
A)$808,600
B)$785,000
C)$761,400
D)$827,600
Q3) Which of the following is not an advantage of LIFO over FIFO?
A)lower income taxes
B)better inventory figure on balance sheet
C)better matching of revenues and costs on the income statement
D)cost of goods sold better approximates current replacement cost
Page 12
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Chapter 11: Time Value of Money
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Sample Questions
Q1) On July 1,2010,a customer has agreed to make six,$2,000 quarterly cash payments staring October 1,2010 and $6,000 on July 1,2013 in exchange for a piece of equipment that cost you $12,000.If the annual interest rate is 8% and the how much profit did you earn on the sale of the equipment?
Q2) The rate of return is calculated as:
A)(dollar amount of average investment)x (dollar amount of return)
B)(present value of $1)/(dollar amount of average investment)
C)(dollar amount of return)/(dollar amount of initial investment)
D)(future value of $1)x (dollar amount of initial investment)
Q3) The present value on January 1,2010 of 8 annual payments of $7,500 each with the first payment to be made on January 1,2011,assuming a 9% interest rate is:
A)$63,764.25
B)$41,511.14
C)$30,114.00
D)$82,713.75
Q4) Why does the future value of an amount increase when interest is compounded semiannually instead of annually?
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13
Chapter 12: Planning Investments: Capital Budgeting
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Sample Questions
Q1) A firm's cost of capital represents all the following except.
A)The weighted average of the cost of both debt and equity financing.
B)The minimum rate that an investment is expected to generate before a company will buy the asset.
C)The cost of the long-term operating assets the firm acquires.
D)The hurdle rate of return.
Q2) Why should qualitative factors be considered in the capital budgeting process?
Q3) All of the following are operational investments exept.
A)Buying equipment for the company
B)Buying land with the intent of selling it a higher price in two years
C)Buying a building for new manufacturing facility
D)Buying new computers for the company office.
Q4) All of the below are part of the capital budgeting process,which of them is not based on an estimate.
A)Amount of future cash flows
B)Cost of the asset
C)Timing of future cash flows
D)Cost of capital
Q5) Explain why both the timing and quantity of cash flows are significant in determining net present value.
Page 14
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Chapter 13: Planning Equity Financing
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Sample Questions
Q1) Aslo Corporation has 10,000,000,$1 par shares of common stock authorized.A total of 6,000,000 shares have been sold to stockholders in 2001 and in 2008 Aslo purchased 50,000 of its own stock.Then in 2010 5,000 shares of the treasury shares were sold.As of the end of 2010 how many shares are issued and outstanding? Issued Outstanding
A)6,000,000 5,955,000
B)10,000,000 9,955,000
C)6,000,000 6,045,000
D)6,050,000 6,045,000
Q2) Does the term "preferred" mean that preferred stock is a better investment than common stock?
Q3) John,Doe and Smitty are partners in the NoName Company.Their profit and loss sharing relationship is 7:5:3.Doe's share of a $75,000 partnership loss would be:
A)$(37,500)
B)$(25,000)
C)$(20,000)
D)$(15,000)
Q4) Explain why the combination of mutual agency and unlimited liability create a great deal of risk for partnerships.
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Page 15
Chapter 14: Planning Debt Financing
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Q1) Which of the following is NOT a true statement about bonds?
A)A company that issues bonds is (typically)borrowing money from the public not a specific person or institution.
B)A bond's prices in the secondary market changes as the market interest changes over time.
C)Bonds can be turned in by their holders prior to their maturity date and receive the bond's face value.
D)When a company issues convertible bonds it will not have to pay the face value of the bonds if the bonds are converted before the bond's maturity date.
Q2) When the present value of a note's promised cash flows is equal to the note's face value:
A)the note is issued at a discount
B)the note is issued at a premium
C)the market rate of interest is less than the face rate of interest
D)the face rate of interest and the market rate of interest are the same
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 journal entry to record the purchase of equipment by making a down payment and signing an installment note for the balance would include a:
A)credit to Installment Notes Payable
B)debit to Interest Expense
C)credit to Equipment
D)debit to Cash
Q2) Which of the following would tend to cause the market price of common stock to decrease?
A)declaration of reverse stock split
B)declaration of stock dividend
C)issuance of additional shares
D)purchase of treasury stock
Q3) All of the following would reduce the balance in Retained Earnings except:
A)cash dividends
B)large stock dividends
C)small stock dividends
D)the acquisition of treasury stock
Q4) If a firm buys its own stock,how would the stock be reported on the balance sheet? Why is it reported that way?
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Q1) Sportech,Inc.acquired a piece of equipment on January 3,2010.The total cost of the equipment was $77,500.Sportech estimated that the equipment would be used for 9 years before being sold for an estimated $5,500.Assuming the use of straight-line depreciation,the balance in the accumulated depreciation account on January 2,2014 will be:
A)$32,000
B)$34,444
C)$36,889
D)$45,500
Q2) Horizons,Inc.purchased a machine 3 years ago at a price of $64,500.At that time,useful life was estimated at 12 years with a $6,900 salvage value,and straight-line depreciation was used.After recording depreciation for the 3rd year,Horizons decided that for future years it would revise its original estimates from 12 to 8 years and from $6,900 to $5,500.The depreciation expense to be recorded in year 4 of the machine's life is:
A)$4,800
B)$5,575
C)$8,640
D)$8,920
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Chapter 17: Company Performance: Profitability
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Q1) The firm's net income for 2010 was:
A)$110,000
B)$102,000
C)$ 80,000
D)unable to determine from the information given
Q2) The gain resulting from a company selling off a component of its business is reported on the company's income statement as:
A)an extraordinary item
B)discontinued operations
C)a prior period adjustment
D)a cumulative accounting adjustment
Q3) The amount of loss from operations of the Specialties Division that would appear on the 2010 income statement of Spectrum Corporation is:
A)$770,000
B)$477,400
C)$331,700
D)$292,600
Q4) Explain how a firm can manipulate income by increasing inventory under full absorption costing.
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Sample Questions
Q1) What order are current assets classified?
A)liquidity
B)value
C)assets
D)age
Q2) Which of the following answers would not be classified as a current asset?
A)inventory
B)prepaid insurance
C)common stock
D)cash
Q3) The accounting equation is presented on the:
A)balance sheet
B)income statement
C)statement of cash flows
D)statement of stockholders' equity
Q4) Which of the following statements is prepared as of a given point in time?
A)Balance sheet
B)Income statement
C)Statement of cash flows
D)Statement of stockholders' equity
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Chapter 19: Company Performance: Cash Flows
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Q1) The issuance of common stock in exchange for a patent would be reported in the following section of the statement of cash flows:
A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities
Q2) On a statement of cash flows using the direct format,depreciation expense is:
A)deducted from net income in the operating activities section
B)included as an outflow in the investing activities section C)added to net income in the operating activities section D)ignored,since it is a noncash expense
Q3) If accounts payable increased,cash paid for inventory would be equal to
A)ending inventory minus the accounts payable increase
B)ending inventory plus the accounts payable increase
C)purchases minus the accounts payable increase
D)purchases plus the accounts payable increase
Q4) Since firms must publish an income statement,why is a statement of cash flows also necessary?
Q5) Do you consider the direct or indirect method more useful? Why?
Q6) What are the four primary purposes of the statement of cash flows?
Page 21
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Chapter 20: Company Performance: Comprehensive Evaluation
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Q1) Write out the earnings per share ratio (EPS)( Show your work here).
Explain how the earnings per share ratio is used?
Q2) The denominator in the gross margin percentage is:
A)net sales
B)net income
C)average inventory
D)cost of goods sold
Q3) In a common-sized income statement,each item is shown as a percentage of A)income from continuing operations
B)comprehensive income
C)net income
D)net sales
Q4) The numerator in the return on assets ratio is:
A)net sales
B)net income
C)gross margin
D)average total assets
Q5) Explain the computation of cash flow per share.Do you believe cash flow per share should replace earnings per share? Why or why not?
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