Accounting I Test Questions
Course Introduction
Accounting I is an introductory course that provides students with a foundational understanding of accounting principles and practices. The course covers basic financial accounting concepts such as recording financial transactions, preparing financial statements, and understanding the accounting cycle. Students will learn about assets, liabilities, equity, revenues, and expenses while developing skills in analyzing and interpreting financial information. Through hands-on exercises and real-world examples, this course equips students with the essential knowledge needed for further study in accounting and related business fields.
Recommended Textbook
Horngrens Financial and Managerial Accounting 4th Edition by Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Star Homes Corporation just recorded a transaction in its books of accounts.If this transaction increased the total liabilities by $7,000,then ________.
A)assets must increase,or equity must decrease by $7,000
B)either assets or equity must decrease by $7,000
C)both assets and equity must each decrease by $3,500
D)assets must decrease by $7,000
Answer: A
Q2) Which of the following is a major reason why corporate ownership is popular in the United States?
A)Stockholders have limited liability for the debts of the corporation.
B)Most corporations are small or medium-sized.
C)The life of a corporation is limited by the death of the owner.
D)A corporation is usually managed by the owners.
Answer: A
Q3) For an accounting equation to balance,a transaction must affect both sides of the equation.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Liabilities are economic resources that are expected to benefit the business in the future.
A)True
B)False
Answer: False
Q2) A business makes a cash payment of $12,000 to a creditor.Which of the following accounts will be credited?
A)Cash
B)Accounts payable
C)Bank
D)Accounts receivable
Answer: A
Q3) The Salaries Payable account is a(n)________.
A)liability account with a normal debit balance
B)asset account with a normal debit balance
C)liability account with a normal credit balance
D)asset account with a normal credit balance
Answer: C
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) An expense that has been incurred but not yet paid is called a(n)________.
A)accrued revenue
B)prepaid expense
C)unearned revenue
D)accrued expense
Answer: D
Q2) What is the term used for the difference between the Equipment account and the Accumulated Depreciation account?
A)contra asset
B)market value
C)historical cost
D)book value
Answer: D
Q3) An adjusting entry is completed ________.
A)at the beginning of the accounting period
B)at the end of the accounting period
C)when the balance sheet is prepared
D)when accounts need to be balanced in the ledger
Answer: B
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Under which of the following categories would Accounts Payable appear?
A)long-term assets
B)current assets
C)long-term liabilities
D)current liabilities
Q2) Which of the following statements is true if the income statement credit column exceeds the income statement debit column on a worksheet?
A)The company made a net profit.
B)The company incurred a net loss.
C)The retained earnings account decreased during the period.
D)The total liabilities exceed total assets.
Q3) The worksheet helps accountants to ________.
A)make the adjusted trial balance
B)prepare the financial statements
C)prepare the unadjusted trial balance
D)maintain books of accounts without a journal
Q4) Only permanent accounts appear on the post-closing trial balance.
A)True
B)False
Q5) Provide the closing entry for the Income Summary account.
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) On November 1,2012,Everett Janitorial Supply sold merchandise with a cost of $3,200 for $5,000,with terms FOB destination,and payment terms of 2/10,n/30.The company uses a perpetual inventory system.Give journal entries to record the sales revenue.
Q2) Under the periodic inventory system,purchases,purchase discounts,and purchase returns and allowances are recorded in the Merchandise Inventory account as and when they occur.
A)True B)False
Q3) A company has purchased inventory and received an invoice that requires the buyer to pay the transportation costs for delivering the merchandise.The terms in this case are:
A)FOB destination.
B)FOB shipping point.
C)FOB,2/10,n/30.
D)FOB in transit.
Q4) The entry to close Sales Discounts will include a debit to Income Summary. A)True B)False
Q5) Give the journal entry to close the Sales Revenue account.
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) A high rate of inventory turnover indicates difficulty in selling inventory.
A)True
B)False
Q2) An overstatement of ending merchandise inventory in the current period results in an understatement of cost of goods sold in the current period.
A)True
B)False
Q3) If the historical cost of inventory is less than its current replacement cost,the business must write down the inventory cost.
A)True
B)False
Q4) When inventory costs are declining,which of the following inventory costing methods will result in the highest cost of goods sold?
A)first-in,first-out
B)last-in,first-out
C)weighted-average
D)specific identification
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8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Which is the most liquid form of assets?
A)cash
B)accounts receivable
C)inventory
D)supplies
Q2) A check was written by a business for $549,but was recorded erroneously in the cash ledger as $459.How would this error be included on the bank reconciliation?
A)an addition on the book side
B)a deduction on the bank side
C)a deduction on the book side
D)an addition on the bank side
Q3) Which of the following statements describes a purchase order?
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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Sample Questions
Q1) Give the journal entry to record an uncollectible account receivable using the direct write-off method.
Q2) Give journal entry to record the dishonor of a note receivable at the maturity date.
Q3) Barker Sales has a days' sales in receivables figure of 35 and Xanadu Company has a days' sales in receivables of 25.This would suggest that Xanadu is having greater difficulty collecting their accounts receivable than Barker.
A)True
B)False
Q4) The maturity date for a six-month note issued on January 15 would be ________.
A)July 15
B)July 14
C)July 16
D)July 10
Q5) On January 16,Whole Circle Inc.sold goods worth $5,000 to Smith on account.It could not collect cash from the customer,and finally decided to write off the account.Give journal entry to record the write-off assuming that the company uses the allowance method.
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) Use of MACRS is acceptable for financial reporting under GAAP.
A)True
B)False
Q2) Iverycoast Inc.purchased a van on January 1,2015,for $800,000.Estimated life of the van was 5 years,and its estimated residual value was $90,000.Iverycoast uses the straight-line method of depreciation.Calculate the book value of the van at the end of 2015.
A)$650,000,
B)$750,000
C)$710,000
D)$658,000
Q3) The process by which businesses spread the allocation of an intangible asset's cost over its useful life is referred to as amortization.
A)True
B)False
Q4) The units-of-production method allocates varying amounts of depreciation each year based on an asset's usage.
A)True
B)False
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Chapter 10: Investments
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Sample Questions
Q1) Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.
A)True
B)False
Q2) Which of the following is true of the comparison between equity securities and debt securities?
A)Debt securities represent stock ownership in a company whereas equity securities represent a credit relationship with the company.
B)Equity securities earn dividend revenue whereas debt securities earn interest revenue.
C)Both debt securities and equity securities do not mature at a particular date.
D)Both debt securities and equity securities pay interest..
Q3) At the end of each period,trading securities must be adjusted and reported at fair value.
A)True
B)False
Q4) When a firm receives interest revenue on a bond,the equity remains unchanged.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.
A)True
B)False
Q2) Which of the following is a major control risk in the payroll area?
A)theft of inventory by staff
B)fictitious persons cashing paychecks
C)expenses being recorded as assets in order to manipulate earnings
D)contracts being awarded to relatives of employees
Q3) Which of the following is a part of journal entry in the payroll cycle to record the employer's payroll taxes?
A)credit to Payroll Tax Expense
B)debit to FICA Tax Payable
C)credit to FICA-Medicare Tax Payable
D)debit to Cash
Q4) FICA tax is paid by the employee only and is deducted from gross pay.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) On January 1,2015,Anderson Tools Company purchases property of $300,000 by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance.The amortization schedule shows that the company will pay $46,072 per year.Journalize the first yearly payment on January 1,2016.
Q2) How will this information be shown on the balance sheet dated December 31,2015?
A)$15,000 shown as current liability only
B)$5,000 shown as current liability and $15,000 shown as long-term liability
C)$5,000 shown as current liability and $10,000 shown as long-term liability
D)the entire $15,000 shown as long-term liability
Q3) Using the present value tables,compute the present value of $30,000 discounted back 6 periods at 7%.
A)$24,500
B)$18,400
C)$23,700
D)$19,980
Q4) What is the total amount of long-term liabilities?
A)$39,000
B)$92,000
C)$86,000
D)$33,000
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) Which of the following is true of the distribution of stock dividends?
A)It decreases both assets and liabilities.
B)It decreases assets and increase liabilities.
C)It affects only stockholder's equity accounts.
D)It increases both dividends payable and cash.
Q2) Which of the following actions will decrease the balance in Retained Earnings?
A)repayment of bond principal
B)stock split
C)stock dividend declared
D)purchase of treasury stock
Q3) Treasury stock is a ________.
A)contra equity account
B)contra asset account
C)liability account
D)contra liability account
Q4) A dividend's declaration date is the date the corporation records which stockholders get dividend checks.
A)True
B)False
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Davis Metals Company uses the direct method to prepare its statement of cash flows.Refer to the following information reported for the year 2014 and calculate the amount paid to suppliers for operating expenses on a cash basis. Operating expenses,$26,000
Accrued Liabilities,beginning balance,$3,000
Accrued Liabilities,ending balance,$5,000
A)$29,000
B)$28,000
C)$24,000
D)$31,000
Q2) While preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.
A)is added back as an adjustment to Net Income in the operating activities section
B)is shown as a negative cash flow in the investing activities section
C)is added back to Purchases of Plant Assets under investing activities
D)is shown as a negative cash flow under operating activities
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16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) The study of percentage changes in comparative financial statements is called horizontal analysis.
A)True
B)False
Q2) Which of the following is the correct formula for calculating the cash ratio?
A)Cash ratio = (Cash + Bank)÷ Total liabilities
B)Cash ratio = (Cash + Cash equivalents)÷ Total current liabilities
C)Cash ratio = (Cash + Cash equivalents)÷ Total assets
D)Cash ratio = (Bank + Cash equivalents)÷ Total current liabilities
Q3) Days' sales in receivables measures the return on average receivables using credit sales.
A)True
B)False
Q4) The audit report is prepared by an internal auditor of a company.
A)True
B)False
Q5) Days' sales in inventory is a ratio that measures how quickly a company can collect its receivables.
A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Which of the following is most likely a service company?
A)a law firm
B)a car dealership
C)a grocery store
D)a patisserie
Q2) Which of the following represents the combined sum of direct materials and direct labor?
A)conversion costs
B)period costs
C)prime costs
D)fixed costs
Q3) Which of the following correctly describes the accounting for administrative expenses of a manufacturing company?
A)Administrative expenses are product costs and are expensed as incurred.
B)Administrative expenses are period costs and are expensed as incurred.
C)Administrative expenses are product costs and are expensed when the manufactured product is sold.
D)Administrative expenses are period costs and are expensed when the manufactured product is sold.
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Page 18
Chapter 17: Job Order Costing
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Sample Questions
Q1) For a service company,such as an accounting firm,each client is considered a job.
A)True
B)False
Q2) Bilkins Financial Advisors provides accounting and finance assistance to customers in the retail business.Bilkins has four professionals on staff,and an office with six clerical staff.Total compensation,including benefits,for the professional staff runs about $754,000 per year,and it normally has about 8,000 billable hours per year.Professional staff keeps detailed time sheets organized by the client number.The total office and administrative costs for the year is $576,000. Bilkins allocates professional time and office and administrative costs to clients monthly,using allocation rates based on billable hours.During July,Bilkins' professionals spent 36 hours on their client,Soupy Sales.What is the total amount of cost that Bilkins will record for the client for the month? (Round your intermediate calculations to two decimal places.)
A)$3,393
B)$2,592
C)$5,040
D)$5,985
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Chapter 18: Process Costing
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Sample Questions
Q1) Nevada Manufacturing has two processing departments,Department I and Department II.During 2015,direct materials were assigned to the two production departments: $280,000 to Department I and $300,000 to Department II.During the period,$8,000 of indirect materials was used in production.Provide the journal entry to record this transaction.
Q2) When indirect materials are issued to production,the Raw Materials Inventory account is credited.
A)True
B)False
Q3) At the end of an accounting period,the costs assigned to a production department can be split into the cost of units fully completed and transferred,and the cost of units partially completed and remaining in the Work-in-Process Inventory of that department.
A)True
B)False
Q4) Under a process costing system,product costs are accumulated with respect to jobs completed.
A)True
B)False
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Chapter 19: Cost Management Systems: Activity-Based,
and Quality Management Systems
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Sample Questions
Q1) Manufacturing overhead costs,which are also known as indirect costs,cannot be cost-effectively traced to products.
A)True
B)False
Q2) J-Time Inc.is planning to launch a new brand of watches for kids.Similar watches are available in the market for $50.In order to penetrate the market,the company plans to use target pricing and desires a 20% net profit markup on total cost.Calculate the target cost.
A)$60.00
B)$30.75
C)$41.67
D)$40.20
Q3) The just-in-time management system is a(n)________.
A)labor management system
B)overhead management system
C)inventory management system
D)debt management system
Q4) Quality management systems emphasize external failure costs.
A)True
B)False
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) A 15% increase in production volume will result in a ________.
A)15% increase in the variable cost per unit
B)15% increase in total mixed costs
C)15% increase in total administration costs
D)15% increase in total variable costs
Q2) When the variable cost per unit increases,the total number of units required to breakeven also increases.
A)True
B)False
Q3) Sales mix,or product mix,is the combination of products that make up total sales.
A)True
B)False
Q4) Porterhouse Company incurs both fixed and variable production costs.Assuming the production is within the relevant range,if volume goes up by 20%,then the total costs would ________.
A)increase by 20%
B)remain the same
C)increase by an amount less than 20%
D)decrease by 20%
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Chapter 21: Variable Costing
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Sample Questions
Q1) The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.
A)True
B)False
Q2) When all of the units produced are sold,the operating income will be the same under both the costing methods.(Assume no beginning inventories.)Which of the following gives the correct reason for the above statement?
A)all costs incurred have been recorded as expenses
B)a portion of the fixed manufacturing overhead is still in the Finished Goods Inventory account
C)all selling and administrative expenses have been recorded as period costs
D)fixed manufacturing costs have not been considered while calculating the operating profits
Q3) Which of the following statements is true of absorption costing?
A)It considers variable selling and administrative costs as product costs.
B)It considers fixed selling and administrative costs as product costs.
C)It considers fixed manufacturing overhead cost as product costs.
D)It considers variable manufacturing overhead cost as period costs.
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Chapter 22: Master Budgets
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Q1) Which of the following is an example of the benchmarking function of a budget?
A)A budget demands integrated input from different business units and functions.
B)Budgeting requires close cooperation between accountants and operational personnel.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.
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) Calculate the final projected cash balance at the end of September.
A)$6,000
B)$5,254
C)$6,133
D)$7,200
Q4) An operational budget is a short-term financial plan that coordinates activities to achieve short-term goals.
A)True
B)False
Page 24
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A new factory manager was hired for a company that was experiencing slow production rates,and lower production volumes than demanded by management.Upon investigation,the manager found that the workers were poorly motivated and not closely supervised.Midway through the quarter,an incentive program was initiated and cash bonuses were given when workers hit their production targets.Within a short time,production output increased,but the bonuses had to be charged to the direct labor budget,but the manager was worried about the impact of these costs on operating income.This situation could have produced a(n)________.
A)unfavorable direct materials cost variance
B)unfavorable direct materials efficiency variance
C)unfavorable direct labor efficiency variance
D)unfavorable direct labor cost variance
Q2) The fixed overhead cost variance measures the difference between actual fixed overhead and budgeted fixed overhead to determine the controllable portion of total fixed overhead variance.
A)True
B)False
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) WAX-D Inc.has a division that manufactures a component that sells for $150 and has a variable cost of $45.Another division of the company wants to purchase the component.Fixed cost per unit of component is $25.What is the maximum transfer price if the division is operating below its capacity?
A)$70
B)$170
C)$150
D)$30
Q2) Centralized operations are better for small companies due to the smaller scope of their operations.
A)True
B)False
Q3) Which of the following internal business perspective key performance indicators (KPIs)is commonly used to assess the innovation process?
A)number of new products developed
B)number of warranty claims
C)employee turnover rate
D)rate of on-time deliveries
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Chapter 25: Short-Term Business Decisions
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Q1) Which of following statements is true of short-term decision making?
A)Fixed costs and variable costs must be analyzed separately.
B)All costs behave in the same way.
C)Unit manufacturing costs are variable costs.
D)All costs involved in a decision are considered relevant.
Q2) Seven Seas Sailboats Company manufactures 100 luxury yachts per month.A compact media center is included in each yacht.Seven Seas Sailboats manufactures the media center in-house,but is considering the possibility of outsourcing this function.At present,the variable cost per unit is $275,and the fixed costs are $39,000 per month.Justin Blake,the CEO,wishes to boost operating income by $5,000.He has an offer from a foreign producer to provide the media centers at a contract rate of $300 per unit.The required saving in fixed cost in order to achieve his objective would be
A)$4,250
B)$2,000
C)$7,500
D)$19,500
Q3) Price-setters emphasize a cost-plus pricing approach.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Sample Questions
Q1) Net present value is defined as the difference between the present value of the project's net cash inflows and the cost of investment.
A)True
B)False
Q2) Which of the following is a capital budgeting method?
A)return on assets
B)net present value
C)inventory turnover
D)return on equity
Q3) Which of the following would be the best basis on whether to accept an investment opportunity or not?
A)if it has positive total cash inflows
B)if it has a payback period in less than 10 years
C)if the investment's rate of return is higher than the company's current year required rate of return
D)if the net present value is positive
Q4) The payback method uses discounted cash flows to make investment decisions.
A)True
B)False
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Chapter 27: Accounting Information Systems
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Sample Questions
Q1) Credit purchases are recorded in the purchases journal.
A)True
B)False
Q2) Which of the following is true of source documents in an accounting information system?
A)All journal entries can be considered as source documents in an accounting information system.
B)Source documents provide control and reliability in an accounting information system.
C)A manual document cannot be considered as a source document in an accounting information system.
D)In a manual accounting information system,source documents refer to financial statements.
Q3) 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
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29