Accounting I
Textbook Exam Questions
Course Introduction
Accounting I introduces students to the fundamental principles and practices of financial accounting. The course covers the accounting cycle, including journal entries, posting to ledgers, preparing trial balances, and creating basic financial statements such as the income statement, balance sheet, and statement of owner's equity.
Emphasis is placed on understanding the underlying concepts of assets, liabilities, equity, revenues, and expenses, as well as the role of accounting in business decision-making. Students will also explore common accounting systems and procedures, ensuring a solid foundation for further study in accounting and related business fields.
Recommended Textbook
Financial Managerial Accounting 16th Edition by Jan Williams
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Chapter 1: Accounting: Information for Decision Making
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Q1) The auditor's report on the published financial statements of a large corporation should be viewed as:
A) The opinion of independent experts as to the overall fairness of the statements.
B) The opinion of the corporation's chief accountant as to the overall fairness of the statements.
C) A guarantee by a firm of certified public accountants that the statements are accurate.
D) A guarantee by the Financial Statements Insurance Board that the statements do not overstate assets or net income.
Answer: A
Q2) Which organization best serves the professional needs of a CPA?
A) FASB.
B) AICPA.
C) SEC.
D) AAA.
Answer: B
Q3) The information is summarized in a set of statements distributed to the public. Answer: Financial
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Chapter 2: Basic Financial Statements
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Q1) The practice of showing assets on the balance sheet at their cost, rather than at their current market value is explained, in part, by the fact that cost is supported by objective evidence that can be verified by independent experts.
A)True
B)False Answer: True
Q2) Articulation between the financial statements means that they relate closely to each other.
A)True
B)False Answer: True
Q3) Assets need not always have physical characteristics as do buildings, machinery, or inventory.
A)True
B)False Answer: True
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Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) If a company purchases equipment for cash:
A) Assets will increase and owners' equity will also increase.
B) Assets will increase and owners' equity will decrease.
C) Assets will increase and owners' equity will remain unchanged.
D) Total assets and owners' equity will remain unchanged.
Answer: D
Q2) The accrual basis of accounting recognizes expenses only when they are paid.
A)True
B)False
Answer: False
Q3) The process of originally recording a business transaction in the accounting records is termed:
A) Journalizing.
B) Footing.
C) Posting.
D) Balancing.
Answer: A
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) Prepaid expenses appear:
A) As an expense on the income statement.
B) As an asset on the balance sheet.
C) As a liability on the balance sheet.
D) As a reduction to retained earnings.
Q2) What should be the balance of Prepaid Rent on December 31?
A) $0.
B) $7,000.
C) $14,000.
D) $21,000.
Q3) After the appropriate adjusting entry is recorded, the balance in the liability account Unearned Fees will:
A) Decrease by $9,800.
B) Increase by $9,800.
C) Equal $9,800.
D) Be unaffected.
Q4) An expenditure that benefits the year in which it is made should be deducted from revenue in the same year.
A)True
B)False
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Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Q1) A debit balance in the income summary account indicates:
A) An error was made.
B) A Net Profit.
C) A Net Loss.
D) That revenues were greater than expenses.
Q2) The purpose of the after-closing trial balance is to give assurance that the accounts are in balance and ready for the new accounting period.
A)True
B)False
Q3) In regard to disclosures that are required to be contained in annual reports, the FASB has no well-defined list of items that must be included.
A)True
B)False
Q4) What is the balance in Retained Earnings after posting closing entries at December 31?
A) $117.
B) $106.
C) $61.
D) $45.
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Chapter 6: Merchandising Activities
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Q1) The average gross profit margin is a measure of relative profitability.
A)True
B)False
Q2) VanRoy Supplies reports net sales of $1,750,000, net income of $175,000, and gross profit of $300,000. The company's cost of goods sold is:
A) $1,400,000.
B) $475,000.
C) $1,575,000.
D) $1,450,000.
Q3) Under the perpetual inventory system which journal entry would indicate a purchase of merchandise?
A) Debit, Inventory and credit, Cash.
B) Debit, Purchases and credit, Cash.
C) Debit, Costs of Goods Sold and credit, Inventory.
D) Debit, Inventory and credit, Cost of Goods Sold.
Q4) If ending inventory and cost of goods sold are added together, they should equal cost of goods available for sale.
A)True
B)False
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Chapter 7: Financial Assets
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Q1) Deposits-in-transit would not appear on a company's bank reconciliation but would appear on the company's bank statement.
A)True
B)False
Q2) When the account Allowance for Doubtful Accounts is used, writing-off of an uncollectible accounts receivable will:
A) Reduce income.
B) Reduce an expense.
C) Not change income or total assets.
D) Increase total assets.
Q3) The lower the accounts receivable turnover rate, the longer a company must wait to collect from its credit customers.
A)True
B)False
Q4) An unrealized gain on available-for-sale securities will increase shareholders' equity. A)True
B)False
Q5) What is the amount of the deposit in transit?
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Chapter 8: Inventories and the Cost of Goods Sold
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Sample Questions
Q1) Compute the cost of the ending inventory based on the FIFO method of inventory valuation.
A) $12,500.
B) $29,175.
C) $10,975.
D) $27,650.
Q2) Which of the following inventory cost flow assumptions is not in accord with the physical flow of merchandise in most businesses?
A) LIFO.
B) FIFO.
C) Specific identification.
D) Average.
Q3) Estimate the cost of goods sold for May using the retail method.
A) $137,400.
B) $150,400.
C) $205,236.
D) $319,600.
Q4) The higher a company's inventory turnover rate, the higher its gross profit.
A)True
B)False
Page 10
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Chapter 9: Plant and Intangible Assets
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Q1) A gain is recognized on the disposal of plant assets when:
A) The sales price is greater than the residual value but less than the book value.
B) The sales price is less than both the book value and the residual value.
C) The sales price is greater than the book value and greater than the residual value.
D) The sales price is greater than the book value and less than the residual value.
Q2) An asset which costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600. What amount of gain or loss will be recognized when the asset is sold?
A) A gain of $1,200.
B) A loss of $1,200.
C) A loss of $7,200.
D) A gain of $7,200.
Q3) Once the estimated life is determined for a depreciable asset it can never be changed.
A)True
B)False
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Chapter 10: Liabilities
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Q1) The total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1, is:
A) $432,100.
B) $199,600.
C) $194,923.
D) $200,000.
Q2) The amounts that a business withholds as taxes from an employee's earnings:
A) Represent payroll taxes expense to the employer.
B) Are deposited in an interest-bearing account until the employee is terminated.
C) Represent miscellaneous revenue to the employer.
D) Represent current liabilities to the employer.
Q3) The Music House issues a contract to a new recording artist to produce a number of albums over the next five years at $1 million per album. This situation is an example of:
A) A contingent liability which should be recorded in the accounting records.
B) A contingent liability requiring footnote disclosure.
C) An estimated liability, since the number of albums to be produced is not yet determined.
D) A commitment which, if material, may be disclosed in a footnote.
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Chapter 11: Stockholders Equity: Paid-In Capital
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Q1) Public corporations are required by law or regulation to perform all of the following except:
A) Submit much of their financial information to the SEC for review.
B) Make regularly scheduled dividend payments to all stockholders.
C) Have their annual financial statements audited by an independent CPA.
D) Disclose their financial information to the public.
Q2) The purchase of treasury stock for cash causes no change in total assets. A)True B)False
Q3) Refer to the information above. What was the average issue price per share of common stock?
A) $2.75.
B) $1.25.
C) $1.50.
D) $3.75.
Q4) When a stockholder sends in a proxy statement to a corporation he or she owns stock in, they relinquish their voting rights to the officers of the corporation.
A)True B)False
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Chapter 12: Income and Changes in Retained Earnings
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Q1) Retained earnings
At the beginning of 2009, Falcon Corporation had 2 million shares of $2 par value common stock outstanding and retained earnings of $17 million. During 2009, Falcon earned $12 million, declared a 5% stock dividend when the price of the stock was $19 per share, and paid a year-end cash dividend of $2.50 per share. (The cash dividend was declared after the stock dividend had been distributed.) At the end of 2009, what are the company's retained earnings?
Q2) Prior period adjustments are shown in the financial statements by adjusting the beginning balance of retained earnings in the statement of retained earnings.
A)True
B)False
Q3) Treasury stock appears as:
A) An asset account.
B) A liability account.
C) An expense account.
D) An equity account.
Q4) Stock dividends
What is the effect of a stock dividend?
Q5) What was the average issue price per share of preferred stock?
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Chapter 13: Statement of Cash Flows
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Q1) Which of the following would not be presented in the cash from operating activities section of the statement of cash flows when the indirect method is used?
A) Gain on the sale of investments.
B) Depreciation expense.
C) Neither a gain on the sale of investments nor depreciation expense would be shown.
D) Both a gain on the sale of investments and depreciation expense would be shown.
Q2) Compute the amount of cash payments for purchases of merchandise during the current year.
A) $813,750.
B) $811,125.
C) $819,000.
D) $1,078,875.
Q3) Products that tie in with a company's other products are called complementary products.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Q1) Which of the following is considered a quick asset?
A) Accounts receivable.
B) Inventory.
C) Automobiles.
D) Prepaid expenses.
Q2) The measurement that best reflects investors' expectations about future earnings is:
A) Earnings per share.
B) Return on assets.
C) The price-earnings ratio.
D) Return on equity.
Q3) The quick ratio is considered more useful than the current ratio for:
A) Evaluating the profitability of a business that sells inventory very quickly, such as a restaurant.
B) Evaluating the solvency of a business that turns inventory into cash very slowly, such as a shipbuilder.
C) Evaluating long-term credit risk.
D) Evaluating investors' expectations concerning future earnings.
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Chapter 15: Global Business and Accounting
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Q1) Accounting practices are affected by all of the following except:
A) Political systems.
B) Economic systems.
C) Technology and infrastructure.
D) Management knowledge of accounting practices.
Q2) Establishing international accounting standards is the responsibility of:
A) Securities and Exchange Commission.
B) International Accounting Standards Board.
C) Financial Accounting Standards Board.
D) Accounting Association of America.
Q3) Samson Corporation buys a foreign currency future contract as a hedging strategy to protect against possible losses from fluctuations in a particular foreign exchange. This strategy suggests that Samson Corporation has:
A) Foreign accounts payable and expects the exchange rate to fall.
B) Foreign accounts receivable and expects the exchange rate to rise.
C) Foreign accounts payable and expects the exchange rate to rise.
D) Foreign accounts receivable and expects the exchange rate to fall.
Q4) Accounting as a profession did not exist in England prior to 1988.
A)True
B)False
Page 17
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Chapter 16: Management Accounting: a Business Partner
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Q1) During the current year, the Jules Company incurred the following product costs: Direct materials used in production $250,000
Direct labor $185,000
Manufacturing overhead $245,500
The Jules Company's beginning Work in Process Inventory was $20,000 and its ending Work in Process Inventory amounted to $30,000. What is the company's cost of finished goods manufactured for the year?
A) $700,500.
B) $690,500.
C) $670,500.
D) $430,500.
Q2) Since production employees work directly on the goods being manufactured, the related labor costs are recorded by debiting:
A) Wages Expense.
B) Direct Labor.
C) Work in Process Inventory.
D) Manufacturing Overhead.
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Chapter 17: Job Order Cost Systems and Overhead
Allocations
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Q1) An overhead application rate is computed by dividing the estimated overhead costs by the expected amount of units in the activity base.
A)True
B)False
Q2) Manufacturing overhead is not:
A) A product cost.
B) An indirect cost.
C) A manufacturing cost.
D) A period cost.
Q3) What are the total manufacturing overhead costs allocated to the Strollers for the current month?
A) $69,837.
B) $102,873.
C) $37,290.
D) $210,000.
Q4) An activity-based costing system cannot help managers make better product pricing decisions.
A)True
B)False
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Chapter 18: Process Costing
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Q1) The Finishing Department of Berle Industries works on only one product, and all costs are incurred uniformly while these units remain in the department. On March 1, 6,000 units were in process that were 45% completed. An additional 60,000 units were transferred into the Finishing Department during March. At March 31, there were 25,000 units in process that were 75% completed. Compute the equivalent full units of production for the Finishing Department during March using the FIFO method.
A) 81,450.
B) 60,000.
C) 57,050.
D) 69,550.
Q2) The number of equivalent full units of production during a period may be greater than, equal to, or smaller than the actual number of units completed and transferred to the finished goods warehouse.
A)True
B)False
Q3) A process costing system is highly desirable when a company mass produces identical goods.
A)True
B)False
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Chapter 19: Costing and the Value Chain
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Q1) A method in which a product's selling price is determined by adding a fixed profit margin to its production cost. _______________________________
Q2) Target costing
Ray-Dee, Inc. is considering the introduction of a new deluxe quality stereo tabletop radio. This radio will produce exceptional sound quality through new speaker technology. Market research indicates that customers would be willing to pay $400 for a radio of the quality considered. Ray-Dee requires a 30% return on sales for all its products. Required: Compute Ray-Dee's target cost for the radio under consideration.
Q3) Resourceful's value-adding production activities include:
Q4) Which of the following is an example of the cost of quality?
A) Prevention costs.
B) Internal failure costs.
C) External failure costs.
D) All three are components of the cost of quality.
Q5) Just-in-time inventory systems are characterized by extremely large inventories of materials, work in process, and finished goods.
A)True
B)False
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) The high-low method is the only method to be used when determining semivariable costs.
A)True
B)False
Q2) At the current selling price of $170 per unit, the contribution margin ratio is:
A) 23.5%.
B) 76%.
C) 34%.
D) 21%.
Q3) At the increased selling price of $55 per unit, what is the contribution margin ratio?
Q4) A company's most profitable products are often those which:
A) Have the highest contribution margin ratios and the highest sales volumes.
B) Have the highest contribution margin ratios and the lowest sales volumes.
C) Have the lowest contribution margin ratios and the highest sales volumes.
D) Have the lowest contribution margin ratios and the lowest sales volumes.
Q5) What is the company's monthly break-even point expressed in sales dollars?
$___________
Q6) If Rhinefold generates $1,400,000 in monthly sales, it will earn a monthly operating income of $__________.
Page 22
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Chapter 21: Incremental Analysis
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Q1) Even though costs, revenues, and other factors do not vary among possible courses of action, they may be relevant to a decision.
A)True
B)False
Q2) Identifying information relevant to a particular business decision requires an understanding of both quantitative and qualitative considerations.
A)True B)False
Q3) Joint products are similar products that serve the same exact function.
A)True B)False
Q4) Opportunity costs are recorded in the accounting records.
A)True B)False
Q5) Direct material costs are always considered relevant costs in a make or buy decision.
A)True B)False
Q6) Joint costs allocated to product MB total: $_____________
Page 23
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Chapter 22: Responsibility Accounting and Transfer Pricing
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Q1) If a company wanted to evaluate the manager's ability to control costs, the company would probably look at the:
A) Performance margin.
B) Responsibility margin.
C) Contribution margin.
D) None of the above.
Q2) A responsibility accounting system measures the performance of each of the following centers except:
A) Profit center.
B) Investment center.
C) Control center.
D) Cost center.
Q3) Revenue, less variable costs, less traceable fixed costs, is called the contribution margin.
A)True
B)False
Q4) All costs become traceable at some level of the organization.
A)True
B)False
Q5) Contribution margin ratio: _____________%
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Chapter 23: Operational Budgeting
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Q1) In a flexible budget for a profit center, which of the following items would not be expected to vary with the level of activity?
A) Revenue.
B) Fixed manufacturing overhead.
C) Direct materials cost.
D) Variable manufacturing overhead.
Q2) Which of the following is not normally a characteristic of a profit rich, cash poor company?
A) Low inventory turnover.
B) High accounts receivable turnover.
C) High operating income, but low cash flow from operations.
D) A long operating cycle.
Q3) A flexible budget is used to evaluate:
A) Costs that should have been incurred for a level of output achieved.
B) Costs that should have been incurred for a level of output considered to be normal.
C) How variable unit costs change as output changes.
D) How flexible management was at adapting to changes in business conditions.
Q4) Elements of the master budget
Describe briefly the purpose of a master budget and discuss its elements.
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Chapter 24: Standard Cost Systems
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Q1) If fewer units are produced than had been estimated when standard unit costs were determined, there would normally be:
A) A favorable labor efficiency (usage) variance.
B) An unfavorable overhead volume variance.
C) A favorable materials quantity variance.
D) An unfavorable overhead spending variance.
Q2) The calculation of the labor rate variance is:
A) Standard rate multiplied by (standard hours minus actual hours).
B) Standard hours multiplied by (standard rate minus actual rate).
C) Actual labor hours multiplied by (standard rate minus actual rate).
D) Actual rate multiplied by (standard hours minus actual hours).
Q3) In setting standard costs, management's expectations are that the standard costs will always be met.
A)True
B)False
Q4) Caesar, Inc. purchased and used 47,600 pounds of goods to produce an actual quantity of 15,300 units. Each unit required 3 pounds of goods. The quantity variance was $10,200 unfavorable and the price variance was $7,140 unfavorable. What was the actual price and the standard price per pound?
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Chapter 25: Rewarding Business Performance
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Q1) Most organizations try to achieve their goals by providing incentives to employees who use resources wisely.
A)True
B)False
Q2) What is the return on sales for Brookes, Inc.?
A) 13%.
B) 19%.
C) 9%.
D) 70%.
Q3) Criticisms of return on investment as the only performance measure include:
A) ROI focuses on short-term decisions.
B) ROI is focused on only one component of the value chain.
C) Managers evaluated based only on ROI are sometimes motivated not to make an investment that is in the best interest of the organization as a whole.
D) All of the above.
Q4) EVA stands for "evaluating value added" performance.
A)True
B)False
Q5) Calculate and explain residual income and economic value added.
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Chapter 26: Capital Budgeting
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Q1) When straight-line depreciation is used, the average carrying value of an asset with no salvage value is equal to the asset's original cost divided by its estimated useful life.
A)True
B)False
Q2) Jericho Corporation is considering the purchase of new equipment costing initially $96,000. The equipment has an estimated life of 6 years with no salvage value. Straight-line depreciation is to be used. Net annual after tax cash flow is estimated to be $31,200 for 6 years. The payback period is:
A) 1.2300 years.
B) 3.0769 years.
C) 5.0799 years.
D) 6.0000 years.
Q3) The residual value of an asset should be subtracted from the cost of the asset when determining the average amount invested.
A)True
B)False
Q4) What is the expected return on average investment associated with the cutting machine? $_____________
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Chapter 28: Forms of Business Organization
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Q1) Which of the following is a characteristic of a corporation?
A) Mutual agency.
B) Stockholder liability for business debts.
C) Indefinite existence.
D) Taxable at individual rates.
Q2) Shareholders report and pay income tax on dividends received from a corporation.
A)True
B)False
Q3) X Corporation had a net income of $375,000 in 2011. The Board of Directors declared a dividend of $0.25 a share on the 150,000 shares outstanding on December 13 to be paid on December 23. Retained earnings on January 01, 2012 were $630,000.
(a) Prepare the journal entries for the declaration of the dividends and for the payment of these dividends.
(b) Prepare the Retained Earnings Statement at the end of 2011.
Q4) The adjusting entry to record income taxes in an unprofitable period would debit Income Tax Payable and credit Income Tax Expense.
A)True
B)False
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Chapter 27: The Time Value of Money: Future Amounts and
Present Values Answer Key
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Q1) To determine the present value of a single amount to be received or paid at a future time you need to know all of the following except:
A) The interest rate or discount rate.
B) The number of periods.
C) The future value.
D) The time between periods.
Q2) Use the tables to determine the answers to the following:
(1) How much must be invested now for 5 periods at 6% to amount to $15,000?
(2) How much is $3,000 invested now at 8% in 8 periods worth?
(3) How much is $25,000 compounded quarterly at 12% for 4 years?
Q3) The lower the discount rate of an investment, the lower the present value of the investment.
A)True
B)False
Q4) Financial instruments are recorded at:
A) Future values.
B) Present values plus interest.
C) Present values less interest.
D) Present values.
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Q5) Explain what is meant by the "time value of money." Provide examples.
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