Accounting I
Textbook Exam Questions
Course Introduction
Accounting I provides an introduction to the fundamental principles and concepts of financial accounting. Students will learn how to record, classify, and summarize financial transactions in accordance with generally accepted accounting principles (GAAP). Topics include the accounting cycle, preparation of financial statements, adjusting entries, and the analysis of cash, receivables, inventories, and internal controls. This course lays the groundwork for understanding how financial information is used in decision-making by businesses and other organizations.
Recommended Textbook
Horngren's Accounting 11th Edition by Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Q1) Which of the following can be an effect of a transaction that increased an asset of a business for the accounting equation to balance?
A)there is an equal decrease in another asset
B)there is an equal decrease in equity
C)there is an equal decrease in a liability account
D)both liabilities and equity decrease
Answer: A
Q2) Fitch Supply Services received $1,000 cash from a customer;the amount was owed to the business from the previous month.What is the effect of this transaction on the accounting equation?
A)Accounts Receivable increases and Service Revenue increases
B)Cash increases and Accounts Receivable decreases
C)Cash increases and Service Revenue increases
D)Cash increases and Accounts Payable decreases
Answer: B
Q3) Define assets.Provide three examples of assets.
Answer: Assets are economic resources that are expected to benefit the business in the future.Assets are something the business owns or has control of.Examples include cash,merchandise inventory,furniture,and land.
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Chapter 2: Recording Business Transactions
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Q1) Companies use a ledger to show all of the increases and decreases in each account along with their balances.
A)True
B)False
Answer: True
Q2) Which of the following is the record holding all the accounts,the changes in those accounts,and their balances?
A)Source document
B)Journal
C)Ledger
D)Trial balance
Answer: C
Q3) The trial balance verifies the equality of debits and credits at a point in time.
A)True
B)False
Answer: True
Q4) A business paid salaries of $6,000 in cash.Record the transaction in the journal.
Answer: 11ea8a42_4ef0_cd4a_8b44_8bea5956d5d5_TB5024_00
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Chapter 3: The Adjusting Process
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Q1) In the case of deferred revenue,the adjusting entry at the end of the period includes a credit to Service Revenue.Assume the deferred revenue is initially recorded as a liability.
A)True
B)False
Answer: True
Q2) Mason Painting Services has a weekly payroll of $30,000.December 31 falls on Wednesday and Mason will pay its employees the following Monday (January 5)for the previous full week.Assume that Mason has a five-day workweek and has an unadjusted balance in Salaries Expense of $800,000.What amount should be debited to Salaries Expense on December 31?
A)$800,000
B)$12,000
C)$30,000
D)$18,000
Answer: D
Q3) Adjusting entries may involve any account,including Cash.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) Reversing entries are dated on the first day of the new accounting period.
A)True
B)False
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 owner's capital account decreased during the period.
D)An error was made.
Q3) Which of the following is true of a completed worksheet?
A)The total debits in the unadjusted trial balance column equal the total debits in the adjusted trial balance column.
B)The total debits in the income statement column equal the total credits in the balance sheet column.
C)The total debits in the income statement column equal the total debits in the balance sheet column.
D)The total of all the debit columns is equal to the total of all the credit columns.
Q4) List the steps of the accounting cycle that take place at the end of the period.
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Chapter 5: Merchandising Operations
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Q1) The Sales Discounts account is a contra account to the ________ account.
A)Purchases
B)Sales Revenue
C)Merchandise Inventory
D)Sales Returns and Allowances
Q2) A company using the perpetual inventory system purchased merchandise on account for $5,000.Give the journal entry to record this transaction.
Q3) Defective,damaged,or otherwise unsuitable merchandise that is returned to the seller is referred to as purchase allowances by the purchaser.
A)True
B)False
Q4) The operating cycle of a merchandiser begins when the company purchases inventory from a vendor and ends when the company then sells the inventory to a customer.
A)True
B)False
Q5) Describe the calculation of cost of goods sold when using the periodic inventory system.
Q6) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Q1) When using the periodic inventory system and weighted-average inventory costing method,when is the weighted average cost per unit computed?
Q2) Which of the following assets must be reported at the lower-of-cost-or-market value?
A)Accounts Receivable
B)Merchandise Inventory
C)Prepaid Insurance
D)Notes Receivable
Q3) Given the same purchase and sales data,and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for net income.
A)True
B)False
Q4) Which of the following is an application of conservatism?
A)reporting inventory at the lower of cost or market
B)reporting only material amounts in the financial statements
C)reporting all relevant information in the financial statements
D)using the same depreciation method from period to period
Q5) What does inventory turnover measure? What does a low rate of inventory turnover indicate?
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Chapter 7: Accounting Information Systems
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Q1) Cameron Enterprises uses special journals.The company borrowed $10,000 from First Bank.This transaction is recorded in the ________.
A)general journal
B)debt journal
C)cash receipts journal
D)cash payments journal
Q2) Credit sales of assets other than merchandise inventory occur infrequently and are recorded in the ________.
A)sales journal
B)cash receipts journal
C)accounts receivable journal
D)general journal
Q3) Which of the following is an advantage of enterprise resource planning (ERP)systems?
A)It is inexpensive to implement.
B)It provides financial benefits only to small corporations.
C)It replaces separate software systems,such as sales and payroll.
D)Its implementation requires smaller commitment of time and people.
Q4) Describe the transactions recorded in the purchases journal.
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Chapter 8: Internal Control and Cash
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Q1) The Public Company Accounting Oversight Board oversees the work of auditors of public companies.
A)True
B)False
Q2) A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.
A)True
B)False
Q3) For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer. Second National Bank requires mandatory vacations and job rotation.
Q4) Which one of the following items requires an adjustment on the bank side of the bank reconciliation?
A)interest earned
B)a bank service charge
C)a note collected by the bank
D)deposits in transit
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Chapter 9: Receivables
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Q1) A company has net credit sales of $94,000,beginning net accounts receivable of $22,000 and ending net accounts receivable of $18,000.Calculate the days' sales in receivables.(Round any intermediate calculations to two decimal places,and your final answer to the nearest whole day. )
A)73 days
B)48 days
C)91 days
D)78 days
Q2) 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
Q3) When a company is using the direct write-off method,and an account is written off,the journal entry consists of a ________.
A)debit to Accounts Receivable and a credit to Cash
B)credit to Accounts Receivable and a debit to Bad Debts Expense
C)debit to the Allowance for Bad Debts and a credit to Accounts Receivable
D)credit to Accounts Receivable and a debit to Interest Expense
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) The use of MACRS is acceptable for financial reporting under GAAP.
A)True
B)False
Q2) O'Reilly Corp.purchased a mine on January 1,2016,for $539,000.The mine is estimated to contain 38,000 tons of iron ore.There is no residual value.The business extracted and sold 14,500 tons of ore in 2016 and 14,800 tons of ore in 2017.What is the book value of the mine at the end of 2017? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$463,000
B)$123,526
C)$377,300
D)$539,000
Q3) Amortization is the process by which businesses spread the allocation of an intangible asset's cost over its useful life.
A)True
B)False
Q4) The double-declining-balance method is an accelerated method of depreciation.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Which of the following liabilities is created when a company receives cash for services to be provided in the future?
A)Unearned Revenue
B)Accrued Liability
C)Accounts Payable
D)Estimated Warranty Payable
Q2) If a long-term debt is paid in installments,the business will report the current portion of the note payable as a current liability.
A)True
B)False
Q3) Statewide Sales,Inc.has gross pay for March of $45,000.Which of the following is included in the journal entry to record salaries expense?
A)credit Salaries and Wages Expense
B)debit Cash
C)debit Salaries and Wages Payable
D)debit Salaries and Wages Expense
Q4) What is a contingent liability? Provide two examples of contingencies.
Q5) If the likelihood of a future event is remote,how should the company report the contingency?
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Chapter 12: Partnerships
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Q1) Issac and Karl are partners.Issac has a capital balance of $25,000 and Karl has a capital balance of $20,000.Bill invested $15,000 to acquire an ownership interest of 30%.How does this transaction affect the balance sheet items?
A)Asset increases and the equity remains unchanged.
B)Assets increase and the equity decreases.
C)Both assets and equity increase.
D)Assets increase,liabilities decrease,and the equity remain unchanged.
Q2) Which of the following is true when a partner withdraws his interest from the partnership?
A)He is obliged to pay a bonus to the existing partners.
B)The existing partners are obliged to pay a bonus to the withdrawing partner.
C)The partner's capital account will be closed.
D)He must get the book-value of his interest.
Q3) In a general partnership,if one partner cannot pay his or her part of the debts,the other partner or partners must pay the total.
A)True
B)False
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Chapter 13: Corporations
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Q1) The statement of retained earnings reports how the company's retained earnings balance changed from the beginning of the period to the end of the period.
A)True
B)False
Q2) Rimsone,Inc.purchases 8,500 shares of the company's own $6 par common stock for $8 per share.Journalize the transaction.
Q3) Preferred stockholders receive a dividend preference over common stockholders.
A)True
B)False
Q4) Paid-in capital consists of ________.
A)amounts received from customers
B)amounts raised by issuing bonds or preferred stocks
C)earnings generated by the corporation
D)amounts received from stockholders in exchange for stock
Q5) On December 1,2017,Galahad,Inc.had 200,000 shares of $1 par value common stock issued and outstanding.The next day Galahad declared and distributed a 50% stock dividend.The market value of the stock on December 2,2017 was $9 per share.Prepare the journal entry for the transaction.
Q6) List the four basic rights of stockholders.
Page 15
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Chapter 14: Long-Term Liabilities
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Q1) On January 1,2017,Davie Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued at par.Prepare the journal entry to issue bonds.
Q2) On January 1,2017,NOLA Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued for $20,750.Prepare the journal entry to issue bonds.
Q3) An amortization schedule details each loan payment's allocation between principal as well as interest and the beginning and ending balances of the loan.
A)True
B)False
Q4) Bonds affect the percentage of ownership of a corporation. A)True
B)False
Q5) The current portion of notes payable is the principal amount that will be paid within two years of the balance sheet date,and the remaining portion is long term.
A)True
B)False
Q6) When computing a bond's cash flow for interest,which interest rate is used? Why?
Q7) What is the only difference between present value and future value?
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Chapter 15: Investments
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Q1) At the beginning of the year,Joan Steel,Inc.purchased 10,000 shares of Smith Metals,Inc.for $34,000 in exchange for cash and now holds 3.2% of the voting stock of Smith Metals,Inc.The management of Joan Steel intends to hold this stock for two years.Assuming no other transaction happened during the year,the ________ in the balance sheet will increase.
A)long-term investments
B)cash
C)total assets
D)current assets
Q2) Which one of the following is an example of investment income from securities?
A)deferred tax assets
B)depreciation of long-term assets
C)gain on the sale of fixed assets
D)interest earned from debt securities
Q3) Available-for-sale (AFS)investments that are expected to be held longer than a year are reported as ________.
A)equity
B)current assets
C)long-term assets
D)either current assets or long-term assets
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Chapter 16: The Statement of Cash Flows
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Q1) On a statement of cash flows prepared using the direct method,cash received from selling merchandise is considered a ________.
A)cash inflow from investing activities
B)cash inflow from operating activities
C)cash outflow from financing activities
D)cash outflow for financing activities
Q2) Regarding the use of a spreadsheet for the preparation of the statement of cash flows,which of the following statements is incorrect?
A)The spreadsheet starts with the beginning balance sheet and concludes with the ending balance sheet.
B)When companies face complex situations,a spreadsheet can help in preparing the statement of cash flows.
C)The spreadsheet cannot be used for the direct method.
D)Accountants can prepare the statement of cash flows directly from the lower part of the spreadsheet.
Q3) List and discuss three ways in which the statement of cash flows helps financial statement users.
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Chapter 17: Financial Statement Analysis
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Q1) Which of the following is used to see how a company's operating expenses,as a percentage of net sales,have changed from one year to the next?
A)vertical analysis
B)horizontal analysis
C)ratio analysis
D)analysis of internal control system
Q2) The price/earnings ratio shows the market price of $1 of earnings.
A)True
B)False
Q3) Ratio analysis ________.
A)provides a year-to year comparison of a company's performance in different periods
B)is used most effectively to measure a company against other companies in the same industry and to denote trends within the company
C)cannot be used to measure a company against other companies in the same industry because the necessary information is not available
D)provides a way to compare different companies
Q4) What is a common-size statement? Why are these statements useful?
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19
Chapter 18: Introduction to Managerial Accounting
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Q1) Define direct cost.
Q2) Which of the following is a period cost for a manufacturing company?
A)office rent
B)wages of factory janitor
C)insurance cost of production equipment
D)raw materials
Q3) Which of the following would appear as a line item on the income statements of both a merchandiser and a manufacturer?
A)Direct Labor
B)Cost of Goods Manufactured
C)Direct Materials
D)Cost of Goods Sold
Q4) Management accountability is the manager's responsibility to the various stakeholders of the company to maximize profits.
A)True
B)False
Q5) Direct materials and direct labor are prime costs.
A)True
B)False
Q6) Define product cost.How does a merchandising company treat these costs?
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Chapter 19: Job Order Costing
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Q1) On January 1,Feldstein Manufacturing had a beginning balance in Work-in-Process Inventory of $82,400 and a beginning balance in Finished Goods Inventory of $20,500.During the year,Feldstein incurred manufacturing costs of $350,700. During the year,the following transactions occurred:
Job A-12 was completed for a total cost of $120,000 and was sold for $125,500.
Job A-13 was completed for a total cost of $200,100 and was sold for $210,800.
Job A-15 was completed for a total cost $66,000 but was not sold as of year-end. What was the balance in Finished Goods Inventory at the end of the year?
A)$406,600 debit balance
B)$86,500 credit balance
C)$86,500 debit balance
D)$386,100 debit balance
Q2) When goods are transferred from the Finished Goods Inventory account to the Cost of Goods Sold account,the product costs move from the balance sheet to the income statement.
A)True
B)False
Q3) Define a process costing system and list two types of businesses that would use a process costing system.
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Chapter 20: Process Costing
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Q1) The Assembly Department of Intuitive,Inc. ,manufacturer of computers,had 2,000 units of beginning inventory in September,and 8,000 units were transferred to it by the Production Department.The Assembly Department completed 4,000 units during the month and transferred them to the Packaging Department.Calculate the total number of units accounted for by the Assembly Department if it had 6,000 units in ending inventory.The weighted-average method is used.
A)6,000 units
B)8,000 units
C)2,000 units
D)10,000 units
Q2) Production cost reports prepared using the first-in,first-out (FIFO)method determine the cost of equivalent units of production by accounting for beginning inventory costs separately from current period costs.
A)True
B)False
Q3) Under process costing,the costs incurred by each department are reported in a separate production cost report for each department.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) In absorption costing,the manufacturing costs expensed are greater than the amount expensed in variable costing when units produced are less than sold because the units in beginning inventory under absorption costing were assigned a greater cost in the previous accounting period.
A)True
B)False
Q2) For every unit that is produced but not sold,absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.
A)True
B)False
Q3) In variable costing,fixed manufacturing overhead is considered a period cost because ________.
A)these costs are indirectly related to production
B)these are not incurred in the period in which the units are produced
C)these costs are incurred whether or not the company manufactures any goods
D)these costs are direct costs incurred for production
Q4) When units produced is less than units sold,how does operating income differ between variable costing and absorption costing? Explain your answer.
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Chapter 22: Master Budgets
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Q1) The last step in the preparation of the master budget is the budgeted income statement.
A)True
B)False
Q2) Use of advanced technology makes it more cost effective for managers to conduct sensitivity analysis.
A)True
B)False
Q3) Which of the following statements is true of the operating budget?
A)It is a part of the financial budget.
B)It includes the capital expenditures budget.
C)It includes the sales budget.
D)Its final component is the cash budget.
Q4) Budgeting requires managers to develop overall business goals and budget for specific actions to achieve the goals.
A)True
B)False
Q5) A strategic budget will be as detailed as an operational budget.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) The purchasing manager was able to bring down the cost of direct materials by purchasing direct materials of a slightly lower grade quality than the company had used previously.The lower grade of direct materials,however,meant a higher defect rate on the assembly line and higher wastage of direct materials during production,which in turn lowered operating income.This would have led to a(n)________.
A)unfavorable direct materials cost variance
B)favorable direct labor cost variance
C)favorable direct labor efficiency variance
D)unfavorable direct materials efficiency variance
Q2) Which of the following amounts of a flexible budget remains constant,within the specified relevant range,when the sales volume changes?
A)total contribution margin
B)total fixed costs
C)total variable costs
D)total sales revenue
Q3) An unfavorable variance means more cost has been incurred than planned.
A)True
B)False
Q4) List the direct labor variances and briefly describe each.
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Both the sales volume variance and the flexible budget variance help revenue center managers understand why they have exceeded or fallen short of budgeted revenue.
A)True
B)False
Q2) A company uses a balanced scorecard and has established a key performance indicator for product quality.If the actual warranty claims are higher than expected,there is an indication that the quality standards have been met.
A)True
B)False
Q3) When operating at capacity,a market-based transfer price should be used.
A)True
B)False
Q4) Communicating top management's expectations to segment managers improves goal congruence.
A)True
B)False
Q5) Define market-based transfer price.When should market-based transfer pricing be used? Explain your answer.
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Chapter 25: Short-Term Business Decisions
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Q1) Which of the following statements describes a scenario when management should consider dropping a business division?
A)The division has been consistently reporting an operating loss.
B)The division's avoidable fixed costs are less than its contribution margin.
C)The division's avoidable fixed costs are greater than its contribution margin.
D)The division's unavoidable fixed costs are greater than its operating loss.
Q2) Lit Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $780 per table,and takes 8.00 labor hours to manufacture.The large table sells for $1,500,has variable costs of $900,and takes 15 direct labor hours to manufacture.If the company has no sales limitations on either product,it should make and sell as many of the large tables as possible to maximize operating income.
A)True
B)False
Q3) List three questions managers should consider when deciding whether to drop a product or a business segment.
Q4) A customer of Mason Manufacturing has requested a one-time order at a reduced sales price.Before making the special pricing decision,what are three questions that management of Mason Manufacturing must consider?
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Chapter 26: Capital Investment Decisions
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Q1) When a company is evaluating an investment proposal with high risk,a low discount rate should be used.
A)True
B)False
Q2) Zane Set Designs Company has received an award which entitles it to receive annual payments of $10,000 at the end of each year for the next ten years.Which of the following is used to calculate today's value of this award?
A)Present Value of $1
B)Present Value of an Ordinary Annuity of $1
C)Future Value of $1
D)Future Value of an Ordinary Annuity of $1
Q3) Which of the following is a capital budgeting method that ignores the time value of money?
A)payback
B)internal rate of return
C)return on assets
D)net present value
Q4) When using the accounting rate of return,what is the basis for making the decision to make the investment?
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