Accounting I
Textbook Exam Questions
Course Introduction
Accounting I introduces the fundamental principles and concepts of financial accounting. This course covers the accounting cycle, including the recording, classification, and summarization of business transactions. Students will learn how to prepare and interpret basic financial statements such as the balance sheet, income statement, and statement of cash flows. Emphasis is placed on understanding debits and credits, journal entries, adjusting entries, and the ethical standards required in the accounting profession. By the end of the course, students will possess a strong foundation in accounting theory and practice, preparing them for more advanced studies in the field.
Recommended Textbook
Horngrens Financial and Managerial Accounting 6th Edition by Tracie L. Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) Accounting starts with economic activities that accountants review and evaluate using critical thinking and judgment to create useful information that helps individuals make good decisions.
A)True
B)False Answer: True
Q2) The balance sheet shows whether or not a business is profitable.
A)True
B)False Answer: False
Q3) Accounting is referred to as the language of business because it is the method of communicating business information to decision makers.
A)True
B)False Answer: True
Q4) The income statement is also called the statement of earnings.
A)True
B)False Answer: True
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Chapter 2: Recording Business Transactions
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Q1) A customer's promise to pay in the future for services or goods sold is called a(n)________.
A)Accounts Receivable
B)Accounts Payable
C)Unearned Revenue
D)Notes Payable
Answer: A
Q2) A listing of all accounts in numerical order is called a(n)________.
A)Ledger
B)Journal
C)Income statement
D)Chart of accounts
Answer: D
Q3) A business prepays four months' office rent.Which of the following accounts is debited?
A)Rent Expense
B)Cash
C)Prepaid Rent
D)Unearned Rent
Answer: C
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Chapter 3: The Adjusting Process
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Q1) On March 1,2018,LeClaire,Inc.paid $60,000 for office rent covering the three-month period ending May 31,2018.Journalize the adjusting entry on March 31 by using the alternative treatment of deferred expenses.Omit explanation.
Answer: 11ea86ed_2cf7_30f5_8b27_05e4490cfcb2_TB3056_00
Ratinal:
Rent for the month of March = $60,000 / 3 = $20,000
Amount of prepaid rent by the end of March = $60,000 - $20,000 = $40,000
Q2) If a company fails to make an adjusting entry for accrued revenues,the net income will be overstated.
A)True
B)False
Answer: False
Q3) An accrual adjusting entry records an expense after the cash is paid,or it records revenue before the cash is received.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) Which of the following is a plant asset?
A)Equipment
B)Patents
C)Trademark
D)Accounts Receivable
Q2) A worksheet is a substitute for the financial statements.
A)True
B)False
Q3) In regards to a company using a computerized accounting system,which of the following statements is incorrect?
A)Closing entries are completed in a matter of seconds.
B)The accountant must manually prepare the closing entries.
C)The software identifies the temporary accounts.
D)The Retained Earnings balance is up-to-date.
Q4) List the steps of the accounting cycle that take place at the end of the period.
Q5) The Dividends account is a permanent account.
A)True
B)False
Q6) List the steps of the accounting cycle that take place during the period.
Q7) Why are temporary accounts not included in the post-closing trial balance?
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Chapter 5: Merchandising Operations
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Q1) What does "2/10" mean,with respect to "credit terms of 2/10,n/30"?
A)A discount of 2 percent will be allowed if the invoice is paid within 10 days of the invoice date.
B)Interest of 2 percent will be charged if the invoice is paid after 10 days from the date on the invoice.
C)A discount of 10 percent will be allowed if the invoice is paid within two days of the invoice date.
D)Interest of 10 percent will be charged if invoice is paid after two days.
Q2) Vegan Specialty Foods,a grocery merchandiser,purchased goods and paid transportation to bring them to the company warehouse.The transportation cost is known as ________.
A)freight out
B)selling expense
C)freight in
D)cost of goods sold
Q3) In a periodic inventory system,businesses must obtain a physical count of inventory to determine quantities on hand.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Q1) Which of the following is the correct formula to calculate days' sales in inventory?
A)Days' sales in inventory = 365 days × Inventory turnover
B)Days' sales in inventory = 365 days + Inventory turnover
C)Days' sales in inventory = 365 days / Inventory turnover
D)Days' sales in inventory = 365 days - Inventory turnover
Q2) During a period of declining inventory costs,which of the following inventory costing methods should be used by a company that intends to minimize its income tax expenses?
A)first-in,first-out
B)last-in,first-out
C)weighted-average
D)specific identification
Q3) Which of the following statements regarding FIFO is incorrect?
A)Ending inventory is based on the costs of the most recent purchases.
B)FIFO is consistent with the physical movement of inventory for most companies.
C)The first units to come in are assumed to be the first units sold.
D)FIFO is a specific identification costing method because companies sell their oldest inventory first.
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Chapter 7: Internal Control and Cash
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Q1) A cash equivalent is a highly liquid investment that can be converted into cash in one year or less.
A)True
B)False
Q2) Mercury Company established a petty cash fund with a $500 balance.Which of the following statements is incorrect?
A)A journal entry is needed to debit the Cash account and credit the Petty Cash account for $500.
B)There is no net effect on current assets.
C)The sum of the cash plus the total of the petty cash tickets should equal $500 at all times.
D)The petty cash custodian cashes a check for $500 and places the currency in the petty cash fund box.
Q3) Having a cash ratio above 1.0 implies that a company has enough cash and cash equivalents to pay current liabilities.
A)True
B)False
Q4) List and briefly discuss the five components of internal control.
Q5) Fifth National Bank requires mandatory vacations and job rotation.
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Chapter 8: Receivables
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Q1) On August 14,Second Street Bank lent $210,000 to City Restaurant on a 75 day,4% note.What is the maturity date of the note?
A)Oct.27
B)Oct.28
C)Oct.29
D)Oct.30
Q2) On August 14,Park Avenue Bank lent $240,000 to City Coffee Shop on a 75 day,2% note.What is the maturity value of the note? (Use a 360-day year and round answers to the nearest dollar. )
A)$240,986
B)$241,000
C)$240,000
D)$244,800
Q3) A company's liquidity can be evaluated using all of the following ratios except
A)Return on assets ratio
B)Acid-test ratio
C)Accounts receivable turnover
D)Days' sales in receivables
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) Goodwill is only recorded by an acquiring company when it purchases another company and pays more for that company than the market value of its net assets.
A)True
B)False
Q2) Capitalizing a cost involves crediting the asset account.
A)True
B)False
Q3) The useful life of a plant asset is the length of the service period expected from the asset.
A)True
B)False
Q4) The use of the Modified Accelerated Cost Recovery System (MACRS)is acceptable for financial reporting under GAAP.
A)True
B)False
Q5) The cost principle requires a business to record the assets acquired,or services received,at their actual cost.
A)True
B)False
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Chapter 10: Investments
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Q1) A ________ ownership in the investee's voting stock can significantly influence the investee's decisions.
A)10 percent
B)5 percent to 10 percent
C)15 percent to 20 percent
D)20 percent to 50 percent
Q2) Available-for-sale debt investments include all trading debt and held-to-maturity debt investments.
A)True
B)False
Q3) When a company acquires a long-term bond investment,by paying cash,total assets remain unchanged.
A)True
B)False
Q4) Companies make a year-end adjustment of the trading debt investment to bring the account to historical value.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Which of the following statements regarding vacation benefits is correct?
A)No entry is needed until the employee takes a paid vacation.
B)The account,Vacation Expense is debited when the employee takes a paid vacation.
C)Health and pension benefits are recorded in the same manner as vacation benefits.
D)When an employee takes a paid vacation,the account,Vacation Benefits Payable is credited.
Q2) Ron is an employee of Panache,Inc.Panache pays a portion of his health insurance premium and also contributes to a retirement plan in his name.The company's share of the health insurance premium is $600,and the company's contribution to the retirement plan is $860.The journal entry to record the employee benefits to be paid by the company should include a debit to Employee Health Insurance Payable for $1,460.
A)True
B)False
Q3) The journal entry to record the employer's payroll tax expense will include a debit to Employee Income Taxes Payable.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Q1) A stream of unequal cash payments made at equal time intervals is called an annuity.
A)True
B)False
Q2) Using the effective-interest amortization method,the calculation for the amount of premium amortization is the difference between the cash paid for interest and the calculated interest expense based on the effective interest rate.
A)True
B)False
Q3) On July 1,2018,Mason & Beech Services issued $33,000 of 10% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.On December 31,2018,what is the total amount paid to bondholders?
A)$1650
B)$3300
C)$825
D)$1100
Q4) What is the only difference between present value and future value?
Q5) When computing a bond's cash flow for interest,which interest rate is used? Why?
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Chapter 13: Stockholders Equity
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Q1) Jarrell,Inc.purchases 8,500 shares of the company's own $6 par common stock for $8 per share.Journalize the transaction.Omit explanation.
Q2) Newcastle Enterprises had net income for 2018 of $103,000.Newcastle had 39,000 shares of common stock outstanding at the beginning of the year and 43,000 shares of common stock outstanding at the end of the year.There were 6000 shares of preferred stock outstanding all year.During 2018,Newcastle declared and paid preferred dividends of $29,000.What is Newcastle's earnings per share? (Round the answer to two decimal places. )
A)$2.51
B)$2.40
C)$1.80
D)$1.72
Q3) A corporation's income statement includes some unique items that do not often apply to smaller businesses.
A)True
B)False
Q4) Retired shares of treasury stock may later be reissued.
A)True
B)False
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Chapter 14: The Statement of Cash Flows
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Q1) Atlanta Company sold equipment for cash.The income statement shows a gain on the sale of $1020.The net book value of the asset was $3710.Which of the following statements describes the cash effect of the transaction?
A)negative cash flow of $4730 for financing activities
B)negative cash flow of $2690 for operating activities
C)positive cash flow of $4730 from investing activities
D)positive cash flow of $2690 from investing activities
Q2) The total change in cash for the period reconciles the statement of cash flows.
A)True
B)False
Q3) List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.
Q4) Which of the following is true of the statement of cash flows?
A)It indicates when long-term debt will mature.
B)It reports on the qualitative behavior of the company's performance.
C)It covers a span of time and is dated the same as the income statement.
D)It shows how the profits or losses of the company were generated.
Q5) List and discuss three ways in which the statement of cash flows helps financial statement users.
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Chapter 15: Financial Statement Analysis
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Q1) Trend analysis is a form of horizontal analysis.
A)True
B)False
Q2) Horizontal analysis provides a year-to-year comparison of a company's performance in different periods.
A)True
B)False
Q3) The price/earnings ratio shows the market price of $1 of earnings.
A)True
B)False
Q4) An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.
A)True
B)False
Q5) Common-size statements ________.
A)allow the users to compare numbers in relative terms rather than absolute amounts
B)report dollar amounts and percentages
C)create a dollar value bias
D)show the same percentages that appear in a horizontal analysis
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Chapter 16: Introduction to Managerial Accounting
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Q1) What is Total Quality Management (TQM)?
A)a philosophy of supplying customers with superior products and services
B)an exchange of information with suppliers and customers to create efficient and effective processes
C)a software system that integrates a company's functions,departments,and data into a single system
D)a system that speeds the transformation of raw materials into finished products
Q2) Goods that are produced by a manufacturing company and are ready to sell are recorded in the _______ account.
A)Raw Materials Inventory
B)Work-in-Process Inventory
C)Manufacturing Overhead
D)Finished Goods Inventory
Q3) Direct costs and indirect costs can be easily traced directly to a cost object.
A)True
B)False
Q4) How does a manufacturing company calculate unit product cost? Why do managers need to know the unit product cost?
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Chapter 17: Job Order Costing
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Q1) Fogelin Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances.Fogelin has four public relations specialists and office staff.At the beginning of the year,Fogelin estimated the total cost of salaries and benefits for the public relations specialists at $403,300 and a total of 7200 billable hours for the year.The office and administrative costs were estimated at $676,000.What direct labor rate would Fogelin use for the cost of its specialists? (Round your answer to the nearest cent. )
A)$93.89 per hour
B)$149.90 per hour
C)$37.88 per hour
D)$56.01 per hour
Q2) If the debit side of the Manufacturing Overhead account totals more than the credit side of the account,the manufacturing overhead is overallocated.
A)True
B)False
Q3) Overallocated manufacturing overhead is adjusted by debiting the Cost of Goods Sold account.
A)True
B)False
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Chapter 18: Process Costing
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Q1) List the four steps,in the order of occurrence,that are used in preparing a production cost report.
Q2) The weighted-average method determines the cost of equivalent units of production by accounting for beginning inventory costs separately from current period costs.
A)True
B)False
Q3) 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
Q4) Thompson,Inc.purchased raw materials for $6,000 and $25,000 for cash and on account,respectively.Provide the journal entry to record the purchase of raw materials.Process costing is used.
Q5) A cellular phone manufacturer is more likely to use a process costing system rather than job order costing.
A)True
B)False
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Q1) Appraisal costs are costs incurred ________.
A)to avoid poor-quality goods or services
B)to detect poor-quality materials,goods,or services
C)when the company corrects poor-quality goods or services before delivery to customers
D)after the company delivers poor-quality goods or services to customers and then has to make things right with the customer
Q2) A radial tire manufacturer produces products in two departments-Divisions A and B.The company uses separate predetermined overhead allocation rates for each department to allocate its overhead.Divisions A and B have estimated manufacturing overhead costs of $160,000 and $360,000,respectively.Division A uses machine hours as the allocation base,and Division B uses direct labor hours as the allocation base.The total estimated machine hours were 31,000,and direct labor hours were 22,000 for the year.Calculate the departmental predetermined overhead allocation rates.(Round your answer to the nearest cent. )
A)Division A-$5.16,Division B-$16.36
B)Division A-$16.36,Division B-$5.16
C)Division A-$7.27,Division B-$11.61
D)Division A-$11.61,Division B-$7.27
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Contribution margin is the amount that contributes to covering variable costs.
A)True
B)False
Q2) Sunshine Blender Company sold 3000 units in October at a sales price of $45 per unit.The variable cost is $25 per unit.Calculate the total contribution margin.
A)$135,000
B)$60,000
C)$75,000
D)$37,500
Q3) A traditional income statement classifies costs by ________;that is,costs are classified as either ________ costs or ________ costs.
A contribution margin income statement classifies costs by ________;that is,costs are classified as either ________ costs or ________ costs.
Q4) How is the contribution margin calculated?
Q5) Higher fixed costs decrease the total contribution margin required to break even.
A)True
B)False
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Chapter 21: Variable Costing
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Q1) Under absorption costing,the more fixed manufacturing overhead in ending Finished Goods Inventory,the larger the Cost of Goods Sold.
A)True
B)False
Q2) Absorption costing is more appropriate than variable costing for making plant production capacity decisions in the long run.
A)True
B)False
Q3) Period costs under the variable costing method include ________.
A)variable manufacturing overhead
B)variable selling and administrative costs
C)direct materials
D)direct labor
Q4) Variable costing prepares the income statement using the traditional format.
A)True
B)False
Q5) Absorption costing is used to analyze contribution margin.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) When preparing the direct labor budget,________.
A)the production manager projects the average direct labor costs
B)direct labor hours needed for production are multiplied by the direct labor cost per hour
C)the actual direct labor cost per hour must be known
D)budgeted units to be produced are multiplied by direct labor cost per hour to determine budgeted direct labor cost
Q2) Which of the following is an example of the coordination and communication function of the budgeting process?
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)Each department acts independently because the department manager will be evaluated on actual departmental results.
D)A budget adjustment in one department will have no effect on other departments.
Q3) In preparing the master budget,the manufacturing overhead is the last period cost to consider.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Cedar Designs Company,a custom cabinet manufacturing company,is setting standard costs for one of its products.The main material is cedar wood,sold by the square foot.The current cost of cedar wood is $6.00 per square foot from the supplier.Delivery costs are $0.25 per square foot.Carpenters' wages are $30.00 per hour.Payroll costs are $3.60 per hour,and benefits are $6.00 per hour.How much is the direct labor standard cost per hour?
A)$30.00
B)$9.60
C)$33.60
D)$39.60
Q2) Cavalaris Products uses a standard cost system.Variable overhead costs are allocated based on direct labor hours.In the first quarter,Cavalaris had an unfavorable cost variance for variable overhead costs.Which of the following scenarios is a reasonable explanation for this variance?
A)The actual number of direct labor hours was lower than the budgeted hours.
B)The actual variable overhead costs were higher than the budgeted costs.
C)The actual variable overhead costs were lower than the budgeted costs.
D)The actual number of direct labor hours was higher than the budgeted hours.
Q3) What does the fixed overhead volume variance measure?
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) If upper management uses a short time frame to calculate ROI and RI,division managers have an incentive to take actions that will lead to an immediate increase in these measures.
A)True
B)False
Q2) If a company allows division managers to negotiate a cost-based transfer price,it is better to use actual costs rather than standard costs.Otherwise,the selling division has no motivation to control costs.
A)True
B)False
Q3) The term "goal congruence" refers to the ________.
A)matching of financial goals of the company with its nonfinancial goals
B)aligning the goals of business segment managers with the goals of top management
C)achievement of the goals set by the management by utilizing the resources available
D)duplication of costs as a result of decentralization
Q4) Decentralized companies rarely struggle to achieve goal congruence.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Differential analysis is a common approach to making short-term business decisions.
A)True
B)False
Q2) A depreciable asset's original cost is relevant when considering whether to replace the asset.
A)True
B)False
Q3) Lightning Semiconductors produces 200,000 hi-tech computer chips per month.Each chip uses a component that Lightning makes in-house.The variable costs to make the component are $1.20 per unit,and the fixed costs are $1,300,000 per month.The company has been approached by a foreign producer who can supply the component,within acceptable quality standards,for $1.10 each.The fixed costs are unavoidable,and Lightning would have no other use for the facilities currently employed in making the component.What would be the effect on operating income if the company decides to outsource?
A)There would be no effect on operating income.
B)Lightning Semiconductors could save $1,300,000 per month in costs.
C)Lightning Semiconductors could save $20,000 per month in costs.
D)Lightning Semiconductor's costs would increase by $220,000 per month.
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Chapter 26: Capital Investment Decisions
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Q1) Mosaic Tile Company is considering an investment in new equipment costing $858,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a residual value of $62,000.The equipment is expected to generate net cash inflows of $1,002,000 in total during the five-year life.What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places. )
A)12.36%
B)8)96%
C)45.23%
D)9)34%
Q2) The discount rate used in a net present value analysis is the ________.
A)rate of inflation
B)rate of interest earned on a savings account
C)required rate of return or the hurdle rate
D)rate of interest charged for debt financing of an investment
Q3) Which of the following most accurately describes an annuity?
A)an investment which produces increasing cash flows over time
B)a series of unequal cash payments made at equal time intervals
C)a stream of equal cash payments made at equal time intervals
D)a term that does not apply to mortgage payable or bond payable
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Chapter 27: Accounting Information Systems
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Q1) The main computer where data is stored,which can be accessed from many different computers is known as a(n)________.
A)accounting information system
B)RAM
C)server
D)router
Q2) In a cash receipts journal,________.
A)cash sales are recorded in the Accounts Receivable CR column and the Cash DR column
B)collections on account are recorded in the Accounts Receivable DR column and the Cash DR column
C)the miscellaneous cash receipt transactions are ignored
D)the cash sales are recorded in the Sales Revenue CR column
Q3) When using QuickBooks,the software automatically transfers the amounts from the general ledger to Excel.The accountant can then prepare the financial statements.
A)True
B)False
Q4) List and describe two features of an effective accounting information system.
Q5) Describe the transactions recorded in the cash payments journal.
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