Accounting II Exam Bank
Course Introduction
Accounting II builds on the foundational principles introduced in Accounting I, focusing on more advanced topics such as partnership and corporate accounting, managerial decision-making processes, and the analysis and interpretation of financial statements. Students will explore subjects including inventories, internal controls, cash flow analysis, long-term liabilities, and the reporting of equity. The course equips learners with the skills to record, report, and assess financial information for entities beyond sole proprietorships, preparing them for higher-level accounting roles and further studies in finance and business administration.
Recommended Textbook
Horngrens Accounting 10th Edition by Miller Nobles Mattison
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Robinson starts a plumbing service named Crusoe Waterworks. Transactions of Crusoe Waterworks during the first year of operations are given below:
A) Robinson deposited $7,000 into a new checking account for the business and recorded the capital contribution.
B) Paid $4,000 cash for equipment to be used for plumbing repairs.
C) Borrowed $30,000 from a local bank and deposited the money in the checking account.
D) Paid $800 rent for the year.
E) Purchased $900 of office supplies on account.
F) Completed a plumbing repair project for a local lawyer and received $3,500 cash.
Answer: A
Q2) The field of accounting that focuses on providing information for internal decision makers is:
A)managerial accounting.
B)financial accounting.
C)nonmonetary accounting.
D)governmental accounting.
Answer: A
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Source documents provide the evidence and data for accounting transactions.
A)True
B)False
Answer: True
Q2) Which of the following sequences states the order in which a trial balance lists accounts?
A)Equity Assets Liabilities
B)Liabilities Assets Equity
C)Assets Equity Liabilities
D)Assets Liabilities Equity
Answer: D
Q3) The trial balance is one of the three basic financial statements that are issued to external stakeholders of the business.
A)True
B)False
Answer: False
Q4) A business purchased land for $250,000 cash. Provide the journal entry (debits first, credits second.)
Answer: 11ea8243_0ff7_f722_bbd8_97ff37273226_TB2803_00 Purchased land for cash.
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) GAAP requires a public company to prepare a worksheet for financial reporting purposes.
A)True
B)False
Answer: False
Q2) ABC Company signed a one-year $12,000 note payable at 8% interest on May 1, 2012. How much interest expense must be accrued on May 31, 2012?
A)$960
B)$320
C)$80
D)$40
Answer: C
Q3) On July 1, Alpha Company paid rent of $15,000 for a small equipment storage area for the period of July 1 till December 31. Provide the adjusting journal entry on July 31. Assume the prepaid expense is initially recorded as an asset.
Answer: 11ea8243_1005_3db6_bbd8_43dfa0ce231e_TB2803_00
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) In the worksheet, the adjusted balance in the Service Revenue account is also recorded in the credit column of the income statement.
A)True
B)False
Q2) Reversing entries ease the burden of accounting for transactions in a later period.
A)True
B)False
Q3) The financial statements are prepared from the:
A)adjusted trial balance.
B)chart of accounts.
C)statement of owner's equity.
D)unadjusted trial balance.
Q4) A balance sheet that lists the assets above the liabilities and owner's equity sections is a(n):
A)report form balance sheet.
B)unclassified form balance sheet.
C)account form balance sheet.
D)audited form balance sheet.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) 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
Q2) If a merchandiser uses the periodic inventory system, it is necessary to conduct physical count of inventory to determine the quantity of inventory on hand.
A)True
B)False
Q3) If goods are sold on terms FOB shipping point the:
A)seller normally pays the transportation costs.
B)buyer normally pays the transportation costs.
C)buyer and the seller split the shipping costs.
D)shipping company bears the transportation cost.
Q4) The entry to close Sales Discounts will include a debit to Income Summary. A)True
B)False
Q5) A company using the perpetual inventory system, purchased merchandise on account for $5,000. Give journal entry to record the same.
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Using the first-in, first-out (FIFO)method of inventory valuation will always produce the same results whether a company uses perpetual or periodic inventory.
A)True
B)False
Q2) Sandra Company had two hundred units of inventory on hand at the end of the year. These were recorded at a cost of $12 each using the last-in, first-out (LIFO)method. The current replacement cost is $10 per unit. The selling price charged by Sandra Company for each finished product is $15. As a result of recording the adjusting entry as per the lower-of-cost-or-market rule, the gross profit will:
A)increase by $2,000.
B)decrease by $2,000.
C)increase by $400.
D)decrease by $400.
Q3) A high rate of inventory turnover indicates ease in selling inventory.
A)True
B)False
Q4) For inventories, market value generally means the current replacement cost.
A)True B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which of the following is true of a control account?
A)It is a valuation account from which balances are added to another account.
B)Its balance equals the sum of the balances in a group of related accounts in a subsidiary ledger.
C)It is equivalent to a contra account and represents the offsetting nature of debits and credits on a firm's financial statements.
D)It holds individual accounts that support a general ledger account.
Q2) Which of the following is an output device in an accounting information system?
A)keyboard
B)internet protocol
C)printer
D)mouse
Q3) Cash purchases are recorded in the purchases journal.
A)True
B)False
Q4) Unlike the sales journal, entries in the cash receipts journal are posted monthly to the accounts receivable subsidiary ledger and daily to the general ledger.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) The environment is the culture of a business, and it starts with the owner and the top managers.
A)True
B)False
Q2) In a large company, the person who is responsible for comparing cash and the bank balance is the:
A)CEO.
B)CFO.
C)controller.
D)treasurer.
Q3) Which of the following statements describes a voucher?
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 payment to a supplier.
Q4) Burglar alarms, fire alarms, and security cameras improve internal control.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) A company with significant amounts of accounts receivable, experiences uncollectible accounts from time to time. If the company uses the direct write-off method, the effect of writing off of an uncollectible receivable will be a(n):
A)reduction in net income.
B)nil on net income.
C)increase in total assets.
D)generation of positive cash flow.
Q2) Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and use a factor of 2% for their year-end adjustment of bad debts expense. Prepare the entry to record the bad debt expense.
Q3) Sales through credit cards or debit cards transfer the risk of collection of receivables from the seller to the card issuer.
A)True
B)False
Q4) Give the journal entry to record an uncollectible account receivable using the direct write-off method.
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Page 11
Chapter 10: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) Fred owns a delivery truck. Which of the following costs, associated with the truck, will be capitalized and depreciated?
A)modification for new use
B)oil change
C)replacement of tires
D)normal repair of engine
Q2) Which of the following items should be amortized?
A)natural resources
B)goodwill
C)patents, copyrights, trademarks
D)tangible property, plant, and equipment, other than land
Q3) Which of the following is a characteristic of a plant asset, such as a building?
A)It is used in the operation of a business.
B)It is available for sale to customers in the ordinary course of business.
C)It has a short useful life.
D)It will have a negligible value at the end of its useful life.
Q4) Whenever a plant asset is sold or otherwise disposed of, the first step is to bring the depreciation up to date.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Which of the following accounting principles requires that warranty expenses must be estimated and recognized in the same period as the related sales revenue is recognized?
A)the matching principle
B)the disclosure principle
C)the revenue principle
D)the consistency principle
Q2) Rocco worked 43 hours at his job during the first week of March, 2015. He is paid $14.5 per hour and receives overtime at the rate of time-and-one-half for hours worked over 40. Rocco pays income taxes at 15% and 5.65% for OASDI and Medicare. All of his income is taxable for FICA. What is Rocco's net pay?
A)$548.46
B)$512.00
C)$446.75
D)$483.21
Q3) Victoria Sales made total cash sales in February of $666,000, and they are subject to 7.5% sales tax. Please provide the summary entry to record sales revenues and sales tax payable.
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Page 13
Chapter 12: Partnerships
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Sample Questions
Q1) Keith and Jim are partners. Keith has a capital balance of $50,000 and Jim has a capital balance of $40,000. Bill invested $30,000 to acquire an ownership interest of 30%.
Which of the following statements is true of this transaction?
A)Keith and Jim received a bonus of $3,000 each.
B)Bill received a bonus of $5,000.
C)Keith and Jim received a bonus of $2,500 each.
D)Bill received a bonus of $6,000.
Q2) The articles of partnership is a contract between partners that specifies such items as the name, location, and nature of the business; the name, capital contribution, and duties of each partner; and the method of sharing profits and losses among the partners.
A)True
B)False
Q3) In a general partnership business, each partner has limited personal liability for the debts of the business.
A)True
B)False
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) Which of the following occurs when a cash dividend is declared?
A)Liabilities remain unchanged.
B)Stockholders' equity decreases.
C)Liabilities decrease.
D)Assets increase.
Q2) Which of the following occurs when a corporation's board of directors declares a 10% stock dividend?
A)Retained Earnings will be credited for the new shares times the current market value of the stock.
B)Retained Earnings will be debited for the new shares times the current market value of the stock.
C)Retained Earnings will be debited for the new shares times the par value of the stock.
D)Retained Earnings will be credited for the new shares times the par value of the stock.
Q3) 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.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) Bonds are short-term debt issued to multiple lenders called bondholders, usually in increments of $1,000.
A)True
B)False
Q2) On January 1, 2013, Davie Services issued $20,000 of 8% bonds that mature in five years. They were sold for a total of $19,000. Provide the journal entry to issue bonds.
Q3) The balance in the Bonds Payable account is a credit of $65,500. The balance in the Discount on Bonds Payable account is a debit of $2,150. How much is the bond's carrying amount?
A)$2,150
B)$67,650
C)$65,500
D)$63,350
Q4) Bonds Payable are reported on the balance sheet as the balance in Bonds Payable plus any discount or minus any premium.
A)True
B)False
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16
Chapter 15: Investments
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Sample Questions
Q1) A(n)________ represents stock ownership in another company and sometimes pays dividends.
A)debt security
B)forward contracts
C)futures contract
D)equity security
Q2) The rate of return on total assets is a ratio that measures the success a company has in using its assets to earn income.
A)True
B)False
Q3) Which of the following is true of the comparison between equity securities and debt securities?
A)Both debt securities and equity securities represent the ownership interest of a firm.
B)Equity securities earn dividend revenue, whereas debt securities earn interest revenue.
C)Neither debt securities nor equity securities mature at a particular date.
D)Both debt securities and equity securities pay interest.
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Chapter 16: The Statement of Cash Flows
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Q1) Buying property, plant and equipment for cash would be considered a cash outflow for the financing activities section of the statement of cash flows.
A)True
B)False
Q2) While preparing the statement of cash flows using the indirect method, Depreciation Expense is subtracted from Net Income under operating activities.
A)True B)False
Q3) Davis Company uses the direct method to prepare its statement of cash flows. Refer to the following information reported for the year 2014: Operating expenses, $26,000
Accrued Liabilities, beginning balance, $3,000
Accrued Liabilities, ending balance, $5,000
What amount was paid to suppliers for operating expenses on a cash basis?
A)$29,000
B)$28,000
C)$24,000
D)$31,000
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18
Chapter 17: Financial Statement Analysis
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Q1) The cash ratio helps to determine a company's ability to meet its short-term obligations using cash and cash equivalents.
A)True
B)False
Q2) Extraordinary items are unusual and infrequent in nature.
A)True
B)False
Q3) The gross profit percentage is an indicator of how well a company is positioned to pay off its short-term liabilities.
A)True
B)False
Q4) The dividend payout ratio indicates the amount of the dividend as a proportion of a share's market price.
A)True
B)False
Q5) The asset turnover rate is a way to evaluate how well a company can pay its short-term liabilities.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Q1) For a manufacturer, rent paid for an office building is an example of a period cost.
A)True
B)False
Q2) Indirect materials costs such as lubes and cleaning fluids are product costs.
A)True
B)False
Q3) All costs incurred in the manufacture of final products are product costs.
A)True
B)False
Q4) For a manufacturing firm, which of the following is a product cost?
A)Salary of administrative staff
B)Wages paid to factory janitor
C)Commissions paid to sales staff
D)Depreciation on corporate building
Q5) For a manufacturing company, which of the following is a period cost?
A)Direct materials
B)Office rent
C)Wages expense of factory workers
D)Indirect materials
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Page 20
Chapter 19: Job Order Costing
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Sample Questions
Q1) Which of the following will be debited to the Manufacturing Overhead account of a watch manufacturer?
A)office telephone expenses
B)salaries paid to accountants
C)factory electricity expense
D)cost of printing brochures
Q2) When direct materials are received on the production floor, they are recorded on the job cost record.
A)True
B)False
Q3) During 2015, a company incurred $500,000 of manufacturing overhead costs and allocated $506,000 of manufacturing overhead costs. At the year-end, the adjustment entry needed to clear the overhead balance to zero will include a debit to Cost of Goods Sold.
A)True
B)False
Q4) Accounting firms, building contractors, and healthcare providers use process costing.
A)True
B)False
Page 21
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Chapter 20: Process Costing
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Q1) The journal entry to record indirect labor costs incurred includes a debit to Manufacturing Overhead and credit to Wages Payable.
A)True
B)False
Q2) Under process costing, the unit cost of the completed units is less than the unit cost of the incomplete units.
A)True
B)False
Q3) The Assembling Department of Mat Liners had 7,500 units in process on December 1 and received 10,000 units from the Sewing Department. Calculate the number of units to account for by the Assembling Department for December.
A)17,500 units
B)10,000 units
C)7,500 units
D)2,500 units
Q4) When indirect materials are issued to production, the Manufacturing Overhead account is credited.
A)True B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) An increase in selling price per unit decreases the contribution margin per unit.
A)True
B)False
Q2) Total variable costs change in direct proportion to changes in the volume of production.
A)True
B)False
Q3) Becky's Bakery sells three large muffins for every two small ones. A small muffin sells for $3.00, with a variable cost of $2.00. A large muffin sells for $5.00 with a variable cost of $2.50. What is the weighted-average contribution margin? (Round your intermediate calculations to one decimal place)
A)$1.93 per muffin
B)$1.75 per muffin
C)$1.25 per muffin
D)$1.90 per muffin
Q4) Higher fixed costs decrease the total contribution margin required to break even.
A)True
B)False
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Chapter 22: Master Budgets
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Sample Questions
Q1) Which of the following statements is true of the budgeting process?
A)It includes qualitative targets of the company, not just quantitative.
B)It is a continuous process.
C)It shows the actual performance of the business.
D)Its success is not dependent on human behavior.
Q2) Use of advanced technology makes it more cost effective for managers to conduct sensitivity analysis.
A)True
B)False
Q3) When a company is preparing a budgeted statement of cash flows, the payments to suppliers for purchases of inventory can be obtained from:
A)the cash budget.
B)the sales budget.
C)budgeted cash collections.
D)the budgeted balance sheet.
Q4) 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 revenue budget.
D)Its final component is the cash budget.
Page 24
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Favorable and unfavorable variances are subtracted from each other to arrive at a net favorable or unfavorable variance.
A)True
B)False
Q2) A standard is a price, cost, or quantity that is expected under normal conditions.
A)True
B)False
Q3) Favorable and unfavorable variances are netted together in the same way debits and credits are.
A)True
B)False
Q4) Which of the following is the correct formula to measure cost variance?
A)Cost Variance = (Actual Cost + Standard Cost)÷ Actual Quantity
B)Cost Variance = (Actual Cost - Standard Cost)× Actual Quantity
C)Cost Variance = (Actual Cost + Standard Cost)+ Actual Quantity
D)Cost Variance = (Actual Cost - Standard Cost)- Actual Quantity
Q5) The fixed overhead volume variance is a volume variance, not a cost variance.
A)True
B)False
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Activity-based costing refines the cost allocation process even more than the traditional allocation costing.
A)True
B)False
Q2) Which of the following would most likely be evaluated using residual income?
A)cost center
B)profit center
C)revenue center
D)investment center
Q3) A company in which major planning and controlling decisions are made by top management is considered as a centralized company.
A)True
B)False
Q4) Which of the following is the correct formula for calculating residual income?
A)Weighted Average Cost of Capital - Net Operating Profit After Tax
B)Operating income - Minimum acceptable operating income
C)Historical cost of assets - Accumulated depreciation
D)Operating income ÷ Average assets
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26
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 reporting an operating loss consistently.
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) Nordic Avionics makes aircraft instrumentation. Their basic navigation radio requires $80 in variable costs and requires $2,000 per month in fixed costs. If they process the radio further to enhance its functionality, it will require an additional $25 per unit of variable costs, but no change to the fixed costs. The marketing manager believes that they would be able to boost their price of the radio from $260 to $280. If they do so, how would the change affect operating income?
A)It would remain the same.
B)It would go up by $25 per unit.
C)It would go up by $20 per unit.
D)It would go down by $5 per unit.
Q3) Price-setters emphasize a cost-plus pricing approach.
A)True
B)False
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Page 27
Chapter 26: Capital Investment Decisions
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Q1) Which of the following is true of discounted cash flow methods like NPV and IRR?
A)They use simple interest calculations.
B)They assume that cash flows will be reinvested when received.
C)They focus on the payback period.
D)They comply with the requirements of GAAP.
Q2) 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
Q3) The payback method can only be used when the net cash inflows from a capital investment are the same for each period.
A)True
B)False
Q4) Most capital budgeting methods focus on cash flows rather than book income.
A)True
B)False
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