Accounting II Exam Practice Tests
Course Introduction
Accounting II builds on the foundational principles introduced in Accounting I, delving deeper into the preparation, analysis, and interpretation of financial statements. The course covers advanced topics such as inventory valuation, long-term assets, liabilities, shareholders equity, and the statement of cash flows. Students will explore managerial accounting concepts, including cost behavior, budgeting, and performance evaluation. Through practical exercises and real-world scenarios, students gain the skills needed to make informed financial decisions and understand the broader implications of accounting in business environments.
Recommended Textbook
Financial and Managerial Accounting 10th Edition by Belverd E. Needles
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Stockholders' equity equals assets minus liabilities.
A)True
B)False
Answer: True
Q2) The statement of cash flows would disclose the purchase of a building for cash A)nowhere on the statement.
B)in the operating activities section.
C)in the investing activities section.
D)in the financing activities section.
Answer: C
Q3) The terms "bookkeeping" and "accounting" are not synonymous.
A)True
B)False
Answer: True
Q4) Taxing authorities are considered accounting information users with a direct financial interest in a business.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Measurement Concepts: Recording Business Transactions
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Sample Questions
Q1) A credit to an asset account means that asset account has been increased. A)True
B)False Answer: False
Q2) In a trial balance,all debits are listed before all credits.
A)True
B)False
Answer: False
Q3) A transposition error will cause the trial balance to be out of balance by an amount that is evenly divisible by two. A)True
B)False
Answer: False
Q4) The final step of the transaction analysis is the preparation of the trial balance. A)True
B)False Answer: True
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Chapter 3: Measuring Business Income: Adjusting the Accounts
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Sample Questions
Q1) The adjusted trial balance may contain accounts that did not appear in the trial balance.
A)True
B)False
Answer: True
Q2) The adjusting entry to record the accrued interest on the note is
A)Interest Expense 200 Interest Receivable 200
B)Interest Payable 200 Interest Expense 200
C)Interest Receivable 200 Interest Income 200
D)Interest Income 200 Interest Receivable 200
Answer: C
Q3) When expenses exceed revenues,
A)a liability is created.
B)a net loss occurs.
C)stockholders' equity increases.
D)All of these choices.
Answer: B
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Page 5
Chapter 4: Foundations of Financial Reporting and the Classified Balance Sheet
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Sample Questions
Q1) The term owner's equity is preferred over the term net worth because most assets are carried at original cost rather than at current value.
A)True
B)False
Q2) The main differences among the balance sheets of the sole proprietorship,the partnership,and the corporation are found in the current assets and current liabilities sections.
A)True
B)False
Q3) Which of the following is not a measure of profitability?
A)Current ratio
B)Return on assets
C)Return on equity
D)Debt to equity ratio
Q4) The Retained Earnings portion of a corporation represents the initial contribution of capital to the business.
A)True
B)False
Page 6
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Chapter 5: Accounting for Merchandising Operations
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Sample Questions
Q1) Assume a company uses the periodic inventory system and has a beginning merchandise inventory balance of $10,000,purchases of $150,000,and sales of $250,000.The company closes its records once a year on December 31.In the accounting records,the merchandise inventory account would be expected to have a balance on December 31 prior to adjusting and closing entries that was
A)indeterminate.
B)less than $5,000.
C)more than $5,000.
D)equal to $5,000.
Q2) An American company makes a credit purchase of goods from a company in London for $1,000.On the date of purchase,the exchange rate was $1.50 per pound.However,on the date of payment,the rate had risen to $1.55 per pound.As a result,the American company would record
A)an exchange gain of $50.
B)an exchange loss of $1,550.
C)an exchange loss of $50.
D)no exchange gain or loss.
Q3) A merchandiser's operating cycle concludes with the sale of goods.
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) An overstatement of beginning inventory results in
A)no effect on the period's gross margin.
B)an overstatement of gross margin.
C)an understatement of gross margin.
D)a need to adjust purchases.
Q2) Which of the following accounts would not appear as an asset on a manufacturer's balance sheet?
A)Finished Goods
B)Work in Process
C)Factory Overhead
D)Raw Materials
Q3) Portocall Sailboats reports income before income taxes of $160,000 during 2014.If beginning inventory was overstated by $14,000 and ending inventory was understated by $16,000,calculate corrected income before income taxes for the year.(Show your work. )
Q4) Under rising prices,why will the FIFO method produce a higher ending inventory than LIFO?
Q5) What is the chief objective of supply-chain management? How is it accomplished?
Q6) How is the matching rule applied when accounting for merchandise inventory?
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Q7) Why are cost flow assumptions made when accounting for merchandise inventory?
Chapter 7: Cash and Internal Control
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Sample Questions
Q1) A good system of internal control is designed to achieve all of the following except A)efficiency of operations.
B)reliability of financial reporting.
C)compliance with relevant laws and regulations.
D)attainment of target sales.
Q2) A formal request for a purchase from a requesting department of a business is known as a purchase order.
A)True
B)False
Q3) Using bar codes to take a physical inventory is considered poor accounting practice. A)True
B)False
Q4) Cash received through the mail should be handled by only one employee to achieve effective internal control.
A)True
B)False
Q5) Why is the separation of duties an important control activity in a good system of internal control?
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Chapter 8: Receivables
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Sample Questions
Q1) If average accounts receivable is $35,000 and net sales total $100,000,what is the receivables turnover?
A)0.3 times
B)0.4 times
C)2.9 times
D)126 times
Q2) Assume that the $2,000,90-day,8 percent note was received on August 31 and that the fiscal year ended on September 30.The adjusting entry that would be made to record the interest receivable is (amounts rounded to nearest dollar):
A)Interest Receivable 13 Interest Income 13
B)Notes Receivable 13 Interest Income 13
C)Accounts Receivable 39 Cash 39
D)Interest Income 39 Accounts Receivable 39
Q3) Which of the following statements is false regarding promissory notes?
A)They are sometimes used to extend past-due accounts.
B)They can be resold to banks.
C)They must be held by the maker until maturity.
D)They are often received upon the sale of machinery and automobiles.
Q4) Explain the two methods used to estimate uncollectible accounts.
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Chapter 9: Long-Term Assets
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Sample Questions
Q1) Prior to the sale of an asset,depreciation should be updated and recorded.
A)True
B)False
Q2) Under what circumstances will a loss be recorded on the sale of equipment,and what effect will the loss have on stockholders' equity?
Q3) The depletion calculation is similar to which of the following depreciation methods?
A)Double-declining-balance
B)Straight-line
C)Group
D)Production
Q4) In general,how does one determine whether or not an expenditure should be included in the acquisition cost of property,plant,and equipment?
Q5) Additions and betterments are examples of capital expenditures.
A)True
B)False
Q6) Federal tax law does not allow the rapid write-off of plant assets.
A)True
B)False
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Which of the following is not a component of the operating cycle?
A)Sales to customers
B)Collection of accounts receivable
C)Recognition of depreciation
D)Purchases from suppliers
Q2) To calculate payables turnover,an increase in merchandise inventory must be added to cost of goods sold before dividing by average accounts payable.
A)True
B)False
Q3) A contingent liability should be entered into the accounting records if it is both probable and reasonably estimable.
A)True
B)False
Q4) The payables turnover is measured
A)in days.
B)as a percentage.
C)in dollars.
D)in times.
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Chapter 11: Long-Term Liabilities
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Sample Questions
Q1) Under a defined benefit pension plan,retirement benefits are based entirely on the annual contribution to the fund plus earnings thereon.
A)True
B)False
Q2) The total interest cost on forty-six (46),ten-year,6 percent,$1,000 bonds that are issued at 98 is
A)$28,520.
B)$26,680.
C)$28,060.
D)$27,600.
Q3) Financial leverage is also known as trading on the equity.
A)True
B)False
Q4) Technically,what is meant by the amortization of a bond discount,and why is it necessary?
Q5) Financial leverage refers to the issuance of stock to raise cash.
A)True B)False
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Chapter 12: Stockholders Equity
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Sample Questions
Q1) The par value of stock is an arbitrary amount assigned to each share of stock.
A)True
B)False
Q2) A dividend that represents a return to the stockholders of a part of their paid-in capital rather than a distribution out of retained earnings is called a liquidating dividend.
A)True
B)False
Q3) A corporation often uses an underwriter to guarantee the sale of stock in an initial public offering (IPO).
A)True
B)False
Q4) Which of the following items will not be disclosed on a statement of stockholders' equity?
A)Conversion of preferred stock into common stock
B)Results of discontinued operations
C)Purchase of treasury stock
D)Declaration of a stock dividend
Q5) How is it possible for a corporation to have more shares issued than it has outstanding?
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Chapter 13: The Statement of Cash Flows
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Sample Questions
Q1) Purchases and sales of long-term investments for the period should be netted for disclosure in the investing activities section of the statement of cash flows.
A)True
B)False
Q2) When preparing a statement of cash flows using the indirect method,amortization expense is added to net income in the cash flows from operating activities section of the statement of cash flows.
A)True
B)False
Q3) Transaction 5 would be found on the statement of cash flows in the A)noncash investing and financing transactions section.
B)cash flows from financing activities section.
C)cash flows from operating activities section.
D)cash flows from investing activities section.
Q4) Cash payments made on accounts payable or accrued liabilities are considered repayments of loans and are classified as financing activities on the statement of cash flows.
A)True B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Liquidity is the ability to earn a satisfactory net income.
A)True
B)False
Q2) Cash flows to sales and cash flows to assets are measured in terms of A)times.
B)a percentage.
C)dollars.
D)days.
Q3) What is the inventory turnover for this corporation? Round your answer to one decimal place.
A)1.2 times
B)1.6 times
C)2.4 times
D)4.0 times
Q4) Interim financial statements report data for a period of less than one year.
A)True
B)False
Q5) In a common-size income statement,net sales is represented by 100 percent. A)True
B)False
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Chapter 15: Managerial Accounting and Cost Concepts
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Sample Questions
Q1) A job order cost card can be used to record all product costs incurred during production.
A)True
B)False
Q2) Depreciation expense could be
A)a period cost.
B)a product cost.
C)a fixed cost.
D)All of these
Q3) Managerial accounting information is primarily used by A)lenders.
B)supply-chain partners.
C)governmental agencies.
D)customers.
Q4) The amount of cost of goods manufactured is transferred from the Work in Process Inventory account to the Finished Goods Inventory account.
A)True
B)False
Q5) Give two examples of each stage in the management process.
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Chapter 16: Costing Systems: Job Order Costing
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Sample Questions
Q1) Which of the following cannot be learned by analyzing job order cost cards?
A)The balance of Work in Process Inventory at the end of the period
B)The cost of all jobs done for a particular customer
C)The completion time of jobs yet to be completed
D)The type of products ordered by a particular customer
Q2) The costs of completed jobs in a service organization is transferred to the
A)Work in Process Inventory account.
B)Finished Goods Inventory account.
C)Cost of Goods Sold account.
D)Cost of Services account.
Q3) The traditional approach to applying overhead costs to a product or service is to use a(n)
A)actual overhead rate.
B)activity-based overhead rate.
C)departmental overhead rate.
D)single-plantwide overhead rate.
Q4) A job order costing system is used by companies that manufacture large amounts of similar products.
A)True
B)False
Page 18
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Chapter 17: Costing Systems: Process Costing
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Sample Questions
Q1) Use the following information to perform the calculations requested below,assuming that the FIFO costing approach to a process costing system is being used.
Beginning work in process inventory: 16,000 units,100 percent complete as to direct materials,85 percent complete as to conversion costs
Ending work in process inventory: 36,000 units,100 percent complete as to direct materials,70 percent complete as to conversion costs
Units started during the month: 59,000
a.Calculate units to be accounted for during the month.
b.Calculate units started and completed during the month.
c.Calculate equivalent units for direct materials.
d.Calculate equivalent units for conversion costs.
Q2) Regardless of the product costing system used,when the products are completed,they are transferred from work in process inventory to finished goods inventory.
A)True
B)False
Q3) Describe how the process costing information is used by managers in every stage of the management process.
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Chapter 18: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Sample Questions
Q1) For a small coffee cafe,which of the following is a nonvalue-adding activity?
A)Importing coffee beans
B)Purchasing ingredients
C)Accounting for materials and conversion costs
D)Operating the drive-through window
Q2) Lean uses ABC to assign overhead costs to the product by using appropriate cost drivers.
A)True
B)False
Q3) One of the drawbacks of full product cost is that it is relevant only for companies providing services.
A)True
B)False
Q4) When using a just-in-time system,what qualities should be a supplier posses?
Q5) To minimize costs,managers continuously seek to improve processes and activities. A)True
B)False
Q6) How do managers measure an activity's performance?
Q7) Why is process value analysis not part of the general ledger accounting system?
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Chapter 19: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Walton reported sales of $640,000,fixed costs of $314,000,and a profit of $92,000.If the contribution margin is $8 per unit,how many units did Walton sell?
A)11,500 units
B)31,125 units
C)50,750 units
D)70,375 units
Q2) The new Corina watch has an expected selling price per watch of $42,the projected variable cost per unit is $24,and estimated fixed costs per month are $24,120. The expected breakeven point in units per month is
A)1,115 watches.
B)1,590 watches.
C)1,340 watches.
D)1,780 watches.
Q3) Breakeven sales in dollars can be obtained without knowing the dollar value of contribution margin per unit.
A)True
B)False
Q4) Briefly explain the use of statistical methods to separate mixed cost components.
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Chapter 20: The Budgeting Process
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Sample Questions
Q1) The budgeting function begins with the preparation of a production budget.
A)True
B)False
Q2) The direct labor budget is needed to prepare the production budget.
A)True
B)False
Q3) Which of the following do not serve as a source of data while preparing a cash budget?
A)A sales budget
B)Collection records
C)A budgeted balance sheet
D)A budgeted income statement
Q4) Participative budgeting involves only personnel at top levels of the organization.
A)True
B)False
Q5) The selling and administrative expense budget is typically separated into variable and fixed cost components.
A)True
B)False
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Chapter 21: Flexible Budgets and Performance Analysis
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Sample Questions
Q1) The economic value added performance measure focuses on long-term financial performance.
A)True
B)False
Q2) Dana Klammer is the manager of the Cutting Department in the Northwest Division of Steel Products.Which of the following costs is Dana's controllable cost?
A)Salaries of cutting workers
B)Cost of electricity for the Northwest Division
C)Lumber Department hauling costs
D)Vice president's salary
Q3) Which of the following is a performance measure?
A)Quality of raw materials used in production
B)Number of orders shipped in a day
C)Level of customer satisfaction
D)All of these choices
Q4) Cost of capital is the minimum desired rate of return on a particular investment.
A)True
B)False
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Chapter 22: Standard Costing and Variance Analysis
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Sample Questions
Q1) The total overhead cost variance is equal to the difference between
A)fixed overhead costs and variable overhead costs.
B)estimated overhead rate and applied overhead rate.
C)actual overhead costs and variable overhead costs.
D)actual overhead costs and standard overhead costs.
Q2) The primary difference between a fixed (static)budget and a flexible budget is that a fixed budget
A)cannot be changed after the period begins,whereas a flexible budget can be changed after the period begins.
B)is concerned only with future acquisitions of fixed assets,whereas a flexible budget is concerned with expenses that vary with sales.
C)is a plan for a single level of production,whereas a flexible budget is several plans (one for each of several production levels).
D)includes only fixed costs,whereas a flexible budget includes only variable costs.
Q3) Standard costing can be used only with a process costing system.
A)True
B)False
Q4) Mention a few reasons for an unfavorable direct labor cost variance.
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Chapter 23: Short-Run Decision Analysis
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Q1) There are products or services that can be either sold in a basic form or be processed further.
A)True
B)False
Q2) The sales mix analysis,which uses incremental analysis to identify the relevant costs and revenues,consists of two steps.
A)True
B)False
Q3) Sunk costs are irrelevant for decision making.
A)True
B)False
Q4) If Cooper accepts the order,$8 of fixed overhead per unit will be eliminated. If the offer is accepted,operating income will
A)increase by $100,000.
B)decrease by $70,000.
C)decrease by $30,000.
D)increase by $60,000.
Q5) The fixed costs that are traceable to the segments are called common costs.
A)True
B)False
25
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Chapter 24: Capital Investment Analysis
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Q1) While making capital investment decisions,companies set a minimum rate of return to
A)set the maximum expected returns.
B)guard their profitability.
C)cover their fixed costs.
D)comply with the government regulations.
Q2) Which of the following is not an appropriate method used in evaluating proposed capital investments?
A)Net present value
B)Payback period
C)Carrying value of equipment
D)Accounting rate of return
Q3) The proposals that either meet company strategic goals or produce the minimum rate of return set by management will receive serious review in the preliminary screen process.
A)True
B)False
Q4) Why is the residual value of equipment relevant when considering the replacement of equipment?
Q5) In what situations is the payback period method especially useful?
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Chapter 25: Pricing Decisions, including Target Costing and Transfer Pricing
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Q1) A company that produces standard items for a competitive market should not have the same pricing strategies as a company that makes unique items custom-designed for its customers.
A)True
B)False
Q2) The pricing method that establishes selling prices based on a stipulated rate above total production costs is
A)return on assets pricing.
B)target cost pricing.
C)gross margin pricing.
D)time and materials pricing.
Q3) Marginal cost is the change in total cost caused by a one-unit change in output.
A)True
B)False
Q4) A company can stay in business as long as the selling price of its products is equal to all the costs incurred in bringing the product or service to market.
A)True
B)False
Q5) What are the four pricing rules managers must follow to stay in business?
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Chapter 26: Quality Management and Measurement
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Sample Questions
Q1) The organization that promotes improvement in quality worldwide is called the International Organization for Standardization.
A)True
B)False
Q2) Which of the following has the goal of having customers perceive the company's products and services as perfect?
A)Total quality management
B)Kaizen
C)Six Sigma
D)All of these options
Q3) The overall objective of controlling the costs of quality is to eliminate
A)appraisal costs.
B)costs of nonconformance.
C)costs of conformance.
D)the costs of quality.
Q4) Warranty claims and adjustments are examples of A)prevention costs.
B)appraisal costs.
C)internal failure costs.
D)external failure costs.
28
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Chapter 27: Accounting for Unincorporated Businesses
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Q1) When a partner invests assets in a partnership,the assets are recorded at their fair market value on the date they are transferred to the partnership.
A)True
B)False
Q2) Lexi invests $80,000 for a one-fourth interest in a partnership in which the other partners have capital totaling $160,000 before admitting Lexi.After distribution of the bonus,what is Lexi's capital balance?
A)$20,000
B)$40,000
C)$60,000
D)$80,000
Q3) When a partner withdraws from a partnership,an audit might be performed and the assets reappraised.
A)True
B)False
Q4) In a liquidation,partners are given back the assets that they originally invested.
A)True
B)False
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Chapter 28: Accounting for Investments
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Q1) The ability of an investing company to affect the operating and financial policies of another company,even though the investor holds less than 50 percent of the voting stock,is known as
A)significant influence.
B)control.
C)minority interest.
D)noninfluential control.
Q2) Held-to-maturity securities are valued on the balance sheet at A)original cost.
B)fair value.
C)maturity value.
D)cost adjusted for the effects of interest.
Q3) Which type of investment,if any,could be classified as short- or long-term,as well as debt or equity?
A)Available-for-sale securities
B)Trading securities
C)Held-to-maturity securities
D)None of these are correct.
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