Accounting II Exam Preparation Guide
Course Introduction
Accounting II is a continuation of introductory accounting, focusing on the application of accounting principles and procedures in more complex business scenarios. This course covers topics such as corporate accounting, partnerships, long-term assets and liabilities, statement of cash flows, and financial statement analysis. Emphasis is placed on interpreting and analyzing financial data to provide meaningful information for decision-making. Through practical exercises and case studies, students develop advanced skills in recording, reporting, and analyzing business transactions to support effective financial management and ethical business practices.
Recommended Textbook
Horngren's Accounting 12th Edition by Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
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) An audit is an examination of a company's financial statements and records. A)True
B)False Answer: True
Q3) A statement of cash flows always represents a period of time. A)True
B)False Answer: True
Q4) International Financial Reporting Standards are comparatively more specific and more rule-based than U.S.GAAP.
A)True
B)False Answer: False
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) 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
Q2) A business purchases $500 of office supplies on account.What is the effect on the accounting equation?
A) Office Supplies increase and Cash decreases
B) Office Supplies increase and Accounts Payable increase
C) Office Supplies increase and Accounts Payable decrease
D) Total assets increase and total liabilities decrease
Answer: B
Q3) Transactions are first recorded in a ________.
A) chart of accounts
B) trial balance
C) journal
D) ledger
Answer: C
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Which of the following assumes that the financial statements of a business can be prepared for specific periods?
A) matching principle
B) revenue recognition principle
C) time period concept
D) adjusting entry principle
Answer: C
Q2) In the case of a deferred expense,the adjusting entry required at the end of a period will consist of a credit to the Prepaid Expense account.Assume the deferred expense was initially recorded as an asset.
A)True
B)False
Answer: True
Q3) Deferred Revenue is a liability created when a business collects cash from customers in advance of completing a service or delivering a product.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Net income is entered as the balancing amount on the debit side of the income statement columns and the credit side of the balance sheet columns of the worksheet.
A)True
B)False
Q2) The post-closing trial balance shows the updated Owner,Capital balance.
A)True
B)False
Q3) Under which of the following categories would bonds held as an investment for less than a year appear?
A) Long-term assets
B) Current assets
C) Long-term liabilities
D) Current liabilities
Q4) Which of the following adjusted balances would appear in the balance sheet credit column of a worksheet?
A) Rent Revenue
B) Insurance Expense
C) Salaries Payable
D) Equipment
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) In a perpetual inventory system,the Cost of Goods Sold account is debited at the time of each sale.
A)True B)False
Q2) For each of the following accounts,state type of account and the normal account balance.Assume a periodic inventory system.
\[\begin{array} { | l | l | l | }
\hline \text { Account Title } & \text { Type of Account } & \text { Normal Account Balance } \\
\hline \text { Freight In } & & \\
\hline \text { Purchase Discounts } & & \\
\hline \text { Merchandise Inventory } & & \\
\hline
\end{array}\]
Q3) Merchandise inventory is included in a merchandising company's current assets. A)True B)False
Q4) A retailer purchases goods from a manufacturer and sells them to wholesalers. A)True B)False
Page 7
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) What does inventory turnover measure? What does a high rate of inventory turnover indicate?
Q2) 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 sales revenue.
A)True
B)False
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) When using the periodic inventory system and weighted-average inventory costing method,when is the weighted average cost per unit computed?
Q5) Lower-of-cost-or-market (LCM)requires that merchandise inventory be reported in the financial statements at the lower of the historical cost or the current selling price of the inventory.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) An accounting information system collects,records,stores,and processes accounting data to produce information that is useful for decision makers.
A)True
B)False
Q2) A computerized system uses software to process transactions.Thus employees are no longer required to manually journalize and post transactions to the accounts.
A)True
B)False
Q3) List the four special journals that are often used in a manual accounting information system.State what types of transactions are recorded in each of these special journals.
Q4) The collection of time records for company employees is an accounting information system activity that is classified as a business transaction involving the sale of merchandise inventory.
A)True
B)False
Q5) Define enterprise resource planning (ERP)systems and state one advantage and one disadvantage of ERP systems.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following is representative of safeguarding assets?
A) attaching electronic sensors to merchandise inventory
B) reducing expenses to increase operating profit
C) increasing operating profit to increase net income
D) allowing company accountants to handle cash
Q2) The data of Graham Brothers Company for two years are given below.
\[\begin{array} { | l | r | r | }
\hline & 2018 & 2019 \\
\hline \text { Cash and cash } & & \\
\text { equivalents } & \$ 5,300 & \$ 12,000 \\
\hline \text { Total current liabilities } & 24,000 & 31,000 \\
\hline
\end{array}\] Based on the above information,which of the following statements is TRUE?
A) Cash ratio has increased from 0.02 in 2018 to 0.03 in 2019.
B) Cash ratio has increased from 0.05 in 2018 to 0.08 in 2019.
C) Cash ratio has increased from 0.387 in 2018 to 0.221 in 2019.
D) Cash ratio has increased from 0.221 in 2018 to 0.387 in 2019.
Q3) List and briefly discuss the five components of internal control.
Q4) Define internal control.
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Chapter 9: Receivables
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Sample Questions
Q1) When businesses accept payment by credit and debit cards,there is almost always a fee to the purchaser to cover the processing costs charged by the card issuer.
A)True
B)False
Q2) On June 16,2018,Evergreen Company wrote off the $200 receivable from customer M.Simmons.On October 14,2018,Evergreen unexpectedly receives $200 cash from M.Simmons.How should Evergreen record the $200 payment from M.Simmons? Evergreen uses the allowance method.
A) Debit Cash and credit Bad Debts Expense
B) Debit Accounts Receivable - M. Simmons and credit Allowance for Bad Debts; debit Cash and credit Accounts Receivable - M. Simmons
C) Debit Accounts Receivable - M. Simmons and credit Bad Debts Expense; debit Cash and credit Accounts Receivable - M. Simmons
D) Debit Cash and credit Allowance for Bad Debts
Q3) The net realizable value of Accounts Receivable is calculated by subtracting Bad Debts Expense from Accounts Receivable.
A)True B)False
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Chapter 10: Plant Assets,natural Resources,and Intangibles
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Sample Questions
Q1) Which of the following is an expense that results from the usage of a natural resource?
A) depletion
B) amortization
C) depreciation
D) obsolescence
Q2) Under U.S.GAAP,which of the following is NOT an acceptable way to report plant assets?
A) at fair market value
B) at book value
C) as a single amount, with a note to the financial statements that provides detailed information
D) with detailed information on the face of the balance sheet
Q3) George Company purchased a van on May 1,2018,for $800,000.Estimated life of the van was five years,and its estimated residual value was $80,000.George uses the straight-line method of depreciation.Prepare the journal entry to record the depreciation expense for 2018 on the van.Omit explanation.
Q4) Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash.Omit explanation.
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Tony's gross pay for the month is $2700.Tony's deduction for federal income tax is based on a rate of 21%.Tom has no voluntary deductions.Tony's year-to-date pay is under the limit for OASDI.What is the amount of FICA tax withheld from Tony's pay? (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.Do not round any intermediate calculations,and round your final answer to the nearest cent.)
A) $773.55
B) $206.55
C) $567.00
D) $387.45
Q2) Employer FICA tax is paid by the employer and is added to the employee's earnings. A)True
B)False
Q3) Direct deposits decrease the efficiency of the payroll process because of cyber issues.
A)True
B)False
Q4) If the likelihood of a future event is probable and the amount of the expense cannot be estimated,how should the company report the contingency?
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Page 13
Chapter 12: Partnerships
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Sample Questions
Q1) In a partnership,mutual agency means that ________.
A) the addition of a new partner does not dissolve the old partnership; there is a mutual exchange of ownership with the existing partners
B) every partner must contribute the same amount of capital
C) the agency problem between the principal and agents are mutual and are neutralized
D) any partner can bind the business to a contract within the scope of its regular business operations
Q2) An S corporation is a corporation with 100 or fewer stockholders that can elect to be taxed as a partnership.
A)True
B)False
Q3) Felix and Ian allocate 2/5 of their partnership's profits and losses to Felix and 3/5 to Ian.The net income of the firm is $20,000.The journal entry to close the Income Summary will include ________.
A) credit to Ian, Capital for $12,000
B) debit to Felix, Capital for $12,000
C) debit to Felix, Capital for $8000
D) credit to Income Summary for $20,000
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) Perkins Services reported the following balances:
\[\begin{array} { | l | r | r | }
\hline & \text { December } 31,2018 & \text { December } 31,2017 \\
\hline \text { Net Income } & \$ 45,000 & \$ 42,000 \\
\hline \text { Preferred Dividends } & 5,000 & 3,000 \\
\hline \text { Total Stockholders' Equity } & 375,000 & 368,000 \\
\hline \begin{array} { l }
\text { Total Stockholders' Equity } \\
\text { attributable to Preferred Stock }
\end{array} & 40,000 & 24,000 \\
\hline \begin{array} { l }
\text { Number of Common Shares } \\
\text { Outstanding }
\end{array} & 16,000 & 12,000 \\
\hline
\end{array}\] Compute earnings per share for 2018,price/earnings ratio for 2018,assuming the market price on December 31,2018 is $37.50 per share,and the rate of return on common stockholders' equity for 2018.
(Show your computations and round to two decimal places.)
Q2) List the four basic rights of stockholders.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) What is the difference between simple interest and compound interest?
Q2) Bonds are short-term debt issued to multiple lenders called bondholders,usually in increments of $1,000 per bond.
A)True
B)False
Q3) Which of the following statements is TRUE if a bond's stated interest rate is the same as the market rate?
A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount lower than the maturity value.
Q4) The time value of money is used to determine the market price of a bond. A)True
B)False
Q5) If a bond's stated interest rate is lower than the market rate,which of the following is TRUE?
A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount higher than the maturity value.
Page 16
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Chapter 15: Investments
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Sample Questions
Q1) Available-for-sale (AFS)debt investments are reported as ________ if the business expects to sell them within one year.
A) current assets
B) equity
C) long-term assets
D) either current assets or long-term assets
Q2) Which of the following is TRUE of trading debt investments?
A) They are held for more than two years.
B) They are generally recorded as long-term investments.
C) They must be adjusted and reported at fair value at the end of each period.
D) They are always reported on the balance sheet at their historical cost.
Q3) Which of the following is included in comprehensive income?
A) Owners' investments
B) Purchase of capital assets
C) Preferred dividends
D) Deferred gains or losses from derivatives
Q4) Debt securities represent a credit relationship with another company or governmental entity.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) For each of the following items,relating to the adjustments made to reconcile net income to net cash provided by operating activities section,state whether the adjustment is an increase or decrease to net income.
\[\begin{array} { | l | l | }
\hline \text { Item } & \begin{array} { l }
\text { Adjustment to Net Income on } \\
\text { Statement of Cash Flows }
\end{array} \\
\hline \text { Depreciation Expense } & \\
\hline \text { Decreases in Current Liabilities } & \\
\hline \text { Gains on Disposal of Long-term Assets } & \\
\hline \text { Increases in Current Assets other than Cash } & \\
\hline
\end{array}\]
Q2) Investors and management use the statement of cash flows to evaluate a firm's profitability.
A)True
B)False
Q3) What does free cash flow represent? How is it used to evaluate business performance?
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Chapter 17: Financial Statement Analysis
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Q1) An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.
A)True
B)False
Q2) The trend analysis report of Marswell,Inc.is given below (in millions): \[\begin{array}
{ | l | r | r | r | r | r | }
\hline & { 2019 } & { 2018 } & 2017 &{ 2016 } & 2015 \\
\hline \text { Net income } & \$ 650 & \$ 602 & \$ 460 & \$ 403 & \$ 401 \\
\hline \text { Trend percentages } & 162 \% & 150 \% & 115 \% & 100 \% & 100 \% \\
\hline
\end{array}\] Which of the following is a correct conclusion from the above analysis?
A) Net income for 2017 has increased by 115% over that for 2015.
B) Net income for 2017 has decreased by 15% over that for 2015.
C) Net income for 2017 has decreased by 115% over that for 2015.
D) Net income for 2017 has increased by 15% over that for 2015.
Q3) The price/earnings ratio shows the market price of $1 of earnings.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) How does a manufacturing company calculate unit product cost? Why do managers need to know the unit product cost?
Q2) Silver Crafts,Inc.purchases and sells bracelets.The following information summarizes the company's operating activities for the year: \[\begin{array} { | l | r | }
\hline \text { Selling and Administrative Expenses } & \$ 5300 \\
\hline \text { Purchases } & 157,000 \\
\hline \text { Sales Revenue } & 785,000 \\
\hline \text { Merchandise Inventory, January 1 } & 2350 \\
\hline \text { Merchandise Inventory, December 31 } & 38,350 \\
\hline
\end{array}\] If the company sold 7900 units of bracelets during the year,how much is the cost for one bracelet? (Round your answer to the nearest cent.)
A) $19.87
B) $15.32
C) $20.17
D) $5.15
Q3) Define period cost.Give three examples of period costs of a merchandising company.
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Chapter 19: Job Order Costing
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Q1) What is cost of goods manufactured? Describe the flow of this cost through the job order costing system.Your answer should include the accounts involved and whether the flow involves a debit or credit.
Q2) The journal entry to record direct labor costs actually incurred involves a debit to the
A) Work-in-Process Inventory account
B) Wages Payable account
C) Manufacturing Overhead account
D) Raw Materials Inventory account
Q3) Arabica Manufacturing uses a predetermined overhead allocation rate based on the number of machine hours.At the beginning of the year,it estimated total manufacturing overhead costs to be $1,050,000,total number of direct labor hours to be 4000,and total number of machine hours to be 20,000 hours.What was the predetermined overhead allocation rate? (Round your answer to the nearest cent.)
A) $262.50 per machine hour
B) $43.75 per direct labor hour
C) $52.50 per machine hour
D) $65.63 per direct labor hour
Q4) Why would the manager of a service company need to use job order costing?
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Chapter 20: Process Costing
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Q1) Under process costing,the costs incurred by each department are reported in a separate production cost report for each department.
A)True
B)False
Q2) Vermillion,Inc.has two processes-Dyeing Department and Finishing.The company sold 2,000 bolts of cloth for $220,000,of which $150,000 was sold on account.The total production cost was $385,000 for 5,500 bolts of cloth.The perpetual inventory system and process costing are used.What are the journal entries to record a sale if the company follows a process costing system?
Q3) Four steps are necessary in preparing a production cost report: 1.Compute output in terms of equivalent units of production
2)Assign costs to units completed and units in process
3)Summarize the flow of physical units
4)Compute the cost per equivalent unit of production
Place these steps in the correct order.
A) 1, 3, 2, 4
B) 3, 1, 4, 2
C) 2, 1, 4, 3
D) 4, 2, 1, 3
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Which of the following costs do NOT change in total despite changes in volume within the relevant range?
A) fixed costs
B) variable costs
C) mixed costs
D) total production costs
Q2) Managers' decisions may cause costs to behave differently than predicted by CVP analysis.
A)True
B)False
Q3) CVP analysis assumes that the sales price per unit does not change as volume changes.
A)True
B)False
Q4) If the sales price of Product X is $24.00 per unit and unit fixed cost is $7.50,its contribution margin per unit is $16.50.
A)True
B)False
Q5) How is the contribution margin ratio calculated?
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Chapter 22: Master Budgets
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Q1) Budgeting requires managers to develop overall business goals and budget for specific actions to achieve the goals.
A)True
B)False
Q2) For a merchandising company,what is the final step in the master budget process?
Q3) For a manufacturing company,the budgeted income statement is a cash basis income statement.
A)True
B)False
Q4) The level of forecasted sales has little effect on other elements of the master budget.
A)True
B)False
Q5) The practice of comparing a company with its prior performance or with best practices from other companies is called ________.
A) benchmarking
B) competitive analysis
C) differentiation analysis
D) budgeting
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Efficiency variance
A)measures how well the business uses its materials or human resources
B)the difference between the expected results in the flexible budget for the actual units sold and the static budget
C)the difference between actual results and expected results in the flexible budget for the actual units sold
D)measures how well the business keeps unit material and labor costs within standards
E)the difference between actual results and the expected results in the static budget
Q2) Complete the following table:
\[\begin{array} { | l | l | l | }
\hline \text { Variance } & \text { How is the variance calculated? } & \text { How does the variance arise? } \\
\hline \text { Flexible budget } & & \\
\hline \text { Sales volume } & & \\
\hline
\end{array}\]
Q3) What does the variable overhead cost variance measure?
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) When using financial performance measures,which of the following statements is incorrect?
A) Most companies use a weighted-average to determine the amount of average assets for ROI calculations.
B) Average total assets are used for both ROI and RI computations.
C) The limitations of financial performance measures reinforce the importance of the balanced scorecard.
D) In general, calculating ROI based on the net book value of assets gives managers an incentive to continue using old, outdated equipment because its low net book value results in a higher ROI.
Q2) The responsibility report of Alejandro Garcia,the manager of one of the divisions of an auto parts manufacturing company,includes profits as well as return on investment and residual income.Alejandro is most likely the manager of a(n)________.
A) investment center
B) profit center
C) cost center
D) revenue center
Q3) Explain the difference between a controllable and a noncontrollable cost.
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Chapter 25: Short-Term Business Decisions
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Q1) Grill Time sells its barbecue sets for $170 each.Suppose the company incurs the following average cost per barbecue set:
\[\begin{array} { l l }
\text { Direct materials } & \$ 52 \\
\text { Direct labor } & 28 \\
\text { Variable manufacturing overhead } & 11 \\
\text { Variable selling expenses } & 5 \\
\text { Fixed manufacturing overhead* } & 2 4 \\
\text { Total cost } & \$ 120 \end{array}\] * $ 1,800,000 / 75,000 units
Grill Time has enough idle capacity to accept a one-time-only special order from Backyard Living,Inc.for 2,000 barbecue sets at a sales price of $130 per set.Grill Time will not incur $2 of variable selling expenses for this order. How would accepting the order affect Grill Time's operating income?
Q2) Tryniski Company is considering purchasing a new truck.The decision has been narrowed to two models.The cost of each of these two trucks is relevant to this business decision.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?
Q2) Evergreen Lawnmowers is considering the purchase of a new machine costing $814,000.The company's management is estimating that the new machine will generate additional cash inflows of $194,000 a year for ten years and have a residual value of $52,000 at the end of ten years.What is the machine's payback period? (Round your answer to two decimal places.)
A) 4.20 years
B) 6.37 years
C) 3.33 years
D) 5.22 years
Q3) An investment should be accepted if ________.
A) it has positive total cash inflows
B) it has a payback period in less than 10 years
C) the investment's rate of return is lower than the company's current year required rate of return
D) the net present value is positive
Q4) If the net cash inflows are unequal,how is the payback period (in years)of an investment calculated?
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