Accounting II Exam Solutions
Course Introduction
Accounting II builds upon foundational accounting principles introduced in Accounting I, focusing on more advanced topics such as partnership accounting, corporate accounting, the preparation and analysis of financial statements, and the use of accounting information for managerial decision-making. The course covers topics including inventory valuation methods, long-term assets, liabilities, stockholders equity, cash flow statements, and an introduction to managerial accounting concepts such as budgeting and cost analysis. Through problem-solving exercises and practical applications, students develop a deeper understanding of how financial data is recorded, interpreted, and used to drive business decisions.
Recommended Textbook
Horngren's Accounting 12th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Define assets.Provide three examples of assets.
Answer: Assets are economic resources that are expected to benefit the business in the future.Assets are something the business owns or has control of.Examples include cash,merchandise inventory,furniture,and land.
Q2) Which of the following financial statements reports cash receipts and cash payments during a period of time?
A) Statement of cash flows
B) Balance sheet
C) Cash receipts budget
D) Statement of owner's equity
Answer: A
Q3) The left side of the accounting equation always equals the right side of the accounting equation.
A)True
B)False
Answer: True
Q4) What is the primary objective of financial reporting?
Answer: The primary objective of financial reporting is to provide information useful for making investment and lending decisions.
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Which is a TRUE statement regarding the accounting equation?
A) The equation can be stated as assets minus liabilities equals equity.
B) The equation consists of three parts: assets, liabilities, and net income.
C) The equation is an optional tool for accountants to use.
D) The equation does not need to balance during a specific period.
Answer: A
Q2) A business makes a cash payment of $12,000 to a creditor.Which of the following accounts is credited?
A) Cash
B) Accounts Payable
C) Bank
D) Accounts Receivable
Answer: A
Q3) Debit refers to the right side of the T-account,and credit refers to the left side.
A)True
B)False
Answer: False
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4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Under accrual basis accounting,revenue is recorded only when cash is received.
A)True
B)False
Answer: False
Q2) On March 1,2016,Nortons Company paid $60,000 as office rent covering the three-month period ending May 31,2016.Journalize the entry on March 1 by using the alternative treatment of deferred expenses.Omit explanation.
Answer: \(\begin{array}{|l|l|l|}
\hline\text { Rent Expense } & 60,000 \\
\hline \text { Cash } &&60,000\\
\hline \end{array}\)
Q3) A contra account's normal balance is the opposite of the normal balance of the related account.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) In which of the columns of the worksheet would Net Income be found?
A) the unadjusted trial balance credit column, the adjusted trial balance credit column, and the balance sheet credit column
B) the unadjusted trial balance debit column, the adjusted trial balance debit column, and the balance sheet debit column
C) the balance sheet debit column and the income statement credit column
D) the balance sheet credit column and the income statement debit column
Q2) Reversing entries are special journal entries that ease the burden of accounting for transactions in a later period.
A)True
B)False
Q3) The closing process helps in measuring each period's net income separately from all other periods.
A)True
B)False
Q4) Only temporary accounts appear on the post-closing trial balance.
A)True
B)False
Q5) List the steps of the accounting cycle that take place at the end of the period.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) The Sales Discounts Forfeited account ________.
A) is a contra Sales Revenue account
B) represents additional sales revenue
C) is a balance sheet account
D) represents the discount lost when a customer does not pay within the discount period
Q2) The net income calculated using either the single-step or multi-step income statement formats is always the same.
A)True
B)False
Q3) Journalize the following sales transactions for Power Equipment using the periodic inventory system.Explanations are not required.
July 1: Sold $4,200 of equipment on account,credit terms are n/30,FOB destination.
July 5: Paid $90 on freight out.
July 11: Received payment from the customer for the full amount due on the July 1 sale.
Q4) List four items from an invoice that are needed to record a purchase of merchandise inventory.
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Page 7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Businesses strive to sell merchandise inventory quickly because the merchandise inventory generates no profit until it is sold.
A)True
B)False
Q2) Which of the following statements regarding LIFO is incorrect?
A) The last units in are assumed to be the first units sold.
B) Ending inventory comes from the most recent purchases.
C) This method leaves the oldest costs in ending inventory.
D) LIFO is an assumption about how costs flow.
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) A company discovers that its cost of goods sold is understated by an insignificant amount.It does not need to correct the error because of the conservatism principle.
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 NOT included in the purchases journal?
A) purchases of merchandise inventory for cash
B) purchase of merchandise inventory on account
C) purchase of office supplies on credit
D) purchase of equipment on account
Q2) In a perpetual inventory system,the credit columns of a typical cash payments journal are ________.
A) Merchandise Inventory column and Cash column
B) Other Accounts column and Accounts Payable column
C) Merchandise Inventory column and Accounts Payable column
D) Other Accounts column and Cash column
Q3) Depreciation expense is recorded in a ________.
A) cash payments journal
B) sales journal
C) cash receipts journal
D) general journal
Q4) All transactions are recorded in either one of the special journals or in the general journal,but not both.
A)True
B)False
Page 9
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) The security measures are the same for any type of cash receipts.
A)True
B)False
Q2) The primary reason that businesses keep their cash in a bank account is the ability to earn interest.
A)True
B)False
Q3) A petty cash fund was established with a $400 balance.It currently has cash of $43 and petty cash tickets totaling $357.Which of the following would be included in the entry to replenish the fund?
A) a credit to Petty Cash for $357
B) a debit to Petty Cash for $43
C) a credit to Cash for $43
D) a debit to various expenses for $357
Q4) Check
A)Sent by the vendor after the inventory has been shipped to the purchaser.
B)Sent to the vendor when goods are ordered.
C)Prepared by the purchaser when the goods are received.
D)Sent to the vendor after all approving documents have been submitted.
Q5) List and briefly discuss the five components of internal control.
Page 10
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Chapter 9: Receivables
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Sample Questions
Q1) Companies should not sell merchandise in exchange for notes receivable.
A)True
B)False
Q2) 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 an uncollectible receivable will be ________.
A) a reduction in net income
B) negligible on net income
C) an increase in total assets
D) a generation of positive cash flow
Q3) Which of the following is an example of exercising internal control over receivables?
A) separating cash collection and credit approval duties
B) extending credit to all customers who apply for credit
C) combining the duties of the credit and accounting departments
D) allowing credit department employees to collect cash from customers
Q4) By accepting credit and debit cards,companies are able to attract more customers.
A)True
B)False
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11
Chapter 10: Plant Assets,natural Resources,and Intangibles
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Sample Questions
Q1) 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
Q2) The units-of-production method allocates a varying amount of depreciation each year based on an asset's usage.
A)True
B)False
Q3) Classify each of the following expenditures as capital expenditure (CE)or revenue expenditure (RE).
1.________ Repair of transmission or engine
2.________ Sales tax paid on the purchase price
3.________ Training of personnel for initial operation of machinery
4,________ Modification for new use
Q4) A natural resource is an asset that comes from the earth and is consumed. A)True
B)False
12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) The times-interest-earned ratios of Orlando Company are 20.56 and 7.35 for 2018 and 2019,respectively.Which of the following can be the possible reason for such a change from 2018 to 2019?
A) Orlando Company incurred less debt specifically in its revolving line of credit.
B) Orlando Company incurred more debt specifically in its revolving line of credit.
C) Orlando Company paid less interest in its revolving line of credit.
D) Orlando Company's debt-paying ability increased.
Q2) If the likelihood of a future event is probable and the amount of the expense can be estimated,how should the company report the contingency?
Q3) Which of the following is a characteristic of a current liability?
A) It creates a present obligation for future payment of cash or services.
B) It cannot be settled with services.
C) It is an avoidable obligation.
D) It occurs because of a future transaction or event.
Q4) FICA tax is paid by the employee only.
A)True
B)False
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Chapter 12: Partnerships
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Sample Questions
Q1) Which of the following is a characteristic of a partnership?
A) Partnerships pay corporate income taxes.
B) Partnerships are listed on a stock exchange.
C) Partnerships are organized as corporations.
D) Partners have co-ownership of the partnership's assets.
Q2) Which of the following is TRUE of a written partnership agreement?
A) It is an agreement in which the partners hold a direct agreement with the registration body, and the registration body acts as an interlocutor between the partners.
B) It is an informal agreement between the partners and is not legally binding.
C) It is a legally-binding agreement between the owners which explains the procedures for liquidating the partnership.
D) It is a legally-binding agreement between the proprietors and the stock exchange where it is listed regarding the profit sharing between the owners.
Q3) The sum (or total)of the net income (loss)allocated to each partner should always equal the total net income (loss)of the partnership.
A)True
B)False
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) Errors are corrected by adjusting the beginning balance in the Retained Earnings account in the period the error is discovered.
A)True
B)False
Q2) Most corporations set par value low and issue common stock at a premium.
A)True
B)False
Q3) On the income statement,earnings per share is shown for income from continuing operations.
A)True
B)False
Q4) Valley,Inc.has 9000 shares of preferred stock outstanding.The preferred stock has a $90 par value,a 14% dividend rate,and is noncumulative.If Valley has sufficient funds to pay dividends,what is the total amount of dividends that will be paid out to preferred stockholders?
A) $32,143
B) $113,400
C) $57,857
D) $8100
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) 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
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) Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.
A)True
B)False
Q4) Which of the following concepts represent the time value of money?
A) the concept that money becomes obsolete over time
B) the concept that money earns interest over time
C) the concept that money loses its purchasing power over time
D) the concept that money can be converted into other currencies over time
Q5) What does the debt to equity ratio show,and how is it calculated?
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Chapter 15: Investments
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Sample Questions
Q1) When a company collects the face value of a bond investment at maturity,total assets increase.
A)True
B)False
Q2) All available-for-sale debt investments are reported as long-term assets on the balance sheet.
A)True
B)False
Q3) Which of the following securities typically pay interest?
A) equity securities
B) preferred stocks
C) corporate bonds
D) significant interest investment
Q4) The fair value of a trading debt security is the price that would be used if the company were to sell the investment on the market.
A)True
B)False
Q5) A parent company is a company that is controlled by another corporation.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) Delaware Coatings Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for the year 2019: Net cash provided by operating activities: $44,000
Net cash used for investing activities: $(27,000)
Net cash provided by financing activities: $2000 What is the net change in cash during the year?
A) $(19,000)
B) $42,000
C) $19,000
D) $(17,000)
Q2) The statement of cash flows helps users ________.
A) predict future net income
B) evaluate management decisions
C) evaluate the company's earnings per share
D) predict the growth of a company's assets
Q3) The statement of cash flows is the link between the accrual-based income statement and the cash reported on the balance sheet.
A)True
B)False
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Page 18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) A vertical analysis of a financial statement reveals the relationship of each statement item to its base amount,which is the 100% figure.
A)True
B)False
Q2) The dividend yield can be calculated for both common and preferred stockholders.
A)True
B)False
Q3) If inventory turnover is too slow,a company may be unable to sell goods or it may be understating merchandise inventory.
A)True
B)False
Q4) A corporation has 3000 shares,10% preferred stock of $55.00 par preferred stock,and 6000 shares of common stock outstanding.The net income for the year is $300,000.Calculate earnings per share.(Round your answer to the nearest cent.)
A) $55.00
B) $47.25
C) $50.00
D) $100.00
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19
Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) Castillo Corporation,a manufacturer,reports costs for the year as follows:
\[\begin{array} { | l | r | }
\hline \text { Direct Materials Used } & \$ 735,000 \\
\hline \text { Wages to Line Workers } & 510,000 \\
\hline \text { Office Rent } & 26,000 \\
\hline \text { Indirect Materials Used } & 700,000 \\
\hline
\end{array}\] How much is the total period costs for Castillo?
A) $735,000
B) $510,000
C) $26,000
D) $700,000
Q2) Unit product costs can be used to measure operating income and determine the cost of Finished Goods Inventory.
A)True
B)False
Q3) Managerial accounting can be used to calculate costs for service and merchandising companies.
A)True
B)False
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Chapter 19: Job Order Costing
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Sample Questions
Q1) The costs transferred from Work-in-Process Inventory to Finished Goods Inventory are called Cost of Goods Manufactured.
A)True
B)False
Q2) On January 1,Feldstein Manufacturing had a beginning balance in Work-in-Process Inventory of $81,100 and a beginning balance in Finished Goods Inventory of $22,000.During the year,Feldstein incurred manufacturing costs of $351,000. During the year,the following transactions occurred:
Job A-12 was completed for a total cost of $121,100 and was sold for $126,700.
Job A-13 was completed for a total cost of $201,800 and was sold for $211,000.
Job A-15 was completed for a total cost $60,000 but was not sold as of year-end.
What was the balance in Finished Goods Inventory at the end of the year?
A) $404,900 debit balance
B) $82,000 credit balance
C) $82,000 debit balance
D) $382,900 debit balance
Q3) Leonard Manufacturing Systems uses job order costing and a perpetual inventory system.When recording the sale of a job,which account(s)is(are)debited?
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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Sample
Questions
Q1) At the end of an accounting period,the costs assigned to a production department can be split into the cost of units fully completed and transferred out,and the cost of units partially completed and remaining in the Work-in-Process Inventory of that department.
A)True
B)False
Q2) During August,the Filtering Department of Rudbeckia,Inc.had beginning Work-in-Process inventory of 120 units with costs of $50,000.525 units were transferred in during the month.It had 60 units in ending Work-in-Process Inventory.Under the first-in,first-out (FIFO)method,current period equivalent units of production for transferred in units in beginning Work-in-Process Inventory of the Filtering Department is
A) 0 units
B) 525 units
C) 120 units
D) 60 units
Q3) A production cost report shows only the calculations for the physical flow of products.
A)True B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Which of the following formulas is the right formula for calculating contribution margin ratio?
A) Contribution margin ratio = Contribution margin + Net sales revenue
B) Contribution margin ratio = Contribution margin / Net sales revenue
C) Contribution margin ratio = Contribution margin × Net sales revenue
D) Contribution margin ratio = Contribution margin - Net sales revenue
Q2) When all units produced are sold,there is no difference in operating income between absorption costing and variable costing.
A)True
B)False
Q3) Which of the following is NOT an assumption of cost-volume-profit (CVP)analysis?
A) The only factor that affects total costs is a change in volume, which increases or decreases total variable and mixed costs.
B) The price per unit does not change as volume changes.
C) Total fixed costs do not change.
D) The price per unit changes as volume changes.
Q4) What is the margin of safety? List three ways in which margin of safety can be expressed.
Q5) List the cost-volume-profit (CVP)assumptions.
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Chapter 22: Master Budgets
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Sample Questions
Q1) A master budget is a financial plan for a specific segment of an organization.
A)True
B)False
Q2) Calder Water Company has budgeted direct materials inventory purchases as follows: October: $300,000 November: $360,000
December: $460,000 Calder pays for 20% of their purchases during the month of purchase,70% during the month following the purchase,and the remaining 10% two months after the month of purchase.What is the budgeted accounts payable balance on December 31?
A) $368,000
B) $404,000
C) $460,000
D) $440,000
Q3) The forecast of sales revenue is the cornerstone of the master budget.
A)True
B)False
Q4) List the three sections of the cash budget for a merchandising company.
Q5) List the three sections of the cash budget for a manufacturer.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Sample Questions
Q1) The static budget,at the beginning of the month,for New England Furniture Company follows: Static budget:
Sales volume: 1000 units; Sales price: $71.00 per unit
Variable costs: $33.00 per unit; Fixed costs: $36,200 per month
Operating income: $1800
Actual results,at the end of the month,follows: Actual results:
Sales volume: 960 units; Sales price: $74.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $35,000 per month
Operating income: $2440
Calculate the sales volume variance for fixed costs.
A) $1920 U
B) $1200 F
C) $1520 U
D) $0
Q2) In a standard costing system,each input of direct materials,direct labor,and manufacturing overhead has a cost standard and an efficiency standard.
A)True
B)False
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) If a market-based transfer price is used,the transfer price is based on the cost of goods sold.
A)True
B)False
Q2) Decentralized companies rarely struggle to achieve goal congruence.
A)True
B)False
Q3) Flexible budgets use budgeted (or standard)costs at the actual level of activity.
A)True
B)False
Q4) To adequately evaluate an investment center's financial performance,summary performance measures should include both the division's operating income and its assets.
A)True
B)False
Q5) Centralized companies split their operations into segments and top management delegates decision making to the segment managers.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Beacon Corporation manufactures two styles of lamps- Bedford Lamp and Lowell Lamp.The following per unit data are available: \[\begin{array} { | l | r | r | }
\hline & \text { Bedford Lamp } & \text { Lowell Lamp } \\
\hline \text { Sales price } & \$ 28 & \$ 35 \\
\hline \text { Variable costs } & \$ 15 & \$ 23 \\
\hline \text { Machine hours required for one lamp } & 1 & 4 \\
\hline
\end{array}\] Total fixed costs are $31,000,and Beacon can sell a maximum of 10,000 units of each style of lamp annually.Machine hour capacity is 25,000 hours per year.What is the contribution margin per machine hour for the Bedford Lamp? (Round your answer to the nearest cent.)
A) $13.00 per machine hour
B) $3.00 per machine hour
C) $28.00 per machine hour
D) $35.00 per machine hour
Q2) Companies that are price-takers have considerable flexibility in setting the prices of their products.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Sample Questions
Q1) Which capital budgeting method uses accrual accounting,rather than net cash inflows,as a basis for calculations?
A) payback
B) accounting rate of return
C) net present value
D) internal rate of return
Q2) Capital budgeting is the ________.
A) process of planning for investments in long-term assets
B) preparation of the budget for operating expenses
C) process of evaluating the profitability of a business
D) process of making pricing decisions for products
Q3) Which of the following is a capital budgeting method that ignores the time value of money?
A) payback
B) internal rate of return
C) return on assets
D) net present value
Q4) Management uses several different methods in evaluating potential capital investments.Identify and briefly discuss the four methods outlined in the text.
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