Accounting II
Mock Exam
Course Introduction
Accounting II is an intermediate-level course that builds upon the foundational concepts introduced in introductory accounting. The course covers topics such as partnership and corporate accounting, long-term liabilities, investments, cash flows, and comprehensive financial statement analysis. Students will develop skills in analyzing and interpreting financial information, understanding the regulatory environment, and applying accounting principles to more complex transactions and business scenarios. The course emphasizes the use of accounting information for decision-making in a variety of organizational contexts.
Recommended Textbook
Financial and Managerial Accounting 8th Edition by John J Wild
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Chapter 1: Accounting in Business
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Q1) If the liabilities of a company increased $92,000 during a period of time and equity in the business decreased $30,000 during the same period,did the assets of the company increase or decrease? By what amount?
Answer: Assets increased by $62,000.
Assets = Liabilities + Equity
$62,000 = $92,000 - $30,000
Q2) In the partnership form of business,the owners are called stockholders.
A)True
B)False
Answer: False
Q3) A company acquires equipment for $75,000 cash.This represents a(n):
A)Operating activity.
B)Investing activity.
C)Financing activity.
D)Revenue activity.
E)Expense activity.
Answer: B
Q4) Risk is the ________ about the return an investor expects to earn.
Answer: uncertainty
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Chapter 2: Accounting for Business Transactions
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Q1) Identify the statement below that is correct.
A)When a future expense is paid in advance,the payment is normally recorded in a liability account called Prepaid Expense.
B)Promises of future payment by the customer are called accounts receivable.
C)Increases and decreases in cash are always recorded in the common stock account.
D)An account called Land is commonly used to record increases and decreases in both the land and buildings owned by a business.
E)Accrued liabilities include accounts receivable. Answer: B
Q2) A record in which the effects of transactions are first recorded and from which transaction amounts are posted to the ledger is a(n):
A)Account.
B)Trial balance.
C)Journal.
D)T-account.
E)Balance column account. Answer: C
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Page 4
Chapter 3: Adjusting Accounts for Financial Statements
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Sample Questions
Q1) Harrod Company paid $4,800 for a 4-month insurance premium in advance on November 1,with coverage beginning on that date.The balance in the prepaid insurance account before adjustment at the end of the year is $4,800 and no adjustments had been made previously.The adjusting entry required on December 31 is:
A)Debit Insurance Expense,$2,400; credit Prepaid Insurance,$2,400.
B)Debit Prepaid Insurance,$2,400; credit Insurance Expense,$2,400.
C)Debit Insurance Expense,$1,200; credit Prepaid Insurance,$1,200.
D)Debit Prepaid Insurance,$1,200; credit Insurance Expense,$1,200.
E)Debit Cash,$4,800; Credit Prepaid Insurance,$4,800.
Answer: A
Q2) A benefit of using a work sheet is that it aids in the preparation of the financial statements.
A)True
B)False
Answer: True
Q3) An adjusting entry often includes an entry to Cash.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) How do closing entries for a merchandising company that uses the perpetual inventory system differ from the closing entries for a service company?
Q2) Beginning inventory plus net purchases is:
A)Cost of goods sold.
B)Merchandise (goods)available for sale.
C)Ending inventory.
D)Sales.
E)Shown on the balance sheet.
Q3) Which of the following statements regarding the operating cycle of a merchandising company is not true?
A)The operating cycle begins with the purchase of merchandise.
B)The operating cycle is shortened by credit sales.
C)The operating cycle ends with the collection of cash from the sale of merchandise.
D)The operating cycle can vary in length among different merchandising companies.
E)The operating cycle sometimes involves accounts receivable.
Q4) ________ are the amounts and timing of payment from a buyer to a seller.
Q5) The gross margin ratio equals net sales less ________ divided by net sales.
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Page 6
Chapter 5: Inventories and Cost of Sales
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Q1) Explain the reason a company might use the retail inventory method for valuing inventory.
Q2) A company's total cost of FIFO inventory was $329,000 and its current replacement cost is $307,000.Under the lower cost or market,the amount reported should be $329,000.
A)True
B)False
Q3) The LIFO method of inventory costing best matches current costs with revenues.
A)True
B)False
Q4) All of the following statements regarding the financial statement impact of inventory costing are true except.
A)When purchase prices are changing,the methods to assign inventory costs result in different amounts for cost of goods sold.
B)Inventory on the balance sheet approximates current cost when FIFO is used.
C)The weighted average method smooths out erratic changes in costs.
D)Selected costing method does not impact net income.
E)Cost of goods sold on the income statement approximates current cost when LIFO is used.
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Page 7
Chapter 6: Cash,fraud,and Internal Controls
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Sample Questions
Q1) Assigning purchasing,receiving,and paying for merchandise to one department or individual is a way to streamline a voucher system.
A)True
B)False
Q2) According to good internal control policies,a person who controls an asset also maintains that asset's accounting records.
A)True
B)False
Q3) Internal control of cash receipts aims to ensure that all cash received is properly recorded and deposited.
A)True
B)False
Q4) A debit balance in the Cash Over and Short account reflects an expense and is reported on the income statement as part of miscellaneous expenses.
A)True
B)False
Q5) A ________ is a document explaining the payment of a check.
Q6) Describe a petty cash account and its purpose.
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Chapter 7: Accounting for Receivables
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Q1) Dishonoring a note means the maker no longer has to pay.
A)True
B)False
Q2) The allowance method of accounting for bad debts matches the estimated loss from uncollectible accounts receivable against the sales they helped produce.
A)True
B)False
Q3) A company has $80,000 in outstanding accounts receivable and it uses the allowance method to account for uncollectible accounts.Experience suggests that 6% of outstanding receivables are uncollectible.The current credit balance (before adjustments)in the allowance for doubtful accounts is $1,200.The journal entry to record the adjustment to the allowance account includes a debit to Bad Debts Expense for $4,800.
A)True
B)False
Q4) The accounts receivable turnover is calculated by dividing ________ by
Q5) Prudence Co.receives a $26,000,90-day,4% note receivable.What is the amount of interest that is due at maturity?
Page 9
Q6) Explain how to record the receipt (acceptance)of a note receivable.
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Chapter 8: Accounting for Long-Term Assets
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Q1) The insufficient capacity of a company's plant asset to meet the company's productive demands is called ________.
Q2) Revising an estimate of the useful life or salvage value of a plant asset is referred to as a change in accounting estimate and is reflected in the current,and future financial statements.
A)True
B)False
Q3) Compare the different depreciation methods (straight-line,units-of-production,and double-declining-balance)with respect to the amounts of depreciation expense per period and the total depreciation over the life of the asset.
Q4) The cost of fees for insuring the title and any accrued property taxes are included in the cost of land.
A)True
B)False
Q5) Depletion is the process of allocating the cost of natural resources to periods when they are consumed.
A)True B)False
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Chapter 9: Accounting for Current Liabilities
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Q1) An employee earns $8,500 for the current period.The cumulative earnings of previous pay periods is $100,900.Social security tax applies to the first $128,400 of employee earnings.Calculate the total and individual amounts to be withheld for social security (6.2%),Medicare (1.45%)and federal income tax (15%).
Q2) On June 1,Jasper Company signed a $25,000,120-day,6% note payable to cover a past due account payable.
a.What is the total amount of interest to be paid on this note?
b.Prepare Jasper Company's general journal entry to record the issuance of the note payable.
c.Prepare Jasper Company's general journal entry to record the payment of the note on September 29.
Q3) A company estimates that warranty expense will be 4% of sales.The company's sales for the current period are $185,000.The current period's entry to record the warranty expense is:
A)Debit Warranty Expense $7,400; credit Sales $7,400.
B)Debit Warranty Expense $7,400; credit Estimated Warranty Liability $7,400.
C)Debit Estimated Warranty Liability $7,400; credit Warranty Expense $7,400.
D)Debit Estimated Warranty Liability $7,400; credit Cash $7,400.
E)No entry is recorded until the items are returned for warranty repairs.
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Page 11
Chapter 10: Accounting for Long-Term Liabilities
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Sample Questions
Q1) A contract pledging title to assets as security for a note or bond is known as a(an):
A)Sinking fund.
B)Mortgage.
C)Equity.
D)Lease.
E)Indenture.
Q2) ________ bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.
Q3) ________ bonds are bonds that mature at more than one date,often in a series,and thus are usually repaid over a number of periods.
Q4) Adonis Corporation issued 10-year,8% bonds with a par value of $200,000.Interest is paid semiannually.The market rate on the issue date was 7.5%.Adonis received $206,948 in cash proceeds.Which of the following statements is true?
A)Adonis must pay $200,000 at maturity and no interest payments.
B)Adonis must pay $206,948 at maturity and no interest payments.
C)Adonis must pay $200,000 at maturity plus 20 interest payments of $8,000 each.
D)Adonis must pay $206,948 at maturity plus 20 interest payments of $8,000 each.
E)Adonis must pay $200,000 at maturity plus 20 interest payments of $7,500 each.
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Page 12
Chapter 11: Corporate Reporting and Analysis
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Sample Questions
Q1) Prior period adjustments are reported in the:
A)Multiple-step income statement.
B)Balance sheet.
C)Statement of retained earnings.
D)Statement of cash flows.
E)Single-step income statement.
Q2) Cumulative preferred stock carries the right to be paid both current and all prior periods' unpaid dividends before any dividends are paid to common shareholders.
A)True
B)False
Q3) Stock that was reacquired and is still held by the issuing corporation is called:
A)Capital stock.
B)Treasury stock.
C)Redeemed stock.
D)Preferred stock.
E)Callable stock.
Q4) Explain the difference between a large stock dividend and a small stock dividend.In addition,explain how to record these two types of stock dividends.
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Chapter 12: Reporting Cash Flows
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Q1) Explain how the cash flows from operating activities section of the statement of cash flows is prepared using the indirect method.
Q2) Of the following,which one affects cash during a period?
A)The declaration of a stock dividend.
B)Writing off an uncollectible account receivable.
C)The declaration of a cash dividend.
D)An adjusting entry recognizing the expiration of prepaid insurance.
E)The payment of interest expense accrued in a previous accounting period.
Q3) Define and explain significant noncash investing and financing activities and the method of reporting them on the statement of cash flows.
Q4) A company reported net income of $318,000,operating cash flows of $218,000,total cash flows of $184,000,and average total assets of $898,000.Calculate its cash flow on total assets ratio.
Q5) Describe the format of the statement of cash flows,including the reporting of significant noncash investing and financing activities.
Q6) A main purpose of the statement of cash flows is to report all the major cash ________ and cash ________.
Q7) Explain how cash flows from investing and financing activities are determined. To view all questions and flashcards with answers, click on the resource link above.
Page 14
Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) Annual cash dividends per share divided by market price per share is the:
A)Price-earnings ratio.
B)Price-dividends ratio.
C)Profit margin.
D)Dividend yield ratio.
E)Earnings per share.
Q2) Low expectations of future performance result in a low price-earnings (PE)ratio.
A)True
B)False
Q3) Trend analysis is computing percents that show patterns in data across periods.
A)True
B)False
Q4) Market prospects are the ability to generate positive market expectations.
A)True
B)False
Q5) When an item has a value in the base period and zero in the analysis period,the decrease is 0 percent.
A)True
B)False
Q6) Identify and describe three common tools of financial statement analysis.
Page 15
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Chapter 14: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) An employee devises a payroll scheme that costs the employer $150.The employer discovers the fraud but decides not to confront the employee since the amount of the fraud is small.Discuss why this course of action is not advisable.
Q2) A schedule of cost of goods manufactured is also known as a:
A)Raw materials processed schedule.
B)Factory supplies used schedule.
C)Manufacturing statement.
D)Total finished goods statement.
E)Cost of goods sold schedule.
Q3) A management concept that seeks to uncover and eliminate waste in business activities is called:
A)Continuous operations.
B)Customer orientation.
C)Just-in-time.
D)Theory of constraints.
E)Lean business model.
Q4) What are the components of the schedule of cost of goods manufactured? Describe each component.
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Q5) ________ is the process of setting goals and making plans to achieve them.
Chapter 15: Job Order Costing and Analysis
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Q1) A receiving report is the source document for recording materials received in both a materials ledger card and in the general ledger.
A)True
B)False
Q2) The predetermined overhead rate based on direct labor cost is the ratio of estimated overhead cost to estimated direct labor cost for the period.
A)True
B)False
Q3) When direct labor is assigned to specific jobs,________ is debited.
Q4) Job cost sheets include both product and period costs.
A)True
B)False
Q5) Predetermined overhead rates are calculated before the start of the accounting period,and are therefore based on estimates.
A)True
B)False
Q6) How do manufacturing firms adjust the overapplied or underapplied factory overhead account at the end of an accounting period?
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Chapter 16: Process Costing and Analysis
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Sample Questions
Q1) Calculate the equivalent units of conversion.
A)250,000
B)317,000
C)294,000
D)333,000
E)342,000
Q2) Equivalent units of production is the number of units that could have been started and completed given the costs incurred during the period.
A)True
B)False
Q3) A process cost summary involves computations and analysis at four sequential steps.These are (1)________ (2)________,(3)________,and (4)________.
Q4) Hybrid costing systems can only be applied to manufacturing.
A)True
B)False
Q5) Process costing is applied to operations with repetitive production and noncustomized products.
A)True
B)False
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Chapter 17: Activity-Based Costing and Analysis
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Q1) What is the approximate overhead cost per unit of Product B under activity-based costing?
A)$3.00
B)$2.00
C)$10.28
D)$15.00
E)$2.33
Q2) Which of the following would not be considered a product cost?
A)Direct material costs.
B)Factory supervisor's salary.
C)Direct labor costs.
D)Budget accountant's salary.
E)Manufacturing overhead costs.
Q3) Name and briefly describe three overhead rate methods.
Q4) ABC systems ________.
A)usually will undercost complicated or complex products
B)will limit cost drivers to units of output
C)highlight the different levels of activities
D)will allocate costs based on volume
E)comply with GAAP
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Chapter 18: Cost Behavior and Cost-Volume-Profit Analysis
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Q1) A scatter diagram is useful for identifying extreme data points or outliers.
A)True
B)False
Q2) The difference between the unit sales price and the unit variable cost of an item is defined as the ________.
Q3) Leeks Company's product has a contribution margin per unit of $11.25 and a contribution margin ratio of 22.5%.What is the selling price of the product?
A)$5.
B)$20.
C)$30.
D)$40.
E)$50.
Q4) The dollar amount of sales needed to achieve a target income is computed by dividing the sum of fixed costs plus the target pretax income by the contribution margin ratio.
A)True B)False
Q5) What are the cost behaviors per unit and in total for variable cost and fixed costs within the relevant range?
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Chapter 19: Variable Costing and Analysis
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Q1) ________ and ________ are product costs that can be directly traced to the product.
Q2) The absorption costing approach assigns all manufacturing costs to products.
A)True
B)False
Q3) Given Advanced Company's data,and the knowledge that the product is sold for $50 per unit and operating expenses are $200,000,compute the net income under absorption costing.
A)$55,000
B)$67,500
C)$80,500
D)$122,500
E)$205,000
Q4) Calculate the unit product cost using variable costing.
A)$245
B)$275
C)$55
D)$145
E)$125
Q5) The product costing approach required by GAAP is referred to as ________.
Page 21
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Chapter 20: Master Budgets and Performance Planning
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Q1) Walter Enterprises expects its September sales to be 20% higher than its August sales of $150,000.Purchases were $100,000 in August and are expected to be $120,000 in September.All sales are on credit and are collected as follows: 30% in the month of the sale and 70% in the following month.Merchandise purchases are paid as follows: 25% in the month of purchase and 75% in the following month.The beginning cash balance on September 1 is $7,500.The ending cash balance on September 30 would be:
A)$31,500.
B)$67,500.
C)$54,000.
D)$61,500.
E)$136,500.
Q2) Which of the following is a benefit derived from budgeting?
A)Budgeting focuses management's attention on past performance.
B)Budgeting avoids needing industry and economic factors in decision making.
C)Budgeting provides a basis for evaluating performance.
D)Budgeting avoids the need for incentives to improve employee performance.
E)Budgeting eliminates the need for coordination across departments.
Q3) Describe at least five benefits of budgeting.
Q4) The ________ shows expected cash inflows and outflows during the budget period.
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Chapter 21: Flexible Budgets and Standard Costs
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Q1) The overhead cost variance is:
A)The difference between the overhead costs actually incurred and the overhead budgeted at the actual operating level.
B)The difference between the actual overhead incurred during a period and the standard overhead applied.
C)The difference between actual and budgeted cost caused by the difference between the actual price per unit and the budgeted price per unit.
D)The costs that should be incurred under normal conditions to produce a specific product (or component)or to perform a specific service.
E)The difference between the total overhead cost that would have been expected if the actual operating volume had been accurately predicted and the amount of overhead cost that was allocated to products using the standard overhead rate.
Q2) The difference between the flexible budget sales and the fixed budget sales is called the ________ variance.
Q3) What are some causes of direct labor rate and efficiency variances?
Q4) What are sales variances? How are they used?
Q5) Identify and explain the primary differences between fixed and flexible budgets.
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Chapter 22: Performance Measurement and Responsibility Accounting
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Q1) A college uses advisors who work with all students in all divisions of the college.The most useful allocation basis for the salaries of these employees would likely be:
A)number of classes offered in each division.
B)student graduation rate.
C)square footage of each division.
D)number of students advised from each division.
E)relative salaries of division heads.
Q2) An example of a controllable cost is equipment depreciation expense.
A)True
B)False
Q3) The amount of salaries that should be allocated to Drilling for the current period is:
A)$30,000.
B)$18,000.
C)$15,000.
D)$10,000.
E)$12,000.
Q4) How do companies decide what allocation bases to use to allocate indirect costs to departments?
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Chapter 23: Relevant Costing for Managerial Decisions
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Q1) An opportunity cost:
A)Is an unavoidable cost because it remains the same regardless of the alternative chosen.
B)Requires a current outlay of cash.
C)Results from past managerial decisions.
D)Is the potential benefit lost by choosing a specific alternative course of action among two or more.
E)Is irrelevant in decision making because it occurred in the past.
Q2) Bricktan Inc.makes three products,basic,classic,and deluxe.The maximum Bricktan can sell is 75,000 units of basic,420,000 units of classic,and 120,000 units of deluxe.Bricktan has limited production capacity of 90,000 hours.It can produce 10 units of basic,8 units of classic,and 4 units of deluxe per hour.Contribution margin per unit is $15 for the basic,$25 for the classic,and $55 for the deluxe.What is the total contribution margin if Bricktan chooses the most profitable sales mix?
A)$8,000,000.
B)$9,700,000.
C)$15,500,000.
D)$18,225,000.
E)$12,800,000.
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Chapter 24: Capital Budgeting and Investment Analysis
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Q1) A company buys a machine for $76,000 that has an expected life of 6 years and no salvage value.The company uses straight-line depreciation.The company anticipates a yearly after tax net income of $1,805.What is the accounting rate of return?
A)2.85%.
B)4.75%.
C)6.65%.
D)9.50%.
E)42.75%.
Q2) The capital budgeting process involves all of the following except:
A)Having department or plant managers submit new investment proposals.
B)Determining which financial institution to use for financing.
C)Evaluating the submitted proposals.
D)Forming a capital budget committee that includes accounting and finance members.
E)Approving or rejecting new investment proposals.
Q3) The payback method of evaluating an investment fails to consider how long the investment will generate cash inflows beyond the payback period.
A)True
B)False
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Chapter 25: Time Value of Money
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Q1) When you reach retirement age,you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702.The fund will earn 6% per year.For how many years will you be able to draw an even amount of $14,702?
Q2) A company has $46,000 today to invest in a fund that will earn 4% compounded annually.How much will the fund contain at the end of 6 years?
Q3) Kelsey has a loan that requires a $25,000 lump sum payment at the end of three years.The interest rate on the loan is 5%,compounded annually.How much did Kelsey borrow today?
Q4) A company is creating a fund today by depositing $65,763.The fund will grow to $90,000 after 8 years.What annual interest rate is the company earning on the fund?
Q5) The interest rate is also called the ________ rate.
Q6) A company has $50,000 today to invest in a fund that will earn 7%.How much will the fund contain at the end of 8 years?
Q7) A company borrows money from the bank by promising to make 6 annual year-end payments of $27,000 each.How much is the company able to borrow if the interest rate is 9%?
Q8) An ________ is a series of equal payments occurring at equal intervals.
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Chapter 26: Investments
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Q1) On November 12,Higgins,Inc.,a U.S.Company,sold merchandise on credit to Kagome of Japan at a price of 1,500,000 yen.The exchange rate was $0.00837 per yen on the date of sale.On December 31,when Higgins prepared its financial statements,the exchange rate was $0.00843.Kagome paid in full on January 12,when the exchange rate was $0.00861.On December 31,Higgins should prepare the following journal entry:
A)Debit Sales $90; credit Foreign Exchange Gain $90.
B)Debit Foreign Exchange Loss $90; credit Sales $90.
C)Debit Accounts Receivable-Kagome $90; credit Foreign Exchange Gain $90.
D)Debit Foreign Exchange Loss $90; Accounts Receivable-Kagome $90.
E)No journal entry is required until the amount is collected.
Q2) Marjam Company owns 41,000 shares of MacKenzie Company's 100,000 outstanding shares of common stock.MacKenzie Company pays $25,000 in total cash dividends to its shareholders.Marjam's entry to record the cash dividend received from MacKenzie would include a:
A)Debit to Dividend Revenue for $10,250.
B)Debit to Interest Revenue for $10,250.
C)Credit to Equity Method Investments for $10,250.
D)Credit to Equity Method Investments for $25,000.
E)Credit to Dividend Revenue for $25,000.
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Chapter 27: Lean Principles and Accounting
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Sample Questions
Q1) Vista Company has 25 days' payable outstanding based on the current year's cost of goods sold of $11,315.What is Vista's balance in accounts payable?
A)$775
B)$870
C)$750
D)$675
E)$810
Q2) Beake Company has 15 days' sales in work in process inventory based on the current year's cost of goods sold of $11,315.What is Beake's work in process inventory?
A)$310
B)$470
C)$350
D)$465
E)$510
Q3) Days' payable outstanding measures how long,on average,a company takes to pay its creditors.
A)True
B)False
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