Accounting II
Solved Exam Questions
Course Introduction
Accounting II is an intermediate course that builds upon foundational accounting principles by exploring more complex financial transactions and processes. The course covers topics such as partnerships, corporate accounting, long-term assets and liabilities, cash flow statements, and financial statement analysis. Emphasis is placed on understanding the preparation and interpretation of financial statements, applying accounting standards, and utilizing accounting software and tools. Students also develop analytical skills to assess financial health and make informed business decisions, preparing them for advanced study or professional roles in accounting and finance.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th 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) ________ is the equity earned by profitable operations that is not distributed to stockholders.
A) Assets
B) Dividend
C) Retained earnings
D) Common stock
Answer: C
Q2) The return on assets is calculated by ________.
A) subtracting net income from average total assets
B) adding net income and average total assets
C) dividing net income by average total assets
D) multiplying net income and average total assets
Answer: C
Q3) Jackson Electric Services incurred $800 as a repair expense and paid for it in cash. This transaction will ________.
A) decrease the stockholders' equity
B) increase the assets of the business
C) increase the liabilities of the business
D) decrease the liabilities of the business
Answer: A
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Chapter 2: Recording Business Transactions
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Q1) Debit refers to the right side of the T-account, and credit refers to the left side.
A)True
B)False Answer: False
Q2) Which of the following is a liability account?
A) Service Revenue
B) Building
C) Prepaid Rent
D) Unearned Revenue Answer: D
Q3) Balancing errors can be detected by computing the difference between total debits and total credits on the trial balance.
A)True
B)False Answer: True
Q4) When a business makes a cash payment, the Cash account is debited.
A)True
B)False Answer: False
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) An expense that has been incurred but not yet paid is called a(n) ________.
A) accrued revenue
B) deferred expense
C) deferred revenue
D) accrued expense
Answer: D
Q2) What is the term used for the difference between the Equipment account and the Accumulated Depreciation-Equipment account?
A) contra asset
B) market value
C) historical cost
D) book value
Answer: D
Q3) The time period concept assumes that the activities of a business can be sliced into small time segments.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Complete Cleaning Services pays out wages every week on Friday. Payroll expense totals $4,000 per week, based on a five-day week. The month of June ended on a Thursday. On Thursday, June 30, Complete made the following accrual adjustment:
\[\begin{array} { | c | r | r | }
\hline \text { Wages Expense } & 3,200 & \\
\hline \text { Wage Payable } & & 3,200 \\
\hline
\end{array}\] At the same time, they prepared the following reversing entry to be booked on July 1:
\[\begin{array} { | c | r | r | }
\hline \text { Wages Payable } & 3,200 & \\
\hline \text { Wages Expense } & & 3,200 \\
\hline
\end{array}\] On Friday afternoon, when wages were paid, what journal entry was made? Omit explanation.
Q2) List the steps of the accounting cycle that take place during the period.
Q3) The Service Revenue account is a temporary account.
A)True B)False
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Page 6
Chapter 5: Merchandising Operations
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Sample Questions
Q1) Complete Electronics Inc. sells a point-of-sale computer with a two-year service contract. Complete collects $3,000 cash for the selling price of the computer and $576 for the two-year service contract. How is revenue recognized?
A) Complete will record Sales Revenue of $3,576 when the computer is delivered to the customer.
B) Complete will record Sales Revenue of $1,788 per year for two years.
C) Complete will record Sales Revenue of $3,000 when the computer is delivered and Service Revenue of $24 per month for 24 months.
D) Complete will record Sales Revenue of $3,000 when the computer is delivered and will record revenue for the service contract as service calls are made.
Q2) When preparing financial statements under the periodic inventory system, a calculation of cost of goods sold must be made.
A)True
B)False
Q3) Gross profit percentage reflects a business's ability to raise selling prices.
A)True
B)False
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Page 7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Michigan Motors is considering which inventory costing method it should use. The business wants to show the highest Merchandise Inventory balance during a period of declining costs. Which inventory method should Michigan Motors select? Discuss your selection.
Q2) The periodic inventory records of Canine Veterinary Supply indicate the following for the month of April:
\[\begin{array} { | r | l | r | }
\hline \text { Apr. 1 } & \text { Beginning merchandise inventory } & 15 \text { units @ \$32 each } \\
\hline 7 & \text { Purchase } & 7 \text { units @ \$34 each } \\
\hline 18 & \text { Purchase } & 12 \text { units @ \$37 each } \\
\hline 26 & \text { Purchase } & 10 \text { units @ \$40 each } \\
\hline
\end{array}\] As of April 30, Canine counts 8 units of merchandise inventory on hand. Compute ending merchandise inventory and cost of goods sold for Canine using the weighted-average inventory method. (Round the per unit cost to two decimal places.)
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) 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.
Q2) Receiving Report
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.
Q3) All items on the book side of the bank reconciliation require journal entries.
A)True
B)False
Q4) Which of the following is an issue that must be addressed in the internal controls for e-commerce?
A) burglar alarms
B) tone at the top
C) phishing expeditions
D) need for outside auditors
Q5) List the four steps, the proper order, of the purchasing and payment process.
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) A company reports net accounts receivable of $152,000 on its December 31, 2019 balance sheet. The Allowance for Bad Debts has a credit balance of $19,000. What is the balance of Accounts Receivable?
A) $157,000
B) $152,000
C) $171,000
D) $133,000
Q2) Which of the following statements, regarding notes receivable, is incorrect?
A) Notes receivable usually have longer terms than accounts receivable.
B) A notes receivable is a written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.
C) All notes receivable are considered long-term assets.
D) Notes receivable are sometimes called promissory notes.
Q3) The number of times a company collects the average accounts receivable balance in a year is known as the accounts receivable turnover ratio.
A)True
B)False
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Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Q1) An exchange of plant assets has commercial substance if the future cash flows change as a result of the transaction.
A)True
B)False
Q2) Franchises are privileges granted by a business to sell goods and services under specified conditions.
A)True
B)False
Q3) Which of the following requires businesses to record depreciation?
A) revenue recognition principle
B) matching principle
C) cost principle
D) going concern principle
Q4) Which of the following is included in the cost of a plant asset?
A) amounts paid to make the asset ready for its intended use
B) regular repair and maintenance costs
C) replacement of damaged parts of the asset
D) wages of workers who use the asset in normal operations
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Chapter 10: Investments
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Sample Questions
Q1) An equity security does not represent an ownership interest in a corporation, although it pays dividends.
A)True
B)False
Q2) Sparklers Services, Inc. pays $1,350,000 to acquire 35% of voting stock of Global Investments, Inc. on March 5, 2018. When this transaction is recorded, the ________.
A) total equity will increase
B) total assets will increase
C) total assets will decrease
D) total cash will decrease
Q3) An equity security represents a credit relationship with another company or governmental entity.
A)True
B)False
Q4) Which of the following securities typically pay interest?
A) equity securities
B) preferred stocks
C) corporate bonds
D) significant interest investment
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Bill's gross pay for the week is $2150. His deduction for federal income tax is based on a rate of 25%. He has no voluntary deductions. His year-to-date pay is under the limit for OASDI. What is the amount of FICA tax that will be withheld from Bill's pay? (Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%. Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $537.50
B) $164.48
C) $701.98
D) $136.50
Q2) If a long-term debt is paid in installments, the business will report the current portion of the note payable as a current liability.
A)True
B)False
Q3) Jamison Enterprises estimates that it will pay a 5% bonus on annual net income after deducting the bonus. If Jamison reports net income of $480,000 before the calculation of the bonus, the amount of the bonus is $24,000.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) On January 1, 2018, Allgood Company purchased equipment and signed a six-year mortgage note for $186,000 at 15%. The note will be paid in equal annual installments of $49,148, beginning January 1, 2019. Calculate the portion of interest expense paid on the third installment. (Round your answer to the nearest whole number.)
A) $49,148
B) $21,048
C) $27,900
D) $164,752
Q2) On January 1, 2019, Booth Sales issues $10,000 in bonds for $10,900. These are 5-year bonds with a stated rate of 4%, and pay semiannual interest. Booth Sales uses the straight-line method to amortize bond premium. Prepare the journal entry for the first interest payment on June 30, 2019. Omit explanation.
Q3) Long-term liabilities can be structured either with an equal principal payment or with an equal total payment.
A)True
B)False
Q4) When computing the present value of a bond, which interest rate is used? Why?
Q5) What does the debt to equity ratio show, and how is it calculated?
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Chapter 13: Stockholders Equity
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Q1) A sale of treasury stock at its cost increases assets and increases equity.
A)True
B)False
Q2) On November 1, 2018, Worldwide, Inc. declared a dividend of $3.00 per share. Worldwide, Inc. has 20,000 shares of common stock outstanding and no preferred stock. Prepare the journal entry to record this transaction. Omit explanation.
Q3) Lack of mutual agency is best described as which of the following?
A) The liabilities of the corporation cannot be extended to the personal assets of the stockholder.
B) Shares of stock can be readily purchased and sold by investors on an organized stock exchange.
C) Stockholders are not authorized to sign contracts or make business commitments on behalf of the corporation.
D) Corporations pay income tax on corporate earnings, and shareholders pay income tax on corporate dividends.
Q4) Small stock dividends increase the Paid-In Capital in Excess of Par account.
A)True
B)False
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Page 15
Chapter 14: The Statement of Cash Flows
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Q1) Arkansas Company is preparing its statement of cash flows using the indirect method. Refer to the following information: 1. Repayments on Long-term Notes Payable $60,000
2) New borrowing on Long-term Notes Payable $23,000
Which of the following statements is correct?
A) Net cash used for financing activities is $(37,000).
B) Net cash used for investing activities will is $60,000.
C) Net cash provided by financing activities is $37,000.
D) Net cash provided by investing activities is $37,000.
Q2) A company purchased machinery by issuing a long-term note payable. This is an example of a non-cash investing and financing activity for the statement of cash flows. A)True
B)False
Q3) Use the following information to calculate the free cash flow of Jarvis, Inc.
Net cash provided by operating activities, $25,000
Net cash provided by financing activities, $35,000
Net cash used for planned investment in long-term assets, $12,000
Net cash used for investing activities, $20,000
Cash dividends paid, $10,000.
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Days' sales in inventory measures how quickly a company can collect its receivables.
A)True
B)False
Q2) The trend analysis report of Poplar, Inc. is given below (in millions): \[\begin{array} {
| l | r | r | r | r | r |}
\hline & 2019 & 2018 & 2017 & 2016 & 2015 \\
\hline \text { Net income } & \$ 700 & \$ 606 & \$ 459 & \$ 406 & \$ 400 \\
\hline \text { Trend percentages } & 175 \% & 152 \% & 115 \% & 102 \% & 100 \% \\
\hline
\end{array}\] Which of the following is a correct conclusion from the above analysis?
A) Net income for 2019 is 175% of net income for 2015.
B) Net income for 2018 is 152% of the previous year.
C) Net income for 2018 decreased by 152% from 2017.
D) Net income for 2019 increased by 175% from 2018.
Q3) Ratios can be used to analyze a company's ability to pay long-term debt.
A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) ________ is a philosophy of continuous improvement of products and processes.
A) Just-in-Time (JIT) Management
B) Enterprise Resource Planning (ERP)
C) Supply Chain Management (SCM)
D) Total Quality Management (TQM)
Q2) The cost of goods sold for Frye Manufacturing in the year was $297,000. The January 1 Finished Goods Inventory balance was $31,600, and the December 31 Finished Goods Inventory balance was $25,600. Calculate the cost of goods manufactured during the year.
A) $322,600
B) $57,200
C) $291,000
D) $6000
Q3) Which of the following would be included as manufacturing overhead for a manufacturing company?
A) direct materials cost
B) indirect materials cost
C) direct labor
D) advertising
Q4) Describe the flow of product costs for a manufacturer.
18
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Chapter 17: Job Order Costing
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Q1) In a machine-intensive production environment, the most accurate cost driver of manufacturing overhead costs is usually ________.
A) direct labor costs
B) direct labor hours
C) direct materials used
D) machine hours
Q2) Which of the following best describes a job cost record?
A) a form used to track the transfer of raw materials to the production floor
B) a record that shows the raw materials balance as well as raw materials received and issued
C) a document that shows direct materials, direct labor and manufacturing overhead costs for an individual job
D) a record of employee productivity and downtime for a particular job
Q3) The journal entry for adjustment of overallocated manufacturing overhead includes a ________.
A) credit to Finished Goods Inventory
B) credit to Manufacturing Overhead
C) debit to Work-in-Process Inventory
D) credit to Cost of Goods Sold
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Page 19
Chapter 18: Process Costing
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Q1) The equivalent units of production for direct materials and conversion costs must be the same.
A)True
B)False
Q2) In a production cost report, the number of total units to account for consists of ________. The weighted-average method is used.
A) units in process at the beginning of the period and units started or added during the period
B) units in process at the end of the period and units started or added during the period C) units in process at the beginning of the period and units remaining at the end of the period
D) units of completed and transferred out products and total units produced
Q3) Both job order costing and process costing track the product costs of direct materials, direct labor, and manufacturing overhead through three inventory accounts on the balance sheet.
A)True B)False
Q4) How is a production cost report prepared using the FIFO method?
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Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Q1) Companies using just-in-time production systems are far more vulnerable to production shutdowns if they receive defective raw materials.
A)True
B)False
Q2) Marino, Inc. completed the production of 500 units with standard costs of $520 for direct materials and $75 for conversion costs. During the current year, it incurred $260,000 for direct materials and $31,000 for conversion costs. The company uses a just-in-time costing system. Record the adjusting entry for the amount of underallocated or overallocated conversion costs. Omit explanation.
Q3) Activity-based management (ABM) can be used to make pricing and product mix decisions.
A)True
B)False
Q4) Which of the following accounts would NOT be used with just-in-time costing?
A) Finished Goods Inventory
B) Raw Materials Inventory
C) Conversion Costs
D) Cost of Goods Sold
Q5) What is the purpose of implementing a just-in-time inventory system?
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Chapter 20: Cost Volume Profit Analysis
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Q1) 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.
Q2) Zander Company has fixed costs of $14,000. The company's contribution margin ratio is 46%. What is the breakeven point in sales dollars? (Round your answer to the nearest dollar.)
A) $70,000
B) $30,435
C) $6440
D) $2800
Q3) CVP analysis assumes that the sales price per unit does not change as volume changes.
A)True
B)False
Q4) How is the contribution margin calculated?
Q5) How is the unit contribution margin calculated?
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Chapter 21: Variable Costing
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Q1) Framework Company provides architectural services. The company provides the following financial data:
\[\begin{array} { l l }
\text { Service Revenue } & \$ 30,000 \\
\text { Salaries and Othe Variable Costs } & 20,350 \\
\text { Rent Expense } & 4,500 \\
\text { Depreciation Expense } & 500
\end{array}\] Requirements:
a) Calculate the contribution margin, contribution margin ratio, and operating income. b) Framework provided service to 150 customers during the month. Determine the average amount the company charged each customer.
Q2) Variable costing can also be used in service companies, especially in making short-term decisions.
A)True
B)False
Q3) The traditional income statement format is prepared under absorption costing. A)True B)False
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23
Chapter 22: Master Budgets
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Q1) The financial budget of a merchandising company is similar to that of a manufacturing company.
A)True
B)False
Q2) A manufacturing company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. The balance of Accounts Receivable can be obtained from the ________.
A) inventory, purchases and cost of goods sold budget
B) schedule of cash receipts from customers
C) capital expenditures budget
D) selling and administrative expenses budget
Q3) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.
A)True
B)False
Q4) Define sensitivity analysis. Why do managers conduct sensitivity analysis during the budget process?
Q5) List the three sections of the cash budget for a manufacturer.
Q6) List the four budgeting objectives. Why is this process a loop?
Page 24
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Which of the following is a reason companies use standard costs?
A) to enhance customer loyalty
B) to set sales prices of products and services
C) to share best practices with other companies
D) to ensure the accuracy of the financial records
Q2) Only substantial unfavorable variances should be investigated to determine their causes.
A)True
B)False
Q3) The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with the factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This would produce a(n)
A) unfavorable direct materials cost variance
B) favorable direct labor cost variance
C) favorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is the correct formula for the profit margin ratio?
A) Net profit / Sales
B) Net sales / Average total assets
C) Net profit × Capital invested
D) Operating income / Net sales
Q2) The primary objective in setting transfer prices is to achieve goal congruence by selecting a price that will maximize the overall company profits.
A)True
B)False
Q3) A division of a manufacturing company responsible for a particular product is a(n)
A)responsibility center
B)cost center
C)investment center
D)revenue center
E)profit center
Q4) Decentralized companies rarely struggle to achieve goal congruence.
A)True
B)False
Q5) List and briefly discuss the two limitations of financial performance measures.
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Chapter 25: Short-Term Business Decisions
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Q1) An opportunity cost is ________.
A) the cost incurred to gain the opportunity to make a sale
B) the benefit gained by choosing a certain course of action
C) the benefit given up by choosing an alternative course of action
D) costs that have been incurred in the past
Q2) A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $38 each. Currently, the cost of producing circuits in-house includes variable costs of $22 per circuit and fixed costs of $6000 per month. Assume the company could not reduce any fixed costs by outsourcing and that there is no alternative use for the facilities presently being used to make circuits. If the company outsources, operating income will ________.
A) increase by $3800
B) decrease by $2200
C) decrease by $1600
D) stay the same
Q3) Managers should only consider financial information when making a decision.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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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) The following formula is used to compute the present value of a lump sum: Future value = Present value × PV factor for i = X%, n = X periods
A)True
B)False
Q3) The residual value is discounted as a single lump sum because it will be received only once, when the asset is sold.
A)True
B)False
Q4) Which of the following most accurately describes an annuity?
A) an investment which produces increasing cash flows over time
B) a series of unequal cash payments made at equal time intervals
C) a stream of equal cash payments made at equal time intervals
D) a term that does not apply to mortgage payable or bond payable
Q5) What are the strengths of the net present value capital budgeting method?
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Chapter 27: Understanding Accounting Information Systems
and their Components
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Q1) The ________ is a set of programs or instructions that drive the computer to perform the work desired.
A) network
B) hardware
C) software
D) router
Q2) Which of the following is an accounting information system activity that can be classified as a payroll business transaction?
A) approval of new employees
B) receipt of customer payment
C) processing of vendor invoices
D) payment for goods or services
Q3) When using a computerized accounting information system, sales transactions are only recorded when the cash is received.
A)True
B)False
Q4) Cash purchases are recorded in the purchases journal.
A)True
B)False
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