Accounting II Test Questions
Course Introduction
Accounting II builds upon the foundational principles established in introductory accounting courses, delving deeper into topics such as financial statement analysis, accounting for partnerships and corporations, long-term assets and liabilities, and the preparation of more complex financial reports. The course also covers managerial accounting concepts, including budgeting, cost behavior, and performance evaluation, equipping students with the analytical skills necessary to interpret accounting data for effective business decision-making. Through practical exercises and real-world case studies, students will develop a comprehensive understanding of how accounting information supports organizational planning, control, and strategy.
Recommended Textbook
Financial Managerial Accounting 16th Edition by Jan Williams
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Page 2
Chapter 1: Accounting: Information for Decision Making
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Sample Questions
Q1) Management accounting refers to the preparation and use of accounting information designed to meet the needs of decision makers outside the business organization.
A)True
B)False
Answer: False
Q2) The work of accountants practicing in public accounting may best be described as:
A) Providing various types of accounting services to a wide variety of clients.
B) Preparing income tax returns for individuals and small businesses.
C) Developing and interpreting information tailored to the needs of business managers.
D) Helping governmental agencies carry out their various regulatory responsibilities.
Answer: A
Q3) The Code of Ethics of the AICPA calls for a member in public practice to be independent in fact and appearance when providing auditing services.
A)True
B)False Answer: True
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Chapter 2: Basic Financial Statements
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Q1) The payment of a liability causes an increase in owners' equity.
A)True
B)False
Answer: False
Q2) The balance sheet item that represents the portion of owners' equity resulting from profitable operations of the business is:
A) Accounts receivable.
B) Cash.
C) Capital stock.
D) Retained earnings.
Answer: D
Q3) Which of the following activities is not a category into which cash flows are classified?
A) Marketing activities.
B) Operating activities.
C) Financing activities.
D) Investing activities.
Answer: A
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Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) A transaction is first recorded in which of the following accounting records?
A) Trial balance.
B) Ledger.
C) General journal.
D) Balance sheet.
Answer: C
Q2) The statement "This business produced net income of $520,000" is unclear because it failed to specify:
A) The accounting method, that is, accrual or cash basis.
B) Whether the amount earned is before or after expenses.
C) The time period.
D) The amount of cash withdrawn from the business by the owner.
Answer: C
Q3) In a trial balance prepared for Wilson Trucking on January 1, 2012, the total of the credit column is:
A) $1,580,000.
B) $1,560,000.
C) $1,620,000.
D) $3,120,000.
Answer: B
Page 5
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) The CPA firm auditing Indian Company found that net income had been overstated. Which of the following errors could be the cause?
A) Failure to record depreciation expense for the period.
B) No entry made to record purchase of land for cash on the last day of the year.
C) Failure to record payment of an account payable on the last day of the year.
D) Failure to make an adjusting entry to record revenue which had been earned but not yet billed to customers.
Q2) What should be the balance of Prepaid Rent on December 31?
A) $0.
B) $7,000.
C) $14,000.
D) $21,000.
Q3) An expenditure that benefits year one but is paid for in year two should not be capitalized until year two.
A)True
B)False
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6
Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Sample Questions
Q1) The report form of the balance sheet lists liabilities and owners' equity below assets.
A)True
B)False
Q2) Refer to the information above. The entry to close the Fees earned account will:
A) Produce a zero balance in that account when posted.
B) Include a debit to Income Summary.
C) Include a credit to Fees Earned.
D) Include a debit to Capital Stock.
Q3) Which of the following accounts would never be reported in the income statement as an expense?
A) Depreciation expense.
B) Income taxes expense.
C) Interest expense.
D) Dividends expense.
Q4) The return on equity ratio equals net income divided by common stock.
A)True B)False
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Chapter 6: Merchandising Activities
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Sample Questions
Q1) VanRoy Supplies reports net sales of $1,750,000, net income of $175,000, and gross profit of $300,000. The company's cost of goods sold is:
A) $1,400,000.
B) $475,000.
C) $1,575,000.
D) $1,450,000.
Q2) Refer to the information above. The gross profit on the Flat TVs as of February 12<sup>th</sup> is:
A) $11,200.
B) $2,700.
C) $4,100.
D) $15,300.
Q3) The basic purpose of offering customers cash discounts such as 2/10, n/30 is to:
A) Increase sales.
B) Reduce net sales.
C) Speed up the collection of accounts receivable.
D) Focus management's attention upon customers that fail to take advantage of all available cash discounts.
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8
Chapter 7: Financial Assets
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Q1) The bookkeeper prepared a check for $68 but accidentally recorded it as $86. When preparing the bank reconciliation, this should be corrected by:
A) Adding $18 to the bank balance.
B) Subtracting $18 from the bank balance.
C) Adding $18 to the book balance.
D) Subtracting $18 from the book balance.
Q2) It has been found that improper revenue recognition was the most common scheme in fraud-related SEC enforcement actions.
A)True
B)False
Q3) Which of the following activities affects net income, but has no immediate impact upon cash flows?
A) Collection of an account receivable.
B) Making the end-of-period adjustment to record estimated uncollectible accounts.
C) Investing excess cash in marketable securities.
D) Write-off of an uncollectible account receivable against the allowance.
Q4) What is the amount of the deposit in transit?
Q5) What is the adjusted cash balance in the September 30 bank reconciliation?
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Chapter 8: Inventories and the Cost of Goods Sold
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Sample Questions
Q1) In a perpetual inventory system, two entries are normally made to record each sales transaction. The purpose of these entries is best described as follows:
A) One entry recognizes the sales revenue and the other recognizes the cost of goods sold.
B) One entry records the purchase of merchandise and the other records the sale.
C) One entry records the cost of goods sold and the other reduces the balance in the Inventory account.
D) One entry updates the subsidiary ledger and the other updates the general ledger.
Q2) Which of the following inventory cost flow assumptions is not in accord with the physical flow of merchandise in most businesses?
A) LIFO.
B) FIFO.
C) Specific identification.
D) Average.
Q3) The higher a company's inventory turnover rate, the higher its gross profit.
A)True
B)False
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10
Chapter 9: Plant and Intangible Assets
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Sample Questions
Q1) Any reasonable and necessary expenditures to place a newly acquired plant asset in service should be debited to a separate asset account.
A)True
B)False
Q2) Land improvements are not subject to depreciation.
A)True
B)False
Q3) Which of the following assets is not subject to depreciation and whose usefulness does not decline over time?
A) Patents.
B) Copyrights.
C) Land.
D) Coal mine.
Q4) The tax basis of a depreciable asset generally is higher than the book value of that asset for financial reporting purposes.
A)True
B)False
Q5) Compute the gain or loss on the sale of the stallion. $______________ (gain/loss)
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Chapter 10: Liabilities
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Sample Questions
Q1) The total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1, is:
A) $432,100.
B) $199,600.
C) $194,923.
D) $200,000.
Q2) The total amount of the current liability (including interest payable) for this loan that appears in Select Company's balance sheet at December 31, 2011, is:
A) $600,000.
B) $624,000.
C) $636,000.
D) $672,000.
Q3) Compute the company's cash outlays during the year for payroll-related costs. Assume short-term obligations such as insurance premiums and payroll taxes have been paid.
A) $2,750,000.
B) $3,070,000.
C) $1,930,000.
D) $3,510,000.
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Page 12
Chapter 11: Stockholders Equity: Paid-In Capital
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Q1) Marks Corporation has total stockholders' equity of $7,400,000. The company has outstanding 300,000 shares of $1 par value common stock and 20,000 shares of 8% preferred stock, $100 par value. (No dividends are in arrears.) The book value per share of common stock is:
A) $9.00.
B) $24.06.
C) $24.66.
D) $18.00.
Q2) When par value capital stock is issued, capital stock is credited with the par value of the shares issued, regardless of whether the issuance price is equal to par, more than par, or less than par.
A)True
B)False
Q3) When a corporation fails to pay a dividend one year on its common stock, it is said to be "in arrears."
A)True B)False
Q4) The total amount of legal capital: $__________
Q5) The total amount of paid-in capital: $__________
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Chapter 12: Income and Changes in Retained Earnings
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Q1) Stock splits are always in a 2 for 1 ratio.
A)True
B)False
Q2) In order for a loss on the disposal of a discontinued operation to be classified on the income statement as a discontinued operation, it must be unusual in nature.
A)True
B)False
Q3) A statement of stockholders' equity discloses each of the following except:
A) The market value of the stockholders' equity at the end of the year.
B) The cost of treasury stock owned at the end of the year.
C) Net income for the current year.
D) The amount of cash dividends declared during the current year.
Q4) When a company reports both diluted earnings per share and basic earnings per share:
A) Basic EPS would be greater than fully diluted EPS.
B) Basic EPS would be less than fully diluted EPS.
C) Basic EPS may be either greater or less than fully diluted EPS.
D) Both should never be shown - only one would be reported.
Q5) What was the average issue price per share of preferred stock?
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Under the indirect method, depreciation, increase in inventories, and "non-operating" losses are added to net income to arrive at net cash flow from operating activities.
A)True
B)False
Q2) Rag Dolls' cash flow from operating activities during 2010 is:
A) $45,000 net cash provided by operating activities.
B) $1,155,000 net cash used by operating activities.
C) $240,000 net cash provided by operating activities.
D) $195,000 net cash provided by operating activities.
Q3) The amount of cash paid by Johnson to acquire plant assets during the current year was:
A) $53,000.
B) $267,000.
C) $42,000.
D) $160,000.
Q4) If a company's accounts payable has increased over a year, it is an indication that the company is buying more goods.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Eleva Corporation's inventory turnover for 2011 is closest to:
A) 6.67 times.
B) 3.99 times.
C) 4.15 times.
D) 94 days.
Q2) The lower the current ratio, the more liquid the company appears.
A)True
B)False
Q3) An organization that provides ratings of corporate governance services is:
A) SEC.
B) ISS.
C) IRS.
D) IBM.
Q4) What is the quick ratio?
A) 1.5 to 1.
B) .7 to 1.
C) .45 to 1.
D) .8 to 1.
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Page 16
Chapter 15: Global Business and Accounting
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Sample Questions
Q1) An American corporation making purchases from foreign companies will experience gains and losses from exchange rate fluctuations if (a) the purchase prices are stated in terms of the foreign currency and (b) the purchases are made on account.
A)True
B)False
Q2) Consider the following statement: "A strong dollar rose sharply against the British pound, but fell slightly against the Japanese yen." This statement indicates that:
A) The British pound is a stronger currency than the Japanese yen.
B) The exchange rate for the yen, stated in dollars, is rising.
C) The exchange rate for the pound, stated in dollars, is rising.
D) The exchange rate for the yen, stated in pounds, is falling.
Q3) Hedging refers to the strategy of taking offsetting positions so that gains in one currency offset losses in another currency.
A)True
B)False
Q4) Differentiate between Adoption and Convergence as related to International Financial Reporting Standards.
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Chapter 16: Management Accounting: a Business Partner
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Q1) The Work in Process Inventory account had a beginning balance of $4,200 on February 1. During February, the cost of direct materials used was $29,000 and direct labor cost applied to production was $3,000. Overhead is applied at the rate of $20 per direct labor hour. During February, 180 direct labor hours were used in the production process. If the cost of finished goods manufactured was $34,100, compute the balance in the Work in Process Inventory account at the end of February.
A) $9,900.
B) $1,500.
C) $2,100.
D) $5,700.
Q2) In a schedule of cost of finished goods manufactured, the figure for total manufacturing costs:
A) May be less than the cost of direct materials used.
B) May be less than the direct labor costs assigned to production.
C) May be less than the manufacturing overhead applied to production.
D) May be less than the cost of finished goods manufactured.
Q3) Product costs are charged directly to expense accounts.
A)True
B)False
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Page 18
Chapter 17: Job Order Cost Systems and Overhead
Allocations
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Sample Questions
Q1) What are the factory foremen salaries allocated to Car Seats during the current month?
A) $11,607.
B) $26,786.
C) $36,607.
D) $75,000.
Q2) The two steps required in activity-based costing are identifying separate activity cost pools and allocating each cost pool to the product using an appropriate cost driver.
A)True
B)False
Q3) A debit balance in the Manufacturing Overhead account at the end of the period indicates that overhead has been under-applied to jobs.
A)True
B)False
Q4) 114.Which of the following businesses would most likely use job order costing?
A) A print shop that specializes in wedding invitations.
B) A company that makes frozen pizzas.
C) A brewery.
D) An oil refinery.
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Chapter 18: Process Costing
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Q1) The computation of equivalent full units is generally not necessary when:
A) Beginning work-in-process inventories are significantly larger than ending work-in-process inventories.
B) Beginning and ending work-in-process inventories differ only slightly.
C) The number of units in ending work-in-process exceeds the number of units completed and transferred to finished goods during the period.
D) Per-unit costs become distorted as a result of not computing equivalent full units of production.
Q2) When either a job order costing system or a process costing system is in use, the Direct Labor account is debited:
A) When work is performed, even if not paid immediately.
B) When direct labor charges are assigned to work in process.
C) When employees are paid.
D) Instead of using a Salaries Expense account.
Q3) What are the equivalent units for materials?
A) 92,000.
B) 60,000.
C) 160,000.
D) 110,000.
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Page 20
Chapter 19: Costing and the Value Chain
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Sample Questions
Q1) Which of the following is a value-added activity by a manufacturer of chocolate candies?
A) The addition of chocolate syrup into the candy mix.
B) Hiring production workers.
C) Storing the candy bars until they are distributed to stores.
D) Managing the cost of electricity by the production department.
Q2) Just-in-time inventory systems are characterized by extremely large inventories of materials, work in process, and finished goods.
A)True
B)False
Q3) Which activities might be reduced or eliminated should Efficient implement a JIT system?
Q4) The process of using activity-based costs to help reduce or eliminate non-value-added activities. _______________________________
Q5) Activity-based costing systems refer to acquiring materials and manufacturing goods only as needed to fill customers' orders.
A)True
B)False
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Chapter 20: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Cost-volume-profit analysis and strategy
A manufacturing company experiencing severe financial difficulties has applied for a large government guaranteed loan. As a condition for obtaining the guarantee, the government mandates that the company significantly reduce its annual break-even point. What steps might the company take to achieve the required reduction in its break-even point?
Q2) The dollar sales volume necessary to produce operating income of $245,000 is closest to:
A) $2,052,228.
B) $4,124,000.
C) $2,465,842.
D) $3,078,343.
Q3) In a month in which 30,000 equivalent full units are produced, Ratnere's manufacturing overhead should be approximately:
A) $52,500.
B) $79,500.
C) $132,000.
D) $90,500.
Q4) At the original selling price of $50 per unit, what is the contribution margin ratio?
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Chapter 21: Incremental Analysis
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Q1) Differential analysis is a tool for evaluating alternative courses of action always resulting in higher profits for the organization.
A)True
B)False
Q2) In deciding whether to accept this special order from Computer Marketing Corp., Phoenix should be least concerned with:
A) What Computer Marketing Corp. intends to do with the WizardCards.
B) The $45 average cost of manufacturing WizardCards.
C) The opportunity cost of not accepting the order.
D) The incremental cost of manufacturing an additional 10,000 WizardCards per month.
Q3) Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:
A) $20.
B) $50.
C) $80.
D) $40.
Q4) Joint costs allocated to product MB total: $_____________
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Chapter 22: Responsibility Accounting and Transfer Pricing
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Q1) Assume the U.S. corporate income tax rate is 40 percent and the Mexican corporate income tax rate is 30 percent. Jacques International Apparel Company has subsidiaries in both the U.S. and Mexico. Jacques is trying to decide what transfer price to use for its famous French frock, which is being transferred from the U.S. subsidiary to the Mexican subsidiary. It could ship the frock at the market price of $75 or at cost plus 20 percent. The cost of the frock is $40. Which transfer price would minimize Jacques's tax burden?
A) $75.
B) $48.
C) $90.
D) $75-$40 = $35.
Q2) All of the following costs are traceable to a specific factory except:
A) Depreciation on the company's fleet of tractor trailer trucks.
B) Direct materials.
C) Salaries of production supervisors.
D) Wages of production set-up laborers.
Q3) A common cost may become a traceable cost as it moves up to larger responsibility centers.
A)True
B)False
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Chapter 23: Operational Budgeting
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Q1) Which of the following is a major component of a master budget?
A) A production throughput schedule.
B) A machinery maintenance schedule.
C) A manufacturing cost budget.
D) An employee training budget.
Q2) The operating cycle is the average time required to manufacture products for sale.
A)True
B)False
Q3) Which of the following is not normally a characteristic of a profit rich, cash poor company?
A) Low inventory turnover.
B) High accounts receivable turnover.
C) High operating income, but low cash flow from operations.
D) A long operating cycle.
Q4) Elements of the master budget
Describe briefly the purpose of a master budget and discuss its elements.
Q5) Discuss the benefits that a company may derive from a formal budgeting process.
Q6) Explain what is meant by "profit rich, yet cash poor".
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Chapter 24: Standard Cost Systems
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Q1) The use of excessive quantities of material in manufacturing a product causes an unfavorable materials quantity variance.
A)True
B)False
Q2) The calculation of the labor efficiency variance is:
A) Standard rate multiplied by (standard hours minus actual hours).
B) Standard hours multiplied by (standard rate minus actual rate).
C) Actual labor hours multiplied by (standard rate minus actual rate).
D) Actual rate multiplied by (standard hours minus actual hours).
Q3) Standard costs are typically reviewed once per year.
A)True
B)False
Q4) Which statement is true regarding a standard cost system?
A) Both actual and standard costs are used.
B) Only standard costs are used.
C) If variances occurred, then something negative in the operations has occurred.
D) Standards are used only when actual amounts are not available.
Q5) In the space below, provide the journal entry to record the cost of direct materials used on job no. 007.
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Chapter 25: Rewarding Business Performance
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Q1) Identify and explain the components of management compensation and the tradeoffs that compensation designers make.
Q2) The value chain usually starts with the _________ and ends with the ___________.
A) Supplier, customer
B) Retailer, wholesaler
C) Customer, retailer
D) Retailer, customer
Q3) Accounting systems do not offer any benefit to management in generating and focusing employee motivation.
A)True
B)False
Q4) Define the measurement model known as the DuPont system used for evaluating business performance.
Q5) Residual income is the difference between net operating income at breakeven and actual net operating income.
A)True
B)False
Q6) State the four performance lenses in a balanced scorecard and state at least two measures for each of them.
Page 27
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Chapter 26: Capital Budgeting
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Q1) What is the net present value of the cutting machine discounted at an annual rate of 10%, if the present value of a ten-year $1 annuity discounted at 10% is 6.145?
$_____________
Q2) Upper level managers at Rooney, Inc. are concerned that employee estimates of future cash flows from the new machine may be overly optimistic. To what dollar amount can the annual after tax cash flow fall before the investment in the new machine should be rejected?
A) $640,000.
B) $224,640.
C) $168,080.
D) $137,961.
Q3) Investment center managers may be overly optimistic about the efficiency of the new capital investment and thus, may understate expected results.
A)True
B)False
Q4) The discount rate used in discounting cash flows from proposed investments is usually the rate of return required by the investor.
A)True
B)False
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Chapter 28: Forms of Business Organization
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Q1) Assets contributed to a partnership by a partner would be recorded at:
A) Historical cost.
B) Fair market value.
C) Cost less depreciation.
D) Potential value.
Q2) C, D, and E are partners. C has $25,000 in her capital account. D has $35,000 in hers, and E has $45,000. Each gets a salary allowance of $15,000. C gets 10% interest on the beginning balance in the capital account, D gets 12%, and E gets 14%. The remainder is divided 20% to C, 35% to E, and 45% to
E. What is the balance in the capital account at the end of the year if net income was $80,000?
Q3) In order to form a corporation, the corporation must obtain a charter from:
A) The federal government.
B) A state government.
C) The Securities and Exchange Commission.
D) The stockholders of the corporation.
Q4) A partnership has a limited life and each partner has unlimited personal liability.
A)True
B)False
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Chapter 27: The Time Value of Money: Future Amounts and
Present Values Answer Key
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49 Flashcards
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Sample Questions
Q1) Future value is the amount that must be invested today at a specific interest rate to receive a particular amount at some future date.
A)True
B)False
Q2) The market price of a bond is equal to its present value.
A)True
B)False
Q3) Judy Bright has just won the lottery. She can elect to receive her winnings in equal payments of $200,000 a year for the next ten years on December 31 or to receive $2,000,000 immediately. If the current interest rate is 6%, which choice will provide the highest amount:
A) Receiving $2,000,000 immediately.
B) Taking equal payments for 10 years.
C) It does not matter since either choice provides the same amount.
D) Refusing to accept the winnings since it is not enough.
Q4) Sam Rivers has $3,000 to invest. He must decide whether to invest this money for five years at 10% compounded semi-annually or at 12% compounded annually. Which option should he select?
Q5) Explain how compound interest applies to the time value of money.
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