Accounting II
Test Questions
Course Introduction
Accounting II is an intermediate-level course that builds upon foundational accounting principles covered in introductory courses. It focuses on more advanced topics such as partnerships, corporate accounting, long-term liabilities, investments, and statement analysis. Students will explore the preparation and interpretation of financial statements for corporations, the accounting cycle for partnerships, debt and equity financing, and the use of financial information for decision-making. The course also covers accounting concepts related to cash flow, budgeting, and internal controls, providing students with the knowledge needed to analyze financial health and make informed business decisions.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) Equity decreases with expenses and revenues.
A)True
B)False
Answer: False
Q2) The economic resources of a business such as furniture, building, and land are its
A) liabilities
B) revenues
C) assets
D) dividends Answer: C
Q3) The primary objective of financial reporting is to provide information useful for making investment and lending decisions.
A)True
B)False
Answer: True
Q4) An entity refers to one business which includes its owners.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Which of the following statements regarding the accounting equation is incorrect?
A) The equation is the basic tool of accounting.
B) The equation consists of three categories: assets, liabilities, and equity.
C) Each category of the accounting equation contains accounts.
D) The equation can be stated as assets plus liabilities equals equity.
Answer: D
Q2) Regarding the ledger, which of the following statements is incorrect?
A) Both the chart of accounts and the ledger list the account names and numbers of the business.
B) Companies use the ledger to fulfill the task of showing all of the increases and decreases in each account.
C) Both the chart of accounts and the ledger provide the balance of each account at a specific point in time.
D) The ledger provides more detail than the chart of accounts.
Answer: C
Q3) An asset account is increased by a debit.
A)True
B)False
Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) A depreciable asset's cost minus accumulated depreciation is called ________.
A) book value
B) residual value
C) depreciable value
D) accrued expense
Answer: A
Q2) On July 1, Delta, Inc. prepaid rent for an equipment storage building. Delta paid $20,000 to rent the building from July 1 through the end of the year. Prepare the journal entry needed on July 1 when the payment is made. (Ignore explanation). Assume the deferred expense is initially recorded as an asset.
Answer: \[\begin{array} { | l | r | r | }
\hline \text { Prepaid Rent } & 20,000 & \\
\hline \text { Cash } & & 20,000 \\
\hline \end{array}\]
Q3) Contra asset accounts, such as Accumulated Depreciation, always have normal debit balances.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The current ratio is calculated using the values from the income statement.
A)True
B)False
Q2) Revenue may be called Profit and Net Income may be called Turnover in an income statement prepared under IFRS.
A)True
B)False
Q3) Prepaid Rent in the worksheet's unadjusted trial balance column is $7,000. Prepaid Rent in the balance sheet column is $6,000. Which of the following entries would have caused this difference?
A) a $1,000 debit entry to Prepaid Rent in the worksheet's adjustments column
B) a $1,000 credit entry to Rent Expense in the worksheet's adjustments column
C) a $1,000 credit entry to Prepaid Rent in the worksheet's adjustments column
D) a $1,000 credit entry to Rental Revenue in the worksheet's adjustments column
Q4) Which of the following are NOT included in a post-closing trial balance?
A) Assets and liabilities
B) Retained Earnings and assets
C) Common Stock and liabilities
D) Revenues and expenses
Q5) List the steps of the accounting cycle that take place during the period.
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) The following information relates to Sports Bikes, Inc. \[\begin{array} { | l | r | }
\hline \text { Net Sales Revenue } & \$ 216,000 \\
\hline \text { Cost of Goods Sold } & 160,000 \\
\hline \text { Interest Revenue } & 10,000 \\
\hline \text { Operating Expenses } & 40,000 \\
\hline \end{array}\] Calculate the operating income.
A) $16,000
B) $68,000
C) $240,000
D) $26,000
Q2) Freight in is recorded in the Merchandise Inventory account if the purchaser uses the perpetual inventory system.
A)True
B)False
Q3) An invoice is a request for payment from the purchaser.
A)True
B)False
Q4) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Which of the following inventory costing methods yields the highest net income during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Q2) The periodic inventory records of Hawk Dental 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, Hawk counts 8 units of merchandise inventory on hand. Compute ending merchandise inventory and cost of goods sold for Hawk using the FIFO inventory method.
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) If the amount of the petty cash fund is decreased, the Petty Cash Fund account should be credited.
A)True
B)False
Q2) A petty cash fund was established with a $400 balance. It currently has cash of $41 and petty cash tickets totaling $359. Which of the following would be included in the entry to replenish the fund?
A) a credit to Petty Cash for $359
B) a debit to Petty Cash for $41
C) a credit to Cash for $41
D) a credit to Cash for $359
Q3) In addition to the account number, a check shows the 9-digit routing number.
A)True
B)False
Q4) The party who issues a check is the maker.
A)True
B)False
Q5) Debit card transactions are considered electronic funds transfers.
A)True
B)False
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Chapter 8: Receivables
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Q1) Which method of estimating the amount of bad debts expense violates the matching principle?
A) percent-of-receivables
B) percent-of-sales
C) aging-of-receivables
D) All of these methods comply with the matching principle.
Q2) A receivable occurs when a business ________.
A) loans money to another party
B) sells goods or services to another party on account
C) has a monetary claim against a business or individual
D) All of the statements are correct.
Q3) On December 1, 2020, Eagle, Inc. sold machinery to a customer for $23,000. The customer could not pay at the time of sale but agreed to pay 3 months later and signed a 3-month note at 11% interest. How much interest revenue was earned for the entire term of the note? (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $633
B) $422
C) $211
D) $2,530
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Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) Which of the following items should be amortized?
A) natural resources
B) goodwill
C) patents, copyrights, trademarks
D) tangible property, plant, and equipment, other than land
Q2) Capitalizing a cost involves crediting the asset account.
A)True
B)False
Q3) The process by which businesses allocate a natural resource's cost to expense over its usage is known as depreciation.
A)True
B)False
Q4) Intangible assets ______.
A) represent assets for which the market value cannot be determined
B) are not recorded in the books because they have no physical substance
C) convey special rights from patents, copyrights, trademarks, and other creative works
D) All of the statements are correct.
Q5) Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash. Omit explanation.
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Chapter 10: Investments
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Q1) When a company invests in equity securities with 20% to 50% ownership in the investee's _______ stock, the investor can ________ ________ the investee's decisions. These types of investments must be accounted for using the ________ method.
Q2) Significant influence equity investments must be accounted for using the ________ method.
A) equity
B) consolidation
C) discounted cash flow
D) acquisition
Q3) On May 18, 2018, Fran Co. invested excess cash of $50,000 by purchasing bonds of Hans Inc. At year-end, December 31, 2018, the market price of the bonds was $52,000. The investment is categorized as a trading debt investment. Journalize the adjusting entry needed at December 31, 2018. Omit explanation.
Q4) The unrealized holding gains and losses on available-for-sale debt investments are reported on the income statement.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Direct deposits decrease the efficiency of the payroll process because of cyber issues.
A)True
B)False
Q2) A $54,000, four-month, 12% note payable was issued on October 1, 2018. Which of the following would be included in the journal entry required on the note's maturity date by the borrower? (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)
A) a credit to Note payable for $56,160
B) a credit to Cash for $54,000
C) a debit to Interest expense for $540
D) a debit to Interest payable for $540
Q3) FICA tax is a tax that is paid both by the employer and the employee.
A)True
B)False
Q4) Employer FICA is paid by the employer and recorded as a payroll tax expense.
A)True
B)False
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Q1) Bonds affect the percentage of ownership of a corporation.
A)True
B)False
Q2) The amount of cash interest the borrower pays each year is based on the ________.
A) market conditions on the day of payment
B) market interest rate
C) stated interest rate
D) effective interest rate
Q3) Money earns interest over time, a fact called the time value of money.
A)True
B)False
Q4) If $30,000 is invested for one year at an annual interest rate of 13%, it will grow in value to ________.
A) $33,900
B) $36,208
C) $3900
D) $32,308
Q5) Define financial leverage and discuss how it is used to increase earnings per share.
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Chapter 13: Stockholders Equity
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Q1) Charger Corporation currently has 120,000 shares outstanding of $1 par value common stock. The stock was originally issued for $12 per share. On March 15, the board of directors declares and distributes a 10% stock dividend when the stock is selling for $16 per share. Prepare the journal entry to record the stock dividend. Omit explanation.
Q2) Declaring and paying dividends causes an increase in both assets and stockholders' equity of the corporation.
A)True B)False
Q3) The issue price is the price the stock initially sells for the first time it is sold.
A)True
B)False
Q4) Which of the following is NOT included in income from continuing operations?
A) gain on sale of machinery
B) a segment of a business that has been discontinued
C) cost of goods sold
D) losses due to lawsuits
Q5) Define treasury stock and provide two reasons why a corporation would purchase treasury stock.
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Chapter 14: The Statement of Cash Flows
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Q1) Which of the following statements is true of the direct and indirect methods of preparing the statement of cash flows?
A) The indirect method and the direct method will produce the same amount of net cash provided by operating activities.
B) The investing activities section is the only section that differs between the direct and indirect methods.
C) The indirect method shows three types of cash flows, but the direct method does not.
D) There is no difference in the way the operating activities section is presented.
Q2) The three sections of the statement of cash flows report only activities that involve cash.
A)True
B)False
Q3) Selling property, plant, and equipment for $10,000 cash is considered a cash inflow from investing activities on the statement of cash flows.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Q1) A corporation has 2000 shares, 10% preferred stock of $65.00 par preferred stock, and 6000 shares of common stock outstanding. The net income for the year is $290,000. Calculate earnings per share. (Round your answer to the nearest cent.)
A) $65.00
B) $46.17
C) $48.33
D) $145.00
Q2) O'Connors, Inc. provides the following information for 2018: \(\begin{array}{lrr}
\text { Net income } &\$180,000\\
\text { Market price per share of common stock } & \text { \( \$ 20.00 \) /share}\\ \end{array}\)
\(\begin{array}{ll}
\text { Common stockholders' equity at Jan. } 1,2018 & \$ 1,100,000 \\
\text { Common stockholders' equity at Dec. } 31,2018 & \$ 1,500,000 \\
12 \% \text { preferred stock outstanding } & \$ 100,000 \end{array}\) Calculate the return on common stockholders' equity. (Round to two decimals.)
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Chapter 16: Introduction to Managerial Accounting
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Q1) Manufacturing companies produce their own products, but merchandising companies do not.
A)True
B)False
Q2) Total manufacturing costs to account for during the year minus the ending Work-in-Process Inventory equals the cost of goods manufactured.
A)True
B)False
Q3) Which of the following will be included in manufacturing overhead costs?
A) indirect labor and indirect materials used
B) salaries of salesmen
C) direct materials and direct labor
D) delivery costs to ship goods to customers
Q4) Manufacturing companies have inventory accounts, but merchandising companies do not.
A)True
B)False
Q5) Direct costs and indirect costs can be easily traced directly to a cost object.
A)True
B)False
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Chapter 17: Job Order Costing
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Q1) Dezire Travel Services provided the following information:
Direct labor rate: $86 per hour
Predetermined allocation rate for indirect costs: $15 per direct labor hour
If Dezire records revenue of $1,800 for a job requiring 10 hours of direct labor, then Dezire will make a profit of $940.
A)True
B)False
Q2) Pluto Travel Services provided the following information:
Direct labor rate: $50 per hour
Predetermined allocation rate for indirect costs: $22 per direct labor hour
Pluto is negotiating a job with a new client. The job will require 11 hours of direct labor. If Pluto wishes to have at least a 15% gross profit on the revenues, it needs to record $716 of revenues.
A)True
B)False
Q3) Work-in-Process Inventory is debited when indirect labor costs are incurred in a job order costing system.
A)True
B)False
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Chapter 18: Process Costing
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Q1) Martinez Manufacturing incurred $4000 for indirect labor in Department III. The journal entry to record indirect labor utilized, but not paid is ________. Process costing is used.
A) debit Manufacturing Overhead, $4000; credit Accounts Payable, $4000
B) debit Accounts Payable, $4000; credit Manufacturing Overhead, $4000
C) debit Manufacturing Overhead, $4000; credit Wages Payable, $4000
D) debit Wages Payable, $4000; credit Manufacturing Overhead, $4000
Q2) The production cost report for Department 2 shows that $457,000 was assigned to the 51,000 units transferred to Finished Goods Inventory. Cost of goods sold equals $457,000. Process costing is used.
A)True
B)False
Q3) Thompson, Inc. purchased raw materials for $6,000 and $25,000 for cash and on account, respectively. Provide the journal entry to record the purchase of raw materials. Process costing is used.
Q4) Under a process costing system, costs of completed products are transferred to the Finished Goods Inventory at the end of the accounting period.
A)True B)False
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Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Q1) Which of the following statements is true of just-in-time management systems?
A) It involves ordering raw materials in large quantities to obtain volume discounts.
B) It triggers production after the customer places an order.
C) Its successful implementation is independent of vendor relationships.
D) It contracts with suppliers to deliver large quantities of goods once a year.
Q2) Which of the following is true about quality management systems?
A) Quality management systems only use financial measures to assess success or failure.
B) External failure costs are the easiest quality costs to measure.
C) Businesses should invest upfront in prevention and appraisal costs.
D) Prevention, appraisal and internal costs are not considered in the cost of products.
Q3) Which of the following statements is true of the just-in-time costing system?
A) It increases the need for suppliers to deliver raw materials on time.
B) It records summary journal entries before the units are purchased.
C) It results in increased inventory storage costs.
D) It increases the risk of the inventory becoming obsolete or unsalable.
Q4) Why is using multiple predetermined overhead allocation rates more accurate than using a single plantwide allocation rate?
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Chapter 20: Cost Volume Profit Analysis
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Q1) In a cost-volume-profit (CVP) graph, the breakeven point is where the sales revenue line intersects the fixed cost line.
A)True
B)False
Q2) CVP analysis assumes that the sales price per unit does not change as volume changes.
A)True
B)False
Q3) If variable costs decrease, and all other factors remain the same, the margin of safety will become larger.
A)True
B)False
Q4) McLeod, Inc. incurred fixed costs of $300,000. Total costs, both fixed and variable, are $500,000 when 59,000 units are produced. It sold 35,000 units during the year. Calculate the variable cost per unit. (Round your answer to the nearest cent.)
A) $8.47
B) $14.29
C) $5.08
D) $3.39
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Chapter 21: Variable Costing
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Q1) Which of the following statements is true of variable costing?
A) It considers variable manufacturing overhead as period costs.
B) It considers fixed manufacturing overhead as product costs.
C) It considers variable selling and administrative costs as product costs.
D) It considers fixed selling and administrative costs as period costs.
Q2) For short-term pricing decisions, variable costing is an appropriate costing method to use.
A)True
B)False
Q3) The calculation of contribution margin ratio for service companies is significantly different from that of manufacturing companies.
A)True
B)False
Q4) Absorption costing is required by the Generally Accepted Accounting Principles (GAAP) for financial statements issued to investors, creditors, and other external users.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) Which of the following is an example of the planning function of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Employees are motivated to achieve the goals set by the budget.
C) Budget figures are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
Q2) Which of the following is an example of the benchmarking function of the budgeting process?
A) A budget demands integrated input from different business units and functions.
B) Budgeting requires close cooperation between accountants and operational personnel.
C) Budget numbers are used to evaluate the performance of managers.
D) The budget outlines a specific course of action for the coming period.
Q3) Amounts needed for the preparation of the budgeted balance sheet for a manufacturer are taken from various operating and financial budgets.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) The fixed overhead volume variance reveals underallocated fixed overhead costs.
A)True
B)False
Q2) The variable overhead efficiency variance measures how well the business ________.
A) keeps costs of variable overhead inputs within standard.
B) uses its variable overhead inputs.
C) keeps fixed overhead within standard.
D) explains why fixed overhead is under allocated or overallocated
Q3) Andrea, a production manager for Akim Manufacturing, is investigating variances that are greater than 10% of the budgeted amounts. Andrea is engaging in ________.
A) management by exception
B) benchmarking
C) ABC costing
D) lean accounting
Q4) Favorable and unfavorable variances are subtracted from each other to arrive at a net favorable or unfavorable variance.
A)True
B)False
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is a responsibility that is common to the managers of cost, profit, and investment centers?
A) generating revenues
B) generating profits
C) managing the invested capital
D) controlling costs
Q2) The following is divisional information for Randolph Enterprises: \[\begin{array} { | l | r | r | }
\hline & \text { East Division } & \text { West Division } \\
\hline \text { Operating income } & \$ 250,000 & \$ 200,000 \\
\hline \text { Net sales } & 2,225,000 & 1,575,000 \\
\hline \text { Total assets at Jan. 1 } & 1,500,000 & 840,000 \\
\hline \text { Total assets at Dec .31 } & 1,200,000 & 1,000,000 \\
\hline
\end{array}\] The target rate of return is 12% for the East Division and is 10% for the West Division.
Compute the return on investment for each division. (Round to one decimal place.)
Q3) Discuss the difference between a centralized company and a decentralized company.
Page 26
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Chapter 25: Short-Term Business Decisions
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Q1) Doro Fill Company fabricates automobiles. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows: \[\begin{array} { | l | r | l | }
\hline \text { Volume } & 800 & \text { units per month } \\
\hline \text { Variable cost per unit } & \$ 5 & \text { per unit } \\
\hline \text { Fixed costs } & \$ 13,000& \text { per month } \\
\hline
\end{array}\] A factory in Indonesia has offered to supply Doro Fill with ready-made units for a cost of $10 each. Assume that Doro Fill's fixed costs are unavoidable and that the company will not be able to use the excess capacity in any profitable manner. In order to maximize operating income, Doro Fill should not outsource.
A)True
B)False
Q2) Define the terms "Relevant Cost" and "Sunk Cost."
Q3) Special pricing orders increase operating income if the special price exceeds the differential costs of filling the special order.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) The last step in the capital budgeting process is control, which compares the actual results with the projected results. These comparisons are known as ________.
A) net cash inflows
B) post-audits
C) rankings
D) variance analysis
Q2) The only difference between the present value and future value of a lump sum is the amount of interest that is earned in the intervening time span.
A)True
B)False
Q3) Many service, merchandising, and manufacturing firms use discounted cash flow methods to make capital investment decisions.
A)True
B)False
Q4) If an investment's internal rate of return is higher than the required rate of return, the company should reject the investment.
A)True
B)False
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Chapter 27: Understanding Accounting Information Systems
and their Components
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Q1) Midwest Enterprises uses special journals. The company borrowed $10,000 from First State Bank. This transaction is recorded in the ________.
A) general journal
B) debt journal
C) cash receipts journal
D) cash payments journal
Q2) Which of the following is an input device in an accounting information system?
A) keyboard
B) Internet protocol
C) printer
D) router
Q3) Which of the following is an example of hardware?
A) monitor
B) malware
C) firewall
D) operating system
Q4) Most small businesses have computerized all of their accounting.
A)True
B)False
Q5) Describe the transactions recorded in the cash payments journal.
To view all questions and flashcards with answers, click on the resource link above. Page 29