Accounting Practices and Procedures
Exam Practice Tests
Course Introduction
This course provides a comprehensive introduction to the fundamental principles, practices, and procedures of accounting. Students will explore the accounting cycle, including the preparation and analysis of financial statements, recording and posting transactions, adjusting entries, and closing processes. Emphasis is placed on both manual and computerized accounting systems, internal control measures, and the application of accounting standards. By the end of the course, students will have a practical understanding of day-to-day accounting operations in various organizational settings and be equipped to interpret and utilize financial information for decision-making purposes.
Recommended Textbook
Intermediate Accounting 8th Edition by
J. David Spiceland
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21 Chapters
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Page 2
Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Sample Questions
Q1) Recognizing expected losses immediately,but deferring expected gains,is an example of:
A)Materiality.
B)Conservatism.
C)Cost-effectiveness.
D)Timeliness.
Answer: B
Q2) When there is agreement between a measure or description and the phenomenon it purports to represent,information possesses which characteristic?
A)Verifiability.
B)Predictive value.
C)Faithful representation.
D)Timeliness.
Answer: C
Q3) SFAC 8 of the conceptual framework focuses on:
A)Objective and qualitative characteristics.
B)Presentation and disclosure.
C)Recognition and measurement.
D)Elements of financial statements.
Answer: A
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Chapter 2: Review of the Accounting Process
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Sample Questions
Q1) When converting an income statement from a cash basis to an accrual basis,expenses:
A)Exceed cash payments to suppliers.
B)Equal cash payments to suppliers.
C)Are less than cash payments to suppliers.
D)May exceed or be less than cash payments to suppliers.
Answer: D
Q2) Supplies expense
Answer: 11ea906f_564c_450e_a7a0_6528e8fc03e3_TB2444_00
Q3) Prepare an income statement for China Tea Company for the year ended December 31,2016.
Answer: 11ea906f_564d_7da3_a7a0_b3a896b5c790_TB2444_00
Q4) Collected cash on account from customers.
Answer: 11ea906f_564d_086a_a7a0_39986d2f8289_TB2444_00
Q5) Temporary accounts would not include:
A)Salaries payable.
B)Depreciation expense.
C)Supplies expense.
D)Cost of goods sold.
Answer: A
Page 4
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Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) Altoid Co.'s current ratio.Round your answer to two decimal places.
Answer: ($150 + 200 + 300 + 450)/$450 = 2.44 Current ratio
Q2) Disclosure notes would not include:
A)Depreciation methods used and estimated useful life.
B)Definition of cash equivalents.
C)Details of pension plans.
D)Data to adjust the financial statements so that they are not misleading.
Answer: D
Q3) When a company pays its bill from a plumber for previous services on account:
A)Its debt to equity ratio always decreases.
B)Its acid-test ratio always remains unchanged.
C)Its current ratio always remains unchanged.
D)Its return on shareholders' equity always decreases. Answer: A
Q4) The acid-test ratio is (rounded):
A)0.25.
B)0.88.
C)1.17.
D)1.58. Answer: B
Page 5
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Chapter 4: The Income Statement, comprehensive Income, and
the Statement of Cash Flows
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Sample Questions
Q1) Reporting comprehensive income according to International Financial Reporting Standards can be accomplished by each of the following methods except:
A)In the statement of shareholders' equity.
B)A combined statement of income and comprehensive income.
C)In two separate statements.
D)The entity may choose either a combined statement of income and comprehensive income or two separate statements.
Q2) List at least four operating activities that would be reported in the statement of cash flows for Walmart.Assume the use of the direct method.
Q3) Income statements prepared according to both U.S.GAAP and International Financial Reporting Standards require the separate reporting of discontinued operations.
A)True
B)False
Q4) Required: Prepare a 2016 single,continuous statement of comprehensive income for Kroeger Inc.Use a multiple-step income statement format.
Q5) Required: Prepare a multiple-step income statement with earnings per share disclosure.
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Chapter 5: Income Measurement
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Sample Questions
Q1) What is the expected transaction price with variable consideration estimated as the expected value?
A)$4,750
B)$5,000
C)$5,500
D)$5,750
Q2) A warranty that the customer can purchase separately and that covers a long period of time after the purchase date is likely to be a quality-assurance warranty.
A)True
B)False
Q3) In 2015,Lake would recognize realized gross profit of:
A)$150,000.
B)$0.
C)$300,000.
D)$450,000.
Q4) Its average collection period for 2016.Round your final answer to one decimal place.
Q5) What limitations exist in drawing meaningful comparisons about the performance of Uncle Joe's from the data above?
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Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) Jimmy has $255,906 accumulated in a 401K plan.The fund is earning a low,but safe,3% per year.The withdrawals will take place at the end of each year starting a year from now.How soon will the fund be exhausted if Jimmy withdraws $30,000 each year?
A)11 years.
B)10 years.
C)8.5 years.
D)8.8 years.
Q2) An annuity consists of level principal payments plus interest on the unpaid balance. A)True
B)False
Q3) A firm leases equipment under a capital lease (analogous to an installment purchase)that calls for 12 semiannual payments of $39,014.40.The first payment is due at the inception of the lease.The annual rate on the lease is 6%.What is the value of the leased asset at inception of the lease?
A)$388,349.
B)$400,000.
C)$454,128.
D)$440,082.
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) The journal entry to replenish the petty cash fund includes:
A)A credit to petty cash and a debit to various expenses for $126.
B)A debit to petty cash and a credit to cash for $150.
C)A credit to cash and a debit to various expenses for $126.
D)None of these answer choices are correct.
Q2) How could a company with receivables like HP be able to manage earnings in applying generally accepted accounting principles?
Q3) Discounts on notes receivable are recognized as interest earned over the term of the related note.
A)True
B)False
Q4) Which of the following is considered a sale of receivables?
A)Pledging receivables.
B)Assigning receivables.
C)Factoring receivables without recourse.
D)None of these answer choices are correct.
Q5) Explain how a company could manipulate cash flow from operations by changing the extent to which it factors accounts receivable and treats those factoring arrangements as sales of receivables.
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) Dollar-value LIFO eliminates the risk of LIFO liquidations.
A)True
B)False
Q2) On January 1,2015,ECT Co.adopted the dollar-value LIFO method for its one inventory pool.The pool's value on this date was $600 million.The 2015 and 2016 ending inventory valued at year-end costs were $702 million and $840 million,respectively.The appropriate cost indexes are 1.08 for 2015 and 1.20 for 2016. Required:
Calculate the inventory balance that ECT Co.would report on its year-end balance sheets for 2015 and 2016,using the dollar-value LIFO method.
Q3) Physical counts of inventory are never made with perpetual inventory systems.
A)True
B)False
Q4) It is the end of the accounting period,and your boss asks you to help determine the inventory balance to place in the company's balance sheet.Explain which physical quantities of inventory that you will include and which you will exclude.
Q5) Briefly explain the advantages of dollar-value LIFO (DVL).
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Page 10
Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) Briefly explain the financial reporting required when material misstatements are found in previous years' financial statements that are included for comparative purposes in the current year's financial statements.
Q2) Under the retail method,in determining the cost-to-retail percentage for the current year:
A)Net markups are included.
B)Net markdowns are excluded.
C)Net sales are included.
D)All of these answer choices are correct.
Q3) Hawkeye Auto Parts uses the average cost retail method to estimate inventories.Data for the first six months of 2016 include: beginning inventory at cost and retail were $55,000 and $100,000,net purchases at cost and retail were $785,000 and $1,300,000,and sales during the first six months totaled $800,000.The estimated inventory at June 30,2016,would be:
A)$330,000.
B)$360,000.
C)$362,300.
D)None of these answer choices are correct.
Q4) Determine the inventory book value for Products A,B,and C.
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Chapter 10: Property, plant, and Equipment and Intangible
Assets: Acquisition and Disposition
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Sample Questions
Q1) The acquisition costs of property,plant,and equipment do not include:
A)The ordinary and necessary costs to bring the asset to its desired condition and location for use.
B)The net invoice price.
C)Legal fees,delivery charges,installation,and any applicable sales tax.
D)Maintenance costs during the first 30 days of use.
Q2) What is the amount of interest that Crocus should capitalize in 2016,using the specific interest method (rounded to the nearest thousand dollars)?
A)$7,248,000 (rounded).
B)$7,283,000 (rounded).
C)$8,740,000 (rounded).
D)None of these answer choices are correct.
Q3) In computing the capitalized interest for 2016,Crocus' average accumulated expenditures are:
A)$ 46.30 million.
B)$103.54 million.
C)$122.30 million.
D)$124.25 million.
Q4) How are donated assets recorded?
Page 12
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Chapter 11: Property, plant, and Equipment and Intangible
Assets: Utilization and Impairment
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Sample Questions
Q1) In the first year of an asset's life,which of the following methods has the smallest depreciation?
A)Straight-line.
B)Declining balance.
C)Sum-of-the-years' digits.
D)Composite or group.
Q2) Fryer Inc.owns equipment for which it paid $90 million.At the end of 2016,it had accumulated depreciation on the equipment of $27 million.Due to adverse economic conditions,Fryer's management determined that it should assess whether an impairment loss should be recognized for the equipment.The estimated undiscounted future cash flows to be provided by the equipment total $60 million,and the equipment's fair value at that point is $40 million.Under these circumstances,Fryer:
A)Would record no impairment loss on the equipment.
B)Would record a $3 million impairment loss on the equipment.
C)Would record a $23 million impairment loss on the equipment.
D)None of these answer choices are correct.
Q3) Compute depreciation for 2016 and 2017 and the book value of the machinery at December 31,2016 and 2017,assuming the sum-of-the-years'-digits method is used.
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Chapter 12: Investments
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Sample Questions
Q1) On March 17,2015,Union Corporation purchased 5,000 shares of AZQ common stock as a long-term investment at $40 per share.On December 31,2015,and December 31,2016,the market value of the AZQ stock is $42 and $43,respectively.
Required:
(1. )What is the appropriate reporting category for this stock? Why?
(2. )Prepare the adjusting entry on December 31,2015.
(3. )Prepare the adjusting entry on December 31,2016.
Q2) On January 2,2015,Howdy Doody Corporation purchased 12% of Ranger Corporation's common stock for $50,000 and classified the investment as available for sale.Ranger's net income for the years ended December 31,2015 and 2016,were $10,000 and $50,000,respectively.During 2016,Ranger declared and paid a dividend of $60,000.There were no dividends in 2015.On December 31,2015,the fair value of the Ranger stock owned by Howdy Doody had increased to $70,000.How much should Howdy Doody show in the 2016 income statement as income from this investment?
A)$26,000.
B)$ 7,200.
C)$20,000.
D)$27,200.
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Chapter 13: Current Liabilities and Contingencies
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Sample Questions
Q1) Blue Co.can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country.If the likelihood of expropriation is remote,a loss contingency should be:
A)Disclosed but not accrued as a liability.
B)Disclosed and accrued as a liability.
C)Accrued as liability but not disclosed.
D)Neither accrued as a liability nor disclosed.
Q2) A quality-assurance warranty typically results in the seller:
A)Accruing an expense for anticipated warranty costs at the time the warrantied product is sold.
B)Recognizing an asset for accrued warranty costs which is amortized over the life of the warranty.
C)Recognizing revenue over the life of the extended warranty.
D)Refunding warranty payments upon expiration of the warranty.
Q3) Large,highly rated firms sometimes sell commercial paper:
A)To borrow funds at a lower rate than through a bank.
B)To earn a profit on the paper.
C)To avoid paperwork.
D)Because the interest rate is locked in by the Federal Reserve Board.
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Page 15
Chapter 14: Bonds and Long-Term Notes
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Sample Questions
Q1) What would be the total interest expense recognized for the bond issue over its full term?
A)$ 6,512,253.
B)$ 8,000,000.
C)$ 9,487,747.
D)$11,487,747.
Q2) When a company issues bonds between interest dates,the entry to record the issuance of the bonds will:
A)Include a credit to interest payable.
B)Include a debit to interest expense.
C)Include a debit to cash that has been reduced by interest accrued from the last interest date.
D)Include a debit to cash that has been increased by interest that will accrue from sale to the next interest date.
Q3) Why do companies find the issuance of convertible bonds to be an attractive form of financing?
Q4) Tru Fashions has bonds outstanding during a year in which the market rate of interest has declined.If Tru has elected the fair value option for the bonds,will it report a gain or a loss on the bonds for the year? Explain.
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Chapter 15: Leases
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Sample Questions
Q1) What would be the amount of interest expense recorded with payment 5?
A)$2,000.
B)$ 893.
C)$7,107.
D)$1,107.
Q2) On January 1,2016,Holbrook Company leased a building under a three-year operating lease.The annual rental payments are $40,000 on January 1,2016;$30,000 on January 1,2017;and $20,000 on January 1,2018.
Required:
Prepare the appropriate journal entries for Holbrook Company from the inception of the lease through the end of 2018.
Q3) If the lessee is expected to take ownership of a leased asset at the end of the lease term,the lessor must use an estimated residual value when calculating the lease payments necessary to achieve a desired rate of return.
A)True
B)False
Q4) Discuss the three major types of leases that may apply to the lessor.How do they differ?
Q5) What lease disclosures are required of the lessor and lessee?
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Chapter 16: Accounting for Income Taxes
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Sample Questions
Q1) Before considering a net operating loss carryforward of $80 million,Fama Corporation reported $200 million of pretax accounting and taxable income in the current year.The income tax rate for all previous years was 40%.On January 1 of the current year,a new tax law was enacted,reducing the rate to 30% effective immediately.Fama's income tax payable for the current year would be:
A)$48 million.
B)$28 million.
C)$60 million.
D)$36 million.
Q2) Some accountants believe that deferred taxes should not be recognized for certain temporary differences.What is the conceptual basis for this argument?
Q3) Estimated employee compensation expenses earned during the current period but expected to be paid in the next period causes:
A)An increase in a deferred tax asset.
B)A decrease in a deferred tax asset.
C)An increase in a deferred tax liability.
D)A decrease in a deferred tax liability.
Q4) What is a valuation allowance for deferred tax assets and when is it used?
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Page 18
Chapter 17: Pensions and Other Postretirement Benefits
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Sample Questions
Q1) Persoff Industries International has a defined benefit pension plan.The company revised its estimate of future salary levels causing its defined benefit obligation to increase by $16 million.Also,Persoff's $25 million actual return on plan assets exceeded the 5% high-grade corporate bond rate times the $440 million plan assets.Persoff prepares its financial statements in accordance with International Financial Reporting Standards (IFRS).The company will:
A)Record a $3 million decrease in its plan assets.
B)Record a $16 million gain-OCI.
C)Change an amount in the equity section of the balance sheet to be subsequently amortized to pension expense.
D)Change an amount in the equity section of the balance sheet that will never be amortized to pension expense.
Q2) Which of the following is a correct statement concerning the reporting of the pension plan on the face of the employer's balance sheet?
A)Only the plan assets are separately reported.
B)Only the PBO is separately reported.
C)Both the PBO and the plan assets are separately reported.
D)Neither the PBO nor the plan assets is separately reported.
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Chapter 18: Shareholders Equity
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Sample Questions
Q1) When stock is issued in exchange for property,the best evidence of fair value might be any of the following except:
A)The appraised value of the property received.
B)The selling price of the stock in a recent transaction.
C)The price of the stock quoted on the stock exchange.
D)The average book value of outstanding stock.
Q2) Beasley Crossing prepares its financial statements in accordance with International Financial Reporting Standards (IFRS).The company issued shares of the company's Class B stock.Beasley Crossing should report the stock in the company's statement of financial position
A)among liabilities unless the shares are mandatorily redeemable.
B)among liabilities if the shares are mandatorily redeemable or redeemable at the option of the shareholder.
C)as equity unless the shares are mandatorily redeemable.
D)as equity unless the shares are redeemable at the option of the issuer.
Q3) The prescribed accounting treatment for stock dividends implicitly assumes that shareholders are fooled by "small" stock dividends and benefit by the market value of their additional shares.Explain this statement.Is it logical?
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Page 20
Chapter 19: Share-Based Compensation and Earnings Per Share
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Sample Questions
Q1) When calculating diluted earnings per share,stock options:
A)Are included if they are antidilutive.
B)Should be ignored.
C)Are included if they are dilutive.
D)Increase the numerator while not affecting the denominator.
Q2) On January 1,2016,Red Inc.issued stock options for 200,000 shares to a division manager.The options have an estimated fair value of $6 each.To provide additional incentive for managerial achievement,the options are not exercisable unless divisional revenue increases by 6% in three years.Red initially estimates that it is probable the goal will be achieved.Ignoring taxes,what is compensation expense for 2016?
A)$ 0.
B)$ 200,000.
C)$ 400,000.
D)$1,200,000.
Q3) Basic earnings per share ignores:
A)All potential common shares.
B)Some potential common shares,but not others.
C)Dividends declared on noncumulative preferred stock.
D)Stock splits.
Page 21
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Chapter 20: Accounting Changes
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Q1) Early in 2016,Benton Well Supplies discovered that a five-year insurance premium payment of $50,000 at the beginning of 2013 was debited to insurance expense.The correcting entry would include:
A)A credit to retained earnings of $20,000.
B)A debit to insurance expense of $20,000.
C)A debit to prepaid insurance of $30,000.
D)A debit to prepaid insurance of $50,000.
Q2) Which of the following changes would not be accounted for using the prospective approach?
A)A change to LIFO from average costing for inventories.
B)A change from the individual application of the LCM rule to aggregate approach.
C)A change from straight-line to double-declining balance depreciation.
D)A change from double-declining balance to straight-line depreciation.
Q3) Branch Industries changes from declining balance depreciation to straight-line depreciation for existing assets.Describe in detail the way Branch would account for the change and include reasons for the accounting.
Q4) If inventory is understated at the end of 2015 and the error is not discovered,how will net income be affected in 2016?
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Page 22
Chapter 21: The Statement of Cash Flows
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Q1) On June 4,White Corporation issued $400 million of bonds for $386 million.During the same year,$1 million of the bond discount was amortized.In a statement of cash flows prepared by the indirect method,White Corporation should report:
A)A financing activity of $400 million.
B)An addition to net income of $1 million.
C)An investing activity of $386 million.
D)A deduction from net income of $1 million.
Q2) Which of the following causes a change in cash?
A)Accrual of interest payable.
B)Recording of depreciation expense.
C)Write-off of an uncollectible account.
D)Payment of a cash dividend declared in the previous fiscal year.
Q3) Using the direct method,cash received from customers is calculated as sales:
A)On account.
B)On account plus cash sales.
C)Plus an increase in accounts receivable.
D)Plus a decrease in accounts receivable.
Q4) Which type of activity (operating,investing,financing)was most responsible for the cash flow experienced by Henchman & Co.during 2015?
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