Accounting Principles II
Review Questions
Course Introduction
Accounting Principles II builds on foundational accounting concepts by exploring more advanced topics such as the accounting cycle for corporations, statement of cash flows, and the analysis of financial statements. The course covers inventory valuation, long-term assets, liabilities, and shareholders equity, with a focus on managerial decision-making and ethical considerations in accounting. Students will gain hands-on experience in recording transactions, preparing financial reports, and interpreting financial data, equipping them with the skills necessary for further studies in accounting and finance.
Recommended Textbook
Financial Accounting 2nd Edition by
J. David Spiceland
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Page 2
Chapter 1: Accounting Information and Decision Making
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Sample Questions
Q1) Investing cash flows generally include cash receipts and cash payments for transactions involving revenues and expenses.
A)True
B)False
Answer: False
Q2) Which of the following items would not appear in an income statement?
A)Delivery expense.
B)Accounts payable.
C)Service revenue.
D)Utilities expense.
Answer: B
Q3) Accounting information is used by creditors to decide whether to invest in a company's stock.
A)True
B)False
Answer: False
Q4) Expenses are regular cash payments by a corporation to its stockholders.
A)True
B)False
Answer: False
Page 3
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Chapter 2: The Accounting Information System
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Sample Questions
Q1) Revenues have the effect of increasing retained earnings.
A)True
B)False
Answer: True
Q2) Consider the following accounts: Dividends Insurance Expense Cash Service Revenue
How many of these accounts are increased with credits?
A)One.
B)Two.
C)Three.
D)Four.
Answer: A
Q3) A company provides services to customers for $2,400 cash.Record the transaction. Answer: Cash\(\quad\) 2,400 Service Revenue\(\quad\)2,400
Q4) A company sells common stock for $20,000 cash.Record the transaction. Answer: Cash\(\quad 20,000\) Common Stock\(\quad 20,000\)
Page 4
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Chapter 3: The Financial Reporting Process
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Sample Questions
Q1) The closing entry for dividends includes a debit to the Dividends account and a credit to Retained Earnings.
A)True
B)False
Answer: False
Q2) The adjusting entry required when amounts previously recorded as unearned revenues are earned includes:
A)A debit to a liability.
B)A debit to an asset.
C)A credit to a liability.
D)A credit to an asset.
Answer: A
Q3) Permanent accounts would not include:
A)Accounts Payable.
B)Office Supplies.
C)Utilities Expense.
D)Common Stock.
Answer: C
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Chapter 4: Cash and Internal Controls
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Sample Questions
Q1) A company had the following sales transactions:
1.Total debit card sales = $200,000.
2.Total credit card sales = $400,000.
3.Total cash sales = $800,000.
4.Total check sales = $100,000.
There is a charge of 2% on all credit card transactions.Calculate total sales revenue recorded for the year.
Q2) A company had the following transactions during the year:
1.Paid rent for the next two years,$8,000.
2.Purchased office supplies on account,$2,400.
3.Purchased equipment,paying $12,000 cash and issuing a note payable for $4,000.
4.Borrowed from the bank,$6,000.
5.Paid employee salaries,$7,200.
6.Paid $2,000 on account related to transaction 2 above.
7.Paid dividends to stockholders,$2,800.
8.Sold land for $10,000 that was purchased in a prior year for $7,500.
9.Collected cash from customers for services provided,$25,700. Calculate cash flows from operating activities,investing activities,and financing activities.
Q3) Describe the procedures used to reconcile a company's cash balance.
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Chapter 5: Receivables and Sales
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Q1) A company has the following balances on December 31,2012,after year-end adjustments: Accounts Receivable = $62,000; Allowance for Uncollectible Accounts = $6,000.Calculate the net realizable value of accounts receivable.
Q2) A sale on account is recorded as a debit to Service Revenue and a credit to Accounts Receivable.
A)True
B)False
Q3) Credit sales transfer products and services to a customer today while bearing the risk of collecting payment from that customer in the future.
A)True
B)False
Q4) Trade discounts represent a discount offered to the purchasers for quick payment. A)True B)False
Q5) Notes receivable typically arise from sales to customers. A)True
B)False
Q6) Explain how companies account for uncollectible accounts receivable (bad debts).
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Chapter 6: Inventory and Cost of Goods Sold
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Q1) A periodic inventory system does not continually modify inventory amounts,but instead adjusts for purchases and sales of inventory at the end of the reporting period based on a physical count of inventory on hand.
A)True
B)False
Q2) The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following accounting principles?
A)Matching principle.
B)Revenue recognition.
C)Conservatism.
D)Materiality.
Q3) The distinction between operating and nonoperating income relates to:
A)Continuity of income.
B)Principal activities of the reporting entity.
C)Consistency of income stream.
D)Reliability of measurements.
Q4) What is a multiple-step income statement? What information does it provide beyond "bottom-line" net income?
Q5) __________ is commonly referred to as the balance sheet approach.
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Chapter 7: Long-Term Assets
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Sample Questions
Q1) We record a gain if we sell an asset for less than book value. We record a gain if we sell an asset for more than book value.
A)True
B)False
Q2) C-Stop reports the following information at year-end: Based on the above information,what is the total amount of impairment loss that C-Stop should record at year end?
A)$141,000.
B)$126,000.
C)$123,000.
D)$122,000.The building and the copyright are impaired since their estimated future cash flows are less than book value.The impairment loss is calculated as the difference between the book value and the fair value: Building ($500,000 - $360,000)= $140,000 and Copyright (40,000 - $39,000)= $1,000.Total impairment loss ($140,000 + $1,000)= $141,000.
Q3) China Dragon purchased new restaurant equipment on September 1,2012,for $8,000.Residual value at the end of an estimated 5 year service life is expected to be $2,000.Calculate depreciation expense using the straight-line method for 2012 and 2013,assuming a December 31 year-end.
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Page 9
Chapter 8: Current Liabilities
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Q1) On November 1,Vacation Desinations borrows $1.5 million and issues a six-month,8% note payable.Interest is payable at maturity.Record the issuance of the note and the appropriate adjusting entry for interest expense at December 31,the end of the reporting period.
Q2) Gain contingencies usually are recognized in a company's income statement when: A)The gain is certain.
B)The amount can be reasonably estimated.
C)The gain is reasonably possible and the amount can be reasonable estimated.
D)The gain is probable and the amount can be reasonably estimated.
Q3) When a company borrows cash from a bank promising to repay the amount borrowed plus interest,the borrower reports its liability as notes payable. A)True
B)False
Q4) Consultants notify management of Generic Drug that a prescription medication poses a potential health risk.Legal counsel indicates that a product recall is probable and is estimated to cost the company between $5 and $8 million.How will this affect the company's income statement and balance sheet this period?
Q5) Why is it important to distinguish between current and long-term liabilities?
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Chapter 9: Long-Term Liabilities
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Q1) Pizza Pier issues 7%,10-year bonds with a face amount of $80,000 for $74,564 on January 1,2012.The market interest rate for bonds of similar risk and maturity is 8%.Interest is paid semiannually on June 30 and December 31.
1.Record the bond issue.
2.Record the first interest payment on June 30,2012.
Q2) The rate of interest expense incurred on a bond payable for bonds of similar risk is called the:
A)Face rate.
B)Yield rate.
C)Market rate.
D)Stated rate.
Q3) What is the annual market interest rate on the bonds?
A)3%.
B)3.5%.
C)6%.
D)7%.
Q4) At the maturity date,the carrying value will equal the face amount of the bond.
A)True
B)False
Q5) Why do some companies issue bonds rather than borrow money directly from a bank?
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Treasury stock is the repurchase of a company's own issued stock.
A)True
B)False
Q2) The issuer of a 5% common stock dividend (small stock dividend)to common stockholders should debit stock dividends for an amount equal to the
A)Book value of the shares issued.
B)Par or stated value of the shares issued.
C)Market value of the shares issued.
D)Minimum legal requirements.
Q3) Authorized common stock refers to the total number of shares:
A)Outstanding.
B)Issued.
C)Issued and outstanding.
D)That can be issued.
Q4) Corporations typically do not start raising capital by issuing stock to the general public.What are the common stages of equity financing leading to an initial public offering (IPO)?
Q5) Tropical Rainwear issues 1,000 shares of its $20 par value preferred stock for cash at $22 per share.Record the issuance of the preferred shares.
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Chapter 11: Statement of Cash Flows
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Sample Questions
Q1) We report interest and dividends received from investments with investing activities.
A)True
B)False
Q2) Investing activities include cash transactions involving the purchase and sale of long-term assets and current investments.
A)True
B)False
Q3) Under what section of the Statement of Cash Flows would you classify dividends paid on common stock?
A)Operating.
B)Investing.
C)Financing.
D)Noncash activity.
Q4) We calculate cash return on assets as
A)The change in cash divided by average total assets.
B)Net cash flows from operating activities divided by average total assets.
C)The change in cash divided by ending total assets.
D)Met cash flows from operating activities divided by ending total assets.
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Horizontal analysis analyzes trends in financial statement data for a single company over time.
A)True
B)False
Q2) Explain why ratios that compare an income statement account with a balance sheet account should express the balance sheet account as an average of the beginning and ending balances.
Q3) Which of the following is a conservative accounting practice?
A)The use of a longer service life for depreciation.
B)Waiting to record a litigation loss.
C)Adjust the allowance for uncollectible accounts to a smaller amount.
D)The write-down of overvalued inventory.
Q4) Value stocks have lower share prices in relationship to their fundamental ratios,and therefore,trade at lower PE ratios.
A)True
B)False
Q5) The acid-test ratio is always smaller than the current ratio.
A)True
B)False
Q6) Explain the difference between vertical and horizontal analysis.
Page 14
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Chapter 13: Time Value of Money
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Sample Questions
Q1) Baird Bros.Construction is considering the purchase of a machine at a cost of $125,000.The machine is expected to generate cash flows of $20,000 per year for ten years and can be sold at the end of ten years for $10,000.The discount rate is 10%.Assume the machine would be paid for on the first day of year one,but that all other cash flows occur at the end of the year.Ignore income tax considerations.Determine if Baird should purchase the machine.
Q2) Miller borrows $300,000 to be paid off in three years.The loan payments are semiannual with the first payment due in six months,and interest is at 6%.What is the amount of each payment?
A)$55,379.
B)$106,059.
C)$30,138.
D)$60,276.
Q3) How much must be invested now at 9% interest to accumulate to $10,000 in five years?
A)$9,176.
B)$6,499.
C)$5,500.
D)$5,960.
Q4) Briefly describe the difference between simple interest and compound interest.
Page 15
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Chapter 14: Investments
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Q1) When using the equity method to account for an investment,cash dividends received by the investor from the investee should be recorded:
A)As a reduction in the Investments account.
B)As an increase in the Investments account.
C)As dividend income.
D)As a contra item to stockholders' equity.
Q2) Consolidated financial statements combine the separate financial statements of the purchasing company and the acquired company into a single set of financial statements.
A)True
B)False
Q3) Because the carrying value of bonds purchased at a premium increases over time,interest revenue will also increase each semi-annual interest period.
A)True B)False
Q4) When significant influence exists,the investment should be accounted for by the equity method.
A)True B)False
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Chapter 15: International Financial Reporting Standards
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Q1) In countries where debt financing is more common (Japan)compared to equity financing,there is greater emphasis on reporting the ability of the company to earn profits for its investors rather than the ability to repay debt.
A)True
B)False
Q2) For which of the following topics is accounting under both U.S.GAAP and IFRS essentially the same?
A)Receivables.
B)Long-term assets.
C)Inventory.
D)Research and development expenditures.
Q3) The FIFO inventory method is not allowed under IFRS.
A)True
B)False
Q4) By late 2007,over 100 jurisdictions,including China,Australia,and all of the countries in the European Union (EU),either require or permit the use of IFRS.
A)True B)False
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