Accounting Principles II
Review Questions
Course Introduction
Accounting Principles II builds upon the foundational concepts introduced in Accounting Principles I, focusing on more advanced topics in financial accounting and an introduction to managerial accounting. The course examines areas such as corporate accounting, accounting for partnerships, long-term liabilities, investments, cash flow statements, and financial statement analysis. Students will also explore internal controls, budgeting, and cost analysis techniques. Through practical exercises and case studies, students develop the skills necessary to prepare, analyze, and interpret financial information, laying the groundwork for more specialized coursework in accounting and finance.
Recommended Textbook
Accounting 9th Canadian Edition Volumer II by Charles
T. Horngren
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Chapter 12: Corporations: Paid-In Capital and the Balance Sheet
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Sample Questions
Q1) Sheffield Company had $42,000 of net income in 2013. Equity at the beginning of the year was $1,200,000 and at the end of the year was $1,600,000. Sheffield has no preferred stock. Please calculate the rate of return on common stockholders' equity. (Round to 3 decimal places.)
A) 0.035
B) 0.026
C) 0.030
D) 0.032
Q2) Which of the following factors may cause a difference between book income and taxable income?
A) The company uses straight-line depreciation for books and accelerated depreciation for tax.
B) The company pays its federal income taxes quarterly as opposed to annually.
C) The company sells stock right before the end of the year.
D) The company has a deposit in transit at year-end.
Q3) All corporations must issue both common and preferred shares of stock.
A)True
B)False
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Chapter 13: Corporations: Effects on Retained Earnings and the Income Statement
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Sample Questions
Q1) If Peartree purchases an additional 1,000 shares of treasury stock at $18 per share, which of the following statements would be TRUE?
A) Total equity of the company would remain unchanged.
B) Total equity of the company would go up by $18,000.
C) Total equity of the company would go down by $18,000.
D) Total equity of the company would go down by $2,000.
Q2) What will the total number of shares issued be after the declaration of a 10% stock dividend?
A) 20,000 common shares
B) 44,000 common shares
C) 40,000 common shares
D) 4,000 common shares
Q3) Which of the following will happen to a stockholder's percentage ownership in the stock of a corporation when the corporation declares a stock dividend?
A) The stockholder's percentage ownership decreases.
B) The stockholder's percentage ownership can increase or decrease.
C) The stockholder's percentage ownership increases.
D) The stockholder's percentage ownership stays the same.
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following is the CORRECT order of the sections on a statement of cash flows?
A) Operating, financing, investing
B) Financing, investing, operating
C) Investing, operating, financing
D) Operating, investing, financing
Q2) A payment of interest on a loan would be considered a:
A) cash outflow from operating activities.
B) cash outflow from investing activities.
C) cash outflow from financing activities.
D) noncash activity.
Q3) Which would NOT be included in the operating activities section of a direct method statement of cash flow?
A) Changes in accounts payable
B) Changes in accounts receivable
C) Changes in inventory
D) Changes in long-term notes payable
Q4) Free cash flow is the same thing as cash flow from operating activities.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Partridge Company provides the following information for the year 2014: \[\begin{array} { l l }
\text { Earnings per share } & \$ 0.24 / \text { share } \\
\text { Market price of common stock: } & \$ 12.00 / \text { share } \\
\text { Dividends paid: } & \$ 0.80 / \text { share } \\
\text { (No preferred stock issued) } & \end{array}\]
How much was the dividend payout for one share of common stock?
A) 1.67
B) 3.33
C) 0.30
D) 3.95
Q2) On a vertical analysis, what percentage would be shown for operating income?
A) 12.9%
B) 33.6%
C) 12.1%
D) 31.4%
Q3) This is an example of benchmarking.
A)True
B)False
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Chapter 16: Introduction to Management Accounting
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Sample Questions
Q1) Transportation costs to ship products to customers are product costs.
A)True
B)False
Q2) Which of the following would probably be considered an indirect material cost in a bakery?
A) Spices
B) Flour
C) Milk
D) Eggs
Q3) Which of the following is NOT a period cost?
A) Sales commissions
B) CEO's salary
C) Delivery van depreciation
D) Factory janitorial costs
Q4) Which of the following is a philosophy of providing customers with superior products and services?
A) Just-in-time (JIT) inventory management
B) Enterprise resource planning (ERP)
C) Supply chain management
D) Total quality management
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Chapter 17: Job Order and Process Costing
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Sample Questions
Q1) Which of the following correctly describes the term conversion costs?
A) The combination of direct plus indirect labor costs
B) The combination of indirect labor plus indirect materials cost
C) The combination of direct materials, direct labor, and manufacturing overhead costs
D) The combination of direct labor and manufacturing overhead costs
Q2) Abba Accounting expects its accountants to work a total of 24,000 direct labor hours per year. Abba's estimated total indirect costs are $240,000. What is the indirect cost allocation rate?
A) $10 per hour
B) $20 per hour
C) $100 per hour
D) $120 per hour
Q3) Which of the following correctly describes the predetermined manufacturing overhead rate?
A) The rate for factory utilities costs
B) The rate of actual overhead costs per day
C) The rate used to allocate overhead to production
D) The rate of increase in factory costs
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Chapter 18: Activity-Based Costing and Other Cost Management Tools
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Q1) Which of the following would NOT be considered an activity for the purposes of an activity-based costing system?
A) Materials handling
B) Machine processing
C) Direct materials cost
D) Packaging
Q2) Target cost is the price that customers are willing to pay and target price is the desired cost to produce the product.
A)True
B)False
Q3) In a just-in-time costing system, the entry to record the sale of a manufactured product would include which of the following?
A) Debit to cost of goods sold
B) Debit to finished goods inventory
C) Credit to raw and in process inventory
D) Credit to conversion costs
Q4) Full-product cost includes both manufacturing and non-manufacturing costs. A)True
B)False
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) Which of the following statements is CORRECT with respect to total variable costs, within the relevant range?
A) They will decrease as production increases.
B) They will remain the same as production levels change.
C) They will decrease as production decreases.
D) They will increase as production decreases.
Q2) Argyle's fixed costs are $2,880 per month. How much is the breakeven point for each product type?
A) 500 regular, 100 heavy
B) 420 regular, 180 heavy
C) 480 regular, 120 heavy
D) 120 regular, 480 heavy
Q3) Jurassic Manufacturers produces flooring material. Fixed costs are $5,000 per month. Sales price for one unit of product is $50, and the variable cost per unit is $30. If Jurassic wishes to earn an operating income of $5,000, how many units need to be sold?
A) 500
B) 300
C) 450
D) 350
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Chapter 20: Short-Term Business Decisions
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Q1) The sales manager says he has an opportunity to pitch a special sale to a new Canadian fishing company that is outfitting new boats. He proposes a sale of 30 units at a special price of $140 per unit. He says it will not cannibalize the company's regular sales and is a one-time transaction. It will require the normal amount of variable costs, both marketing and manufacturing, but will not impact fixed costs in any way. The president of the company has some reservations, but finally agrees to make the deal if and only if it adds a minimum of $1,000 to operating income. Based on the president's criteria, Potlatch will decline the offer.
A)True
B)False
Q2) Actual costs are currently higher than target full cost. Assuming that variable costs are dependent on commodity prices and CANNOT be reduced, how much is the target fixed cost?
A) $160,000
B) $175,000
C) $150,000
D) $140,000
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Chapter 21: Capital Investment Decisions and the Time
Value of Money
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Sample Questions
Q1) If a company uses a higher discount rate to calculate NPV of an investment, it reflects a higher level of perceived risk for the investment.
A)True
B)False
Q2) Which of the following methods ignores the time value of money?
A) Payback
B) Internal rate of return
C) Return on assets
D) Net present value
Q3) Which of the following describes the purpose of a post-audit?
A) To screen initial investment alternatives
B) To determine whether investments are going as planned, or whether they should be abandoned
C) To determine the amount of the initial investment outlay
D) To evaluate the company's internal controls
Q4) The payback method can only be used when the net cash inflows from a capital investment are the same for each period.
A)True
B)False
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Chapter 22: The Master Budget and Responsibility Accounting
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Q1) Caskill Company forecasts $40,000 of sales in January, $38,000 in February, $30,000 in March, and $32,000 in April. Cost of goods sold is budgeted at 75% of sales. Caskill should have inventory on hand at the end of each month equal to $5,000 plus 20% of the following month's cost of goods sold. How much are budgeted purchases for March?
A) $22,800
B) $27,300
C) $29,700
D) $24,900
Q2) The allocation rate for the three product lines should be:
A) $45 per purchase order.
B) $60 per purchase order.
C) $75 per purchase order.
D) $80 per purchase order.
Q3) What amount of principal should the company repay to the bank at the end of September?
A) $5,000
B) $10,000
C) $15,000
D) $20,000
Page 13
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) Which of the following is one of the reasons why companies use standard costs?
A) To increase sales
B) To insure the accuracy of the financial records
C) To bolster good internal controls and prevent shrinkage
D) To make budgeting easier and more efficient
Q2) What do price variances measure?
A) The difference between the price the company pays and the price its competitors pay
B) The change in prices over time
C) The difference between actual and standard price
D) The volume discounts companies receive when ordering materials in large quantities
Q3) Which one of the following is NOT a reason for using standard costs?
A) To set performance targets
B) To strengthen internal controls over inventory
C) To decrease accounting costs
D) To make budgeting easier
Q4) A favorable variance reflects an increase in operating income.
A)True
B)False
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Chapter 24: Performance Evaluation and the Balanced Scorecard
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Sample Questions
Q1) How much is the variance for sales revenue?
A) $11,000 F
B) $12,000 F
C) $12,000 U
D) $13,000 F
Q2) Investment centers need KPIs to evaluate how efficiently the business unit uses assets. Typical KPIs of this type would include all of the following EXCEPT:
A) ROI (Return on investment).
B) EVA (Economic value added).
C) NOI (Net operating income).
D) RI (Residual Income).
Q3) Which of the following KPIs are used to evaluate how efficiently a business unit uses assets?
A) Hours of employee training
B) Defect rate
C) New product development time
D) Economic value added
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