Accounting Principles
Question Bank
Course Introduction
Accounting Principles introduces students to the foundational concepts and practices of accounting, focusing on the systematic recording, reporting, and analysis of financial transactions. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the interpretation of key financial information. Emphasis is placed on understanding the rules and standards that govern the accounting profession, ethical considerations, and the importance of accurate financial information for decision-making in business environments. By the end of the course, students should be able to apply basic accounting principles to real-world scenarios and demonstrate competency in preparing and analyzing financial reports.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) The financial examination of a company's financial records is called a(n):
A) appraisal.
B) criminal investigation.
C) audit.
D) financial analysis.
Answer: C
Q2) A company possesses all but one of the following characteristics.Which of the following is NOT a characteristic of a company?
A) A company is a distinct entity in the eyes of the law.
B) A company is owned by shareholders.
C) If a company cannot pay its debts, lenders can take the owners' personal assets to satisfy the obligations.
D) Company ownership is divided into shares.
Answer: C
Q3) The balance sheet shows whether or not a business is earning a profit.
A)True
B)False
Answer: False
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3
Chapter 2: Recording Business Transactions
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Q1) After initially recording a transaction,the data is then copied or posted to the: A) journal.
B) chart of accounts.
C) trial balance.
D) ledger.
Answer: D
Q2) For Accounts payable,the category of account and its normal balance are:
A) Assets and a credit balance.
B) Liabilities and a credit balance.
C) Owners' equity and a credit balance.
D) Assets and a debit balance.
Answer: B
Q3) A listing of all account titles in numerical order is a(n): A) ledger.
B) journal.
C) chart of accounts.
D) income statement.
Answer: C
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Chapter 3: The Adjusting Process
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Q1) How do the adjusting entries differ from other journal entries?
A) Adjusting entries are made only at the end of the period.
B) Adjusting entries never affect cash.
C) Adjusting entries always either increase revenue or increase an expense.
D) All of the above are true.
Answer: D
Q2) Prepaid insurance is an asset account.
A)True
B)False
Answer: True
Q3) On the first day of January,Patricia borrowed $5000 on a one-year loan payable bearing interest at 7% per year.The loan specifies that principal and interest must be paid in full at the end of the one-year period.On 30 June,the adjusted trial balance will show Interest payable of:
A) $175 credit
B) $350 debit
C) $175 debit
D) $350 credit
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Q1) Below is a list of various balance sheet accounts and their balances.
\[\begin{array} { | l | l | }
\hline \text { Loan payable - short term } & \$ 1500 \\
\hline \text { Salaries payable } & 5000 \\
\hline \text { Loan payable -long term } & 25,000 \\
\hline \text { Accounts payable } & 3500 \\
\hline \text { Unearned revenue } & 1000 \\
\hline \text { Interest payable } & 2300 \\
\hline
\end{array}\]
What are the total current liabilities shown on the balance sheet?
A) $5800
B) $13,300
C) $11,000
D) $11,800
Q2) Which of the following is NOT a non-current asset?
A) Accounts receivable
B) Equipment
C) Land
D) Buildings
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Chapter 5: Retailing Operations
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Q1) Which of the following correctly describes the rate of inventory turnover?
A) It is how many days it takes the inventory to travel between the seller's warehouse and the buyer's warehouse.
B) It is how many days it takes from the time an order is received to the day it is shipped.
C) It is how quickly inventory is received from the supplier after the order is placed.
D) It is how rapidly inventory is sold.
Q2) A firm uses the periodic inventory method.Which of the following entries would be made to record a purchase of inventory on credit?
A) The accounting entry would be a debit to Accounts payable, a credit to Inventory and a credit to GST clearing.
B) The accounting entry would be a debit to Inventory, a debit to GST clearing and a credit to Accounts payable.
C) The accounting entry would be a debit to Accounts payable, a credit to Purchases and a credit to GST clearing.
D) The accounting entry would be a debit to Purchases, a debit to GST clearing and a credit to Accounts payable.
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Chapter 6: Retail Inventory
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Sample Questions
Q1) Given the same purchase and sales data,the three major costing methods will result in three different amounts for Gross profit.
A)True
B)False
Q2) In a period of rising costs,FIFO produces lower Cost of sales and higher Gross profit than LIFO.
A)True
B)False
Q3) A company decides to ignore a very small error in its inventory balance.This is an example of which of the following principles?
A) Relevance principle
B) Comparability principle
C) Materiality concept
D) Accounting conservatism
Q4) The Cost of goods available for sale is equal to the:
A) Sales revenue minus the Cost of sales.
B) Cost of sales plus the Ending inventory.
C) Ending inventory plus the Sales revenues.
D) Cost of sales minus the Ending inventory.
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Chapter 7: Accounting Information Systems
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Q1) A company has four vendors and the accounts payable subsidiary ledger shows the following balances.
\[\begin{array} { | l | l | }
\hline \text { Alpha } & \$ 282,821 \\
\hline \text { Beta } & 151,474 \\
\hline \text { Gamma } & 88,943 \\
\hline \text { Delta } & 37,187 \\
\hline
\end{array}\]
Calculate the accounts payable balance in the general ledger.
A) $277,604
B) $434,295
C) $560,425
D) $282,821
Q2) The general journal is used to record all transactions that do not fit one of the special journals.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Regarding controls over cash receipts by mail,the bank deposit slip should be compared to the remittance advices by the accounting department.
A)True
B)False
Q2) A company's cash ledger shows an ending balance of $4600.Reconciling items included a bookkeeper error of $80 (a $550 cheque recorded as $630),two outstanding cheques totalling $810,a service charge of $20,a deposit in transit of $260 and interest revenue of $31.What is the adjusted book balance?
A) $4691
B) $4509
C) $5150
D) $4050
Q3) Which of the following items are both reconciling items on the bank side of the reconciliation?
A) Deposit in transit and dishonoured cheques
B) Outstanding cheques and correction of book error
C) Bank service charge and correction of book error
D) Deposit in transit and outstanding cheques
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Chapter 9: Receivables
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Sample Questions
Q1) A creditor is a person or business who:
A) purchases goods on credit.
B) has a payable to another party.
C) invests money in the shares of a company.
D) has a receivable from another party.
Q2) The percentage of sales method calculates bad debts expense as a percentage of net credit sales.
A)True
B)False
Q3) The direct write-off method is in accordance with the accrual method of accounting,whereas the allowance method is not.
A)True
B)False
Q4) Bills receivable are usually longer in term than accounts receivable.
A)True
B)False
Q5) The acid-test ratio is also known as the quick ratio.
A)True
B)False
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Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Q1) Which of the following should be included in the cost of land?
A) Cost of installing fences
B) Cost to build footpaths on the land
C) Cost to clear the land of old buildings
D) Cost of installing signage
Q2) A company's accountant expenses a payment that should be capitalised.Which of the following is TRUE?
A) Liabilities are overstated.
B) Revenue is overstated.
C) Assets are overstated.
D) Profit is understated.
Q3) A company purchased a computer on 1 July 2016.The computer has an estimated useful life of 5 years and will have no residual value.It was purchased for $10 000.It is estimated that the computer can be used for 5 000 hours.The computer was used for 450 hours during 2016.If the goal is to record higher depreciation expense in the earlier years,which method should be used?
A) Units of production
B) Straight line
C) First-in, first-out
D) Reducing balance
Page 12
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Chapter 11: Current Liabilities and Payroll
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Q1) Which of the following is the proper treatment for a liability that exists,but the exact amount of which is not known?
A) The liability should be ignored.
B) The liability should be treated as a contingent liability.
C) The amount of the liability should be estimated and recorded.
D) The liability should be reported in the notes to the financial statements.
Q2) Art Parrish is the sole employee of Parrish Sales.His company pays a portion of his health insurance premium,and also contributes to his superannuation.The company share of the health insurance premium is $400,and the company contribution to superannuation is $550.The second journal entry in the payroll cycle to record the employee benefits to be paid by the company should include a credit to Employee benefits payable for $950.
A)True
B)False
Q3) The Statewide Sales Company has gross pay for March of $45 000.The first journal entry in the payroll cycle to record salary expense would include a credit to Cash for $45 000.
A)True
B)False
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Chapter 12: Non-Current Liabilities,debentures Payable and
Classification of Liabilities on the Balance Sheet
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Q1) The time value of money is based on which of the following concepts?
A) The concept that money can be converted into other currencies over time
B) The concept that money loses its purchasing power over time
C) The concept that money becomes obsolete over time
D) The concept that money earns income over time
Q2) Instalment payments for mortgages are normally paid once per year.
A)True
B)False
Q3) Blanding Company issues $1,020,000 of 8%,10-year debentures at 94 on 28 February
2017.The debentures pay interest on 28 February and 31 August.On 31 August 2017,how much cash did Blanding pay out to investors? (Round to the nearest dollar.)
A) $40,800
B) $39,780
C) $41,820
D) $81,600
Q4) When a debenture is sold,the selling price is generally equivalent to the present value of the debenture payments.
A)True
B)False
Page 14
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Chapter 13: Partnerships
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Sample Questions
Q1) Gary,Peter and Chris and have capital balances of $27,000,$43,000,and $31,000,respectively.As per the partnership agreement,Gary gets a profit share of 2/9; Peter gets 4/9; and Chris gets 3/9.The partnership agrees to pay $21,000 as the final settlement to Gary.How much bonus does Peter receive as a result of this transaction?
A) $2667
B) $3429
C) $2571
D) $3333
Q2) Steve and Roger allocate 2/3 of the profits and losses to Steve and 1/3 to Roger.If the net profit of the firm is $29,000,calculate the share of Roger's profit.
A) $24,167
B) $19,333
C) $29,000
D) $9667
Q3) When one partner leaves the partnership for any reason,the old partnership ceases to exist.
A)True
B)False
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Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) Which of the following occurs when a previously declared dividend is paid?
A) Liabilities increase
B) Liabilities decrease
C) Assets increase
D) Equity increases
Q2) Dallkin Company issued 10,000 ordinary shares on 1 January 2016.The shares were sold at $25 per share.The journal entry for this transaction would include a:
A) debit to Cash for $250,000and a credit to Retained earnings for $250,000
B) credit to Cash for $250,000 and a debit to Ordinary share capital for $250,000
C) credit to Cash for $250,000, a debit to Retained earnings for $10,000 and a debit to Ordinary share capital for $240,000
D) debit to Cash for $250,000 and a credit to Ordinary share capital for $250,000
Q3) Shareholders of a company have unlimited liability for the company's debt.
A)True
B)False
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) The account to be debited when a share dividend is declared and distributed on the same date would be:
A) Dividends.
B) Cash.
C) Retained earnings.
D) Ordinary share capital.
Q2) Which of the following is a TRUE statement?
A) A share dividend will increase total shareholders' equity but a share split will not.
B) A share split will increase total shareholders' equity but a share dividend will not.
C) Neither a share split nor a share dividend will increase total shareholders' equity.
D) A share split will decrease retained earnings but a share dividend will not.
Q3) RT Company shows a loss from flooding of $235 000 for the year.This loss will be included in profit for the period.
A)True
B)False
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Chapter 16: The Cash Flow Statement
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Q1) Which of the following statements accurately describes the cash flow statement?
A) It shows the link between profit and earnings per share.
B) It indicates when long-term debt will mature.
C) It shows the relative proportion of debt and assets.
D) It shows the link between accrual-based income and the cash reported on the balance sheet.
Q2) Davis Company uses the direct method to prepare its cash flow statement.Refer to the following information reported for the year 2016:
Operating expenses,$27,000
Accrued liabilities,beginning balance,$3400
Accrued liabilities,ending balance,$5500
What amount was paid to suppliers for operating expenses on a cash basis?
A) $30,400
B) $32,500
C) $29,100
D) $24,900
Q3) Cash equivalents are assets that can be converted to cash within one year.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) SAC 2 is titled:
A) Objective of General Purpose Financial Reporting.
B) Qualitative Characteristics of Financial Information.
C) Definition and Recognition of the Elements of Financial Statements.
D) Definition of the Reporting Entity.
Q2) Saunders Hardware sells on the instalment plan.Sales-related figures for Saunders Hardware for 2017 were as follows: sales,$600 000; down payments on the sales,$60 000; collections on instalments,$250 000; beginning inventory,$90 000; ending inventory $60 000; and purchases,$400 000.What is Saunders Hardware's gross profit using the sales method of income recognition?
A) $200 000
B) $170 000
C) $260 000
D) $190 000
Q3) The pair of general principles of reporting that often result in a trade-off are:
A) understandability and reliability.
B) timeliness and reliability.
C) materiality and relevance.
D) comparability and materiality.
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Chapter 18: Financial Statement Analysis
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Q1) The rate of return on net sales is used for which kind of evaluation?
A) Evaluating shares in a company from an investor's perspective
B) The overall profitability of a company
C) The ability of a company to pay its current liabilities
D) The ability of a company to pay its non-current liabilities
Q2) The rate of return on ordinary shareholders' equity is used for which kind of evaluation?
A) Evaluating shares in a company from an investor's perspective
B) The overall profitability of a company
C) The ability of a company to pay its non-current liabilities
D) The ability of a company to pay its current liabilities
Q3) If you are comparing your company's results with those of other companies in the industry,the process is called:
A) a horizontal analysis.
B) a trend analysis.
C) sensitivity analysis.
D) benchmarking.
Q4) A common-size statement reports only percentages-no dollar amounts.
A)True
B)False
Page 20
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) Transportation costs to ship products to customers are inventoriable product costs.
A)True
B)False
Q2) Given the following information,determine the cost of sales.
\[\begin{array} { | l | l | }
\hline \text { Direct labour incurred } & \$ 61,000 \\
\hline \text { Manufacturing overhead incurred } & 177,500 \\
\hline \text { Direct materials used } & 151,000 \\
\hline \text { Finished goods inventory, 1/1/2017 } & 198,000 \\
\hline \text { Finished goods inventory, 31/12/2017 } & 221,000 \\
\hline \text { Work in process inventory, } 1 / 1 / 2017 & 26,000 \\
\hline \text { Work in process inventory, 31/12/2017 } & 109,000 \\
\hline
\end{array}\]
A) $485,500
B) $419,000
C) $353,500
D) $376,500
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Chapter 20: Job Costing
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Q1) In a service business that uses a job order costing system,the professional staff would normally keep precise records of time spent on each client.It is equally important that the clerical staff and other indirect labour personnel keep similar records of time spent on each client.
A)True
B)False
Q2) In the service industry,the use of job order costing is made much more effective if a company uses automated time records.
A)True
B)False
Q3) Activity-based costing systems combine many various elements of overhead into a single cost pool.
A)True
B)False
Q4) Process costing is used by companies that produce large numbers of identical units in a continuous fashion.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Porterhouse Company has both fixed and variable production costs.If volume goes up by 20%,how would that affect the total variable costs? (Assume all volumes are within the relevant range.)
A) Would go down
B) Would remain the same
C) Would go up 20%
D) Would go up by some amount less than 20%
Q2) Pep Soda,a local convenience store,sells soft drinks.It sells two large drinks for every small drink.A large drink sells for $1.80 with a variable cost of $0.70.A small drink sells for $1.00 with a variable cost of $0.30.The weighted average contribution margin is: (Round your intermediate calculations and final answer to two decimal places.)
A) $0.70 per drink.
B) $0.97 per drink.
C) $1.45 per drink.
D) $2.90 per drink.
Q3) If all other factors are constant,an increase in fixed costs will increase the breakeven point.
A)True
B)False
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Chapter 22: Short-Term Business Decisions
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Q1) Carlo Company makes bulk quantities of cleaning fluids.They currently sell 900 containers a month at a price of $24 per unit.If they added a disinfectant,they could charge $26 per unit for the improved product.It would cost them a total of $4000 per month to make that alteration.What would be the effect on operating profit?
A) It would increase by $2200.
B) It would increase by $4000.
C) It would decline by $2200 .
D) It would decline by $21,600.
Q2) In a special sales order decision,incremental fixed costs which would be incurred because of an additional purchase of equipment would be considered to be:
A) irrelevant to the decision.
B) opportunity costs.
C) sunk costs.
D) relevant to the decision.
Q3) Fixed costs are relevant to a special sales order decision if those fixed costs are subject to change as a result of the special order.
A)True
B)False
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Chapter 23: Capital Investment Decisions and the Time Value of Money
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Q1) A company is evaluating three possible investments.The following information is provided by the company.
\(\begin{array}{|l|l|l|l|}
\hline & \text { Project A } & \text { Project B } & \text { Project C } \\
\hline \text { Investment } & \$ 214,000 & \$ 54,000 & \$ 214,000 \\
\hline \text { Salvage value } &0 & 22,000 & 24,000 \\
\hline \text { Net cash flows: } & & & \\
\hline \text { Year } 1 & 58,000 & 26,000 & 84,000 \\
\hline \text { Year } 2 & 58,000 & 17,000 & 54,000 \\
\hline \text { Year } 3 & 58,000 & 13,000 & 64,000 \\
\hline \text { Year } 4 & 58,000 & 10,000 & 24,000 \\
\hline \text { Year } 5 & 58,000 & 0& 0 \\
\hline \end{array}\)
What is the payback period for Project A? (Assume that the company uses the straight-line depreciation method.)
A) 2.7 years
B) 5.0 years
C) 3.7 years
D) 2.1 years
Page 25
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