Accounting Principles
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Course Introduction
Accounting Principles introduces students to the fundamental concepts and practices of accounting, including the recording, classification, and interpretation of business transactions. The course covers key topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and ethical considerations within the field. Emphasis is placed on understanding generally accepted accounting principles (GAAP) and their application to real-world business situations, providing students with a solid foundation for further studies in accounting and related disciplines.
Recommended Textbook
Introduction to Accounting An Integrated Approach 6th Edition by Penne Ainsworth
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Chapter 1: Accounting and Business
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Q1) Which of the following explains why it is relatively easy for corporations to raise large amounts of money?
A)Owners have unlimited liability for the debts of the business.
B)Close supervision by owners of day-to-day operations
C)Corporations raise capital by seeking relatively small amounts from many people.
D)Corporations are not subject to as much regulation as partnerships and sole proprietorships.
Answer: C
Q2) Which of the following is NOT true about the relationship between the financial statements?
A)The net income of the firm is added to owners' equity
B)The cash on the balance sheet is found on the cash flow statement
C)The net income of the firm is reported on the Income Statement and the Statement of Changes in Shareholders' Equity
D)The cash generated by operations on the Statement of Cash Flows is reported as an increase in Retained Earnings on the Statement of Changes in Shareholders' Equity
Answer: D
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Chapter 2: Business Processes and Accounting Information
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Q1) Which of the following will required the cash on the books of the company to be adjusted?
A)Outstanding checks
B)Deposits in transit
C)Bank errors
D)Bank Service Charges
Answer: D
Q2) Riga Corp borrowed $1,000,000 to buy a new manufacturing plant is part of their
A)operating activities
B)financing activities
C)investing activities
D)planning activities
Answer: B
Q3) Morland Corp purchased a building that will house its new manufacturing plant.This is part of Morland's
A)operating activities
B)investing Activities
C)financing Activities
D.planning Activities
Answer: B
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Chapter 3: Operating Processes: Planning and Control
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Q1) A linear regression analysis indicated a constant of 895.00,an X coefficient of 125.60,and an R-squared of 0.72.The dollar value of the dependent variable given an independent variable of 275 is:
A)$35,435
B)$35,184
C)$25,764
D)$27,555
Answer: A
Q2) Tri-State Corporation ordered materials from Down-State Manufacturing on October 1,2006.Down-State shipped the materials by rail on October 5 and the railroad notified Tri-State on October 12,that the goods had arrived.Tri-State picked up the materials on October 13.The terms of the sale are FOB shipping point.On what date should Tri-State consider this a purchase?
A)October 1
B)October 5
C)October 12
D)October 13
Answer: B
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Chapter 4: Short-Term Decision Making
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Q1) Nowlin & Rudder is a manufacturer of sports equipment.It has been approached by a large European retailer about the possibility of producing a special order of tennis rackets.Under which of the following conditions should Nowlin & Rudder accept this offer?
A)The firm has the capacity to produce the special order.
B)The firm has the capacity to produce the special order and the special-order price exceeds the fixed cost related to of the special order.
C)The firm has the capacity to produce the special order and the special-order price exceeds the total variable cost of the special order.
D)The firm has the capacity to produce the special order and the special-order price exceeds the incremental cost of the special order.
Q2) Short-term operating decisions:
A)assume current capacity is fixed
B)arise during the planning phase of the management cycle
C)arise during the evaluating phase of the management cycle
D)are usually routine decisions which are not unique to any particular situation
Q3) Explain why the total amount of loss increases as the number of units sold falls below the breakeven point?
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Chapter 5: Strategic Planning Regarding Operating Processes
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Q1) How are defective products identified in a JIT inventory system?
A)Defective inventory is stacked in a particular location.
B)Defective inventory is color coded
C)Defective inventory marked down for consumers
D)The production line is stopped and only started when the problem causing the defective product is identified.
Q2) What is the distinction between penetrating and predatory pricing?
Q3) The type of environment where a large number of sellers produce and distribute virtually identical products and services is referred to as:
A)Monopolistic competition
B)Oligopolistic competition
C)Price competition
D)Pure competition
Q4) The four primary influences on selling price are:
A)product,variable costs,fixed costs,and mixed costs
B)customers,competition,legal and social issues,and costs
C)competition,variable costs,fixed costs,and mixed costs
D)legal constraints,government regulations,costs and customers
7
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Chapter 6: Planning, The Balanced Scorecard, and Budgeting
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Q1) The Piante Company has an accounts receivable balance of $256,000 at the beginning of the year.Credit sales for the year are projected at $923,000.Management estimates that 98% of the beginning accounts receivable plus 82% of the credit sales will be collected during the period.The projected balance of accounts receivable at year-end equal to:
A)$161,020
B)$166,140
C)$171,260
D)$256,000
Q2) The unit production requirements for May are:
A)280,000
B)289,750
C)331,750
D)373,750
Q3) The desired ending finished goods inventory would most likely be shown on the:
A)cash budget
B)sales budget
C)production budget
D)direct materials purchases budget
Q4) Describe how the sales budget is related to the production budget.
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Chapter 7: Accounting Information Systems
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Q1) Which of the following is not an advantage of the computer-based transaction system?
A)Transactions can be posted much more quickly than a manual system
B)Internal controls and edit checks can prevent and detect errors
C)A wide variety of reports can be prepared
D)Computer can determine which events are most significant for analysis
Q2) The master file in a computer-based transaction system serves as which of the following?
A)Journal
B)Income statement
C)Ledger
D)Post-closing trial balance
Q3) Only one of the following could be an adjusting entry which one is it?
A)An increase in an asset and an increase in a liability
B)A increase in an expense and an increase in a revenue
C)A decrease in an asset and a decrease in a expense
D)An decrease in an asset and an increase in a liability
Q4) Any event reported on the income statement has impacted the balance sheet.Explain why this is true.
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Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Q1) Iowa Corporation had a beginning balance of $8,600 in Utilities Payable account at the start of the year and an ending balance of $4,000.During the year Iowa recorded $10,000 of utilities expense.How much cash did Iowa pay the utility company during the year?
A)$14,600
B)$5,400
C)$10,00
D)Can't be determined with the information given
Q2) Wildcat Supply had a beginning balance of $600 in Utilities Payable account at the start of the year and an ending balance of $1,000.During the year Wildcat paid $4,000 cash to the utilities company.How much utilities expense was incurred during this year?
A)$4,000
B)$4,400
C)$4,600
D)Can't be determined with the information given
Q3) Why are subsidiary ledgers used?
Q4) Why would the amount of supplies expense differ from the amount of cash paid for supplies in a year?
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Chapter 9: Recording and Evaluating Conversion Process Activities
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Q1) Which of the following is not included in cost of work-in-process?
A)Direct labor
B)Requisition of raw material
C)Purchase of raw material
D)Application of overhead
Q2) The direct labor usage variance is calculated as:
A)(Standard Price - Actual Price)x Actual Quantity
B)(Actual Price - Standard Price)x Standard Quantity Allowed
C)(Standard Quantity Allowed - Actual Quantity)x Actual Price
D)(Actual Quantity - Standard Quantity Allowed)x Standard Price
Q3) The amount of over- underapplied manufacturing overhead is:
A)$7,257 underapplied
B)$6,369 underapplied
C)$6,900 overapplied
D)$ 357 overapplied
Q4) The amount of manufacturing overhead applied to Work-in-Process Inventory is:
A)$94,300
B)$87,400
C)$87,043
D)$80,674
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Chapter 10: Recording and Evaluating Revenue Process
Activities
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Q1) Prepare all journal entries necessary to record the following transactions of Zion Enterprises for the month of May.
May 4 Sold a \( \$ 2,000 \) rug to Grand \& Associates on account, terms \( 2 / 10, n / 30 \). The rug had a cost of \( \$ 750 \).
7 Received a \( \$ 100 \) deposit from Canyon Industries for a rug which was to be cleaned. An additional balance of \( \$ 100 \) will be collected at the time of pick-up.
11 Sold a rug for \( \$ 1,450 \) cash. The rug had a cost of \( \$ 800 \).
13 Received payment from Grand \& Associates for the rug purchased on May 4th, less the applicable discount.
16 Canyon Industries picked up its cleaned rug and paid the balance due.
18 Sold a \( \$ 4,500 \) rug to Bryce Corporation on account, terms \( 1 / 10, n / 60 \). The rug had a cost of \( \$ 2,900 \).
21 Bryce Corporation requested a reduction in the price of the rug because of a defect. Zion granted a \$200 allowance to Bryce.
28 Received payment from Bryce for the May 18 th sale, less the allowance and the discount.
Q2) Briefly describe the makeup of ending inventory under the FIFO and LIFO methods.
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Chapter 11: Time Value of Money
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Q1) The present value on April 1,2010 of 16 semiannual payments of $5,000 each,with the first payment to be made on October 1,2010,assuming an 8% interest rate compounded semiannually is:
Q2) All of the following are primary risk factors that generate risk premiums except:
A)inflation risk
B)business risk
C)relative risk
D)liquidity risk
Q3) Dan Short invested $7,000 on October 1,2009,and in return he received a total of $6,200,which he collected on October 1,2010.The rate of return on Dan's investment was:
A)(12.9%)
B)12.9%
C)11.4%
D)(11.4%)
Q4) Given a 10% interest rate compounded semiannually,the dollar amount available on September 1,2015,assuming 12 semiannual deposits of $2,000 each with the first deposit made on March 1,2010,is:
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Chapter 12: Planning Investments: Capital Budgeting
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Q1) Which of the following is the correct order of events in the capital budgeting process?
A)Identifying investment opportunities,selecting investments,financing investments,evaluating investments.
B)Financing investments,identifying investment opportunities,selecting investments,evaluating investments.
C)Identifying investment opportunities,financing investments,selecting investments,evaluating investments.
D)Identifying investment opportunities,evaluating investments,selecting investments,financing investments.
Q2) Ignoring income taxes,Union should:
A)not purchase the equipment since the net-present-value is negative
B)not purchase the equipment since the net-present-value is positive
C)purchase the equipment since the net-present-value is negative
D)purchase the equipment since the net-present-value is positive
Q3) Depreciation expense taken on plant assets does not directly decrease cash.However,depreciation does provide a "tax shield".Explain the concept of a "tax shield" as it relates to depreciation expense.
Q4) Why should qualitative factors be considered in the capital budgeting process?
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Chapter 13: Planning Equity Financing
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Q1) On which of the following dates is no accounting entry made?
A)Date of payment
B)Date of record
C)Date of declaration
D)Entries are made on all three dates
Q2) In which of the following scenarios would financial leverage be maximized?
A)High times interest earned ratio and low debt to equity ratio
B)Low times interest earned ratio and low debt to equity ratio
C)Low times interest earned ratio and high debt to equity ratio
D)High times interest earned ratio and a high debt to equity ratio
Q3) When a partner receives a salary allowance as part of his/her partnership agreement this mean.
A)The partner donates part of his salary to the partnership in exchange for an ownership interest.
B)The partner will be allocates a portion of the income or loss based on this salary figure.
C)The partner will receive a check for this salary if the company has a profit.
D)The partner will be paid that salary for the year regardless of whether the partnership generates income or loss.
Q4) What is par value? Why do corporations usually select a low par value?
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Chapter 14: Planning Debt Financing
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Q1) The total amount of interest expense over the life of a note is:
A)The face value times the face interest rate times the number of interest payments over the life of the note.
B)The face value of the note times the market interest rate times the number of interest payments over the life of the note.
C)The total of the cash outflows of the note over the life of the note less the proceeds of the note.
D)The proceeds of the note plus the cash interest paid less the maturity value of the note.
Q2) When the market rate of interest is less than a note's face rate of interest:
A)the note is issued at a discount
B)the note is issued at a premium
C)the proceeds of the note are less than the face value of the note
D)unable to determine from the information given
Q3) Why would a lessee rather have an operating lease than a capital lease?
A)operating leases do not require reporting long-term liabilities.
B)capital leases would require larger lease payments
C)operating leases permit a tax deduction for depreciation
D)noncancelable operating leases involve less risk
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Chapter 15: Recording and Evaluating Capital Resource
Process Activities: Financing
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Q1) The journal entry to record a payment on an installment note would include all of the following except:
A)credit to Cash
B)debit to Interest Expense
C)debit to Notes Payable
D)credit to Discount on Notes Payable
Q2) When a bond premium is being amortized,at maturity
A)the premium will be equal to the face value of the bonds
B)the premium is written off and a gain or loss is recorded
C)the carrying value of the bond is equal to the face value of the bonds
D)the carrying value of the bond will be greater than original issue price
Q3) A stockholder who received a 10% common stock dividend would have an increase in her/his ownership percentage equal to:
A)10%
B)20%
C)cannot be determined from the information given D)there would be no change in the ownership percentage
Q4) If a firm buys its own stock,how would the stock be reported on the balance sheet? Why is it reported that way?
Page 17
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Q1) Sportech,Inc.acquired a piece of equipment on January 3,2010.The total cost of the equipment was $77,500.Sportech estimated that the equipment would be used for 9 years before being sold for an estimated $5,500.Assuming the use of straight-line depreciation,the balance in the accumulated depreciation account on January 2,2014 will be:
A)$32,000
B)$34,444
C)$36,889
D)$45,500
Q2) Which of the following statements is correct?
A)firms must use the same depreciation methods for tax and financial reporting
B)return on assets based on reported values tends to be overstated
C)all the assets a firm owns are reported on its balance sheet
D)plant assets are reported at fair market value
Q3) The gain or loss recognized on the exchange would be:
A)$49,400 loss
B)$25,600 gain
C)$75,000 gain
D)no gain or loss should be recognized
Page 18
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Chapter 17: Company Performance: Profitability
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Q1) Jackson,Inc.had 360,000 shares of common stock outstanding on January 1,2010 and issued 60,000 additional shares on July 1,2010.There was no preferred stock.If net income for the year ended December 31,2010 was $1,072,500,the earnings per share were:
A)$2.23
B)$2.55
C)$2.75
D)$2.98
Q2) Why might the use of return on assets to evaluate investment centers lead to bad decisions?
Q3) What is compromised when a firm changes from one accepted accounting method to another?
A)matching
B)objectivity
C)conservatism
D)consistency
Q4) What information is provided by business internal profitability reporting that is not provided by the financial statements?
Q5) What is comprehensive income and how does it differ from net income?
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Q1) Assets are shown on the balance sheet at
A)historical cost
B)fair market value
C)net realizable value
D)all of the above
Q2) Which of the following would not appear on both the Balance Sheet and the Statement of Changes in Owners' Equity?
A)Common Stock
B)Accumulated Comprehensive Income
C)Prior Period Adjustment
D)Preferred Stock
Q3) The assets on the balance sheet are listed:
A)In alphabetical order
B)In order of liquidity
C)In financial order
D)In order of their function
Q4) Why would a banker reject a company's application for a one-year loan based on information taken from the company's balance sheet?
Q5) How can a balance sheet predict a company's future net income?
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Chapter 19: Company Performance: Cash Flows
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Q1) On a statement of cash flows using the indirect format,a decrease in unearned revenue is:
A)deducted from net income in the operating activities section
B)included as an outflow in the financing activities section
C)added to net income in the operating activities section
D)ignored,since it is a noncash expenditure
Q2) On a statement of cash flows using the indirect format,an increase in taxes payable is:
A)ignored,since it is a noncash expenditure
B)added to net income in the operating activities section
C)included as an outflow in the financing activities section
D)deducted from net income in the operating activities section
Q3) Payments to employees would be reported in the following section of the statement of cash flows:
A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities
Q4) What are the four primary purposes of the statement of cash flows?
Q5) Do you consider the direct or indirect method more useful? Why?
Page 21
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Chapter 20: Company Performance: Comprehensive Evaluation
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Q1) Financial ratios that help judge a firm's efficiency in using its current assets and liabilities are collectively referred to as:
A)equity ratios
B)ability ratios
C)activity ratios
D)profitability ratios
Q2) The purpose of an audit opinion is.
A)Insure that financial statements are mathematically correct.
B)There was no fraud in the company.
C)Provide third party assurance that the financial statements are presented fairly
D)Certify that the company is a good investment.
Q3) Which of the following would be least useful in assessing a firm's long-term debt-paying ability?
A)long-term debt to equity
B)times interest earned
C)debt to equity
D)current ratio
Q4) Write out the earnings per share ratio (EPS)( Show your work here).
Explain how the earnings per share ratio is used?
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