Accounting Principles
Test Questions
Course Introduction
Accounting Principles introduces students to the fundamental concepts and techniques of accounting vital for business decision-making. The course covers the accounting cycle, including transaction analysis, journal entries, ledgers, and preparation of financial statements such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding generally accepted accounting principles (GAAP), internal controls, and the ethical considerations involved in financial reporting. Students will gain practical skills in recording, summarizing, and interpreting financial information to assess the financial health and performance of organizations.
Recommended Textbook
Financial Accounting 12th Edition by C. William Thomas
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Page 2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Which of the following increases retained earnings?
A)net loss
B)net income
C)expenses
D)dividends
Answer: B
Q2) Current assets are assets expected to be converted to cash,sold,or consumed during the next:
A)12 months or within the business's operating cycle if longer than a year.
B)12 months or within the business's operating cycle if less than a year.
C)6 months.
D)24 months.
Answer: A
Q3) Accounting information is used by investors and creditors,but not by regulatory bodies.
A)True
B)False
Answer: False
Q4) Four ways a business can be organized include:
Answer: Proprietorship,Partnership,Limited-liability company,and Corporation
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) In order to see a complete transaction in one place,you would need to look at the:
A)trial balance.
B)ledger.
C)journal.
D)financial statements.
Answer: C
Q2) Company A received cash and issued stock to a new stockholder.In recording this transaction:
A)Cash would be debited.
B)Common Stock would be debited.
C)Cash would be credited.
D)Retained Earnings would be credited.
Answer: A
Q3) A bookkeeper posted the same journal entry twice.This will cause the trial balance to be out of balance.
A)True
B)False
Answer: False
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) To analyze a company's financial position,decision makers use data and ratios computed from various items in the financial statements.
A)True
B)False
Answer: True
Q2) ________ will be increased when a company receives cash before performing the services.
A)Service Revenue
B)Accumulated Depreciation
C)Unearned Service Revenue
D)Accrued Salaries Payable
Answer: C
Q3) The journal entry to record a cash sale will be the same under the accrual and cash-basis of accounting.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) If the bank records a deposit of $130 as $1,300,the error should be shown on a bank reconciliation as a:
A)subtraction from the book balance of $1,430.
B)subtraction from the bank balance of $1,430.
C)subtraction from the bank balance of $1,170.
D)subtraction from the book balance of $1,170.
Q2) Which journal entry is prepared for a NSF check returned by the bank?
A)No entry is prepared.
B)Debit Cash and credit Accounts Payable.
C)Debit Cash and credit Notes Payable.
D)Debit Accounts Receivable and credit Cash.
Q3) In a bank reconciliation,an EFT cash payment is:
A)added to the bank balance.
B)added to the book balance.
C)subtracted from the book balance.
D)subtracted from the bank balance.
Q4) All items on the bank side of the bank reconciliation need to be recorded in the company's books.
A)True
B)False
Page 6
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Chapter 5: Receivables and Revenue
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Sample Questions
Q1) Regarding the two parties to a note,the:
A)creditor has a note receivable and the debtor has a note payable.
B)creditor has a note payable and the debtor has a note receivable.
C)creditor is also called the maker of the note.
D)debtor is also called the lender.
Q2) Uncollectible-Account Expense is included in Cost of Goods Sold on the income statement.
A)True
B)False
Q3) An aging-of-accounts-receivable indicates that the amount of uncollectible accounts is $3,410.The Allowance for Uncollectible Accounts prior to adjustment has a credit balance of $300.The Accounts Receivable balance is $44,720.The amount of the adjusting entry for uncollectible accounts should be for:
A)$300.
B)$3,110.
C)$3,710.
D)$3,410.
Q4) A trade discount is not considered in the transaction price.
A)True
B)False
Page 7
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) When inventory costs are increasing,the FIFO costing method will generally yield a cost of goods sold that is:
A)higher than cost of goods sold under the LIFO method.
B)lower than cost of goods sold under the LIFO method.
C)equal to the gross profit under the LIFO method.
D)equal to cost of goods sold under the LIFO method.
Q2) Ending inventory for the year ended December 31,2019,is understated by $23,000.How will this error affect net income for 2020?
A)Net income will be understated by $46,000.
B)Net income will be overstated by $46,000.
C)Net income will be understated by $23,000.
D)Net income will be overstated by $23,000.
Q3) When comparing the results of LIFO and FIFO when inventory costs are decreasing:
A)cost of goods sold will be lower using FIFO.
B)ending inventory will be higher using FIFO.
C)cost of goods sold will be higher using LIFO.
D)ending inventory will be higher using LIFO.
Q4) The cost-of-goods-sold model can be used to estimate ending inventory.
A)True
B)False
Page 8
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Chapter 7: Plant Assets, natural Resources, Intangibles
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Sample Questions
Q1) The normal balance of the Accumulated Depreciation account is a debit.
A)True
B)False
Q2) The long-term asset that is not depreciated or amortized is:
A)land improvement.
B)leasehold improvement.
C)office computers.
D)land.
Q3) Kolonas,Inc. ,sold equipment for $5,400 cash.The equipment cost $73,900 and had accumulated depreciation through the date of sale of $70,000.At the date of sale,the journal entry to record the sale will have:
A)a Gain on Sale of Equipment for $3,900.
B)a Loss on Sale of Equipment for $3,900.
C)a Loss on Sale of Equipment for $1,500.
D)a Gain on Sale of Equipment for $1,500.
Q4) An asset is ________ when another asset can do the job more efficiently.
A)fully depreciated
B)deteriorated
C)physically worn
D)obsolete
Page 9
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Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) An example of a contingent liability may be a lawsuit.
A)True
B)False
Q2) Employers must match employee contributions (up to a maximum amount)for:
A)social security.
B)income tax.
C)medicare.
D)A and C.
Q3) If the accounts payable turnover is 5.4,what is the days' payable outstanding? (Round your answer to the nearest day. )
A)58 days
B)18 days
C)68 days
D)55 days
Q4) Current liabilities are expected to be paid within one year or the operating cycle,whichever is shorter.
A)True
B)False
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) Maybelline Corporation issues $2,700,000,10-year,8% bonds dated January 1 at
101.The journal entry to record the issuance will include a:
A)credit to Cash for $2,727,000.
B)debit to Cash for $2,700,000.
C)credit to Premium on Bonds Payable for $27,000.
D)credit to Bonds Payable for $2,727,000.
Q2) A bond was issued at par.The journal entry to record payment of this bond payable at maturity will include a:
A)debit to Bonds Payable,credit to Discount on Bonds Payable and a credit to Cash.
B)debit to Cash and a credit to Bonds Payable.
C)debit to Bonds Payable and a credit to Cash.
D)debit to Bonds Payable,debit to Discount on Bonds Payable and a credit to Cash.
Q3) Bonds that are secured by real estate are called:
A)term bonds.
B)secured bonds.
C)mortgage bonds.
D)B and C.
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) The purchase of treasury stock decreases the number of shares outstanding.
A)True
B)False
Q2) The Home Store reported the following figures: Retained Earnings,February 1,2019...........$14 million
Retained Earnings,February 1,2018...........$23 million
The company's fiscal year ends on February 1 each year.Net income for the fiscal year ending February 1,2017 is $26 million.What is the amount of dividends declared for the fiscal year ending February 1,2017?
A)$23 million
B)$35 million
C)$3 million
D)$26 million
Q3) A small stock dividend will:
A)reduce total assets.
B)reduce total stockholders' equity.
C)increase total stockholders' equity.
D)have no effect on total assets or total stockholders' equity.
Q4) List three reasons why corporations purchase their own stock.
Q5) What is the formula for the price-earnings ratio? What does this ratio measure?
Page 12
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Chapter 11: The Statement of Cash Flows
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Sample
Questions
Q1) A company purchased a parcel of land using a long-term note payable.Using the direct method,where is this transaction reported on the statement of cash flows?
A)operating activities
B)investing activities
C)financing activities
D)noncash investing and financing activities
Q2) Income tax expense is $47,000 for the current year.Income tax payable increased $3000 during the year.Interest payable increased $4000 during the year.What is the cash paid for income taxes?
A)$44,000
B)$47,000
C)$50,000
D)$51,000
Q3) Collections on long-term loans are reported as investing activities on the statement of cash flows.
A)True
B)False
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) A vertical analysis of a balance sheet shows that current assets have increased from 42% to 56%.This means that:
A)current assets have increased as a percentage of total assets.
B)the dollar amount of total assets has increased.
C)the dollar amount of total assets has decreased.
D)the dollar amount of long-term assets has increased.
Q2) An important component of earnings quality is the conservative recognition of net revenues.
A)True
B)False
Q3) Horizontal analysis highlights changes in financial statement line items over time and provides a complete picture of a business.
A)True B)False
Q4) To stockholders,the larger the net income,the greater the likelihood of dividends. A)True
B)False
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Chapter 13: Investments
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Sample Questions
Q1) The consolidation accounting method is appropriate when an investor controls an investee by ownership of more than 50% of the investee's voting stock.
A)True
B)False
Q2) Debt investments that are expected to be sold within the near term,with the intent of generating profits on the sale,are called:
A)held-to-maturity debt investments.
B)trading debt securities.
C)available-for-sale debt securities.
D)equity-method investments.
Q3) An investor receives a cash dividend from an investment with 48% ownership and significant influence.Which journal entry is required?
A)a debit to Cash and a credit to Dividend Revenue
B)a debit to Cash and a credit to Equity-Method Investment
C)a debit to Equity-Method Investment and a credit to Dividend Revenue
D)a memorandum entry only
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15
Chapter 14: Time Value of Money
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Sample Questions
Q1) A single amount of $4700 is to be received in 3 years.If the single amount is discounted at 6% for 3 periods,the present value is ________.The present value of $1 for 3 periods at 6% is 0.840.The present value of an ordinary annuity of $1 for 3 periods at 6% is 2.673.(Round your final answer to the nearest dollar. )
A)$3948
B)$4418
C)$4700
D)$12,563
Q2) The interest paid on a bond is NOT an annuity because it occurs periodically.
A)True
B)False
Q3) The term present value means today's value of a future payment or a series of future payments,assuming that those payments include interest at the current market rate. A)True
B)False
Q4) Interest is the cost of using money.
A)True
B)False
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16