Accounting Principles
Test Questions
Course Introduction
Accounting Principles introduces students to the fundamental concepts and techniques of accounting, focusing on the systematic recording, reporting, and analysis of financial transactions. The course covers essential topics such as the accounting cycle, preparation of financial statements, double-entry bookkeeping, and the ethical responsibilities of accountants. Students will gain a clear understanding of assets, liabilities, equity, revenues, and expenses, as well as how these elements interact to provide meaningful financial information for decision-making in business organizations. Emphasis is placed on practical applications and the use of accounting information in real-world scenarios.
Recommended Textbook
Financial Accounting 11th Edition by W.
Steve Albrecht
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Chapter 1: Accounting Information: Users and Uses
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Sample Questions
Q1) Standards established by the International Accounting Standards Board are referred to as
A) Generally Accepted Accounting Standards
B) International Auditing Standards
C) International Financial Reporting Standards
D) International Financial Accounting Standards
Answer: C
Q2) Businesses use accounting systems to
A) Analyze transactions
B) Handle routine bookkeeping tasks
C) Evaluate the performance and health of the business
D) All of these are correct
Answer: D
Q3) Which of the following is NOT one of the factors that influences the accounting environment?
A) International business
B) Technology
C) The development of generally accepted accounting principles (GAAP)
D) Investors
Answer: D
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Chapter 2: Financial Statements: An Overview
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Sample Questions
Q1) The idea that certain figures on an operating statement help to explain changes in figures on comparative balance sheets is referred to as
A) Liquidity
B) Double entry
C) Articulation
D) Classification
Answer: C
Q2) Which of the following is generally considered to be a liability?
A) Accounts receivable
B) Capital stock
C) Notes payable
D) Retained earnings
Answer: C
Q3) On January 1, 2013, Sorenson Company had a retained earnings balance of $780,000. During 2013, Sorenson Company earned a net income of $145,000. Cash dividends of $50,000 were paid during the year. Using this information, prepare a Statement of Retained Earnings, in good form, for the year 2013.
Answer: 11edc184_77ec_4542_a8cf_635d0f0abc8e_TB1384_00
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Chapter 3: The Accounting Cycle: The Mechanics of Accounting
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Sample Questions
Q1) Which of the following types of accounts are affected when a company pays cash dividends to its shareholders?
A) Owners' equity only
B) Both assets and liabilities
C) Both liabilities and owners' equity
D) Both assets and owners' equity
Answer: D
Q2) Borrowing money from a bank
A) Increases assets and decreases liabilities
B) Increases liabilities and decreases assets
C) Decreases assets and decreases liabilities
D) Increases assets and increases liabilities
Answer: D
Q3) The purchase of supplies on account
A) Increases assets and decreases liabilities
B) Decreases assets and increases liabilities
C) Increases assets and increases liabilities
D) Decreases assets and decreases liabilities
Answer: C
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) When preparing its financial statements, a company is more concerned about which of the following?
A) Assets and liabilities are not overstated
B) Assets and liabilities are not understated
C) Assets are not understated and liabilities are not overstated
D) Assets are not overstated and liabilities are not understated
Q2) On October 1, Doe Hunting Supplies, a calendar-year company, sold inventory that cost $60,000 for $100,000. The customer signed a six-month, 10 percent note in payment. On December 31, Woods should
A) Debit Interest Receivable for $2,500
B) Debit Interest Revenue for $2,500
C) Credit Interest Revenue for $10,000
D) Debit Interest Receivable for $10,000
Q3) In analyzing accounts to determine which adjusting entries are necessary, accountants should determine
A) Whether the amounts recorded for all assets and liabilities are correct
B) What revenue or expense adjustment is required
C) What accounts need debits or credits
D) All of these are correct
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Chapter 5: Internal Controls: Ensuring the Integrity of Financial Information
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Sample Questions
Q1) If an employee steals cash from a company and tries to cover up his/her actions by recording a fictitious debit to Insurance Expense and a credit to Cash, then
A) Expenses will be overstated
B) Expenses will be understated
C) Cash will be overstated
D) Cash will be understated
Q2) Keeping marketable securities and cash in a fireproof vault is an example of which type of accounting procedure?
A) Physical control over records
B) Adequate documents and records
C) Proper procedures for authorization
D) Segregation of duties
Q3) Which form must be filed quarterly by all publicly held corporations?
A) 10-K
B) 8-K
C) 10-Q
D) 8-Q
Q4) Discuss the three types of problems that can occur in financial statements.
Q5) List and describe the four major reasons for managing reported earnings.
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Chapter 6: Receivables: Selling a Product or a Service
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Sample Questions
Q1) The entry to record actual expenses incurred to perform service under warranty would include a
A) Debit to Customer Service Expense
B) Credit to Customer Service Expense
C) Debit to Estimated Liability for Service
D) Credit to Estimated Liability for Service
Q2) Which of these is NOT one of the most common reasons for differences between the bank cash balance and the book cash balance?
A) Accounting errors
B) Deposits in transit
C) Time period differences
D) All of these are common reasons
Q3) On June 30, Parrott Company sold goods for $800 on account. The journal entry to record the recognition of revenue would include
A) A debit to cash of $800.
B) A debit to sales revenue of $800.
C) A credit to sales revenue of $800.
D) A credit to accounts receivable of $800.
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Chapter 7: Inventory and the Cost of Sales
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Sample Questions
Q1) The entry (or entries) required to record a sales return by a customer when using the perpetual inventory method would consist of
A) A debit to Sales Revenue and a credit to Accounts Receivable
B) A debit to Sales Returns and a credit to Accounts Receivable
C) Debits to Sales Returns and Inventory and credits to Accounts Receivable and Cost of Goods Sold
D) Debits to Sales Returns and Cost of Goods Sold and credits to Accounts Receivable and Inventory
Q2) Inventory accounting is most complex in
A) Merchandising companies
B) Service companies
C) Manufacturing companies
D) Wholesale companies
Q3) If a firm's beginning inventory is $70,000, purchases are $320,000, and the cost of goods sold is $300,000, what is its ending inventory?
A) $330,000
B) $260,000
C) $90,000
D) $30,000
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Page 9
Chapter 8: Completing the Operating Cycle
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Sample Questions
Q1) What makes environmental liabilities unique among contingent liabilities?
A) It is more difficult to estimate the costs
B) It is more difficult to estimate the likelihood of a loss
C) A company need not disclose environmental liabilities
D) All of these are true of environmental liabilities
Q2) The period covered by the assessment of property taxes usually covers a
A) Calendar year
B) Fiscal year
C) Budgeted year
D) Taxable year
Q3) Which of the following items should be reported as an extraordinary item?
A) Gains or losses from major foreign currency revaluations
B) The effects of a strike
C) Earthquake damage
D) Gain or loss on disposal of a business segment
Q4) Which of the following expenditures should be expensed in the year incurred?
A) Equipment
B) Targeted advertising
C) Prepaid rent
D) Research and development
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Chapter 9: Investments: Property, Plant, and Equipment and Intangible Assets
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Sample Questions
Q1) On January 1, 2010, Wayne's Waffle House purchased a freezer for $45,000. The freezer had an estimated useful life of 10 years and an estimated residual value of $3,000 at the time of purchase. Wayne spent $10,000 on January 1, 2012, to replace the freezer motor. This replacement increased the freezer's life by 5 years and the residual value by $2,000. Assuming that straight-line depreciation is used, what will be the depreciation expense for 2012?
A) $3,200
B) $3,585
C) $8,320
D) $3,431
Q2) On January 1, 2012, Bushong Company purchased equipment at a cost of $12,600. The equipment had an estimated useful life of 6 years or 30,000 hours. The equipment will have a $1,200 salvage value at the end of its life. The depreciation expense for the year ending December 31, 2012, using the straight-line method would be
A) $1,900
B) $1,883
C) $475
D) $471
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Chapter 10: Financing: Long-Term Liabilities
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Sample Questions
Q1) Riverview County issued a $500,000, 10 percent, 10-year bond on January 1, 2012, for 113.6 when the effective interest rate was 8 percent. Interest is payable on June 30 and December 31. Riverview uses the effective-interest method to amortize all premiums and discounts. How much interest expense should Riverview record on December 31, 2012?
A) $25,000.00
B) $23,810.15
C) $22,628.80
D) $19,920.10
Q2) Kwancom Corporation, a calendar-year firm, is authorized to issue $200,000 of 10 percent, 20-year bonds dated January 1, 2012, with interest payable on January 1 and July 1 of each year. The entry to account for the discount amortization and accrual of interest on December 31, 2012, would include a
A) Debit to Discount on Bonds Payable
B) Credit to Cash
C) Credit to Bond Interest Payable
D) Debit to Bonds Payable
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Chapter 11: Financing: Equity
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Sample Questions
Q1) Which of the following types of business organization is NOT a separate legal entity from its owner or owners?
A) Proprietorship
B) Partnership
C) Corporation
D) Only proprietorship and partnership
Q2) Which of the basic stockholder rights do preferred stockholders normally give up?
A) The right to vote
B) The preemptive right
C) The right to receive dividends when they are declared
D) The right to excess assets after creditor claims are satisfied
Q3) Treasury stock is stock that is
A) Authorized but not issued
B) Issued and outstanding
C) Issued but not outstanding
D) Authorized and outstanding
Q4) Identify the two types of stock that are sold by a corporation and list the characteristics of each one.
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Chapter 12: Investments: Debt and Equity Securities
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Sample Questions
Q1) A net unrealized decrease in the value of available-for-sale securities (considered as a whole) should be reflected in the current financial statements as
A) An extraordinary item on the income statement which reduces retained earnings
B) A current liability resulting from holding securities
C) Only a disclosure in the footnotes to the financial statements
D) A valuation allowance which is included in the equity section of the balance sheet
Q2) On April 1, 2012, Bering Inc. purchased $20,000 of Warner Corporation's 10-year, 8 percent bonds at par plus accrued interest. Interest is payable on June 30 and December 31. How much interest revenue should Bering report on its December 31, 2012, income statement as a result of this investment?
A) $1,248
B) $1,200
C) $824
D) $800
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) The approach to preparing a statement of cash flows that adjusts net income to cash flows from operations is the
A) All financial resources method
B) Direct method
C) Indirect method
D) Worksheet method
Q2) In 2011, Franco Manufacturing had sales of $975,000, beginning Accounts Receivable of $84,500, and ending Accounts Receivable of $110,500. Cash collected from customers for the year totaled
A) $975,000
B) $1,001,000
C) $1,059,500
D) $949,000
Q3) Refer to Exhibit 13-5. Given the information above, net cash inflow (outflow) from ALL activities is
A) $22,000
B) $40,000
C) ($58,000)
D) ($98,000)
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Chapter 14: Analyzing Financial Statements
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Sample Questions
Q1) Which cash flow ratio reflects the extent to which accrual accounting adjustments and assumptions have been included in net income?
A) Cash flow-to-operating profit
B) Cash flow-to-net income
C) Cash flow frequency
D) Cash flow adequacy
Q2) Which of the following transactions could increase a firm's current ratio?
A) Purchase of inventory for cash
B) Payment of accounts payable
C) Collection of accounts receivable
D) Purchase of temporary investments for cash
Q3) In a common-size income statement, each item on the statement is expressed as a percentage of
A) Revenue
B) Expenses
C) Net income
D) Gross profit
Q4) List five efficiency ratios and write out the equation for each one.
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Chapter 15: Management Accounting and Cost Concepts
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Sample Questions
Q1) Which of the following costs should NOT be considered when making a future decision?
A) Sunk costs
B) Opportunity costs
C) Indirect costs
D) Fixed costs
Q2) Which one of the following is NOT an ethical guideline that the Institute of Management Accountants (IMA) requires its members to follow?
A) Not disclose confidential information
B) Maintain objectivity when communicating information to decision makers
C) Act with both actual and apparent integrity in all situations
D) All of these are correct
Q3) The primary internal users of accounting information are:
A) Investors
B) Creditors
C) Analysts
D) Managers
Q4) List and describe the three management functions.
Q5) List and describe the two types of long-run planning and the two types of short-run planning.
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Chapter 16: Cost Flows and Business Organizations
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Sample Questions
Q1) Refer to Exhibit 16-4. How many equivalent units of material will be used in calculating product cost per unit?
A) 86,000
B) 87,200
C) 90,900
D) 93,000
Q2) For June 2012, Mitsumi Exports' beginning work-in-process inventory is $1,000, ending work-in-process inventory is $3,000, and cost of goods manufactured is $34,000. What are the total manufacturing costs for June?
A) $31,000
B) $32,000
C) $35,000
D) $36,000
Q3) The actual costs of indirect materials are:
A) Charged to products in the same manner as direct materials
B) Debited to Manufacturing Overhead
C) Insignificant, so they can be ignored in product costing
D) Credited to Manufacturing Overhead
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Chapter 17: Activity-Based Costing
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Sample Questions
Q1) Refer to Exhibit 17-1. Using the information above, compute the amount of the cost pool associated with repairing equipment.
A) $88,500
B) $69,750
C) $85,000
D) $66,500
Q2) Company A allocates one type of overhead cost on the basis of movement of materials. The number of movement of materials processed is an example of a(n):
A) Cost driver
B) Pool rate
C) Overhead rate
D) Cost pool
Q3) Define activity-based costing and list the five steps in implementing and using an activity-based costing system.
Q4) The result of cross-subsidization is that:
A) Some products look less profitable than they really are
B) Some products look more profitable than they really are
C) Both a and b
D) Neither a nor b
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Chapter 18: Budgeting and Control
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Sample Questions
Q1) If a company plans to sell 77,000 units of product but sells 132,000 units, the most appropriate comparison of the cost data associated with the sales can be done using a budget based on which of the following number of units?
A) 33,000
B) 77,000
C) 132,000
D) 209,000
Q2) If it takes 20 hours to make a boat motor and direct labor employees are paid $10 per hour, how much does it cost for labor to make 100 motors?
A) $1,000
B) $2,000
C) $16,600
D) $20,000
Q3) Which of the following costs are generally allocated evenly to each quarter?
A) Estimated fixed costs
B) Labor costs for part-time employees
C) Estimated production costs
D) Indirect materials costs
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20
Chapter 19: Controlling Cost and Profit
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Sample Questions
Q1) When other factors remain constant, an increase in average total assets:
A) Increases the return on investment
B) Decreases the return on investment
C) Does not change the return on investment
D) Does not always have the same effect on total assets
Q2) All favorable labor rate variances indicate that:
A) The actual labor rate is less than the standard labor rate
B) The actual labor rate is greater than the standard labor rate
C) Actual hours were greater than standard hours
D) Standard hours were greater than actual hours
Q3) Standard costs are generally based on:
A) Desired production costs for the period
B) The actual production costs for the period
C) The sales price expected for the period
D) The estimated average production costs for the period
Q4) Refer to Exhibit 19-1. Given the information above, the labor rate variance is:
A) $40,000 unfavorable
B) $40,000 favorable
C) $42,000 unfavorable
D) $42,000 favorable
Page 21
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Chapter 20: Inventory Management and Variable and
Absorption Costing
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Sample Questions
Q1) What type of firm could have work-in-process inventory?
A) Service
B) Manufacturing
C) Merchandising
D) Both service and manufacturing
Q2) EOQ is used to:
A) Minimize carrying costs of inventory
B) Minimize ordering costs of inventory
C) Balance carrying costs and ordering costs of inventory
D) Maximize carrying costs of inventory
Q3) When comparing income statements, which type of company does not have a section for cost of goods or services sold?
A) Manufacturing firm
B) Service firm
C) Merchandising firm
D) All of these have a cost of goods or services sold section
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Chapter 21: Cost Behavior and Decisions Using C-V-P Analysis
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Sample Questions
Q1) Refer to Exhibit 21-6. In the graph above, the variable costs are represented by:
A) Line A
B) Line B
C) Area C
D) Area D
Q2) Stanley Company manufactures and sells one product for $200 per unit. The variable costs per unit are $140, and monthly total fixed costs are $7,500. Last month Stanley sold 100 units and expects sales to remain the same for the current month. If fixed costs increase by $1,500, what is the break-even point for the current month?
A) $12,800
B) $25,000
C) $30,000
D) $45,000
Q3) When the variable cost ratio decreases, the:
A) Contribution margin as a percentage of net sales increases
B) Contribution margin as a percentage of net sales decreases
C) Break-even point increases
D) Fixed cost per unit increases
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Chapter 22: Relevant Information and Decisions
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Sample Questions
Q1) Costs that have already been incurred and CANNOT be avoided are:
A) Sunk costs
B) Variable costs
C) Differential costs
D) Opportunity costs
Q2) CharCore mixes together wood chips and pine oil. After joint manufacturing costs of $2,000 have been incurred, the mixture separates into two products, granulated charcoal and methyl alcohol. At the split-off point, granulated charcoal can be sold for $5,000 and the alcohol can be sold for $9,000. The charcoal can be further processed at a cost of $6,000 to make air filters which could be sold for $15,000. The alcohol can be further processed at a cost of $7,000 to make a cleaning solvent which could be sold for $14,000. Which product should be processed further?
A) Granulated charcoal only
B) Methyl alcohol only
C) Both granulated charcoal and methyl alcohol
D) Neither granulated charcoal nor methyl alcohol
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Chapter 23: Capital Investment Decisions
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Q1) If the net present value of an investment is positive, this represents the:
A) Net contribution margin of the investment
B) Net profit of the investment
C) Net tax benefit of the investment
D) Net value gain of the investment above the hurdle rate
Q2) A machine with a book value of $8,000 can be sold for $9,500. The corporation that owns the machine has taxable income of $50,000 and a tax rate of 40%. What would be the tax on the sale of the machine?
A) $600
B) $3,200
C) $3,800
D) $20,000
Q3) Which of the following is true?
A) Present value concepts are used to determine accounting income
B) The higher the hurdle rate, the larger the present value of the amount being discounted
C) The further in the future a cash flow is, the smaller its present value will be
D) None of these are true
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Chapter 24: New Measures of Performance
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Sample Questions
Q1) Costs incurred to train production employees are:
A) Prevention costs
B) Appraisal costs
C) Internal failure costs
D) External failure costs
Q2) An example of a prevention cost would be:
A) Product recalls
B) Adjusting test equipment
C) Scrap
D) Process or product design
Q3) Which of the following is NOT an outcome performance measure?
A) Customer retention rates
B) Customer acquisition rates
C) Costs to recruit customers
D) Returns by customers
Q4) Costs incurred to inspect products after manufacturing are:
A) Prevention costs
B) Appraisal costs
C) Internal failure costs
D) External failure costs
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