Accounting Theory
Exam Materials
Course Introduction
Accounting Theory explores the foundational concepts, principles, and frameworks that underpin accounting practices and standards. This course critically examines the evolution of accounting thought, including the development of regulatory and conceptual frameworks, the role of accounting information in decision-making, and the ethical, social, and economic implications of accounting choices. Students will analyze various accounting theories, such as normative and positive accounting, and consider how differing theoretical perspectives influence financial reporting, standard setting, and the resolution of contemporary accounting issues. By the end of the course, learners will gain a deeper understanding of the reasoning behind accounting rules and the impact of theory on accounting practice and policy.
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) Hot Tamale Company had $120,000 of revenues and $113,000 of expenses. No dividends were paid. These factors will result in which of the following?
A) Retained earnings will go down.
B) Retained earnings will go up.
C) Paid-in capital will go down.
D) Paid-in capital will go up.
Q2) A company's income tax expense is calculated on the basis of book income, but the income tax payable amount is based on the:
A) sales tax rate applied to sales revenues.
B) amount of payroll tax that has not been paid yet.
C) amount of taxable income, as calculated on the income tax return.
D) amount of dividends paid to shareholders.
Q3) Which of the following occurs when a previously declared dividend is paid?
A) Assets increase.
B) Equity increases.
C) Liabilities decrease.
D) Liabilities increase.
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Page 3
Chapter 13: Corporations: Effects on Retained Earnings and the Income Statement
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Sample Questions
Q1) Unrealized gains or losses on certain investments, foreign currency translation adjustments, gains and losses from post-retirement benefit plans, and deferred gains and losses from derivatives are subject to specialized accounting treatment. These items would normally be found on the:
A) statement of comprehensive income.
B) income statement, included with extraordinary items.
C) statement of net cash flow.
D) balance sheet under liabilities.
Q2) RT Corp. shows a loss from flooding of $235,000 for the year. Flooding is not uncommon in the area, and so this loss will be included in operating income.
A)True
B)False
Q3) If a company's share price is getting so high that the company thinks it might inhibit some investors from buying stock, it should consider doing a stock split.
A)True
B)False
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4
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) If an investor wants to know how much cash a company can free up for new opportunities, such as expanding into a new sales region, they would most likely wish to calculate the company's free cash flow figure.
A)True
B)False
Q2) On the statement of cash flows, what amount will be shown for payments to suppliers for inventory purchases? (Please assume that accounts payable are for purchases of inventory only.)
A) $185,000
B) $194,000
C) $181,000
D) $191,000
Q3) Partisan Services purchased 10 delivery vehicles by issuing a 10-year installment note payable for $320,000. This transaction would be shown in the investment section of the statement of cash flows.
A)True
B)False
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Page 5
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) This is an example of benchmarking.
A)True
B)False
Q2) What would horizontal analysis report with respect to long-term liabilities?
A) That long-term liabilities decreased by $30,000
B) That long-term liabilities decreased by 40%
C) That long-term liabilities decreased by 60%
D) That long-term liabilities decreased by 67%
Q3) On a vertical analysis, what percentage would be shown for net income?
A) 12.1%
B) 8.8%
C) 9.8%
D) 27.3%
Q4) On a vertical analysis, what percentage would be shown for operating income?
A) 12.9%
B) 33.6%
C) 12.1%
D) 31.4%
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Chapter 16: Introduction to Management Accounting
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Sample Questions
Q1) Which of the following is a characteristic of a service company?
A) It transforms raw materials into finished goods.
B) It makes a product.
C) It does not have tangible products intended for sale.
D) It has a single category of inventory.
Q2) Which of the following costs do NOT go directly into the work in process account?
A) Factory overhead
B) Indirect labor
C) Factory janitorial costs
D) The purchase of raw materials
Q3) The cost of goods sold for Frye Manufacturing in 2012 was $233,000. The January 1, 2012 finished goods inventory balance was $31,600, and the December 31, 2012 finished goods inventory balance was $24,200. What was cost of goods manufactured during 2012?
A) $288,800
B) $233,000
C) $225,600
D) $240,400
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Chapter 17: Job Order and Process Costing
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Sample Questions
Q1) When manufacturing overhead costs are incurred, the amounts are recorded as a credit to Manufacturing overhead.
A)True
B)False
Q2) How much manufacturing overhead was allocated to the job?
A) $16,250
B) $10,400
C) $5,000
D) $34,375
Q3) After these transactions have been recorded, the preliminary balance in the Finished goods account is a:
A) debit of $508,000.
B) debit of $500,000.
C) debit of $573,000.
D) debit of $65,000.
Q4) Overallocated manufacturing overhead occurs when the manufacturing overhead allocated to work in process inventory is less than the amount actually incurred.
A)True
B)False
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Chapter 18: Activity-Based Costing and Other Cost Management Tools
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Sample Questions
Q1) In a just-in-time costing system, any remaining balance in the conversion costs account at the end of an accounting period is usually cleared to which account?
A) Raw and in process inventory
B) Cost of goods sold
C) Work in process inventory
D) Finished goods inventory
Q2) Johnson Production Company uses just-in-time production and accounting methods. On June 1, Johnson paid direct labor costs of $5,000 in cash. Which of the following journal entries correctly records this transaction?
A) Debit $5,000 to Cash, credit $5,000 to Conversion costs.
B) Debit $5,000 to Conversion costs, credit $5,000 to Cash.
C) Debit $5,000 to Manufacturing overhead, credit $5,000 to Cash.
D) Debit $5,000 to Raw and in-process inventory, credit $5,000 to Cash.
Q3) Costs spent to detect poor-quality goods are considered appraisal costs.
A)True
B)False
Q4) Costs spent to avoid poor quality goods are considered internal failure costs.
A)True
B)False
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Chapter 19: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Juan got confused when his accountant told him about contribution margin ratios, but he understood clearly that for every dollar of sales, $0.70 went to cover his fixed costs, and that anything past that point was pure profit.
Juan wishes to make $2,500 of operating profit each month. If so, how many guitars will Juan have to sell?
A) 12
B) 14
C) 18
D) 9
Q2) Olympus Company sells 1,400 units per month at a price of $28.00 per unit. The variable cost is $22.50 per unit. How much is the total contribution margin? (Please round to nearest whole dollar.)
A) $9,500
B) $7,700
C) $39,200
D) $6,750
Q3) Total variable costs change in response to changes in the volume of production.
A)True
B)False
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Chapter 20: Short-Term Business Decisions
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Sample Questions
Q1) Custom Furniture manufactures a small table and a large table. The small table sells for $800, has variable costs of $520 per table, and takes eight direct labor hours to manufacture. The large table sells for $1,200, has variable costs of $720, and takes sixteen direct labor hours to manufacture. Calculate the contribution margin per direct labor hour for the small table.
A) $29 per direct labor hour
B) $32 per direct labor hour
C) $35 per direct labor hour
D) $36 per direct labor hour
Q2) Actual costs are currently higher than target full cost. Assuming that fixed costs are predominantly related to depreciation expense and CANNOT be reduced, how much is the target variable cost?
A) $200,000 per year
B) $250,000 per year
C) $240,000 per year
D) $214,000 per year
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Chapter 21: Capital Investment Decisions and the Time Value of Money
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Sample Questions
Q1) The payback method uses discounted cash flows to make investment decisions. A)True
B)False
Q2) The payback method and the rate of return method are powerful, comprehensive evaluation tools, and would normally be sufficient to make a final investment decision.
A)True
B)False
Q3) Wasson Corporation is considering an investment project costing $520,000. The project is estimated to have an eight-year life, generate annual cash flows of $120,000, and have a salvage value of $40,000 after eight years. What is the project's payback period?
A) 2.8 years
B) 4.3 years
C) 4 years
D) 6.5 years
Q4) When projecting the cash flows of an investment, the inflows are netted against the outflows.
A)True
B)False
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Chapter 22: The Master Budget and Responsibility Accounting
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Sample Questions
Q1) When companies use an enterprise resource planning system to roll up or consolidate the budgets of the individual business units, it is more difficult for managers to conduct sensitivity analysis on their own budget data.
A)True
B)False
Q2) The amount allocated to the Commercial Construction Product Line should be:
A) $83,250.
B) $40,500.
C) $111,000.
D) $96,750.
Q3) A goal of the budgeting process is to assist managers with coordinating and implementing the business plan.
A)True
B)False
Q4) How much are the total operating expenses in December?
A) $29,800
B) $30,300
C) $30,050
D) $29,990
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Chapter 23: Flexible Budgets and Standard Costs
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Sample Questions
Q1) Cardinal Corporation produces birdhouses. It takes 1 hour of direct labor to produce a birdhouse. Cardinal's standard labor cost is $15 per hour. During June, Cardinal produced 10,000 birdhouses and used 10,250 hours of direct labor at a total cost of $143,500. What is Cardinal's direct labor price variance for June?
A) $10,000 U
B) $10,250 U
C) $10,250 F
D) $10,000 F
Q2) A favorable flexible budget variance in sales revenues suggests a(n):
A) increase in selling price.
B) increase in volume.
C) decrease in variable expenses per unit.
D) decrease in fixed costs.
Q3) A favorable sales volume variance in variable expenses suggests a(n):
A) increase in volume.
B) decrease in volume.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
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Chapter 24: Performance Evaluation and the Balanced Scorecard
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Sample Questions
Q1) What is Apple division's EVA?
A) $14,000
B) $14,760
C) $15,535
D) $16,220
Q2) How much is the sales volume variance for the 40 inch pipe?
A) $10,000 U
B) $1,500 F
C) $1,850 U
D) $9,000 F
Q3) Which of the following is a relevant performance indicator for the balanced scorecard's learning and growth perspective?
A) Earnings per share growth
B) Revenue growth
C) Employee access to customer information
D) Percentage of on-time deliveries
Q4) Decentralization increases the difficulty of achieving goal congruence among managers.
A)True
B)False
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