Accounting Theory Exam
Questions
Course Introduction
Accounting Theory explores the foundational concepts, frameworks, and principles that underpin the field of accounting. The course examines the development, application, and limitations of accounting standards, emphasizing the role of theory in informing accounting practices and policy decisions. Students will analyze topics such as the conceptual framework for financial reporting, measurement issues, and contemporary debates around accounting methods and ethics. Through critical evaluation of real-world cases and academic research, learners will gain a deeper understanding of how theoretical perspectives shape financial reporting, decision-making, and the evolution of regulations within the accounting profession.
Recommended Textbook
Financial and Managerial Accounting 10th Edition by Belverd
E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Q1) Which of the following is an example of an investing activity?
A)Purchasing a building
B)Paying off a loan
C)Employing workers
D)Producing goods and services
Answer: A
Q2) The management of a corporation is responsible for electing the board of directors.
A)True
B)False
Answer: False
Q3) Which of the following is legally a separate entity from its owner(s)?
A)Sole proprietorship only
B)Sole proprietorship and partnership only
C)Corporation only
D)Partnership only
Answer: C
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Chapter 2: Measurement Concepts: Recording Business Transactions
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Sample Questions
Q1) The general journal does not have a column titled A)Description.
B)Account Balance.
C)Date.
D)Post.Ref.
Answer: B
Q2) A journal entry is a notation that records a single transaction in the chronological accounting record known as the book of original entry.
A)True
B)False
Answer: True
Q3) When a business reports an asset at an inflated dollar amount,is has violated the measurement issue of A)recognition.
B)valuation.
C)classification.
D)realization.
Answer: B
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Chapter 3: Measuring Business Income: Adjusting the Accounts
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Q1) If on December 31,20x5,the insurance still unexpired amounted to $20,the adjusting entry would contain a
A)debit to Prepaid Insurance for $80.
B)credit to Prepaid Insurance for $80
C)debit to Insurance Expense for $20.
D)credit to Prepaid Insurance for $20.
Answer: B
Q2) Net income is misleading when revenue is overstated or expenses are understated by significant amounts.
A)True
B)False Answer: True
Q3) When there is no direct connection between revenues and expenses,the costs are systematically allocated among the periods benefited.
A)True
B)False Answer: True
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Chapter 4: Foundations of Financial Reporting and the
Classified Balance Sheet
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Q1) A company with a low asset turnover uses its assets more productively than one with a high asset turnover.
A)True
B)False
Q2) The debt to equity ratio is
A)0.48.
B)0.34.
C)0.52.
D)1.92.
Q3) The conservatism convention should not be used when the accountant is certain of a particular measure.
A)True
B)False
Q4) Which of the following is a measure of liquidity?
A)Return on equity
B)Return on assets
C)Working capital
D)Profit margin
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Q5) Why is it important for a company to maintain the same accounting methods and practices from period to period?
Chapter 5: Accounting for Merchandising Operations
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Q1) Adding together the ending merchandise inventory and cost of goods sold gives the cost of goods available for sale.
A)True
B)False
Q2) When freight-in is a relatively small amount,most companies include the cost in A)operating expenses.
B)cost of goods sold.
C)administrative expenses.
D)merchandise inventory.
Q3) The faster goods are sold and collection is made,the shorter the financing period. A)True
B)False
Q4) The change in merchandise inventory level from the beginning to the end of the year affects cost of goods sold.
A)True B)False
Q5) A trade discount is the same as a sales discount. A)True
B)False
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Chapter 6: Inventories
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Q1) Which of the following is an inventory costing method?
A)Perpetual
B)Lower-of-cost-or-market
C)Specific identification
D)Periodic
Q2) When taking a physical inventory under the retail method,it is necessary to know only the quantity of items on hand.
A)True
B)False
Q3) The matching of revenue with inventory costs is best achieved with the FIFO method.
A)True
B)False
Q4) A company has cost of goods available for sale of $250,000,sales of $305,000,and a gross profit percentage of 30 percent.Using the gross profit method,what is the ending inventory?
A)$95,000
B)$50,000
C)$36,500
D)$158,500
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Chapter 7: Cash and Internal Control
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Q1) The Sarbanes-Oxley Act of 2002 requires all of the following to certify a public company's system of internal control,except for the A)chief financial officer.
B)the independent auditors.
C)the board of directors.
D)chief executive officer.
Q2) On a balance sheet,what items normally are included in Cash?
Q3) The financial statements of nonpublic companies are not required to be audited by an independent CPA.
A)True
B)False
Q4) Why is the separation of duties an important control activity in a good system of internal control?
Q5) Each of the following is a feature of internal control except A)management planning.
B)periodic independent verification.
C)limited access to assets.
D)authorization of transactions.
Q6) Why do businesses need to keep some currency on hand?
Page 9
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Chapter 8: Receivables
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Q1) Days' sales uncollected cannot be calculated without first knowing the receivables turnover.
A)True
B)False
Q2) A company's acceptance of credit cards like Visa is an example of A)securitization.
B)factoring with recourse.
C)discounting.
D)factoring without recourse.
Q3) One might infer from a debit balance in Allowance for Uncollectible Accounts that A)a posting error has been made.
B)Uncollectible Accounts Expense has been overestimated.
C)the accounts receivable aging method apparently is being used.
D)more has been written off than had been estimated.
Q4) Under the direct charge-off method of dealing with uncollectible accounts, A)revenues and expenses are properly matched.
B)Accounts Receivable is shown on the balance sheet at net realizable value.
C)Uncollectible Accounts Expense is recorded in the period of the sale.
D)no Allowance for Uncollectible Accounts exists.
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Chapter 9: Long-Term Assets
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Sample Questions
Q1) Present two arguments in favor of the use of accelerated depreciation.
Q2) Which of the following most appropriately describes depreciation?
A)Decline in value of a plant asset
B)Gradual allocation of the cost of a plant asset over periods of usefulness
C)Physical deterioration of a plant asset
D)Gradual obsolescence of a plant asset
Q3) Mozilla Mining Company purchased land containing an estimated 10,000,000 tons of ore for a cost of $750,000.The land without the ore is estimated to be worth $150,000 (the residual value).Buildings costing $45,000 with an estimated useful life of 20 years were erected on the site.Because of the remote location,the buildings have no residual value.The company expects that all the usable ore can be mined in eight years.During its first year of operation,the company mined 1,000,000 tons of ore and at the end of the year had an inventory of 200,000 tons.Determine the following amounts for the first year: (a)depletion charge per ton; (b)depletion expense for year;and (c)depreciation expense for buildings,using the straight-line method.(Show your work. )
Q4) A tractor held by a farm equipment company for sale to farmers is classified as a long-term asset.
A)True
B)False
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Chapter 10: Current Liabilities and Fair Value Accounting
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Q1) Potential vacation pay should be accounted for as a commitment.
A)True
B)False
Q2) To determine the payables turnover,one first calculates the days' payable.
A)True
B)False
Q3) A contingent liability is a liability that may materialize in the future because of something that happened in the past.
A)True
B)False
Q4) A liability is recognized when
A)the exact due date is known.
B)it is paid for.
C)an obligation has arisen.
D)the exact amount of the liability is known.
Q5) Vacation pay is charged properly as an expense in the month in which the employee takes a vacation.
A)True
B)False
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Chapter 11: Long-Term Liabilities
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Q1) When bonds are converted to stock,any excess carrying value of the bonds over the par value of the stock is to be recorded as Additional Paid-in Capital.
A)True
B)False
Q2) An adjustment must be made at the end of an accounting period to accrue the interest expense on bonds payable and to amortize any related premium or discount from the last interest payment date to the end of the fiscal year.
A)True
B)False
Q3) When a bond sells at a premium,what is probably true about the market interest rate versus the face interest rate? Discuss.
Q4) The par value of a bond is equal to its face value. A)True
B)False
Q5) The callable feature of a bond can be exercised by the bondholder. A)True
B)False
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Chapter 12: Stockholders Equity
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Q1) Cash dividends become a liability of a corporation when the stock goes ex-dividend.
A)True
B)False
Q2) The price/earnings (P/E)ratio is a measure of investors' confidence in a company's future.
A)True
B)False
Q3) The entry required to record start-up and organization costs will cause an increase in assets.
A)True
B)False
Q4) Which of the following items will not be disclosed on a statement of stockholders' equity?
A)Net income
B)Issuance of common stock for cash
C)Extraordinary gains and losses
D)Issuance of common stock in exchange for noncash assets
Q5) When stock is issued for noncash assets or services,how does one place a valuation (dollar amount)on the transaction?
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Chapter 13: The Statement of Cash Flows
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Q1) When preparing a statement of cash flows using the indirect method,an increase in wages payable is subtracted from net income.
A)True
B)False
Q2) The indirect method of preparing a statement of cash flows
A)eliminates the need for a schedule of noncash investing and financing transactions.
B)provides a different result than the direct method.
C)adjusts net income for changes in current accounts.
D)shows collections from customers rather than the change in Accounts Receivable.
Q3) Lincoln Company engaged in this transaction: Purchased 30-day U.S.Treasury bill. Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A)Does not represent a cash flow.
B)Operating activities section.
C)Investing activities section.
D)Financing activities section.
Q4) Which accounts are analyzed to determine cash flows from financing activities?
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Return on assets is most closely related to
A)interest coverage and the debt to equity ratios.
B)profit margin and the debt to equity ratio.
C)profit margin and asset turnover.
D)inventory turnover and profit margin.
Q2) What is the debt to equity ratio for this corporation? Round your answer to 1 decimal place.
A)0.4 times
B)0.6 times
C)1.0 times
D)2.5 times
Q3) The price/earnings (P/E)ratio is an indication of investor confidence in a company.
A)True B)False
Q4) A primary purpose of vertical analysis is to observe trends over a five-year period. A)True B)False
Q5) Briefly explain a "big bath" including when it occurs and why it occurs.
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Chapter 15: Managerial Accounting and Cost Concepts
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Q1) The costs of labor for maintenance and inspections are examples of direct labor.
A)True
B)False
Q2) The key to the preparation of an income statement for a manufacturing company is proper determination of the cost of goods manufactured.
A)True
B)False
Q3) All manufacturing costs incurred and assigned to products that are being produced are classified as
A)variable costs.
B)allocated costs.
C)product costs.
D)overhead costs.
Q4) Direct materials cost is a fixed cost because it always occurs in a production process.
A)True
B)False
Q5) Give two examples of each stage in the management process.
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Chapter 16: Costing Systems: Job Order Costing
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Q1) Which of the following firms would most likely use a process costing system?
A)Firm providing legal services
B)Firm manufacturing papers
C)Firm providing advertising services
D)Firm printing wedding invitations
Q2) Predetermined overhead rate is calculated by dividing actual overhead costs by actual cost driver activity.
A)True
B)False
Q3) Which of the following is related to performing in the management process?
A)Comparison of job estimates with actual job costs
B)Preparation of financial statement
C)Computation of a job's cost per unit
D)Selection of a predetermined overhead rate
Q4) If applied overhead exceeds actual overhead,cost of goods sold must be increased by the amount of the overapplied overhead in a job order costing system.
A)True
B)False
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Chapter 17: Costing Systems: Process Costing
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Q1) The number of equivalent units produced in Department A with respect to conversion costs were
A)530,000.
B)394,000.
C)370,000.
D)354,000.
Q2) Which of the following is not a characteristic of a process costing system?
A)A specific time period is used
B)Several Work in Process Inventory accounts are used
C)Product costs are grouped by processes,departments,or work cells
D)More suitable when customized products are manufactured
Q3) Under the FIFO costing method,separate unit cost analyses are not used for each accounting period because costs of different periods are averaged.
A)True
B)False
Q4) The number of units started and completed in Department A during April was A)450,000.
B)350,000.
C)360,000.
D)160,000.
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Chapter 18: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) One element of a just-in-time operating environment is pull-through production,which means that a firm starts production of a product only after an order is received.
A)True
B)False
Q2) Distinguish between push-through and pull-through production methods.How does pull-through production meet the requirements of a just-in-time operating environment?
Q3) Activity-based management and lean operations can be used either together or separately to eliminate waste and manage activities.
A)True
B)False
Q4) Which of the following statements is true of a traditional operating environment?
A)It plans by using pull-through production scheduling.
B)It has long production runs with infrequent setups.
C)It always maintains less or no inventory.
D)It uses a multiskilled work force.
Q5) How do managers measure an activity's performance?
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Q6) Why is process value analysis not part of the general ledger accounting system?
Chapter 19: Cost-Volume-Profit Analysis
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Q1) Unit fixed costs will be the same regardless of how many units are produced.
A)True
B)False
Q2) In terms of cost behavior,telephone expenses are often classified as A)sunk costs.
B)variable costs.
C)fixed costs.
D)mixed costs.
Q3) In a graph of cost-volume-profit analysis,the
A)total revenue line typically begins at a required minimum level.
B)slope of the total cost line is dependent on the variable cost per unit.
C)total cost line normally begins at zero.
D)sales level at which total cost and total revenue lines intersect is also equal to fixed costs.
Q4) An organization's practical capacity is its theoretical or ideal capacity reduced by normal and anticipated work stoppages,such as machine breakdowns.
A)True
B)False
Q5) Explain what cost-volume-profit analysis is and how managers use it.
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Chapter 20: The Budgeting Process
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Q1) After management has set short-term goals,the budgeting process typically starts with
A)a clearly defined timetable of events.
B)input only from the accounting personnel.
C)the naming of an efficient coordinator or director.
D)a set of procedures or instructions.
Q2) Which of the following budgets is prepared soon after the preparation of sales budget in a master budget?
A)Cost of goods sold budget
B)Production budget
C)Cash budget
D)Selling and administrative expenses budget
Q3) Evaluating the value chain and capacity issues are not part of the budgeting process.
A)True
B)False
Q4) Participative budgeting involves only personnel at top levels of the organization.
A)True
B)False
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Chapter 21: Flexible Budgets and Performance Analysis
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Q1) A report for a responsibility center includes costs and revenues that are not controlled by a manager.
A)True
B)False
Q2) How is the contribution margin calculated when utilizing variable costing?
A)Sales less variable cost of goods sold
B)Sales less variable cost of goods sold,less variable selling and administrative expenses
C)Sales less cost of goods sold
D)Sales less variable cost of goods sold,less variable selling and administrative expenses,less fixed cost of goods sold,less fixed selling and administrative expenses
Q3) All organizations use same performance measures in their day-to-day business operations.
A)True B)False
Q4) Residual income is excess of operating income over net income.
A)True
B)False
Q5) Write a brief note on the performance-based pay.
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Chapter 22: Standard Costing and Variance Analysis
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Q1) A direct labor rate variance would occur in which of the following?
A)When a production employee takes an unplanned break
B)When a production employee spends more time producing one product than was expected
C)When a low-paid production employee performs a task higher than his or her assigned level
D)When a production employee incurs overtime hours at the same hourly rate as regular pay
Q2) The direct labor efficiency variance is the difference between standard hours allowed and actual hours worked for good units produced,multiplied by the standard labor rate.
A)True
B)False
Q3) Using the above information provided for Good Sleep,the total fixed overhead variance is
A)$4,500 (U).
B)$30,500 (U).
C)$5,000 (U).
D)$45,000 (U).
Q4) Mention a few reasons for an unfavorable direct labor cost variance.
Page 24
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Chapter 23: Short-Run Decision Analysis
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Q1) Products Square,Rect,Tri,and Quatro have contribution margins of $5,$8,$6,and $4,respectively,and require 3.5,2.5,2,and 3 machine hours per unit,respectively.Assuming that all units produced could be sold and that total machine hours per month are limited,on which product should the company concentrate its efforts?
A)Square
B)Rect
C)Tri
D)Quatro
Q2) Total costs and savings are examples of qualitative factors.
A)True
B)False
Q3) Which product provides the greatest amount of incremental revenue from further processing?
A)Wood Cleaner
B)Kitchen Cleaner
C)Both options provide the same incremental revenue.
D)Neither option provides incremental revenue.
Q4) Are joint costs relevant to a sell-or-process-further decision? Explain why or why not.
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Chapter 24: Capital Investment Analysis
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Q1) Capital investment analysis is a decision process for the purchase of capital facilities,such as buildings and equipment.
A)True
B)False
Q2) The salvage value of an asset is a future cash inflow.
A)True
B)False
Q3) Implementing capital investment decisions with proper controls falls under which stage of the management process?
A)Planning
B)Performing
C)Evaluating
D)Communicating
Q4) To analyze a capital investment using the accounting rate-of-return method,one can use an estimated amount for the annual net income.
A)True
B)False
Q5) Upon completion of a capital investment project,what management functions related to it remain to be done?
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Chapter 25: Pricing Decisions, including Target Costing and Transfer Pricing
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Q1) Because a business should have as its primary objective the earning of a minimum rate of return on assets,the return on assets pricing method has a great deal of appeal and support.
A)True
B)False
Q2) Setting internal transfer prices for products or services falls under the planning stage of the management process.
A)True
B)False
Q3) Explain how target costing differs from traditional cost-based pricing methods.
Q4) Identifying the minimum price the company can sustain falls under the evaluating stage of the management process.
A)True B)False
Q5) Determining the production costs of a product is the first step in target costing. A)True
B)False
Q6) What are the four pricing rules managers must follow to stay in business?
Page 27
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Chapter 26: Quality Management and Measurement
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Q1) Based on the above data,which department is most committed to TQM?
A)Dept.X
B)Dept.Y
C)Dept.Z
D)Insufficient data to determine answer.
Q2) Name and describe one respected technique made popular by Six Sigma that allows managers to understand and measure quality improvements.
Q3) Return on quality (ROQ)results when marginal revenues made possible by a higher quality product exceed the marginal costs of providing the higher quality.
A)True
B)False
Q4) The ISO promotes standardization with a view of facilitating the international exchange of goods and services.
A)True
B)False
Q5) What are the three steps managers take to create a TQM environment?
Q6) Describe how MIS aids in the evaluating stage of the management process.
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Chapter 27: Accounting for Unincorporated Businesses
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Q1) Which of the following methods of distributing income cannot be accomplished (cannot stand alone)?
A)Capital balance ratio alone
B)Interest and stated ratio alone
C)Stated ratio alone
D)Salary alone
Q2) One of the benefits of forming a partnership is limited liability.
A)True
B)False
Q3) Cortney invests $80,000 for a 10 percent interest in a partnership that has total capital of $600,000 after admitting Cortney.Which of the following is true?
A)Cortney's capital is $52,000
B)The original partners' capital in the business was $540,000 before admitting Cortney
C)Cortney received a bonus of $20,000
D)The original partners received a bonus of $20,000
Q4) A partnership is relatively easy to form,but is very complex to dissolve.
A)True
B)False
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Chapter 28: Accounting for Investments
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Q1) Significant influence is defined as owning what percent of the stock of another company?
A)15 to 60 percent
B)More than 50 percent
C)20 to 50 percent
D)75 percent
Q2) When bonds are purchased between interest dates,the buyer must pay (in addition to the bonds' cost)the amount of interest that has accrued since the last interest payment date.
A)True
B)False
Q3) Unless there is evidence to the contrary,an investor owning 35 percent of the stock of an investee is assumed to have significant influence.
A)True
B)False
Q4) A controlling investment is defined as ownership of more than 50 percent of the stock of another company.
A)True
B)False
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