Bachelor of Commerce (Accounting Major)
Practice Questions
Course Introduction
The Bachelor of Commerce (Accounting Major) is a comprehensive undergraduate program designed to equip students with a solid foundation in financial and management accounting, auditing, taxation, and business law. The curriculum blends theoretical knowledge with practical skills, preparing graduates to analyze and interpret financial information, ensure regulatory compliance, and support effective decision-making within organizations. Students develop proficiency in accounting software, gain a deep understanding of ethical standards, and are introduced to critical thinking and problem-solving techniques essential for the dynamic field of commerce. Upon completion, graduates are well-positioned for professional certification and careers in public accounting, corporate finance, government agencies, and a variety of business sectors.
Recommended Textbook
Intermediate Accounting 8th Edition by J. David Spiceland
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Page 2
Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Sample Questions
Q1) Porite Company recognizes revenue in the period in which it records an asset for the related account receivable,rather than in the period in which the account receivable is collected in cash.Porite's practice is an example of:
A)Cash basis accounting.
B)Accrual accounting.
C)The matching principle.
D)Economic entity.
Answer: B
Q2) An important argument in support of historical cost information is:
A)Relevance.
B)Predictive quality for future cash flows.
C)Materiality.
D)Verifiability.
Answer: D
Q3) Pronouncements issued by the Committee on Accounting Procedures:
A)Dealt with specific accounting and reporting problems.
B)Were based on exposure drafts and public comment letters.
C)Originated from congressional studies and SEC directives.
D)Were the outcome of research studies and a theoretical framework.
Answer: A
Page 3
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Chapter 2: Review of the Accounting Process
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Q1) In its first year of operations Best Corp.had income before tax of $500,000.Best made income tax payments totaling $210,000 during the year and has an income tax rate of 40%.What was Best's net income for the year?
A)$290,000.
B)$294,000.
C)$300,000.
D)$306,000.
Answer: C
Q2) Molly's Auto Detailers maintains its records on the cash basis.During 2016,Molly's collected $72,000 from customers and paid $21,000 in expenses.Depreciation expense of $5,000 would have been recorded on the accrual basis.Over the course of the year,accounts receivable increased $4,000,prepaid expenses decreased $2,000,and accrued liabilities decreased $1,000.Molly's accrual basis net income was:
A)$38,000.
B)$54,000.
C)$49,000.
D)$42,000.
Answer: C
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Page 4
Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) Assume a company's liquidity ratios all are less than 1.0 before it purchases inventory on credit.When it makes the purchase:
A)Its current ratio decreases.
B)Its quick ratio decreases.
C)Its current ratio remains unchanged.
D)Its quick ratio remains unchanged.
Answer: B
Q2) Altoid Co.'s times interest earned ratio.Round your answer to two decimal places. Answer: ($350 + 150 + 90)/$90 = 6.56 Times interest earned ratio
Q3) Shareholders' equity
Answer: Total debt + Total equity = Total assets = $1,400,000 Debt/Equity = 1.5;therefore,Total debt = 1.5 Equity
1.5 Equity + 1 Equity = $1,400,000
2.5 Equity = $1,400,000;Shareholders' equity = $ 560,000
Q4) The compensation of top executives is disclosed in the proxy statement. A)True
B)False
Answer: True
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Page 5
Chapter 4: The Income Statement, comprehensive
and the Statement of Cash Flows
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Sample Questions
Q1) Briefly define discontinued operations and explain how they are reported according to U.S.GAAP.
Q2) The principal benefit of separately reporting discontinued operations is to enhance:
A)Predictive ability of future profitability.
B)Consistency in reporting.
C)Intraperiod continuity.
D)Comprehensive reporting.
Q3) Major Co.reported 2016 income of $300,000 from continuing operations before income taxes and a before-tax loss on discontinued operations of $80,000.All income is subject to a 30% tax rate.In the 2016 income statement,Major Co.would show the following line-item amounts for income tax expense and net income:
A)$66,000 and $210,000.
B)$90,000 and $154,000.
C)$90,000 and $276,000.
D)$66,000 and $220,000.
Q4) Required: Prepare a 2016 multiple-step income statement for Kroeger Inc.with earnings per share disclosure.
Q5) Briefly explain when and why intraperiod tax allocation is necessary.
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Chapter 5: Income Measurement
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Q1) Its average collection period for 2016.Round your final answer to one decimal place.
Q2) A fee for recording a new customer in the seller's information system should be treated as a separate performance obligation and should be recognized upon payment.
A)True
B)False
Q3) Holmgren Seafoods,Inc.catches and processes salmon and tuna caught off the coast of Maine.In May 2016,it placed 100 freshly caught wild salmon with a retail price of $75 each in Joe's Fish Shop.Holmgren's contract with the shop stipulates that the shop will earn a 15% commission on each salmon sold.Joe's is responsible for purchasing any fish that remain unsold at the end of a three-day period. Required: During the three-day period,Joe's Fish Shop was able to sell 88 of the 100 salmon.How much revenue should Holmgren recognize with respect to this transaction?
Q4) Firms have free choice as to whether to recognize revenue over time or at a point in time to account for a long-term contract.
A)True
B)False
Q5) Its inventory turnover ratio for 2016.Round your answer to one decimal place.
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Page 7
Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) A deferred annuity is one in which interest charges are deferred for a stated time period.
A)True
B)False
Q2) Briefly explain how you would arrive at the monthly payment for a 48-month loan where the first payment is due one month from the loan date.In your explanation,include the use of present or future value tables.
Q3) Prepare a time diagram for the future value of an annuity due with three payments of $400.Be sure to indicate the periods in which interest is added.
Q4) Hillsdale is considering two options for comparable computer software.Option A will cost $25,000 plus annual license renewals of $1,000 for three years,which includes technical support.Option B will cost $20,000 with technical support being an add-on charge.The estimated cost of technical support is $4,000 the first year,$3,000 the second year,and $2,000 the third year.Assume the software is purchased and paid for at the beginning of year one,but that technical support is paid for at the end of each year.Interest is at 8%.Ignore income taxes.
Required: Determine which option should be chosen based on present value considerations.
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Page 8
Chapter 7: Cash and Receivables
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Sample Questions
Q1) Briefly explain the accounting treatment for estimated sales returns at the end of an accounting period for which cash has already been collected from customers.
Q2) Huckabee's 2016 receivables turnover (rounded)is:
A)3.69.
B)5.00.
C)5.26.
D)3.16.
Q3) The purpose of assigning accounts receivable is to:
A)Satisfy a court order.
B)Complete the legal prerequisites to record their sale.
C)Comply with form and content rules of bankruptcy proceedings.
D)Provide collateral for a loan.
Q4) In Dinty's adjusting entry for bad debts at year-end,which of these would be included?
A)Debit to bad debt expense for $114,000.
B)Credit to allowance for uncollectible accounts for $82,000.
C)Debit to accounts receivable for $32,000.
D)All of these answer choices are correct.
Q5) Define what it is meant by internal control.
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Chapter 8: Inventories: Measurement
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Q1) Required: Compute the January 31 ending inventory and cost of goods sold for January,assuming Random Creations uses FIFO.
Q2) Physical counts of inventory are never made with perpetual inventory systems.
A)True
B)False
Q3) During periods when costs are rising and inventory quantities are stable,ending inventory will be:
A)Higher under LIFO than FIFO.
B)Lower under average cost than LIFO.
C)Higher under average cost than FIFO.
D)Higher under FIFO than LIFO.
Q4) What is ending inventory assuming Northwest uses the gross method to record purchases?
A)$112,490.
B)$112,550.
C)$116,500.
D)$120,300.
Q5) Unit LIFO is more costly to implement than dollar-value LIFO.
A)True
B)False
10
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Chapter 9: Inventories: Additional Issues
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Q1) When using the gross profit method to estimate ending inventory,it is not necessary to know:
A)Beginning inventory.
B)Net purchases.
C)Cost of goods sold.
D)Net sales.
Q2) For a purchase commitment contained within a single fiscal year,if the market price is less than the contract price,the purchase is recorded at the contract price.
A)True
B)False
Q3) Briefly explain the financial reporting required when a company changes to or from the LIFO inventory method.
Q4) The conventional cost-to-retail percentage (rounded)is:
A)82.6%.
B)66.7%.
C)71.9%.
D)75.5%.
Q5) Briefly explain the difference between the LIFO retail method and the dollar-value LIFO retail method.
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Chapter 10: Property, plant, and Equipment and Intangible
Assets: Acquisition and Disposition
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Q1) The fair value of the asset,debt,or equity securities given in a noncash acquisition should determine the value of the consideration received.
A)True
B)False
Q2) Cromartie Ltd.prepares its financial statements according to International Financial Reporting Standards.During 2016 the company incurred $1,245,000 in research expenditures to develop a new product.An additional $756,000 in development expenditures were incurred after technological and commercial feasibility was established and after the future economic benefits were deemed probable.The project was successfully completed and the new product was patented before the end of the 2016 fiscal year.Sale of the product began in 2015.What amount of the above expenditures would Cromartie expense in its 2016 income statement?
A)$2,001,000.
B)$ 756,000.
C)$1,245,000.
D)$0.
Q3) Briefly explain how R&D is reported in financial statements.
Q4) How are assets valued when they are acquired by issuing stock?
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Q5) Why are software development costs treated differently than other types of R&D?
Chapter 11: Property, plant, and Equipment and Intangible
Assets: Utilization and Impairment
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Q1) Activity-based methods of depreciation are appropriate for assets whose service life is a function of use rather than time.
A)True
B)False
Q2) Using the double-declining balance method,depreciation for 2017 would be:
A)$28,800.
B)$18,240.
C)$17,280.
D)None of these answer choices are correct.
Q3) Canliss Mining uses the retirement method to determine depreciation on its office equipment.During 2014,its first year of operations,office equipment was purchased at a cost of $14,000.Useful life of the equipment averages four years and no salvage value is anticipated.In 2016,equipment costing $5,000 was sold for $600 and replaced with new equipment costing $6,000.Canliss would record 2016 depreciation of:
A)$3,500.
B)$4,400.
C)$5,400.
D)None of these answer choices are correct.
Q4) Briefly differentiate between activity-based and time-based allocation methods.
Page 13
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Chapter 12: Investments
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Q1) All investment securities are initially recorded at:
A)Cost.
B)Present value.
C)Equity value.
D)None of these answer choices is correct.
Q2) Which of the following is not an example of a derivative?
A)Interest rate swap.
B)Cash.
C)Stock option.
D)Forward contract.
Q3) When an equity method investment is sold,a gain or loss is recognized for the difference between its selling price and its cost.
A)True
B)False
Q4) Unrealized gains and losses are included in other comprehensive income for securities that are classified as available for sale.
A)True
B)False
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Page 14
Chapter 13: Current Liabilities and Contingencies
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Q1) A customer of Razor Sharpeners alleges that Razor's new razor sharpener had a defect that resulted in serious injury to the customer.Razor believes the customer has a 51% chance of winning the case,and that if the customer wins the case,there is a range of losses of between $1,000,000 and $3,000,000 in which any number is equally likely to occur.Under IFRS,Razor should accrue a liability in the amount of:
A)$0.
B)$1,000,000.
C)$2,000,000.
D)$3,000,000.
Q2) Which of the following may create employer liabilities in connection with their payrolls?
A)Employee withholding taxes.
B)Employee voluntary deductions.
C)Employee fringe benefits.
D)All of these answer choices are correct.
Q3) State and Federal Unemployment Taxes (SUTA and FUTA)must be withheld from employees' wages.
A)True
B)False
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Page 15
Chapter 14: Bonds and Long-Term Notes
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Q1) Heidi Baby Products issued 8% bonds with a face amount of $320 million on January 1,2016.The bonds sold for $300 million.For bonds of similar risk and maturity the market yield was 9%.Upon issuance,Heidi elected the option to report these bonds at their fair value.On June 30,2016,the fair value of the bonds was $310 million as determined by their market value on the NASDAQ.Will Heidi report a gain or will it report a loss when adjusting the bonds to fair value? If the change in fair value is attributable to a change in the general (risk-free)interest rate,did the rate increase or decrease? If the change in fair value is attributable to a change in the general (risk-free)interest rate,is the gain or loss reported as part of net income? Explain.
Q2) The interest rate that is printed on the bond certificate is referred to as any of the following except:
A)Stated rate.
B)Contract rate.
C)Nominal rate.
D)Effective rate.
Q3) Required: What amount of interest expense on these bonds would Morton Sales Co.report in its 2016 income statement?
Q4) How are bonds and notes the same? How do they differ?
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Page 16
Chapter 15: Leases
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Q1) L Corp.recorded a capital lease in February using an annuity due present value table.The company's December 31 statement of cash flows using the indirect method will report:
A)An addition to net income for depreciation.
B)A cash inflow from financing activities.
C)A cash outflow from investing activities.
D)A cash inflow from operating activities.
Q2) When accounting for a capital lease,the lessee records the leased asset at the present value of the minimum lease payments or the asset's fair value,whichever is lower.
A)True
B)False
Q3) J Corp.entered into an operating lease in February.The company's December 31 statement of cash flows will report:
A)A cash outflow from investing activities.
B)A cash outflow from financing activities.
C)A cash outflow from operating activities.
D)No cash outflow.
Q4) Discuss the financial statement disclosure requirements for all leases entered into by the lessee.
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Chapter 16: Accounting for Income Taxes
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Q1) Expenditures currently deducted in the tax return but not included with expenses in the income statement until subsequent years create deferred tax liabilities.
A)True
B)False
Q2) Indicate why LMC lists net operating loss carryforwards as a component of deferred tax assets.
Q3) Under current tax law a net operating loss may be carried forward up to:
A)5 years.
B)10 years.
C)15 years.
D)20 years.
Q4) How should Hobson report tax on the discontinued operation?
A)A tax receivable of $12 million in the balance sheet.
B)A tax benefit of $12 million to net against the $30 million pretax loss.
C)A deferred tax asset of $12 million in the balance sheet.
D)None of these answer choices are correct.
Q5) What is a valuation allowance for deferred tax assets and when is it used?
Q6) Estimate the effective tax rate for Black Inc.in 2016.Why is it different from the 35% federal statutory rate?
Page 18
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) What is the service cost to be included in the current year's postretirement benefit expense?
A)$3,000.
B)$3,180.
C)$3,200.
D)$4,000.
Q2) Travis Transportation reported a net loss-AOCI in last year's balance sheet.This year,the company revised its estimate of future salary levels causing its PBO estimate to decline by $12.Also,the $24 million actual return on plan assets was less than the $27 million expected return.
Required:
1)Prepare the appropriate journal entries to record the gain and loss.
2)How do this gain and loss affect Travis' income statement,statement of comprehensive income,and balance sheet?
Q3) The attribution period for postretirement health care plans does not include:
A)The first five years of service.
B)The year of hire.
C)The employee probation period.
D)The years of service beyond the full eligibility date.
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Page 19
Chapter 18: Shareholders Equity
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Q1) What was the average price (rounded to the nearest dollar)of the additional shares issued by Levi in 2016?
A)$5 per share.
B)$26 per share.
C)$39 per share.
D)Cannot be determined from the given information.
Q2) The retained earnings balance reported in the balance sheet typically is not affected by:
A)Net income.
B)A prior period adjustment.
C)Dividends paid.
D)Restrictions.
Q3) Cash dividends become a binding liability as of the record date.
A)True
B)False
Q4) When a corporation acquires its own shares,those shares assume the same status as authorized but unissued shares,as if they never had been issued.Explain how this is reflected in the accounting records if the shares are formally retired.
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Page 20
Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) During the current year,East Corporation had 2 million shares of common stock outstanding.Two thousand 8% convertible bonds,each with $1,000 face value,were issued at face amount at the beginning of the year.East reported income before tax of $3 million and net income of $1.8 million for the year.Each bond is convertible into 10 shares of common stock.What is diluted EPS (rounded)?
A)$0.90.
B)$0.95.
C)$0.89.
D)$0.94.
Q2) On December 31,2015,the Frisbee Company had 250,000 shares of common stock issued and outstanding.On March 31,2016,the company sold 50,000 additional shares for cash.Frisbee's net income for the year ended December 31,2016,was $700,000.During 2016,Frisbee declared and paid $80,000 in cash dividends on its nonconvertible preferred stock.What is the 2016 basic earnings per share (rounded)?
A)$2.16.
B)$3.50.
C)$3.10.
D)$2.80.
Q3) What is the "if converted method"?
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Chapter 20: Accounting Changes
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Q1) In the previous year,a firm failed to record premium amortization of $40,000 and $30,000,respectively,on its bonds payable and held to maturity bond investments.These errors affect both income before tax and taxable income.The firm's tax rate is 30%.As a result of this error,net income was:
A)Understated by $7,000.
B)Overstated by $7,000.
C)Understated by $33,000.
D)Overstated by $33,000.
Q2) There is not always a clear-cut distinction between a change in estimate and a change in principle or a simultaneous change in estimate and change in principle.How are such situations accounted for?
Q3) Moonland Company's income statement contained the following errors:
Ending inventory,December 31,2016,understated by $6,000
Depreciation expense for 2016 overstated by $1,000
What is the effect of the errors on 2016 net income before taxes?
A)Overstated by $5,000.
B)Understated by $5,000.
C)Understated by $7,000.
D)Overstated by $7,000.
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Chapter 21: The Statement of Cash Flows
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Q1) How is the amortization of patents reported in a statement of cash flows that is prepared using the direct method?
A)Not reported.
B)An increase in cash flows from operating activities.
C)A decrease in cash flows from operating activities.
D)A decrease in cash flows from investing activities.
Q2) Goodfellow Corporation reported insurance expense of $477 for the current year.The beginning and ending balances in the prepaid insurance account were $50 and $30,respectively.What was the amount of cash paid for insurance?
A)$477.
B)$457.
C)$497.
D)None of these answer choices is correct.
Q3) What was most responsible for the positive cash flow from financing activities during 2015? What amount was received?
Q4) The purchase of treasury stock is an investing cash outflow.
A)True
B)False
Q5) Did accounts receivable increase or decrease during 2016? Explain.
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