Basic Accounting Principles
Test Bank
Course Introduction
Basic Accounting Principles introduces students to the fundamental concepts and techniques of accounting, focusing on the systematic recording, classification, and summarization of financial transactions. The course covers the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the interpretation of accounting information for decision-making. Emphasis is placed on understanding assets, liabilities, equity, revenue, and expenses, as well as mastering the use of journals, ledgers, and trial balances. By the end of this course, students will have a solid foundation in the principles and applications of accounting essential for further study or entry-level roles in finance and business.
Recommended Textbook
Financial Accounting 10th Edition by Walter T. Harrison
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2
Chapter 1: The Financial Statements
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Sample Questions
Q1) Which of the following is a CORRECT statement about long-term assets?
A)Accumulated depreciation increases the cost of property,plant,and equipment on the balance sheet.
B)Intangible assets are long-term assets with no physical form.
C)Long-term investments can never be sold by the company.
D)Other long-term assets include supplies.
Answer: B
Q2) In order to compare the financial statements of Toyota Corporation to the financial statements of General Motors,it would be preferable to use _________.
A)U.S.Generally Accepted Accounting Principles for General Motors and International Financial Reporting Standards for Toyota.
B)U.S.Generally Accepted Accounting Principles for both companies.
C)International Financial Reporting Standards for both companies.
D)U.S.Generally Accepted Accounting Principles for Toyota Corporation and International Financial Reporting Standards for General Motors.
Answer: C
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3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) An important rule to remember when working with T accounts is:
A)when you debit an account,you are entering an amount of the right-hand side on the T account.
B)an increase to accounts payable will be recorded as a debit.
C)to credit an account means to enter an amount on the right-hand side of the T account.
D)the debit side of a T account is on the right-hand side of the T account for assets and expenses.
Answer: C
Q2) Which of the following is a CORRECT statement?
A)Shareholders' equity is also called Proprietorship Equity.
B)A proprietorship has more than one capital account.
C)A partnership has a separate owner's equity account for each partner.
D)Retained earnings is the owner's investment in the corporation.
Answer: C
Q3) Entering a transaction in the journal is also known as booking the journal entry.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Flanders Company has total assets of $360,000 and total liabilities of $300,000.The company collects an account receivable of $20,000.After this transaction,the company's debt ratio will be:
A)0.56.
B)0.83.
C)1.80.
D)1.90.
Answer: B
Q2) A company purchased medical equipment for $100,000 on January 1,2015.The company determined that the yearly depreciation expense is $10,000.What will be the ending balance in the Accumulated Depreciation-Medical Equipment at December 31,2017?
A)$10,000
B)$30,000
C)$60,000
D)$100,000
Answer: B
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) The objectives of internal control do NOT include:
A)compliance with standards of social responsibility.
B)safeguard assets.
C)promoting operational efficiency.
D)compliance with legal requirements.
Q2) In the cash budget,examples of cash disbursements do NOT include:
A)purchase of inventory with cash.
B)payment of operating expenses.
C)payment of dividend.
D)depreciation expense.
Q3) Opportunity in the fraud triangle arises from:
A)weak control environment.
B)improper segregation of duties.
C)improper access to assets.
D)all of the above.
Q4) Which of the following transactions requires a journal entry?
A)The bank charged $50 for a stop payment on a check.
B)The bank deducted $50 from your account incorrectly.
C)The bank collected a note receivable with interest on your behalf.
D)A and C
6
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) The higher the quick ratio,the easier it is to pay current liabilities.
A)True
B)False
Q2) Selling accounts receivable typically:
A)decreases total assets and increases revenues.
B)decreases total assets and increases expenses.
C)increases total assets and increases revenues.
D)has no effect on total assets and decreases expenses.
Q3) Which of the following is a CORRECT statement regarding methods to speed up the collection of cash from receivables?
A)Factoring is used frequently by companies since it is an inexpensive way to raise cash.
B)Credit card companies will charge a fee of 20-30% of the total amount of the sale.
C)The company that factors its receivables maintains control over the collection process.
D)The Credit Card Discount Expense is reported on the income statement.
Q4) Notes receivable from customers and vendors have a maturity date.
A)True
B)False
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Page 7
Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) For most firms,the gross profit percentage changes significantly from year to year.
A)True
B)False
Q2) An error in ending inventory creates errors for two accounting periods.
A)True
B)False
Q3) Jaronski Company uses the periodic inventory system.At the end of the accounting period,journal entries are prepared to close out:
A)beginning inventory and ending inventory.
B)purchases only.
C)beginning inventory and purchases.
D)beginning inventory,purchases and ending inventory.
Q4) Under the periodic inventory system:
A)the Inventory account is always up-to-date.
B)the Purchases account is an asset account.
C)an entry to credit Inventory must be made at the time a sale is recorded.
D)an entry must be made at the end of the period to transfer Purchases to Cost of Goods Sold.
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8
Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) Obsolescence may cause an asset's useful life to be longer than the asset's physical life.
A)True
B)False
Q2) The computation of depletion expense is most closely related to which method for computing depreciation?
A)Straight-line
B)Units-of-production
C)Double-declining balance
D)Modified accelerated cost recovery system
Q3) Natural resources are reported in the Intangible Assets section of the balance sheet.
A)True
B)False
Q4) WorldCom's fraudulent scheme of capitalizing telephone line costs instead of expensing them was discovered by:
A)external auditors.
B)astute investors.
C)U.S.Securities and Exchange Commission.
D)internal auditors.
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Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) If $100,000 face value bonds are issued at 103,the bonds are selling for $103,000.
A)True
B)False
Q2) The balancing figure that brings the dollar amount of the total liabilities and stockholders' equity of the foreign subsidiary into agreement with the dollar amount of its total assets is the:
A)equity adjustment.
B)foreign-currency exchange rate.
C)foreign-currency translation adjustment.
D)foreign consolidation adjustment.
Q3) The stated interest rate on a bond determines the amount of interest the issuer is expected to pay annually or semiannually.
A)True
B)False
Q4) If the stated rate of interest on a bond exceeds the market rate of interest,the bond will sell at a premium.
A)True
B)False
Page 10
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Chapter 9: Liabilities
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Sample Questions
Q1) A company has return on assets of 10%.Return on sales are 5%.The leverage ratio is 2.0.Following DuPont analysis,what is return on equity?
A)5%
B)10%
C)20%
D)25%
Q2) Marshall Corporation has $30,000 of bonds outstanding with a carrying value of $38,400.The bonds are converted into 15,000 shares of $1 par value common stock immediately after the last interest payment.The common stock had a market value of $5 per share on the date of conversion.The entry to record the conversion would include a credit to:
A)Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for $8,400.
B)Bonds Payable for $30,000 and credit to Premium on Bonds Payable for $8,400.
C)Cash for $38,400.
D)Common Stock for $15,000 and credit to Paid-in Capital in Excess of Par for $23,400.
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11
Chapter 10: Stockholders Equity
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Sample Questions
Q1) Mr.Jorgensen,a shareholder in the Best Corporation,owns 1,000 shares of their common stock.Mr.Jorgensen receives a 5% stock dividend.After the stock dividend,Mr.Jorgensen will have a:
A)total of 50 shares of Best Corporation's common stock.
B)total of 950 shares of Best Corporation's common stock.
C)total of 1,000 shares of Best Corporation's common stock.
D)total of 1,050 shares of Best Corporation's common stock.
Q2) Passed dividends on cumulative preferred stock are considered to be a liability.
A)True
B)False
Q3) Preferred stock that requires the issuer to redeem the stock at a set price is called:
A)liquidating preferred stock.
B)convertible preferred stock.
C)redeemable preferred stock.
D)callable preferred stock.
Q4) A corporation acts under its own name and not the name of its stockholders.
A)True
B)False
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Page 12
the Income Statement, the Statement of Comprehensive Income
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Sample Questions
Q1) Which of the following is reported as Other Losses and Expenses on the income statement of a major retailer?
A)loss due to sale of a segment of a business
B)loss due to sale of a piece of equipment
C)loss due to takeover of a foreign segment by a foreign government
D)loss due to hurricane in Minnesota that destroyed a plant building
Q2) Ongoing expenses incurred by the entity,other than the direct expenses for merchandise,are called:
A)other expenses.
B)extraordinary items.
C)cost of goods sold.
D)operating expenses.
Q3) Earnings per share is calculated:
A)only for preferred stock.
B)only for common stock.
C)for common and preferred stock.
D)only for treasury stock.
Q4) Extraordinary gains and losses are shown "net of tax" on the income statement.
A)True
B)False Page 13
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Page 14
Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Under the direct method of preparing the financing section of the statement of cash flows,net cash provided by financing activities is $388,000.If the indirect method of preparing the statement of cash flows was used:
A)net cash provided by financing activities would be less than $388,000.
B)net cash provided by financing activities would be more than $388,000.
C)net cash provided by financing activities would be the same,$388,000.
D)net cash provided by operating activities would equal $388,000.
Q2) Why is depreciation expense added to net income when reconciling net income to net cash provided by operating activities?
A)Because depreciation expense represents a cash inflow
B)Because depreciation expense is a tax deduction that reduces the payment of taxes
C)Because depreciation expense conserves cash outflows for taxes
D)Because depreciation expense reduces net income but it has no effect on cash,so we add depreciation expense to net income to cancel the deduction
Q3) Cash equivalents do NOT include highly liquid short-term investments.
A)True
B)False
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Page 15
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Trend analysis using income statement data is widely used for predicting the future.
A)True
B)False
Q2) Walton Company's return on sales for the most recent year was 5%.The industry leader reports a return on sales of 7%.The comparison of Walton Company's return on sales to the industry leader is an example of:
A)benchmarking.
B)gross margin analysis.
C)detail analysis.
D)intercompany analysis.
Q3) Sales of fixed assets for several years is a sign of:
A)a struggling company.
B)reinvestment in the company.
C)a shortage of cash.
D)A and C.
Q4) Inventory turnover is calculated by dividing the cost of goods sold by the average inventory.
A)True
B)False
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