Corporate Accounting
Pre-Test Questions
Course Introduction
Corporate Accounting is a foundational course that explores the principles, practices, and regulatory frameworks of accounting within corporate entities. The curriculum covers the preparation and analysis of financial statements according to relevant accounting standards, focusing on areas such as share capital, debentures, company final accounts, amalgamations, absorptions, and reconstructions. Students also examine issues related to dividends, reserves, and the handling of profit and loss in a corporate context. Through practical exercises and case studies, the course equips students with the skills needed to interpret and manage corporate financial information, ensuring compliance and informed decision-making in the dynamic business environment.
Recommended Textbook
Corporate Financial Accounting 15th Edition by Carl S. Warren
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Page 2
Chapter 1: Accounting and Business
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Sample Questions
Q1) Many countries outside the United States use financial accounting standards issued by the
A) AICPA
B) SEC
C) IASB
D) FASB
Answer: C
Q2) The following are examples of external users of accounting information except A) government entities
B) customers
C) creditors
D) managers
Answer: D
Q3) Collins Landscape Company purchased various landscaping supplies on account to be used for landscape designs for its customers. How will this business transaction affect the accounting equation?
Answer: Increase assets (Supplies) and increase liabilities (Accounts Payable)
Q4) What are the three sections of the statement of cash flows?
Answer: Operating Activities, Investing Activities, and Financing Activities
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Chapter 2: Double-Entry Accounting
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Sample Questions
Q1) Which of the following types of accounts have a normal credit balance?
A) assets and liabilities
B) liabilities and expenses
C) revenues and common stock
D) common stock and dividends
Answer: C
Q2) Which of the following errors could cause the trial balance totals to be unequal?
A) posting the debit portion of a journal entry incorrectly when the credit portion of the entry is correctly posted
B) failure to record a transaction or to post a transaction
C) recording the same transaction more than once
D) recording the same erroneous amount for both the debit and the credit parts of a transaction
Answer: A
Q3) A transaction that is recorded in the journal is called a journal entry.
A)True
B)False
Answer: True
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Chapter 3: Adjustments: Accruals and Deferrals
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Sample Questions
Q1) Which of the following is not true regarding depreciation?
A) depreciation allocates the cost of a fixed asset over its estimated life.
B) depreciation expense reflects the decrease in market value each year.
C) depreciation is an allocation not a valuation method.
D) depreciation expense does not measure changes in market value.
Answer: B
Q2) The term used to describe an expense that has not been paid and has not yet been recognized in the accounts by a routine entry is
A) prepaid
B) deferred
C) accrued
D) matched
Answer: C
Q3) A company receives $6,500 for two season tickets sold on September 1. If $2,500 is earned by December 31, the adjusting entry made at that time is a debit to Cash, $2,500, and a credit to Ticket Revenue, $2,500.
A)True
B)False
Answer: False
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Chapter 4: The Accounting Cycle
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Sample Questions
Q1) The accumulated depreciation account is closed to the income summary account.
A)True
B)False
Q2) Which of the following accounts will be closed to the retained earnings account at the end of the fiscal year?
A) Rent Expense
B) Fees Earned
C) Income Summary
D) Depreciation Expense
Q3) Debts listed as current liabilities are those that
A) will be paid in less than one year
B) are due to be paid in 5 to 10 years
C) are due to be paid in more than one year
D) are owed to the stockholders and will never be paid
Q4) Notes receivable due in 390 days appear on the A) balance sheet in the current assets section
B) balance sheet in the noncurrent assets section
C) balance sheet in the current liabilities section
D) income statement as an expense
Q5) List and describe the purpose of the four closing entries.
Page 6
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Chapter 5: Accounting for Retail Businesses
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Sample Questions
Q1) During the current year, merchandise is sold for $237,500 cash and $625,000 on account. The cost of the goods sold is $422,300. What is the amount of the gross profit?
A) $440,200
B) $1,284,800
C) $442,000
D) $34,800
Q2) If the buyer is to pay the freight costs of delivering merchandise, delivery terms are stated as
A) FOB shipping point
B) FOB destination
C) FOB n/30
D) FOB buyer
Q3) Sales to customers who use bank credit cards, such as MasterCard and VISA, are generally treated as credit sales.
A)True
B)False
Q4) The abbreviation FOB stands for "free on board."
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) When using the FIFO inventory costing method, the most recent costs are assigned to the cost of goods sold.
A)True
B)False
Q2) For the year ended December 31, Depot Max's cost of goods sold was $56,900. Inventory at the beginning of the year was $6,540. Ending inventory was $7,250. Compute Depot Max's inventory turnover for the year.
A) 8.7
B) 7.8
C) 8.3
D) 44.0
Q3) What is the year-end inventory balance using the average cost method? Use the information provided in the table to answer this question
A) $1,380
B) $1,375
C) $1,510
D) $1,250
Q4) Describe three inventory cost flow assumptions and how they impact the financial statements.
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Accompanying the bank statement was a debit memo for an NSF check received from a customer. What entry is required in the company's accounts?
A) debit Other Income; credit Cash
B) debit Cash; credit Other Income
C) debit Cash; credit Accounts Receivable
D) debit Accounts Receivable; credit Cash
Q2) The petty cash fund eliminates the need for a bank checking account.
A)True
B)False
Q3) Which of the following would be subtracted from the balance per bank on a bank reconciliation?
A) outstanding checks
B) deposits in transit
C) notes collected by the bank
D) service charges
Q4) Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus deter fraud and prevent misleading financial statements.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) Journalize the following transactions using the direct write-off method of accounting for uncollectible receivables.
April 1 Sold merchandise on account to Jim Dobbs, $7,200. The cost of goods sold is $5,400.
June 10 Received payment for one-third of the receivable from Jim Dobbs and wrote off the remainder.
Oct. 11 Reinstated the account of Jim Dobbs and received cash in full payment.
Q2) The balance in Allowance for Doubtful Accounts at the end of the year includes the total of all accounts written off since the beginning of the year.
A)True
B)False
Q3) An alternative name for Bad Debt Expense is
A) collection expense
B) credit loss expense
C) uncollectible accounts expense
D) deadbeat expense
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Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Adding refrigerant to an air conditioning system
A)Ordinary maintenance and repairs
B)Asset improvements
C)Extraordinary repairs
Q2) The method used to calculate the depletion of a natural resource is the straight-line method.
A)True
B)False
Q3) The process of transferring the cost of an asset to an expense account is called all of the following except
A) depletion
B) allocation
C) amortization
D) depreciation
Q4) Costs associated with normal research and development activities should be treated as intangible assets.
A)True
B)False
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Chapter 10: Liabilities: Current, Installment Notes, and Contingencies
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Sample Questions
Q1) Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called FICA taxes.
A)True
B)False
Q2) Obligations that may arise from past transactions only if certain events occur in the future are contingent liabilities.
A)True
B)False
Q3) Lamar Industries warrants its products for one year. The estimated product warranty expense is 3% of sales. Sales for June were $190,000. In July, a customer received warranty repairs requiring $185 of parts and $50 of labor. (a) Journalize the adjusting entry required at June 30 , the end of the first month of the current year, to record the estimated product warranty expense. (b) Journalize the entry to record the warranty work provided in July.
Q4) Wilson Cafeteria issues gift cards, which are very popular in the small town where the restaurant is located. In a recent month, Wilson issued $4,000 in gift cards. Experience indicates that 80 percent of the cards will be redeemed before they expire. What is the entry to record the estimated gift card expense?
Page 12
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) Basil Corporation issues for cash $1,000,000 of 8%, 10-year bonds, interest payable annually, at a time when the market rate of interest is 7%. The straight-line method is adopted for the amortization of bond discount or premium. Which of the following statements is true?
A) The carrying amount increases from its amount at issuance date to $1,000,000 at maturity.
B) The carrying amount decreases from its amount at issuance date to $1,000,000 at maturity.
C) The amount of annual interest paid to bondholders increases over the 10-year life of the bonds.
D) The amount of annual interest expense decreases as the bonds approach maturity.
Q2) If the bondholder has the right to exchange a bond for shares of common stock, the bond is called a convertible bond.
A)True
B)False
Q3) The prices of bonds are quoted as a percentage of the bonds' market value. A)True
B)False
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Chapter 12: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) Alma Corp. issues 1,000 shares of $10 par common stock at $14 per share. Journalize the transaction.
Q2) On March 4 of the current year, Barefoot Bay, Inc. reacquired 5,000 shares of its common stock at $89 per share. On August 7, Barefoot Bay sold 3,500 of the reacquired shares at $100 per share. The remaining 1,500 shares were sold at $88 per share on November 29. (a) Joumalize the transaction of March 4, August 7 , and November 29. (b) What is the balance in Paid-in Capital from Sale of Treasury Stock on December 31 of the current year?
(c) Why might Barefoot Bay Inc. have purchased the treasury stock?
Q3) The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 60,000 shares were originally issued and 10,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared?
A) $60,000
B) $20,000
C) $120,000
D) $100,000
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be
A) deducted from net income in converting the net income reported on the income statement to cash flows from operating activities
B) added to net income in converting the net income reported on the income statement to cash flows from operating activities
C) added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
D) deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
Q2) Which of the following should be shown on a statement of cash flows under the financing activities section?
A) the purchase of a long-term investment in the common stock of another company
B) the payment of cash to retire a long-term note
C) the proceeds from the sale of a building
D) the issuance of a long-term note to acquire land
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) If two companies have the same current ratio, their ability to pay short-term debt is the same.
A)True
B)False
Q2) What is the return on common stockholders' equity for Diane Company?
A) 6.75%
B)
C)
Q3) earnings per share (EPS) on common stock
A)assess the profitability of the assets
B)assess how effectively assets are used
C)indicate the ability to pay current liabilities
D)indicate how much of the company is financed by debt and equity
E)indicate instant debt-paying ability
F)assess the profitability of the investment by common stockholders
G)indicate future earnings prospects
H)indicate the extent to which earnings are being distributed to common stockholders
Q4) The following data are available for Martin
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Chapter 15:Investments
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Sample Questions
Q1) What are the total proceeds from the February 1 sale?
A) $52,400
B) $51,500
C) $50,000
D) $52,000
Q2) Zach Company owns 45% of the voting stock of Tomas Corporation and uses the equity method in recording this investment. Tomas Corporation reported a $20,000 net loss. Zach Company's entry would include a
A) credit to cash for $9,000
B) debit to the investment account for $9,000
C) credit to the investment account for $9,000
D) credit to a loss account for $9,000
Q3) On May 1, Cedar Inc. purchases $100,000 of 10-year, Madison Corporation 6% bonds dated March 1 at 100 plus accrued interest. What entry would Cedar record when receiving its semiannual interest on September 1?
Q4) Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and liabilities.
A)True
B)False
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