Fundamentals of Accounting
Chapter Exam Questions
Course Introduction
Fundamentals of Accounting introduces students to the essential principles and practices underlying financial and managerial accounting. The course covers key concepts such as the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, and the interpretation of financial information. Emphasis is placed on understanding how accounting serves as the language of business, supporting decision-making, planning, and control in organizations. Students will gain practical skills in recording transactions, adjusting accounts, and ensuring financial accuracy, laying the groundwork for advanced study in accounting and related fields.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Q1) The statement of changes in equity shows the changes in Owners' equity.Which one of these statements is TRUE?
A) Decreases in Owners' equity result from owner investments.
B) Decreases in Owners' equity result from profit.
C) Decreases in Owners' equity result from revenues earned.
D) Decreases in Owners' equity result from losses.
Answer: D
Q2) Caleb Brown has been the sole owner of a bicycle sales and repair shop for many years.Which of the following business types would best protect Caleb's personal assets from product liability exposure?
A) Not-for-profit
B) Partnership
C) Limited liability company
D) Proprietorship
Answer: C
Q3) An investor is someone who lends money to a business.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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Q1) Journalising a transaction means:
A) recording the transaction, including a brief explanation.
B) calculating the balance in an account.
C) copying the information from the journal to the ledger.
D) finding the account number in the chart of accounts.
Answer: A
Q2) Which of the following statements CORRECTLY describes a trial balance?
A) A trial balance is the first step in the accounting cycle.
B) A trial balance is a list of all accounts with their balances.
C) A trial balance is also known as a balance sheet.
D) A trial balance is also known as the chart of accounts.
Answer: B
Q3) Which of the following is NOT an example of a source document?
A) Bank deposit slip
B) Purchase invoice
C) Journal
D) Sales invoice
Answer: C
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4
Chapter 3: The Adjusting Process
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Q1) Accrual accounting records transactions ONLY when cash is received or paid.
A)True
B)False
Answer: False
Q2) Smith owns manufacturing equipment that was bought for $11 760.It has an estimated useful life of seven years.Smith should record depreciation expense of $90 per month.
A)True
B)False
Answer: False
Q3) Smith Technical Services is working on a six-month job for a client,starting on 1 February.They will collect $20,000 from their customer when the job is finished.On 1 March,their Accounts receivable account had a debit balance of $4000.At the end of March,after monthly adjusting entries have been made,what will be the balance in Accounts receivable?
A) Debit balance of $3333
B) Debit balance of $7333
C) Credit balance of $16,667
D) Debit balance of $20,000
Answer: B
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Chapter 4: Completing the Accounting Cycle
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Q1) The post-closing trial balance lists the accounts from the general ledger in:
A) numerical order.
B) alphabetical order.
C) category order, beginning with assets and ending with owners' equity.
D) category order, beginning with assets and ending with expenses.
Q2) In which of the columns of the worksheet would Profit be found?
A) Under the balance sheet credit column and the income statement debit column
B) Under the trial balance debit column, the adjusted trial balance debit column and the balance sheet debit column
C) Under the trial balance credit column, the adjusted trial balance credit column and the balance sheet credit column
D) Under the balance sheet debit column and the income statement credit column
Q3) The current ratio shows the profitability of a firm.
A)True
B)False
Q4) The adjusting entry for depreciation would include a:
A) debit to Accumulated depreciation and a credit to the asset.
B) debit to Depreciation expense and a credit to Accumulated depreciation.
C) debit to Accumulated depreciation and a credit to Depreciation expense.
D) debit to Depreciation expense and a credit to Cash.
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Chapter 5: Retailing Operations
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Q1) A company that uses the perpetual inventory system purchases inventory for $60,000 on credit,with terms of 3/10,n/30.Which of the following is the journal entry to record the payment made within 3 days?
A) a debit to Accounts payable for $60,000, a credit to Inventory for $1800 and a credit to Cash for $58,200
B) a debit to Inventory for $1800, a debit to Accounts payable for $60,000 and a credit to Cash for $61,800
C) a debit to Accounts payable for $58,200, a debit to Inventory for $1800 and a credit to Cash for $60,000
D) a debit to Accounts payable for $61,800 , a credit to Cash for $60,000 and a debit to Inventory for $1800
Q2) The ATO will refund any GST a registered firm pays to a supplier.
A)True B)False
Q3) When a company uses the perpetual inventory system,there is no need to conduct a physical count of inventory.
A)True B)False
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Chapter 6: Retail Inventory
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Q1) A new average cost is calculated after each purchase when a business is using which of the following methods?
A) First-in, first-out
B) Average cost
C) Specific unit cost
D) Last-in, first-out
Q2) James Company earned revenue of $700,000 and incurred cost of sales of $110,000.How much is the gross profit percentage?
A) 15.7%
B) 84.3%
C) 100%
D) 42.15%
Q3) The various costing methods are necessary because the cost per unit of acquiring new inventory fluctuates frequently.
A)True
B)False
Q4) Gross profit is Sales revenue divided by Cost of sales.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Q1) Some transactions can be recorded in both the general journal and the special journals.
A)True
B)False
Q2) Assume a perpetual inventory system.A purchase on credit for $1 650 including 10% GST would be recorded in the purchases journal as:
A) debit to Inventory $1 650, credit to GST clearing account $150, credit to Accounts payable $1 500.
B) debit to Inventory $1 500, debit to GST clearing account $150, credit to Accounts payable $1 650.
C) debit to Inventory $1 500, credit to Accounts payable $1 500.
D) none of the above
Q3) The accounts receivable credit column of the cash receipts journal is:
A) posted in summary only at the end of the month.
B) posted in summary at the end of the month and by individual amounts on a daily basis.
C) posted by individual amounts at the end of the accounting period.
D) posted by individual amounts at the end of the month.
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Chapter 8: Internal Control and Cash
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Q1) For good controls over cash payments,the company officer approving a payment voucher should be the same as the person who ordered the goods to ensure that the correct amount of cash is paid.
A)True
B)False
Q2) Which of the following would be included in the entry to record the replenishment of a petty cash fund?
A) A debit to Cash
B) A credit to Petty cash
C) A credit to Cash
D) A credit to various expenses and assets
Q3) Which of the following must be signed by the person authorised to write cheques drawn on a bank account?
A) A bank statement
B) A signature card
C) A deposit slip
D) A bank reconciliation
Q4) Mandatory vacations and job rotation improve internal control.
A)True
B)False
Page 10
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Chapter 9: Receivables
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Q1) The direct write-off method is used primarily by large,publicly owned companies.
A)True
B)False
Q2) The Allowance for doubtful debts account has a debit balance of $9000 before the adjusting entry for bad debt expense.After analysing the accounts in the accounts receivable subsidiary ledger,the company's management estimates that uncollectable accounts will be $13,000.What will be the amount of the adjustment in the Allowance for doubtful debts account?
A) $22,000
B) $13,000
C) $21,250
D) $20,900
Q3) The acid-test ratio is also known as the quick ratio.
A)True
B)False
Q4) The accounts receivable turnover ratio measures:
A) how many days it takes, on average, to sell the inventory.
B) how well a company can pay its current liabilities with its current assets.
C) how many days it takes, on average, to collect receivables.
D) the number of times per year a company sells goods and collects receivables.
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Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Q1) Plant and equipment are more likely to decrease in value than increase.
A)True
B)False
Q2) A company's accountant capitalises a payment that should be recorded as an expense.Which of the following is TRUE?
A) Revenues are understated
B) Profit is overstated.
C) Liabilities are overstated.
D) Assets are understated.
Q3) Which of the following should be included in the cost of land?
A) Cost of installing fences
B) Cost to build footpaths on the land
C) Cost to clear the land of old buildings
D) Cost of installing signage
Q4) Which of the following accounting principles requires depreciation?
A) The reliability principle
B) The matching principle
C) The entity concept
D) The profit recognition principle
Chapter 11: Current Liabilities and Payroll
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Q1) Synergy Appliances sells dishwashers with a four year warranty.In 2016,sales revenue for dishwashers is $97,000.The company estimates warranty expense at 4.5% of revenues.What is the 2016 warranty expense?
A) $0
B) $3423.53
C) $1091.25
D) $4365
Q2) A certain contingent liability was evaluated at year-end,and considered to have a reasonable possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would this have on the financial reporting of the company?
A) The information about the transaction would be inadequately disclosed in the notes.
B) The liabilities on the balance sheet would be understated.
C) There would be no effect.
D) The net profit of the company would be understated.
Q3) Payroll tax is paid by the employee and deducted from gross pay.
A)True
B)False
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Chapter 12: Non-Current Liabilities,debentures Payable and
Classification of Liabilities on the Balance
Sheet
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Q1) Premium on debentures payable is considered to be additional interest expense of the company that issues the debenture.
A)True
B)False
Q2) Blanding Company issues $1,020,000 of 8%,10-year debentures at 94 on 28 February 2017.The debentures pay interest on 28 February and 31 August.On 31 August 2017,how much cash did Blanding pay out to investors? (Round to the nearest dollar.)
A) $40,800
B) $39,780
C) $41,820
D) $81,600
Q3) The current portion of notes payable would normally be shown on the balance sheet in non-current liabilities.
A)True B)False
Q4) Instalment payments for mortgages are normally paid once per year. A)True B)False
14
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Chapter 13: Partnerships
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Q1) Keith and Jim are partners.Keith has a capital balance of $50,000 and Jim has a capital balance of $38,000.Bill invested a building worth $30,000 to the partnership for an ownership interest of 20%.How much is the total bonus for the existing partners?
A) $30,000
B) $6400
C) $15,000
D) $8000
Q2) Sarah and Jane formed a partnership with capital of $200,000 and $126,000,respectively.Peter contributed $85,000 to acquire an ownership interest of 12% in the new partnership.How much is the total bonus for the existing partners?
A) $35,680
B) $49,320
C) $85,000
D) $17,840
Q3) When one person purchases the partnership interest of a partner,a new partnership agreement will have to be created.
A)True
B)False
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Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) Which of the following is an advantage of preference shares?
A) Preference shareholders may sell their shares for a price higher than that of ordinary shares.
B) Preference shareholders have higher voting rights than ordinary shareholders.
C) Preference shareholders have the first claim on dividend funds.
D) Preference shareholders are guaranteed that they will not take a loss on their investment.
Q2) Which of the following statements regarding the imputation tax system is INCORRECT?
A) It minimises double taxation.
B) Shareholders are given credit against their personal tax for the tax paid by the company.
C) The imputation system is used in Australia.
D) It reduces the amount of tax a company must pay.
Q3) Which of the following characteristics is an advantage of the company form of business?
A) The potential to raise large amounts of capital
B) Higher degree of government regulation
C) Separation of ownership and management
D) Company taxation
Page 16
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) A 3-for-1 share split will:
A) cut the market price by one-third and triple the number of issued shares.
B) triple the market price and drop the number of issued shares by one-third.
C) have no effect on the market price but will affect the number of issued shares.
D) have no effect on the number of issued shares but will affect market price.
Q2) Which of the following occurs when a 2-for-1 share split is declared?
A) The balance in ordinary share capital doubles.
B) The balance in ordinary share capital is reduced to half the original amount.
C) The balance in retained earnings doubles.
D) The balance in ordinary share capital remains the same.
Q3) Which of the following is a TRUE statement?
A) Both a share split and a share dividend will decrease total assets.
B) Neither a share split nor a share dividend will affect total assets or total liabilities.
C) Both a share split and a share dividend will increase total liabilities.
D) A share split will increase total assets but a share dividend will not.
Q4) A share buy-back requires a credit to the Ordinary share capital account.
A)True
B)False
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Chapter 16: The Cash Flow Statement
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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 look at:
A) free cash flow.
B) acid ratio.
C) earnings per share.
D) cash flow from investing activities.
Q2) Which of the following would NOT appear on a cash flow statement prepared using the direct method?
A) Increase/decrease in current liabilities
B) Payments to suppliers
C) Interest received
D) Collections from customers
Q3) Of the following,which is NOT a cash outflow from an investing activity?
A) Loans made to another party
B) A share buy-back
C) Purchase of long-term investments, such as the shares of another company
D) Purchase of land
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18
Chapter 17: The Framework of Accounting
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Q1) Under the percentage of completion method,which is used to record profit on assets that take several years to construct,profit is reported as the instalments of contract income that are received.
A)True
B)False
Q2) In most businesses,profit is recognised at the point of sale.
A)True
B)False
Q3) Accounting standard AASB 101 requires that a summary of accounting policies should be included:
A) in a schedule attached to the annual report.
B) in the initial section of the notes to the financial statements.
C) on the first page of the annual report.
D) as a footnote to the balance sheet.
Q4) Accountants generally make no adjustments for changes in the value of the dollar. A)True B)False
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Chapter 18: Financial Statement Analysis
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Q1) Which of the following is NOT true of benchmarking?
A) It uses vertical analysis as its primary methodology.
B) It is used to compare a company against its competitors.
C) It is used to compare companies of different sizes.
D) It is used to compare a company's results against industry averages.
Q2) e-Ray Ltd has net sales on account of $1,900,000.The average net accounts receivable are $660,000.Calculate the days' sales in receivables.
A) 365 days
B) 350.4 days
C) 126.7 days
D) 2.88 days
Q3) The dividend yield is used for which kind of evaluation?
A) The overall profitability of a company
B) Evaluating shares in a company from an investor's perspective
C) The ability of a company to pay its non-current liabilities
D) The ability of a company to pay its current liabilities
Q4) A common-size statement reports only percentages-no dollar amounts.
A)True
B)False
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) Which of the following statements is INCORRECT?
A) Managerial accounting is used to plan and control business operations.
B) Managerial accounting is used to report the company's financial position and results of operations to creditors and investors.
C) Managerial accounting is used to prepare budgets.
D) Managerial accounting is used to determine the cost of products and services.
Q2) Sales commissions are included in manufacturing overhead.
A)True
B)False
Q3) The cash budget can be prepared before the sales budget.
A)True
B)False
Q4) Which of the following is NOT a part of manufacturing overhead?
A) Indirect labour
B) Indirect materials
C) Depreciation on delivery vehicles
D) Factory insurance
Q5) Budgets provide benchmarks that help managers evaluate performance.
A)True
B)False
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Chapter 20: Job Costing
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Q1) In a service business that uses a job order costing system,the professional staff would normally keep precise records of time spent on each client.It is equally important that the clerical staff and other indirect labour personnel keep similar records of time spent on each client.
A)True
B)False
Q2) Which of the following would NOT be considered a manufacturing overhead cost?
A) Indirect labour
B) Direct labour cost
C) Plant electricity and gas costs
D) Depreciation of plant equipment
Q3) An activity-based costing system can be a significant competitive advantage for a business which does bidding for manufacturing work.
A)True
B)False
Q4) Activity-based costing focuses on a single predetermined overhead rate for cost analysis.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Dorothy Products sells its products for $20 per unit.Additional data for the month of April 2016 are as follows:
\[\begin{array} { | l | l | }
\hline \text { Beginning inventory } & \text { 0 units } \\
\hline \text { Units produced } & 8300 \\
\hline \text { Units sold } & 7800 \\
\hline \text { Ending inventory } & 550 \\
\hline \text { Direct materials } & \$ 5 \text { per unit } \\
\hline \text { Direct labour } & \$ 10 \text { per unit } \\
\hline \text { Variable manufacturing overhead } & \$ 22,000 \\
\hline \text { Fixed manufacturing overhead } & \$ 14,000 \\
\hline \text { Operating expenses } & \$ 25,000 \\
\hline
\end{array}\]
Using variable costing,calculate the product cost per unit produced.
A) $17.65 per unit
B) $20.66 per unit
C) $15.00 per unit
D) $16.75 per unit
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Chapter 22: Short-Term Business Decisions
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Q1) Sand Company manufactures two styles of lamps: a Bedford Lamp and a Lowell Lamp.The following per unit data are available: \[\begin{array} { | l | l | l | }
\hline& \text { Bedford Lamp } & \text { Lowell Lamp } \\
\hline \text { Sale price } & \$ 30 & \$ 50 \\
\hline \text { Variable costs } & \$ 20 & \$ 25 \\
\hline \text { Machine hours required for 1 lamp } & 1 & 5 \\
\hline \end{array}\]
Total fixed costs are $46 000 .Machine hour capacity is 32 000 hours per year.The Lowell lamp has the highest contribution margin per unit and also has the highest contribution margin per machine hour,so the company should focus sales on the Lowell lamp.
A)True
B)False
Q2) Fixed costs are relevant to a special sales order decision if those fixed costs are subject to change as a result of the special order.
A)True
B)False
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Chapter 23: Capital Investment Decisions and the Time Value of Money
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Q1) Net present value is defined as the difference between the present value of the project's cash inflows and the investment's cost.
A)True
B)False
Q2) Short-term investment decisions are inherently riskier than long-term decisions because they have a shorter period in which to recoup the investment.
A)True
B)False
Q3) The accounting rate of return is the only capital budgeting method that uses accrual accounting.
A)True
B)False
Q4) Which of the following describes the term time value of money?
A) When money is invested over time, it earns income and grows.
B) Money can only be used at certain times and for certain purposes.
C) Money loses its purchasing power over time through inflation.
D) Wasted time can result in wasted money.
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