Fundamentals of Accounting Exam Questions
Course Introduction
Fundamentals of Accounting introduces students to the foundational principles and concepts of accounting, emphasizing the role of accounting in business decision-making. The course covers the accounting cycle, including the recording, classifying, and summarizing of financial transactions, as well as the preparation and interpretation of financial statements such as the balance sheet, income statement, and cash flow statement. Students will develop an understanding of key accounting concepts such as double-entry bookkeeping, accruals, and basic internal controls, preparing them for more advanced studies in accounting and finance.
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Horngrens Accounting Global Edition 10th Edition by Tracie L. Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) As per the economic entity assumption, an organization and its owner should be seen as the same entity.
A)True
B)False
Answer: False
Q2) Which of the following users would rely on management accounting information for decision-making purposes?
A) potential investors
B) creditors
C) customers
D) company managers
Answer: D
Q3) The field of accounting that focuses on providing information for internal decision makers is:
A) managerial accounting.
B) financial accounting.
C) nonmonetary accounting.
D) governmental accounting.
Answer: A
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The Accounts Payable account is a(n) ________ account and carries a ________ normal balance.
A) liability; debit
B) asset; debit
C) liability; credit
D) asset; credit
Answer: C
Q2) A journal entry for a $250 payment to purchase office supplies was erroneously recorded as a debit to Office Supplies for $520 and a credit to Cash for $250. Which of the following statements correctly states the effect of the error on the trial balance?
A) The sum of the credits will exceed the sum of the debits by $270.
B) The sum of the debits will exceed the sum of the credits by $250.
C) The sum of the debits will exceed the sum of the credits by $270.
D) The sum of the debits will exceed the sum of the credits by $520.
Answer: C
Q3) In a trial balance, total debits must always equal to total credits.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Patricia Event Planning Service collects fees from their customers in advance. On January 1, 2015, the balance of her Unearned Revenue account had a balance of $6,000 (Cr.). During January and February, she collected $3,000 and $1,000 as advance fees.
During the two-month period, she rendered services of $6,500. What is the balance in Unearned Revenue at the end of February?
A) Debit balance of $6,000
B) Credit balance of $6,000
C) Debit balance of $3,500
D) Credit balance of $3,500
Answer: D
Q2) Hank's Tax Planning Service started business in January, 2014. He rented an office for $1,800 a month starting January 1. On January 1, he prepaid the rentals through June 30. He makes accrual adjustments monthly. What is the balance in the Prepaid Rent account as of April 30?
A) $3,600
B) $300
C) $1,800
D) $900
Answer: A
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Liquidity is a measure of how:
A) quickly an asset may be converted into cash.
B) long an asset can be used.
C) easily an asset can be exchanged for another asset.
D) short an operating cycle is.
Q2) Which of the following accounts will be included in a post-closing trial balance?
A) Service Revenue
B) Rent Expense
C) Interest Expense
D) Unearned Service Revenue
Q3) The Office Supplies account is a temporary account.
A)True
B)False
Q4) Which of the following account's balance is carried forward to the next accounting period?
A) Accumulated Depreciation
B) Depreciation Expense
C) Owner's Name, Withdrawals
D) Sales Revenue
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) The loss of inventory that occurs because of theft, damage, and errors is referred to as inventory shrinkage.
A)True
B)False
Q2) The normal balances of Sales, Sales Discounts, and Sales Returns and Allowances are:
A) debit, credit, and credit, respectively.
B) debit, debit, and credit, respectively.
C) credit, debit, and debit, respectively.
D) credit, credit, and debit, respectively.
Q3) Which of the following is the correct formula for calculating gross profit percentage?
A) Net profit ÷ Net sales revenue
B) Gross profit ÷ Net sales revenue
C) Net sales revenue ÷ Net profit
D) Net sales revenue ÷ Gross profit
Q4) Net sales revenue is equal to sales revenue less cost of goods sold.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Samson Company had the following balances and transactions during 2014: \[\begin{array} { | l | l | }
\hline \text { Beginning Merchandise Inventory } & 10 \text { units at } \$ 95 \\
\hline \text { March } 10 & \text { Sold } 8 \text { units } \\
\hline \text { June } 10 & \text { Purchased } 20 \text { units at } \$ 100 \\
\hline \text { October 30 } & \text { Sold 15 units } \\
\hline
\end{array}\] What is the amount of the company's Merchandise Inventory, as disclosed in the December 31, 2014 balance sheet as per the periodic first-in, first-out (FIFO) costing method?
A) $475
B) $500
C) $665
D) $700
Q2) A company changes its inventory costing method each period in order to maximize net income. This is a violation of the consistency principle.
A)True
B)False
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Page 8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which of the following is an example of a storage device in an accounting information system?
A) monitor
B) network
C) printer
D) server
Q2) In a networked system, the server stores the program and the data.
A)True
B)False
Q3) Which of the following activities is handled in the Money Out section of QuickBooks?
A) entering sales receipts
B) entering bills
C) entering depreciation expense
D) LIFO to FIFO adjustments in the financial statements
Q4) A business must only invest in an accounting information system in which the benefits received outweigh the cost of the system.
A)True
B)False
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Page 9
Chapter 8: Internal Control and Cash
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Sample Questions
Q1) For good controls over cash payments, the person who orders goods from a supplier should always be different from the person who approves the payment.
A)True B)False
Q2) A strong computer firewall is an essential element of good internal controls for e-commerce.
A)True B)False
Q3) A check of $300,000, deposited by a company, was returned to the bank for nonsufficient funds. How would this information be included on the bank reconciliation?
A) a deduction on the bank side
B) an addition on the bank side
C) an addition on the book side
D) a deduction on the book side
Q4) Journal entries that are necessitated by reconciling items on the book side of the reconciliation include either a debit to Cash or a credit to Cash.
A)True B)False
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Chapter 9: Receivables
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Sample Questions
Q1) Accounts receivable has a balance of $30,000 and the Allowance for Bad Debts has a credit balance of $3,000. The allowance method is used. What is the net realizable value before and after a $2,000 Account Receivable is written off?
A) $27,000; $27,000
B) $14,300; $14,300
C) $16,000; $15,940
D) $16,000; $16,000
Q2) Give journal entry to record the dishonor of a note receivable at the maturity date.
Q3) A company issues a 60-day, 12% note for $15,000. What is the principal amount of the note?
A) $16,800
B) $15,000
C) $14,700
D) $15,300
Q4) The direct write-off method is only acceptable for companies that have very few uncollectible receivables.
A)True
B)False
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Page 11
Chapter 10: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) In common with other intangible assets, goodwill must be amortized each year.
A)True
B)False
Q2) Nobells Inc. has acquired a property that included both land and a building for $500,000. The company paid cash. The company hired an appraiser who has determined that the market value of the land is $300,000 and that of the building is $400,000. Journalize the lump-sum purchase.
Q3) Whenever a plant asset is sold or otherwise disposed of, the first step is to bring the depreciation up to date.
A)True
B)False
Q4) Use of MACRS is acceptable for financial reporting under GAAP.
A)True
B)False
Q5) A truck costs $100,000 when new, and it has an accumulated depreciation of $70,000. Suppose the company exchanges the truck for a new truck. The new truck has a market value of $120,000 and company pays cash of $100,000. Assume the exchange has commercial substance. Journalize the transaction.
Q6) Give journal entry to record the acquisition of a plant asset for cash.
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Bike World offers warranties on all their bikes. They estimate warranty expense at 3.5% of sales. At the beginning of 2013, the Estimated Warranty Payable account had a credit balance of $1,200. During the year, Bike World had $295,000 of sales, and had to pay out $5,300 in warranty payments. How much Warranty Expense will be reported on the 2013 income statement?
A) $6,225
B) $6,500
C) $9,125
D) $10,325
Q2) Isabelle's gross pay for the week is $850. Her deduction for federal income tax is based on a rate of 19%. She has voluntary deductions of $135. Her yearly pay is under the limit for OASDI. What is the amount of her net pay? (Assume a FICA-OASDI Tax of 4.2% and FICA-Medicare Tax of 1.45%.)
A) $553.50
B) $688.50
C) $640.47
D) $505.47
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Page 13
Chapter 12: Partnerships
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Sample Questions
Q1) Which of the following is true of a limited liability company?
A) A limited liability company is not obliged to file the articles of organization with the state.
B) The owners of a limited liability company are personally liable for the business's debts.
C) A limited liability company can elect not to pay business income tax.
D) The owners of a limited liability company cannot participate actively in management of the business.
Q2) In a partnership balance sheet, the each partner's assets, liabilities, and equity will be shown separately.
A)True
B)False
Q3) In partnership, a person can become a partner by purchasing an existing partner's interest.
A)True
B)False
Q4) Before the start of the liquidation process, the books are adjusted and closed. A)True
B)False
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) The par value of stock is:
A) the current selling price of stock.
B) the highest price for which a share can sell.
C) the price paid if the corporation purchases its own stock back.
D) the amount assigned by a company to a share of its stock.
Q2) Treasury stock is a:
A) contra equity account.
B) contra asset account.
C) liability account.
D) contra liability account.
Q3) Retained earnings represents amounts received from stockholders of a corporation in exchange for stock.
A)True B)False
Q4) A 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value. A)True B)False
Q5) Rick Co. purchases 8,500 shares of the company's $6 par common stock for $8 per share. Journalize the transaction.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) FICA-OASDI tax payable would normally be shown on the balance sheet under long-term liabilities.
A)True
B)False
Q2) The market rate is the rate used to calculate the actual cash payments made to bondholders.
A)True
B)False
Q3) On January 1, 2013, Davie Services issued $20,000 of 8% bonds that mature in five years. They were sold for a total of $19,000. Provide the journal entry to issue bonds.
Q4) The principal amount is $80,000, the stated rate is 10%, and the term of the bond is 8 years. The bond pays interest semiannually. At the time of issue, the market rate is 9%.
What is the present value of the bond at the market rate?
A) $84,456
B) $44,936
C) $40,160
D) $87,290
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Page 16
Chapter 15: Investments
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Sample Questions
Q1) Which of the following accounting methods is used to account for controlling interest investments?
A) equity method
B) acquisition method
C) consolidation method
D) discounted cash flow method
Q2) Trading investments are categorized in the balance sheet as:
A) fixed assets.
B) current assets.
C) intangible assets.
D) short-term liabilities.
Q3) Available-for-sale (AFS) investments are reported as ________ if the business expects to sell them within one year.
A) current assets
B) equity
C) long-term assets
D) either current assets or long-term assets
Q4) Significant interest investments must be accounted for using the equity method.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) Mei Company uses the direct method to prepare its statement of cash flows. Refer to the following information reported for the year 2014:
Cost of Goods Sold, $155,000
Inventory, beginning balance, $26,000
Inventory, ending balance, $63,000
Accounts Payable, beginning balance, $8,100
Accounts Payable, ending balance, $5,100
Operating expenses, $27,000
Accrued Liabilities, beginning balance, $2,500
Accrued Liabilities, ending balance, $6,000
In the operating activities section of the statement of cash flows, what amount will be shown for payments to suppliers? Assume Accrued Liabilities relate to Operating Expenses.
A) $171,500
B) $160,000
C) $195,000
D) $218,500
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) The current ratio is calculated as the total current assets divided by the total current liabilities.
A)True
B)False
Q2) Extracts from the balance sheet of Atlantis Inc. are as follows: \[2015\] Assets
Current Assets:
\[\begin{array} { l l }
\text { Cash and Cash Equivalents } & \$ 30,000 \\
\text { Accounts Receivable, Net } & 65,000 \\
\text { Merchandise Inventory } & \underline{50,000} \\
\text { Total Current Assets } &\underline{ \$ 1 45,000} \\
\text { Long-term Investments } & 150,000 \\
\text { Property, Plant, and Equipment, Net } & \underline { 250,000 } \\
\text { Total Assets } &\underline{ \$ 545,000} \\
\text { Total Cument Liabilities } & \$ 150,000 \end{array}\] Compute the quick ratio.
Q3) The audit report is prepared by an internal auditor of a company.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) Manufacturing overhead is also referred to as:
A) indirect manufacturing costs.
B) direct costs.
C) prime costs.
D) period costs.
Q2) Managerial accounting focuses on providing information for internal planning and control.
A)True
B)False
Q3) For a manufacturing business, which of the following would be considered a product cost?
A) Depreciation on delivery vehicles
B) Depreciation on administrative building furniture and fixtures
C) Depreciation on manufacturing equipment
D) Depreciation on the accounting department's computer equipment
Q4) The primary activity of manufacturing businesses is to purchase goods from a wholesaler and resell them.
A)True
B)False
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Chapter 19: Job Order Costing
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Q1) Arabica Manufacturing uses a predetermined overhead allocation rate based on a percentage of direct labor cost. At the beginning of 2015, Arabica estimated total manufacturing overhead costs at $1,050,000 and total direct labor costs at $840,000. In June, 2015, Arabica completed Job 511. Job stats are as follows: \[\begin{array} { | l | r | }
\hline \text { Direct materials cost } & \$ 27,500 \\
\hline \text { Direct labor cost } & \$ 13,000 \\
\hline \text { Direct labor hours } & 400 \text { hours } \\
\hline \text { Units of product produced } & 200 \\
\hline
\end{array}\] How much was the total job cost of Job 511?
A) $40,500
B) $56,750
C) $50,900
D) $74,875
Q2) Which of the following will be categorized as a manufacturing overhead cost?
A) depreciation on factory plant and equipment
B) salaries paid to assembly line workers
C) administration charges of showroom
D) cost of direct materials used
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Page 21
Chapter 20: Process Costing
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Q1) Which of the following is recorded by debiting the Manufacturing Overhead account?
A) transfer of units from one process to the next
B) direct labor costs incurred
C) depreciation on factory machinery
D) office electricity charges
Q2) LDR Manufacturing produces a pesticide chemical and uses process costing. There are three processing departments-Mixing, Refining, and Packaging. On January 1, 2014, the first department, Mixing, had no beginning inventory. During January, 40,000 fl. oz. of chemicals were started in production. Of these, 32,000 fl. oz. were completed and 8,000 fl. oz. remained in process. In the Mixing Department, all direct materials are added at the beginning of the production process and conversion costs are applied evenly through the process. At the end of the month, LDR calculated equivalent units. The ending inventory in the Mixing Department was 60% complete with respect to conversion costs. With respect to direct materials, what is the number of equivalent units in the ending inventory?
A) 4,800 equivalent units
B) 32,000 equivalent units
C) 40,000 equivalent units
D) 8,000 equivalent units
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Page 22
Chapter 21: Cost-Volume-Profit Analysis
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Q1) Which of the following statements is true of the behavior of total fixed costs, within the relevant range?
A) They will remain the same as production levels change.
B) They will increase as production decreases.
C) They will decrease as production decreases.
D) They will decrease as production increases.
Q2) When the selling price per unit decreases, the breakeven point: A) increases.
B) decreases.
C) remains the same.
D) decreases proportionately.
Q3) Which of the following is the right formula for calculating total mixed cost?
A) Total mixed cost = (Variable cost per unit ÷ Number of units) + Total fixed cost
B) Total mixed cost = (Variable cost per unit × Number of units) - Total fixed cost
C) Total mixed cost = (Variable cost per unit × Number of units) + Total fixed cost
D) Total mixed cost = (Variable cost per unit ÷ Number of units) - Total fixed cost
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Chapter 22: Master Budgets
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Q1) Budgeting requires managers to decide upon the course of action and then to plan for the same.
A)True
B)False
Q2) A goal of the budgeting process is to communicate a consistent set of plans throughout the company.
A)True
B)False
Q3) The final step in the process of creating the master budget is the preparation of:
A) the operating budget
B) the budgeted balance sheet.
C) the budgeted cash flow statement.
D) the cash payments for expenses.
Q4) Which of the following statements is true of the budgeting process?
A) It includes qualitative targets of the company, not just quantitative.
B) It is a continuous process.
C) It shows the actual performance of the business.
D) Its success is not dependent on human behavior.
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Page 24
Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) The management of Zeta Company has calculated the following variances:
\[\begin{array} { | l | r | }
\hline \text { Direct materials cost variance } & \$ 8,000 \mathrm { U } \\
\hline \text { Direct materials efficiency variance } & 35,000 \mathrm {~F} \\
\hline \text { Direct labor cost variance } & 15,000 \mathrm {~F} \\
\hline \text { Direct labor efficiency variance } & 12,000 \mathrm { U } \\
\hline \text { Total variable overhead variance } & 7,000 \mathrm {~F} \\
\hline \text { Total fixed overhead variance } & 3,050 \mathrm {~F} \\
\hline
\end{array}\] Calculate the total direct materials variance of Zeta Company.
A) $3,000 F
B) $27,000 F
C) $10,050 F
D) $7,000 F
Q2) Favorable and unfavorable variances are subtracted from each other to arrive at a net favorable or unfavorable variance.
A)True
B)False
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Page 25
Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Cardec, a leading manufacturer of car spare parts, divided its manufacturing process into two departments: 1) Production 2) Packing. Estimated overhead costs for the Production and Packing department amounted to $25,000,000 and $20,000,000, respectively. The company produces two types of parts: Part-1 and Part-2. The total estimated labor hours for the year 2015 were 40,000 and estimated machine hours were 50,000. The Production department was mechanized whereas the Packing department was labor oriented. Calculate departmental overhead allocation rates.
\[\begin{array} { c c c } & \begin{array} { c }
\text { Production } \\
\text { Machine hours }
\end{array} & \begin{array} { c }
\text { Packing } \\
\text { Labor hours }
\end{array} \\
\text { Part-1 } & 15,000 & 25,000 \\
\text { Part-2 } & \underline{35,000} & \underline{15,000} \\ & 50,000 & 40,000 \end{array}\]
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Chapter 25: Short-Term Business Decisions
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Q1) Peacock Inc. sells 2,500 kayaks per year at a price of $500 per unit. It sells in a highly competitive market and uses target pricing. The company has calculated its target full product cost at $820,000 per year. Fixed costs are $350,000 per year and cannot be reduced. How much is the target variable cost per unit?
A) $188
B) $328
C) $360
D) $172
Q2) Fantabulous Products sells 2,000 kayaks per year at a price of $450 per unit.
Fantabulous sells in a highly competitive market and uses target pricing. The company has $1,000,000 of assets and the shareholders wish to make a profit of 18% on assets. Variable cost is $200 per unit and cannot be reduced. How much is the target fixed costs?
A) $265,000
B) $720,000
C) $180,000
D) $320,000
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Chapter 26: Capital Investment Decisions
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Q1) Logy Inc. is evaluating two possible investments in depreciable plant assets. The company uses the straight-line method of depreciation. The following information is available: \[\begin{array} { | l | r | r | }
\hline & \text { Investment A } & \text { Investment B } \\
\hline \text { Initial capital investment } & \$ 100,000 & \$ 150,000 \\
\hline \text { Estimated useful life } & 10 \text { years } & 10 \text { years } \\
\hline \text { Estimated residual value } & 0 & \$ 20,000 \\
\hline \text { Estimated annual net cash inflow for 10 years } & \$ 20,000 & \$ 40,000 \\
\hline \text { Required rate of return } & 10 \% & 12 \% \\
\hline
\end{array}\] Calculate the payback period for Investment B.
A) 3 years
B) 2 years
C) 4 years
D) 5 years
Q2) The payback method uses discounted cash flows to make investment decisions.
A)True
B)False
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