Fundamentals of Accounting Exam Solutions
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and concepts of accounting, providing a solid foundation for understanding financial statements and the accounting cycle. The course covers essential topics such as double-entry bookkeeping, recording of business transactions, preparation of financial statements, and an overview of the regulatory environment. Students will also learn about the roles of assets, liabilities, equity, revenues, and expenses in business operations, gaining practical skills in analyzing and interpreting financial information for decision-making purposes.
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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Sample Questions
Q1) Scott's Camera Shop started the year with total assets of $90,000 and total liabilities of $60,000.During the year,the business earned revenues of $150,000 and incurred expenses of $60,000.Scott made no additional capital contributions during the year,but did make drawings of $70,000.What is the amount of owners' equity at the end of the year?
A) $150,000
B) $70,000
C) $50,000
D) $60,000
Answer: C
Q2) Equipment is sold for cash in an amount equal to the cost of the equipment recorded on the books.How does this sale affect the accounting equation?
A) Assets increase; liabilities increase.
B) Assets increase; owners' equity increases.
C) One asset increases; one asset decreases.
D) Assets increase; liabilities decrease.
Answer: C
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3
Chapter 2: Recording Business Transactions
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Q1) A business purchases equipment for cash in the amount of $8 000.Which account is debited?
A) Cash
B) Accounts payable
C) Equipment
D) Supplies expense
Answer: C
Q2) When a business makes a cash payment,the Cash account is always debited.
A)True
B)False
Answer: False
Q3) When is a trial balance usually prepared?
A) After financial statements are published
B) After balancing the ledger accounts
C) After each entry is journalised
D) At the beginning of an accounting period
Answer: B
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) ABC Company signed a one-year $24,000 loan payable at 8% interest on 1 May 2016.How much interest expense must be accrued on 31 May 2016?
A) $1920
B) $80
C) $160
D) $12,800
Answer: C
Q2) Which of the following accounts would be used under the accrual method of accounting,but NOT under the cash-basis method of accounting?
A) Equipment
B) Salary expense
C) Cash
D) Unearned revenue
Answer: D
Q3) If a company fails to make an adjusting entry for accrued revenues,the profit will be overstated.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) As part of the closing process,revenues and expenses are closed to a temporary account called Profit (loss).
A)True
B)False
Q2) Which of the following adjusted balances would appear in the balance sheet credit column of a worksheet?
A) Equipment
B) Salary payable
C) Insurance expense
D) Rent revenue
Q3) Under which of the following categories would Land appear?
A) Non-current liabilities
B) Non-current assets
C) Current liabilities
D) Current assets
Q4) Which is NOT an example of a temporary account?
A) Electricity and gas expense
B) Service revenue
C) Wages expense
D) Accumulated depreciation
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Chapter 5: Retailing Operations
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Q1) The following details are provided by Blue Bell Retailers.The company uses the periodic inventory system.
\[\begin{array} { | l | l | }
\hline \text { Net sales } & \$ 200,000 \\
\hline \text { Purchases } & 90,000 \\
\hline \text { Purchase returns and allowances } & 1800 \\
\hline \text { Purchase discounts } & 1500 \\
\hline \text { Freight in } & 1800 \\
\hline \text { Beginning inventory } & 63,000 \\
\hline \text { Ending inventory } & 37,000 \\
\hline
\end{array}\]
Calculate the amount of net purchases.
A) $149,700
B) $86,700
C) $110,000
D) $84,900
Q2) A sales allowance is recorded with a credit to Accounts receivable.
A)True
B)False
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Page 7
Chapter 6: Retail Inventory
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Sample Questions
Q1) Evans Company had the following balances and transactions during 2016.
\[\begin{array} { | l | l | }
\hline \text { Beginning inventory } & 30 \text { units at } \$ 70 \\
\hline 10 \text { March } & \text { Sold } 27 \text { units } \\
\hline 10 \text { June } & \text { Purchased } 90 \text { units at } \$ 80 \\
\hline 30 \text { October } & \text { Sold } 84 \text { units } \\
\hline
\end{array}\]
What is the amount of the company's inventory,as disclosed in the 31 December 2016 balance sheet as per the periodic last-in,first-out (LIFO)costing method?
A) $720
B) $480
C) $630
D) $420
Q2) Under last-in,first-out,the cost of sales is based on the oldest purchases.
A)True
B)False
Q3) Ending inventory equals the number of units on hand multiplied by the unit cost.
A)True B)False
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Chapter 7: Accounting Information Systems
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Q1) Posting the entries in the sales journal to the accounts receivable subsidiary ledger should be done:
A) at the end of each month.
B) only at the end of the accounting period.
C) on a daily basis.
D) on a weekly basis.
Q2) Which column in the cash payments journal involves a posting to both the general ledger and the subsidiary ledger?
A) Cash credit column
B) Other accounts debit column
C) Accounts payable debit column
D) Inventory debit column
Q3) Sales discount is recorded in the general journal.
A)True
B)False
Q4) The transaction that would not be recorded in the general journal is
A) credit purchase of goods for resale.
B) depreciation of equipment.
C) accrued salaries.
D) sales returns.
Page 9
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) A purchase order is sent by the purchasing department to:
A) the outside supplier.
B) the receiving department.
C) the sales department.
D) the accounting department.
Q2) As part of the internal control over cash receipts by mail,the mailroom sends both the customer cheques and the remittance advices to the accounting department.
A)True
B)False
Q3) 'Two-factor authentication' involves logging into a computer system with a user ID and a password.
A)True
B)False
Q4) An outstanding cheque is a cheque issued by the company and recorded on its books but not yet paid by its bank.
A)True
B)False
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10
Chapter 9: Receivables
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Q1) Zorro Company has significant amounts of accounts receivable and experiences bad debts from time to time.Zorro uses the direct write-off method.When Zorro Company writes off a bad debt,what is the effect of that single transaction?
A) It will increase total assets of the company.
B) It will reduce profit.
C) It will have no effect on profit.
D) It will generate positive cash flow.
Q2) A creditor is a person or business who:
A) purchases goods on credit.
B) has a payable to another party.
C) invests money in the shares of a company.
D) has a receivable from another party.
Q3) The acid-test ratio is calculated as current assets divided by current liabilities. A)True B)False
Q4) A bill is dishonoured when the debtor of the bill fails to pay the bill at maturity. A)True
B)False
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Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Sample Questions
Q1) Which of the following would be capitalised and depreciated,rather than expensed?
A) Replacement of tyres
B) Paint job
C) Modification for new use
D) Normal repair of engine
Q2) Which of the following assets is NOT an intangible asset?
A) Goodwill
B) Patent
C) Building
D) Trademark
Q3) Estimated residual value is the expected cash value of an asset at the end of its useful life.
A)True
B)False
Q4) When an asset is fully depreciated,no further depreciation expense is recorded.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Gross pay is the total amount of salary,wages,commissions and bonuses earned by an employee during a pay period.
A)True
B)False
Q2) Firewood Company signed a three-year note payable for $58,000 at 9% annual interest.What is the interest expense for 2016 if the note was signed on 1 August 2016?
A) $2610
B) $15,660
C) $2175
D) $5220
Q3) Unearned revenue is an obligation to provide goods or services to the customer.
A)True
B)False
Q4) PAYG tax is paid by the employer only and is not deducted from gross pay.
A)True
B)False
Q5) 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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Sample Questions
Q1) If a debenture's stated interest rate is the same as the market rate,which of the following is TRUE?
A) The debenture will be issued at a discount.
B) The debenture will be issued at a premium.
C) The debenture will be issued at par.
D) The debenture will be issued for an amount lower than the maturity value.
Q2) On 1 July 2016,Avery Services issued a long-term note payable for $10 000.It is payable over a five year term in $2 000 instalments on 1 July of each succeeding year.When the note was issued,the principal amount was recorded in long-term notes payable and a second entry was made to reclassify the current portion.How will this information be shown on the balance sheet dated 31 December 2016?
A) $2 000 shown as current liability; $8 000 shown as non-current liability
B) $2 000 shown as current liability; $10 000 shown as non-current liability
C) The entire $10 000 shown as non-current liability
D) $10 000 shown as current liability only
Q3) Accounts payable is always shown on the balance sheet in current liabilities.
A)True
B)False
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Chapter 13: Partnerships
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Sample Questions
Q1) Partnerships always share profit equally among all partners.
A)True
B)False
Q2) Sasha and Michelle form a partnership.Sasha contributes $19,000 cash and inventory with a current market value of $4000.While journalising this transaction:
A) Inventory will be debited for $4000.
B) Inventory will be credited for $2400.
C) Inventory will be credited for $4000.
D) Inventory will be debited for $2400.
Q3) Keith and Jim formed a partnership business.The partnership incurs a net loss of $5000 and the partners agreed to share the losses equally.The entry to close the net loss will:
A) decrease Jim, capital by $5000.
B) decrease Keith, capital by $2500.
C) debit Income summary by $5000.
D) increase Jim, capital by $2500.
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15
Chapter 14: Companies: Formation and Shareholders
Equity
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Sample Questions
Q1) 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
Q2) Which of the following factors may cause a difference between book profit and taxable income?
A) The company has a deposit in transit at year-end.
B) The company sells shares right before the end of the year.
C) The company uses straight-line depreciation for books and accelerated depreciation for tax.
D) The company pays its federal income taxes quarterly as opposed to annually.
Q3) Which of the following represents one of the basic rights of shareholders?
A) Shareholders can claim a portion of the company assets in the event the company is liquidated.
B) Shareholders may sell their shares back to the company if they wish.
C) Shareholders may authorise a business contract on behalf of the company.
D) Shareholders may determine at what price the company issues shares.
Page 16
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Chapter 15: Companies: Capital Management and the Income Statement
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Sample Questions
Q1) If a company buys back shares,which of the following is TRUE?
A) Total equity will decrease.
B) Total equity will increase.
C) The number of issued shares will increase.
D) The company records a gain or loss on the buy-back.
Q2) Which of the following items is NOT included in comprehensive income?
A) Contingent liabilities
B) Changes in Asset revaluation reserve
C) Profit
D) Gains or losses on some types of superannuation plan
Q3) A share buy-back requires a credit to the Ordinary share capital account.
A)True
B)False
Q4) Which of the following does NOT require a formal journal entry?
A) Share dividend
B) Share split
C) Issue of new shares
D) Cash dividend
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Chapter 16: The Cash Flow Statement
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Q1) Of the following,which is NOT a cash inflow from a financing activity?
A) Earning interest revenue
B) Issuing ordinary shares
C) Borrowing money on a long-term bill
D) Selling treasury shares
Q2) The direct method starts with profit and reconciles to cash flows from operating activities.
A)True
B)False
Q3) Which of the following transactions would be shown in the non-cash investing and financing activities section of the cash flow statement?
A) Sold equipment with book value of $4 000 in exchange for $1 000 cash and a $3 000 bill
B) Purchased a building in exchange for 10 000 ordinary shares
C) Borrowed $22 000 cash on a bill payable
D) Issued 10 000 shares at $5 per share
Q4) Cash equivalents are assets that can be converted to cash within one year.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) Information is regarded as material if its omission or misstatement could influence the economic decisions made by users of financial reports.
A)True
B)False
Q2) A specific exception to the use of historical cost to value assets is if the net realisable value of inventories falls below cost.In this case,the justification for the use of market value rather than cost relies on the:
A) comparability principle.
B) cost versus benefit principle.
C) materiality principle.
D) conservatism principle.
Q3) The pair of general principles of reporting that often result in a trade-off are:
A) understandability and reliability.
B) timeliness and reliability.
C) materiality and relevance.
D) comparability and materiality.
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Chapter 18: Financial Statement Analysis
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Q1) Which of the following is the definition of benchmarking?
A) Benchmarking is the analysis of a financial statement that shows each item as a percentage of net sales or total assets.
B) Benchmarking is the comparison of two companies using horizontal analysis.
C) Benchmarking is the study of percentage changes in financial statement line items year to year.
D) Benchmarking is the practice of comparing a company with other companies in that industry.
Q2) Vertical analysis is used with the income statement,but not with the balance sheet.
A)True B)False
Q3) The rate of return on net sales is used for which kind of evaluation?
A) Evaluating shares in a company from an investor's perspective
B) The overall profitability of a company
C) The ability of a company to pay its current liabilities
D) The ability of a company to pay its non-current liabilities
Q4) Investors and creditors generally evaluate a company by using one year's data.
A)True
B)False
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) The cash budget can be prepared before the sales budget.
A)True
B)False
Q2) Financial accounting is typically much more detailed than managerial accounting.
A)True
B)False
Q3) A goal of the budgeting process is to promote coordination and communication throughout.
A)True
B)False
Q4) Which of the following is a philosophy of providing customers with superior products and services?
A) Total quality management (TQM)
B) Enterprise resource planning (ERP)
C) Just-in-time (JIT) inventory management
D) Supply chain management (SCM)
Q5) The cash budget may be used to determine whether a company will need additional financing for the coming period.
A)True
B)False
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Chapter 20: Job Costing
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Q1) On 30 June,Coraline Company finished job number 750,with total job costs of $4 600,and transferred the costs to Finished goods.On 6 July,they completed the sale of the goods to a customer for $5 100 cash.In order to record the sale,two entries are necessary,one to record revenue,and one to record cost of sales.Which of the following is the correct entry needed to record the cost of sales?
A) Debit Finished goods inventory $4 600, credit Cost of sales $4 600
B) Debit Work in process inventory $4 600, credit Cost of sales $4 600
C) Debit Cost of sales $4 600, credit Finished goods inventory $4 600
D) Debit Cost of sales $4 600, credit Work in process inventory $4 600
Q2) The cost of goods manufactured is recorded as a debit to the Finished goods account.
A)True
B)False
Q3) A process costing system is useful in which of the following circumstances?
A) Mass production of a single type of product
B) Providing specialised services
C) Production of unique products
D) Production of multiple products in separate batches
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Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Pluto Company sold 2100 units in October at a price of $45 per unit.The variable cost is $25 per unit.Calculate the total contribution margin.
A) $52,500
B) $42,000
C) $94,500
D) $147,000
Q2) The combination of products that make up total sales,and the proportion of sales among the products is referred to as 'sales mix'.
A)True
B)False
Q3) Which of the following is the term for a cost that is part variable and part fixed?
A) Fixed cost
B) Sunk cost
C) Mixed cost
D) Variable cost
Q4) The mixed cost per unit is constant throughout the relevant range of activity.
A)True
B)False
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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) In deciding whether to accept a special sales order,management should consider the quantitative data ONLY and disregard qualitative factors.
A)True
B)False
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Chapter 23: Capital Investment Decisions and the Time Value of Money
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Q1) When evaluating a potential investment,managers should use more than one measure for making a sound investment decision.
A)True
B)False
Q2) Which of the following MOST accurately describes the term annuity?
A) An investment which grows in value over time
B) A term life insurance policy
C) An instalment loan with amortising principal payments
D) A stream of equal instalments of cash payments
Q3) The fact that invested cash earns profit over time is called the time value of money.
A)True
B)False
Q4) Which two methods are typically used for initial screening of investments,rather than for detailed in-depth analysis?
A) Accounting rate of return and net present value
B) Internal rate of return and net present value
C) Payback and accounting rate of return
D) Net present value and payback
25
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