Fundamentals of Accounting Final Test Solutions
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and concepts underlying the accounting process. The course covers essential topics such as the accounting cycle, preparing and interpreting financial statements, and understanding the role of accounting in decision-making. Students learn about recording transactions, adjusting entries, and the use of major financial reports including the balance sheet, income statement, and cash flow statement to communicate financial information. Emphasis is placed on ethical practices, accuracy, and the relevance of accounting in varied organizational settings, providing a solid foundation for further study in accounting and related business disciplines.
Recommended Textbook Survey of Accounting 6th Edition by Carl S.
Warren
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15 Chapters
1713 Verified Questions
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Chapter 1: The Role of Accounting in Business
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Sample Questions
Q1) How do businesses make money? What strategies can they use to gain a competitive advantage?
Answer: Businesses have the objective of making money by generating more revenues than costs. Businesses can seek competitive advantage by using a premium-price strategy or by using a low-cost strategy. A premium-price strategy tries to meet a unique market need based on quality, reliability, image, or design, allowing it to charge a higher price. A low-cost strategy focuses on efficiency in product design and production to offer a lower price due to lower costs.
Q2) Define accounting and its role in business.
Answer: Accounting provides information for managers that can be used in operations of a business. Accounting provides information to external stakeholders to use in assessing the economic performance and condition of the business.
Q3) Costs incurred in operating a business are also known as: A) revenues. B) expenses. C) liabilities. D) dividends.
Answer: B
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Chapter 2: Basic Accounting Concepts
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Sample Questions
Q1) BNC Company earns revenues and as a result collects cash. Which of the following financial statement elements increased?
A) Cash only
B) Stockholders' equity only
C) Liabilities
D) Cash and stockholders' equity
Answer: D
Q2) A _____ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded.
A) framework
B) control
C) set of rules
D) transaction
Answer: D
Q3) How can a company earn a large net income and have a small balance in retained earnings?
Answer: The company may pay out most of its earnings in dividends.
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Page 4
Chapter 3: Accrual Accounting Concepts
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Sample Questions
Q1) The following assets are included in Bruce Auto Parts, Inc.'s December 31, 2010, balance sheet. \(\begin{array}{ll} & \text { Accounts Receivable } \\
\$ 50,000&\text { (net of Allowance for Uncollectible Accounts) } \\
30,000 & \text { Accumulated Depreciation, Building } \\
100,000 & \text { Building } \\
60,000 & \text { Cash } \\
130,000 & \text { Land } \\
40,000 & \text { Land Held for Future Use } \\
70,000 & \text { Merchandise Inventory } \\
110,000 & \text { Trademark } \end{array}\) The total dollar amount of assets classified as property, plant, and equipment on Bruce Auto Parts' December 31, 2010, classified balance sheet is:
A) $200,000.
B) $230,000.
C) $240,000.
D) $310,000.
Answer: A
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) Deana, Inc. Deana, Inc. purchased merchandise for $500,000, received credit for purchase returns of $25,000, took purchase discounts of $10,000, and paid transportation in of $20,000.
Refer to Deana, Inc. What is the total cost of merchandise purchased?
A) $520,000
B) $485,000
C) $445,000
D) $480,000
Q2) Which of the following accounts will not be found in the Cost of Merchandise Sold section on the income statement?
A) Purchases
B) Transportation In
C) Sales Returns and Allowances
D) Merchandise Inventory
Q3) Which expenses are subtracted from gross profit to arrive at income from operations?
A) All expenses
B) Cost of merchandise sold
C) Operating expenses
D) Sales discounts
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Chapter 5: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) All organizations face risks, and the assessment of these risks is necessary so that the objectives of internal control can be achieved.
A)True
B)False
Q2) Employing internal auditors is part of which element of internal control?
A) Monitoring
B) Control procedures
C) Risk assessment
D) Control environment
Q3) Minimum cash balance maintained in the bank account is called line of credit.
A)True
B)False
Q4) One of the objectives of internal control is to:
A) control the internal organization of the accounting department personnel and equipment.
B) provide reasonable assurance that assets are safeguarded.
C) prevent fraud and promote the social interest of the company.
D) provide control over "internal-use only" reports and employee internal conduct.
Q5) Discuss what would be included under personnel policies.
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Chapter 6: Receivables and Inventories
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Sample Questions
Q1) Inventory refers to the:
A) merchandise held for sale in the normal course of business.
B) materials sold during the year.
C) assets purchased to assist the production process.
D) claims arising from the purchase of raw material.
Q2) Inventory costing methods place primary emphasis on assumptions about:
A) flow of goods.
B) flow of costs.
C) flow of goods or costs depending on the method.
D) flow of values.
Q3) The balance of the allowance for doubtful accounts is deducted from accounts receivable on the balance sheet.
A)True
B)False
Q4) The estimate of uncollectible accounts receivable based on the sales method violates the matching principle.
A)True
B)False
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8
Chapter 7: Fixed Assets and Intangible Assets
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Sample Questions
Q1) Which of the following is a characteristic of fixed assets?
A) Fixed assets are offered for sale as part of normal operations.
B) Fixed assets do not exist physically.
C) Fixed assets are long-term or relatively permanent assets.
D) Fixed assets that are no longer used in operations are still classified as fixed assets.
Q2) If an asset is discarded, a loss is recognized equal to its salvage value.
A)True
B)False
Q3) A pressurized spray painter was purchased on April 1 of the fiscal year for $3,900. It has a useful life of 4 years and a residual value of $300. Determine depreciation expense for the first two years, assuming a fiscal year end of December 31 and using (a) the straight-line method and (b) the double-declining-balance method.
Q4) A company purchased a photocopy machine for $16,000. It has a useful life of 4 years and a residual value of $1,000. Compute depreciation for the second year under each of the following methods: (a) straight-line and (b) double-declining-balance.
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Chapter 8: Liabilities and Stockholders Equity
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Sample Questions
Q1) Significant changes in stockholders' equity are reported in the:
A) statement of stockholders' equity.
B) income statement.
C) retained earnings statement.
D) statement of cash flows.
Q2) A company sold 200 shares of common stock with a par vale of $5 at a price of $12 per share. Which section of the statement of cash flows will contain this transaction?
A) Operating activities
B) Investing activities
C) Financing activities
D) Sale of stock will not appear on the statement of cash flows.
Q3) A corporation has 50,000 shares of $100 par value stock outstanding. If the corporation issues a 4-for-1 stock split, the number of shares outstanding after the split will be:
A) 200,000 shares.
B) 50,000 shares.
C) 250,000 shares.
D) 12,500 shares.
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Chapter 9: Financial Statement Analysis
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Sample Questions
Q1) The ability of a business to pay its debts as they come due and to earn a reasonable amount of income is referred to as:
A) solvency and leverage.
B) solvency and profitability.
C) solvency and liquidity.
D) solvency and equity.
Q2) The number of times interest charges are earned is computed as:
A) net income plus interest expense, divided by interest expense.
B) income before income tax plus interest expense, divided by interest expense.
C) net income divided by interest expense.
D) income before income tax divided by interest expense.
Q3) The tendency of the rate earned on stockholders' equity to vary disproportionately from the rate earned on total assets is sometimes referred as:
A) leverage.
B) solvency.
C) yield.
D) quick assets.
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Chapter 10: Accounting Systems for Manufacturing Businesses
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Sample Questions
Q1) Heedy Winery accumulates the costs incurred in the labeling process in an activity cost pool. Costs for the labeling process are estimated to be $320,000, and the winery expects to generate 640,000 labels for the coming year. Production for its top-selling wine is estimated at 160,000 bottles. How much overhead from the labeling process will be allocated to this particular variety of wine?
A) $40,000
B) $80,000
C) $160,000
D) $320,000
Q2) The sale of a finished good on account would:
A) decrease Cost of Goods Sold and increase Finished Goods.
B) increase Cost of Goods Sold and decrease Finished Goods; increase Accounts Receivable and increase Sales.
C) increase Sales Expense and decrease Finished Goods; decrease Cash and decrease Accounts Receivable.
D) increase Work-in-Process and decrease Finished Goods; increase Accounts Receivable and increase Sales.
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Page 12
Chapter 11: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) If the unit selling price is $50, the volume of sales is $450,000, sales at the break-even point amount to $375,000, and the maximum possible sales are $550,000, the margin of safety will be 2,000 units.
A)True
B)False
Q2) For the current year ending January 31, Ringo Company expects fixed costs of $178,500 and a unit variable cost of $41.50. For the coming year, a new wage contract will increase the unit variable cost to $45. The selling price of $50 per unit is expected to remain the same.
(a)Compute the break-even sales (in units) for the current year.
(b)Compute the anticipated break-even sales (in units) for the coming year; assumuing the new wage contract is signed.
Q3) The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents:
A) the maximum possible operating loss.
B) the maximum possible operating income.
C) the total fixed costs.
D) the break-even point.
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Chapter 12: Differential Analysis and Product Pricing
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Sample Questions
Q1) A business is considering a cash outlay of $200,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available that yield an 18% return, the opportunity cost of the purchase of the land is:
A) $35,000.
B) $36,000.
C) $1,000.
D) $37,000.
Q2) Dinkins Inc. is considering disposing of a machine with a book value of $50,000 and an estimated remaining life of five years. The old machine can be sold for $15,000. A new machine with a purchase price of $150,000 is being considered as a replacement. It will have a useful life of five years and no residual value. It is estimated that variable manufacturing costs will be reduced from $70,000 to $45,000 if the new machine is purchased. The net differential increase or decrease in cost for the entire five years for the new equipment is:
A) $10,000 increase.
B) $25,000 decrease.
C) $10,000 decrease.
D) $25,000 increase.
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Chapter 13: Budgeting and Standard Cost Systems
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Sample Questions
Q1) Which of the following will not affect direct materials quantity variance?
A) Malfunctioning equipment
B) Purchasing of inferior raw materials
C) Material requiring rework
D) Spoilage of materials
Q2) The formula to compute direct material quantity variance is:
A) actual costs - standard costs.
B) standard costs - actual costs.
C) (actual quantity ´ standard price) - standard costs.
D) actual costs - (standard price ´ standard costs).
Q3) A formal written statement of management's plans for the future, expressed in financial terms, is called a budget.
A)True
B)False
Q4) Which of the following budgets is prepared using the production budget?
A) Selling and administrative expenses
B) Direct materials purchases
C) Sales
D) Capital expenditures
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Chapter 14: Performance Evaluation for Decentralized Operations
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Sample Questions
Q1) The profit center income statement should include only controllable revenues and expenses.
A)True
B)False
Q2) Some organizations use internal service departments to provide services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department?
A) Inventory Control
B) Payroll Accounting
C) Information Systems
D) Human Resources
Q3) Division A of Purvis Company has a rate of return on investment of 15% and an investment turnover of 1.6. What is the profit margin?
A) 10%
B) 12.5%
C) 9.4%
D) 24%
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Page 16
Chapter 15: Capital Investment Analysis
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Sample Questions
Q1) For years one through five, a proposed expenditure of $250,000 for a fixed asset with a 5-year life has expected net income of $40,000, $35,000, $25,000, $25,000, and $25,000, respectively, and net cash flows of $90,000, $85,000, $75,000, $75,000, and $75,000, respectively. The cash payback period is 2.5 years.
A)True B)False
Q2) All of the following are factors that may complicate capital investment analysis except:
A) the leasing alternative.
B) changes in price levels.
C) sunk cost.
D) the federal income tax.
Q3) The methods of evaluating capital investment proposals can be grouped into two general categories: (1) methods that ignore present values and (2) methods that use present values.
A)True B)False
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Page 17