Fundamentals of Accounting Practice Exam
Course Introduction
Fundamentals of Accounting introduces students to the essential concepts and principles underlying the accounting process. The course covers the basics of recording, classifying, and summarizing financial transactions, as well as preparing key financial statements such as the balance sheet, income statement, and cash flow statement. Students explore the roles and responsibilities of accountants, learn the fundamental accounting equation, and gain an understanding of the importance of ethical standards in the profession. By the end of the course, students acquire a solid foundation in accounting concepts and techniques, preparing them for more advanced studies or practical application in business settings.
Recommended Textbook
Horngrens Financial and Managerial Accounting 4th Edition by Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) In a statement of retained earnings,decreases in retained earnings result from
A)issue of stock
B)net losses
C)net income
D)revenues earned
Answer: B
Q2) Marsh Supply Services paid $350 cash to a materials supplier that it owed from the previous month.Which of the following accounts decreases?
A)Accounts Receivable
B)Accounts Payable
C)Retained Earnings
D)Office Supplies
Answer: B
Q3) The creation of a corporation begins when its incorporators obtain a charter from the state.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Debits in the journal are always posted as debits in the ledger.
A)True
B)False
Answer: True
Q2) The following transactions have been journalized and posted to the proper accounts.Prepare a trial balance at the end of the first month using the following details:
a.The business received $15,000 cash and issued common stock.
b.Paid the first month's rent with $800 cash.
c.Purchased equipment by paying $4,000 cash and executing a note payable for $4,000.
d.Purchased office supplies for $200 cash.The supplies are left at the end of the month.
e.Billed clients for a total of $7,000 for design services rendered.
f.Received $1,000 cash from clients for services rendered above.
Answer: 11ea84d1_1115_95d0_83dc_355c2574ddd9_TB3006_00
Q3) The trial balance summarizes the balances of assets,liabilities,and equity.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Recipes.Inc.purchased $2,000 of supplies on account.Under the accrual basis of accounting,no entry is made until the amount is paid.
A)True
B)False
Answer: False
Q2) On January 1,2014,Prepaid Insurance of Maywood Inc.had a beginning balance of $1,200.On February 1,2014,the company paid an annual insurance premium in the amount of $4,800 for the period beginning April 1.On February 28,2014,the balance in Prepaid Insurance is $2,000.The prepaid expense was initially recorded as an asset.
A)True
B)False
Answer: False
Q3) In accounting,depreciation refers to the ________.
A)method of spreading the cost of a plant asset over its useful life
B)method of declining the market value of an asset to its book value
C)method of estimation of an asset's current market value
D)process of sale of a used asset
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts will be included in a post-closing trial balance?
A)Dividends
B)Salaries Expense
C)Common Stock
D)Office Supplies Expense
Q2) Assets are listed in the order of their ________ on the balance sheet.
A)magnitude
B)dates of purchase
C)liquidity
D)durability
Q3) A current ratio that has increased from the prior period indicates an improvement in the company's ability to pay its current debts.
A)True
B)False
Q4) The worksheet helps accountants to ________.
A)make the adjusted trial balance
B)prepare the financial statements
C)prepare the unadjusted trial balance
D)maintain books of accounts without a journal
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) A company made net sales revenue of $540,000 and cost of goods sold totaled $324,000.Calculate its gross profit percentage.
A)40.00%.
B)66.67%.
C)100.00%.
D)300.00%.
Q2) A company using the perpetual inventory system purchased inventory worth $25,000 on account with terms of 2/10,n/30.Defective inventory of $2,000 was returned 2 days later and the accounts were appropriately adjusted.If the invoice is paid within 10 days,the amount of the purchase discount that would be available to the company is ________.
A)$460
B)$540
C)$500
D)$490
Q3) An amount that a merchandiser earns by selling its inventory is known as Sales Revenue or Sales.
A)True
B)False
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Page 7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) When a company uses the last-in,first-out (LIFO)method,the cost of goods sold correlates to the most recently purchased goods,and the ending inventory correlates to the oldest goods in stock.
A)True
B)False
Q2) In a period of rising costs,the last-in,first-out (LIFO)method results in higher cost of goods sold and lower net income than the first-in,first-out (FIFO)method.
A)True
B)False
Q3) Under the weighted-average method for inventory costing,the cost per unit is determined by ________.
A)dividing the cost of goods available for sale by the number of units available
B)dividing the cost of goods available for sale by the number of units in beginning inventory
C)multiplying the number of units purchased with the weighted-average cost
D)multiplying the cost of goods available for sale by the ending weighted-average price of previous accounting period
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Which one of the following is true of a signature card?
A)It shows each authorized person's signature for a bank account.
B)It is the same as a deposit receipt and acts as a proof of the deposit transaction.
C)It must be signed by a banking authority for a checking account at a bank.
D)It can only be used for bank accounts of individuals not for the bank accounts of businesses.
Q2) Which of the following describes the risk assessment component of internal control?
A)Internal auditors monitor company controls to safeguard assets,and external auditors monitor the controls to ensure that the accounting records are accurate.
B)Risk assessment is the "tone at the top" of the business.
C)A company must identify its risks and take necessary steps to minimize it.
D)Risk assessment is designed to ensure that the business's goals are achieved.
Q3) 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 8: Receivables
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Sample Questions
Q1) Which of the following statements is true of the direct write-off method?
A)GAAP requires public companies to follow the direct write-off method.
B)It provides better matching of revenues with expenses.
C)It results in more accurate net income than any other method.
D)It is only suitable for small companies that have very few uncollectible receivables.
Q2) Which of the following statements is true?
A)Accounts receivable are more liquid than cash.
B)Notes receivable are always due in 30 days.
C)Notes receivable are longer in term than accounts receivable.
D)Accounts receivable are liabilities.
Q3) While counting the date of maturity of a note,the date of issue of the note should be omitted.
A)True
B)False
Q4) The allowance method violates the matching principle.
A)True
B)False
Q5) Give journal entry to record the dishonor of a note receivable at the maturity date.
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) Steel Rolling Corp.purchased a mine on January 1,2015,for $500,000 and it estimated that 30,000 tons of iron ore can be extracted from it.It has no residual value.The corporation has extracted 2,500 tons of ore in 2015.Give the journal entry to record depletion expense for the year 2015.(Do not round your intermediate calculations.)
Q2) Trimer Corp sold a truck for $15,000 cash.It was originally purchased for $50,000 and had accumulated depreciation of $30,000 at the time of sale.Give the journal entry for the sale of truck.
Q3) Nobells Corporation has acquired a property that included both land and a building for $500,000.The corporation paid cash.The corporation 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.
Q4) Which of the following is true when the estimate of an asset's useful life is changed?
A)The new estimate is ignored until the last year of the asset's life.
B)The depreciation expense in the prior year is restated.
C)Prior years' financial statements must be restated.
D)The asset's remaining depreciable book value will be spread over the asset's remaining life.
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Chapter 10: Investments
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Sample
Questions
Q1) Aurum Services Inc.acquired 100,000 shares of Gamma Metals Inc.on January 1,2015.Gamma pays a cash dividend of $0.25 per share on March 2,2015.With the current investment,Aurum Services Inc.holds 8% of Gamma.In the journal entry on March 2,2015,________.
A)Long-term Investments-Available-for-Sale will be credited
B)Dividend Revenue will be credited
C)Long-term Investments-Held-to-Maturity will be debited
D)Long-term Investments-Available-for-Sale will be debited
Q2) Debt securities do not include U.S.government securities.
A)True
B)False
Q3) Green Services Inc.invests its excess cash in Creative Technologies Inc.and acquires 1,000 shares for $53.25 per share.Green Services Inc.owns less than 1% of Creative's voting stock and plans to hold the stock for two years.While preparing the journal entry to record this transaction,________.
A)Long-term Investments-Available-for-Sale will be debited for $53,250
B)Long-term Investments-Held-to-Maturity will be debited for $53,250
C)Long-term Investments-Trading Investments will be credited for $53,250
D)Long-term Investments-Significant Interest Investments will be debited for $53,250
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Bison Inc.reported sales revenue for 2013 of $900,000.The products were sold with a nine-month warranty.Members of Bison's management estimate that the cost of the warranty will be equal to 5% of sales revenue.Which of the following will be included in the entry to record the actual amounts paid out as a result of warranty claims?
A)a debit to Estimated Warranty Payable for the actual amount of payments
B)a credit to Estimated Warranty Payable for $45,000
C)a debit to Estimated Warranty Payable for $45,000
D)a debit to Warranty Expense for the actual amount of payments
Q2) Which of the following is included in the entry in the payroll cycle to record the disbursement of his net pay?
A)credit to Salaries and Wages Payable
B)debit to United Way Payable
C)debit FICA Tax Payable
D)credit Cash
Q3) What amount represents the current portion of Long-term Notes Payable at December 31,2014?
Q4) Benefits are extra compensation-items that are not paid directly to an employee.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.
A)True
B)False
Q2) On January 1,2015,Carter Sales issued $15,000 in bonds for $14,300.They were 8-year bonds with a stated rate of 9%,and pay semiannual interest.Carter Sales uses the straight-line method to amortize the bond discount.After the first interest payment on June 30,2015,what was the bond carrying amount? (Round your intermediate answers to nearest dollar.)
A)$15,000
B)$14,200
C)$14,344
D)$14,400
Q3) On January 1,2013,Diagem Services issued $140,000 of 4-year bonds with a stated rate of 9%.The market rate at time of issue was 8%,so the bonds were issued at a premium and sold for $144,713.Diagem uses the effective-interest method to amortize the bond premium.Semiannual interest payments are made on June 30 and December 31 of each year.Prepare the amortization table for the first four interest payments.(Round your answers to nearest dollar number.)
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Page 14
Chapter 13: Stockholders Equity
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Sample
Questions
Q1) Maywood Inc.has 2,000 shares of common stock outstanding.A stockholder has 100 shares.If the company distributes a 20% stock dividend,how many shares of Maywood will the stockholder have?
A)120 shares
B)400 shares
C)100 shares
D)20 shares
Q2) Which of the following occurs when a previously declared dividend is paid?
A)assets increase
B)stockholders' equity increases
C)liabilities decrease
D)assets remain unchanged
Q3) A stock split,like any other stock issuance,cannot involve issuing more shares of stock than authorized in the corporate charter.
A)True
B)False
Q4) Rimsone Inc.purchases 8,500 shares of the company's $6 par common stock for $8 per share.Journalize the transaction.
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) The three sections of the statement of cash flows report only activities that involve cash.
A)True
B)False
Q2) While preparing the statement of cash flows using the indirect method,a decrease in current liabilities is added to the net income to arrive at net cash flow from operating activities.
A)True
B)False
Q3) Transnational Company is looking for additional capital in order to purchase a property to build their headquarters.They found an investor who was willing to sell them land worth $500,000 in exchange for stock in the company.This transaction would be shown in the financing activities section of the statement of cash flows.
A)True
B)False
Q4) The change in Accounts Payable will be shown as a negative cash flow in the adjustments to Net Income.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) A common-size statement reports only percentages that appear in a ________.
A)horizontal analysis report
B)financial statement
C)vertical analysis report
D)cost statement
Q2) The company has no preferred stock outstanding.Calculate the earnings per share for the year 2015.
A)$1.50 per share
B)$1.75 per share
C)$1.43 per share
D)$2.00 per share
Q3) The price/earnings ratio indicates the ________.
A)dividend yield of the company
B)market price of $1 of earnings
C)proportion of total assets financed by debt
D)ease of selling merchandise inventory
Q4) A corporation's income statement includes some unique items that do not often apply to smaller businesses.
A)True
B)False
Page 17
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) What is the amount of manufacturing overhead incurred by the company in March?
A)$20,000
B)$30,270
C)$13,430
D)$136,570
Q2) What is the cost of goods available for sale for 2015?
A)$360,000
B)$304,300
C)$345,000
D)$330,000
Q3) How much were Webster's product costs?
A)$141,897
B)$697,127
C)$229,127
D)$87,230
Q4) In a manufacturing company,administrative costs are included in period costs.
A)True
B)False
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Chapter 17: Job Order Costing
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Sample Questions
Q1) At the end of the year,Beta Inc.has an unadjusted debit balance in the Manufacturing Overhead account of $3,950.The adjusting journal entry needed to clear the balance to zero will include a ________.
A)debit to Cost of Goods Sold $3,950 and credit to Manufacturing Overhead $3,950
B)debit to Manufacturing Overhead $3,950 and credit to Cost of Goods Sold
C)debit to Work-in-Process Inventory $3,950 and credit to Manufacturing Overhead $3,950
D)debit to Gross Profit $3,950 and credit to Cost of Goods Sold $3,950
Q2) Jeremy Corporation estimated manufacturing overhead costs for the year to be $500,000.Jeremy also estimated 8,000 machine hours and 2,000 direct labor hours for the year.It bases the predetermined overhead allocation rate on machine hours.On January 31,Job 25 was completed.It required 6 machine hours and 1 direct labor hour.What is the amount of manufacturing overhead allocated to the completed job? (Round your intermediate calculations to one decimal place.)
A)$1,500.00
B)$437.50
C)$375.00
D)$350.00
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Chapter 18: Process Costing
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Sample Questions
Q1) The beginning inventory costs and current period costs are combined to determine the average cost of equivalent units of production under the ________.
A)equivalent units method
B)conversion costs method
C)first-in-first-out method
D)weighted-average method
Q2) The weighted average method determines the cost of equivalent units of production by accounting for beginning inventory costs separately from current period costs.
A)True
B)False
Q3) Significant changes in costs are not exposed in a first-in-first-out (FIFO)method.
A)True
B)False
Q4) When indirect materials are issued to production,the Manufacturing Overhead account is credited.
A)True
B)False
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Chapter 19: Cost Management Systems: Activity-Based,
just-In-Time, and Quality Management Systems
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Sample Questions
Q1) Calculate the predetermined overhead allocation rate.
A)45%
B)50%
C)60%
D)30%
Q2) How much of the correspondence cost will be assigned to the Northeast Office?
A)$500
B)$1,200
C)$2,500
D)$800
Q3) Musings Inc.completed the production of 500 units with standard costs of $520 for direct materials and $75 for conversion costs.During the current year,it incurred $260,000 for direct materials and $31,000 for conversion costs.Record the adjusting entry for the amount of underallocated or overallocated overhead.
Q4) Predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.
A)True
B)False
21
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Chapter 20: Cost-Volume-Profit Analysis
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Sample Questions
Q1) If variable costs go up,and all other factors remain the same,the margin of safety will become smaller.
A)True
B)False
Q2) Which of the following is a variable cost?
A)property taxes
B)salary of plant manager
C)direct materials cost
D)straight-line depreciation expense
Q3) Anthony Chemicals Inc.has fixed costs of $30,000 per month.Highest production volume during the year was in January when 100,000 units were produced,75,000 units were sold,and total costs of $630,000 were incurred.In June,the company produced only 55,000 units.What was the total cost incurred in June?
A)$480,000
B)$360,000
C)$630,000
D)$830,000
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Chapter 21: Variable Costing
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Q1) Variable costing can also be used in service companies,especially in making short-term decisions.
A)True
B)False
Q2) The operating profit calculated using variable costing and absorption costing amounted to $9,270 and $11,250,respectively.There were no beginning inventories.Determine the total fixed manufacturing overhead that will be expensed under variable costing for the year 2014.
A)$10,230
B)$8,250
C)$20,750
D)$25,000
Q3) Unit product cost calculations using absorption costing does not include ________.
A)fixed manufacturing overhead
B)variable manufacturing overhead
C)variable selling and administrative costs
D)direct materials
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23
Chapter 22: Master Budgets
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Sample Questions
Q1) The cash balance on April 1 is $12,000.Assume that there will be no financing transactions or costs during the quarter.Calculate the cash balance at the end of May.
A)$51,800
B)$40,800
C)$33,900
D)$21,800
Q2) A company has prepared the operating budget,the cash budget,and the budgeted income statement and is now preparing the budgeted balance sheet.The balance of retained earnings can be taken from ________.
A)the inventory,purchases,and cost of goods sold budget
B)the operating budget
C)the cash budget
D)the budgeted income statement and the balance sheet of the previous year
Q3) The capital expenditures budget represents the company's plan for purchasing the long-term assets.
A)True
B)False
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24
Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A company is setting its direct materials and direct labor standards for its leading product.Materials cost from the supplier are $5 per square foot,net of purchase discount.Freight-in amounts to $0.10 per square foot.Basic wages of the assembly line personnel are $10 per hour.Payroll taxes are approximately 20% of wages.Benefits amount to $2 per hour.How much is the direct material cost standard (per square foot)?
A)$5.10 per square foot
B)$5.00 per square foot
C)$12.00 per square foot
D)$17.10 per square foot
Q2) Which of the following amounts of a flexible budget change with changes in sales volume?
A)selling price per unit
B)total fixed costs
C)variable expense per unit
D)total contribution margin
Q3) A favorable variance has a debit balance and is a contra-revenue.
A)True
B)False
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) The manager of a revenue center is responsible for generating profits.
A)True
B)False
Q2) Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.
A)True
B)False
Q3) Which of the following can increase a company's return on investment?
A)decrease in operating income
B)decrease in total assets
C)decrease in assets turnover ratio
D)decrease in residual income
Q4) The manager of a profit center is responsible for generating revenues and managing the center's invested capital.
A)True
B)False
Q5) Flexible budgets use budgeted costs at the actual level of activity.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) A company is a price-taker when ________.
A)it operates in a highly competitive market
B)its product is unique
C)it has considerable flexibility in setting prices of its products
D)it has very high fixed costs
Q2) Revenue at the market price minus the desired operating income equals the product's target full product cost.
A)True
B)False
Q3) Assuming the Football Helmets line is dropped,total fixed costs remain unchanged,and the space formerly used to produce the line is rented for $100,000 per year,how will operating income be affected?
A)Operating income will increase by $30,000.
B)Operating income will increase by $10,000.
C)Operating income will decrease by $10,000.
D)Operating income will decrease by $80,000.
Q4) Price-setters emphasize a cost-plus pricing approach.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) A major criticism of the payback method is that it focuses only on time to recover the investment and ignores profitability.
A)True
B)False
Q2) Landmark Prints Company is considering an investment in new equipment costing $500,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to generate net cash inflows of $120,000 the first year,$140,000 the second year,and $150,000 every year thereafter until the fifth year.What is the payback period for this investment? The residual value is zero.
A)4.5 years
B)3.6 years
C)2.9 years
D)3.2 years
Q3) The payback method ignores cash flows that an asset generates,whereas the accounting rate of return includes them.
A)True
B)False
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Chapter 27: Accounting Information Systems
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Q1) Which of the following is true of an effective accounting information system?
A)It has little influence in improving a company's internal control activities.
B)The cost of using an accounting information system is the same for both small and large businesses.
C)A compatible accounting information system works smoothly with the business's employees and organizational structure.
D)Large private companies prefer a manual accounting information system since their financial statements are not audited.
Q2) Hexagon Corporation sold a product on credit for $2,235 to Merin Lynch.The cost of goods sold was $1,324.Assuming that the firm is following a perpetual inventory system and using a sales journal,it will record $2,235 in the ________.
A)Accounts Receivable CR,Sales Revenue DR column
B)Cost of Goods Sold DR,Merchandise Inventory CR column
C)Merchandise Inventory DR,Cost of Goods Sold CR column
D)Accounts Receivable DR,Sales Revenue CR column
Q3) A source document provides the evidence and data for accounting transactions.
A)True
B)False
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