Fundamentals of Accounting Question
Bank
Course Introduction
Fundamentals of Accounting introduces students to the core principles and practices of financial accounting. This course covers the accounting cycle, including the identification, recording, and summarization of business transactions, as well as the preparation and interpretation of key financial statements such as the balance sheet, income statement, and cash flow statement. Students will learn about generally accepted accounting principles (GAAP), the role of ethics in accounting, and the significance of accounting information in decision-making for various stakeholders. Through practical exercises and real-world examples, students will develop foundational skills necessary for further study or entry-level positions in accounting and finance.
Recommended Textbook
Principles of Accounting 11th Edition by Belverd E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Q1) Knowledge of the exchange rate is necessary to apply the money measure concept in case of international transactions.
A)True
B)False
Answer: True
Q2) Due care means carrying out one's professional responsibilities honestly and impartially.
A)True
B)False
Answer: False
Q3) A company's management information system is a subsystem of its accounting information system.
A)True
B)False Answer: False
Q4) Inventory is an example of a monetary asset.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Which of the following accounts has a normal credit balance?
A) Owner's Withdrawals
B) Automotive Equipment
C) Advertising Fees Earned
D) Interest Expense
Answer: C
Q2) The cost principle is a solution to the recognition issue.
A)True
B)False
Answer: False
Q3) Which of the following statements is true about a journal entry?
A) The Post. Ref. column is filled in prior to posting.
B) All debits are listed before any credits.
C) The name of the month should be repeated for each entry.
D) An explanation must follow each debit and each credit.
Answer: B
Q4) The most generally accepted value used in accounting is market value.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) Which of the following pairs of accounts could not possibly appear in the same adjusting entry?
A) Interest Income and Interest Payable
B) Revenue from Services and Accounts Receivable
C) Revenue from Services and Unearned Revenue
D) Rent Expense and Rent Payable
Answer: A
Q2) Which of the following is not an application of accrual accounting?
A) Recording advertising fees earned at the time the work is done
B) Adjusting unearned advertising fees to the proper balance at the end of the month
C) Recording advertising fees earned at the time the cash payment is received
D) Recording telephone expense in the accounting period covered by the monthly bill
Answer: C
Q3) As an asset's depreciation is recorded, its carrying value increases.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) Briefly distinguish between adjusting and closing entries.
Q2) The Income Summary account will appear on the post-closing trial balance. A)True
B)False
Q3) During the performance of the steps in the accounting cycle, trial balances are prepared in three different steps. Using specific names where applicable, discuss the time of preparation and the purpose served by each of these trial balances.
Q4) In the accounting cycle, closing entries are prepared before adjusting entries.
A)True
B)False
Q5) Despite the many uses of microcomputers, they cannot be used to prepare work sheets.
A)True
B)False
Q6) The work sheet is prepared after the formal adjusting and closing entries. A)True
B)False
Q7) What does the preparation of reversing entries accomplish?
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Q8) Why will the Income Summary account never appear on any financial statement?
Chapter 5: Financial Reporting and Analysis
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Q1) Which of the following is not considered a selling expense?
A) Cost of goods sold
B) Sales salaries expense
C) Freight-out expense
D) Insurance on the sales office
Q2) Delivery expense is a selling expense on the income statement.
A)True
B)False
Q3) Return on assets is a measure of liquidity.
A)True
B)False
Q4) Which of the following accounts is not classified as a selling expense on the income statement?
A) Freight-out expense
B) Advertising expense
C) Sales salaries expense
D) Interest expense
Q5) Financial statements are generally prepared for a limited number of users.
A)True
B)False
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Chapter 6: The Operating Cycle and Merchandising Operations
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Q1) Under the perpetual inventory system, in addition to making the entry to record a sales return, a company would
A) increase Merchandise Inventory and decrease Cost of Goods Sold.
B) increase Cost of Goods Sold and decrease Purchases.
C) increase Cost of Goods Sold and decrease Merchandise Inventory.
D) make no additional entry until the end of the period.
Q2) An advantage of using the periodic inventory system is that it requires less recordkeeping than the perpetual inventory system.
A)True
B)False
Q3) The net cost of purchases is found by deducting freight-in from net purchases. A)True
B)False
Q4) A trade discount is the same as a sales discount. A)True
B)False
Q5) The financing period is also referred to as the cash gap. A)True
B)False
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Chapter 7: Internal Control
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Q1) Taking a physical inventory is not necessary under a perpetual inventory system.
A)True
B)False
Q2) It is unlikely that a company would want to bond its employees who handle cash or inventory.
A)True
B)False
Q3) The taking of a physical inventory is an example of periodic independent verification.
A)True
B)False
Q4) The separation of duties feature of internal control can be negated when several employees are involved in a scheme.
A)True
B)False
Q5) The review of a system of internal control by internal auditors relates most closely to the monitoring component of internal control.
A)True
B)False
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Chapter 8: Inventories
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Q1) The FIFO inventory method does not produce the most up-to-date figure for ending inventory.
A)True
B)False
Q2) An assumption about cost flow is necessary
A) because it is required by income tax regulations.
B) only when the flow of goods cannot be determined.
C) because prices usually change, and tracking which units have been sold is difficult.
D) even when there is no change in the purchase price of inventory.
Q3) Which of the following accounts would not appear as an asset on a manufacturer's balance sheet?
A) Finished Goods
B) Work in Process
C) Factory Overhead
D) Raw Materials
Q4) Under the perpetual inventory system, cost of goods sold is not recorded until the end of the accounting period.
A)True
B)False
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Chapter 9: Cash and Receivables
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Q1) In a petty cash fund, the current cash amount minus the receipts submitted should equal the original fixed amount.
A)True B)False
Q2) What is a compensating balance? By whom is it required?
Q3) Each of the following is a characteristic of a promissory note except a(n)
A) maturity date that can be determined on the date the note is signed.
B) payee who has an unconditional right to receive a definite amount on a definite date. C) maker who agrees to pay a definite sum subject to certain conditions.
D) amount to be paid that can be determined on the date the note is signed.
Q4) The direct charge-off method makes not attempt to match bad-debt losses with revenues.
A)True B)False
Q5) Why do businesses need to keep some currency on hand?
Q6) The allowance method of handling bad debts violates the matching principle.
A)True B)False
Q7) On a balance sheet, what items normally are included in Cash?
Page 11
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Chapter 10: Current Liabilities and Fair Value Accounting
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Q1) For notes payable whose interest is stated separately, the adjusting entry would consist of a debit to Interest Expense and a credit to Interest Payable.
A)True
B)False
Q2) A liability rarely is established for product warranties because of uncertainty as to the amount of the liability.
A)True B)False
Q3) The declaration of dividends is solely the decision of the corporation's stockholders.
A)True
B)False
Q4) Which of the following phrases is not descriptive of an ordinary annuity?
A) Payments made at the beginning of equal periods of time
B) Both present and future value can be calculated
C) Compound interest assumed
D) Series of equal payments
Q5) Under what circumstances is a contingent liability reflected in the accounting records as though an actual liability exists?
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Chapter 11: Long Term Assets
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Sample Questions
Q1) Noncompete covenants should be amortized over the specified life of the contract.
A)True
B)False
Q2) A company purchases for $24,000 an asset that has a useful life of six years and no salvage value. After two years, the company spends $4,000 for a major overhaul that will extend the machine's useful life four years beyond the original six. Assuming straight-line depreciation, how much depreciation should be taken in year 3?
A) $2,800
B) $2,500
C) $2,000
D) $4,000
Q3) A revenue expenditure results in a
A) debit to an expense account.
B) credit to an expense account.
C) debit to an asset account.
D) credit to an asset account.
Q4) In general, how does one determine whether or not an expenditure should be included in the acquisition cost of property, plant, and equipment?
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Page 13
Chapter 12: Contributed Capital
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Q1) The par value of the common stock represents the A) amount entered into the corporation's Common Stock account when a share is issued.
B) liquidation value of the stock.
C) market value of a share of stock.
D) amount the corporation received when the stock was issued.
Q2) The limited liability of a stockholder can be viewed as both an advantage and a disadvantage.
A)True
B)False
Q3) If Willis Corporation has 80,000 shares of common stock authorized, 50,000 shares of common stock issued, and holds 2,000 shares of common stock as treasury stock, the total number of outstanding shares of Willis Corporation amounts to
A) 32,000.
B) 78,000.
C) 48,000.
D) 36,000.
Q4) Why must a corporation have sufficient retained earnings before it may declare cash dividends?
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Chapter 13: Long Term Liabilities
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Q1) Accounting for capital leases can be thought of as similar to accounting for mortgage payments.
A)True
B)False
Q2) The responsibility for receiving the proper amount of interest falls on the bondholder most heavily in the case of
A) term bonds.
B) serial bonds.
C) coupon bonds.
D) registered bonds.
Q3) When bonds are converted to stock, no gain or loss is recognized.
A)True
B)False
Q4) Under a defined benefit pension plan,
A) actuarial computations are unnecessary.
B) accounting for annual pension expense is simple.
C) retirement payments are based on the amount accumulated in the pension fund.
D) the employer guarantees the employees certain benefits upon retirement.
Q5) Technically, what is meant by the amortization of a bond discount, and why is it necessary?
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Chapter 14: The Corporate Income Statement and the Statement of Stockholders Equity
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Q1) Gains and losses from the takeover of property by a foreign government are treated as discontinued operations.
A)True
B)False
Q2) Which of the following has an effect on total stockholders' equity?
A) Conversion of preferred stock into common stock
B) Cash dividend
C) Stock dividend
D) Stock split
Q3) A corporation is subject to a federal flat income tax rate of 34 percent.
A)True
B)False
Q4) Extraordinary gains and losses must be shown in the financial statements "net of tax."
A)True
B)False
Q5) In computing book value per share of common stock, common stock distributable is included in the divisor.
A)True
B)False
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Chapter 15: The Statement of Cash Flows
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Q1) If the indirect method is used, which of the following would be subtracted from net income to arrive at net cash flows from operating activities?
A) Increase in Notes Payable
B) Decrease in Inventory
C) Decrease in Accounts Payable
D) Depreciation Expense
Q2) Use this information to answer the following question. Northbrook Corporation is preparing a statement of cash flows. The following transactions occurred during the year:
1) Sold machinery for $9,000 cash.
2) Purchased a building for $80,000 cash.
3) Issued $70,000 worth of stock to acquire an airplane.
4) Converted long-term bonds by issuing $100,000 worth of stock.
5) Declared and paid a $10,000 cash dividend.
Transaction 2 would be found on the statement of cash flows in the
A) cash flows from operating activities section.
B) cash flows from financing activities section.
C) cash flows from investing activities section.
D) noncash investing and financing transactions section.
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Page 17
Chapter 16: Financial Performance Measurement
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Q1) Does the existence of conglomerates make financial performance evaluation easier or more difficult? Why?
Q2) Return on assets is most closely related to A) interest coverage and the debt to equity ratios.
B) profit margin and the debt to equity ratio.
C) profit margin and asset turnover.
D) inventory turnover and profit margin.
Q3) The cash flow yield equals net income divided by net cash flows from operating activities.
A)True
B)False
Q4) Lois Kent has owned and managed the operations of a small chain of sporting goods stores for the past two years. She has asked her administrative assistant to provide her with some annual reports of other companies that sell sporting goods as well as some published reports showing norms for the sporting goods industry so that Lois can compare the financial ratios of her company with those of other companies that sell sporting goods. Discuss the limitations of using comparisons with other companies and industry norms, which Lois needs to remember.
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Page 18
Chapter 17: Partnerships
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Q1) Bjorn and Canute are partners who share profits and losses in a ratio of 2:3, respectively, and have the following capital balances on September 30, 2010: \(\begin{array}{ll}
\text { Bjorn, Capital } & \text { Canute, Capital } \\ \$ 100,000 \mathrm{Cr} . & \$ 150,000 \mathrm{Cr} . \end{array}\) The partners agree to admit Davis to the partnership. Calculate the capital balances of each partner after the admission of Davis, assuming that bonuses are recorded when appropriate for each of the following assumptions:
a. Davis pays Bjorn $50,000 for 40 percent of his interest
b. Davis invests $50,000 for a one-sixth interest in the partnership
c. Davis invests $50,000 for a 25 percent interest in the partnership
d. Davis invests $50,000 for a 15 percent interest in the partnership
Q2) Sid and Sally divide partnership income and losses solely on the basis of their average capital balances. Sid had $27,500 invested during all of 2010; Sally had $20,000 invested from January 1 to August 31, and she invested another $7,500 on September 1. If income was $80,000 during 2010, how much should each partner receive?
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19
Chapter 18: The Changing Business Environment-A
Managers Pers
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Q1) JIT, TQM, ABM, and TOC all make a contribution to A) encourage competition.
B) eliminate all costs.
C) continuous improvement.
D) assign costs differently than before.
Q2) Although management accountants should try not to engage in activities that would prejudice their ability to carry out their duties, they are not obligated to refrain from such activities after business hours, as long as these activities take place off company premises.
A)True
B)False
Q3) An advantage of value chain analysis is that it allows a company to focus on what a company does best.
A)True
B)False
Q4) What would a company using an activity-based management approach attempt to do in regard to activities that add value to the product and those that do not?
Q5) Identify three uses of the costs of quality information.
Q6) Give two examples of nonfinancial performance measures.
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Chapter 19: Cost Concepts and Cost Allocation
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Q1) A predetermined overhead rate allows managers to make more timely product pricing decisions.
A)True
B)False
Q2) Total manufacturing costs increase the balance of the Work in Process Inventory account.
A)True
B)False
Q3) The presentation of merchandise inventory and cost of goods sold in the financial statements of merchandising companies most nearly resembles the presentation of __________ inventory and cost of goods sold in the financial statements of manufacturing companies.
A) materials
B) finished goods
C) manufacturing supplies
D) work in process
Q4) The product costs that appear in the financial statements are actual product costs.
A)True
B)False
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Chapter 20: Costing Systems: Job Order Costing
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Q1) Teddy's To Hug, produces Teddy Bears for heart patients. Last month the company produced 5,000 bears. Using job order costing, determine the product unit cost for one bear based on the following costs: production facility utilities, $600; depreciation on production equipment, $550; indirect materials, $450; direct materials, $1,300; indirect labor, $900; direct labor, $2,500; sales commissions, $3,000; president's salary, $5,000; insurance on production facility, $700; advertising expense, $600; rent on production facility, $5,000; rent on sales office, $3,000; and legal expense, $300. Carry your answer to two decimal places.
Q2) Job costs in a service organization end up in the Finished Goods Inventory account when a job is completed.
A)True B)False
Q3) A job order cost card is a type of subsidiary ledger. A)True B)False
Q4) Costs for individual jobs are maintained on job order cost cards when job order costing is in use.
A)True B)False
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Chapter 21: Costing Systems Process Costing
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Q1) Natasha Corporation's Shaping Department had no beginning inventory and completed and transferred to finished goods 920 units during May. Ending inventory for May contained 80 units that were 30 percent complete as to conversion costs and 100 percent complete as to direct materials costs. The charges to the Shaping Department during May were $3,776 for conversion costs and $2,500 for direct materials costs. Compute the cost of work transferred out if Natasha Corporation uses the FIFO costing method.
A) $6,180
B) $5,980
C) $5,774
D) $6,118
Q2) Measures of equivalent production are necessary in process costing because
A) job order costing procedures cannot be applied.
B) unit costs are computed by departments or processes at fixed time intervals.
C) perpetual inventories are not employed in process plants.
D) production methods are more complex than in job order costing systems.
Q3) The cost of producing each gallon of paint differs.
A)True
B)False
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Page 23
Chapter 22: Activity-Based Systems-Abm and Lean
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Q1) Which one of the four levels of the cost hierarchy would be used by a dress manufacturer that uses activity-based management to design a pattern for a new dress style?
A) Unit-level activity
B) Batch-level activity
C) Product-level activity
D) Facility-level activity
Q2) Full product cost is relevant for companies providing services as well as those providing products.
A)True
B)False
Q3) Activity-based management includes all of the following except identifying
A) customer satisfaction with a product or service.
B) the resources that are consumed by each activity.
C) activities as value-adding.
D) how resources are consumed by each activity.
Q4) Only value-adding activities are included in the cost hierarchy.
A)True
B)False
Q5) How can activity-based systems help managers in a global marketplace?
Page 24
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Chapter 23: Cost Behavior Analysis
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Q1) Christian Company's sales revenue for 20xx was $144,000. Christian's product sells for $5.50 and has a 30 percent contribution margin. Christian has fixed costs of $33,000. What is Christian Company's breakeven point in sales dollars?
A) $205,714
B) $110,000
C) $144,000
D) $173,000
Q2) If a company wishes to evaluate the likelihood of success with a new product line, the breakeven point will provide information about the average amount of profit the company will make.
A)True
B)False
Q3) Explain what cost-volume-profit analysis is and how managers use it. Give examples of some purposes for which it might be used.
Q4) Practical capacity is theoretical or ideal capacity reduced by normal and anticipated work stoppages, such as machine breakdowns.
A)True
B)False
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Chapter 24: The Budgeting Process
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Q1) Fallgatter, Inc., expects to sell 18,000 units. Each unit requires 3 pounds of direct materials at $12 per pound and 2 direct labor hours at $10 per direct labor hour. The overhead rate is $8 per direct labor hour. The beginning inventories are as follows: direct materials, 2,000 pounds; finished goods, 2,500 units. The planned ending inventories are as follows: direct materials, 3,900 pounds; finished goods, 3,000 units. Given a planned production of 10,000 units, what are the planned direct materials purchases?
A) $310,800
B) $274,800
C) $346,800
D) $382,800
Q2) Which of the following is not a guideline for budget preparation?
A) Include financial data only.
B) Know the sources of budget information.
C) Know the purpose of the budget.
D) Identify the format of the budget.
Q3) A budget need not contain both revenue and expense components.
A)True
B)False
Q4) Describe three benefits budgeting provides to an organization's success.
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Chapter 25: Performance Management and Evaluation
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Q1) One of the overall goals of the Pancake House Restaurant is customer satisfaction. In the light of that goal, match the internal business processes perspective with the appropriate objective.
A) Customer satisfaction means that the chefs engage in culinary continuing education.
B) Customer satisfaction means that customers receive their food within 10 minutes of placing an order.
C) Customer satisfaction means that the customer appreciation program is successful.
D) Customer satisfaction means that the restaurant is profitable.
Q2) The manager of Center E provides human resource support for the other centers in the company. What type of responsibility center is Center E?
A) Cost center
B) Discretionary cost center
C) Revenue center
D) Investment center
Q3) What are some of the limitations of utilizing ROI, residual income, and EVA to measure the performance of investment centers?
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Chapter 26: Standard Costing and Variance Analysis
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Q1) The direct labor rate standard is either set by a labor contract or defined by the company.
A)True B)False
Q2) The total overhead variance is the difference between standard variable overhead costs and standard fixed overhead costs.
A)True B)False
Q3) Lucas Company has set standards for the manufacturing of clay pots to be 2 pounds of direct materials, per pot, at a cost of $3 per pound. During the current period, 600 pounds of direct materials were purchased for $1872. All of the direct materials were used to manufacture 295 pots. Lucas's direct materials price variance was
A) $102 (U).
B) $72 (U).
C) $102 (F).
D) zero.
Q4) A variance is the difference between a standard cost and a budgeted cost.
A)True
B)False
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Chapter 27: Short Run Decision Analysis
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Q1) California Chemical Co. produces several chemical compounds. Each compound can be sold at the split-off point or processed further. The following results apply to May: \[\begin{array} { l l l l }
\text { Compound } & \text { Fales Value at Split-off } & \text { Casts af Additional } & \text { Sales Value After } \\ & \text { Paint } & \text { Pracessine } & \text { Additional Pracassine } \\
\text { ChemI } & \$ 59,600 & \$ 7,300 & \$ 74,400 \\
\text { Chem II } & 70,70 ] & 17,500 & 82,600 \\
\text { Chem III } & 46,700 & 6,200 & 55,500
\end{array}\] After determining which products should be sold at the split-off point and which should be processed further, the total revenue provided by these three products would be
A) $172,500.
B) $199,000.
C) $200,600.
D) $212,500.
Q2) Fixed costs are irrelevant in make-or-buy decisions.
A)True
B)False
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Chapter 28: Capital Investment Analysis
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Q1) Present value is the amount that must be invested today at a given rate of compound interest to produce a given future value.
A)True
B)False
Q2) Which of the following evaluation methods disregard the time value of money?
A) The accounting rate-of-return and discounted cash flow methods
B) The net present value and discounted cash flow methods
C) The payback period and net present value methods
D) The accounting rate-of-return and payback period methods
Q3) Discuss the qualitative factors that should be considered in the evaluation of proposals in addition to the quantitative factors.
Q4) When two or more capital investment proposals are being evaluated using the accounting rate-of-return method, the proposal that yields the highest ratio of net income to average cost of investment is selected.
A)True
B)False
Q5) Projected cash flows could vary each year of an asset's life.
A)True
B)False
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