Fundamentals of Accounting Solved Exam Questions
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and procedures of accounting, providing a solid foundation in understanding financial transactions, recording processes, and the preparation of financial statements. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, accruals and deferrals, and an overview of key financial documents like the balance sheet, income statement, and cash flow statement. Students will also develop analytical skills for interpreting financial data and learn the ethical responsibilities of accountants, preparing them for advanced study in accounting and related business disciplines.
Recommended Textbook
Horngren's Accounting 12th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) An owner's withdrawal represents an expense of the business.
A)True
B)False
Answer: False
Q2) The balance sheet reports on the assets,liabilities,and owner's equity of the business as of a specific date.
A)True
B)False
Answer: True
Q3) Which of the following financial statements reports cash receipts and cash payments during a period of time?
A) Statement of cash flows
B) Balance sheet
C) Cash receipts budget
D) Statement of owner's equity
Answer: A
Q4) Liabilities represent creditors' claims on the business's assets.
A)True
B)False
Answer: True
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Which one of the following account groups will decrease with a debit?
A) assets and expenses
B) revenues and expenses
C) liabilities and revenues
D) assets and liabilities
Answer: C
Q2) For revenues,the category of account and its normal balance is ________.
A) equity and a credit balance
B) assets and a debit balance
C) assets and a credit balance
D) equity and a debit balance
Answer: A
Q3) A customer's promise to pay in the future for services or goods sold is called a(n)________.
A) Accounts Receivable
B) Accounts Payable
C) Unearned Revenue
D) Notes Payable
Answer: A
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Jones Financial Services Company performed accounting services for a client in December.A bill was mailed to the client on December 30.The company received the client's check by mail on January 5.Which of the following accounts should appear on the income statement for the year ended December 31 as related to the services performed?
A) Service Revenue
B) Unearned Revenue
C) Accounts Payable
D) Prepaid Expense
Answer: A
Q2) The expected value of a depreciable asset at the end of its useful life is called
A) book value
B) residual value
C) depreciation expense
D) accrued expense
Answer: B
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) A reversing entry ________.
A) is required by GAAP
B) is used in conjunction with deferral type adjustments
C) exactly resembles the prior adjusting entry
D) switches the debit and the credit of a previous entry
Q2) Under which of the following categories would Accounts Receivable appear?
A) Current assets
B) Current liabilities
C) Long-term assets
D) Long-term liabilities
Q3) If a business has a net loss,the Income Summary T account would hold a debit balance before the account is closed.
A)True
B)False
Q4) Notes Payable due within two years are classified as ________.
A) current liabilities
B) current assets
C) long-term liabilities
D) long-term assets
Q5) List the steps of the accounting cycle that take place during the period.
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) The Merchandise Inventory account is an asset account that is used only for goods purchased that the business owns and intends to resell to customers.
A)True
B)False
Q2) If a merchandiser uses the periodic inventory system,it is necessary to conduct a physical count of inventory to determine the quantity of inventory on hand.
A)True B)False
Q3) Home Theater Company has the following transaction related to the sale of merchandise inventory.
June 1: Sold a home theater system (cost of \( \$ 6,200 \) ) for \( \$ 9,000 \) to a customer. The customer paid cash. The sales price included a two-year service contract valued at \( \$ 840 \).
Dec 31. Recorded the amount of service contract earned. Journalize the transactions of Home Theater assuming that the company uses the perpetual inventory system.Do not record the cost of goods sold entry.Omit explanations.
Q4) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Companies determine the number of units on hand from perpetual inventory records backed up by a physical count.
A)True
B)False
Q2) The disclosure principle states that a company should report enough information for outsiders to make knowledgeable decisions about the company.
A)True
B)False
Q3) When using the LIFO inventory costing method,ending merchandise inventory will be the lowest,as compared to FIFO and weighted-average inventory costing methods,when costs are increasing.
A)True
B)False
Q4) Properly recording inventory when sold and removing the units sold from the inventory count will prevent a company from running out of inventory.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which of the following is an example of hardware?
A) monitor
B) malware
C) firewall
D) operating system
Q2) A computerized system uses software to process transactions.Thus employees are no longer required to manually journalize and post transactions to the accounts.
A)True
B)False
Q3) Entries in the sales journal are posted to both the accounts receivable subsidiary ledger and the general ledger.
A)True
B)False
Q4) Which of the following is an input device in an accounting information system?
A) keyboard
B) internet protocol
C) printer
D) router
Q5) Describe the transactions recorded in the cash payments journal.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Journal entries are required for the reconciling items on the book side because
A) those transactions have not yet been recorded by the bank
B) the adjusted balances on both sides are the same amounts
C) the amounts are immaterial
D) those transactions have not yet been recorded on the company's books
Q2) The bank's routing number ________.
A) contains 10 digits
B) identifies the bank upon which the payment is drawn
C) includes the account number of the business
D) is not shown on the check
Q3) Which is the most liquid form of asset?
A) cash
B) accounts receivable
C) inventory
D) supplies
Q4) Violators of the Sarbanes-Oxley Act may be sentenced to prison for making false sworn statements.
A)True
B)False
Page 10
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Chapter 9: Receivables
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Sample Questions
Q1) The use of the allowance method to record bad debts expense violates the matching principle.
A)True
B)False
Q2) Sales through credit or debit cards transfer the risk of collection of receivables from the seller to the card issuer.
A)True
B)False
Q3) If the maker of a note does NOT pay at maturity,________.
A) the debtor no longer owes the payee
B) interest revenue cannot be accrued on the note before the maturity date
C) the note is no longer in force because it has expired
D) the Accounts Receivable account increases for the amount of the note's principal only
Q4) On November 1,2018,Downtown Jewelers accepted a 3-month,15% note for $6,000 in settlement of an overdue account receivable.The accounting period ends on December 31.Prepare the journal entry to record the accrued interest at the year end.Omit explanation.
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Chapter 10: Plant Assets,natural Resources,and Intangibles
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Sample Questions
Q1) Equipment was acquired for $256,000 and has accumulated depreciation of $190,000.The business exchanges this equipment for new equipment.The new equipment has a market value of $209,000 and the business pays $157,000 cash.Assume the exchange has commercial substance.The exchange results in ________.
A) loss $14,000
B) gain $14,000
C) gain $143,000
D) loss $143,000
Q2) A lump-sum purchase or basket purchase involves paying a single price for several assets as a group.
A)True
B)False
Q3) Classify each of the following expenditures as capital expenditure (CE)or revenue expenditure (RE).
1.________ Repair of transmission or engine
2.________ Sales tax paid on the purchase price
3.________ Training of personnel for initial operation of machinery
4,________ Modification for new use
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Warranty Expense is shown on the income statement at the estimated amount.
A)True
B)False
Q2) The times-interest-earned ratios of four companies are given below:
\[\begin{array} { | l | r | }
\hline \text { Forge Company } & 8.9 \\
\hline \text { Fellow Company } & 9.2 \\
\hline \text { Stacy Company } & 6.7 \\
\hline \text { Bennett Company } & 13.5 \\
\hline
\end{array}\] Which of the above companies has the highest debt-paying ability?
A) Forge Company
B) Fellow Company
C) Stacy Company
D) Bennett Company
Q3) State unemployment compensation tax (SUTA)is not withheld from employees' gross earnings.
A)True
B)False
Q4) What is a contingent liability? Provide two examples of contingencies.
Page 13
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Chapter 12: Partnerships
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Sample Questions
Q1) When a new partner is admitted to a partnership by purchasing an existing partner's interest,the business's accounting records do not record the transfer of cash from the new partner to the existing partner.
A)True
B)False
Q2) A general partner in a limited partnership ________.
A) has less personal liability for the debts of the business than the limited partners B) is the majority shareholder and is not involved in the daily business activities
C) has unlimited personal liability in the partnership
D) is the first owner to receive a share of profits and losses
Q3) In a limited liability partnership,each partner is not personally liable for the malpractice or negligence committed by another partner.
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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Chapter 13: Corporations
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Sample Questions
Q1) The following information is from the December 31,2018 balance sheet of January Corporation. \[\begin{array} { | l | r | }
\hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 270,000 \\
\hline \text { Paid-In Capital in Excess of Par-Preferred } & 22,000 \\
\hline \text { Common Stock, } \$ 1 \text { par } & 69,000 \\
\hline \text { Paid-In Capital in Excess of Par-Common } & 206,000 \\
\hline \text { Retained Earnings } & \underline { 56,600 } \\
\hline \text { Total Stockholders' Equity } & \$ 623,600 \\ \hline
\end{array}\] What is the average issue price of the preferred stock shares? (Round answers to the nearest dollar.)
A) $108
B) $100
C) $167
D) $106
Q2) Preferred stockholders receive a dividend preference over common stockholders.
A)True
B)False
Q3) List the four basic rights of stockholders.
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Page 15
Chapter 14: Long-Term Liabilities
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Sample
Questions
Q1) On January 1,2019,Drake Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued at par.Prepare the journal entry to issue bonds.Omit explanation.
Q2) Secured bonds give bondholders the right to take specified assets of the issuer if the issuer fails to pay principal or interest.
A)True
B)False
Q3) On March 1,2018,Vintage Services issued an 8% long-term notes payable for $22,000.It is payable over a 16-year term in $1,375 principal installments on March 1 of each year,beginning March 1,2019.Each yearly installment will include both principal repayment of $1,375 and interest payment for the preceding one-year period.The journal entry to pay the first installment will include a debit to Interest Expense for $1,760.
A)True
B)False
Q4) The future value is the bond's market price.
A)True
B)False
Q5) List three disadvantages of borrowing.
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Chapter 15: Investments
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Sample Questions
Q1) Which of the following is TRUE of comprehensive income?
A) All items included in comprehensive income enter into the determination of net income.
B) Dividend payments are not included in the determination of comprehensive income, even though it results in a decrease in total stockholders' equity.
C) Comprehensive income includes company changes in total stockholders' equity from all sources, including owners' investments.
D) Comprehensive income cannot be combined with a traditional income statement into a combined statement of comprehensive income.
Q2) Under the equity method,the investor ________.
A) must debit the Equity Investments account when a dividend is received
B) must record its share of the investee's net income
C) must use the LIFO method for tax purposes
D) debits the Revenue from Investments when the investee reports income
Q3) Securities are represented by a certificate and are commonly traded on an exchange.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) In preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.
A) is added back as an adjustment to Net Income in the operating activities section
B) is shown as a negative cash flow in the investing activities section
C) is added back to Purchases of Plant Assets under investing activities
D) is shown as a negative cash flow under operating activities
Q2) The three major categories included on the statement of cash flows are ________.
A) investing, operating, and financing activities
B) investing, capital, and financing activities
C) investing, operating, and contracting activities
D) financial, operating, and internal control activities
Q3) The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity's business.
A)True
B)False
Q4) The direct method restates the income statement in terms of cash.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) Use the following to calculate the inventory turnover ratio for the year 2019. \[\begin{array} { l l l } & \underline { 2019 } & \underline { 2018 } \\
\text { Cost of Goods Sold } & 585,000 & 475,000 \\
\text { Merchandise Inventory } & 320,000 & 295,000
\end{array}\]
Q2) The current ratio is calculated as total current assets divided by total current liabilities.
A)True
B)False
Q3) Martin Company's cost of goods sold is 40% of net sales revenue.This means that for every $1 of net sales revenue,Martin has $0.60 of gross profit.
A)True
B)False
Q4) The horizontal analysis of the balance sheet is based on the comparative balance sheet.
A)True
B)False
Q5) What is a common-size statement? Why are these statements useful?
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) Goods that are produced by a manufacturing company and are ready to sell are recorded in the ________ account.
A) Raw Materials Inventory
B) Work-in-Process Inventory
C) Manufacturing Overhead
D) Finished Goods Inventory
Q2) Miguel,a manager for Sierra Company,is inspecting the reports provided by his company's accounting department.He wants to decide how to schedule his department's employees in production next week.Miguel is examining ________.
A) managerial accounting information
B) financial accounting information
C) regulatory accounting information
D) organizational accounting information
Q3) If a merchandising company determines that the unit cost to purchase a product is less than the unit cost to manufacture the product,the company should make a decision to begin manufacturing the product
A)True
B)False
Q4) Define direct cost.
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Chapter 19: Job Order Costing
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Sample Questions
Q1) Littleton Promotional Services uses a job order system for costing and billing promotional services for dance and ballet performances.Littleton has four public relations specialists and office staff.At the beginning of 2019,Littleton estimated the total cost of salaries and benefits for the public relations specialists at $680,000 and a total of 8000 billable hours for the year.The office and administrative costs were estimated at $408,000.The allocation base for office and administrative costs is billable hours.A new client is contracting with Littleton to promote a ballet tour in the United States.Littleton estimates that the job will require 38 billable hours of specialist time.If Littleton wishes to have a 20% mark up on cost on the job,what price should Littleton quote to the client?
A) $3230
B) $1938
C) $6202
D) $1034
Q2) Broxsie Fabrication,Inc.issued $60,000 of direct materials and $15,500 of indirect materials to production.Prepare the journal entry to record the transaction.Omit explanation.
Q3) Define a process costing system and list two types of businesses that would use a process costing system.
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Chapter 20: Process Costing
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Sample Questions
Q1) The costs that were incurred in a previous process and brought into a later process as part of the product's cost are called ________ costs.
A) transferred in B) transferred out C) accounted for D) to account for
Q2) The Polishing Department of Gaura,Inc.had 18,000 units in process on June 1 and received 30,000 units from the Machining Department.What is the number of units to account for by the Polishing Department for June? The company uses the FIFO costing method.
A) 30,000 units
B) 18,000 units
C) 48,000 units
D) 12,000 units
Q3) When raw materials are purchased on account,the Accounts Payable account is credited.Process costing is used.
A)True
B)False
Q4) How is a production cost report prepared using the FIFO method?
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) When there are no units in the beginning Finished Goods Inventory and the units produced are more than the units sold,the operating income will be higher under absorption costing than variable costing.
A)True
B)False
Q2) The breakeven point is the point where the sales revenues are equal to the total variable costs plus the total fixed costs.
A)True
B)False
Q3) For every unit that is produced but not sold,absorption costing "hides" some of the fixed manufacturing overhead in ending Finished Goods Inventory.
A)True
B)False
Q4) Total variable costs change in direct proportion to changes in the volume of production.
A)True
B)False
Q5) How is the contribution margin calculated?
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Chapter 22: Master Budgets
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Sample Questions
Q1) An intentional understatement of expected revenues or overstatement of expected expenses by managers in order to have a favorable performance evaluation is known as
A) benchmarking
B) appropriation
C) budgetary slack
D) variance analysis
Q2) The inventory costing method affects the process of preparing the cost of goods sold budget.
A)True
B)False
Q3) For a merchandising company,the budgeted total sales equals the expected number of units sold multiplied by the budgeted selling price per unit.
A)True
B)False
Q4) The manufacturing overhead budget calculates the budgeted overhead cost for the year,but not the predetermined overhead allocation rate for the year.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Aunt Emily's Food Products is famous for its frosted fruit cake.The main ingredient of the cake is dried fruit,which Aunt Emily's purchases by the pound.In addition,the production requires a certain amount of direct labor.Aunt Emily's uses a standard cost system,and at the end of the first quarter,there was a favorable direct materials cost variance.Which of the following is a logical explanation for that variance?
A) The production manager negotiated a lower wage package for production staff, bringing direct labor costs down.
B) The factory lost two experienced workers at the beginning of the quarter, and their replacements worked at a much slower pace during their training period.
C) The purchasing manager was able to secure a volume discount on dried fruit, purchasing the fruit for less than the amount set by standard.
D) The production staff changed the work flow process so that there was less wastage of direct materials during production.
Q2) A static budget presents financial data at multiple levels of sales volume.
A)True
B)False
Q3) What does the fixed overhead volume variance measure?
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Page 25
Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) The transaction amount for one unit of goods when the transaction occurs between divisions within the same company is the ________.
A) transfer price
B) opportunity cost
C) variable cost
D) sales price
Q2) Activity-based costing refines the cost allocation process even more than traditional allocation costing systems.
A)True
B)False
Q3) A company may prefer to use residual income over return on investment for performance evaluation because ________.
A) residual income is a ratio but return on investment is an absolute figure
B) residual income is more likely to lead to goal congruence than return on investment
C) residual income is easier to calculate than return on investment
D) residual income considers three elements but return on investment considers only two elements
Q4) Explain the difference between a controllable and a noncontrollable cost.
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Chapter 25: Short-Term Business Decisions
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Q1) Comfort Cruiser Company manufactures 100 luxury yachts per month.Included in each yacht is a compact media center.Comfort Cruiser manufactures the media center in-house.The company is considering the possibility of outsourcing the production of the media centers in order to close down some of its facilities and reduce the administrative costs.At present,the variable cost per unit is $275,and fixed costs are $55,000 per month.Assume that if it outsources,fixed costs could be reduced by 60%.The production manager advised the company to contract with a foreign supplier who offered a contract cost of $410 per unit.If it outsources the media center,how would that affect operating income?
A) Operating income would increase by $19,500.
B) Operating income would increase by $33,000.
C) Operating income would decline by $19,500.
D) Operating income would remain the same.
Q2) Which of the following is always irrelevant to short-term operating decisions?
A) relevant cost
B) differential cost
C) opportunity cost
D) sunk cost
Q3) Identify the four steps in the decision-making process.
Q4) Define the terms Relevant Cost and Sunk Cost.
Page 27
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Chapter 26: Capital Investment Decisions
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Q1) Dragonfly,Inc.is evaluating two possible investments in depreciable plant assets.The company uses the straight-line method of depreciation.The following information is available: \[\begin{array} { | l | r | r | }
\hline & \text { Investment A } & \text { Investment B } \\
\hline \text { Initial capital investment } & \$ 101,000 & \$ 151,000 \\
\hline \text { Estimated useful life } & 10 \text { years } & 10 \text { years } \\
\hline \text { Estimated residual value } & 0 & \$ 20,000 \\
\hline \text { Estimated annual net cash inflow for 10 years } & \$ 28,000 & \$ 47,000 \\
\hline \text { Required rate of return } & 12 \% & 12 \% \\
\hline
\end{array}\] Calculate the payback period for Investment A.(Round your answer to two decimal places.)
A) 2.22 years
B) 2.89 years
C) 1.00 year
D) 3.61 years
Q2) What are the strengths of the net present value capital budgeting method?
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