Fundamentals of Accounting Study Guide Questions
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and concepts underlying financial and managerial accounting. The course covers essential topics such as the accounting cycle, recording and summarizing business transactions, preparation of financial statements, and analysis of accounting information. Students also gain an understanding of key accounting terms, the role of accounting in business decision-making, and the ethical considerations in the profession. By the end of the course, students will be equipped with foundational knowledge necessary for further study in accounting and related fields.
Recommended Textbook
Horngrens Accounting 10th Edition by Miller Nobles Mattison
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Glorious Gloria, a florist, had the following transactions in August: Earned $2,000 as revenues on account; collected $4,000 from a customer for goods sold last month; incurred $600 of repair expense and paid cash; paid $200 to a supplier that it owed from the previous month. What is the net income in August?
A)$500
B)$5,700
C)$2,700
D)$1,400
Answer: D
Q2) Which of the following amounts appears on both the statement of owner's equity and the balance sheet?
A)ending owner's equity
B)total assets
C)total revenues
D)net income
Answer: A
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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) When a business records revenue earned, the Revenue account is credited.
A)True
B)False Answer: True
Q3) An accounting entry that is characterized by having multiple debits and/or multiple credits is called a ________ entry.
A)balanced
B)posted
C)chart of accounts
D)compound journal
Answer: D
Q4) When a business makes a cash payment, the Cash account is debited.
A)True
B)False Answer: False
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The contra asset accounts, like Accumulated Depreciation, always have normal debit balances.
A)True
B)False
Answer: False
Q2) Ursula Tax Planning Service has the following plant assets: Communications equipment: Cost, $6,720 with useful life of 8 years; Furniture: Cost, $18,000 with useful life of 12 years; and Computer: Cost, $12,000 with useful life of 4 years. Ursula's monthly depreciation expense calculated using the straight-line method is: (Assume salvage value of all the assets to be zero)
A)$250.
B)$125.
C)$70.
D)$445.
Answer: D
Q3) GAAP requires a public company to prepare a worksheet for financial reporting purposes.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) A reversing entry is:
A)a journal entry used to close the temporary accounts after preparation of financial statements.
B)a special journal entry used to make the adjustments that took place after preparing the trial balance.
C)a special journal entry that eases the burden of accounting for transactions in the next period
D)a journal entry passed at the end of an accounting period to match assets with liabilities.
Q2) The assets that are expected to be converted to cash, sold, or used up during the next 12 months, or within the business's normal operating cycle if the cycle is longer than a year are called ________ assets.
A)intangible
B)plant
C)long-term
D)current
Q3) The Owner's Name, Withdrawals account is a permanent account.
A)True
B)False
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Page 6
Chapter 5: Merchandising Operations
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Q1) Credit terms of 2/10, n/30 indicate that a discount of 2% will be given if payment is made within 10 days of the invoice date. Otherwise, the total invoice amount is due within 30 days after the invoice date.
A)True
B)False
Q2) In a multi-step income statement, which of the following items is excluded from the calculation of operating income?
A)sales revenue
B)interest expense
C)selling expense
D)administrative expense
Q3) Which of the following is added to operating income to arrive at net income?
A)sales revenue
B)cost of goods sold
C)interest revenue
D)operating expenses
Q4) A sales allowance is recorded with a credit to Accounts Payable.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Under which of the following inventory costing methods is the ending inventory valued on the cost of the most recent purchases?
A)Specific identification
B)Weighted-average
C)Last-in, first-out
D)First-in, first-out
Q2) Which of the following amounts will differ if a company, using the last-in, first-out (LIFO)method, shifts from a periodic inventory system to a perpetual inventory system?
A)ending merchandise inventory
B)sales revenue
C)purchases
D)purchase returns
Q3) A company is uncertain whether a complex transaction should be recorded as gain or loss. Under the conservatism principle, they should choose to treat it a loss.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The purchases journal of a business that uses periodic inventory system will include a column titled:
A)Cost of Goods Sold DR.
B)Purchases DR.
C)Accounts Payable DR.
D)Merchandise Inventory DR.
Q2) Which of the following transactions will be recorded in the purchases journal?
A)purchase of furniture on account
B)purchase of merchandise inventory for cash
C)sale of a product on account
D)sales of a product for cash
Q3) In an accounting information system, outputs are the reports used for decision making, including the financial statements.
A)True
B)False
Q4) Enterprise resource planning (ERP)systems are software systems that can integrate all of a company's functions, departments, and data into a single system.
A)True B)False
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Chapter 8: Internal Control and Cash
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Q1) Which of the following items require an adjustment on the bank side of the bank reconciliation?
A)interest earned
B)a bank service charge
C)a note collected by the bank
D)deposits in transit
Q2) A document authorizing a cash payment is a(n):
A)check.
B)invoice.
C)voucher.
D)bill of lading.
Q3) Internal auditors monitor company controls to safeguard assets and ensure that employees are following company policies.
A)True
B)False
Q4) A strong computer firewall is an essential element of good internal controls for e-commerce.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) In order to exercise effective internal control over receivables the credit department must have access cash.
A)True
B)False
Q2) 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.
Q3) A debtor is a party to the transaction who will receive the cash for the transaction at a later date.
A)True
B)False
Q4) The percent-of-receivables method computes bad debts expense as a percentage of accounts receivable.
A)True
B)False
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11
Chapter 10: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) Businesses should not deplete natural resources because these do not decrease in value with time.
A)True
B)False
Q2) Steel Rolling Company purchased a mine on January 1, 2015, for $500,000 and they estimated that 30,000 tons of iron ore can be extracted from it. It has no residual value. The company 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).
Q3) Black n White Company purchased equipment for $45,000. The company recorded total depreciation of $36,000 on the equipment. On January 1, 2015, Black n White traded in the equipment for new equipment, paying $56,000 cash. The fair market value of the new equipment is $65,000. Journalize the company's exchange of equipment. Assume the exchange had commercial substance.
Q4) On June 30, 2015, Regal Furniture discarded a fully depreciated equipment costing $35,000. Journalize the disposal of the equipment.
Q5) Capitalizing the cost of an asset involves crediting the asset account.
A)True B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Which of the following is included in the entry to record estimated warranty payable?
A)a credit to Estimated Warranty Payable
B)a credit to Merchandise Inventory
C)a credit to Warranty Expense
D)a debit to Estimated Warranty Payable
Q2) Barter Company sold goods for $875,500 on account. The company operates in a state that imposes a 6% sales tax. Which of the following would be the amount of the sales tax payable to the state?
A)$52,530
B)$50,540
C)$45,300
D)$55,090
Q3) The journal entry in the payroll cycle to record employer's payroll tax expense will include a debit to Employee Income Taxes Payable.
A)True
B)False
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Chapter 12: Partnerships
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Sample Questions
Q1) Rodriguez and Ying start a partnership business on July 1, 2014. Rodriguez brings in cash worth $4,000, furniture with a current market value of $50,000, and computer equipment. The computer equipment cost $45,000 in 2011 and has an accumulated depreciation of $25,000. The current market value of the computer equipment is $18,000. At what value should the computer equipment be recorded in the books of the partnership firm?
A)$45,000
B)$18,000
C)$20,000
D)$25,000
Q2) Marshall retires from the partnership of Marshall, Mark, and Dennis. Marshall had a capital balance of $25,000. If Marshall received $25,000 as final settlement, how will this transaction affect the balance sheet items?
A)Cash will increase.
B)Liabilities will increase.
C)Liabilities will decrease.
D)Equity will decrease.
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Chapter 13: Corporations
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Sample Questions
Q1) ABC has 45,000 shares of $10 par common stock outstanding. They offer a stock split of 4-for-1. The effect of the split will be:
A)par stays at $10; total shares go to 11,250.
B)par drops to $5; total shares stay at 45,000.
C)par drops to $2.50; total shares go to 180,000.
D)par goes to $40; total shares go to 180,000.
Q2) The purchase of treasury stock:
A)decreases both assets and stockholders' equity.
B)increases both assets and stockholders' equity.
C)increases assets and decreases stockholders' equity.
D)decreases assets and increases stockholders' equity.
Q3) When a corporation sells 10,000 shares of $10 par value common stock for $120,000, the Common Stock account is credited for $100,000.
A)True
B)False
Q4) On December 2, 2014, Ewell Company purchases a piece of land from the original owner. In exchange for the land, Ewell Company issues 8,000 shares of common stock with $1.00 par value. The land has been appraised at a market value of $400,000. Provide the journal entry for this transaction.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) Which of the following concepts represents time value of money?
A)the concept that money becomes obsolete over time
B)the concept that money earns income over time
C)the concept that money loses its purchasing power over time
D)the concept that money can be converted into other currencies over time
Q2) The market rate is the rate used to calculate the actual cash payments made to bondholders.
A)True
B)False
Q3) On November 1, 2015, EZ Products borrowed $48,000 on a 5%, 10-year note with annual installment payments of $4,800 plus interest due on November 1 of each succeeding year. On November 1, 2016, what will the balance be in the Long-Term Notes Payable account?
A)$38,400
B)$48,000
C)$43,200
D)$4,800
Q4) On January 1, 2013, Davie Services issued $20,000 of 8% bonds that mature in five years. They were sold for a total of $19,000. Provide the journal entry to issue bonds.
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Chapter 15: Investments
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Sample Questions
Q1) The rate of return on total assets is calculated by subtracting interest expense from net income and dividing it by average assets.
A)True
B)False
Q2) Available-for-sale (AFS)investments that are planned to be held longer than a year are reported as:
A)equity.
B)current assets.
C)long-term assets.
D)either current assets or long-term assets.
Q3) When a company invests in a bond which has a maturity greater than one year and pays cash:
A)equity remains unchanged.
B)current asset increases.
C)liabilities increase.
D)total assets increases.
Q4) Significant interest investments must be accounted for using the equity method. A)True B)False
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Chapter 16: The Statement of Cash Flows
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Q1) Which of the following sections of the statement of cash flows include activities that affect current assets and current liabilities on the balance sheet? (Assume the indirect method is used.)
A)the investing section
B)the financing section
C)the operating section
D)the non-cash investing and financing section
Q2) Allen Company uses the indirect method to prepare its statement of cash flows. The Treasury Stock account had a debit balance of $9,000 at the beginning of the year, and a debit balance of $13,000 at the end of the year. No Treasury Stock was sold during the year.
The financing section of the statement of cash flows will show a positive cash flow of $4,000 for the buyback of Treasury Stock.
A)True
B)False
Q3) The third section presented on the statement of cash flows is the non-cash operating activities section.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Trend analysis is a form of horizontal analysis.
A)True
B)False
Q2) An external auditor is responsible for assessing the effectiveness of a company's internal controls.
A)True
B)False
Q3) Benchmarking is the comparison of a company's current year results with an earlier year's performance.
A)True
B)False
Q4) An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.
A)True
B)False
Q5) The disposal of a financial segment would be reported as discontinued operations.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Q1) Product costs, such as factory overhead, should be treated as an asset until the product is sold.
A)True B)False
Q2) Managerial accounting is used in manufacturing and merchandising companies, but not in service companies.
A)True B)False
Q3) All costs incurred in the manufacture of final products are product costs.
A)True B)False
Q4) Salary of a factory manager will be included in manufacturing overhead. A)True B)False
Q5) The three categories of period costs are direct materials, direct labor, and manufacturing overhead.
A)True B)False
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Chapter 19: Job Order Costing
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Sample Questions
Q1) The predetermined overhead allocation rate is calculated by dividing:
A)the total estimated overhead costs by total number of days in a year.
B)the estimated amount of cost driver by actual total overhead costs.
C)the actual overhead costs by actual amount of the cost driver or allocation base.
D)the estimated overhead costs by total estimated quantity of the overhead allocation base
Q2) Darrius Travel Services provided the following information:
Cost allocation rate for direct labor: $40 per hour
Cost allocation rate for indirect costs: $22 per hour
Darrius is negotiating a job with a new client. The job will require 10 hours of direct labor. If Darrius wishes to make at least 15% gross profit on the revenues, they need to receive $713 of revenues.
A)True
B)False
Q3) If the debit side of the Manufacturing Overhead account totals more than the credit side of the account, the manufacturing overhead is overallocated.
A)True
B)False
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Chapter 20: Process Costing
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Sample Questions
Q1) A process costing system is most suitable for businesses that manufacture batches of unique products or provide specialized services.
A)True
B)False
Q2) Which of the following is recorded by debiting the Manufacturing Overhead account?
A)transfer of units from one process to the next
B)direct labor costs incurred
C)depreciation on factory machinery
D)office electricity charges
Q3) 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
Q4) Which of the following is a step in the preparation of a production cost report?
A)assignment of costs to units completed and units in process
B)summarization of the flow of physical units to the suppliers
C)computation of expected units of production
D)computation of amount of materials required for production
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) McDaniel Company sells two products-J and B. McDaniel predicts that it will sell 7,200 units of J and 5,600 units of B in the next period. The unit contribution margins are $2.85 and $6.30, respectively. What is the weighted-average unit contribution margin?
A)$9.96 per product
B)$4.58 per product
C)$7.75 per product
D)$4.36 per product
Q2) Anthony Company 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
Q3) Total fixed costs can change from one relevant range to another.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) A budget represents the plans that a company has in place to achieve its goals.
A)True
B)False
Q2) The capital expenditures budget represents the company's plan for purchasing the long-term assets.
A)True
B)False
Q3) For a merchandiser, the budgeted sales equals the number of units budgeted for sale multiplied by the budgeted selling price per unit.
A)True
B)False
Q4) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet. The balance of Accounts Payable can be taken from:
A)the inventory, purchases and cost of goods sold budget.
B)the budgeted cash payments for purchases.
C)the cash budget.
D)the selling and administrative expenses budget.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A company is analyzing its month-end results by comparing it to both static and flexible budgets. During the previous month, the actual variable expenses per unit were lower than the expected variable costs per unit as per the static budget. This difference results in a(n):
A)favorable flexible budget variance for variable expenses.
B)favorable sales volume variance for variable expenses.
C)unfavorable flexible budget variance for variable expenses.
D)unfavorable sales volume variance for variable expenses.
Q2) Flexible budget variance is the difference between expected results in the flexible budget for the actual units sold and the static budget.
A)True
B)False
Q3) Which of the following is the correct formula to measure cost variance?
A)Cost Variance = (Actual Cost + Standard Cost)÷ Actual Quantity
B)Cost Variance = (Actual Cost - Standard Cost)× Actual Quantity
C)Cost Variance = (Actual Cost + Standard Cost)+ Actual Quantity
D)Cost Variance = (Actual Cost - Standard Cost)- Actual Quantity
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) The transfer price should be an amount between the market price and the variable cost.
A)True
B)False
Q2) When a division is operating at full capacity, the transfer price must be:
A)based on opportunity cost.
B)a market-based transfer price.
C)a cost-based transfer price.
D)total manufacturing cost.
Q3) The manager of a cost center is responsible for controlling costs and generating revenues of the company.
A)True
B)False
Q4) A company in which major planning and controlling decisions are made by top management is considered as a centralized company.
A)True
B)False
Q5) The flexible budget uses budgeted costs at the actual level of activity.
A)True
B)False
26
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Chapter 25: Short-Term Business Decisions
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Q1) Fox Inc. manufactures and sells pens for $5 each. Wolf Corp. has offered Fox Inc. $3 per pen for a one-time order of 3,500 pens. The total manufacturing cost per pen, using traditional costing, is $1 per unit, and consists of variable costs of $0.85 per pen and fixed overhead costs of $0.15 per watch. Assume that Fox Inc. has excess capacity and that the special order would not adversely affect regular sales. What is the change in operating income that would result from accepting the special sales order?
A)increase of $7,000
B)decrease of $7,000
C)increase of $7,525
D)decrease of $7,525
Q2) Companies are price-takers when:
A)it is operating 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.
Q3) 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) The fact that invested cash earns income over time is called the time value of money.
A)True
B)False
Q2) If an investment project's IRR is higher than the company's required rate of return, the company should reject the investment.
A)True
B)False
Q3) Which of the following is a capital budgeting method that is used to screen potential investments?
A)return on assets
B)acid test ratio
C)accounting rate of return
D)debt-to-equity ratio
Q4) The only difference between present value and future value is the amount of interest that is earned in the intervening time span.
A)True
B)False
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