Fundamentals of Accounting Test Bank
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and concepts underlying the accounting process. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, and key accounting terms. Students will gain practical skills in recording business transactions, understanding the role of accounting in business decision-making, and interpreting financial information for stakeholders. Emphasis is placed on ethical considerations and the importance of accuracy and transparency in financial reporting, laying a strong foundation for further study in accounting and related fields.
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) The earnings of a sole proprietorship are ________.
A) combined with the personal income of the proprietor
B) not combined with the proprietor's personal income
C) subject to double taxation
D) handled similarly to that of a corporation
Answer: A
Q2) On the statement of cash flows,investing activities include purchases of land and equipment with the issuance of a note payable.
A)True
B)False
Answer: False
Q3) Which of the following statements is TRUE of a sole proprietorship?
A) A sole proprietorship joins two or more individuals as co-owners.
B) The sole proprietor is personally liable for the liabilities of the business.
C) A sole proprietorship is taxed separately from the owner.
D) A sole proprietorship has to pay business income taxes.
Answer: B
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The left side of the T-account for Accounts Receivable is the debit side and the left side of the T-account for Accounts Payable is the credit side.
A)True
B)False
Answer: False
Q2) A compound journal entry has more than two accounts,but the total dollar value of the debits still must equal the total dollar value of the credits.
A)True
B)False
Answer: True
Q3) A business prepays four months' office rent.Which of the following accounts is debited?
A) Rent Expense
B) Cash
C) Prepaid Rent
D) Unearned Rent
Answer: C
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) List and briefly discuss three accounting concepts and principles that apply to accrual basis accounting.
Answer: 1.Time period concept - A business's activities can be sliced into small time segments and financial statements can be prepared for specific periods of time.
2.Revenue recognition principle - Revenue is recorded when (or as)the entity satisfies each performance obligation.
3.Matching principle - Expenses are matched against the revenues of the period.This ensures that all expenses are recorded when they are incurred.
Q2) The accounting principle that ensures all expenses are recorded during the period when they are incurred and offsets those expenses against the revenues of the period is called the ________ principle.
A) comparison
B) accrual
C) matching
D) revenue recognition
Answer: C
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Regarding a classified balance sheet,which of the following statements is correct?
A) Accounts are classified by their purchase dates.
B) Account balances are listed from the highest amount to the lowest amount.
C) Assets are listed in the order of their liquidity.
D) Assets are listed in alphabetical order.
Q2) The current ratio is calculated using the values from the income statement.
A)True
B)False
Q3) Which of the following are temporary accounts that are closed at the end of the year?
A) assets, liabilities, and Owner, Withdrawals
B) revenues, expenses, and Owner, Withdrawals
C) assets, liabilities, and owner's equity
D) revenues, expenses, and owner's equity
Q4) Under which of the following categories would Accounts Payable appear?
A) Long-term assets
B) Current assets
C) Long-term liabilities
D) Current liabilities
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) A merchandiser uses a perpetual inventory system.The third step in the process of closing the accounts of a merchandiser is to ________.
A) make the revenue accounts equal to zero via the Income Summary account
B) make the Income Summary account equal to zero via the Owner, Withdrawals account
C) make the expense accounts equal to zero via the Income Summary account
D) make the Income Summary account equal to zero via the Owner, Capital account
Q2) The net cost of merchandise inventory purchased ________.
A) includes freight out
B) excludes freight in
C) excludes purchase allowances
D) represents the actual cost of merchandise purchased
Q3) Merchandise Inventory and Cost of Goods Sold appear ________.
A) on the balance sheet and statement of owner's equity, respectively
B) on the statement of owner's equity and income statement, respectively
C) on the balance sheet and income statement, respectively
D) on the income statement and statement of cash flows, respectively
Q4) Describe how the cost of goods sold is calculated when using the periodic inventory system.
Q5) What does the gross profit percentage measure? How is it computed?
Page 7
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) When using the FIFO inventory costing method,ending merchandise inventory will be the highest,as compared to LIFO and weighted-average inventory costing methods,when costs are decreasing.
A)True
B)False
Q2) When a company uses the last-in,first-out (LIFO)method,the cost of goods sold represents the costs of most recently purchased goods,and the ending inventory represents the oldest costs.
A)True
B)False
Q3) Which of the following states that the business should use the same accounting methods from period to period?
A) materiality concept
B) consistency principle
C) conservatism
D) disclosure principle
Q4) The ending inventory of a company was $552,000 as per the perpetual inventory records.The current replacement cost for the ending inventory is $547,000.Prepare the journal entry to adjust inventory.Omit explanation.
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The purchases journal is a special journal used to record all purchases of merchandise inventory,office supplies,and other assets on account.
A)True
B)False
Q2) Flexibility
A)Can accommodate changes in the business over time.
B)Provides information that will improve decision making and reduce uncertainty.
C)Benefits received outweigh the cost of the system.
D)Works smoothly with the business's employees and organization structure.
E)Provides safeguards for a business's assets and reduces the likelihood of fraud and errors.
Q3) Enterprise resource planning systems are software systems that can integrate all of a company's functions,departments,and data into a single system.
A)True
B)False
Q4) Because companies use special journals,the use of the General Journal is optional.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Martin Company has a cash ratio of 0.3.This implies that the company ________.
A) has an unnecessarily large amount of cash supply
B) is not sending a strong message to investors and creditors that it has the ability to repay its short-term debt
C) is not in a position to meet its long-term obligations
D) has no liquidity issues
Q2) To help prevent theft by the sales clerk,at the end of each day,the manager proves the cash by comparing the cash in the drawer against the cash register's record of cash sales.
A)True
B)False
Q3) Electronic funds transfers move cash by electronic communications.
A)True
B)False
Q4) The cash balance in a company's general ledger and the company's bank balance on the bank statement will always be the same.
A)True
B)False
Q5) List the four steps,the proper order,of the purchasing and payment process.
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Chapter 9: Receivables
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Sample Questions
Q1) A receivable occurs when a business sells goods or services to another party on account.
A)True B)False
Q2) After a company has written off an account,the company continues to attempt to collect on the receivable.
A)True B)False
Q3) A & B Commercial Cleaning is a new business.During its first year of operations,credit sales were $42,000 and collections from credit sales were $31,000.One account for $625 was written off.Management uses the percent-of-sales method to account for bad debts expense and estimates 2% of credit sales to be uncollectible.What is the balance of Accounts Receivable at the end of the first year?
A) $11,000
B) $9535
C) $10,375
D) $10,160
Q4) Define net realizable value.How is net realizable value affected when a receivable is written off under the allowance method?
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Chapter 10: Plant Assets,natural Resources,and Intangibles
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Sample Questions
Q1) An asset is considered to be obsolete ________. A) only when it wears out B) only at the end of its useful life C) when it is fully depreciated D) when a newer asset can perform the job more efficiently than the old asset can
Q2) On January 1,2018,Sport Planes Manufacturing Company purchased a machine for $40,000,000.The company expects to use the machine for 24,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $40,000.The company used the machine for 3,600 hours in 2018 and 5,000 hours in 2019.What is the book value of the machine at the end of year 2019 if the company uses double-declining-balance method of depreciation? (Round your intermediate calculations.)
Q3) Classify each of the following expenditures as capital expenditure (CE)or revenue expenditure (RE).
1.________ Ordinary recurring repairs to keep the machinery in good working order
2.________ Major overhaul to extend the useful life of a vehicle by three years
3.________ Installation costs for a new machine
4.________ Painting
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Jason's gross pay for the week is $1900.His year-to-date pay is under the limit for OASDI.Assume that the rate for state and federal unemployment compensation taxes is 6% and that Jason's year-to-date pay has not yet exceeded the $7000 cap.What is the total amount of payroll taxes that his employer must record as payroll tax expenses? (Do not round your intermediate calculations.Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.)
A) $107.35
B) $117.80
C) $259.35
D) $233.74
Q2) Which of the following is an important aspect of control over payroll?
A) controls to limit salaries and wages so that they are no higher than competitors
B) controls for efficiency in payroll procedures
C) controls to screen potential employees for criminal records
D) controls to monitor employee behavior, such as use of security cameras
Q3) On June 30,2019,Development Company purchased merchandise inventory for $500,000 by signing a six-month,8% note payable.Prepare the journal entry for the payment of the note on December 30,2019.Omit explanation.
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Chapter 12: Partnerships
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Sample Questions
Q1) Admission of a new partner,by contributing directly to the partnership,increases both assets and liabilities by the same amount.
A)True
B)False
Q2) A firm has two partners: Jim and Bill.Jim owns 60% of the partnership and Bill owns 40%.In which of the following transactions will the partnership be held responsible for an individual partners' actions?
A) Jim signs a contract as a guarantor for Bill's personal loan.
B) Jim buys a laptop on credit for personal use.
C) Bill signs a contract to buy furniture for official use in the partnership.
D) Bill defaults on payment of his personal credit card bill.
Q3) Which of the following is a characteristic of a partnership?
A) Partnerships pay corporate income taxes.
B) Partnerships are listed on a stock exchange.
C) Partnerships are organized as corporations.
D) Partners have co-ownership of the partnership's assets.
Q4) Capital deficiency occurs when a partner's capital account has a credit balance.
A)True
B)False
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Chapter 13: Corporations
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Sample Questions
Q1) Preferred Stock is included in the stockholders' equity section of the balance sheet and is often listed after Common Stock.
A)True
B)False
Q2) Stockholders of a corporation are not personally liable for the corporation's debt.
A)True
B)False
Q3) A corporation originally issued $13 par value common stock for $15 per share.Which of the following is included in the entry to record the purchase of 300 shares of treasury stock for $11 per share?
A) Treasury Stock-Common is debited for $3300.
B) Treasury Stock-Common is credited for $45.
C) Retained Earnings is debited for $1650.
D) Treasury Stock-Common is debited for $1650.
Q4) The declaration of a cash dividend does not create an obligation for the corporation. A)True
B)False
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) Generally accepted accounting principles require that interest expense be measured using the effective-interest amortization method,unless the straight-line amounts are similar.
A)True
B)False
Q2) On January 1,2018,Shade Landscaping borrowed $100,000 on a 15%,10-year note with annual installment payments of $10,000 plus interest due on December 31 of each year.Prepare the journal entry for the first installment payment made on December 31,2018.Omit explanation.
Q3) The date on which the principal amount is repaid to the bondholder is known as the ________.
A) issuing date
B) interest date
C) maturity date
D) installment date
Q4) The balance sheet shows the balance in Bonds Payable plus any discount or minus any premium.
A)True
B)False
Q5) What is the only difference between present value and future value?
Page 16
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Chapter 15: Investments
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Sample Questions
Q1) Significant influence equity investments are reported as current assets on the balance sheet.
A)True
B)False
Q2) Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.
A)True
B)False
Q3) Jonas Corporation has excess cash to invest and pays $200,000 to buy 7%,five-year bonds of Ridgeline Corporation,at face value,on June 30,2018.The bonds pay interest on June 30 and December 31.Jonas intends to hold the bonds to maturity.The bonds are disposed of,at face value,on June 30,2023. Prepare the journal entry for December 31,2018 (omit the explanation).
Q4) A company's investments in stock or bonds cannot include the acquisition of an entire company.
A)True
B)False
Q5) List and discuss two common reasons why companies invest in debt or equity securities.
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Chapter 16: The Statement of Cash Flows
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Q1) Many companies use free cash flow to estimate the amount of cash that would be available for unexpected opportunities.
A)True
B)False
Q2) Wisconsin Farm Equipment Company sold equipment for cash.The income statement shows a loss on the sale of $7000.The net book value of the asset was $28,900.Which of the following statements describes the cash effect of the transaction?
A) positive cash flow of $35,900 from financing activities
B) negative cash flow of $21,900 for operating activities
C) negative cash flow of $21,900 for financing activities
D) positive cash flow of $21,900 from investing activities
Q3) When computing investing cash flows,it is helpful to evaluate the T-accounts for each long-term liability.
A)True
B)False
Q4) List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) Common-size statements ________.
A) allow the users to compare numbers in relative terms rather than absolute amounts
B) report dollar amounts and percentages
C) create a dollar value bias
D) show the same percentages that appear in a horizontal analysis
Q2) Analysts look for red flags in financial statements that may signal financial trouble.Which of the following is a red flag that suggests that a company may be in trouble?
A) a decline in days' sales in inventory
B) a decrease in days' sales in receivables from year to year
C) a reduction in the debt ratio
D) net cash provided by operating activities is consistently lower than net income
Q3) In 2018,Spirit Company's net income was 10% of net sales revenue.In 2019,the net income was 5% of net sales revenue.There is no need for investors to be alarmed because a drop from 10% to 5% is not significant.
A)True
B)False
Q4) What is an annual report? Briefly describe the key parts of the annual report.
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Chapter 18: Introduction to Managerial Accounting
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Q1) An accounting field that is required to follow Generally Accepted Accounting Principles.
A)Organizational chart
B)Financial accounting
C)Line position
D)Managerial accounting
E)Planning
F)Directing
G)Controlling
Q2) Unit product costs can be used to measure operating income and determine the cost of Finished Goods Inventory.
A)True
B)False
Q3) The managerial role that involves the day-to-day running of the business is the ________.
A) directing function
B) planning function
C) controlling function
D) strategic planning function
Q4) Define direct cost.
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Chapter 19: Job Order Costing
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Q1) The records at Smith and Jones,Inc.show that Job 110 is charged with $10,000 of direct materials and $13,000 of direct labor.Smith and Jones,Inc.allocate manufacturing overhead at 80% of direct labor cost.What is the total cost of Job No.110?
A) $31,000
B) $33,400
C) $23,000
D) $13,000
Q2) Haverhill Products completed Job 440 and several other jobs during the year.In addition to direct labor and direct materials cost,Haverhill allocated $450 of manufacturing overhead to the job.Provide the journal entry for the allocation of manufacturing overhead.Omit explanation.
Q3) Kalliste,Inc.completed Job C50.Job C50 required $3,000 of direct materials cost,$2,000 of direct labor cost,and $600 of allocated manufacturing overhead.Provide the journal entry needed to record completion and transfer of the job.Omit explanation.
Q4) Cost accounting systems are primarily concerned with accumulating product cost information.
A)True
B)False
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Chapter 20: Process Costing
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Q1) Under process costing,a single Work-in-Process Inventory account is maintained for all processes,with a subsidiary ledger containing individual production cost reports for each process.
A)True
B)False
Q2) Process costing is the most appropriate costing method for a restaurant serving specialty cuisine.
A)True
B)False
Q3) During August,the Filtering Department of Speedwell,Inc.had a beginning Work-in-Process Inventory balance of 120 units with costs of $60,000.During the month,it started and completed 260 units.It had 30 units in the ending Work-in-Process Inventory.What is the number of equivalent units of production for transferred in units in the Filtering Department in August under the first-in,first-out (FIFO)method?
A) 120 units
B) 410 units
C) 290 units
D) 230 units
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) Artisan Works is owned and operated by a craftsman who makes replicas of historic firearms for museums,sportsmen,and collectors.The data are as follows: \[\begin{array}
{ | l | r | }
\hline \text { Sales price per unit } & \$ 780 \\
\hline \text { Variable cost per unit } & 470 \\
\hline \text { Fixed costs per month } & 8370 \\
\hline
\end{array}\] If Artisan expects to sell 60 units per month,what is his margin of safety expressed in units per month?
A) 33 units
B) 60 units
C) 87 units
D) 31 units
Q2) Zander Company has fixed costs of $14,000.The company's contribution margin ratio is 46%.What is the breakeven point in sales dollars? (Round your answer to the nearest dollar.)
A) $70,000
B) $30,435
C) $6440
D) $2800
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Chapter 22: Master Budgets
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Q1) Robust Resources expects to sell 490 units of Product A and 420 units of Product B each day at an average price of $16 for Product A and $27 for Product B.The expected cost for Product A is 41% of its selling price and the expected cost for Product B is 63% of its selling price.Robust Resources has no beginning inventory,but it wants to have a four-day supply of ending inventory for each product.Compute the company's budgeted sales for the next (seven-day)week.(Round the answer to the nearest dollar.)
A) $10,359
B) $76,720
C) $134,260
D) $19,180
Q2) A budget is a financial plan that managers use to coordinate a business's activities. A)True
B)False
Q3) Why is the forecast of sales revenue considered to be the cornerstone of the master budget?
Q4) The forecast of sales revenue is the cornerstone of the master budget. A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) The static budget,at the beginning of the month,for Divine Décor Company,follows:
Static budget:
Sales volume: 1500 units; Sales price: $70.00 per unit
Variable costs: $32.00 per unit; Fixed costs: $38,000 per month
Operating income: $19,000
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 990 units; Sales price: $75.00 per unit
Variable costs: $35.00 per unit; Fixed costs: $33,000 per month
Operating income: $6600
Calculate the flexible budget variance for sales revenue.
A) $6980 U
B) $6980 F
C) $4950 U
D) $4950 F
Q2) Which of the following is an example of a direct labor cost standard?
A) $40 per direct labor hour
B) 50 square feet per unit
C) $0.95 per square foot
D) 0.5 direct labor hours per unit
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Dantone,Inc.provides the following information: \[\begin{array} { | l | l | }
\hline \text { Profit margin ratio } & 7 \% \\
\hline \text { Asset turnover ratio } & 2 \text { times } \\
\hline \text { Net sales } & \$ 500,000 \\
\hline \text { Target rate of return } & 3 \% \\
\hline
\end{array}\] Calculate the return on investment.
A) 14%
B) 56%
C) 1%
D) 15%
Q2) Companies with diverse products can obtain better costing information by using a single plantwide rate for allocating manufacturing costs.
A)True
B)False
Q3) List the primary goals of performance evaluation systems.
Q4) Communicating top management's expectations to segment managers improves goal congruence.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Fastec Automobile Company fabricates automobiles.Each vehicle includes one transfer case,which is currently made in-house.Details of the transfer case fabrication are as follows: \[\begin{array} { | l | r | l | }
\hline \text { Volume } & 800 & \text { units per month } \\
\hline \text { Variable cost per unit } & \$ 8 & \text { per unit } \\
\hline \text { Fixed costs } & \$ 15,000 & \text { per month } \\ \hline
\end{array}\] A Korean factory has offered to supply Fastec with ready-made units for a price of $14 per transfer case.Assume that Fastec's fixed costs are unavoidable,but that Fastec could use the vacated production facilities to earn an additional $9500 of profit per month.If Fastec decides to outsource,monthly operating income will ________.
A) increase by $4700
B) decrease by $15,000
C) increase by $9500
D) decrease by $27,100
Q2) Louis Company is considering replacing its multi-functional copier system with a new system.Which costs would be relevant to its decision and which costs would be irrelevant?
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Chapter 26: Capital Investment Decisions
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Q1) Learn Safe Driving School is considering purchasing new autos costing $235,000.The company's management has estimated that the autos will generate cash inflows as follows:
\(\begin{array}{llr}
\text {Year 1 } &\$80,000\\
\text {Year 2 } &\$85,000\\
\text { Year 3} &\$95,000\\
\text {Year 4 } &\$45,000\\ \end{array}\)
Considering the residual value is zero,calculate the payback period.Round to one decimal place
Q2) Management uses several different methods in evaluating potential capital investments.Identify and briefly discuss the four methods outlined in the text.
Q3) An opportunity cost is the benefit foregone by choosing an alternative course of action. A)True B)False
Q4) What are the strengths of the net present value capital budgeting method?
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