Fundamentals of Accounting Test Preparation
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and concepts of financial accounting. The course covers the accounting cycle, including the recording, classifying, and summarizing of financial transactions, as well as the preparation and interpretation of key financial statements such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding the role of accounting in decision-making, ethical considerations, and the application of accounting standards. Students will gain foundational skills in analyzing financial information, making informed business decisions, and understanding the impact of accounting on organizational success.
Recommended Textbook
Financial and Managerial Accounting 12th Edition by Carl
S. Warren
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27 Chapters
4697 Verified Questions
4697 Flashcards
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Chapter 1: Introduction to Accounting and Business
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187 Verified Questions
187 Flashcards
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Sample Questions
Q1) The asset created by a business when it makes a sale on account is termed
A) accounts payable
B) prepaid expense
C) unearned revenue
D) accounts receivable
Answer: D
Q2) An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a
A) proprietorship
B) corporation
C) partnership
D) governmental unit
Answer: B
Q3) .Which of the following is true in regard to a Limited Liability Company?
A) Makes up 10% of business organizations in the United States.
B) Combines the attributes of a partnership and a corporation.
C) Provides tax and legal liability advantages to the owners.
D) All are correct.
Answer: D
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Transactions are initially entered into a record called a journal.
A)True
B)False
Answer: True
Q2) Expenses follow the same debit and credit rules as A) revenues
B) dividends
C) capital stock
D) liabilities
Answer: B
Q3) A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a balance sheet.
A)True
B)False
Answer: False
Q4) On June 1, the cash account balance was $96,750. During June, cash receipts totaled $305,000 and the June 30 balance was $75,880. Determine the cash payments made during June.
Answer: 75,880 = 96,750 + 305,000 - ?
Cash payments = $325,870
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Which of the following pairs of accounts could not appear in the same adjusting entry?
A) Service Revenue and Unearned Revenue
B) Interest Income and Interest Expense
C) Rent Expense and Prepaid Rent
D) Salaries Payable and Salaries Expense
Answer: B
Q2) The net income reported on the income statement is $58,000. However, adjusting entries have not been made at the end of the period for supplies expense of $2,200 and accrued salaries of $1,300. Net income, as corrected, is
A) $56,700
B) $58,000
C) $55,800
D) $54,500
Answer: D
Q3) The estimated amount of depreciation on equipment for the current year is $5,300. Journalize the adjusting entry to record the depreciation.
Answer: no answer
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5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The dividends account is a temporary account.
A)True
B)False
Q2) On the income statement, miscellaneous expenses are usually presented as the last item without regard to the dollar amount.
A)True
B)False
Q3) The work sheet is a working paper that accountants can use to summarize adjusting entries and the account balances for the financial statements.
A)True
B)False
Q4) List/describe the four closing entries in the order that they should occur.
Q5) The retained earnings statement should be prepared
A) before the income statement and after the balance sheet
B) before the income statement and balance sheet
C) after the income statement and balance sheet
D) after the income statement and before the balance sheet
Q6) If working papers are not considered part of the formal accounting records, then why are they used?
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) The single-step income statement is easier to prepare, but a criticism of this format is that gross profit and income from operations are not readily available.
A)True
B)False
Q2) A retailer purchases merchandise with a catalog list price of $25,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account?
A) $7,500
B) $17,500
C) $25,000
D) $17,250
Q3) A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.
A)True
B)False
Q4) During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the merchandise sold is $76,240. What is the amount of the gross profit?
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Chapter 6: Inventories
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Sample Questions
Q1) On the basis of the following data for Barker Industries as of December 31, 2011, determine the value of the inventory at the lower of cost or market. Also, show how the merchandise inventory would appear on the balance sheet (assume that the cost was determined by the FIFO method). Apply lower of cost or market to each inventory item. \(\begin{array} { | l | l | l | l | }
\hline \text { Commodity } & \text { Inventory Quantity } & \text { Unit Cost Price } & \text { Unit Market Price } \\
\hline \text { Size 4 } & 9 & \$ 7 & \$ 19 \\
\hline \text { Size 5 } & 10 & 17 & 14 \\
\hline \text { Size 6 } & 14 & 23 & 20 \\
\hline \text { Size 7 } & 12 & 13 & 15 \\
\hline \end{array}\)
Q2) If ending inventory for the year is overstated, owner's equity reported on the balance sheet at the end of the year is understated.
A)True
B)False
Q3) List three different security measures taken by stores to safeguard inventory.
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Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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177 Verified Questions
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Sample Questions
Q1) A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. This item would be included in the bank reconciliation as a(n)
A) deduction from the balance per the company's records
B) addition to the balance per the bank statement
C) deduction from the balance per the bank statement
D) addition to the balance per the company's records
Q2) When a firm uses internal auditors, it is adhering to which one of the following internal control elements?
A) risk assessment
B) monitoring
C) proofs and security measures
D) separating responsibilities for related operations
Q3) The notification accompanying a check that indicates the specific invoice being paid is called a
A) remittance advice
B) voucher
C) debit memo
D) credit memo
Q4) List the principal advantage of Electronic Funds Transfers.
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Chapter 8: Receivables
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Sample Questions
Q1) On June 30th (the end of the period) Brown Company has a credit balance of $2,275 in Allowance for Doubtful Accounts. An evaluation of accounts receivable indicates that the proper balance should be $30,025. Journalize the appropriate adjusting entry.
Jun 30th Bad Debt Expense 27,750
Allowance for Doubtful Accounts 27,750
Q2) The accounts receivable turnover measures the length of time in days it takes to collect a receivable.
A)True
B)False
Q3) When using the estimate based on sales method, the entry to record uncollectible accounts expense includes a credit to the Accounts Receivable account.
A)True
B)False
Q4) The party promising to pay a note at maturity is the maker.
A)True
B)False
Q5) Other than accounts receivable and notes receivable, name other receivables that might be included in the general ledger.
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Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps in the process?
A) book value of the replaced component is written off to depreciation expense
B) the asset cost of the replaced component is credited
C) any cost to remove the old component is charged to expense
D) the identifiable direct costs associated with the new component are capitalized
Q2) Standby equipment held for use in the event of a breakdown of regular equipment is reported as property, plant, and equipment on the balance sheet.
A)True
B)False
Q3) Accumulated Depreciation
A) is used to show the amount of cost expiration of intangibles
B) is the same as Depreciation Expense
C) is a contra asset account
D) is used to show the amount of cost expiration of natural resources
Q4) All property, plant, and equipment assets are depreciated over time.
A)True
B)False
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Chapter 10: Current Liabilities and Payroll
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174 Flashcards
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Sample Questions
Q1) A business borrowed $40,000 on March 1 of the current year by signing a 60-day, 9% interest bearing note. Assuming a 360-day year, when the note is paid on April 30, the entry to record the payment should include a
A) debit to Interest Payable $600
B) debit to Interest Expense $600
C) credit to Cash for $40,000
D) credit to Cash for $46,300
Q2) Which of the following would be used to compute the federal income taxes to be withheld from an employee's earnings?
A) FICA tax rate
B) wage and tax statement
C) FUTA tax rate
D) wage bracket and withholding table
Q3) Federal unemployment compensation tax becomes an employer's liability at the time the employee is paid.
A)True
B)False
Q4) List five internal controls that relate directly to payroll.
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Chapter 11: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) A stock split results in a transfer at market value from retained earnings to paid-in capital.
A)True
B)False
Q2) When no-par common stock with a stated value is issued for cash, the common stock account is credited for an amount equal to the cash proceeds.
A)True
B)False
Q3) When a stock dividend is declared, which of the following accounts is credited?
A) Common Sock
B) Dividend Payable
C) Stock Dividends Distributable
D) Retained Earnings
Q4) For accounting purposes, stated value is treated the same way as par value.
A)True
B)False
Q5) On April 1, 10,000 shares of $5 par common stock were issued at $22, and on April 7, 5,000 shares of $50 par preferred stock were issued at $104. Journalize the entries for April 1 and 7.
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Callable bonds are redeemable by the issuing corporation within the period of time and at the price stated in the bond indenture.
A)True
B)False
Q2) When the effective-interest method is used, the amortization of the bond premium
A) increases interest expense each period
B) decreases interest expense each period
C) increases interest expense in some periods and decreases interest expense in other periods
D) has no effect on the interest expense in any period
Q3) On the first day of the fiscal year, a company issues a $1,000,000, 7%, 5 year bond that pays semi-annual interest of $35,000 ($1,000,000 ´ 7% ´ 1/2), receiving cash of $884,171. Journalize the first interest payment and the amortization of the related bond discount using the straight-line method. Round answer to the nearest dollar.
Q4) A bond is usually divided into a number of individual bonds of $500 each.
A)True
B)False
Q5) (a) Prepare the journal entry to issue $100,000 bonds which sold for $94,000. (b) Prepare the journal entry to issue $100.000 bonds which sold for $104,000
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Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) Which of the following stock investments should be accounted for using the cost method?
A) investments of less than 20%
B) investments between 20 % and 50%
C) investments of less than 20% and investments between 20% and 50%
D) all stock investments should be accounted for using the cost method
Q2) Held-to-Maturity securities
A) are reported at their fair market value on the balance sheet date
B) include both stocks and bonds
C) are primarily purchased to earn interest revenue
D) all of the above
Q3) Under the equity method, the receipt of cash dividends on an investment in common stock of Vallerio Corporation is accounted for as a debit to Cash and a credit to
A) Investment in Vallerio
B) Retained Earnings
C) Dividend Revenue
D) Dividend Receivables
Q4) Discuss the appropriate financial treatment when an investor has a greater than 50% ownership in another company.
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Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) On the statement of cash flows prepared by the indirect method, a $50,000 gain on the sale of investments would be
A) deducted from net income in converting the net income reported on the income statement to cash flows from operating activities
B) added to net income in converting the net income reported on the income statement to cash flows from operating activities
C) added to dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
D) deducted from dividends declared in converting the dividends declared to the cash flows from financing activities related to dividends
Q2) Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?
A) depreciation expense
B) gain on sale of land
C) a loss on the sale of equipment
D) dividends declared and paid
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16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Why would you or why wouldn't you compare an organization like Ford Motor Company to the local car dealer "Johnson City Ford/Lincoln/Mercury" in vertical and horizontal analysis?
Q2) The current ratio is
A) used to evaluate a company's liquidity and short-term debt paying ability.
B) is a solvency measure that indicated the margin of safety of a noteholder or bondholder.
C) calculated by dividing current liabilities by current assets.
D) calculated by subtracting current liabilities from current assets.
Q3) A decrease in the ratio of liabilities to stockholders' equity indicates an improvement in the margin of safety for creditors.
A)True
B)False
Q4) The ratio of the market price per share of common stock on a specific date to the annual earnings per share is referred to as the price-earnings ratio.
A)True
B)False
Q5) Define solvency and profitability. How are they alike?
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Chapter 16: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Direct labor costs are included in the conversion costs of a product.
A)True
B)False
Q2) Period costs are operating costs that are expensed in the period in which the goods are sold.
A)True
B)False
Q3) Conversion costs are the combination of direct labor, direct material and factory overhead costs.
A)True
B)False
Q4) Product costs
A) appear only on the balance sheet
B) appear only on the income statement
C) are expensed as costs are incurred for direct labor, direct material and factory overhead
D) appear on both the income statement and balance sheet
Q5) Indirect labor would be included in factory overhead.
A)True
B)False
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Chapter 17: Job Order Costing
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Sample Questions
Q1) Scooby Company has applied $567,988 of overhead into production on Jobs in the Work in Process account. Actual overhead at the end of the year is $575,000. What is the adjustment for over or underapplied overhead?
A) $7012 Overapplied, increase Cost of Goods Sold
B) $7012 Underapplied, increase Cost of Goods Sold
C) $7012 Overapplied, decrease Cost of Goods Sold
D) $7012 Underapplied, decrease Cost of Goods Sold
Q2) The basis for recording direct and indirect labor costs incurred is a summary of the period's:
A) job order cost sheets
B) time tickets
C) employees' earnings records
D) clock cards
Q3) Which of the following would be most likely to use process costing?
A) A custom furniture manufacturer.
B) An auto body repair shop.
C) A law firm
D) A lawn fertilizer manufacturer.
Q4) List the accounts used in the cost flow for (a) a manufacturer and (b) a service provider.
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Chapter 18: Process Cost Systems
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Sample Questions
Q1) The cost of production report summarizes (1) the units for which the department is accountable and the units to be assigned costs and (2) the costs charged to the department and the allocation of those costs.
A)True
B)False
Q2) Just-in-time operations attempt to significantly reduce A) profits.
B) inventory needed to produce products.
C) inspection time and moving time.
D) processing time.
Q3) Which of the following is not a use of the cost of production report?
A) To help managers control operations.
B) To help managers isolate problems.
C) To project production.
D) To help managers improve operations.
Q4) The amount journalized showing the cost added to finished goods is taken from the cost of production report.
A)True
B)False
Q5) Discuss how equivalent units are computed under the average cost method.
Page 20
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Chapter 19: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) For the past year, Pedi Company had fixed costs of $70,000, unit variable costs of $32, and a unit selling price of $40. For the coming year, no changes are expected in revenues and costs, except that property taxes are expected to increase by $10,000. Determine the break-even sales (units) for (a) the past year and (b) the coming year.
Q2) Carmelita Company sells 40,000 units at $18 per unit. Fixed costs are $62,000 and income from operations is $258,000. Determine the (a) variable cost per unit, (b) unit contribution margin, and (c) contribution margin ratio .
Q3) If fixed costs are $600,000 and the unit contribution margin is $40, what is the break-even point if fixed costs are increased by $90,000?
A) 17,250
B) 15,000
C) 8,333
D) 9,667
Q4) Douglas Company has a contribution margin ratio of 30%. If Douglas has $336,420 in fixed costs, what amount of sales will need to be generated in order for the company to break even?
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Chapter 20: Variable Costing for Management Analysis
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Sample Questions
Q1) Sales territory profitability analysis can determine profit differences between territories due to
A) pricing, variable costs, and selling costs
B) variable costs, selling costs, and types of products sold
C) pricing, selling costs, and type of products sold
D) sales volumes, pricing, and variable costs
Q2) In the contribution margin analysis, the effect of a change in the number of units sold, assuming no change in unit sales price or unit cost, is referred to as the:
A) sales factor
B) cost of goods sold factor
C) quantity factor
D) price factor
Q3) For a period during which the quantity of inventory at the end was larger than that at the beginning, income from operations reported under variable costing will be larger than income from operations reported under absorption costing.
A)True
B)False
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Chapter 21: Budgeting
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Sample Questions
Q1) For January, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $90,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% of sales. Total selling expenses for the month of January are:
A) $157,100
B) $240,600
C) $183,750
D) $182,100
Q2) After the sales budget is prepared, the capital expenditures budget is normally prepared next.
A)True
B)False
Q3) Describe at least five benefits of budgeting.
Q4) Flexible budgeting requires all levels of management to start from zero and estimate sales, production, and other operating data as though operations were being started for the first time.
A)True
B)False
Q5) What is a cash budget? How does management use a cash budget?
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Chapter 22: Performance Evaluation Using Variances From
Standard Costs
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Sample Questions
Q1) A favorable cost variance occurs when
A) Actual costs are more than standard costs.
B) Standard costs are more than actual costs.
C) Standard costs are less than actual costs.
D) None of the above.
Q2) Standard costs serve as a device for measuring efficiency.
A)True
B)False
Q3) Variances from standard costs are usually reported to:
A) suppliers
B) stockholders
C) management
D) creditors
Q4) Ruby Company produces a chair that requires 5 yds. of material per unit. The standard price of one yard of material is $7.50. During the month, 8,500 chairs were manufactured, using 43,600 yards at a cost of $7.55 per yard. Determine the (a) price variance, (b) quantity variance, and (c) cost variance.
Q5) An example of a nonfinancial measure is the number of customer complaints. A)True
B)False
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Chapter 23: Performance Evaluation for Decentralized Operations
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Sample Questions
Q1) What is the term used to describe expenses that are incurred for the benefit of a specific department?
A) Indirect expenses
B) Margin expenses
C) Departmental expenses
D) Direct expenses
Q2) Income from operations for Division K is $220,000, and income from operations before service department charges is $975,000. Therefore:
A) total operating expenses are $755,000
B) total manufacturing expenses are $755,000
C) direct materials, direct labor, and factory overhead total $755,000
D) total service department charges are $755,000
Q3) Under the negotiated price approach, the transfer price is the price at which the product or service transferred could be sold to outside buyers.
A)True
B)False
Q4) Developing and retaining quality managers is an advantage of decentralization.
A)True
B)False
25
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Chapter 24: Differential Analysis and Product Pricing
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Sample Questions
Q1) A business is considering a cash outlay of $250,000 for the purchase of land, which it could lease for $35,000 per year. If alternative investments are available which yield an 18% return, the opportunity cost of the purchase of the land is:
A) $35,000
B) $45,000
C) $10,000
D) $6,300
Q2) Differential revenue is the amount of income that would result from the best available alternative proposed use of cash.
A)True
B)False
Q3) Hill Co. can further process Product O to produce Product P. Product O is currently selling for $60 per pound and costs $42 per pound to produce. Product P would sell for $82 per pound and would require an additional cost of $13 per pound to produce. The differential cost of producing Product P is $55 per pound.
A)True B)False
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Chapter 25: Capital Investment Analysis
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Sample Questions
Q1) The cash payback method of capital investment analysis is one of the methods referred to as a present value method.
A)True
B)False
Q2) In capital rationing, alternative proposals that survive initial and secondary screening are normally evaluated in terms of:
A) present value
B) non-financial factors
C) maximum cost
D) net cash flow
Q3) By converting dollars to be received in the future into current dollars, the present value methods take into consideration that money:
A) has an international rate of exchange
B) is the language of business
C) is the measure of assets, liabilities, and stockholders' equity on financial statements
D) has a time value
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Chapter 26: Cost Allocation and Activity-Based Costing
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Sample Questions
Q1) Explain why it is imperative that proper factory overhead be allocated in factories that produce multiple products.
Q2) If the budgeted factory overhead cost is $460,000, the budgeted direct labor hours is 80,000, and the actual direct labor hours is 6,700 for the month, the factory overhead rate for the month is $68.65 (if the allocation is based on direct labor hours).
A)True
B)False
Q3) When a plantwide factory overhead rate is used, the total overhead costs allocated to all products is the same.
A)True
B)False
Q4) Use of a plantwide factory overhead rate assumes that the activities causing overhead costs are the same across all departments and products. A)True
B)False
Q5) A single plantwide overhead rate method is very expensive to apply.
A)True
B)False
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Chapter 27: Cost Management for Just-In-Time
Environments
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Sample Questions
Q1) In a just-in-time (JIT) environment, process problems are less visible than they are in a traditional environment.
A)True
B)False
Q2) In a just-in-time (JIT) environment, operations only respond to customer orders.
A)True
B)False
Q3) The budgeted cell conversion cost rate includes which of the following?
A) only factory overhead
B) only direct labor and direct materials
C) direct labor, direct materials, and factory overhead
D) only direct labor and factory overhead
Q4) In a pull manufacturing system, raw materials are released to production based on actual customer orders.
A)True
B)False
Q5) Lead time is the process time between start and completion.
A)True
B)False
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