Fundamentals of Accounting Test Questions
Course Introduction
Fundamentals of Accounting introduces students to the basic principles and concepts underlying the accounting process. The course covers topics such as the accounting cycle, preparation of financial statements, double-entry bookkeeping, and the use of accounting information for decision-making. It explores the roles of assets, liabilities, equity, revenues, and expenses in financial reporting, providing learners with a solid foundation in both theoretical and practical aspects of accounting. Through problem-solving and real-world examples, students develop the skills needed to analyze financial information and understand its significance in business operations.
Recommended Textbook Principles of Accounting 12th Edition by Belverd E. Needles
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Chapter 1: Accounting Principles and the Financial Statements
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Q1) The statement of cash flows discloses significant events related to the operating,investing,and financing activities of a business.
A)True
B)False
Answer: True
Q2) The primary external users of accounting information are investors and management.
A)True
B)False
Answer: False
Q3) Accounts Receivable is an asset that is considered nonmonetary in nature.
A)True
B)False
Answer: False
Q4) The recording of data falls under which stage of accounting?
A)measurement
B)processing
C)communication
D)decision making
Answer: A
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Chapter 2: Analyzing and Recording Business Transactions
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Q1) Fair value is the exchange price of an actual or potential business transaction between market participants.
A)True
B)False
Answer: True
Q2) Slim Co.is ordering a new computer for its corporate office.Which of the following events would trigger the recognition of the computer and related liability on Slim's books?
A)The company generates a purchase order.
B)The purchasing department sends a purchase order to the supplier.
C)The company receives the computer.
D)The company receives the bill from the supplier.
Answer: C
Q3) Which of the following errors will cause the trial balance to be out of balance?
A)An entire transaction was entered in the general journal as $27 instead of $72.
B)An entire transaction was omitted from the general journal.
C)The balance of an account was incorrectly computed.
D)A debit entry was entered in the wrong debit account.
Answer: C
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Chapter 3: Adjusting the Accounts
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Q1) Custom Realty Services sold a house for a client and will be paid a commission for its services.Using the SEC's four conditions or revenue recognition,explain why Custom Realty Services either should or should not recognize the revenue now.
Answer: Custom Realty Services should recognize the revenue now because:
1.The company and the client agree that the customer owes for the service (pervasive evidence of an arrangement exists).
2.The service has been rendered (a product or service has been delivered).
3.Both parties understand the price (the seller's price to the buyer is fixed or determinable)
4.There is a reasonable expectation that the client will pay the bill (collectibility is reasonably assured).
Q2) An adjusted trial balance proves the balance of the ledger accounts after the adjusting entries have been posted.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The post-closing trial balance differs from the adjusted trial balance in that it does not
A)take into account owner investments and withdrawals.
B)take into account adjusting entries.
C)include income statement accounts.
D)include balance sheet accounts.
Q2) The total amount of revenue earned for the period is
A)$900.
B)$500.
C)$400.
D)$200.
Q3) All of the following items are associated with a purpose of the work sheet except A)Recording adjusting entries.
B)Preparing financial statements.
C)Preparing budgets.
D)Recording closing entries.
Q4) Nominal account balances are reduced to zero by closing entries.
A)True
B)False
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Chapter 5: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) The total dollar amount of assets to be classified as investments is
A)$168,000.
B)$0.
C)$112,000.
D)$56,000.
Q2) The use of the lower-of-cost-or-market method for inventory is an application of the convention of conservatism.
A)True
B)False
Q3) Why is it important for a company to maintain the same accounting methods and practices from period to period?
Q4) The total amount of working capital for Cane Construction is
A)$4,000.
B)$14,000.
C)$6,000.
D)$2,000.
Q5) Illegal acts of a small dollar amount can be ignored because they are immaterial.
A)True B)False
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Chapter 6: Accounting for Merchandising Operations
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Sample Questions
Q1) Under the perpetual inventory system,the purchase of merchandise is recorded with a debit to Purchases.
A)True
B)False
Q2) Delivery expense is a selling expense on the income statement.
A)True
B)False
Q3) Under the periodic inventory system
A)the cost of each item is recorded in the Merchandise Inventory account when it is purchased.
B)when an inventory item is sold,its cost is transaferred to the Cost of Goods Sold account.
C)the balance of the Merchandise Inventory account equals the cost of goods on hand. D)the balance of the Merchandise Inventory account is only accurate on the balance sheet date.
Q4) The faster goods are sold and collection is made,the shorter the financing period.
A)True
B)False
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Chapter 7: Inventories
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Sample Questions
Q1) Portocall Sailboats reports income before income taxes of $160,000 during 2014.If beginning inventory was overstated by $14,000 and ending inventory was understated by $16,000,calculate corrected income before income taxes for the year.(Show your work. )
Q2) Using LIFO,the cost assigned to ending inventory is
A)$3,480.
B)$8,112.
C)$2,664.
D)$8,928.
Q3) Freight charges associated with the purchase of inventory normally are not included in inventory cost.
A)True
B)False
Q4) In general,in times of rising prices,using FIFO has a favorable effect on cash flows.
A)True
B)False
Q5) In practice,why is it often difficult to apply the retail method in determining the cost of ending inventory?
Q6) What is a LIFO liquidation,and what is its effect on income before income taxes?
Page 9
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Chapter 8: Cash and Internal Control
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Sample Questions
Q1) In a purchase system,the most appropriate department to control goods upon arrival at the company is the
A)accounting department.
B)receiving department.
C)treasury department.
D)requesting department.
Q2) Cash equivalents are usually listed as short-term investments on the balance sheet.
A)True
B)False
Q3) In a small business,active involvement by the owner can be a practical substitute for the separation of some duties.
A)True
B)False
Q4) Management's regular assessment of its internal controls is part of monitoring.
A)True
B)False
Q5) Why is the separation of duties an important control activity in a good system of internal control?
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Chapter 9: Receivables
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Sample Questions
Q1) The receivables turnover is expressed in terms of A)times.
B)days.
C)a percentage.
D)dollars.
Q2) Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000.Allowance for Uncollectible Accounts has a debit balance of $1,000.Net sales for the year were $500,000.In the past,2 percent of sales have proved uncollectible,and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts. Using the accounts receivable aging method,the Allowance for Uncollectible Accounts balance (after adjustment)would be
A)$14,500.
B)$14,000.
C)$13,500.
D)$12,500.
Q3) The debtor named in a promissory note is called the payee.
A)True
B)False
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Chapter 10: Long -Term Assets
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Sample Questions
Q1) Research and development costs normally are capitalized and amortized over the estimated sales life of the product developed.
A)True
B)False
Q2) Overestimating the number of tons of a mineral that can be mined over a mineral deposit's life will result in
A)understated total assets each year.
B)understated net income each year.
C)understated depletion expense each year.
D)no effect on total assets each year.
Q3) All of the following are possible reasons for using accelerated depreciation except A)greater efficiency of assets when new.
B)increasing repair costs in later years.
C)rapid changes in technology.
D)increasing use of an asset over the years.
Q4) When discarding equipment,depreciation need not by updated.
A)True
B)False
Q5) Present two arguments in favor of the use of accelerated depreciation.
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Chapter 11: Current Liabilities and Fair Value Accounting
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Q1) The journal entry to record the monthly payroll on September 30 would include a
A)debit to Salaries Expense for $24,000.
B)debit to Salaries Payable for $24,000.
C)credit to Salaries Payable for $24,000.
D)debit to Salaries Expense for $9,000.
Q2) The amount of liabilities relating to payroll,other than Salaries Payable,is
A)$8,356.
B)$7,496.
C)$7,256.
D)$8,596.
Q3) Assets purchased under a deferred payment plan should be recorded at the present value of the installment payments.
A)True
B)False
Q4) If an accrued liability for salaries is not recorded,income for the following period will be overstated.
A)True
B)False
Q5) Explain why the cost of employing someone is more than just the wage or salary paid to the employee.
Page 13
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) If liquidation of a partnership results in a negative balance in a partner's account,the partner must pay into the partnership the amount of the negative balance.
A)True
B)False
Q2) Brandi and Hunter divide partnership income and losses solely on the basis of their average capital balances.Brandi had $90,000 invested during all of 20x5;Hunter had $60,000 invested from January 1 to September 30,and he invested another $40,000 on October 1.If income was $400,000 during 20x5,how much should each partner receive?
Q3) Noncash assets invested into a partnership are recorded at A)their fair market value
B)their carrying value
C)zero
D)their original cost
Q4) Accounting for a partnership comes closer to accounting for a corporation than to accounting for a sole proprietorship.
A)True
B)False
Q5) List four advantages and four disadvantages of the partnership form of business.
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) When stock is issued for noncash assets or services,the dollar amount to be recorded for this exchange is determined by the
A)treasurer of the corporation.
B)par value of the stock.
C)market value of the stock or the market value of the consideration received,whichever is greater.
D)market value of the stock or the market value of the consideration received when the market value of the stock cannot be determined.
Q2) Firehawk Corporation had net income of $560,000 in 20x5 and paid dividends of $440,000 on 200,000 shares of outstanding common stock.Total stockholders' equity at the end of 20x5 was $2,060,000 and the market price for each share of Firehawk's stock was $58 throughout 20x5.Additionally,the company paid preferred dividends of $2.40 per share during 20x5.Based on this information,what is the dividend yield on Firehawk's stock?
A)21.36%
B)78.57%
C)3.79%
D)7.93%
Q3) Define outstanding stock.
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Chapter 14: Long Term Liabilities
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Q1) Any unamortized bond discount should be reported on the balance sheet of the issuing corporation as a(n)
A)asset.
B)direct deduction from retained earnings in the stockholders' equity section.
C)addition to the face amount of the bonds in the liability section.
D)direct deduction from the face amount of the bonds in the liability section.
Q2) Deferred income taxes are a type of long-term liability that result from using different accounting methods to calculate income taxes on the income statement and income tax liability on the income tax return.
A)True
B)False
Q3) Discuss and define financial risk,financial leverage,and negative financial leverage.
Q4) A bond agreement is referred to as the bond indenture.
A)True
B)False
Q5) Term bonds are of shorter duration than serial bonds.
A)True
B)False
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Chapter 15: The Statement of Cash Flows
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Q1) Transaction 4 would be found on the statement of cash flows in the
A)cash flows from investing activities section.
B)cash flows from operating activities section.
C)cash flows from financing activities section.
D)noncash investing and financing transactions section.
Q2) Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Decrease in Income Taxes Payable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.
Q3) The financing activities section of the statement of cash flows includes certain transactions and activities from the income statement and also takes into account stockholders' equity.
A)True
B)False
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Chapter 16: Financial Statement Analysis
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Q1) What is the price/earnings (P/E)ratio for this corporation? Round your answer to two decimal places.
A)5.47 times
B)7.13 times
C)4.80 times
D)6.13 times
Q2) In a diversified company,segments may be represented by different industries,geographical markets,and major customers.
A)True
B)False
Q3) A write-down of assets which results in a decrease in earnings may indicate that earnings will be poor in the future.
A)True
B)False
Q4) The quick ratio and the current ratio are measures of short-term debt-paying ability.
A)True
B)False
Q5) Briefly explain a "big bath" including when it occurs and why it occurs.
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Chapter 17: Managerial Accounting and Cost Concepts
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Q1) The following are costs for a selected period: direct materials used in production,$75,000;direct labor cost of converting materials into product,$150,000;total indirect costs of manufacturing,$45,000.What is the unit cost of manufacturing 30,000 units in this period?
A)$7.50
B)$9.00
C)$6.00
D)$4.00
Q2) If the report is urgently needed,it is sometimes necessary to sacrifice accuracy in the interest of
A)timeliness
B)personal feelings.
C)profits.
D)expectations.
Q3) Which of the following accounts decreases when cost of goods manufactured is recorded?
A)Work in Process Inventory
B)Finished Goods Inventory
C)Overhead
D)Cost of Goods Sold
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Chapter 18: Costing Systems: Job Order Costing
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Q1) Which of the following tasks succeeds the disposing under- or overapplied overhead?
A)Preparation of financial statements
B)Comparison of actual and allocated overhead amounts
C)Estimation of overhead costs
D)Establishment of predetermined overhead rate
Q2) An advertising company would probably use a process costing system.
A)True
B)False
Q3) Costs assigned to the building of a ship should appear on the income statement when
A)the ship is completed.
B)the ship is sold.
C)the purchase order to manufacture the ship is received.
D)cash is collected for the sale of the ship.
Q4) Which of the following firms would most likely use a process costing system?
A)Firm providing legal services
B)Firm manufacturing papers
C)Firm providing advertising services
D)Firm printing wedding invitations
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Chapter 19: Costing Systems Process Costing
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Q1) Equivalent units for conversion costs of Star Inc.during the month totaled
A)7,920.
B)7,680.
C)6,880.
D)5,880.
Q2) Regardless of beginning inventory levels,beginning inventory is always ignored while computing the equivalent units of production.
A)True
B)False
Q3) The product unit cost is the sum of the cost elements added in all production department processes.
A)True
B)False
Q4) In a process costing system,percentage-of-completion factors normally are obtained from
A)accounting records.
B)job order cost cards.
C)supervisors in the production departments.
D)time cards.
Q5) How are costs recognized,matched,and measured in a process costing system?
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Chapter 20: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) The use of computer monitoring allows product costs to be traced directly to work cells.
A)True
B)False
Q2) Using the information provided for Footprints Company,what is the cost of completed units for August?
A)$104,000
B)$260,000
C)$361,700
D)$362,920
Q3) Comparing the goals of activity-based management (ABM)and lean operations we can say that __________ aim(s)to simplify activities.
A)JIT
B)ABM
C)both ABM and JIT
D)neither ABM nor JIT
Q4) What would a company using an activity-based management approach attempt to do in regard to activities that add value to the product and those that do not?
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Q5) When using a just-in-time system,what qualities should be a supplier posses?
Chapter 21: Cost-Volume-Profit Analysis
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Q1) Campground Inc.is considering the production and sale of propane lamps.Annual fixed costs associated with the project are expected to total $60,000.In addition,each lamp would sell for $12 and would require $7 in variable costs.Calculate (a)the breakeven point in units, (b)the breakeven point in dollars, (c)the number of lamps that must be sold to earn a profit of $120,000,and (d)the operating income or loss at a sales volume of 16,000 lamps.
Q2) Operating income is determined by deducting all fixed costs related to production,selling,and administration from contribution margin.
A)True
B)False
Q3) The point at which the total cost line intersects with the total revenue line is the breakeven point.
A)True
B)False
Q4) The sales mix is the proportion of each product's unit sales relative to the company's total unit sales.
A)True
B)False
Q5) Explain what cost-volume-profit analysis is and how managers use it.
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Chapter 22: The Budgeting Process
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Q1) When making decisions to purchase new equipment,managers look into the capital expenditure budget of an organization
A)True
B)False
Q2) The process of developing a master budget differs among manufacturing,retail,and service organizations in terms of preparation of
A)cash budget.
B)capital expenditures budget.
C)income statement.
D)operating budgets.
Q3) Managers do not need to know why a budget is being prepared,as these are prepared by higher authorities.
A)True
B)False
Q4) The budget committee oversees each stage in the preparation of a master budget.
A)True
B)False
Q5) Describe three benefits budgeting provides to an organization's success.
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Chapter 23: Flexible Budgets and Performance Analysis
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Q1) Why are managers more likely to achieve their objectives in both the short term and the long term when they utilize a tool such as the balanced scorecard?
Q2) A responsibility center whose manager is held accountable for both revenues and costs and for the resulting operating income is called a revenue center.
A)True
B)False
Q3) Variable costing is a method of reporting that deals only with a manager's controllable costs,variable costs.
A)True
B)False
Q4) For residual income figures to be comparable on a companywide basis,all investment centers must have equal access to resources and similar asset investment bases.
A)True
B)False
Q5) Profit-sharing plan is a common type of incentive compensation.
A)True
B)False
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Chapter 24: Standard Costing and Variance Analysis
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Q1) When a manufacturing company employs standard costs,all costs affecting the three inventory accounts and the Cost of Goods Sold account are stated in terms of actual costs rather than in terms of standard costs incurred.
A)True
B)False
Q2) Differentiate between the variable overhead spending variance and the variance overhead efficiency variance.
Q3) Using the above information provided for Underfoot Products,compute the variable overhead efficiency variance.
A)$10,000 (F)
B)$10,000 (U)
C)$40,000 (F)
D)$40,000 (U)
Q4) Using the above information provided for Choco Sweet,compute the direct labor efficiency variance for Choco Sweet.
A)$8,500 (U)
B)$2,500 (F)
C)$11,000 (F)
D)$1,375 (U)
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Chapter 25: Short-Run Decision Analysis and Capital Budgeting
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Q1) Capital investment analysis is also known as capital budgeting.
A)True
B)False
Q2) Special order decisions are the decisions about whether to accept or reject special orders at prices below the normal market prices.
A)True
B)False
Q3) Net present value analysis is based on a project's cash flows.
A)True
B)False
Q4) The accounting rate-of-return method considers the time value of money.
A)True
B)False
Q5) When two or more capital investment proposals are being evaluated using the accounting rate-of-return method,the proposal that yields the lowest ratio of net income to average cost of investment is selected.
A)True
B)False
Q6) What are the two steps in the analysis of a sales mix decision?
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