Introduction to Accounting Exam Questions
Course Introduction
Introduction to Accounting provides students with a foundational understanding of the principles and practices that guide the field of accounting. This course covers basic accounting concepts such as the accounting cycle, recording financial transactions, preparation of financial statements, and the interpretation of financial information. Students will learn the essential role that accounting plays in business decision-making, as well as basic budgeting and financial analysis skills. The curriculum is designed to equip students with the knowledge and tools necessary to analyze financial data, understand the ethical considerations in accounting, and communicate financial information effectively in a business context.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Chapter 1: The Role of Accounting in Decision Making
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Q1) The explanation of why the profit differs from change in cash balance for the period is explained in which of the following statements?
A) Balance sheet
B) Income statement
C) Cash flow statement
D) Statement of changes in equity
Answer: C
Q2) The owners' claims to the assets of the business are called:
A) liabilities.
B) expenses.
C) revenues.
D) owners' equity.
Answer: D
Q3) Joe purchased office equipment for $1 250 cash.What is the effect on accounts?
A) One asset account increases; another asset account decreases.
B) One asset account increases; one owners' equity account increases.
C) Two asset accounts increase.
D) One asset account increases; one liability account increases.
Answer: A
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Chapter 2: Recording Business Transactions
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Q1) Which of the following accounts is an example of a liability?
A) Bills payable
B) Service revenue
C) Accounts receivable
D) Building Answer: A
Q2) The drawings account is increased by a debit.
A)True
B)False Answer: True
Q3) Assets,Drawings and Expenses have a normal balance on the debit side.
A)True
B)False Answer: True
Q4) A business pays cash back to the owner.Which account is debited?
A) Service revenue
B) Cash
C) Drawings
D) Accounts payable Answer: C
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Chapter 3: The Adjusting Process
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Q1) Smith Technical Services is working on a six-month job for a client,starting on 1 February.They will collect $20,000 from their customer when the job is finished.On 1 March,their Accounts receivable account had a debit balance of $4000.At the end of March,after monthly adjusting entries have been made,what will be the balance in Accounts receivable?
A) Debit balance of $3333
B) Debit balance of $7333
C) Credit balance of $16,667
D) Debit balance of $20,000
Answer: B
Q2) Entries that record an expense before the cash is paid are:
A) unearned revenues.
B) prepaid expenses.
C) accrued expenses.
D) accrued revenues.
Answer: C
Q3) Prepaid insurance is an asset account.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Q1) What is the result if the amount of profit for the year is less than the amount of the drawings?
A) The amount in the Cash account increases.
B) The amount in the Cash account decreases.
C) The Capital account decreases.
D) The Capital account increases.
Q2) Rose Company earned revenues of $18,000 and incurred expenses of $4000.The drawings of Mary Rose,the owner,were $2500.What is the balance in the Income summary account after closing profit or loss to the Rose,capital account?
A) Credit balance of $4000
B) Credit balance of $14,000
C) Debit balance of $18,000
D) Balance of $0
Q3) As part of the closing process,revenues and expenses are closed to a temporary account called Profit (loss).
A)True
B)False
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Chapter 5: Retailing Operations
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Q1) A company sold inventory for $24,000 on credit with terms of 3/15,n/30.The company uses a perpetual inventory system.After two days,it received defective inventory worth $2000.The journal entry to record the cash receipt for sale if the payment is received within 10 days of the invoice date would include:
A) a debit to Cash for $21,340, a debit to Sales discount for $660 and a credit to Accounts receivable for $22,000.
B) A debit to Sales for $24,000, a credit to Accounts receivable for $24,000 and a credit to Sales discount for $2000
C) a debit to Cash for $22,000, a debit to Inventory for $2000 and a credit to Accounts receivable.
D) a debit to Cash for $21,340, a credit to Inventory for $660 and a credit to Sales revenue for $22,000.
Q2) Which of the following are the normal balances of Sales,Sales discounts and Sales returns and allowances,respectively?
A) Debit, credit and credit
B) Credit, debit and debit
C) Debit, debit and credit
D) Credit, credit and debit
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Chapter 6: Retail Inventory
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Q1) Using the FIFO costing method will always produce the same results whether a company uses perpetual or periodic inventory.
A)True
B)False
Q2) A company purchased 100 units for $30 each on 31 January.It purchased 130 units for $39 each on 28 February.It sold a total of 160 units for $45 each from 1 March to 31 December.What is the amount of ending inventory on 31 December if the company uses the first-in,first-out (FIFO)inventory costing method? (Assume that the company uses a perpetual inventory system.)
A) $2730
B) $960
C) $2100
D) $5250
Q3) Which of the following inventory costing methods yields the lowest Ending inventory when costs are rising during the accounting period?
A) Specific unit cost
B) Average cost
C) First-in, first-out
D) Last-in, first-out
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Chapter 7: Accounting Information Systems
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Q1) Inputs into accounting systems are the reports used for decision making,including the financial statements.
A)True
B)False
Q2) The accounts payable subsidiary ledger has postings from which set of journals?
A) Purchases, cash receipts and sales
B) Sales, cash payments and general
C) Purchases, general and cash receipts
D) Purchases, general and cash payments
Q3) Special journals are a means of classifying transactions according to type to attain greater efficiency in processing.
A)True
B)False
Q4) Posting the entries in the sales journal to the general ledger:
A) should be done on a daily basis.
B) should be done at the end of each month.
C) should be done only at the end of the accounting period.
D) should be done on a weekly basis.
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Chapter 8: Internal Control and Cash
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Q1) Before signing a cheque,the controller or the treasurer should examine the purchase order,the invoice and the receiving report to determine that the company received the goods and that the company is paying only for the goods received.
A)True
B)False
Q2) A strong computer firewall is an essential element of good internal controls for e-commerce.
A)True
B)False
Q3) A pharmaceutical company testing drugs to determine possible side effects is a part of:
A) information systems.
B) risk assessment.
C) control procedures.
D) monitoring of controls.
Q4) If a system of internal controls is properly designed and structured,it cannot be overcome or broken into.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) The acid-test ratio appears in the current assets section of the balance sheet.
A)True
B)False
Q2) Which of the following describes the key significance of the acid ratio?
A) It reflects how much long-term debt a company has.
B) It measures a company's ability to pay its current liabilities by using its current assets.
C) It indicates how much cash could be realised by selling off all the inventory.
D) It measures the profitability of a company.
Q3) On 1 December 2016,Parsons Ltd sold machinery to a customer for $20,000.The customer could not pay at the time of sale but agreed to pay 9 months later and signed a 9-month bill at 9% interest.How much interest revenue was earned for the entire term of the bill?
A) $1350
B) $1200
C) $1800
D) $150
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Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Q1) Revaluation increases and decreases must always be offset against each other.
A)True
B)False
Q2) The decline in value of a trademark is accounted for by:
A) depreciation.
B) amortisation.
C) deterioration.
D) depletion.
Q3) The depreciation method in which residual value is ignored until the end of the life of the asset is:
A) units of output.
B) reducing balance.
C) First-in, first-out.
D) straight line.
Q4) Which of the following assets is NOT an intangible asset?
A) Goodwill
B) Patent
C) Building
D) Trademark
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Chapter 11: Current Liabilities and Payroll
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Q1) A certain contingent liability was evaluated at year-end,and considered to have a reasonable possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would this have on the financial reporting of the company?
A) The information about the transaction would be inadequately disclosed in the notes.
B) The liabilities on the balance sheet would be understated.
C) There would be no effect.
D) The net profit of the company would be understated.
Q2) Which of the following is a control procedure to prevent fictitious persons cashing pay cheques?
A) Requiring photo IDs for employees picking up their pay cheques
B) Keeping computerised records of payroll data
C) Serial numbering of pay cheques
D) Having employees clock in and out of work
Q3) Contingent liabilities sometimes pose an ethical challenge because they are not real liabilities and are easy to overlook.
A)True
B)False
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Chapter 12: Non-Current Liabilities,debentures Payable and
Classification of Liabilities on the Balance Sheet
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Q1) The current portion of notes payable would normally be shown on the balance sheet in non-current liabilities.
A)True
B)False
Q2) Blanding Company issues $1,174,000 of 12%,10-year debentures at 99 on 28 February 2017.The debentures pay interest on 28 February and 31 August.Assume that Blanding uses the straight-line method for amortisation.What is the journal entry to record the first interest payment on 31 August 2017? (Round to the nearest dollar.)
A) debit to Discount on debentures payable for $587
B) debit to Cash for $70,440
C) debit to Interest expense for $71,027
D) debit to Interest expense for $69,853
Q3) The difference between a mortgage payable and a note payable is that notes payable are always long-term.
A)True
B)False
Q4) Instalment payments for mortgages are normally paid once per year.
A)True
B)False
Page 14
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Chapter 13: Partnerships
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Q1) When one partner leaves the partnership for any reason,the old partnership ceases to exist.
A)True
B)False
Q2) When a new person wishes to be admitted to an existing partnership on an equal profit-sharing basis,the amount the new person must invest to be admitted is not necessarily tied to the total capital of the partnership.
A)True
B)False
Q3) Partnerships always share profit equally among all partners.
A)True
B)False
Q4) Dana and Emile allocate 2/3 of the profits and losses to Dana and 1/3 to Emile.The net profit of the firm is $20,000.The journal entry to close the Income summary will include:
A) credit to Emile, capital for $13,333.
B) credit to Income summary for $13,333.
C) debit to Income summary for $20,000.
D) debit to Dana, capital for $6667.
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Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) Which of the following is the price for which a person can buy or sell a share of shares?
A) Market value
B) Amortised value
C) Book value
D) Liquidation value
Q2) Which of the following is an advantage of preference shares?
A) Preference shareholders may sell their shares for a price higher than that of ordinary shares.
B) Preference shareholders have higher voting rights than ordinary shareholders.
C) Preference shareholders have the first claim on dividend funds.
D) Preference shareholders are guaranteed that they will not take a loss on their investment.
Q3) Which of the following describes a retained earnings deficit?
A) When the retained earnings is less than the total share capital
B) When the retained earnings is a negative amount
C) When the company records a loss for the year
D) When the company does not pay out any dividends
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) Which of the following statements is TRUE?
A) A share buy-back decreases assets and increases shareholders' equity.
B) A share buy-back decreases assets and decreases shareholders' equity.
C) A share buy-back increases assets and decreases shareholders' equity.
D) A share buy-back increases assets and increases shareholders' equity.
Q2) A 3-for-1 share split will:
A) cut the market price by one-third and triple the number of issued shares.
B) triple the market price and drop the number of issued shares by one-third.
C) have no effect on the market price but will affect the number of issued shares.
D) have no effect on the number of issued shares but will affect market price.
Q3) Which of the following best describes discontinued operations on the income statement?
A) The gains and losses from transactions that are not part of the normal operations of the business
B) The profit or loss generated from the normal operations of the business
C) The profit or loss from segments of the business that have been sold or terminated
D) The profit or loss generated from unusual or infrequent events
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Chapter 16: The Cash Flow Statement
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Q1) Which of the following describes the financing activities as shown in the cash flow statement?
A) Includes transactions that primarily impact current assets and current liabilities
B) Includes transactions affecting the non-current liabilities and equity of the business
C) Includes increases and decreases in non-current assets
D) Shows the beginning and ending balance of cash
Q2) Arturo Sales purchased some equipment for $12 000 by issuing a six-month bill payable.Because this was a non-cash transaction,it would not be shown in the main body of the cash flow statement but in a separate section for non-cash investing and financing activities.
A)True
B)False
Q3) For purposes of the cash flow statement,cash includes cash on hand,cash in the bank and cash equivalents.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) Which of the following is not a condition that must be met under AASB 118 'Revenue' before revenue from the sale of goods is recorded?
A) The seller has effectively transferred ownership to the buyer.
B) The cash for the sale has been received.
C) The amount of revenue and related costs can be measured reliably.
D) All of the above are conditions that must be met.
Q2) The principle that accountants do not have to account for every last item in strict accordance with the accounting rules is known as the:
A) relevance principle.
B) cost principle.
C) materiality principle.
D) going-concern principle.
Q3) Information that is free from error and bias has the quality of:
A) comparability.
B) reliability.
C) usefulness.
D) relevance.
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Chapter 18: Financial Statement Analysis
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Q1) Partridge Ltd provides the following information for the year 2016: \[\begin{array} { | l | l | }
\hline \text { Net profit } & \$ 195,000 \\
\hline \text { Market price per share of ordinary shares } & \$ 30.00 / \text { share } \\
\hline \text { Dividends paid } & \$ 1.1 / \text { share } \\
\hline \text { Ordinary shares outstanding at 1 Jan 2016 } & 120,000 \text { shares } \\
\hline \text { Ordinary shares outstanding at 31 Dec 2016 } & 140,000 \text { shares } \\
\hline \end{array}\]
The company has no preference shares outstanding.Calculate the dividend payout ratio.
A) 31.43%
B) 67.48%
C) 30.00%
D) 73.33%
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) When companies use an enterprise resource planning system to roll up or consolidate the budgets of the individual business units,it is more difficult for managers to conduct sensitivity analysis on their own budget data.
A)True
B)False
Q2) Indirect materials costs like lubricants and cleaning fluids are inventoriable product costs.
A)True
B)False
Q3) Sales commissions are included in manufacturing overhead.
A)True
B)False
Q4) Which of the following is TRUE for a service company?
A) Expenses are all period costs.
B) Income statement includes gross profit.
C) Expenses are all inventoriable product costs.
D) Balance sheet includes finished goods inventory.
Q5) Budget preparation is a part of the planning process.
A)True B)False
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Chapter 20: Job Costing
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Q1) Full-product cost includes all manufacturing costs plus selling expenses,but does not include administrative expenses.
A)True
B)False
Q2) Sybil Ltd uses a predetermined overhead allocation rate to allocate manufacturing overhead costs to jobs.The company recently completed Job 300X.This job used 19 machine hours and 1 direct labour hours.The predetermined overhead allocation rate is calculated to be $50 per machine hour.What is the amount of manufacturing overhead allocated to Job 300X using machine hours as the allocation base?
A) $950
B) $900
C) $50
D) $1000
Q3) Work in process inventory is debited for the incurrence of both direct and indirect labour in a job costing system.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Breakeven is the point where the sales revenues are exactly equal to the total variable costs plus the total fixed costs.
A)True
B)False
Q2) Evans Company has estimated the following amounts for its next fiscal year: \[\begin{array} { | l | l | }
\hline \text { Total fixed expenses } & \$ 834,500 \\
\hline \text { Sale price per unit } & 41 \\
\hline \text { Variable expenses per unit } & 28 \\ \hline \end{array}\]
What will happen to the breakeven point (in units)if Evans can reduce fixed expenses by $23,500?
A) The breakeven point will decrease by 840 units.
B) The breakeven point will decrease by 574 units.
C) The breakeven point will decrease by 1808 units.
D) The breakeven point will increase by 574 units.
Q3) Variable costs change in direct proportion to a change in volume.
A)True B)False
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Chapter 22: Short-Term Business Decisions
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Q1) Custom Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $570 per table and takes ten direct labour hours to manufacture.The large table sells for $1600,has variable costs of $960 and takes eight direct labour hours to manufacture.The company has a maximum of 5000 direct labour hours per month when operating at full capacity.If there are no constraints on sales of either product and the company could choose any proportions of product mix that they wanted,what is the optimum product mix to maximise operating profit of the company?
A) 625 units of small, 500 units of large
B) Zero units of small, 625 units of large
C) 500 units of small, zero units of large
D) 500 units of small, 625 units of large
Q2) Fixed costs are relevant to a special sales order decision if those fixed costs are subject to change as a result of the special order.
A)True
B)False
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Chapter 23: Capital Investment Decisions and the Time
Value of Money
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Q1) Lara is going to receive $10,000 a year at the end of each of the next five years from her insurer to meet her education cost.Using a discount rate of 14%,the present value of the receipts can be stated as:
A) PV = $10,000 (PV factor, i = 14%, n = 5).
B) PV = $10,000 (Annuity FV factor, i = 14%, n = 5).
C) PV = $10,000 (FV factor, i = 14%, n = 5).
D) PV = $10,000 (Annuity PV factor, i = 14%, n = 5).
Q2) Which of the following is TRUE regarding capital rationing decisions for capital assets?
A) Companies should always choose the investment with the highest accounting rate of return.
B) Companies should consider several different methods of evaluation before choosing an investment.
C) Companies should always choose the investment with the highest net present value. D) Companies should always choose the investment with the shortest payback period.
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