Introduction to Accounting Exam Review
Course Introduction
Introduction to Accounting provides students with a foundational understanding of the principles and practices essential to the field of accounting. The course covers key topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the role of accounting information in business decision-making. Emphasis is placed on understanding basic concepts such as assets, liabilities, equity, revenues, and expenses, as well as learning how to record, classify, and summarize financial transactions. By the end of the course, students will have developed the analytical skills needed to interpret and evaluate financial data, enabling them to contribute effectively to organizational financial processes.
Recommended Textbook
Financial and Managerial Accounting 9th Edition by Belverd E. Needles
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Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Liquidity means having enough funds on hand to pay debts when they fall due.
A)True
B)False Answer: True
Q2) The board of directors appoints the audit committee,which in turn performs an independent audit of the company's records.
A)True
B)False Answer: False
Q3) Which of the following is not one of the broad principles underlying the accountant's code of professional ethics?
A) Objectivity
B) Integrity
C) Loyalty
D) Independence Answer: C
Q4) Responsibility for ethical financial reporting rests solely with the accountant.
A)True
B)False Answer: False
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) For each item below,indicate whether a debit or a credit applies.
a. Increase in Art Fees Earned
b. Decrease in Prepaid Rent
c. Decrease in Unearned Fees
d. Increase in Common Stock
e. Increase in Depreciation Expense, Buildings
f. Increase in Interest Receivable
g. Decrease in Retained Earnings
h. Increase in Dividends
i. Increase in Notes Payable
Answer: a.Credit
b.Credit
c.Debit
d.Credit
e.Debit
f.Debit
g.Debit
h.Debit
i.Credit
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) The heading of an adjusted trial balance might contain the line "For the Month Ended May 31,20xx."
A)True
B)False
Answer: False
Q2) The matching rule relates the least to
A) systematic and rational allocation.
B) the cash basis of accounting.
C) revenues and expenses.
D) cause-and-effect relationships.
Answer: B
Q3) Failure to prepare formal closing entries will produce a misstated
A) Income Summary account balance.
B) Retained Earnings account balance.
C) total asset figure on the balance sheet.
D) total liability figure on the balance sheet.
Answer: B
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Page 5
Chapter 3: Supplement - Closing Entries and the Work Sheet
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Sample Questions
Q1) The balance sheet may be prepared by referring solely to the Balance Sheet columns of the work sheet.
A)True
B)False
Q2) Monty Milko is the only accountant employed at Gamma Enterprises,Inc.When asked by the company president if the financial statements had been prepared yet,Milko answered that he had completed all of his work except the preparation of the statements.He added that the net income that would appear on the current income statement would be $369,075.Identify the two instances where Milko would have learned the net income before he actually prepared the income statement.
Q3) The process of crossfooting on the work sheet results in the A) Adjusted Trial Balance columns.
B) Trial Balance columns.
C) Income Statement columns.
D) Adjustments columns.
Q4) The work sheet should be prepared after the formal financial statements have been prepared.
A)True
B)False
Page 6
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Chapter 4: Financial Reporting and Analysis
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Sample Questions
Q1) Return on assets is a measure of liquidity.
A)True
B)False
Q2) Bill Pierce owns several ice cream shops all within 50 miles of his home.He has plans to expand greatly the number of shops he owns.This planned expansion will require a large bank loan.Bill has always done his own accounting work and has prepared a set of financial statements for each of the past five years of operations to present to the bank.Because some periods were more profitable than others,Bill attempted to streamline his earnings by switching depreciation and inventory valuation methods frequently.This created the appearance that his company earnings were very consistent over the years.Discuss the merits of Bill's financial statements with regard to his streamlining decisions.
Q3) Return on assets is a better measure of profitability than profit margin because it takes into account the assets invested in the business.
A)True
B)False
Q4) The condensed form of the income statement refers only to the single-step type.
A)True
B)False
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Chapter 5: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) Using the following information,calculate for 2010 (a)net sales,(b)cost of goods sold,(c)gross margin,and (d)net income.
\(\begin{array}{lr}
\text { Freight-In } & \$ 11,400 \\
\text { Merchandise Inventory, December 31, } 2009 & 130,000 \\
\text { Sales } & 320,000\\
\text { Purchases Returns and Allowances } & 1,600 \\
\text { Advertising Expense } & 18,000 \\
\text { Purchases } & 140,000 \\
\text { Merchandise Inventory, December 31, } 2010 & 110,000 \\
\text { Sales Returns and Allowances } & 11,000 \\
\text { General and Administrative Expenses } & 114,000 \end{array}\)
Q2) The separation-of-duties feature of internal control can be negated when several employees are involved in a scheme.
A)True
B)False
Q3) Bonding means insuring a company against employee theft.
A)True
B)False
Page 8
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Chapter 6: Inventories
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Sample Questions
Q1) During periods of consistently falling prices,the FIFO inventory method will produce the highest possible amount of net income.
A)True
B)False
Q2) Costs incurred in storing inventory usually are included in inventory costs.
A)True
B)False
Q3) The average-cost method produces an ending inventory figure that is somewhere between the figures produced by FIFO and LIFO.
A)True
B)False
Q4) Specific identification is a very popular inventory method because it is very easy to apply.
A)True
B)False
Q5) The costs included in work in process and finished goods inventories would properly contain manufacturing overhead costs.
A)True
B)False
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) If the amount of uncollectible accounts expense is overstated at year end,
A) Allowance for Uncollectible Accounts will be understated.
B) net income will be overstated.
C) net Accounts Receivable will be understated.
D) total liabilities and stockholders' equity will be overstated.
Q2) Which of the following topics involves a contingent liability?
A) Installment accounts receivable
B) A discounted note receivable
C) Securitization
D) Credit card sales
Q3) On a bank reconciliation,interest income would be added to the balance per bank.
A)True
B)False
Q4) Which of the following methods of recording uncollectible accounts expense would be described best as a balance sheet method?
A) Accounts receivable aging method
B) Percentage of net sales method
C) Direct charge-off method
D) Both percentage of net sales method and direct charge-off method
Q5) On a balance sheet,what items normally are included in Cash?
Page 10
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Chapter 8: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Seacrest Company purchased a machine on January 2,2010.Under the terms of the purchase agreement,the company is required to make 14 quarterly installment payments of $29,000 each,beginning April 1,2010.Assuming that the interest rate is 16 percent compounded quarterly,determine the purchase price of the machine.Use future value and/or present value tables in calculating your answer.
Q2) Recording estimated product warranty expense in the year of the sale best follows which of the following accounting principles?
A) Matching
B) Consistency
C) Historical cost
D) Full disclosure
Q3) Unearned revenue arises from the acceptance of payment in advance for a service to be performed.
A)True
B)False
Q4) Explain why the cost of employing someone is more than just the wage or salary paid to the employee.
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Chapter 9: Long Term Assets
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Sample Questions
Q1) Federal tax law allows the rapid write-off of plant assets.
A)True B)False
Q2) Licenses are properly classified as intangible assets.
A)True B)False
Q3) Computation of a partial year's depreciation is often required for the proper determination of net income.
A)True
B)False
Q4) A capital expenditure is an expenditure that benefits only the current accounting period.
A)True B)False
Q5) Extraordinary repairs are recorded with a debit to Accumulated Depreciation. A)True
B)False
Q6) Prior to the disposal of an asset,depreciation should be updated and recorded. A)True B)False
Page 12
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) When the present value of a bond issue is calculated,the discount rate used should equal the face interest rate of the bonds.
A)True
B)False
Q2) The effective interest method produces a constant dollar amount of bond interest expense to be reported each interest period.
A)True B)False
Q3) Costs of postretirement benefits other than pension plans should be expensed when paid to the retired employee.
A)True
B)False
Q4) When determining the value of a bond using present value,what are the two components used in the calculation?
Q5) Leases of short-term assets are operating leases,and leases of long-term assets are capital leases.
A)True B)False
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Chapter 11: Contributed Capital
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Sample Questions
Q1) How should dividends in arrears be shown on a corporation's balance sheet?
A) As an increase in liabilities
B) In a note or in the body of the financial statements
C) As a decrease in assets
D) As an increase in stockholders' equity
Q2) The par value of stock constitutes the legal capital of a corporation.
A)True
B)False
Q3) In the rare instance when a par value stock is issued at a cash price below par,the excess of the par value over the amount of cash received should be
A) credited to a liability account.
B) debited to the Retained Earnings account.
C) debited to an account titled Discount on Capital Stock.
D) credited to the Retained Earnings account.
Q4) When no-par common stock without 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
Q5) Define outstanding stock.
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Chapter 12: Investments
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Sample Questions
Q1) Trading securities are valued on the balance sheet at A) lower of cost or market.
B) cost.
C) market value.
D) cost, adjusted for the effects of interest.
Q2) James Company buys 100 percent of the outstanding stock of Maier Company for $650,000.Maier Company has contributed capital of $420,000 and retained earnings of $180,000.The fair market value of Maier's identifiable net assets was equal to their book value on the date of acquisition.The consolidated financial statements would contain
A) neither minority interest nor goodwill.
B) goodwill but not minority interest.
C) minority interest but not goodwill.
D) minority interest and goodwill.
Q3) Investments with a maturity of less than a year are classified as cash equivalents. A)True B)False
Q4) When are eliminating entries made,where are they entered,and why are they needed?
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15
Chapter 13: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) The write-off of goodwill that has been impaired is a component of income from operations.
A)True
B)False
Q2) What are potentially dilutive securities,and how do they relate to earnings per share calculations?
Q3) Which of the following has an effect on total stockholders' equity?
A) Conversion of preferred stock into common stock
B) Cash dividend
C) Stock dividend
D) Stock split
Q4) Which of the following would be involved in the computation of earnings per share for a company with a simple capital structure?
A) Stock options
B) Number of shares of nonconvertible preferred stock
C) Dividends declared on nonconvertible preferred stock
D) Dividends declared on common stock
Q5) Corporate income statements must be prepared in multistep form.
A)True
B)False
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) If the indirect method is used,which of the following would be subtracted from net income to arrive at net cash flows from operating activities?
A) Increase in Notes Payable
B) Decrease in Inventory
C) Decrease in Accounts Payable
D) Depreciation Expense
Q2) Repayments of accounts payable or accrued liabilities are considered repayments of loans under financing activities.
A)True
B)False
Q3) Dividends paid are reflected in the financing activities section of the statement of cash flows.
A)True
B)False
Q4) Under the indirect method,gains or losses from the sale of equipment used in operations would appear as adjustments in the cash flows from operating activities section of the statement of cash flows.
A)True
B)False
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Chapter 15: The Changing Business Environment - a Managers Perspective
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Sample Questions
Q1) In making the transition from financial accounting to management accounting,you must become accustomed to using the historical dollar as the primary unit of measurement.
A)True
B)False
Q2) TQM can be used in
A) merchandising firms.
B) service firms.
C) manufacturing firms.
D) all of these.
Q3) Activity-based costing traces costs to a company's activities related to A) purchasing and setup.
B) production and nonproduction.
C) production only.
D) nonproduction only.
Q4) Management accounting reports can
A) use a flexible format.
B) use financial and nonfinancial data.
C) be prepared for any time period.
D) include all of these.
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Chapter 16: Cost Concepts and Cost Allocation
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Sample Questions
Q1) The product is the cost object when assigning indirect product costs.
A)True
B)False
Q2) Consider the following information: direct materials used totaled $134,400; direct labor amounted to $396,800; overhead was computed to be $789,600; Work in Process Inventory on January 1,2010,was $378,200; and Work in Process Inventory on December 31,2010,was $385,200.What was the cost of goods manufactured?
A) $1,313,800
B) $1,320,800
C) $1,327,800
D) $2,084,200
Q3) Overhead costs generally are estimated as part of the normal budgeting function.
A)True
B)False
Q4) The two types of cost behavior are value-adding and nonvalue-adding.
A)True
B)False
Q5) Lubrication used for machines is an example of a direct material.
A)True
B)False
Page 19
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Chapter 17: Costing Systems- Job Order Costing
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Sample Questions
Q1) Which of the following products probably would be manufactured using a job order costing system?
A) Paper
B) Baseball
C) Computer monitors
D) Company business cards
Q2) Applied overhead exceeds actual overhead when the
A) Overhead account has a credit balance.
B) journal entry to account for the difference involves a debit to Cost of Goods Sold.
C) Overhead account has a debit balance.
D) company has overspent in the overhead cost area.
Q3) If the applied overhead is more than actual overhead,which of the following is part of the entry?
A) A credit to the Overhead account
B) A debit to the Overhead account
C) A debit to the Cost of Goods Sold account
D) A debit to the Work in Process Inventory account
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Chapter 18: Costing Systems- Process Costing
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Q1) Lopez Company uses the FIFO process costing method to determine the product unit cost.The company began the period with 1,800 units in beginning inventory.During the period,32,000 units were started and completed.There were 4,000 units in ending inventory at the end of the period.If all direct materials are added at the beginning of the process,the number of equivalent units for direct materials for the period is
A) 29,800.
B) 28,000.
C) 32,000.
D) 36,000.
Q2) Which of the following is not included in conversion costs?
A) Indirect labor
B) Direct labor
C) Direct materials
D) Overhead
Q3) In a process costing system,all production costs are assigned to departments.
A)True
B)False
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Chapter 19: Value-Based Systems- Abm and Lean
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Sample Questions
Q1) A nonvalue-adding activity is defined as a(n)
A) administrative or support activity that adds overhead cost to the product and increases its market value.
B) activity that adds cost to a product but does not increase its market value.
C) activity that adds no cost to the product but increases its market value.
D) wasteful but unavoidable production activity.
Q2) In activity-based costing,the first step in assigning costs is to A) analyze all nonvalue-adding activities to determine if they are necessary support areas.
B) accumulate costs for each activity.
C) identify and classify each activity.
D) separate nonvalue-adding activities from value-adding activities.
Q3) Many indirect costs in a traditional system become direct costs in a JIT system.
A)True
B)False
Q4) Many of the reports and analyses prepared in traditional management settings need to be changed to satisfy managers' needs in the new manufacturing environment.
A)True
B)False
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Chapter 20: Cost Behavior Analysis
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Sample Questions
Q1) Linear approximation is a method of converting nonlinear variable costs into linear fixed costs.
A)True
B)False
Q2) A retail organization's sales salaries consist of a base amount plus a commission of 5 percent on each sale.Which of the following would properly classify the cost of sales salaries?
A) Fixed and product
B) Mixed and period
C) Mixed and product
D) Variable and product
Q3) All variable costs except manufacturing costs are subtracted from sales to determine the total contribution margin.
A)True
B)False
Q4) Adding a desired profit level to breakeven computations will lower the number of sales units.
A)True
B)False
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Chapter 21: The Budgeting Process
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Q1) A company expects to begin the coming year with 6,000 ceramic pots in finished goods inventory.It expects to sell 85,000 ceramic pots and end the year with 8,000 pots in the finished goods inventory.Four pounds of clay go into each ceramic pot.The company expects to have 4,000 pounds of clay on hand at the beginning of the coming year and wishes to end the year with 6,000 pounds in inventory.
a. Prepare a production budget showing the number ceramic pots that the company must manufacture to carry out these plans.
b. Prepare a direct materials purchases budget showing the number of pounds of clay that the company must purchase during the year.
Q2) Which of the following is a true statement?
A) The direct materials purchases budget is determined from the direct labor budget.
B) The only budget providing input into the revenue budget is the sales budget.
C) The direct materials purchases budget and the capital expenditures budget are both determined from the production budget.
D) The selling and administrative expense budget is input into the forecasted cost of goods sold.
Q3) Describe three benefits budgeting provides to an organization's success.
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Page 24
Chapter 22: Performance Management and Evaluation
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Q1) How effective a performance management and evaluation system is depends on how well the goals of the entire company are coordinated rather than on how well the goals of individual responsibility centers and managers are coordinated.
A)True
B)False
Q2) The manager of Center A is responsible for generating cash inflows and incurring costs with the goal of making money for the company.The manager has no responsibility for assets.What type of responsibility center is Center A?
A) Cost center
B) Discretionary cost center
C) Profit center
D) Revenue center
Q3) To succeed,an organization must add value for all of its stakeholders in the long term only.
A)True
B)False
Q4) Manufacturing companies rarely utilize responsibility accounting.
A)True
B)False
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Chapter 23: Standard Costing and Variance Analysis
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Q1) A performance report should contain cost or revenue items that the manager receiving the report can control.
A)True
B)False
Q2) Prepare a flexible budget for 8,000,9,000,and 10,000 units of output,given the following data:
\(\begin{array}{llr}
\text { Variable costs: } &\text { Budgeted fixed overhead } \$ 90,000\\
\text { Direct materials } &\$5\\
\text { Direct labor} &4\\
\text {Overhend } &8 \end{array}\)
Q3) The C.M.Landscaping Co.uses chicken manure to fortify the soil around trees bearing rare fruit.The price standard used is $3.50 per 10 pound sack of chicken manure.During the current year,the actual purchase price averaged $3.65 per sack,according to the company's purchasing agent.The company purchased and used 1,560 sacks of chicken manure during the year.Compute the direct materials price variance.Be sure to indicate whether it is favorable or unfavorable.
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Chapter 24: Short Run Decision Analysis
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Q1) Cost information for short-run decision making focuses on
A) what happened.
B) what is happening.
C) what will happen.
D) why it happened.
Q2) It is not possible for a company to provide the full variety of products or services which the customer demands within a given time.
A)True
B)False
Q3) Opportunity costs are irrelevant costs.
A)True
B)False
Q4) Which of the following could not be a relevant cost in deciding whether or not to eliminate a producing department?
A) The current residual value of the department's equipment
B) The salary of a supervisor who would be laid off
C) The carrying value of the department's equipment
D) Revenue that could be generated by renting out the department's space
Q5) What are the two steps in the analysis for a sales mix decision?
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Chapter 25: Capital Investment Analysis
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Q1) The six steps of capital investment analysis can be used for both long-term as well as short-term planning purposes.
A)True
B)False
Q2) Why the residual value of equipment is relevant when considering the replacement of equipment?
Q3) Seattle,Inc.,is contemplating a project that costs $180,000.Expectations are that annual cash revenues will be $70,000 and annual expenses (including depreciation)will total $30,000.The project has a six-year useful life and a residual value of $30,000.Assume Seattle Inc.uses straight line method of depreciation. The accounting rate of return for the project is
A) 53.3 percent.
B) 22.2 percent.
C) 66.7 percent.
D) 38.1 percent.
Q4) Only large corporations benefit from capital investment analysis.
A)True
B)False
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Chapter 26: Pricing Decisions,incltarget Costing and Transfer Pricing
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Q1) Pricing of services
A) requires the same approach as pricing of products.
B) uses a markup percentage to add the cost of overhead to the direct costs of labor, materials, and parts.
C) always requires three pricing computations, one for materials, one for parts, and one for labor.
D) is less accurate than pricing of products.
Q2) When using a cost-based approach,once the cost of a good or service has been determined,additional factors need not be considered in establishing a selling price.
A)True
B)False
Q3) Which of the following items should not be used to measure the performance of a manager whose division "sells" to other divisions of the company exclusively?
A) Negotiated profit margin within the transfer prices
B) Labor efficiency rates
C) Corporate overhead allocations
D) Variable costs of production
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Page 29
Chapter 27: Quality Management and Measurement
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Sample Questions
Q1) Identify and describe three traits that differentiate management information systems (MIS)from traditional management accounting techniques.
Q2) Internal reports on quality at the Acme Publishing Company generated the following information for the Trade Division for the first three months of the year: \(\begin{array}{ll}\text { Total sales }&\$1,000,000\\
\text { Costs of quality: }\\
\text { Prevention } & 22,500 \\
\text { Appraisal } & 47,000 \\
\text { Internal failure } & 36,000 \\ \text { External failure } & 64.000 \end{array}\)
Compute the costs of nonconformance as a percentage of total sales.
A) 12.0%
B) 5.4%
C) 1.3%
D) 10%
Q3) Traditional management information systems focus on financial reporting.
A)True
B)False
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Chapter 28: Financial Analysis of Performance
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Sample Questions
Q1) A quick ratio that is much smaller than the current ratio indicates that
A) inventories represent a large portion of current assets.
B) the company has a low inventory turnover.
C) inventories represent a small portion of current assets.
D) the company has a high inventory turnover.
Q2) The use of rule-of-thumb measures is not an exact science and should be used with great care.
A)True
B)False
Q3) The quick ratio and the debt to equity ratio are measures of short-term debt-paying ability.
A)True
B)False
Q4) In a common-size income statement,each item is expressed as a percentage of net sales.
A)True
B)False
Q5) Liquidity is the ability to earn a satisfactory net income.
A)True
B)False
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