Introduction to Accounting Exam Review
Course Introduction
Introduction to Accounting provides students with a foundational understanding of the principles and concepts that govern financial recordkeeping and reporting in businesses and organizations. This course explores topics such as the accounting cycle, the preparation and interpretation of financial statements, basic accounting terminology, and the role of accounting in decision-making. Students will gain practical skills in recording transactions, managing ledgers, and applying generally accepted accounting principles (GAAP), equipping them with the knowledge essential for further study in business, finance, or accounting-related fields.
Recommended Textbook
Financial and Managerial Accounting 12th Edition by Carl S. Warren
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27 Chapters
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Explain the meaning of the business entity concept.
Answer: The business entity concept limits the economic data in an accounting system to data related directly to the activities of the business. In other words, the business is viewed as an entity separate from its owners, creditors, or other businesses
Q2) Which of the following isnot a characteristic of a corporation?
A) Corporations are organized as a separate legal taxable entity.
B) Ownership is divided into shares of stock.
C) Corporations experience an ease in obtaining large amounts of resources by issuing stock.
D) Corporation's resources are limited to its individual owners' resources. Answer: D
Q3) All financial statements are identified by the name of the business, the title of the statement, and the date or period of time.
A)True
B)False
Answer: True
Q4) What are the three sections of the statement of cash flows?
Answer: Operating Activities, Investing Activities, and Financing Activities
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Which one of the statements below is not a purpose for the journal?
A) to show increases and decreases in accounts
B) to show a chronological order by date
C) to show a complete transaction in one place
D) to help posting transactions to ledger
Answer: A
Q2) Of the following, which istrue about assets?
A) Assets include physical items and intangibles that have value.
B) Assets include only physical items of value.
C) Assets are owned solely by the stockholders of the company.
D) Assets are the result of selling products or services to customers.
Answer: A
Q3) Liability accounts are increased by debits.
A)True
B)False Answer: False
Q4) A dividends account records amounts paid to stockholders.
A)True
B)False
Answer: True
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) On January 2nd, Dog Mart prepaid $30,000 rent for the year and recorded the prepayment in an asset account. Prepare the January 31st adjusting entry for rent expense.
Answer: no answer
Q2) At the end of the fiscal year, the usual adjusting entry to Prepaid Insurance to record expired insurance was omitted. Which of the following statements is true?
A) Total assets at the end of the year will be understated.
B) Stockholders' equity at the end of the year will be understated.
C) Net income for the year will be overstated.
D) Insurance Expense will be overstated.
Answer: C
Q3) Vertical analysis compares each item in a financial statement with a total amount from the same statement.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Closing entries are dated in the journal as of
A) the date they are actually journalized, although they are generally prepared after the end of the accounting period
B) the last day of the accounting period, although they are actually journalized after the end of the accounting period
C) the first day of the accounting period, although they are actually journalized after the end of the accounting period
D) the first day of the subsequent accounting period
Q2) Net income is shown on the work sheet in the Income Statement Debit column and the Balance Sheet Credit column.
A)True
B)False
Q3) In a computerized accounting system, a work sheet may not be necessary because the software program automatically posts entries to the accounts and prepares financial statements.
A)True B)False
Q4) Explain how net income or loss is determined by using the work sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Using the letter preceding each account, arrange the following selected accounts in the order they would normally appear in a chart of accounts of a company that uses a multiple-step income statement.
(a) Accounts Payable
(b) Accounts Receivable
(c) Merchandise Inventory
(d) Miscellaneous Selling Expense
(e) Sales Discounts
(f)Interest Expense
(g)Income Summary
(h)Misc. Adinin. Expense
(i)Freight Out
(j)Sales Returns and Allowances
Q2) If payment is due by the end of the month in which the sale is made, the invoice terms are expressed as n/30.
A)True
B)False
Q3) Describe the major differences in preparing the financial statements for a service business and a merchandising business.
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Page 7
Chapter 6: Inventories
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Sample Questions
Q1) List three different security measures taken by stores to safeguard inventory.
Q2) In valuing damaged merchandise for inventory purposes, net realizable value is the estimated selling price less any direct costs of disposal.
A)True
B)False
Q3) If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory according to the lower of cost or market is
A) $15
B) $60
C) $75
D) $135
Q4) Use of the retail inventory method requires taking a physical count of inventory.
A)True
B)False
Q5) Describe three inventory cost flow assumptions and how they impact the financial statements.
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Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) Identify each of the following as relating to (a) the control environment, (b) risk assessment, or (c) control procedures.
1. Mandatory vacations
2. Personnel policies
3. Report of outside consultants on future market changes
Q2) If the balance in Cash Short and Over at the end of a period is a credit, it should be reported as an "other income" item on the income statement.
A)True
B)False
Q3) A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695. What entry is required in the company's accounts?
A) debit Accounts Payable; credit Cash
B) debit Cash; credit Accounts Receivable
C) debit Cash; credit Accounts Payable
D) debit Accounts Receivable; credit Cash
Q4) Distinguish preventive controls from detective controls and give examples of each as they relate to cash.
Q5) List and define each of the five elements of internal control.
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Chapter 8: Receivables
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Sample Questions
Q1) Accounts Receivable Turnover measures
A) how frequently during the year the accounts receivable are converted to cash
B) the number of days of accounts receivable outstanding
C) the fair market value of accounts receivable
D) the efficiency of the accounts payable function
Q2) Generally accepted accounting principles do not normally allow the use of the direct write-off method of accounting for uncollectible accounts.
A)True
B)False
Q3) A 60-day, 12% note for $7,000, dated April 15, is received from a customer on account. The face value of the note is
A) $6,860
B) $7,140
C) $7,840
D) $7,000
Q4) Discuss the similarities and differences between accounts receivables, notes receivables and other receivables.
Q5) List at least three things that indicate a receivable may be uncollectible.
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Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) On July 1st, Hartford Construction purchases a bulldozer for $228,000. The equipment has a 9 year life with a residual value of $16,000. Hartford uses units-of-production method depreciation and the bulldozer is expected to yield 26,500 operating hours.
(a) Calculate the depreciation expense per hour of operation.
(b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the third year of operations. Journalize the depreciation expense for each year.
Q2) When a company discards machinery that is fully depreciated, this transaction would be recorded with the following entry
A) debit Accumulated Depreciation; credit Machinery
B) debit Machinery; credit Accumulated Depreciation
C) debit Cash; credit Accumulated Depreciation
D) debit Depreciation Expense; credit Accumulated Depreciation
Q3) Computer equipment was acquired at the beginning of the year at a cost of $65,000 that has an estimated residual value of $3,800 and an estimated useful life of 8 years. Determine the (a) depreciable cost, (b) straight-line rate, and (c) annual straight-line depreciation.
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11
Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) For proper matching of revenues and expenses, the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.
A)True
B)False
Q2) FICA tax becomes a liability to the federal government at the time an employee's payroll is prepared.
A)True
B)False
Q3) An employee receives an hourly rate of $40, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of $100,000; and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee?
A) $775.00
B) $1,840.00
C) $1,960.00
D) $1,562.60
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) Treasury stock should be reported in the financial statements of a corporation as a(n)
A) investment.
B) liability.
C) current asset.
D) deduction from stockholders's equity.
Q2) If common stock is issued for an amount greater than par value, the excess should be credited to
A) Retained Earnings.
B) Cash.
C) Legal Capital.
D) Paid-in Capital in Excess of Par Value.
Q3) Miriah Inc. has 10,000 shares of 5%, $100 par value, cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31, 2014. What is the annual dividend on the preferred stock?
A) $50 per share
B) $50,000 in total
C) $10,000 in total
D) $0.50 per share
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.
A)True
B)False
Q2) The bond indenture may provide that funds for the payment of bonds at maturity be accumulated over the life of the issue. The amounts set aside are kept separate from other assets in a special fund called a(n)
A) enterprise fund
B) sinking fund
C) special assessments fund
D) general fund
Q3) The special fund that is set aside to provide for the payment of bonds at maturity is called a sinking fund.
A)True
B)False
Q4) The unamortized Discount on Bonds Payable account is a contra-liability account.
A)True
B)False
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Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) Companies may report comprehensive income on each of the statements below except
A) income statement
B) separate statement of comprehensive income
C) statement of cash flows
D) retained earnings statement
Q2) Define (1) debt securities and (2) equity securities. Include their similarities and differences in your discussion.
Q3) Parker Company owns 83% of the outstanding stock of Tadeo Company. Parker Company is referred to as the
A) parent
B) minority interest
C) affiliate
D) subsidiary
Q4) On May 1, 2012, Chase Inc. purchases $60,000 of 10-year, Manus Corporation 8% bonds dated March 1, 2012 at 100 plus accrued interest. What entry would Chase record when receiving its semiannual interest on March 1, 2013?
Q5) On April 1, 2015, ValueTime, Inc. had a market price per common share of $24. For the previous year ValueTime paid a dividend of $1.50 per share. Compute the dividend yield for ValueTime, Inc.
Page 15
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Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) The statement of cash flows is an optional financial statement.
A)True
B)False
Q2) The cost of merchandise sold during the year was $45,000. Merchandise inventories were $13,500 and $10,500 at the beginning and end of the year, respectively. Accounts payable were $7,000 and $5,000 at the beginning and end of the year, respectively. Using the direct method of reporting cash flows from operating activities, cash payments for merchandise total
A) $46,000
B) $44,000
C) $50,000
D) $40,000
Q3) To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation.
A)True
B)False
Q4) A cash flow per share amount should be reported on the statement of cash flows.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Those unusual items reported as deductions from income from continuing operations should be listed net of the related income tax.
A)True
B)False
Q2) In a common-sized income statement, each item is expressed as a percentage of net income.
A)True
B)False
Q3) Comparable financial statements are designed to compare the financial statements of two or more corporations.
A)True
B)False
Q4) In a company's annual report, the section called management discussion and analysis provides critical information in interpreting the financial statements and assessing the future of the company.
A)True
B)False
Q5) Why would you compare or not compare Coca-Cola and Pepsi-Cola (PepsiCo) as companies to each other?
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Chapter 16: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) A report analyzing how many products need to be sold to cover operating costs is not typically a managerial accounting report.
A)True
B)False
Q2) At the beginning of 2011, the Gilbert Company's work in process inventory account had a balance of $30,000. During 2011, $68,000 of direct materials were used in production, and $66,000 of direct labor costs were incurred. Factory overhead in 2011 amounted to $90,000. Cost of goods manufactured is $230,000 in 2011. The balance in work in process inventory on December 31, 2011, is:
A) $24,000
B) $44,000
C) $66,000
D) $36,000
Q3) Indirect labor and indirect materials would be part of factory overhead.
A)True
B)False
Q4) Factory overhead cost is sometimes referred to as factory burden.
A)True
B)False
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Chapter 17: Job Order Costing
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Sample Questions
Q1) Direct labor cost is an example of a period cost.
A)True
B)False
Q2) Which of the following is the correct flow of manufacturing costs?
A) Raw materials, work in process, finished goods, cost of goods sold
B) Raw materials, finished goods, cost of goods sold, work in process.
C) Work in process, finished goods, raw materials, cost of goods sold
D) Cost of goods sold, raw materials, work in process, finished goods.
Q3) In a job order cost accounting system for a service business, materials costs are normally included as part of overhead.
A)True
B)False
Q4) If factory overhead applied exceeds the actual costs, overhead is said to be underapplied.
A)True
B)False
Q5) Factory overhead is applied to production using a predetermined overhead rate.
A)True
B)False
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Chapter 18: Process Cost Systems
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Sample Questions
Q1) The portion of whole units that were completed with respect to either materials or conversion costs within a given accounting period is the definition of
A) units started and completed.
B) equivalent units.
C) conversion costs.
D) ending work in process.
Q2) Which of the following costs incurred by a paper manufacturer would be included in the group of costs referred to as conversion costs?
A) Advertising costs
B) Raw lumber (direct materials)
C) Machine operator's wages (direct labor)
D) Sales salaries
Q3) Conversion costs include materials, direct labor, and factory overhead. A)True
B)False
Q4) Describe the flow of materials in a process cost accounting system.
Q5) The cost of production report reports the cost of the goods sold. A)True B)False
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Chapter 19: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) If sales are $820,000, variable costs are 45% of sales, and operating income is $260,000, what is the contribution margin ratio?
A) 45%
B) 55%
C) 62%
D) 32%
Q2) For the past year, Hornbostel Company had fixed costs of $6,552,000, a unit variable cost of $444, and a unit selling price of $600. For the coming year, no changes are expected in revenues and costs, except that a new wage contract will increase variable costs by $6 per unit. Determine the break-even sales (units) for (a) the past year and (b) the coming year.
Q3) Cost behavior refers to the manner in which:
A) a cost changes as the related activity changes
B) a cost is allocated to products
C) a cost is used in setting selling prices
D) a cost is estimated
Q4) The Dean Company has sales of $500,000, and the break-even point in sales dollars of $300,000. Determine the company's margin of safety percentage.
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Page 21
Chapter 20: Variable Costing for Management Analysis
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Sample Questions
Q1) Management will use both variable and absorption costing in all of the following activities except:
A) controlling costs
B) product pricing
C) production planning
D) controlling inventory levels
Q2) What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and variable factory overhead cost?
A) Absorption costing
B) Differential costing
C) Standard costing
D) Variable costing
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 smaller than income from operations reported under absorption costing.
A)True
B)False
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22
Chapter 21: Budgeting
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Sample Questions
Q1) The first budget customarily prepared as part of an entity's master budget is the:
A) production budget
B) cash budget
C) sales budget
D) direct materials purchases
Q2) Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.
A)True
B)False
Q3) Detailed supplemental schedules based on department responsibility are often prepared for major items in the operating expenses budget.
A)True
B)False
Q4) The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting.
A)True
B)False
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Page 23
Chapter 22: Performance Evaluation Using Variances From
Standard Costs
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Sample Questions
Q1) The Flapjack Corporation had 8,200 actual direct labor hours at an actual rate of $12.40 per hour. Original production had been budgeted for 1,100 units, but only 1,000 units were actually produced. Labor standards were 7.6 hours per completed unit at a standard rate of $13.00 per hour. Compute the labor rate variance.
A) 4,920U
B) 4,920F
C) 4,560U
D) 4,560f
Q2) Greyson Company produced 8,300 units of their product that required 4.25 standard hours per unit. Determine the standard fixed overhead cost per unit at 27,000 hours, which is 100% of normal capacity, if the favorable fixed factory overhead volume variance is $14,895.
Q3) Standard cost variances are usually not reported in reports to stockholders.
A)True
B)False
Q4) An unfavorable cost variance occurs when budgeted cost at actual volumes exceeds actual cost.
A)True
B)False
Page 24
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Chapter 23: Performance Evaluation for Decentralized Operations
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Sample Questions
Q1) The profit center income statement should include only controllable revenues and expenses.
A)True
B)False
Q2) Which of the following is NOT a disadvantage of decentralized operation?
A) Competition among managers decreases profits
B) Duplication of operations
C) Price cutting by departments that are competing in the same product market
D) Top management freed from everyday tasks to do strategic planning
Q3) The DuPont formula uses financial and nonfinancial information to measure the performance of a business.
A)True
B)False
Q4) Office salaries expense for a department store is an indirect expense.
A)True
B)False
Q5) The ratio of sales to invested assets is termed the investment turnover component of the rate of return on investment.
A)True
B)False
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Chapter 24: Differential Analysis and Product Pricing
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Sample Questions
Q1) Jamison Company produces and sells Product X at a total cost of $25 per unit, of which $15 is product cost and $10 is selling and administrative expenses. In addition, the total cost of $25 is made up of $14 variable cost and $11 fixed cost. The desired profit is $5 per unit. Determine the mark up percentage on total cost.
Q2) Lark Art Company sells unfinished wooden decorations at a price of $15.00. The current profit margin is $5.00 per decoration. The company is considering taking individual orders and customizing them for sale. To finish the decoration the company would have to pay additional labor of $3.00, additional materials costing an average of $4.00 per unit and fixed costs would increase by $1,500. If the company estimates that it can sell 600 units for $25.00 each month, should they start taking the orders?
Q3) Since the costs of producing an intermediate product do not change regardless of whether the intermediate product is sold or processed further, these costs are not considered in deciding whether to further process a product.
A)True
B)False
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Chapter 25: Capital Investment Analysis
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Q1) A project has estimated annual net cash flows of $50,000. It is estimated to cost $180,000. Determine the cash payback period.
Q2) Average rate of return equals average investment divided by estimated average annual income.
A)True
B)False
Q3) Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?
A) Average rate of return
B) Accounting rate of return
C) Cash payback period
D) Internal rate of return
Q4) The present value factor for an annuity of $1 is determined using which of the following formulas?
A) Amount to be invested/Annual average net income
B) Annual net cash flow/Amount to be invested
C) Annual average net income/Amount to be invested
D) Amount to be invested/Equal annual net cash flows
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Chapter 26: Cost Allocation and Activity-Based Costing
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Sample Questions
Q1) Determine the activity-based cost for each tape drive unit.
A) $97.73
B) $232.69
C) $394.12
D) $103.84
Q2) Pinacle Corp. budgeted $350,000 of overhead cost for 2012. Actual overhead costs for the year were $325,000. Pinacle's plantwide allocation base, machine hours, was budgeted at 50,000 hours. Actual machine hours were 40,000. A total of 100,000 units was budgeted to be produced and 98,000 units were actually produced. Pinacle's plantwide factory overhead rate for 2012 is:
A) $8.13 per machine hour
B) $7.00 per machine hour
C) $6.50 per machine hour
D) $8.75 per machine hour
Q3) If the activities causing overhead costs are different across different departments and products, use of a plantwide factory overhead rate will cause distorted product costs.
A)True
B)False
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Page 28
Chapter 27: Cost Management for Just-In-Time
Environments
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Q1) Lead time is the process time between start and completion.
A)True
B)False
Q2) In a just-in-time (JIT) environment, process problems are more visible than they are in a traditional environment because:
A) inventories are maintained at higher levels.
B) process problems cause production to shut down immediately.
C) the push manufacturing system leads to increased inventory level.
D) the lack of work in process inventory creates problems.
Q3) Which of the following is (are) objective(s) of just-in-time (JIT) manufacturing?
A) eliminating waste
B) increasing inventory levels
C) increased number of inspections
D) all of the above
Q4) Push manufacturing (made-to-stock) is a traditional approach to manufacturing.
A)True
B)False
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