Introduction to Accounting
Mock Exam
Course Introduction
Introduction to Accounting provides students with a fundamental understanding of accounting principles, concepts, and practices essential for interpreting and analyzing financial information. The course covers the basics of the accounting cycle, preparation of financial statements, and the role of accounting in decision-making processes. Emphasis is placed on the systematic recording of transactions, internal controls, and the ethical responsibilities of accountants. Through practical exercises and real-world examples, students gain the skills necessary to read, prepare, and use financial statements, laying a strong foundation for more advanced study in accounting and related business fields.
Recommended Textbook
Horngren's Accounting 11th Edition by Tracie
L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) The return on assets is calculated by ________.
A)subtracting net income from average total assets
B)adding net income and average total assets
C)dividing net income by average total assets
D)multiplying net income and average total assets
Answer: C
Q2) Indicate the effects on the accounting equation of the following business transactions of Smith Service Company for b)to d)below.Use proper account titles.Transaction a)is answered as a guide.
a)Received cash from the owner,Don Smith as an investment in the business.
Answer: b)Increase asset (Equipment);Increase liability (Note Payable)
c)Increase asset (Accounts Receivable);Increase equity (Service Revenue)
d)Decrease equity (Rent Expense);Decrease asset (cash)
Q3) The owners' claims to the assets of the business are called ________.
A)return on assets
B)expenses
C)equity
D)debt
Answer: C
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A business borrows cash by signing a note payable.Which of the following accounts is debited?
A)Notes Payable
B)Accounts Payable
C)Notes Receivable
D)Cash
Answer: D
Q2) Accounts Receivable is a(n)________ account and has a normal ________ balance.
A)liability;debit
B)asset;debit
C)liability;credit
D)asset;credit
Answer: B
Q3) A business makes a payment in cash for advertising expense.Which of the following accounts is credited?
A)Notes Payable
B)Accounts Receivable
C)Cash
D)Advertising Expense
Answer: C
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Chapter 3: The Adjusting Process
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Q1) Explore,a travel magazine,collected $500,000 in subscription revenue in May.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.Provide the journal entry for collection of cash in May.(Ignore explanation. )Assume the magazine initially records a liability for the subscription revenue.
Answer: 11ea8a42_4f1e_9459_8b44_5b117603253a_TB5024_00
Q2) Deferred revenues are assets because the business has collected the cash before earning the revenue.
A)True
B)False
Answer: False
Q3) When does a company account for revenue if it uses cash basis accounting?
A)when services are performed,even though cash may be received at a later date
B)when cash is received after the service is performed
C)when the services are being performed
D)when cash is received,either prior to,at the time of,or after the services are performed
Answer: D
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Page 5
Chapter 4: Completing the Accounting Cycle
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Questions
Q1) Which accounts are closed at the end of the accounting period? Why is it necessary to close these accounts?
Q2) The time span during which cash is paid for goods and services,which are then sold to customers from whom the business collects cash,is called the ________.
A)production time
B)operating cycle
C)accounting cycle
D)sales time
Q3) Assets with no physical form are called ________.
A)current assets
B)intangible assets
C)long-term investments
D)mortgaged investments
Q4) Salaries Payable,Interest Payable,and Unearned Revenue are examples of ________.
A)short-term investments
B)fixed assets
C)current liabilities
D)long-term liabilities
Q5) List the steps of the accounting cycle that take place during the period.
Page 6
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Chapter 5: Merchandising Operations
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Q1) ________ are the expenses that occur in an entity's major line of business.
A)Interest expense
B)Interest revenue
C)Operating expenses
D)Loss on sale of plant asset
Q2) Delivery expense is a(n)________.
A)administrative expense
B)part of Cost of Goods Sold
C)operating expense
D)overhead expense
Q3) A company using the perpetual inventory system purchased merchandise on account for $5,000.Give the journal entry to record this transaction.
Q4) When using the periodic inventory system,the process of recording the ending Merchandise Inventory is completed by making an adjusting entry.
A)True
B)False
Q5) What does the gross profit percentage measure? How is it computed?
Q6) List the three steps,in order of occurrence,of the operating cycle of a merchandising business.
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Chapter 6: Merchandise Inventory
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Q1) A company reports in its financial statements that it uses the FIFO method of inventory costing.This is an example of the disclosure principle.
A)True
B)False
Q2) When using the specific identification inventory costing method,ending inventory amounts depend on which costs are assigned to the inventory sold.
A)True
B)False
Q3) Which of the following inventory costing methods requires the calculation of a new average cost after each purchase?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q4) Henderson Sales purchased $6,000 of inventory on account.Provide the journal entry.(Assume a perpetual inventory system. )
Q5) What does inventory turnover measure? What does a low rate of inventory turnover indicate?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) What are the two basic components of a computerized accounting information system?
A)sales journal and purchase journal
B)hardware and software
C)cash payments journal and cash receipts journal
D)network and cloud computing
Q2) Which of the following is true of an accounts receivable subsidiary ledger?
A)It does not include a receivable account for each customer,but includes a cumulative account for all customers.
B)It contains information about the amount each customer purchased on credit,but excludes the customer name.
C)The total of the accounts in the accounts receivable subsidiary ledger must equal the accounts receivable balance in the general ledger.
D)Companies keep an accounts payable subsidiary ledger that is entirely different from the accounts receivable subsidiary ledger.
Q3) List and briefly discuss the two basic components of a computerized accounting information system.
Q4) Describe the transactions recorded in the purchases journal.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) In a large company,the person who is responsible for comparing cash and the bank balance is the ________.
A)CEO
B)CFO
C)controller
D)treasurer
Q2) The bank recorded a $3,000 deposit as $300.How would this information be included on the bank reconciliation?
A)a deduction on the bank side
B)a deduction on the book side
C)an addition on the book side
D)an addition on the bank side
Q3) The payee is the issuer of a check.
A)True
B)False
Q4) An information system is one of the five components by which a company can achieve its internal control objectives.
A)True
B)False
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Chapter 9: Receivables
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Q1) The days' sales in receivables for Barker Sales is 35.The days' sales in receivables for Xanadu Company is 25.This suggests that Xanadu is having greater difficulty than Barker is in collecting its accounts receivable.
A)True
B)False
Q2) A method of accounting for uncollectible receivables in which the company estimates bad debts expense instead of waiting to see from which customers the company will not be able to collect is known as the allowance method.
A)True
B)False
Q3) On October 1,2017,Miller,Inc.made a loan to one of its customers.The customer signed a 6-month note for $100,000 at 13%.How much interest revenue did the company record in 2018 for this note? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$4,333
B)$2,167
C)$3,250
D)$6,500
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11
Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values.This method is known as the relative-market-value method.
A)True
B)False
Q2) If a business changes the estimated useful life,or estimated residual value,of a plant asset,depreciation expense must be recalculated.
A)True
B)False
Q3) IFRS permits the presentation of plant assets at their fair market value because
A)U.S.GAAP requires this presentation
B)fair market value may be more relevant
C)fair market value is easier to compute than book value
D)financial statements users are indifferent to how plant assets are presented
Q4) A trademark should not be amortized over its useful life.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) A contingency was evaluated at year-end.Management felt it was probable that this would become an actual liability and the amount could be reasonably estimated.If this was not reported on the balance sheet or in the notes to the financial statements,what is the effect on the financial reporting of the company?
A)There would be no effect.
B)The liabilities on the balance sheet would be understated.
C)The information about the transaction would be inadequately disclosed in the notes.
D)The net income of the company would be understated.
Q2) Gross pay is the total amount of compensation earned by an employee after the deductions are made.
A)True
B)False
Q3) Investors use the times-interest-earned ratio to evaluate a company's ability to pay interest expense.
A)True
B)False
Q4) If the likelihood of a future event is remote,how should the company report the contingency?
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Chapter 12: Partnerships
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Q1) Dana and Emile allocate 2/3 of their partnership's profits and losses to Dana and 1/3 to Emile.The net income of the firm is $40,000.The journal entry to close the Income Summary will include a ________.
A)credit to Income Summary for $26,667
B)debit to Dana,Capital for $13,333
C)credit to Emile,Capital for $26,667
D)debit to Income Summary for $40,000
Q2) Upon liquidation of a partnership,the cash received from the sale of assets is first returned to the capital balances of the partners.The remaining cash is then used to pay off the liabilities of the business.
A)True
B)False
Q3) An asset received from a partner as a contribution is recorded at its historical cost. A)True B)False
Q4) A written partnership agreement is also known as the articles of partnership. A)True B)False
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Chapter 13: Corporations
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Q1) Which of the following statements is true of a corporation?
A)Shareholders can be required to pay debts of the corporation.
B)Shares of stock cannot be readily purchased and sold by investors on an organized stock exchange.
C)Shareholders are authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings,and shareholders pay income tax on corporate dividends.
Q2) Which of the following actions will decrease the amount of Total Stockholders' Equity?
A)cash dividend declared
B)stock split
C)stock dividend declared
D)repayment of bond principal
Q3) The declaration date is the date the corporation records that stockholders will receive dividend checks.
A)True
B)False
Q4) List the four basic rights of stockholders.
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Chapter 14: Long-Term Liabilities
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Q1) On March 1,2016,Emerson Services issued a 9% long-term notes payable for $20,000.It is payable over a 5-year term in $4,000 annual principal payments on March 1 of each year plus interest,beginning March 1,2017.Each yearly installment will include both principal repayment of $4,000 and interest payment for the preceding one-year period.On March 1,2017,________.The accounting period ends on December 31.
A)Emerson must accrue $4,000 of Interest Expense
B)Emerson must accrue the coming $4,000 as the current portion of principal payment
C)Emerson must pay $1,800 of interest to the note holder
D)Emerson will receive $4,000 as an installment payment
Q2) An amortization schedule details each loan payment's allocation between principal as well as interest and the beginning and ending balances of the loan.
A)True
B)False
Q3) The difference between mortgages payable and notes payable is that notes payable are always secured by specific assets.
A)True
B)False
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Page 16
Chapter 15: Investments
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Q1) Depending on the maturity date,held-to-maturity investments are categorized as current assets or long-term assets on the balance sheet.
A)True
B)False
Q2) When a company receives a dividend payment on available-for-sale investments,the ________.
A)total assets will remain unaffected
B)long-term assets will decrease
C)total equity will increase
D)total liabilities will decrease
Q3) Beige Corporation pays $516,000 to acquire 42% of the equity securities of Olive Technologies,Inc.on May 5,2017.In the journal entry to record this transaction ________.
A)Long-term Investments-Trading Investments will be debited for $516,000
B)Long-term Investments-Olive Technologies,Inc.will be debited for $516,000
C)Long-term Investments-Available-for-Sale will be debited for $516,000
D)Long-term Investments-Available-for-Sale will be credited for $516,000
Q4) Significant interest investments must be accounted for using the equity method.
A)True B)False
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Chapter 16: The Statement of Cash Flows
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Q1) O'Brien Coatings Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for 2017:
The beginning balance in the Cash account was $2,600.
Net cash provided by operating activities: $39,000
Net cash used for investing activities: $(26,500)
Net cash provided by financing activities: $1,400
The statement of cash flows will show ________.
A)ending cash of $13,900
B)total net cash flows of positive $65,500
C)total net cash flows of negative $13,900
D)ending cash of $16,500
Q2) Which of the following appears on a statement of cash flows prepared using the direct method?
A)adjustments to net income
B)cash payments for salaries
C)adjustments for gains and losses on sale of property
D)increase/decrease in current assets
Q3) What does free cash flow represent? How is it used to evaluate business performance?
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Chapter 17: Financial Statement Analysis
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Q1) Unexpected or inconsistent movements among sales,merchandise inventory,and receivables reflect normal market conditions and do not pose red flags in financial statements.
A)True
B)False
Q2) A high current ratio indicates that current liabilities are greater than current assets.
A)True
B)False
Q3) Dollar value bias is the bias one sees from comparing number in relative (dollars)rather than absolute (percentage)terms.
A)True
B)False
Q4) Which of the following best describes trend analysis?
A)calculating key ratios to evaluate performance
B)expressing each financial statement amount as a percentage of a budgeted amount
C)comparing a company's financial statements with that of other companies
D)expressing each year's financial statement amounts as a percentage of the base year amounts
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Chapter 18: Introduction to Managerial Accounting
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Q1) Which of the following statements is true of the flow of product and period costs for a manufacturer?
A)When the manufacturing process is completed,the costs are transferred to the Work-in-Process Inventory account.
B)The cost of the finished goods that the manufacturer sells becomes its Cost of Goods Sold on the income statement.
C)Period costs remain in inventory accounts on the balance sheet until the product is sold.
D)All product costs that have been paid are expensed and reported on the income statement at the end of the accounting period.
Q2) A budget is a managerial accounting tool used in the planning process. A)True
B)False
Q3) In a manufacturing company,administrative costs are included in period costs. A)True B)False
Q4) Define period cost.Give three examples of period costs of a merchandising company.
Q5) Define product cost.How does a merchandising company treat these costs?
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Chapter 19: Job Order Costing
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Q1) Mira Financial Advisors provides accounting and finance assistance to customers in the retail business.Mira has four professionals on staff,plus an office with six clerical staff.Total compensation,including benefits,for the professional staff runs about $753,000 per year,and it normally has about 8,300 billable hours per year.The professional staff keep detailed time sheets organized by client number.The total office and administrative costs for the year are $575,000.
Mira allocates office and administrative costs to clients monthly,using a predetermined overhead allocation rate based on billable hours.During July,Mira's professionals spent 38 hours on their client,Riley Sales.Mira adds a 25% markup on its costs to calculate the amount billed to the customer.How much should the company charge Riley Sales for the month of July? (Round your intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )
A)$1,328,000
B)$178,000
C)$7,600
D)$6,080
Q2) What causes manufacturing overhead to be overallocated? When manufacturing overhead is overallocated,will the Manufacturing Overhead account have a debit or a credit balance?
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Chapter 20: Process Costing
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Q1) Why are extra journal entries required in a process costing system?
Q2) Which of the following statements correctly describes the term "conversion costs"?
A)the cost to convert finished goods to sales to customers
B)the cost incurred for direct and indirect materials during production
C)the cost of direct materials,direct labor,and manufacturing overhead costs incurred during production
D)the cost of direct labor combined with manufacturing overhead
Q3) If a business operates in an industry that does not experience significant cost changes,should the business prepare its production cost report using the FIFO method or the weighted-average method? Explain your answer.
Q4) The first-in,first-out (FIFO)method creates better month-to-month cost comparisons than the weighted-average method ________.
A)because it does not recognize transferred in units from other processes
B)when there are substantial quantities of units in process at the end of the period
C)because it merges costs from the prior period with the current period
D)because it is used by industries that do not experience significant cost changes
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) The high-low method requires the identification of lowest and highest levels of total costs,not activity,over a period of time.
A)True
B)False
Q2) Frittata,Inc.started the year with 200 units in the Finished Goods Inventory account.It produced 600 units during the year and sold 800 units.If Frittata uses variable costing,________.
A)its operating income for the period will be higher than under absorption costing
B)its operating income for the period will be lower than under absorption costing
C)its value of ending Finished Goods Inventory reported in the balance sheet will be higher than under absorption costing
D)its operating income will be the same as under absorption costing
Q3) When the total fixed costs increases,the breakeven point ________.
A)increases
B)decreases
C)decreases proportionately
D)remains the same
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Chapter 22: Master Budgets
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Q1) What is the final step in the master budget process?
Q2) All organizations use one standardized budgeting process.
A)True
B)False
Q3) Projected manufacturing cost per unit of product sold does not include ________ cost per unit.
A)sales commission
B)direct materials
C)variable manufacturing overhead
D)direct labor
Q4) Define sensitivity analysis.Why do managers conduct sensitivity analysis during the budget process?
Q5) If the cost of indirect materials needed for production is insignificant,it should not be included in the budgeting process.
A)True
B)False
Q6) A flexible budget is prepared to represent various levels of sales volume.
A)True
B)False
Q7) List the four budgeting objectives.Why is this process a loop?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Western Outfitters projected sales of 79,000 units for the year at a unit sales price of $12.00.Actual sales for the year were 71,000 units at $18.00 per unit.Variable costs were budgeted at $4.25 per unit,and the actual variable cost was $4.80 per unit.Budgeted fixed costs totaled $378,000 while actual fixed costs amounted to $410,000.What is the flexible budget variance for operating income?
A)$172,250 unfavorable
B)$354,950 favorable
C)$354,950 unfavorable
D)$386,950 favorable
Q2) A favorable direct materials cost variance occurs when the actual direct materials cost incurred is greater than the standard direct materials cost.
A)True
B)False
Q3) When evaluating variances,exceptions can be expressed as a percentage of a budgeted amount or a dollar amount.
A)True
B)False
Q4) List the direct labor variances and briefly describe each.
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Decentralized companies rarely struggle to achieve goal congruence.
A)True
B)False
Q2) To adequately evaluate an investment center's financial performance,summary performance measures should include both the division's operating income and its assets.
A)True
B)False
Q3) Which of the following is an advantage of decentralization?
A)Managers' motivation and retention can be increased by empowering segment managers to make decisions.
B)Certain costs of activities may be duplicated.
C)Customer response time is generally decreased.
D)Top management can concentrate on decisions that relate to day-to-day operations of segments.
Q4) Fill in the blanks:
Direct materials cost and direct labor cost can be ________ ________ to products.Manufacturing overhead costs are ________ in cost pools and then ________ to products.
Q5) Explain the difference between a controllable and a noncontrollable cost.
Page 26
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Chapter 25: Short-Term Business Decisions
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Q1) A company produces 300 microwave ovens per month,each of which includes one electrical circuit.The company currently manufactures the circuit in-house but is considering outsourcing the circuits at a contract cost of $34 each.Currently,the cost of producing circuits in-house includes variable costs of $28 per circuit and fixed costs of $6,000 per month.The controller says that they could outsource production of the circuit,if it reduces fixed cost more than $1,800 per month.Is this statement true or false?
A)True
B)False
Q2) In deciding whether to drop its electronics product line,a company's manager should ignore ________.
A)the variable and fixed costs it could save by dropping the product line
B)the revenues it would lose from dropping the product line
C)the effect of dropping the electronics product line on the sales of its other products
D)the amount of unavoidable fixed costs
Q3) Define joint cost.Should joint costs be considered in the decision to sell or further process the product? Explain your answer.
Q4) Define the terms Relevant Cost and Sunk Cost.
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Chapter 26: Capital Investment Decisions
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Q1) The only difference between the present value and future value of a lump sum is the amount of interest that is earned in the intervening time span.
A)True
B)False
Q2) An investment today of $8,424 at 6% will yield total payments of $10,000 over five years.The reason for this increase is that the interest is being earned on principal that is left invested each year.
A)True
B)False
Q3) An operational asset used for a long period of time is known as a capital asset. A)True B)False
Q4) The accounting rate of return is calculated by dividing the average annual operating income by the average amount invested. A)True B)False
Q5) The accounting rate of return method considers the time value of money. A)True B)False
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