Introduction to Accounting Test Preparation
Course Introduction
Introduction to Accounting provides students with a foundational understanding of the principles and practices that underpin the field of accounting. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, basic bookkeeping, and the interpretation of financial information. Students will gain insights into how businesses record transactions, manage financial data, and use accounting information for decision-making. Through practical exercises and real-world examples, this course equips learners with the knowledge and skills necessary to begin analyzing and communicating financial information effectively in various organizational settings.
Recommended Textbook
Horngrens Accounting Global Edition 10th Edition by
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26 Chapters
3881 Verified Questions
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Page 2
Tracie L. Nobles
Chapter 1: Accounting and the Business Environment
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144 Verified Questions
144 Flashcards
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Sample Questions
Q1) From a legal perspective, a sole proprietorship:
A) is an entity separate from its proprietor.
B) must have at least two owners.
C) is not a distinct entity from its proprietor.
D) is subject to strict regulation of the SEC.
Answer: C
Q2) By looking at a statement of owner's equity, the effect of withdrawals on the ending balance in owner's equity can be evaluated.
A)True
B)False
Answer: True
Q3) Martin Supply Service paid $350 cash to a materials supplier that it owed from the previous month. Which of the following accounts decreases?
A) Accounts Receivable
B) Accounts Payable
C) Owner's Capital
D) Office Supplies
Answer: B
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3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Mitchell Florists reported assets of $1,000 and equity of $350. What is Mitchell's debt ratio?
A) 65%
B) 35%
C) 100%
D) 70%
Answer: A
Q2) In a trial balance, total debits must always equal to total credits.
A)True
B)False Answer: True
Q3) A trial balance is the list of only a company's debit accounts along with their account numbers.
A)True
B)False Answer: False
Q4) When a business makes a cash payment, the Cash account is debited.
A)True
B)False
Answer: False
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) On January 1, 2014, Smith had a beginning balance in Prepaid Insurance Expense of $1,200. On February 1, 2014, Smith paid an annual insurance premium in the amount of $4,800. On February 28, 2014, the balance in Prepaid Insurance is $2,000. The prepaid expense was initially recorded as an asset.
A)True
B)False
Answer: False
Q2) The accountant of Hobson Electrical Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year. Which of the following statements is true?
A) The total revenue will be overstated.
B) The total revenue will be understated.
C) The total expenses will be overstated.
D) The total expenses will be understated.
Answer: D
Q3) The worksheet is NOT a journal, a ledger, or a financial statement.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The amount of the Owner's Name, Withdrawals account is entered in the income statement columns on the worksheet.
A)True
B)False
Q2) The Notes Payable that are due within two years are classified as:
A) current liabilities.
B) current assets.
C) long-term liabilities.
D) long-term assets.
Q3) Which of the following statements is an accurate interpretation of the current ratio?
A) A current ratio of 1.5 or higher is considered a high-risk ratio.
B) A current ratio below 1.00 is considered a good and safe ratio.
C) A current ratio of 2.0 indicates strong ability to pay current liabilities.
D) A current ratio of 0.60 or lower is a good and safe ratio.
Q4) The current ratio measures a company's:
A) overall ability to pay liabilities.
B) ability to pay current liabilities with current assets.
C) the proportion of assets that are financed by debt.
D) rate of cash flow.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Under the perpetual inventory system, discounts taken on an invoice by the buyer would be:
A) debited to Merchandise Inventory.
B) credited to Merchandise Inventory.
C) debited to Cost of goods sold.
D) credited to Cost of goods sold.
Q2) The term "Freight out" refers to:
A) transportation costs on purchases.
B) cost of inventory purchased.
C) costs that are not actually paid in cash.
D) transportation costs on sales.
Q3) Gross profit is calculated as:
A) sales revenue less sales discounts and allowances.
B) sales revenue less operating expenses.
C) net sales revenue less sales discounts.
D) net sales revenue less cost of goods sold.
Q4) An invoice is also known as a bill.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period.
A)True
B)False
Q2) Which of the following requires that financial statements should report the least favorable figures?
A) conservatism
B) materiality concept
C) disclosure principle
D) consistency principle
Q3) The ending inventory of a company was $450,000 as per the perpetual inventory records. The current replacement cost for the ending inventory is $410,000. Prepare the journal entry to adjust inventory.
Q4) The disclosure principle states that a company should disclose all major accounting methods and procedures in the:
A) balance sheet.
B) income statement.
C) footnotes to the financial statements.
D) adjusted trial balance.
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) An automobile company purchases spark plugs, on cash, for the production of its vehicles. When using a manual accounting information system, where should the company record this transaction?
A) purchases journal
B) general journal
C) cash payments journal
D) sales journal
Q2) Hardware is electronic equipment that includes computers, monitors, printers, and the network that connects them.
A)True
B)False
Q3) Both small and large companies require a big accounting information system. Therefore, the cost of employing an accounting information system is same for both.
A)True
B)False
Q4) Cash purchases are recorded in the purchases journal.
A)True
B)False
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Page 9
Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Having a cash ratio below 1 is a good thing.
A)True
B)False
Q2) Which of the following items are reconciling items on the bank side of the reconciliation?
A) outstanding checks and correction of book error
B) deposit in transit and NSF check
C) deposit in transit and outstanding checks
D) bank service charge and correction of book error
Q3) Before any internal control procedure is initiated, which of the following questions must be primarily addressed by a company?
A) Will this put an end to theft?
B) Is this the best security, money can buy?
C) How much benefit will be derived from the cost of the procedure?
D) Will this prevent accounting errors?
Q4) Which of the following is included in a voucher?
A) rate of profit
B) a check
C) the invoice number
D) company identification number
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Chapter 9: Receivables
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Sample Questions
Q1) On July 1, 2015, Ealys Jewellers accepted a 3-month, 15% note for $6,000 in settlement of an overdue account receivable. Provide the journal entry to record the acceptance of the note.
Q2) The direct write-off method for uncollectible accounts violates the matching principle.
A)True
B)False
Q3) Which of the following are the two methods of accounting for uncollectible receivables?
A) direct write-off method and liability method
B) asset method and sales method
C) allowance method and liability method
D) allowance method and direct write-off method
Q4) Smart Art is a new establishment. During the first year, there were credit sales of $40,000 and collections of credit sales of $36,000. One account for $650 was written off. The company decided to use the percent-of-sales method to account for bad debts expense, and use a factor of 2% for their year-end adjustment of bad debts expense. Prepare the entry to record the bad debt expense.
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Page 11
Chapter 10: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) If a company uses the contra account, Accumulated Amortization, this account will typically be shown on the balance sheet.
A)True
B)False
Q2) The type of intangible asset related to the rights of original music and media is known as:
A) goodwill.
B) a trademark.
C) a copyright.
D) a patent.
Q3) Franchises are privileges granted by a business to sell goods and services under specified conditions.
A)True
B)False
Q4) According to generally accepted accounting principles, if the fair value of goodwill decreases, an impairment loss must be recorded.
A)True
B)False
Page 12
Q5) Give journal entry to record the acquisition of a plant asset for cash.
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Chapter 11: Current Liabilities and Payroll
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162 Flashcards
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Sample Questions
Q1) The matching principle requires businesses to record Warranty Expense:
A) in the same period that the company records the revenue related to that warranty.
B) in the period prior to which the company records the revenue related to that warranty.
C) in the period after the related revenue is recorded.
D) in the contingent liabilities section of the balance sheet.
Q2) A restaurant has been sued because a customer claims to have found a bug in her chili. The company's lawyers believe there is only a remote possibility that the lawsuit will result in an actual liability. Which of the following actions should be taken by the company's management?
A) The situation should be described in a note to the financial statements.
B) The possible liability should not be shown in the financial statements.
C) The liability should be estimated and recorded as an expense.
D) Management should consider resigning.
Q3) Warranty Expense would be included in the operating expense section of the income statement.
A)True
B)False
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Page 13
Chapter 12: Partnerships
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Sample Questions
Q1) Which of the following is true of capital deficiency in the liquidation of a partnership?
A) It refers to a partnership's claim against a partner.
B) It occurs when a partner's capital account has a credit balance.
C) It refers to the partnership's inability to find capital.
D) It occurs when a partner cannot find positive NPV projects.
Q2) Albert, Billy, and Cathy share profits and losses of their partnership as 2:5:3. If the net income is $50,000, calculate the profit share of Albert.
A) $20,000
B) $15,000
C) $25,000
D) $10,000
Q3) The purchase of an existing partner's interest is not a personal transaction between the two individuals and is between the partnership and the new partner.
A)True
B)False
Q4) Capital deficiency refers to a partnership's claim against a partner.
A)True
B)False
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) Stated value stock is no-par stock that has been assigned an amount similar to par value.
A)True
B)False
Q2) The purchase of treasury stock:
A) decreases both assets and stockholders' equity.
B) increases both assets and stockholders' equity.
C) increases assets and decreases stockholders' equity.
D) decreases assets and increases stockholders' equity.
Q3) Which of the following is a true statement?
A) Both a stock split and a stock dividend will decrease total assets.
B) Both a stock split and a stock dividend will increase total liabilities.
C) A stock split will increase total assets, but a stock dividend will not.
D) Neither a stock split nor a stock dividend will affect total assets or total liabilities.
Q4) Which of the following will decrease the amount of Total Stockholders' Equity?
A) cash dividend declared
B) stock split
C) stock dividend declared
D) repayment of bond principal
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On March 1, 2015, Vinnie Services issued a 5% long-term notes payable for $20,000. It is payable over a 10-year term in $2,000 principal installments on March 1 of each year, beginning March 1, 2016. Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period. The journal entry to pay the first installment will include a debit to the Interest Expense account for $1,000.
A)True
B)False
Q2) Which of the following concepts represents time value of money?
A) the concept that money becomes obsolete over time
B) the concept that money earns income over time
C) the concept that money loses its purchasing power over time
D) the concept that money can be converted into other currencies over time
Q3) If a bond's stated interest rate is the same as the market rate, which of the following is true?
A) The bond will be issued at a premium.
B) The bond will be issued at par.
C) The bond will be issued at a discount.
D) The bond will be issued for an amount lower than the maturity value.
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Chapter 15: Investments
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Sample Questions
Q1) Jade Investments purchased 40% of the common stock of Ivory Corporation on March 1, 2014. Ivory Corporation reports a net income of $675,000 for the 2015 year. Based on the information provided, which of the following is true of the balance sheet on December 31, 2015?
A) Total assets will remain unchanged.
B) Total liabilities will decrease.
C) Total equity will increase.
D) Cash will increase.
Q2) Maurice Corporation invested $100,000 to acquire 20,000 shares of Delta Technologies on March 1, 2015. Delta pays a cash dividend of $0.25 per share on July 2, 2015. The investment is classified as an available-for-sale investment. Based on the information provided, which of the following is true of the balance sheet as of July 2, 2015?
A) Total assets in the balance sheet will remain unchanged.
B) Current assets in the balance sheet will remain unchanged.
C) Equity in the balance sheet will increase.
D) Total liabilities in the balance sheet will increase.
Q3) A company that is controlled by another corporation is called a parent company. A)True B)False
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Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following statements is true of the direct and indirect method of preparing the statement of cash flows?
A) The indirect method and the direct method will produce a different amount of net cash flow from investing activities.
B) The indirect method begins with Net Income and adjusts it to net operating cash flows.
C) The direct and indirect methods include different types of cash flows in the investing activities section.
D) The indirect method includes all non-cash activities, whereas the direct method includes only the cash activities.
Q2) The purchase of equipment financed by a Long-Term Notes Payable is an example of:
A) investing activity.
B) financing activity.
C) operating activity.
D) non-cash investing and financing activity.
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) The cash ratio helps to determine a company's ability to meet its short-term obligations using cash and cash equivalents.
A)True
B)False
Q2) Which of the following types of financial statement analysis would be used to see how a company's operating expenses as a percentage of net sales have changed from one year to the next?
A) vertical analysis
B) horizontal analysis
C) ratio analysis
D) analysis of internal control system
Q3) The current ratio is a key indicator of a company's ability to pay current liabilities.
A)True
B)False
Q4) The audit report attests to the fairness of the presentation of the financial statements.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) Nurix Inc. is a business consulting firm. During the month of February, Nurix earned $55,400 of revenues by providing services to 45 clients. Operating expenses for February were $8,500 and non-operating expenses were $4,500. What is the cost per service?
A) $100.00
B) $188.88
C) $942.22
D) $288.00
Q2) Repair and maintenance costs for factory equipment are product costs.
A)True
B)False
Q3) For a manufacturing firm, which of the following is a product cost?
A) Salary of administrative staff
B) Wages paid to factory janitor
C) Commissions paid to sales staff
D) Depreciation on corporate building
Q4) In manufacturing, the cost objects are often units of product.
A)True
B)False
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Chapter 19: Job Order Costing
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Sample Questions
Q1) The journal entry to record $1,500 of direct labor and $200 of indirect labor incurred will include debit(s) to the:
A) Manufacturing Overhead account for $1,700.
B) Work-in-Process Inventory account for $1,500 and Finished Goods Inventory account for $200.
C) Finished Goods Inventory account for $1,700.
D) Work-in-Process Inventory account for $1,500 and Manufacturing Overhead account for $200.
Q2) For a service company, such as an accounting firm, each client is considered a job.
A)True
B)False
Q3) If the debit side of the Manufacturing Overhead account totals more than the credit side of the account, the manufacturing overhead is overallocated. A)True
B)False
Q4) Job order costing is well suited for the service industry.
A)True
B)False
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Chapter 20: Process Costing
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Sample Questions
Q1) Michael Paints has two processes-Coloring Department and Mixing Department. Michael sold 450 gallons on account at $110 per gallon. The total cost of processing was $385,000 for 5,500 gallons of paint. Throughout the year, Michael used a predetermined overhead allocation rate to allocate $80,000 and $90,000 of indirect costs to the Coloring Department and Mixing Department, respectively. The actual overhead costs incurred amounted to $150,000 at the end of the year. What are the journal entries to record the sale of goods and the adjustment for over/underallocated manufacturing overhead at the end of the year if Michael follows a process costing system?
Q2) The combined production costs from all departments for completed products are transferred to the Cost of Goods Sold account immediately after the completion of all production processes.
A)True
B)False
Q3) Both job order costing and process costing track the product costs of direct materials, direct labor, and manufacturing overhead through three inventory accounts on the balance sheet.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) A CVP graph shows how changes in the level of sales will affect profits.
A)True
B)False
Q2) Which of the following is a variable cost?
A) Property taxes
B) Salary of plant manager
C) Direct materials cost
D) Straight-line depreciation expense
Q3) Which of the following is the right formula for calculating total mixed cost?
A) Total mixed cost = (Variable cost per unit ÷ Number of units) + Total fixed cost
B) Total mixed cost = (Variable cost per unit × Number of units) - Total fixed cost
C) Total mixed cost = (Variable cost per unit × Number of units) + Total fixed cost
D) Total mixed cost = (Variable cost per unit ÷ Number of units) - Total fixed cost
Q4) The sales level at which operating income is zero is called breakeven point.
A)True
B)False
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23
Chapter 22: Master Budgets
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Sample Questions
Q1) Which of the following is useful to combine the data of different segments using different software, for the purpose of creating companywide budgets?
A) Accounting development manual
B) Budgeting software
C) Financial analysis software
D) Budget creation manual
Q2) Sensitivity analysis is a what-if technique.
A)True
B)False
Q3) Use of advanced technology makes it more cost effective for managers to conduct sensitivity analysis.
A)True
B)False
Q4) If the cost of indirect materials needed for production is insignificant, it should not be included in the budgeting process.
A)True
B)False
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24
Chapter 23: Flexible Budgets and Standard Cost Systems
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Sample Questions
Q1) Western Outfitters projected sales of 75,000 units for the year 2015 at a unit sale price of $12.00. Actual sales in 2015 was 72,000 units, at $14.00 per unit. Variable costs were budgeted at $4.00 per unit; actual variable cost was $4.75 per unit. Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $400,000. What is the flexible budget variance for operating income?
A) $48,000 unfavorable
B) $65,000 favorable
C) $65,000 unfavorable
D) $41,000 favorable
Q2) An unfavorable flexible budget variance in operating income might be due to a(n):
A) increase in price.
B) decrease in volume.
C) increase in variable expenses per unit.
D) decrease in fixed costs.
Q3) The flexible budget variance is the difference between the actual results and the expected results in the flexible budget for the actual units sold.
A)True
B)False
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25
Chapter 24: Cost Allocation and Responsibility Accounting
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Sample Questions
Q1) The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.
A)True
B)False
Q2) Communicating the expectations of top management to segment managers improves goal congruence.
A)True B)False
Q3) ROI (Return on Investment) measures the profitability of an investment center, not efficiency.
A)True
B)False
Q4) The transfer price should be an amount between the market price and the variable cost.
A)True B)False
Q5) Performance report of a profit center includes both revenues and expenses. A)True B)False
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Chapter 25: Short-Term Business Decisions
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Sample Questions
Q1) Rica Company is a price-taker and uses target pricing. Refer to the following information: \[\begin{array} { | l | r | l | }
\hline \text { Production volume } & 600,000& \text { units per year } \\
\hline \text { Market price } & \$ 30 & \text { per unit } \\
\hline \text { Desired operating income } & 15 \% & \text { of total assets } \\
\hline \text { Total assets } & \$ 13,900,000 & \\
\hline \text { Variable cost per unit } & \$ 18 & \text { per unit } \\
\hline \text { Fixed cost per year } & \$ 5,600,000 & \text { per year } \\
\hline
\end{array}\] With the current cost structure, Rica cannot achieve its profit goals. It will have to reduce either the fixed costs or the variable costs. Assuming that fixed costs cannot be reduced, how much will be the target variable costs per unit per year? (Round your answer to the nearest cent.)
A) $26.53
B) $9.33
C) $17.19
D) $18
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Chapter 26: Capital Investment Decisions
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Sample Questions
Q1) Which of the following best describes the term sensitivity analysis?
A) setting the budgets of an investment
B) analyzing the effect of an investment on workers' morale
C) evaluating different investment options
D) testing the results of an investment analysis with varying assumptions
Q2) Which of the following capital budgeting methods uses accrual accounting information?
A) payback
B) accounting rate of return
C) net present value
D) internal rate of return
Q3) Which of the following best describes the internal rate of return?
A) discount rate at which the cost of the investment equals the present value of the net cash inflows from the investment
B) discount rate that is used to evaluate funds borrowed from a lender for profitability
C) the ratio of average annual income to average amount invested
D) the rate at which the profitability of an investment increases
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