Introductory Accounting Exam
Answer Key
Course Introduction
Introductory Accounting provides students with a fundamental understanding of accounting principles and practices, emphasizing the role of accounting in the decision-making process of businesses. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, basic bookkeeping techniques, and the interpretation of financial information. Students will learn to record business transactions, understand the structure and use of balance sheets, income statements, and cash flow statements, and explore the ethical considerations in accounting. This course serves as a foundation for further studies in accounting and finance, equipping students with practical skills for managing financial data and supporting business operations.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Q1) As per the ________,the entity will remain in operation for the foreseeable future.
A)economic entity concept
B)monetary unit assumption
C)going concern assumption
D)cost principle
Answer: C
Q2) International Financial Reporting Standards are comparatively more specific and more rule-based than U.S.GAAP.
A)True
B)False Answer: False
Q3) An entity refers to one business which includes its owners.
A)True
B)False
Answer: False
Q4) Economic resources and debts of the company are shown on the balance sheet.
A)True
B)False Answer: True
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Chapter 2: Recording Business Transactions
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Q1) Posting a transaction means ________.
A)calculating the balance in an account
B)transferring data from the journal to the ledger
C)preparing a summary of account balances
D)finding the account number in the chart of accounts
Answer: B
Q2) A business prepays four months' office rent.Which of the following accounts is debited?
A)Rent Expense
B)Cash
C)Prepaid Rent
D)Unearned Rent
Answer: C
Q3) Employees worked and a business paid salaries of $6,000 in cash.Record the transaction in the journal.
Answer: 11ea8a75_426f_c88b_a2a1_9feb19bf032f_TB6701_00
Q4) An accounts receivable requires the business to pay cash in the future.
A)True
B)False
Answer: False
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Contra asset accounts,such as Accumulated Depreciation,always have normal debit balances.
A)True
B)False
Answer: False
Q2) In the case of deferred revenue,the cash is received first,and the revenue is earned later.
A)True
B)False
Answer: True
Q3) Unearned revenue is recorded when ________.
A)revenue will be both collected and earned in the future
B)the business has collected cash,but not yet earned the revenue
C)revenue has been collected and earned during the same accounting period
D)the business has earned,but not collected,cash for the revenue
Answer: B
Q4) Under cash basis accounting,an expense is recorded only when cash is paid.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Buildings,land,and equipment are classified as ________.
A)current assets
B)long-term assets
C)current liabilities
D)long-term liabilities
Q2) The balance sheet is the first financial statement that is prepared at the end of the period.
A)True
B)False
Q3) Which of the following steps must be completed before preparing the adjusted trial balance?
A)prepare the post-closing trial balance
B)post journal entries to the accounts
C)journalize and post the closing entries
D)prepare the financial statements
Q4) The current ratio is calculated using the values from the income statement.
A)True
B)False
Q5) Why are temporary accounts not included in the post-closing trial balance?
Q6) List the steps of the accounting cycle that take place at the end of the period.
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Chapter 5: Merchandising Operations
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Q1) If goods are sold on terms FOB shipping point,the ________.
A)seller normally pays the transportation costs
B)buyer normally pays the transportation costs
C)buyer and the seller split the transportation costs
D)shipping company bears the transportation cost
Q2) Gift Shops Unlimited's unadjusted Merchandise Inventory at December 31,2019 was $7,600.The cost associated with the physical count of inventory on hand on December 31,2019 was $7,350.In addition,Gift Shops Unlimited estimated approximately $800 of merchandise sold on account will be returned with a cost of $450.Assume a perpetual inventory system is used.
Requirements:
1.Journalize the adjustment for inventory shrinkage.Omit explanation.
2.Journalize the adjustment for estimated sales returns.Omit explanation.
Q3) A merchandiser adjusts and closes accounts differently than a service entity does.
A)True B)False
Q4) Cost of Goods Sold is based on the company's cost,not the retail price.
A)True B)False
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Chapter 6: Merchandise Inventory
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Questions
Q1) A lower days' sales in inventory for Samson Company,when compared to other companies,indicates that it is ________.
A)selling its inventory more quickly
B)spending more on inventory storage
C)incurring higher insurance costs
D)holding excess obsolete inventory
Q2) Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q3) In a period of rising costs,the last-in,first-out (LIFO)method results in a lower cost of goods sold and a higher net income than the first-in,first-out (FIFO)method.
A)True
B)False
Q4) When using the periodic inventory system and weighted-average inventory costing method,when is the weighted average cost per unit computed?
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Page 8
Chapter 7: Accounting Information Systems
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Q1) Entries in the cash payments journal are posted daily to the accounts payable subsidiary ledger and monthly to the general ledger.
A)True
B)False
Q2) The purchases journal is a special journal used to record all purchases of merchandise inventory,office supplies,and other assets on account.
A)True
B)False
Q3) Which of the following is TRUE of an effective accounting information system?
A)It has little influence in improving a company's internal control activities.
B)The cost of using an accounting information system is the same for both small and large businesses.
C)A compatible accounting information system works smoothly with the business's employees and organizational structure.
D)Large private companies prefer a manual accounting information system since their financial statements are not audited.
Q4) Describe the transactions recorded in the purchases journal.
Q5) Describe the transactions recorded in the cash payments journal.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) A check of $300,000,deposited by a company,was returned to the bank for nonsufficient funds.How would this information be included on the bank reconciliation?
A)a deduction on the bank side
B)an addition on the bank side
C)an addition on the book side
D)a deduction on the book side
Q2) A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.
A)True
B)False
Q3) Which of the following is NOT an appropriate internal control for cash receipts over the counter?
A)A receipt is issued for each transaction to ensure that each sale is recorded.
B)The store clerk deposits the cash in the bank.
C)At the end of the day,the manager proves the cash by comparing the cash in the drawer against the machine's record of cash sales.
D)The cash draw opens after the store clerk enters a transaction.
Q4) Fifth National Bank requires mandatory vacations and job rotation.
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Page 10
Chapter 9: Receivables
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Sample Questions
Q1) Which of the following methods does NOT require an adjusting entry to recognize bad debts?
A)percent-of receivables
B)aging-of-receivables
C)percent-of-sales
D)direct write-off
Q2) When accounting for uncollectible accounts under IFRS,the allowance method is used to accomplish the matching of bad debt expense to the sales of the period but not to report receivables at net realizable value.
A)True
B)False
Q3) Notes receivable ________.
A)represent an oral promise to pay a fixed amount of principal plus interest on the maturity date
B)are included in a miscellaneous category called other receivables
C)due within 12 months or within the normal operating cycle if the cycle is longer than a year are considered long-term assets
D)are supported by a promissory note
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11
Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) On October 1,2018,Northern Company purchased a patent for $211,000 cash.Although the patent gives legal protection for 20 years,the patent is expected to be used for only 10 years.The patent has no residual value.What will be the balance in the patent account on September 30,2019?
A)$189,900
B)$211,000
C)$200,450
D)$105,500
Q2) Maple Company had net sales of $202,550 for the year ended December 31,2017.Its beginning and ending total assets were $85,200 and $115,500,respectively.Determine Maple's asset turnover ratio for the year ended December 31,2017.(Round your answer to two decimal places. )
A)0.50 times
B)2.38 times
C)1.14 times
D)2.02 times
Q3) On October 1,2018,Natural Company purchased a patent for $100,000 cash.Although the patent gives legal protection for 20 years,it is expected to be used for only eight years.Journalize the purchase of the patent.Omit explanation.
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Page 12
Chapter 11: Current Liabilities and Payroll
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Q1) It is mandatory for both the employer and employee to pay ________.
A)FICA
B)SUTA
C)employee income tax
D)federal unemployment tax
Q2) Mars Company had cash sales of $10,000.The state sales tax rate is 10.8%.What amount is debited to the Cash account?
A)$10,000
B)$11,080
C)$1080
D)$1000
Q3) Mountain Valley Sales Company has gross pay for March of $45,000.Which of the following is included in the journal entry to record salaries expense?
A)credit Salaries and Wages Expense
B)debit Cash
C)debit Salaries and Wages Payable
D)debit Salaries and Wages Expense
Q4) If the likelihood of a future event is reasonably possible,how should the company report the contingency?
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Chapter 12: Partnerships
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Sample Questions
Q1) In a partnership,the income is taxed at the partnership level as well as at the personal level of the owners.
A)True
B)False
Q2) Which of the following is TRUE of ownership changes in a partnership?
A)Admitting a new partner does not change the core structure of the old partnership.
B)The purchase of an existing partner's interest is a transaction between the new partner and the partnership firm.
C)Any time the partner mix changes,the old partnership ceases to exist and a new partnership begins.
D)A person can become a partner by purchasing an existing partner's interest,even without the approval of the other partners.
Q3) Which of the following is specified in the articles of partnership?
A)procedures for withdrawal of assets by the partners
B)procedures for distribution of dividends
C)methods for valuation of the assets
D)selection of an appropriate depreciation method
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14
Chapter 13: Corporations
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Q1) Accounting for stated value common stock is identical to accounting for par value stock.
A)True
B)False
Q2) Pumpkin Corporation issued 10,000 shares of common stock on January 1,2018.The stock has no par value and was issued at $17 per share.The journal entry for this transaction includes a ________.
A)debit to Cash for $170,000 and a credit to Common Stock-No-Par Value for $170,000
B)debit to Cash for $170,000 and a credit to Paid-In Capital in Excess of Par-Common for $170,000
C)credit to Cash for $170,000 and a debit to Common Stock-No-Par Value for $170,000
D)credit to Cash for $170,000,a debit to Paid-In Capital in Excess of Par-Common for $10,000,and a debit to Common Stock-No-Par Value for $160,000
Q3) Stock dividends have no effect on the total amount of stockholders' equity.
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) The balance in the Bonds Payable account is a credit of $67,000.The balance in the Discount on Bonds Payable account is a debit of $2,650.The bond's carrying amount is $64,350.
A)True
B)False
Q2) Unlike cash dividends,which are optional payments to stockholders,the interest payments on bonds are required.
A)True
B)False
Q3) When bonds are retired at maturity,assuming the last interest payment has already been recorded,the journal entry includes a debit to the Bonds Payable account and a credit to the Cash account.
A)True
B)False
Q4) The market rate of interest ________.
A)is also known as the stated rate of interest
B)affects the amount of cash interest the borrower pays each year
C)is printed on the bond and does not change from year to year
D)works with the stated rate of interest to set the price of a bond
Q5) When computing the present value of a bond,which interest rate is used? Why?
Page 16
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Chapter 15: Investments
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Sample Questions
Q1) Provide definitions for the following types of investments.
a.Held-to-maturity debt investment
b.Significant influence equity investment
c.Trading debt investment
Q2) Trading debt investments are debt securities which the investor intends to sell in the very near future with the intent of generating a profit on the quick sale.
A)True
B)False
Q3) Companies invest in trading investments with the intent of ________.
A)increasing the amount of long-term assets
B)gaining the controlling rights of the investee
C)holding the investment until maturity
D)generating a profit on a quick sale
Q4) When there is an unrealized loss on trading debt investments,the ________ will decrease.
A)total equity
B)cash
C)total liabilities
D)long-term investments
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Chapter 16: The Statement of Cash Flows
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Q1) Selling property,plant,and equipment for $10,000 cash is considered a cash inflow from investing activities on the statement of cash flows.
A)True
B)False
Q2) Many companies use free cash flow to estimate the amount of cash that would be available for unexpected opportunities.
A)True
B)False
Q3) Which of the following sections from the statement of cash flows includes borrowing cash and paying off loans?
A)the investing activities section
B)the operating activities section
C)the financing activities section
D)the non-cash investing and financing section
Q4) Investors and management use the statement of cash flows to evaluate a firm's profitability.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Trend analysis is a form of horizontal analysis.
A)True
B)False
Q2) Benchmarking often compares a company against a key competitor or the industry average.
A)True
B)False
Q3) What is a common-size statement? Why are these statements useful?
Q4) Analysts look for red flags in financial statements that may signal financial trouble.Which of the following is a red flag that suggests that a company may be in trouble?
A)a decline in days' sales in inventory
B)a decrease in days' sales in receivables from year to year
C)a reduction in the debt ratio
D)net cash provided by operating activities is consistently lower than net income
Q5) Online financial databases provide data on companies which allows investors to compare the companies' future earnings.
A)True
B)False
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