Introductory Accounting Exam Questions
Course Introduction
Introductory Accounting provides students with a foundational understanding of accounting principles and practices. The course covers essential topics such as the accounting cycle, recording financial transactions, preparing financial statements, and understanding the roles of assets, liabilities, and equity. Emphasis is placed on developing analytical skills needed to interpret financial information, the use of accounting in decision-making, and an introduction to ethical considerations within the profession. Through hands-on exercises and real-world examples, students gain practical skills that are vital for both further study in business and immediate application in personal and professional financial management.
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Fundamental Accounting Principles 23rd Edition by John Wild
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Page 2
Chapter 1: Accounting in Business
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Q1) Technology:
A) Reduces the time, effort and cost of recordkeeping.
B) In accounting is only available to large corporations.
C) Has not improved the clerical accuracy of accounting.
D) Has replaced accounting.
E) In accounting has replaced the need for decision makers.
Answer: A
Q2) Creditors' claims on assets that reflect company obligations to provide assets, products, or services to others are called ________.
Answer: liabilities
Q3) A balance sheet lists:
A) The inflows and outflows of cash during the period.
B) The types and amounts of assets, liabilities, and equity of a business as of a specific date.
C) Only the information about what happened to equity during a time period.
D) The assets and liabilities of a company but not the owner's equity.
E) The types and amounts of the revenues and expenses of a business.
Answer: B
Q4) Risk is the ________ about the return an investor expects to earn.
Answer: uncertainty
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Chapter 2: Analyzing and Recording Transactions
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Q1) Joel Consulting received $3,000 from a customer for services provided. Joel's general journal entry to record this transaction will be:
A) Debit Cash, credit Accounts Receivable.
B) Debit Accounts Payable, credit Services Revenue.
C) Debit Services Revenue, credit Accounts Receivable.
D) Debit Cash, credit Accounts Payable.
E) Debit Cash, credit Services Revenue.
Answer: E
Q2) Based on this information, the balance in the A. Apple, Capital account reported on the Statement of Owner's Equity at the end of the month would be:
A) $39,200.
B) $40,175.
C) $31,150.
D) $30,875.
E) $31,400.
Answer: B
Q3) The posting process is the link between the ________ and the ________.
Answer: journal; ledger
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Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Q1) On May 1, Sellers Marketing Company received $1,500 from Franco Marcelli for a marketing campaign effective from May 1 this year to April 30 of the following year. The Cash receipt was recorded as unearned fees and at year-end on December 31, $1,000 of the fees had been earned. Assuming adjustments are only made at year-end, the adjusting entry on December 31 would be:
A) A debit to Fees Earned and a credit to Cash for $1,000.
B) A debit to Unearned Fees and a credit to Cash for $500.
C) A debit to Unearned Fees and a credit to Fees Earned for $1,000.
D) A debit to Fees Earned and a credit to Cash for $500.
E) A debit to Fees Earned and a credit to Unearned Fees for $500.
Answer: C
Q2) Profit margin =____________ divided by net sales.
Answer: Net Income
Q3) Each adjusting entry will affect a balance sheet account.
A)True
B)False
Answer: True
Q4) ________ revenues are liabilities requiring delivery of products and for services.
Answer: Unearned
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Chapter 4: Completing the Accounting Cycle
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Q1) Kline Company accrued wages of $7,350 that were earned by employees unpaid at the year-end. Assuming Kline uses reversing entries, which of the following entries correctly reverses the accrued wages at the beginning of the following year?
A) Debit Wages Expense $7,350; credit Cash $7,350.
B) Debit Wages Payable $7,350; credit Wages Expense $7,350.
C) Debit Wages Expense $7,350; credit Wages Payable $7,350.
D) Debit Wages Payable $7,350; credit Cash $7,350.
E) Debit Cash $7,350; credit Wages Expense $7,350.
Q2) Statements that show the financial statements as if proposed transactions had already occurred are called:
A) Temporary statements.
B) Interim statements.
C) Pro forma statements.
D) Professional statements.
E) Simplified statements.
Q3) Describe a work sheet and explain why it is useful.
Q4) The work sheet is a required report made available to external decision makers.
A)True
B)False
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Chapter 5: Accounting for Merchandising Operations
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Q1) The operating cycle for a merchandiser that sells only for cash moves from:
A) Accounts receivable to inventory to cash sales.
B) Accounts receivable to purchases of merchandise to inventory to cash sales.
C) Inventory to purchases of merchandise to cash sales.
D) Purchases of merchandise to inventory to accounts receivable to cash sales.
E) Purchases of merchandise to inventory to cash sales.
Q2) The profit margin ratio is the same as the gross profit ratio.
A)True
B)False
Q3) Discuss the period-end adjusting entries that are required in the new revenue recognition standards for estimating sales discounts and sales returns and allowances.
Q4) The amount recorded for merchandise inventory includes all of the following except:
A) Purchase discounts.
B) Returns and allowances.
C) Freight costs paid by the buyer.
D) Trade discounts.
E) Freight costs paid by the seller.
Q5) A period's beginning inventory is equal to the prior period's ________.
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Chapter 6: Inventories and Cost of Sales
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Q1) Goods in transit are automatically included in inventory regardless of whether title has passed to the buyer.
A)True
B)False
Q2) Use the information below to determine the sales revenue, cost of goods sold and gross profit that would be reported for the company related to the March 16 sale assuming the company uses weighted average inventory valuation and a perpetual inventory system.
\[\begin{array} { | l | l | }
\hline \text { January 1: } & \text { Purchased } 100 \text { units at \$10 per unit. } \\
\hline \text { February 5: } & \text { Purchased } 60 \text { units at \$12 per unit. } \\
\hline \text { March 16: } & \text { Sold } 40 \text { units for \$16 per unit. } \\
\hline
\end{array}\]
Q3) Explain the effects of inventory valuation methods on the cost of ending inventory, income, and income taxes.
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Chapter 7: Accounting Information Systems
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Q1) Fagin Company uses special journals to record transactions. Below are the sales journal and cash receipts journal for Fagin in the first part of August.
Required:
a. Open an accounts receivable subsidiary ledger having a T-account for each customer. Post the invoices to the subsidiary ledger.
b. Open an Accounts Receivable controlling T-Account. Post the end-of the month totals that affect the Accounts Receivable account only.
c. Prepare a schedule of accounts receivable and prove that its total equals the Accounts Receivable controlling account balance.
Q2) A company makes a payment of $5,000 on a long-term note payable. The journal the transaction would be recorded in is the:
A) Cash receipts journal.
B) General journal.
C) Sales journal.
D) Cash disbursements journal.
E) Purchases journal.
Q3) What is the segment return on assets ratio? What is it used for?
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Chapter 8: Cash and Internal Controls
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Q1) Having external auditors test the company's financial records and evaluate the effectiveness of the internal control system is partof the internal control principle of
Q2) A debit memorandum on a bank statement indicates:
A) A decrease in the bank's asset account.
B) An increase in the bank's asset account.
C) A decrease in the bank's liability account.
D) An increase in the bank's expense account.
E) An increase in the bank's liability account.
Q3) Which of the following is not one of the policies and procedures that make up an internal control system?
A) Guarantee a return to investors.
B) Promote efficient operations.
C) Urge adherence to company policies.
D) Protect assets.
E) Ensure reliable accounting.
Q4) A sales system with pre-numbered, controlled sales slips is an example of the internal control <sup>principle</sup><sup> </sup><sup>of</sup><sup> </sup><sup>________</sup>.
Q5) Define an internal control system and describe its purpose.
Page 10
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Chapter 9: Accounting for Receivables
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Q1) Prudence Co. receives a $26,000, 90-day, 4% note receivable. What is maturity value of the note?
Q2) A promissory note received from a customer in exchange for an account receivable is recorded by the payee as:
A) A note payable.
B) A note receivable.
C) An account receivable.
D) A cash equivalent.
E) A short-term investment.
Q3) What entry should be made on July 9 to record receipt of the note?
A) Debit Notes Receivable $8,670; credit Sales $8,670.
B) Debit Notes Receivable $8,500; credit Accounts Receivable $8,500.
C) Debit Notes Receivable $8,725; credit Interest Revenue $225; credit Accounts Receivable $8,500.
D) Debit Accounts Receivable $8,500; credit Sales $8,500.
E) Debit Notes Receivable $8,500; credit Sales $8,500.
Q4) The banker's rule simplifies interest computations by treating a year as having 365 days.
A)True
B)False
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Chapter 10: Plant Assets Natural Resoures and Intangibles
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Q1) Land improvements are:
A) Assets that increase the usefulness of land, but that have a limited useful life and are subject to depreciation.
B) Expensed in the period incurred.
C) Included in the cost of the land account.
D) Assets that increase the usefulness of land, and like land, are not depreciated.
E) Also called basket purchases.
Q2) Depreciation is higher in earlier years and income is lower in the later years when using straight-line versus accelerated methods.
A)True
B)False
Q3) Depletion is the process of allocating the cost of natural resources to periods when they are consumed.
A)True
B)False
Q4) The federal income tax rules for depreciating assets are known as ________.
Q5) What are the general accounting procedures for recording asset disposals?
Q6) Define plant assets and identify the four primary issues in accounting for them.
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Chapter 11: Current Liabilities and Payroll Accounting
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Q1) If a company uses a special payroll bank account:
A) There is no need to issue W-2's.
B) The company does not need to issue paychecks.
C) The company draws one check for the entire payroll on the regular bank account and deposits it in the payroll bank account.
D) The company must use a federal depository bank for the payroll bank account.
E) There is no need for a payroll register.
Q2) A company's income before interest expense and income taxes in 2014 and 2015 is $487,500 and $427,000, respectively. Its fixed interest expense was $125,000 for both years. Calculate the company's times interest earned ratio, and comment on its level of risk.
Q3) The full disclosure principle requires the reporting of contingent liabilities that are reasonably possible.
A)True
B)False
Q4) Vacation benefits are a type of __________ liability.
Q5) Define liabilities and explain the difference between current and long-term liabilities.
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Chapter 12: Accounting for Partnerships
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Q1) When a partner is added to a partnership:
A) The partnership equity always increases.
B) The partnership must continue.
C) The underlying business operations end.
D) The underlying business operations must close and then re-open.
E) The previous partnership ends.
Q2) An unincorporated association of two or more persons to pursue a business for profit as co-owners is a:
A) Voluntary organization.
B) Mutual agency.
C) Partnership.
D) Proprietorship.
E) Contractual company.
Q3) Under this agreement, the shares of the partners when the partnership earns $105,000 in income are:
A) $70,000 to Zheng; $60,000 to Murray.
B) $35,000 to Zheng; $70,000 to Murray.
C) $52,500 to Zheng; $52,500 to Murray.
D) $57,500 to Zheng; $47,500 to Murray.
E) $42,500 to Zheng; $62,500 to Murray.
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) The following data were reported by a corporation: \(\begin{array}{lc}
\text { Authorized shares } & 20,000 \\
\text { Issued shares } & 15,000 \\
\text { Treasury shares } & 3,000
\end{array}\)
The number of outstanding shares is:
A) 17,000.
B) 23,000.
C) 12,000.
D) 15,000.
E) 20,000.
Q2) What are the rights generally granted to common stockholders?
Q3) A stock split increases total stockholders' equity.
A)True
B)False
Q4) The least amount that the buyers of stock must contribute to the corporation or be subject to paying at a future date is called ________.
Q5) What is a stock split? How is a stock split different from a stock dividend?
Q6) What is treasury stock? What reasons might a company hold treasury stock?
Page 15
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Chapter 14: Long-Term Liabilities
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Q1) A company issued 9.2%, 10-year bonds with a par value of $100,000. Interest is paid semiannually. The annual market interest rate on the issue date was 10%, and the issuer received $95,016 cash for the bonds. The issuer uses the effective interest method for amortization. On the first semiannual interest date, what amount of discount should the issuer amortize?
Q2) All of the following statements regarding leases are true except:
A) For a capital lease the lessee records the leased item as its own asset.
B) For an operating lease the lessee reports the lease payments as rental expense.
C) For a capital lease the lessee depreciates the asset acquired under the lease, but for an operating lease the lessee does not.
D) Capital leases create a long-term liability on the balance sheet, but operating leases do not.
E) Capital leases do not transfer ownership of the asset under the lease, but operating leases often do.
Q3) A discount on bonds payable occurs when a company issues bonds with an issue price less than par value.
A)True B)False
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Chapter 15: Investments
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Q1) Explain how to record the sale of trading securities.
Q2) All of the following statements regarding accounting for influential securities under U.S. GAAP and IFRS are true except:
A) Under the consolidation method, nonintercompany assets and liabilities are combined (eliminating the need for an investment account).
B) Under the consolidation method, investee and investor revenues and expenses are combined.
C) Under the equity method, the share of investee's net income is reported in the investor's income in the same period the investee earns that income.
D) U.S. GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.
E) Under the equity method, the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.
Q3) A company reported net sales of $850,000, net income of $200,000 and average total assets of $575,000. Calculate its return on total assets.
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Chapter 16: Reporting the Statement of Cash Flows
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Q1) Cash flows from selling trading securities are usually reported in the statement of cash flows as part of:
A) Financing activities.
B) This is not reported in the statement of cash flows.
C) Investing activities.
D) Noncash activities.
E) Operating activities.
Q2) A machine with a cost of $130,000, current year depreciation expense of $17,000 and accumulated depreciation of $85,000 is sold for $40,000 cash. The total amount that should be reported in the operating section of the statement of cash flow as per indirect method is:
A) $17,000.
B) $22,000.
C) $57,000.
D) $4,000.
E) $21,000.
Q3) Explain the purpose and format of the statement of cash flows. Also describe its relevance to decision makers.
Q4) All cash transactions eventually affect noncash ________ accounts.
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Chapter 17: Analysis of Financial Statements
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Q1) Refer to the following selected financial information from Shakley's Incorporated. Compute the company's profit margin for Year 2. \[\begin{array} { | l | r | r | }
\hline &{ \text { Year 2 } } & \text { Year 1 } \\
\hline \text { Net sales } & \$ 478,500 & \$ 426,250 \\
\hline \text { Cost of goods sold } & 276,300 & 250,120 \\
\hline \text { Interest expense } & 9,700 & 10,700 \\
\hline \text { Net income before tax } & 67,250 & 52,680 \\
\hline \text { Net income after tax } & 46,050 & 39,900 \\
\hline \text { Total assets } & 317,100 & 288,000 \\
\hline \text { Total liabilities } & 181,400 & 167,300 \\
\hline \text { Total equity } & 135,700 & 120,700 \\
\hline
\end{array}\]
A) 14.1%.
B) 33.9%.
C) 11.7%.
D) 9.6%.
E) 16.7%.
Q2) ________ ratios include the price-earnings ratio and dividend yield.
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Chapter 18: Managerial Accounting Concepts and Principles
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Q1) Period costs for a manufacturing company would flow directly to:
A) The balance sheet as inventory.
B) The income statement as an expense.
C) Factory overhead.
D) The current schedule of cost of goods manufactured.
E) Cost of goods sold on the income statement.
Q2) Raw materials that are tangible components of the finished product and can be separately and readily traced through the manufacturing process are called:
A) Direct materials.
B) Chargeable materials.
C) Work in process.
D) Raw materials sold.
E) Indirect materials.
Q3) Indirect labor refers to the cost of the workers whose efforts are directly related to specific units of product.
A)True
B)False
Q4) Policies and procedures used by management to monitor and control business activities are known as ________. To view
Chapter 19: Job Order Costing
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Q1) Job order production systems would be appropriate for companies that produce training films for a specific customer or custom-made furniture to be used in a new five-star resort hotel.
A)True
B)False
Q2) Finished goods inventory is $190,000. If overhead applied to these goods is $72,000, and the overhead rate is 120% of direct labor, how much direct materials cost was incurred in producing the inventory?
A) $58,000.
B) $31,600.
C) $86,400.
D) $56,000.
E) $60,000.
Q3) The Factory Overhead account will have a credit balance at the end of a period if overhead applied during the period is greater than the overhead incurred.
A)True
B)False
Q4) _______________, or customized production, produces products in response to customer orders.
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Chapter 20: Process Costing
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Q1) The FIFO method of computing equivalent units focuses on production activity in the current period only.
A)True
B)False
Q2) Prepare journal entries to record the following production activities for Oaks Manufacturing.
a. Incurred overhead costs of $79,000 (paid in cash).
b. Applied overhead at 110% of direct labor costs which are $93,900.
c. Transferred completed products with a cost of $258,200 to finished goods inventory.
d. Sold $602,000 of product on credit. Cost is $271,000.
Q3) What is meant by equivalent units of production, and why are they important when a process costing system is used?
Q4) Prepare general journal entries to record the following production activities for Oaks Manufacturing.
a. Purchased $82,000 of raw materials on credit.
b. Used $63,500 of direct materials in production.
c. Used $12,800 of indirect materials.
Q5) Describe the flow of labor in a process costing system, including accounts used.
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) A cost that remains unchanged in total despite variations in volume of activity within a relevant range is a:
A) Curvilinear cost.
B) Standard cost.
C) Variable cost.
D) Step-wise variable cost.
E) Fixed cost.
Q2) The contribution margin ratio is the percent of each sales dollar that remains after deducting the total unit variable cost.
A)True
B)False
Q3) What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product).
Q4) Compute the break-even point in composite units.
A) 1,395.
B) 1,550.
C) 2,092.
D) 3,805.
E) 1,350.
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Chapter 22: Master Budgets and Planning
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Q1) The sales budget is derived from the production budget.
A)True
B)False
Q2) A master budget refers to a company's sales budget that includes all of its segments or departments.
A)True
B)False
Q3) Snap, Inc., provides the following data for the next four months: \[\begin{array} { | l | l | l | l }
& \text { April } & \text { May } & \text { June } \\
\hline \text { Budgeted production units } & 442 & 570 & 544 \\
\hline \text { Ending Raw Materials Inventory ...... } & 663 \text { lbs. } & & \\
\hline \text { Ending Finished Goods Inventory ...... } & 174 \text { Units } & & \end{array}\] Desired Ending Inventory:
Raw Materials = 30% of next month's production needs Pounds of raw material required for each finished Unit = 5 lbs.
Required:
Calculate the amount of purchases of raw materials in pounds for April and May.
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) A flexible budget may be prepared:
A) Only when the company encounters excessive costs.
B) At any time in the planning period.
C) During the operating period only.
D) Before the operating period only.
E) After the operating period only.
Q2) A fixed budget is based on a single predicted amount of sales or other activity measure.
A)True
B)False
Q3) When recording the journal entry for labor, the Work in Process Inventory account is
A) Credited for actual labor cost.
B) Credited for standard labor cost.
C) Debited for actual labor cost.
D) Not used.
E) Debited for standard labor cost.
Q4) When computing a price variance, the price is held constant.
A)True
B)False
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) A company has two departments, Y and Z that incur delivery expenses. An analysis of the total delivery expense of $9,000 indicates that Dept. Y had a direct expense of $1,000 for deliveries and Dept. Z had no direct expense. The indirect expenses are $8,000. The analysis also indicates that 40% of regular delivery requests originate in Dept. Y and 60% originate in Dept. Z. Departmental delivery expenses for Dept. Y and Dept. Z, respectively, are:
A) $5,500; $3,500.
B) $4,500; $4,500.
C) $4,200; $4,800.
D) $5,400; $3,600.
E) $4,800; $4,200.
Q2) The return on investment (ROI) for Investment Center B is:
A) 26.9%
B) 371.4%
C) 21.7%
D) 39.2%
E) 24.1%
Q3) A ________ helps control costs and expenses and evaluates managers' performance by assigning costs and expenses to the managers responsible for controlling them.
Page 26
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) A company is considering two projects, Project A and Project B. The following information is available for each project: \(\begin{array} { l r r }
&{ \text { Project A } } &{ \text { Project B } } \\
\text { Investment } & \$ 2,500,000 & \$ 2,000,000 \\
\text { Net present value of cash flows } &\$ 900,000 & \$ 800,000 \end{array}\)
Calculate the profitability index for each project. Based on the profitability index, which project should the company pursue and why?
Q2) When making capital budgeting decisions, companies usually prefer shorter payback periods. Explain why shorter payback periods are desirable.
Q3) The net present value decision rule requires that when an asset's expected cash flows are discounted at the required rate and yield a positive net present value, the project should be
Q4) You have evaluated three projects of similar investment amount and risk using the net present value (NPV) method. How would you decide which one of the projects to select?
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Chapter 26: Present and Future Values in Accounting
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Q1) A company is creating a fund today by depositing $65,763. The fund will grow to $90,000 after 8 years. What annual interest rate is the company earning on the fund?
Q2) Explain the concept of the future value of a single amount.
Q3) The future value of an ________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.
Q4) Giuliani Co. lends $524,210 to Craig Corporation. The terms of the loan require that Craig make six semiannual period-end payments of $100,000 each. What semiannual interest rate is Craig paying on the loan?
Q5) The number of periods in a present value calculation may only be expressed in years.
A)True B)False
Q6) An _ _ is a series of equal payments occurring at equal intervals.
Q7) The future value of an ordinary annuity is the accumulated value of each annuity payment excluding interest as of the date of the final payment.
A)True B)False
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Chapter 27: Activity-Based Costing
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Q1) The following is taken from Clausen Company's internal records of its factory with two operating departments. The cost driver for indirect labor is direct labor hours, and the cost driver for the remaining items is number of hours of machine use. Compute the total amount of overhead allocated to Dept. 2 using activity-based costing.
\[\begin{array} { l c c }
& \text { Direct Labor Hours } & \text { Machine Hours } \\
\text { Operating Dept. 1 } & 980 & 9,200 \\
\text { Operating Dept. 2 } & 2,100 & 6,000 \\
\text { Totals } & 3,080 & 15,200 \\ & & \\
\text { Factory overhead costs } & & \\
\text { Rent and utilities } & & \$ 21,700 \\
\text { Indirect labor } & & 17,300\\
\text { Depreciation - Equipment } & &14,000 \\
\end{array}\] Total factory overhead $ 53,000
A) $11,795.
B) $14,092.
C) $25,887.
D) $27,112.
E) $26,500.
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