Introductory Accounting Pre-Test
Questions
Course Introduction
Introductory Accounting provides students with a comprehensive foundation in the principles and practices of financial accounting. The course covers key topics such as the accounting cycle, preparation and interpretation of financial statements, recording business transactions, and the use of accounting information for decision-making. Students will gain practical experience in analyzing and processing financial data, understanding the roles of assets, liabilities, and equity, and applying generally accepted accounting principles (GAAP). By the end of the course, learners will be able to prepare basic financial reports and understand the importance of accounting in business environments.
Recommended Textbook
Horngrens Financial Accounting 8th Edition by Tracie Nobles
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Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) A business receives a bill for services rendered from one of its suppliers.The business will pay the supplier next month.When the business receives the bill from its supplier,how does this affect the accounting equation?
A)Liabilities increase;owners' equity increases.
B)Assets decrease;owners' equity decreases.
C)Liabilities increase;owners' equity decreases.
D)Assets increase;liabilities increase.
Answer: C
Q2) The income statement shows whether or not a business can generate enough cash to pay its liabilities.
A)True
B)False
Answer: False
Q3) In Australia,there is both private and public sector involvement in the standard-setting process.
A)True
B)False
Answer: True
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3
Chapter 2: Recording Business Transactions
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Q1) For Salary payable,the category of account and its normal balance are:
A)Owners' equity and a credit balance.
B)Liabilities and a credit balance.
C)Assets and a credit balance.
D)Assets and a debit balance.
Answer: B
Q2) A business makes a cash payment of $12 000 to an account payable.Which account is debited?
A)Accounts payable
B)Cash
C)Service revenue
D)Accounts receivable
Answer: A
Q3) An asset account is increased by a debit.
A)True
B)False
Answer: True
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Chapter 3: The Adjusting Process
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Q1) To accrue revenue means that the cash receipt is recorded before the revenue is earned.
A)True
B)False
Answer: False
Q2) Which of the following accounts would NOT be included in the adjusting entries made at the end of an accounting period?
A)Prepaid insurance
B)Accounts payable
C)Cash
D)Accounts receivable
Answer: C
Q3) The end-of-period process starts with the:
A)balance sheet.
B)adjusted trial balance.
C)unadjusted trial balance.
D)income statement.
Answer: C
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) A current ratio that has increased from the prior period indicates an improvement in the company's ability to pay its current debts.
A)True
B)False
Q2) Which is NOT an example of a temporary account?
A)Electricity and gas expense
B)Service revenue
C)Wages expense
D)Accumulated depreciation
Q3) Under which of the following categories would Inventory appear?
A)Non-current assets
B)Non-current liabilities
C)Current assets
D)Current liabilities
Q4) Which of the following accounts will be closed by debiting the Income summary account?
A)Salary expense
B)Accounts receivable
C)Service revenue
D)Drawings
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Chapter 5: Retailing Operations
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Sample Questions
Q1) A firm sold inventory for $350 that cost $221.The entry to record the cost of the inventory sold would be a:
A)debit to Cost of sales and a credit to Inventory for $221.
B)debit to Cash and a credit to Sales for $350.
C)debit to Sales and a credit to Cash for $350.
D)debit to Inventory for $221 and a credit to Cost of sales for $221.
Q2) Freight out is an addition to the Inventory account if the firm uses the perpetual inventory method.
A)True
B)False
Q3) When a firm ships goods to a customer and pays for freight out,how is that cost recorded?
A)As an addition to cost of sales
B)As an operating expense
C)As a reduction of sales revenue
D)As an addition to the cost of inventory
Q4) The ATO will refund any GST a registered firm pays to a supplier.
A)True
B)False
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Chapter 6: Retail Inventory
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Sample Questions
Q1) A company purchased 130 units for $30 each on 31 January.It purchased 200 units for $35 each on 28 February.It sold 200 units for $60 each from 1 March to 31 December.If the company uses the weighted-average inventory costing method,calculate the amount of cost of sales on the income statement for the year ending 31 December.(Assume the company uses the perpetual inventory system. )
A)$6606
B)$3900
C)$10,900
D)$7000
Q2) Ending inventory for the current year is overstated by $20 000.What effect will this error have on the following year's Net profit?
A)Net profit will be understated by $40 000.
B)The inventory overstatement will not affect Net profit.
C)Net profit will be understated by $20 000.
D)Net profit will be overstated by $20 000.
Q3) Under last-in,first-out,the cost of sales is based on the oldest purchases.
A)True
B)False
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8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Hide and Seek has retail outlets at both large shopping centres and small plazas.Its accounting information system is able to track total revenues by store,by type of shopping centre,by size of store,by state and by region.This is an example of which feature of a good information accounting system?
A)compatibility
B)favourable cost-benefit relationship
C)control
D)flexibility
Q2) The accounts payable subsidiary ledger controls the accounts payable account in the general ledger.
A)True
B)False
Q3) Inputs to an accounting system would include:
A)invoices.
B)bank deposit slips.
C)both of the above
D)none of the above
Q4) Design of an accounting information system begins with a trial balance.
A)True
B)False
Page 9
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following describes the internal control component information system?
A)Control procedures are designed to ensure that the business's goals are achieved.
B)Only authorised users have access to various parts of the information system.
C)The information system is the 'tone at the top' of the business.
D)Internal auditors monitor company controls to safeguard assets and external auditors monitor the controls to ensure that the accounting records are accurate.
Q2) Internal auditors evaluate company controls to ensure the accuracy of financial statements.
A)True
B)False
Q3) The bank recorded a $2 000 deposit as $200.How would this information be included on the bank reconciliation?
A)An addition on the bank side
B)A deduction on the book side
C)A deduction on the bank side
D)An addition on the book side
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Chapter 9: Receivables
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Sample Questions
Q1) Accounts receivable are also known as trade receivables.
A)True
B)False
Q2) Which of the following are the two methods of estimating bad debts?
A)The direct write-off method and the percentage of completion method
B)The gross method and the direct write-off method
C)The ageing of accounts receivable method and the percentage of sales method
D)The allowance method and the amortisation method
Q3) Accounts receivable has a balance of $31,000 and the Allowance for doubtful debts has a credit balance of $3100.The allowance method is used.What is the net realisable value before and after a $2400 Account receivable is written off?
A)$27,900;$25,500
B)$25,500;$25,500
C)$25,500;$30,300
D)$27,900;$27,900
Q4) Days' sales in receivables is the ratio of average net accounts receivable to one day's sales.
A)True
B)False
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Chapter 10: Non-Current Assets: Property, Plant and Equipment, and Intangibles
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Sample Questions
Q1) A loss occurs on the exchange of an item of property,plant and equipment if the market value of the new asset received is greater than the total amount given up in the exchange.
A)True
B)False
Q2) Hastings Company has purchased a group of assets for $16,000.The assets and their relative market values are listed below. \[\begin{array} { | l | l | }
\hline \text { Land } & \$ 11,000 \\
\hline \text { Equipment } & 6100 \\
\hline \text { Building } & 12,800 \\
\hline
\end{array}\] Which of the following amounts would be debited to the Land account?
A)$2092.80
B)$5886.29
C)$6849.50
D)$3264.21
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Synergy Appliances sells dishwashers with a four year warranty.In 2016,sales revenue for dishwashers is $97,000.The company estimates warranty expense at 4.5% of revenues.What is the 2016 warranty expense?
A)$0
B)$3423.53
C)$1091.25
D)$4365
Q2) In which of the following periods should the expense for warranty costs be recorded?
A)The period when the product is repaired or replaced
B)The period when cash is paid to repair or replace the product
C)The period when the product is sold
D)The period when cash is collected for the sale of the product
Q3) Which of the following is included in the entry to record the employer's payroll taxes?
A)A debit to Payroll tax payable
B)A credit to Payroll tax payable
C)A credit to Income tax payable
D)A credit to Payroll tax expense
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Chapter 12: Non-Current Liabilities, Debentures Payable
and Classification of Liabilities on the Balance Sheet
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Q1) If a company wishes to redeem debentures early,they may call the debentures if the debentures are callable,but they may not purchase them on the open market.
A)True
B)False
Q2) Trek Company signed a 11%,10-year note for $158,000.The company paid $2700 as the instalment for the first month.What portion of the first monthly payment is interest expense? (Round to the nearest dollar. )
A)$1448
B)$1252
C)$15,867
D)$30,547
Q3) Debentures are non-current liabilities issued to multiple lenders,usually in increments of $1 000.
A)True
B)False
Q4) The company will repay the principal amount of the debenture on the maturity date. A)True
B)False
Page 14
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Chapter 13: Partnerships
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Sample Questions
Q1) Felix and Ian allocate 2/5 of the profits and losses to Felix and 3/5 to Ian.The net profit of the firm is $40,000.The journal entry to close the Income summary will include:
A)credit to Income summary for $40,000.
B)debit to Felix,capital for $16,000.
C)credit to Ian,capital for $24,000.
D)debit to Felix,capital for $24,000.
Q2) Farrell and Jimmy enter into a partnership agreement on 1 May 2017.Farrell contributes $50,000 and Jimmy contributes $160,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net profit for the year ended 31 December 2017 is $60,000.Which of the following amounts should be credited to Jimmy's capital account?
A)$45,714
B)$60,000
C)$14,286
D)$50,000
Q3) Partnerships always share profit equally among all partners.
A)True
B)False
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Chapter 14: Companies: Formation and Shareholders
Equity
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Sample Questions
Q1) All forms and classes of shares carry voting rights.
A)True
B)False
Q2) When a company records the year-end closing entries,the Income summary balance,before it is closed to Retained earnings,should be equal to the Profit or Loss for the year.
A)True
B)False
Q3) Which of the following describes retained earnings?
A)Internally generated capital that results from profitable business transactions
B)Internally generated capital that results from employees' contributions
C)Externally generated capital that is contributed by shareholders
D)Externally generated capital that is raised from banks and other creditors
Q4) Retained earnings as shown on the balance sheet can,under certain circumstances,show a negative balance.
A)True
B)False
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) The entry to record an appropriation of retained earnings requires a debit to Retained earnings and a credit to Cash.
A)True
B)False
Q2) Which of the following best describes discontinued operations on the income statement?
A)The gains and losses from transactions that are not part of the normal operations of the business
B)The profit or loss generated from the normal operations of the business
C)The profit or loss from segments of the business that have been sold or terminated
D)The profit or loss generated from unusual or infrequent events
Q3) Which of the following is NOT true of share dividends?
A)Share dividends affect only shareholders' equity accounts.
B)Share dividends have no effect on total shareholders' equity.
C)Share dividends increase dividends payable and reduce cash.
D)Share dividends have no effect on assets or liabilities.
Q4) A share buy-back requires a credit to the Ordinary share capital account.
A)True
B)False
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Chapter 16: The Cash Flow Statement
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Q1) Cash equivalents are assets that can be converted to cash within one year.
A)True
B)False
Q2) Free cash flow is the same thing as cash flow from operating activities.
A)True
B)False
Q3) Sonesta Company owed one of its creditors $250 000 but did not have enough cash to repay the debt.Following lengthy negotiations,the parties agreed that Sonesta would issue 100 000 ordinary shares to settle the debt.This transaction would be reported in the financing section of the cash flow statement.
A)True
B)False
Q4) Which of the following is NOT a true statement about the cash flow statement?
A)It shows where cash came from and how it was spent.
B)It shows how the profits or losses of the company were generated.
C)It reports why cash increased or decreased.
D)It covers a specific span of time,the same as the income statement.
Q5) Issuing preference shares to shareholders would be a financing activity.
A)True
B)False
Page 18
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Chapter 17: The Framework of Accounting
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Q1) Information is regarded as material if its omission or misstatement could influence the economic decisions made by users of financial reports.
A)True
B)False
Q2) Under AASB 101,which of the following is not required to be disclosed in the annual reports of ASX-listed companies?
A)Provision for doubtful debts deducted from debtors
B)Comparative figures for the previous financial year
C)Information on executives' remuneration
D)None of the above,i.e.all are required to be disclosed
Q3) All entities using the same terms to describe the elements of financial statements is an example of the:
A)timeliness principle.
B)comparability principle.
C)materiality principle.
D)reliability principle.
Q4) In most businesses,profit is recognised at the point of sale.
A)True
B)False
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Chapter 18: Financial Statement Analysis
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Q1) If an analyst wishes to compare several different companies that vary in size,which of the following types of financial statement analysis would be used?
A)Common-size financial statement analysis
B)Vertical analysis
C)Horizontal analysis
D)Ratio analysis
Q2) Which of the following ratios is a measure of a company's ability to pay liabilities with current assets?
A)The days' sales in receivables
B)The price/earnings ratio
C)The inventory turnover ratio
D)The current ratio
Q3) The price/earnings ratio is a measure that is valuable to investors when making investment decisions.
A)True
B)False
Q4) A common-size statement reports only percentages-no dollar amounts.
A)True
B)False
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