Principles of Accounting
Chapter Exam Questions
Course Introduction
Principles of Accounting introduces students to the foundational concepts and methods used in the accounting profession. This course covers the basic principles of financial accounting, including the accounting cycle, preparation and analysis of financial statements, and the measurement and reporting of assets, liabilities, equity, revenues, and expenses. Emphasis is placed on understanding Generally Accepted Accounting Principles (GAAP), the double-entry system, and the ethical considerations in accounting. By the end of the course, students will be equipped to interpret financial information and understand the role of accounting in business decision-making.
Recommended Textbook
Financial and Managerial Accounting Information for Decisions 5th Edition by John J Wild
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Chapter 1: Introducing Accounting in Business
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Q1) The private board that currently has the authority to establish U.S.generally accepted accounting principles is the:
A) APB
B) FASB
C) AAA
D) AICPA
E) SEC
Answer: B
Q2) Planning refers to defining an organization's ideas,goals,and actions.
A)True
B)False
Answer: True
Q3) Recording the items on the financial statements in dollars is done because of the:
A) Objectivity principle
B) Monetary unit principle
C) Revenue recognition principle
D) Going-concern principle
E) Cost principle
Answer: B
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Page 3
Chapter 2: Analyzing and Recording Transactions
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Q1) The account used to record the transfers of assets from a business to its stockholders is:
A) A revenue account
B) The dividends account
C) Common stock account
D) An expense account
E) A liability account
Answer: B
Q2) An account balance is the difference between the debits and credits for an account including any beginning balance.
A)True
B)False
Answer: True
Q3) Describe source documents and their purpose.
Answer: Source documents are the basis of information that identify and describe transactions and events.They provide objective and reliable evidence about transactions and their amounts.Examples of source documents include checks,invoices,sales receipts,credit card statements,and bank statements.They can be in hard copy or electronic form.
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Page 4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) Which of the following does not require an adjusting entry at year-end?
A) Accrued interest on notes payable.
B) Supplies used during the period.
C) Cash investments by stockholders.
D) Accrued wages.
E) Expired portion of prepaid insurance.
Answer: C
Q2) The adjusting entry to record the earned but unpaid salaries of employees at the end of an accounting period is:
A) Debit Unpaid Salaries and credit Salaries Payable
B) Debit Salaries Payable and credit Salaries Expense
C) Debit Salaries Expense and credit Cash
D) Debit Salaries Expense and credit Salaries Payable
E) Debit Cash and credit Salaries Expense
Answer: D
Q3) July 31,2013,the end of the quarter is on a Wednesday.Employees get paid each Friday for the week worked.Abel Co.has five employees who earn $100 per day each.Make the necessary adjusting journal entry for June 30.
Answer: Wages Expense .$1,500
Page 5
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Chapter 4: Accounting for Merchandising Operations
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Q1) Quick assets include cash,inventory,and current receivables.
A)True
B)False
Q2) Under the ___________ system,each purchase,purchase return and allowance,purchase discount,and transportation-in transaction is recorded in a separate temporary account.
Q3) A company reported the following information for the month of November: \(\begin{array}{|l|r|}
\hline \text { Sales } & \$ 50,475 \\
\hline \text { Sales discounts } & 235 \\
\hline \text { Sales returns and allowances } & 2,840 \\
\hline \text { Cost of goods sold } & 33,975\\
\hline \end{array}\)
Required: Calculate this company's gross margin ratio.
Q4) FOB _________________ means the buyer accepts ownership when the goods depart the seller's place of business.The buyer is responsible for paying shipping costs and bears the risk of damage or loss when goods are in transit.
Q5) List the steps of the operating cycle for a merchandiser with credit sales.
Q6) What is the difference between the periodic and perpetual inventory systems?
Page 6
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Chapter 5: Inventories and Cost of Sales
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Q1) The consistency concept:
A) Requires a company to consistently use the same accounting method of inventory valuation unless a change will improve financial reporting.
B) Requires a company to use one method of inventory valuation exclusively.
C) Requires that all companies in the same industry use the same accounting methods of inventory valuation.
D) Is also called the full disclosure concept.
E) Is also called the matching concept
Q2) Identify the items that are included in merchandise inventory.(In your answer address the special situations of goods in transit,consigned goods,and damaged goods.)
Q3) The lower of cost or market rule for inventory valuation must be applied to each individual unit separately and not to major categories of inventory or to the entire inventory.
A)True
B)False
Q4) Explain why the lower of cost or market rule is used to value inventory.
Q5) Describe the internal controls that must be applied when taking a physical count of inventory.
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Chapter 6: Cash and Internal Controls
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Q1) The number of days' sales uncollected:
A) Is used to evaluate the liquidity of receivables.
B) Is calculated by dividing accounts receivable by sales.
C) Measures a company's ability to pay its bills on time.
D) Measures a company's debt to income.
E) Is calculated by dividing sales by accounts receivable.
Q2) A customer's check is deposited by a company.The check is uncollectible because the balance in the customer's account is not large enough to cover the check.This check is referred to as a __________ check.
Q3) _______________________ are deposits made and recorded by the depositor but not yet recorded on the bank statement.
Q4) A purchase requisition is a document the purchasing department sends to the vendor to place an order.
A)True
B)False
Q5) The ________________ ratio reflects the liquidity of a company's accounts receivable.
Q6) What is the purpose of the petty cash account?
Q7) Discuss how the principles of internal control apply to cash receipts.
Page 8
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Chapter 7: Accounts and Notes Receivable
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Q1) A company receives a 6.2%,60-day note for $9,650.The total amount of cash due on the maturity date is:
A) $598.30
B) $99.72
C) $9,650.00
D) $10,248.30
E) $9,749.72
Q2) Electron borrowed $75,000 cash from TechCom by signing a promissory note.TechCom's entry to record the transaction should include a:
A) Debit to Notes Receivable for $75,000.
B) Debit to Accounts Receivable for $75,000.
C) Credit to Notes Receivable for $75,000.
D) Debit Notes Payable for $75,000.
E) Credit to Sales for $75,000.
Q3) The aging method of determining bad debts expense is based on the knowledge that the longer a receivable is past due,the lower the likelihood of collection.
A)True
B)False
Q4) Explain the options a company has when converting its receivables to cash.
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Chapter 8: Long-Term Assets
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Q1) A company purchased a heating system on January 2,2000,for $225,000.The system had an estimated useful life of 15 years.On January 3,2013,the company completed a renovation of the system that cost of $33,000 and now expects the system to be more efficient to last eight years beyond the original estimate.The company uses the straight-line method of depreciation.
a.Prepare the journal entry at January 3,2013,to record the renovation of the heating system.
b.Prepare the journal entry at December 31,2013,to record the depreciation for 2013.
Q2) A company purchased equipment valued at $825,000 on January 1.The equipment has an estimated useful life of seven years or 6 million units.The equipment is estimated to have a salvage value of $35,000.Assuming the units of production method of depreciation,what is the annual depreciation for the second year if .5 million units were produced?
Q3) How is the cost principle applied to plant asset acquisitions,including lump-sum purchases?
Q4) A company sold for $40,000 cash a machine that originally cost $90,000.The accumulated depreciation on this machine was $47,000 at the time of the sale.What was the company's gain or loss on this sale?
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Page 10
Chapter 9: Current Liabilities
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Q1) A company sells personal computers,with an included two-year warranty for $2,300 each.During the current year,the company sells 400 computers.On the basis of past experience,the warranty costs are estimated to be $250 per computer.The actual warranty costs (paid in cash)by the company during the current year were $65,000.Prepare general journal entries to record the (a)estimated warranty expense and (b)warranty repair costs during current year.
Q2) Debt guarantees are not disclosed because the guarantor is not the primary debtor. A)True
B)False
Q3) The FICA tax for Social Security is 6.2% and the FICA tax for Medicare is 1.45%.An employee's share of both FICA taxes was $3,901.50.Given that this employee did not exceed the FICA earnings limitation,compute gross pay.
A) $269,068.96.
B) $62,927.42.
C) $29,846.48.
D) $51,000.
E) Zero, since the employee's pay did not exceed the FICA limit.
Q4) Vacation benefits are a type of _______________ liability.
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Chapter 10: Long-Term Liabilities
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Q1) Bonds payable to whoever holds them are called _________________ bonds.
Q2) What is an annuity?
Q3) On January 1,2013,Lane issues $700,000 of 7%,15-year bonds at a price of 106¾.The interest payments are made on June 30 and December 31.Lane elects a fiscal year ending September 30.What is the amount that would be recorded as cash paid in the December 31,2013,journal entry?
A) $24,500
B) $22,925
C) $12,250
D) $11,462
E) $13,458
Q4) A bond with a par value of less than $1,000 is called a ______________ bond.
Q5) GAAP criteria for identifying a lease as a capital lease are more general than the criteria under IFRS.
A)True
B)False
Q6) A company issues bonds with a par value of $900,000 on their stated issue date.The bonds mature in 10 years and pays 10% annual interest in semiannual payments.On the issue date,the annual market rate for the bonds is 12%.What is the selling price of the bond?
Page 12
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Chapter 11: Corporate Reporting and Analysis
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Q1) A company had the following stockholders' equity on January 1: \(\begin{array}{|l|r|}
\hline \begin{array}{l}
\text { Common stock - } \$ 1 \text { par value; } 1,200,000 \text { shares authorized, } 400,000 \\
\text { shares issued and outstanding } \end{array} & \$ 400,000 \\
\hline \text { Contributed capital in excess of par value, common stock } & 300,000 \\
\hline \text { Retained earnings } & \$ 364,000 \\
\hline \text { Total stockholders' equity } & \$ 1,064,000 \\ \hline \end{array}\)
On January 10,the company declared a 40% stock dividend to holders of record on January 25,to be distributed January 31.The market value of the stock on January 10 prior to the dividend was $20 per share.What is the book value per common share on February 1?
Q2) Identify and discuss the key differences between common and preferred stock.
Q3) _________________ is a corporation's own stock that has been reacquired.
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Page 13
Chapter 12: Reporting Cash Flows
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Q1) Investments that are readily convertible to a known amount of cash and are sufficiently close to their maturity so that the market value is unaffected by interest rate changes are ______________________________.
Q2) All cash transactions eventually affect noncash ___________ accounts.
Q3) An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n):
A) Short-term marketable equity security.
B) Operating activity.
C) Common stock.
D) Cash equivalent.
E) Financing activity.
Q4) When analyzing the changes on a spreadsheet used to prepare a statement of cash flows,the cash flows from investing activities generally affect:
A) Net income, current assets, and current liabilities.
B) Noncurrent assets.
C) Noncurrent liability and the equity accounts.
D) Both noncurrent assets and noncurrent liabilities.
E) Equity accounts only.
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Chapter 13: Analysis of Financial Statements
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Q1) A company has a current ratio of 1.92,total liabilities of $193,849,long-term notes payable of $85,791,and a quick ratio of .96.What are total current assets for the company?
Q2) Comparative financial statements are reports that show financial amounts placed side by side in columns on a single statement for analysis purposes.
A)True
B)False
Q3) The standards for comparisons in financial statement analysis include (1)_______________,(2)________________,(3)_________________ and (4)_______________.
Q4) What is the purpose of a good financial statement analysis report? What are the key components?
Q5) A company has an inventory turnover ratio of 2.81,merchandise inventory for 2014 of $93,303,and average inventory of $83,397.What is the cost of goods sold?
Q6) A company reported net income of $78,000 and had 15,000 common shares outstanding throughout the current year.At year-end,the price per share of the company's stock was $49.40.What is the company's year-end price-earnings ratio?
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Chapter 14: Managerial Accounting Concepts and Principles
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Q1) Classifying costs by behavior involves:
A) Identifying fixed cost and variable cost.
B) Identifying cost of goods sold and operating costs.
C) Identifying all costs.
D) Identifying costs in a physical manner.
E) Identifying both quantitative and qualitative cost factors.
Q2) An out-of-pocket cost requires a future cash outlay and is relevant for decision making.
A)True
B)False
Q3) If beginning and ending goods in process inventories are $5,000 and $15,000,respectively,and cost of goods manufactured is $170,000,what is the total manufacturing cost for the period?
A) $180,000
B) $155,000
C) $160,000
D) $175,000
E) $165,000
Q4) There are many differences between financial and managerial accounting.Identify and explain at least three of these.
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Chapter 15: Job Order Costing and Analysis
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Q1) The production activities for a customized product represent a(n):
A) Operation.
B) Job.
C) Unit.
D) Pool.
E) Process.
Q2) Materials requisitions and time tickets are cost accounting source documents.
A)True
B)False
Q3) If one unit of Product X used $.75 of direct materials and $6.00 of direct labor,sold for $12.00,and was assigned overhead at the rate of 20% of direct labor costs,how much gross profit was realized from this sale?
A) $12.00
B) $6.75
C) $.75
D) $1.20
E) $4.05
Q4) Describe the flow of labor costs in a job order costing system and identify the documents used in the system.
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Chapter 16: Process Costing
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Q1) In process cost accounting systems,when units are transferred from the Softening Department to the Hardening Department,____________________ is debited and __________________________ is credited.
Q2) In process costing,factory overhead incurred does not usually equal that applied,which yields either ____________________ or ___________________ overhead.
Q3) In the same time period,it is possible that a production department can produce 1,000 equivalent finished units with respect to direct materials and 1,200 equivalent finished units with respect to direct labor.
A)True
B)False
Q4) Process cost accounting systems consider overhead costs to include those costs that cannot be readily identified with any specific process. A)True
B)False
Q5) What total cost should be assigned to the units that were in process at the end of August?
Q6) (a) Why is the Process Cost Summary important to management? (b) How does the Process Cost Summary accomplish its purposes?
Page 18
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Chapter 17: Activity-Based Costing and Analysis
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Q1) Allocated overhead ____________________________ vary depending upon the allocation method used.
Q2) Activities are the cost objects of the second stage of ABC.
A)True B)False
Q3) A company estimates that overhead costs for the next year will be $9,234,000 for indirect labor and $156,800 for factory utilities.The company uses machine hours as its overhead allocation base.If 500,000 machine hours are planned for this next year,what is the company's plantwide overhead rate? (Round to two decimal places)
A) $0.05 per machine hour.
B) $18.47 per machine hour.
C) $18.78 per machine hour.
D) $0.31 per machine hour.
E) $3.19 per machine hour.
Q4) In activity-based costing,an activity can involve several related tasks. A)True B)False
Q5) Explain cost flows for activity-based costing.
Q6) Product costs consist of direct labor,direct materials,and ______________.
Page 19
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Chapter 18: Cost-Volume-Profit Analysis
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Q1) Outback Products reports the following information: \[\begin{array} { l l }
\text { Total contribution margin} & \$ 32,000 \\
\text { Total fixed costs } & \$ 28,000 \end{array}\]
Required:
a.Calculate Outback Products' degree of operating leverage (DOL).
b.Outback Products forecasts a 6% increase in sales.What is the expected effect in percent on pretax income?
Q2) Describe how a cost-volume-profit analysis would be performed for a company that sells more than one product.(Assume that the sales mix is known.)
Q3) Herriot Co.has total fixed costs of $180,000 and a contribution margin ratio of 40%.Assume that an additional advertising expenditure of $4,000 would increase sales by $8,000.Should the company spend this additional amount on advertising? (Support your answer with calculations.)
Q4) Hiller Co.anticipates total fixed costs of $120,000 and variable costs equal to 40% of sales.What is the pretax income if sales are $650,000?
Q5) Briefly describe a CVP chart,including its major components.
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Chapter 19: Variable Costing and Performance Reporting
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Q1) Reporting contribution margin by market segment is useful in assessing the profitability of each segment.
A)True
B)False
Q2) On a contribution margin income statement,expenses are grouped according to
Q3) Fixed costs change in the short run depending upon management's decision to accept or reject special orders.
A)True
B)False
Q4) Given Advanced Company's data,compute cost of finished goods in inventory under absorption costing.
A) $285,000
B) $712,500
C) $427,500
D) $230,000
E) $345,000
Q5) How does contribution margin differ from gross margin?
Q6) How can the use of absorption costing result in overproduction?
21
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Chapter 20: Master Budgets and Performance Planning
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Q1) Merchandising companies prepare the production budget after preparing the sales budget.
A)True
B)False
Q2) The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.
A)True
B)False
Q3) A managerial accounting report that presents predicted amounts of the company's revenues and expenses for the budget period is called a:
A) Budgeted income statement.
B) Budgeted balance sheet.
C) Master plan.
D) Rolling income statement.
E) Continuous income statement.
Q4) The master budget consists of three major groups of budget components: the operating budgets,the capital expenditures budgets,and the financial budgets.
A)True
B)False
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Chapter 21: Flexible Budgets and Standard Costs
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Q1) Within the same budget performance report,it is impossible to have both favorable and unfavorable variances.
A)True
B)False
Q2) One possible explanation for direct labor rate and efficiency variances is the use of workers with different skill levels.
A)True
B)False
Q3) In the analysis of variances,management commonly focuses on four categories of production costs: __________________ cost,___________________ cost; _________________cost; and _________________ cost.
Q4) The entry to record the labor costs and variances would include a:
A) debit to Goods in Process for $198,000.
B) credit to Factory Payroll for $192,000.
C) debit to Direct Labor Cost Variance for $6,000.
D) credit to Direct Labor Cost Variance for $6,000.
E) credit to Direct Labor Efficiency Variance for $16,000
Q5) The difference between the actual overhead cost incurred and the standard overhead applied is the __________________________.
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Chapter 22: Decentralization and Performance Measurement
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Q1) An accounting system that provides information that management can use to evaluate the profitability and/or cost effectiveness of a department's activities is a:
A) Departmental accounting system.
B) Cost accounting system.
C) Service accounting system.
D) Revenue accounting system.
E) Standard accounting system.
Q2) A unit of a business that not only incurs costs but also generates revenues is called a:
A) Performance center.
B) Profit center.
C) Cost center.
D) Responsibility center.
E) Expense center.
Q3) The ________________________________ is sales less direct expenses for a department.
Q4) What is a profit center?
Q5) What is the purpose of a responsibility accounting system?
Q6) What is the main difference between a cost center and a profit center?
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Chapter 23: Relevant Costing for Managerial Decisions
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Q1) Roxie Company has 17,500 units of its sole product that it produced last year at a cost of $45 each.This year's model is superior to last year's and the 17,500 units cannot be sold for their regular selling price of $80 each.Roxie has two alternatives for these items: (1)they can be sold to a wholesaler for $35 each,or (2)they can be reworked at a total cost of $450,000 and then sold for $60 each.The company has enough idle capacity to rework these items without affecting any new production.Which choice would increase the company's profits the most?
A) Reworking, because profit will increase by $600,000 more than scrapping.
B) Scrapping, because profit will increase by $612,500 more than reworking.
C) Reworking, because profit will increase by $12,500 more than scrapping.
D) Scrapping, because profit will increase by $12,500 more than reworking.
E) Reworking because profit will increase by $450,000 more than scrapping.
Q2) The decision to accept an additional volume of business should be based on a comparison of the revenue from the additional business with the sunk costs of producing that revenue.
A)True B)False
Q3) An ________________________ requires a future outlay of cash and is relevant for current future decision making.
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Chapter 24: Capital Budgeting and Investment Analysis
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Q1) The following data concerns a proposed equipment purchase: \(\begin{array}{lr}
\text{cost} & \quad & \$~ 278,000\\
\text{Salvage value} & \quad & \$~ 6,000 \\
\text{Estimated useful life} & \quad & 8~ \text{years}\\
\text{Annual net cash flows} & \quad & \$ ~46,360\\
\text{Depreciation method} & \quad & \text{Straight-line}\\ \end{array}\)
Assuming that net cash flows are received evenly throughout the year,the accounting rate of return is:
A) 34.09%
B) 32.64%
C) 8.35%
D) 8.70%
E) 16.67%
Q2) The payback method,unlike the net present value method,does not ignore cash flows after the point of cost recovery.
A)True
B)False
Q3) Internal rate of return is expressed as a _________________.
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Chapter 25: Accounting With Special Journals
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Q1) The accounts receivable ledger:
A) Is for recording credit sales.
B) Is for storing transactions data for individual customers.
C) Is for storing transactions data for individual creditors.
D) Is for recording cash receipts from customers.
E) Is also the controlling account.
Q2) A __________________ is an all-purpose journal that can record any transaction.
Q3) ___________________ processing enters and processes data as soon as source documents are available.
Q4) The flexibility principle requires that an accounting information system conform to a company's activities,personnel,and structure and adapt to a company's unique characteristics.
A)True
B)False
Q5) The SAP enterprise resource planning software is already being used to help direct the operations of many of the world's largest companies.
A)True
B)False
Q6) Explain how the amounts in the subsidiary ledgers are tested for accuracy.
Page 27
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Chapter 26: Time Value of Money
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Sample Questions
Q1) A company is creating a fund by depositing $65,763 today.The fund will grow to $90,000 after eight years.What annual interest rate is the company earning on the fund?
Q2) Explain the concept of the future value of an annuity.
Q3) Explain the concept of the present value of an annuity.
Q4) What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?
A) 5%
B) 8%
C) 10%
D) 12%
E) 15%
Q5) Sandra has a savings account that is now $50,000.She started with $28,225 and earned interest at 10% compounded annually.It took five years to accumulate the $50,000.
A)True
B)False
Q6) Big League Sports borrowed $883,212 and must make annual year-end payments of $120,000 each.If the applicable interest rate is 6%,how many years will it take Big League Sports to pay off the loan?
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Chapter 27: Investments and International Operations
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176 Verified Questions
176 Flashcards
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Sample Questions
Q1) Held-to-maturity securities are ____________ securities a company intends and is able to hold until maturity.
Q2) A long-term investment classified as equity securities with controlling influence implies that the investor can exert a controlling influence over the investee.
A)True
B)False
Q3) Long-term investments are usually held as an investment of cash for the use of current operations.
A)True
B)False
Q4) A company had net income of $2,785,000,net sales of $250,000,000,average total assets of $6,000,000,and equity investments of $40,000.Its return on total assets equals: A) $3,215,000 B) 41.67% C) 21.54% D) 69.63% E) 46.42%
Q5) Explain how to record the sale of trading securities.
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Chapter 28: Accounting for Partnerships
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) A relatively new form of business organization that protects partners with limited liability,allows limited partners to assume an active management role,and is taxed as a partnership is a ______________________________.
Q2) When a partner is unable to pay a capital deficiency:
A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners.
C) The partnership ends.
D) The deficient partner has no personal liability to pay the deficiency.
E) The partnership must be liquidated.
Q3) The life of a partnership is ____________________ in duration.
Q4) Which of the following statements is true?
A) Partners are employees of the partnership.
B) Salaries to partners are expenses on the partnership income statement.
C) Salary allowances usually reflect the relative value of services provided by partners.
D) Salary allowances are expenses.
E) Interest allowances are expenses.
Q5) Marquis and Bose agree to accept Sherman into their partnership.Sherman will contribute $25,000 in cash.Prepare the journal entry to record this transaction.
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