Principles of Accounting
Exam Answer Key
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and procedures underlying the accounting process. This course covers the basics of recording, classifying, and summarizing financial transactions, as well as preparing and interpreting financial statements. Students will learn about the accounting cycle, the role of accounting in business decision-making, and the importance of ethical standards in the profession. Emphasis is placed on the use of generally accepted accounting principles (GAAP), understanding key financial documents, and applying analytical skills to evaluate the financial health of an organization.
Recommended Textbook
Financial Accounting 4th Canadian Edition by Robert; Libby
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13 Chapters
1686 Verified Questions
1686 Flashcards
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Page 2
Chapter 1: Financial Statements and Business Decisions
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119 Verified Questions
119 Flashcards
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Sample Questions
Q1) Allentown Corporation has on its statement of financial position the following amounts: What is the amount of retained earnings that should appear on Allentown's statement of financial position?
A)$2,000,000.
B)$3,000,000.
C)$4,000,000.
D)$5,000,000.
Answer: A
Q2) Which of the following is the amount of rent expense reported on the income statement?
A)The amount of cash paid for rent in the current period.
B)The amount of cash paid for rent in the current period less any unpaid rent at the end of the period.
C)The amount of rent used up in the current period to earn revenue.
D)An increase in profit.
Answer: C
Q3) The debts of a corporation can be generally viewed as debts of its owners.
A)True
B)False
Answer: False
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Chapter 2: Investing and Financing Decisions and the Accounting System
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100 Verified Questions
100 Flashcards
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Sample Questions
Q1) Which of the following is not classified properly as a current asset?
A)Supplies.
B)Short-term investments.
C)A fund to be used to purchase a building within the next year.
D)Equipment with an estimated useful life of five years.
Answer: D
Q2) The debt-to-equity ratio is computed by taking which of the following?
A)Total assets divided by total liabilities.
B)Average total assets divided by average total liabilities.
C)Total liabilities divided by total shareholders' equity.
D)Total assets divided by total shareholders' equity.
Answer: C
Q3) Which of the following defines shareholders' equity?
A)Probable debts or obligations of an entity as a result of past transactions which will be paid with assets or services.
B)Assets plus liabilities.
C)Probable future economic benefits owned by an entity as a result of past transactions.
D)The financing provided by the owners and the operations of a business.
Answer: D
Page 4
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Chapter 3: Operating Decisions and the Accounting System
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110 Verified Questions
110 Flashcards
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Sample Questions
Q1) Which of the following businesses would most likely have the shortest operating cycle?
A)A retail chain such as Walmart
B)A jewellery manufacturer such as Mappins
C)A grocery chain such as Loblaws
D)A pizza franchise such as Pizza Pizza
Answer: D
Q2) Which of the following activities will most likely result in a reported loss on the income statement?
A)The sale of inventory to customers
B)The sale of old equipment
C)The wages and benefits paid to employees
D)Interest expense
Answer: B
Q3) Cost of sales is usually the largest expense for manufacturing or merchandising companies.
A)True
B)False
Answer: True
Page 5
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Chapter 4: Adjustments,financial Statements,and the Quality of Earnings
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127 Flashcards
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Sample Questions
Q1) The purpose of the post-closing trial balance is to
A)prove the equality of the permanent account balances that are carried forward into the next accounting period.
B)prove the equality of the temporary account balances that are carried forward into the next accounting period.
C)list all the statement of financial position accounts in alphabetical order for easy reference.
D)prove that no mistakes were made.
Q2) Closing entries are required by international financial reporting standards,while adjusting entries are optional.
A)True
B)False
Q3) For the year 20A,Tally Corporation reported $50,000 pretax profit (average annual income tax rate of 40%).What was the after tax profit?
A)$10,000.
B)$15,000.
C)$20,000.
D)$30,000.
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Chapter 5: Communicating and Interpreting Accounting Information
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108 Verified Questions
108 Flashcards
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Sample Questions
Q1) Cash equivalents are highly liquid investments with original maturities of less than six months.
A)True
B)False
Q2) Investing activities include cash proceeds from the sale of property,plant,and equipment,and short- and long-term investments.
A)True
B)False
Q3) Which of the following transactions is not a typical use of cash?
A)Payment of short-term debt with cash.
B)Purchase of treasury shares for cash.
C)Acquisition of a building for cash.
D)Sale of equipment for less than book value.
Q4) The category that is generally considered to be the best measure of a company's ability to continue as a going concern is
A)cash flows from investing activities.
B)cash flows from financing activities.
C)cash flows from operating activities.
D)usually different from year to year.
7
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Chapter 6: Reporting and Interpreting Sales Revenue, receivables,
and Cash
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135 Verified Questions
135 Flashcards
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Sample Questions
Q1) Financial leverage is computed by dividing average shareholders' equity by average total assets.
A)True
B)False
Q2) Liberward,Inc.,sold and issued 1,000 shares for $15 per share.The book value of the shares was $10 per share.The journal entry to record the share issue would include which of the following?
A)a debit to Cash for $10,000.
B)a credit to Common Shares for $10,000.
C)a credit to Common Shares for $15,000.
D)a credit to Cash for $15,000
Q3) Which of the following will cause an increase in net profit margin,asset turnover and financial leverage as long as expenses do not grow faster than revenue?
A)A decrease in average total assets
B)An increase in sales volume
C)An increase in profit
D)A decrease in total liabilitie
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Page 8
Chapter 7: Reporting and Interpreting Cost of Goods Sold and Inventory
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161 Verified Questions
161 Flashcards
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Sample Questions
Q1) When credit terms for a sale are 2/15,n/40,the customer saves by paying the bill early.Approximately what percent would this savings amount to on an annual basis?
A)18%.
B)20%.
C)30%.
D)37%.
Q2) G Co.,which is a biotechnology firm,reported the following revenues on their 2012 income statement: Product sales $582.2 million,Royalties $214.7 million,Contract revenue $107.0 million and Interest income $64.1 million.Their cost of sales were reported as $104.5 million.What was their gross profit percentage?
A)82.1%
B)86.9%
C)88.4%
D)89.2%
Q3) The lower the receivables turnover,the more effectively the company has managed their credit granting and collection activities.
A)True
B)False
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Chapter 8: Reporting and Interpreting Property, plant, and Equipment; Intangibles; and Natural Resources
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142 Verified Questions
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Sample Questions
Q1) A company purchased inventory as follows: On March 5,it sold 400 units for $17 each. The weighted- average unit cost to be used for the cost of goods sold on March 5,in a perpetual inventory system,is
A)$9.00.
B)$9.40.
C)$9.60.
D)$10.00.
Q2) In conformity with the matching process,the total cost of sales during the period must be related to the sales revenue earned during the period.
A)True
B)False
Q3) When a periodic inventory system is used,a sales transaction requires two journal entries,while under the perpetual system,a sales transaction requires only one journal entry.
A)True
B)False
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10
Chapter 9: Reporting and Interpreting Liabilities
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Sample Questions
Q1) The cost of a major addition to an operational asset should be recorded as an asset and depreciated over its useful life.
A)True
B)False
Q2) On January 1,20A,Johns Company purchased an asset that cost $10,000 (no estimated residual value,estimated useful life 8 years,straight-line depreciation is used).An error was made because the total cost amount was debited to an expense account for 20A and no depreciation on it was recorded.Pretax profit for 20A was $11,250.What was the correct pretax profit for 20A?
A)$12,000
B)$19,200
C)$20,000
D)$20,750
Q3) One example of a capital expenditure is ordinary maintenance cost such as an oil change for a company truck.
A)True B)False
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11
Chapter 10: Reporting and Interpreting Bond Securities
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111 Verified Questions
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Sample Questions
Q1) A contingent liability that is "probable" and can be "reasonably estimated" must be accrued and reported as a liability.
A)True
B)False
Q2) Liabilities are defined as probable future economic benefits.
A)True
B)False
Q3) Liabilities represent an obligation to pay that the company must satisfy.
A)True
B)False
Q4) The "trade payables" account should generally be used only for trade payables (obligations owed to suppliers in the normal course of business)which relate to the purchase of goods and services.
A)True
B)False
Q5) A commitment is a contractual agreement to enter into a transaction with another party in the future.
A)True
B)False
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Chapter 11: Reporting and Interpreting Stockholders Equity
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Sample Questions
Q1) The amortization of a bond discount results in periodic interest expense
A)greater than the constant percentage of the carrying amount of the bonds.
B)less than the constant percentage of the carrying amount of the bonds.
C)equal to the constant percentage of the carrying amount of the bonds.
D)increasing over the term of the bond issue.
Q2) You have been asked to compute the cash equivalent price of a machine assuming the cost (including principal and interest)is to be paid in two equal payments after the acquisition date.What is the interest concept that best describes this application?
A)Present value of a single amount.
B)Present value of an annuity.
C)Future value of a single amount.
D)Future value of an annuity.
Q3) If a bond is sold at 98,its stated rate of interest would be which of the following?
A)Lower than the market rate.
B)Higher than the market rate.
C)Equal to the market rate.
D)Unrelated to the market rate.
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Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) Both inflows (e.g.,issuance of share capital)and outflows (e.g.,repurchase of shares)are reported in the Financing Activities section of the statement of cash flows.
A)True
B)False
Q2) On which of the following dates should the dividends payable account be recorded in the company records for a stock dividend?
A)Date of payment.
B)Date of record.
C)Date of declaration.
D)No liability is associated with a share dividend.
Q3) At the end of 20E,the total assets of Dole Corporation were $90,000 and total liabilities were $50,000.The company has been in business five years and has earned an average profit of $4,000 per year during the five years.Total cash dividends of $8,000 were declared and paid.What was the total amount received for the shares issued by the company?
A)$28,000
B)$30,000
C)$40,000
D)$46,000
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Page 14
Chapter 13: Analyzing Financial Statements
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Sample Questions
Q1) Shore Company reported profit plus income tax (net of tax)of $25,000,total liabilities of $150,000,and total shareholders' equity of $100,000.What was the return on assets?
A)10%
B)16.67%
C)25%
D)Cannot be determined from the data given.
Q2) Nunn Company reported the following data: What was the current ratio?
A)0.5 to 1
B)0.75 to 1
C)1.5 to 1
D)2.5 to 1
Q3) The records of Twain Company include the following: What is the financial leverage factor (rounded to the nearest percent)?
A)4%
B)5%
C)7%
D)9%
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Page 15