Principles of Accounting Exam Bank
Course
Introduction
Principles of Accounting introduces students to the fundamental concepts and methods used in financial and managerial accounting. The course covers the accounting cycle, including the recording, summarizing, and reporting of business transactions according to generally accepted accounting principles (GAAP). Topics include the preparation and analysis of financial statements, the use of accounting information for decision-making, and the ethical responsibilities of accountants. Through lectures, case studies, and practical exercises, students gain a foundational understanding of how accounting supports business operations and contributes to organizational success.
Recommended Textbook
Accounting 9th Global Edition by Charles T. Horngren
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following financial statements reports expenses in decreasing order of their amounts, with the largest expense first?
A)Statement of cash flows
B)Income statement
C)Statement of owner's equity
D)Balance sheet
Answer: B
Q2) ABC Delivery Service had the following transactions in June: Earned $4,000 cash for services rendered; collected $2,500 from a customer "on account;" paid out $200 cash for plumbing services; received $3,500 of supplies and promised to pay one month later; paid out $1,000 in cash drawings to the owner. How much was Net income in June?
A)$5,300
B)$2,800
C)$6,300
D)$3,800
Answer: D
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Chapter 2: Recording Business Transactions
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Q1) A business makes a cash payment to a supplier "on account" (for supplies which were purchased earlier.)Which account is credited?
A)Cash
B)Accounts payable
C)Supplies
D)Service revenue
Answer: A
Q2) A business pays cash back to the owner. Which account is debited?
A)Cash
B)Drawing
C)Accounts payable
D)Service revenue
Answer: B
Q3) The last step before preparing financial statements is to:
A)post all entries.
B)record all transactions in the journal.
C)prepare the trial balance.
D)review source documents.
Answer: C
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) Accrual accounting records transactions ONLY when cash is received or paid.
A)True
B)False
Answer: False
Q2) Classic Artists' Services has hired a maintenance man to maintain a building they use for instruction. He will begin work on February 1 and work through till May 31. They will pay the maintenance man $2,000 at the end of May. Classic Artists' Services accrue Maintenance expense at the end of every month. What is the balance in the Accounts payable account for amounts owed to the maintenance man at the end of March?
A)Debit balance of $2,000
B)Credit balance of $1,000
C)Debit balance of $1,000
D)Credit balance of $2,000
Answer: B
Q3) Prepaid rent is an expense account.
A)True
B)False
Answer: False
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5
Chapter 4: Completing the Accounting Cycle
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Q1) In which of the columns of the worksheet would a net loss be found?
A)In the balance sheet credit column and the income statement debit column
B)In the balance sheet debit column and the income statement credit column
C)In the trial balance credit column, the adjusted trial balance credit column and the balance sheet credit column
D)In the trial balance debit column, the adjusted trial balance debit column and the balance sheet debit column
Q2) A debt due to be paid within one year (or operating cycle, if longer)is a current liability.
A)True
B)False
Q3) Accounts receivable is a permanent account.
A)True
B)False
Q4) Which of the following accounts would appear in the income statement debit column?
A)Unearned service revenue
B)Service revenue
C)Depreciation expense
D)Prepaid insurance
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Chapter 5: Merchandising Operations
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Q1) A sales allowance is recorded with a debit to Inventory.
A)True
B)False
Q2) A company uses the perpetual inventory system. The inventory account balance is $50,000. An actual count of inventory reveals that actual inventory is $43,000. Which of the following would be included in the required adjusting entry?
A)A $43,000 credit to Inventory would be required.
B)A $50,000 debit to Cost of goods sold would be required.
C)A $7,000 credit to Cost of goods sold would be required.
D)A $7,000 credit to Inventory would be required.
Q3) FOB shipping point means that the:
A)seller normally pays the transportation costs.
B)buyer normally pays the transportation costs.
C)buyer and the seller split the shipping costs.
D)shipping costs are billed to the seller.
Q4) Which of the following is TRUE about freight in?
A)Freight in is added to the cost of merchandise inventory.
B)Freight in is a selling expense.
C)Freight in is an operating expense.
D)Freight in is deducted from Accounts payable.
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Chapter 6: Merchandising Inventory
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Sample Questions
Q1) Which of the following states that a business must report enough information for outsiders to make knowledgeable decisions about the company?
A)Accounting conservatism
B)Materiality concept
C)Disclosure principle
D)Consistency principle
Q2) Better Buy has six CD players in inventory on December 31. The players were purchased in November for $170. Price lists from Better Buy's supplier indicate that the same CD player would now cost the company $175. The current sales price for each of the CD players is $320. What would be the amount reported as Inventory on the balance sheet?
A)$1,050
B)$1,035
C)$1,020
D)$1,920
Q3) The consistency principle states that a business should use the same accounting methods from period to period.
A)True
B)False
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) When designing a system of internal control, every procedure should be implemented strictly and properly, regardless of the cost.
A)True
B)False
Q2) In the following situation, which internal control procedure needs strengthening? At Hofstra Services, the operations accountant is responsible for safeguarding and maintaining the pipe inventory and also to record inventory transactions into the journal. A separate accounting clerk keeps records of the cash receipts and payments. The treasurer signs checks and approves contracts.
A)Assignment of responsibilities
B)Competent, reliable, and ethical personnel
C)Separation of duties
D)Documents
Q3) When a check is issued, the party being paid the cash is referred to as the: A)payee.
B)maker.
C)bank signatory.
D)depositor.
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9
Chapter 8: Receivables
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Q1) Which of the following is TRUE of the proper balance sheet treatment of the Allowance for uncollectible accounts?
A)The Allowance for uncollectible accounts is reported as a current liability.
B)The Allowance for uncollectible accounts is reported as a current expense.
C)The Allowance for uncollectible accounts is reported as a separate line item under current assets.
D)Accounts receivable is shown under current assets, net of the allowance for uncollectible accounts.
Q2) Which of the following is the party borrowing funds on a note?
A)The maker of the note
B)The drawer of the note
C)The principal of the note
D)The payee of the note
Q3) The direct write-off method is used primarily by large, publicly owned companies.
A)True
B)False
Q4) An acid-test ratio of at least 1.0 is considered safe.
A)True
B)False
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Chapter 9: Plant Assets and Intangibles
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Q1) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014. What is the book value of the machine at the end of 2014 if the company uses units-of-production depreciation?
A)$20,000
B)$10,000
C)$17,778
D)$28,000
Q2) Which would NOT be accounted for by the depletion method?
A)Oil reserves
B)Timber reserves
C)Land
D)Coal reserves
Q3) When a plant asset is sold, if the book value is lower than the sales price, there will be a loss on sale.
A)True
B)False
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Chapter 10: Current Liabilities and Payroll
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Q1) On June 20, 2013, Parker Services received $2,400 in advance from a customer for one month's service. The journal entry to record the receipt of cash would be which of the following?
A)Debit Unearned service revenue $2,400 and credit Cash $2,400.
B)Debit Cash $2,400 and credit Service revenue $2,400.
C)Debit Unearned service revenue $2,400 and credit Service revenue $2,400.
D)Debit Cash $2,400 and credit Unearned service revenue $2,400.
Q2) A contingent liability that will probably become an actual liability, and can be reasonably estimated, must be recorded as an expense. A)True B)False
Q3) Gross pay is the total amount of salary, wages, commissions, and bonuses earned by an employee during a pay period. A)True B)False
Q4) Unearned revenue is an obligation to provide goods or services to the customer. A)True
B)False
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Page 12
Chapter 11: Long-Term Liabilities, Bonds Payable, and
Classification of Liabilities on the Balance Sheet
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Q1) Which of the following describes a term bond?
A)A bond that repays principal in installments
B)A bond that gives the bondholder a claim for specific assets if the issuer fails to pay
C)A bond that matures at one specified time
D)A bond that is not backed by specific assets
Q2) On January 2, 2014, Mahoney Sales issued $10,000 in bonds for $10,900. They were 5-year bonds with a stated rate of 4%, and pay semiannual interest payments. Mahoney Sales uses the straight-line method to amortize the bond premium. On June 30, 2014, when Mahoney makes the first payment to bondholders, how much will they report as interest expense?
A)$110
B)$450
C)$90
D)$290
Q3) FICA tax payable would normally be shown on the balance sheet in long-term liabilities.
A)True
B)False
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Chapter 12: Corporations: Paid-In Capital and the Balance Sheet
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Q1) Which of the following describes preferred stock?
A)Stock that sells for a very high price
B)Stock that is sold to employees of the company as a performance incentive
C)Stock that is purchased by the corporation for investment purposes
D)Stock which gives shareholders certain preferences and advantages over common stock
Q2) On November 1, 2014, Oster Company declared a dividend of $3.00 per share. Oster Company has 20,000 shares of common stock outstanding and no preferred stock. The date of record is November 15, and the payment date is November 30, 2014. Which of the following is the journal entry needed on November 30?
A)Debit Retained earnings $60,000 and credit Dividends payable $60,000.
B)Debit Dividends payable $60,000 and credit Cash $60,000.
C)Debit Cash $60,000 and credit Dividends payable $60,000.
D)Debit Retained earnings $60,000 and credit Cash $60,000.
Q3) If preferred stock is cumulative, then the company does NOT need to pay dividends that were passed in previous years.
A)True
B)False
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Chapter 13: Corporations: Effects on Retained Earnings and the
Income Statement
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Q1) On January 1, 2013, Parquet Sales issued 40,000 shares of common stock at a price of $22 per share. The stock has a par value of $1.00 per share. In mid-2014, due to dramatic increases in profits, the stock reached a market value of $90 per share. The board of directors approved a 2-for-1 stock split. After the stock split, what will the balance sheet show as the number of shares issued?
A)40,000
B)80,000
C)60,000
D)44,000
Q2) Happy Holiday, Inc. has 100,000 shares of common stock issued and outstanding, with a par value of $0.01 per share. They distributed a 15% common stock dividend; market value is $12 per share. Which of the following is the correct journal entry to record the transaction?
A)Debit Retained earnings $180,000 and credit Paid-in capital $180,000.
B)Debit Retained earnings $180,000, credit Common stock $150 and credit Paid-in capital $179,850.
C)Debit Retained earnings $180,000 and credit Cash $180,000.
D)Debit Common stock $150, debit Paid-in capital $179,850 and credit Retained earnings $180,000.
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Chapter 14: The Statement of Cash Flows
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Q1) Which of the following is the CORRECT order of the sections on a statement of cash flows?
A)Operating, financing, investing
B)Financing, investing, operating
C)Investing, operating, financing
D)Operating, investing, financing
Q2) Which of the following statements about the statement of cash flows is TRUE?
A)The indirect method and the direct method will both show the same end results.
B)The direct method begins with net income and adjusts to calculate operating cash flows.
C)The indirect method shows three types of cash flows, but the direct method does not.
D)The operating activities section of both the direct and the indirect method are the same.
Q3) Selling property, plant and equipment would be considered a cash inflow from investing.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) The dividend yield will tell a shareholder how much of his investment will be returned in dividends.
A)True
B)False
Q2) Which of the following is NOT true of benchmarking?
A)It is used to compare companies of different sizes.
B)It uses vertical analysis as its primary methodology.
C)It is used to compare a company against its competitors.
D)It is used to compare a company's results against industry averages.
Q3) Benchmarking means comparing a company's financial results to:
A)industry standards or competitors.
B)its own results in prior years.
C)its budget for the coming year.
D)the expectations of the capital markets.
Q4) The price/earnings ratio is used for which kind of evaluation?
A)The ability of a company to pay its current liabilities
B)The ability of a company to pay its long-term liabilities
C)The overall profitability of a company
D)Evaluating stock in a company from an investor's perspective
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Chapter 16: Introduction to Management Accounting
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Q1) Repair and maintenance costs of vehicles used to deliver products to the customers are product costs.
A)True
B)False
Q2) At the beginning of 2011, the Taylor Company's work in process inventory account had a balance of $30,000. During 2011, $68,000 of direct materials were used in production, and $66,000 of direct labor costs were incurred. Manufacturing overhead in 2011 amounted to $90,000. The cost of goods manufactured was $220,000 in 2011. What is the balance in work in process inventory on December 31, 2011?
A)$24,000
B)$66,000
C)$6,000
D)$34,000
Q3) Repair and maintenance costs for factory equipment are included in manufacturing overhead.
A)True
B)False
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18
Chapter 17: Job Order and Process Costing
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Q1) Which of the following best describes the term equivalent units?
A)Partially completed units counted in terms of the equivalent number of completed units
B)Partially completed units that will be sold as is
C)Different types of units that can be used for the equivalent purpose or length of time as other units
D)Different products that have the same selling price
Q2) Darrius Travel Services provided the following information:
Cost allocation rate for direct labor: $40 per hour
Cost allocation rate for indirect costs: $22 per hour
If Darrius receives $700 for a job requiring 12 hours of direct labor, they will make a profit of $44.
A)True
B)False
Q3) Which of the following would NOT be considered a manufacturing overhead cost?
A)Depreciation of plant equipment
B)Direct labor cost
C)Plant utilities costs
D)Indirect labor
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Page 19
Chapter 18: Activity-Based Costing and Other Cost Management Tools
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Q1) Target cost is the price that customers are willing to pay and target price is the desired cost to produce the product.
A)True
B)False
Q2) Business managers can use activity-based costing data to assist them in pricing and product mix decisions, and in cost management.
A)True
B)False
Q3) Lisbon Manufacturing is considering the manufacture of a new product. Lisbon was hoping to sell the product for $588 per unit and estimated the total cost per unit to be $420. Lisbon conducted market research and found out that the market is only willing to pay $539 for the new product. Using the target costing approach, what does the total per unit cost of the new product have to be if Lisbon wants to achieve a 40% markup on total cost?
A)$215.60
B)$385.00
C)$257.60
D)$420.00
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) JB Company has fixed costs of $300,000. Total costs, both fixed and variable, are $378,000 when 40,000 units are produced. If the volume increases to 50,000 units, what will the total costs be?
A)$375,000
B)$472,500
C)$397,500
D)$330,000
Q2) Both the income statement approach and the contribution margin approach will yield the same answer for calculating breakeven points.
A)True
B)False
Q3) Axelrod Company has fixed costs of $250,000. Highest production volume this year was in January when there were 100,000 units produced and total costs of $550,000. In June, the company produced only 60,000 units. How much was the total cost in June?
A)$378,000
B)$430,000
C)$330,000
D)$414,500
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Chapter 20: Short-Term Business Decisions
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Q1) In making product mix decisions under constraining factors, a company should maximize sales of the product with the highest contribution margin per unit.
A)True
B)False
Q2) If a company is a price-taker, which of the following is probably TRUE?
A)The company is in a highly competitive market.
B)The company's product is unique.
C)The company has considerable flexibility in setting prices of its products.
D)The company clearly differentiates its product from the competitors.
Q3) If a company wishes to be a price-setter, which of the following strategies should they take?
A)Produce a generic mass-market product
B)Enter a competitive market and boost profits by cost cutting
C)Produce a unique product
D)Produce a commodity and outsource the manufacturing operations
Q4) Special sales orders increase operating income if the revenue from the order exceeds the incremental variable and fixed costs incurred to fill the order.
A)True
B)False
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Chapter 21: Capital Investment Decisions and the Time Value of Money
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Q1) The payback method can only be used when the net cash inflows from a capital investment are the same for each period.
A)True
B)False
Q2) The payback method and the rate of return method are often used to perform an initial screening of investments, rather than a detailed in-depth analysis.
A)True
B)False
Q3) Which of the following is the ONLY capital budgeting method which uses accrual accounting information?
A)Payback period
B)Rate of return (ROR)
C)Net present value (NPV)
D)Internal rate of return (IRR)
Q4) When projecting the cash flows of an investment, the inflows are netted against the outflows.
A)True
B)False
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Chapter 22: The Master Budget and Responsibility Accounting
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Q1) Fast Foods has budgeted sales for June and July at $520,000 and $480,000, respectively. Sales are 80% credit, of which 50% is collected in the month of sale and 50% is collected in the following month. What is the accounts receivable balance on July 31?
A)$192,000
B)$240,000
C)$384,000
D)$400,000
Q2) When a company is preparing a budgeted statement of cash flows and they wish to calculate the collections from customers, they should refer to which of the following?
A)Budgeted cash payments for purchases
B)Sales budget
C)Budgeted cash collections
D)Budgeted balance sheet
Q3) Which of the following describes the cash budget?
A)It aids in planning to ensure the company has adequate inventory on hand.
B)It captures the variable and fixed expenses of the business.
C)It depicts the breakdown of sales based on terms of collection.
D)It helps in planning to ensure the business has adequate cash.
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) What does a favorable direct materials price variance indicate?
A)The actual quantity of materials used was less than the standard quantity.
B)The actual cost of materials purchased was less than the standard cost of materials purchased.
C)The actual cost of materials purchased was greater than the standard cost of materials purchased.
D)The actual quantity of materials used was greater than the standard quantity.
Q2) Which of the following is NOT a reason that companies use standard costs?
A)To establish performance standards
B)To prepare the budget
C)To achieve higher levels of sales
D)To set the sales prices of their products and services
Q3) Which of the following is one of the reasons why companies use standard costs?
A)To increase sales
B)To insure the accuracy of the financial records
C)To bolster good internal controls and prevent shrinkage
D)To make budgeting easier and more efficient
Q4) A static budget presents financial data at several different volume levels
A)True
B)False
Page 25
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Chapter 24: Performance Evaluation and the Balanced Scorecard
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Q1) If upper management is NOT satisfied with a division's current profit margin, they should reduce product costs and operating expenses.
A)True
B)False
Q2) Corporate divisions, like the media division of Amazon.com, are normally considered:
A)cost centers.
B)revenue centers.
C)profit centers.
D)investment centers.
Q3) Which of the following statements MOST accurately describes the profit margin?
A)How efficiently a division uses its average assets to generate sales
B)How much operating income the division earns on every dollar of sales
C)How much return a division generates on average assets
D)How much extra income does a division generate above the minimum acceptable level
Q4) Profit margin is defined as operating income divided by sales. A)True B)False
26
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