Principles of Accounting Exam Preparation Guide
Course Introduction
Principles of Accounting is an introductory course that explores the fundamental concepts and processes of financial and managerial accounting. Students learn to analyze, record, and summarize business transactions, preparing basic financial statements such as the balance sheet, income statement, and statement of cash flows. The course covers essential topics including the accounting cycle, double-entry bookkeeping, internal controls, and the regulatory framework governing accounting practices. Emphasis is placed on practical applications and the interpretation of financial information to support decision-making in business environments.
Recommended Textbook
Horngrens Accounting 10th Edition by Miller Nobles Mattison
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Lorna Smith decided to start her own CPA practice as a professional corporation, Smith CPA PC. Her corporation purchased an office building for $35,000 that her real estate agent said was worth $50,000 in the current market. The corporation records the building as a $50,000 asset because Lorna believes that is the real value of the building. Which of the following concepts or principles of accounting is being violated?
A)cost principle
B)economic entity assumption
C)monetary unit assumption
D)going concern assumption
Answer: A
Q2) Lush Lawns performs lawn mowing services for its customers. The payments for the current month's services are expected to be received next month. How does this transaction affect the accounting equation of Lush Lawn?
A)Liabilities increase; equity decreases.
B)Assets increase; equity increases.
C)Assets decrease; equity decreases.
D)Liabilities increase; equity increases.
Answer: B
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) 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
Q2) The Owner's Withdrawals account is increased by a debit.
A)True
B)False
Answer: True
Q3) For Office Supplies, the category of account and its normal balance is:
A)liabilities and a debit balance.
B)assets and a debit balance.
C)liabilities and a credit balance.
D)assets and a credit balance.
Answer: B
Q4) When a business collects cash, the Cash account is debited.
A)True
B)False
Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) On December 31, 2014, the balance in Pinnacle Exploration Company's Unearned Revenue account was a credit of $8,000. In January, 2015, the company received an advance payment of $14,000 from a new customer for services to be performed. By January 31, adjustments had been made to recognize $7,000 of the revenue which had been earned during January. What was the balance in Unearned Revenue on January 31, 2015?
A)$7,000 credit
B)$14,000 debit
C)$8,000 credit
D)$15,000 credit
Answer: D
Q2) If an adjusting entry includes a debit to Rent Expense, that would indicate that the payment of rent had been previously recorded as a(n):
A)prepaid expense.
B)depreciation.
C)accrued expense.
D)accrued revenue.
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Q1) GAAP requires publicly traded companies to prepare a post-closing trial balance and publish it in their annual report.
A)True
B)False
Q2) Assets are listed in the order of their ________ on the balance sheet.
A)amounts
B)dates of purchase
C)liquidities
D)durabilities
Q3) The Salaries Payable account is a permanent account.
A)True
B)False
Q4) The closing process helps in measuring each period's net income separately from all other periods.
A)True
B)False
Q5) The Owner's Name, Capital account is a permanent account. A)True B)False
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Procession Groceries, a famous grocery merchandiser, purchased goods and paid transportation to bring them to the company warehouse. The transportation cost is known as:
A)freight out.
B)selling expense
C)freight in.
D)cost of goods sold.
Q2) 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 adjusting entry? (Assume a perpetual inventory system)
A)a $43,000 credit to Merchandise Inventory
B)a $50,000 debit to Cost of Goods Sold
C)a $7,000 credit to Cost of Goods Sold
D)a $7,000 credit to Merchandise Inventory
Q3) A merchandiser's statement of owner's equity looks exactly like that of a service business.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Questions
Q1) Under the retail method, the amount of ending merchandise inventory is estimated by using the ratio of the:
A)goods available for sale at retail to the goods available for sale at higher of cost or market.
B)goods available for sale at cost to the beginning merchandise inventory.
C)beginning merchandise inventory to the goods available for sale at retail.
D)goods available for sale at cost to the goods available for sale at retail.
Q2) If the merchandise inventory's market value is greater than its cost, then it must be adjusted for the difference in amount.
A)True
B)False
Q3) When a company uses the first-in, first-out (FIFO)method the cost of goods sold correlates to the most recently purchased goods and the value of ending inventory correlates to the oldest goods in stock.
A)True
B)False
Q4) For inventories, market value generally means the current replacement cost.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) A source document provides the evidence and data for accounting transactions.
A)True
B)False
Q2) Which of the following is true of an accounts receivable subsidiary ledger?
A)It does not include a receivable account for each customer, but includes a cumulative account for all customers.
B)It contains information about the amount each customer purchased on credit, but excludes the customer name.
C)The total of the accounts in the accounts receivable subsidiary ledger must equal the accounts receivable balance in the general ledger.
D)Companies keep an accounts payable subsidiary ledger that is entirely different than the accounts receivable subsidiary ledger.
Q3) The purchases journal is a special journal used to record:
A)cash receipts, interest rate payments, and purchases.
B)credit sales of assets that occur infrequently such as buildings, property, and equipment.
C)credit sales.
D)merchandise inventory, office supplies, and other assets purchased on account.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) A petty cash fund was established with a $299 balance. It currently has cash of $76 and petty cash tickets totaling $222 for travel expense. Provide the journal entry to record the replenishment of the fund.
Q2) The bank statement reveals an EFT payment made to one of the company's suppliers that has not yet been recorded in the ledger. How would this information be included on the bank reconciliation?
A)an addition on the bank side
B)a deduction on the bank side
C)a deduction on the book side
D)an addition on the book side
Q3) In a large company, the person who is responsible for comparing cash and the bank balance is the:
A)CEO.
B)CFO.
C)controller.
D)treasurer.
Q4) Burglar alarms, fire alarms, and security cameras improve internal control.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) On October 1, 2015, Android Inc. made a loan to one of its customers. The customer signed a 4-month note for $100,000 at 15%. How much interest revenue did the company record in the year 2016 for this note?
A)$2,150
B)$3,750
C)$1,250
D)$5,000
Q2) On November 1, 2015, Ealys Jewellers accepted a 3-month, 15% note for $6,000 in settlement of an overdue account receivable. Give the journal entry to record the accrued interest at the year end.
Q3) What is the maturity value of a 3-month, 10% note for $40,000?
A)$42,000
B)$44,000
C)$41,000
D)$40,000
Q4) Businesses must maintain a single account receivable account for all customers.
A)True
B)False
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Chapter 10: Plant Assets, Natural Resources, and Intangibles
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Q1) The lump-sum amount paid for a group of assets is divided among the assets acquired based on their relative market values. This method is known as the relative-market-value method.
A)True
B)False
Q2) The process by which businesses spread the allocation of an intangible asset's cost over its useful life is referred to as amortization.
A)True
B)False
Q3) Businesses should not deplete natural resources because these do not decrease in value with time.
A)True
B)False
Q4) Land and land improvements are one and the same and therefore must be recorded in single account.
A)True
B)False
Q5) Give journal entry to record the acquisition of a plant asset for cash.
Page 12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Synergy Appliances sells dishwashers with a 4-year warranty. In 2013, sales revenue for dishwashers is $85,000. The company estimates warranty expense at 4.5% of revenues. What is the 2013 warranty expense?
A)$3,825
B)$956.25
C)$0
D)$3,000
Q2) Northwest Company's records indicate that January sales on account were $109,000. The company's management estimates warranty expense to be 3.6% of sales. Provide the journal entry to record warranty expense.
Q3) Which of the following is paid by the employer only?
A)OASDI tax
B)Medicare tax
C)Employee income tax
D)Federal unemployment tax
Q4) Amounts owed for products or services purchased on account are accounts receivable.
A)True
B)False
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Chapter 12: Partnerships
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Sample Questions
Q1) A partnership business is a:
A)firm listed in a stock exchange, in which no owner owns a majority of equity to control the firm.
B)business with two or more owners that is not organized as a corporation.
C)corporation in which the owners have limited liability for the corporation's liabilities.
D)private firm in which all owners have equal ownership and limited liabilities in the event of a bankruptcy.
Q2) Which of the following is a disadvantage of partnership firms?
A)These cannot be dissolved without the permission of SEC.
B)These are taxed at multiple levels: corporate level and individual level.
C)These have more difficulty in raising capital as compared to a sole proprietorship.
D)These have a mutual agency which creates personal obligations for each partner.
Q3) When a new partner is admitted at a higher-than-book-value contribution, the existing partners will receive a bonus amount.
A)True
B)False
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) Saturn Corporation has 10,000 shares of 10%, $75 par noncumulative preferred stock outstanding and 20,000 shares of no-par common stock outstanding. At the end of the current year, the corporation declares a dividend of $180,000. How is the dividend allocated between preferred and common stockholders?
A)The dividend is allocated $5,000 to preferred shareholders and $115,000 to common shareholders.
B)The dividend is allocated $75,000 to preferred shareholders and $105,000 to common shareholders.
C)The dividend is allocated $60,000 to preferred shareholders and $120,000 to common shareholders.
D)The dividend is allocated $72,000 to preferred shareholders and $108,000 to common shareholders.
Q2) Which of the following will decrease the amount of Total Stockholders' Equity?
A)cash dividend declared
B)stock split
C)stock dividend declared
D)repayment of bond principal
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On March 1, 2015, Vinnie Services issued a 5% long-term notes payable for $20,000. It is payable over a 10-year term in $2,000 principal installments on March 1 of each year, beginning March 1, 2016. Each yearly installment will include both principal repayment of $2,000 and interest payment for the preceding one-year period. The journal entry to pay the first installment will include a debit to the Interest Expense account for $1,000.
A)True
B)False
Q2) The market rate is the rate used to calculate the actual cash payments made to bondholders.
A)True
B)False
Q3) Trek Company signed a 9%, 10-year note for $150,000. The company paid $1,900 as the installment for the first month. What portion of the first monthly payment is interest expense?
A)$4,800
B)$16,000
C)$14,400
D)$1,125
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Page 16
Chapter 15: Investments
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Sample Questions
Q1) Realized gains or losses on available-for-sale investments represent the difference between:
A)the historical cost and the average market value of the investment.
B)the historical cost and the current market value of the investment.
C)the cash received at time of disposal and the fair value of the investment.
D)the cash received at time of disposal and the carrying amount of the investment.
Q2) Debra Technologies invested $50,000 to buy $50,000 face value, 8%, five-year in municipal bonds on January 2, 2010. The bonds will mature on January 2, 2015. The bonds pay interest semiannually on January 2 and July 2 every year till maturity. Based on the information provided, which of the following will be included in the journal entry for the transaction on January 2, 2014?
A)a credit to Interest Revenue for $4,000
B)a debit to Interest Revenue for $4,000
C)a credit to Interest Revenue for $2,000
D)a debit to Interest Revenue for $2,000
Q3) Trading investments are categorized as noncurrent assets.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) Most public companies use the indirect method to prepare their statement of cash flows because the FASB prefers this method.
A)True
B)False
Q2) Which of the following would be considered an operating activity on the statement of cash flows under the direct method?
A)dividends paid to stockholders
B)sale of inventory for cash
C)payment to purchase equipment
D)the receipt of cash from sale of equipment
Q3) Which of the following transactions would be shown in the non-cash investing and financing activities section of the statement of cash flows?
A)sold equipment with book value of $6,500 in exchange for $6,500 cash
B)settled a long-term Note Payable by issuing Common Stock
C)issued 20,000 shares of stock at $4 per share
D)purchased land for $30,000 cash
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Chapter 17: Financial Statement Analysis
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Q1) A company, reporting a discontinued operation or an extraordinary item, must report earnings per share also for each of these line items.
A)True
B)False
Q2) The relationship between total liabilities and total assets is known as the:
A)debt ratio.
B)debt to equity ratio.
C)current ratio.
D)earnings per share.
Q3) If an analyst wants to see how gross profit of a company has changed from one year to the next, vertical analysis would be used.
A)True
B)False
Q4) The cash ratio helps to determine a company's ability to meet its short-term obligations using cash and cash equivalents.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) For a manufacturing business, which of the following would be considered a product cost?
A)Salary of the sales manager
B)Salary of the CEO
C)Salaries of the accounting staff
D)Salary of the production manager
Q2) How is the management of a company accountable to its employees?
A)The management must provide products that are safe and free of defects.
B)The management must provide a safe workplace.
C)The management must ensure that it earns a net positive return on its investments.
D)The management must ensure the business is environmentally responsible to its community.
Q3) For a manufacturing business, which of the following would be considered a period cost?
A)Indirect materials
B)Factory utilities
C)Direct labor
D)Sales salaries
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Chapter 19: Job Order Costing
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Sample Questions
Q1) The journal entry to record $1,500 of direct labor and $200 of indirect labor incurred will include debit(s)to the:
A)Manufacturing Overhead account for $1,700.
B)Work-in-Process Inventory account for $1,500 and Finished Goods Inventory account for $200.
C)Finished Goods Inventory account for $1,700.
D)Work-in-Process Inventory account for $1,500 and Manufacturing Overhead account for $200.
Q2) Gardner Machine Shop estimates manufacturing overhead costs for the coming year at $316,000. The manufacturing overhead costs will be allocated based on direct labor hours. Gardner estimates 5,000 direct labor hours for the coming year. In January, Gardener completed Job A33, which used 60 machine hours and 15 direct labor hours. What was the amount of manufacturing overhead allocated to job A33? (Round your intermediate calculations to one decimal place)
A)$948
B)$4,740
C)$3,792
D)$990
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21
Chapter 20: Process Costing
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Q1) Which of the following best describes the term equivalent units?
A)partially completed units expressed in terms of fully complete units of output
B)partially completed units of output that will be sold as is
C)substitute of units that are partially completed
D)different types of units that have same selling price
Q2) A production cost report shows only the calculations for the physical flow of products.
A)True
B)False
Q3) Under a process costing system, product costs are accumulated with respect to jobs completed.
A)True
B)False
Q4) The weighted average method determines the cost of equivalent units of production by accounting for beginning inventory costs separately from current period costs.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.
A)True
B)False
Q2) Becky's Bakery sells three large muffins for every two small ones. A small muffin sells for $3.00, with a variable cost of $2.00. A large muffin sells for $5.00 with a variable cost of $2.50. What is the weighted-average contribution margin? (Round your intermediate calculations to one decimal place)
A)$1.93 per muffin
B)$1.75 per muffin
C)$1.25 per muffin
D)$1.90 per muffin
Q3) The high-low method requires the identification of lowest and highest levels of total costs, not activity, over a period of time.
A)True
B)False
Q4) Managers can use CVP relationships to conduct sensitivity analysis.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) Which of the following is an example of the planning function of a budget?
A)A budget demands integrated input from different business units and functions.
B)Employees are motivated to achieve the goals set by the budget.
C)Budget figures are used to evaluate the performance of managers.
D)The budget outlines a specific course of action for the coming period.
Q2) If the cost of indirect materials needed for production is insignificant, it should not be included in the budgeting process.
A)True
B)False
Q3) Junk Fries has budgeted sales for June and July at $680,000 and $720,000, respectively. Sales are 80% credit, of which 70% is collected in the month of sale and 30% is collected in the following month. What is the accounts receivable balance on July 31?
A)$200,500
B)$172,800
C)$158,200
D)$225,320
Q4) The output of a cash budget is input for an operating budget.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Atlace Manufacturers uses standard costing system. Standards for manufacturing overhead are as follows:
Variable overhead: $30 per direct labor hour
Fixed overhead: $10 per direct labor hour
Actual overhead incurred (variable and fixed): $45,600
Standards for direct labor are as follows:
Hours per unit 0.5, Direct labor cost per hour $18.00
Actual direct labor for the month: 1,200 hours for a total cost of $24,000
Actual and planned production for the month: 3,000 units
The journal entry to allocate overhead cost (both variable and fixed)to production would be:
Q2) Quality Brand Products uses standard costing to manage their direct costs and their overhead costs. Overhead costs are allocated based on direct labor hours. In the first quarter, Quality Brand had an unfavorable cost variance for their variable overhead costs. Which of the following scenarios would be a reasonable explanation for that variance?
A)The actual number of direct labor hours was lower than the budgeted hours.
B)The actual variable overhead costs were higher than the budgeted costs.
C)The actual variable overhead costs were lower than the budgeted costs.
D)The actual number of direct labor hours was higher than the budgeted hours.
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) In a balanced scorecard, which of the following is a key performance indicator of the internal business perspective?
A)hours of employee training
B)number of warranty claims
C)percentage of market share
D)return on investment
Q2) Performance report of a profit center includes both revenues and expenses.
A)True
B)False
Q3) The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.
A)True
B)False
Q4) The responsibilities of a manager of an investment center are to generate profits and to efficiently manage the center's invested capital.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) A company produces 100 microwave ovens per month, each of which includes one electrical circuit. The company currently manufactures circuit in-house but is considering outsourcing the circuits at a contract price of $28 each. Currently, the cost of producing circuits in-house includes variable costs of $26 per circuit and fixed costs of $5,000 per month. Assume the company could not reduce any fixed costs by outsourcing, and that there is no alternative use for the facilities presently being used to make circuits. How will it affect monthly operating income, if the company outsources?
A)Operating income will go up by $4,800.
B)Operating income will go down by $2,800.
C)Operating income will go down by $200.
D)Operating income will stay the same.
Q2) A depreciable asset's original cost is relevant when considering whether to replace the depreciable asset.
A)True
B)False
Q3) If a company is a price-taker, it has considerable flexibility in setting its products' prices.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) Capital rationing is a process adopted when a company has limited resources, and it must find ways to reduce operating expenses in all of its divisions and units.
A)True
B)False
Q2) Cash flows used in NPV and IRR analysis ignore:
A)future increased sales.
B)future cost savings.
C)depreciation expense.
D)residual value.
Q3) When calculating the net present value of future cash flows, dollars that are received in earlier years are worth more than dollars received in later years.
A)True
B)False
Q4) The payback method and the accounting 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
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