Principles of Accounting Exam Review
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in the preparation, interpretation, and analysis of financial information. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the use of accounting information for decision-making. Emphasis is placed on understanding the ethical, regulatory, and practical aspects of accounting, providing students with a solid foundation for further study in business and finance-related fields.
Recommended Textbook
Financial Accounting 9th Edition by Walter T. Harrison
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13 Chapters
2240 Verified Questions
2240 Flashcards
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Chapter 1: The Financial Statements
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Sample Questions
Q1) Another way to state the accounting equation is:
A) Assets = Liabilities + Paid-in Capital - Common Stock
B) Assets = Liabilities + Retained Earnings
C) Assets = Liabilities + Paid-in Capital + Retained Earnings
D) Assets = Liabilities - Paid-in Capital - Dividends
Answer: C
Q2) Expenses are increases in retained earnings that result from operations.
A)True
B)False
Answer: False
Q3) Long-term debt is a liability that is payable beyond one year from the date of the financial statements.
A)True
B)False
Answer: True
Q4) Nonprofit organizations do not use accounting information since they are not concerned about making a profit.
A)True
B)False Answer: False
Page 3
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) Which account includes bank account balances?
A) Accounts Receivable
B) Notes Receivable
C) Cash
D) Prepaid Expenses
Answer: C
Q2) Anya Smith started Geek Speak, a computer consulting business, in February, 2012. The company completed the following transactions during March, 2012:
1. Geek Speak paid Anya a dividend of $1,000.
2. Received partial payment from customers on account, $1,500.
3. Purchased a new computer for $1,800 and paid cash.
4. Borrowed $10,000 from the bank and signed a note payable.
5. Paid the employees their monthly salary of $2,800.
6. Recorded $4,000 of revenue on account and mailed invoices to the customers.
7. Purchased office supplies of $600 on account.
8. Paid for the office supplies purchased on account, $600.
REQUIRED:
Journalize the transactions. Explanations are not required.
Answer: 11ea87bb_59de_349b_822b_3f3712622cac_TB4003_00
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Page 4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) A company has current assets of $80,000, long-term assets of $150,000, current liabilities of $60,000, and long-term liabilities of $40,000. The current ratio is:
A) .80.
B) 1.33.
C) 2.00.
D) 2.33.
Answer: B
Q2) Accounting can be based on either the cash basis or the accrual basis.
A)True
B)False
Answer: True
Q3) Which account is credited in the adjusting entry to allocate the cost of equipment?
A) Equipment Expense
B) Depreciation Expense
C) Accumulated Equipment
D) Accumulated Depreciation
Answer: D
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) According to a recent survey taken by the Association for Certified Fraud Examiners (ACFE), occupational fraud and abuse results in losses equal to approximately ________ of total business revenue.
A) 45%
B) 10%
C) 6%
D) an unknown amount
Q2) All of the following will appear on the bank statement EXCEPT for:
A) Electronic funds transfers (EFT).
B) beginning and ending cash balance.
C) cash receipts and cash payments.
D) deposits in transit.
Q3) When reporting cash on the balance sheet, companies:
A) show each bank account separately.
B) combine cash with accounts receivable.
C) include any restricted amounts.
D) combine cash and cash equivalents.
Q4) The treasurer is solely responsible for the petty cash fund.
A)True
B)False
Page 6
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) The Shark Bank lent Sandy's Pastry Store $34,000 on a sixty day, 7% note dated April 10<sup>th</sup>. Use a 365 day year when calculating interest and round all amounts to the nearest dollar.
Required:
1. Determine the due date of the note.
2. Determine the maturity value of the note.
3. Journalize the entries to record the receipt of the note by the payee and the receipt by the payee of the amount due on the note at maturity.
Q2) If Extol's Inc. sells items to a customer who uses a credit card for $800, and there is a credit card fee of 2%, what is the amount of the debit to Cash?
A) $816
B) $800
C) $784
D) $768
Q3) During its first year of operations, Credit Company had the following transactions. The company uses the percent-of-sales method to estimate uncollectible accounts.
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Ending inventory for the year ended December 31, 2011, is understated by $8,000. How will this affect net income for 2011?
A) Net income will be understated by $8,000.
B) Net income will be overstated by $8,000.
C) Net income will be understated by $16,000.
D) Net income will be overstated by $16,000.
Q2) Which is the correct order for items to appear on the income statement?
A) Sales revenue, operating expenses, gross profit, net income
B) Sales revenue, gross profit, net income, operating expenses
C) Sales revenue, gross profit, cost of goods sold, operating expenses
D) Sales revenue, cost of goods sold, gross profit, net income
Q3) When prices are rising, a company using the FIFO costing method will generally pay less taxes than if the company had been using the LIFO method.
A)True
B)False
Q4) In a perpetual inventory system, a business maintains a continuous record for each inventory item.
A)True B)False
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Chapter 7: Plant Assets, Natural Resources, Intangibles
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Sample Questions
Q1) Buggy Company purchased equipment on June 3, 2012, for $100,000. The residual value is zero and the estimated life is 10 years or 42,550 hours. Compute depreciation expense for the year ending December 31, 2012, if the company uses the units-of-production method of depreciation and uses the equipment for 8,600 hours.
A) $3,210
B) $5,628
C) $11,628
D) $20,210
Q2) AMC Manufacturing Company acquired a patent for $20,000. The patent was being amortized over 10 years. After being amortized for only 1 year, it was determined that the patent would only be useful for 3 more years. Prepare the journal entry to record the amortization expense for year 2.
Q3) Equipment is acquired by issuing a note payable for $57,000 and a down payment of $30,000. The statement of cash flows will report a:
A) $30,000 inflow in the operating activities section.
B) $57,000 inflow in the investing activities section.
C) $57,000 cash inflow in the financing activities section.
D) $30,000 cash outflow in the investing activities section.
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Chapter 8: Long-Term Investments the Time Value of Money
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Sample Questions
Q1) On January 1, 2012, Winston Company purchased 6% bonds for $50,000 cash. Interest is payable semiannually on July 1 and January 1. The entry to record the December 31 interest accrual would include a:
A) debit to Interest Receivable for $1,500.
B) credit to Interest Revenue for $1,500.
C) credit to Interest Revenue for $3,000.
D) debit to Interest Receivable for $3,000.
Q2) As a result of a stock dividend:
A) the investor's total cost in the investment increases.
B) the investor's cost per share decreases.
C) a journal entry is needed to record the receipt of the stock dividend
D) dividend revenue increases.
Q3) Under the equity method, if the investee company has a net loss, then the investor company will:
A) debit the Investment account for their share of the net loss.
B) credit the Loss on Sale of Investment account for their share of the net loss.
C) credit the Investment account for their share of the net loss.
D) debit or credit the Investment account based on market value.
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Chapter 9: Liabilities
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Sample Questions
Q1) On January 1, Hudson Corporation issues $500,000, 8%, 5-year bonds at 106. Assuming the straight-line amortization method is used and interest is paid annually, how much bond interest expense is recorded on the next interest date?
A) $6,000
B) $34,000
C) $46,000
D) $40,000
Q2) Contingent liabilities are reported on the balance sheet.
A)True
B)False
Q3) The carrying amount of bonds issued at a discount is calculated by:
A) subtracting Discount on Bonds Payable from Bonds Payable.
B) subtracting the sum of Discount on Bonds Payable and Interest Payable from Bonds Payable.
C) subtracting Interest Payable from Bonds Payable.
D) subtracting Interest Expense from Bonds Payable.
Q4) The lower the sales tax rate, the more income a retailer can earn.
A)True
B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) A stockholder has the right to vote in the election of the board of directors.
A)True
B)False
Q2) A stock dividend is considered small when it is a dividend of:
A) less than 30% bur greater than 25% of the corporation's issued stock.
B) between 50% and 100% of the corporation's issued stock.
C) more than 30% of the corporation's issued stock.
D) 25% or less of the corporation's issued stock.
Q3) In general, the order of reporting stockholders' equity on the balance sheet is:
A) Common Stock, Preferred Stock, Paid-in Capital, Retained Earnings, Treasury Stock.
B) Preferred Stock, Common Stock, Treasury Stock, Paid-in Capital, Retained Earnings.
C) Preferred Stock, Common Stock, Paid-in Capital, Retained Earnings, Treasury Stock.
D) Retained Earnings, Preferred Stock, Common Stock, Paid-in Capital, Treasury Stock.
Q4) Treasury stock increases the number of shares outstanding.
A)True
B)False
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Page 12
Chapter
Comprehensive Income, the Statement of Stockholders Equity
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Sample Questions
Q1) An unqualified opinion by independent auditors indicates the fairness of the company's financial statements and the effectiveness of its internal controls.
A)True
B)False
Q2) On June 15, Central Computers, Inc. sold twenty-five computers, on account, to a company located in Argentina for 3,000,000 pesos. On that date the peso is worth $0.079. On July 15, when the peso was worth $0.070, payment was received. The journal entry to record the July 15 collection on account would include a:
A) credit to Cash $237,000
B) credit to Accounts Receivable $210,000.
C) debit to Foreign-Currency Transaction Loss $27,000.
D) credit to Sales $210,000.
Q3) The amount of tax to pay the government in the next period is known as:
A) deferred tax asset.
B) deferred tax liability.
C) income tax expense.
D) income tax payable.
Page 13
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) The indirect method of preparing the statement of cash flows provides the clearest picture of the sources and uses of cash from investing activities.
A)True
B)False
Q2) Which of the following is considered to be a cash equivalent?
A) Investments in short-term U.S. Government securities
B) Accounts receivable
C) Notes receivable
D) Trading securities
Q3) Under the direct method, cash receipts from dividend revenue affect the statement of cash flows, but not the income statement.
A)True
B)False
Q4) Cash received from customers would be reported on the statement of cash flows under:
A) financing activities.
B) investing activities.
C) operating activities.
D) noncash activities.
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Cost of capital varies with a company's market value of its common stock.
A)True
B)False
Q2) In performing a vertical analysis, the base for cost of goods sold is:
A) net sales.
B) total revenues.
C) total expenses.
D) gross profit.
Q3) The ratio that measures the number of times that operating income can cover interest expense is the:
A) leverage.
B) rate of return on total assets.
C) debt ratio.
D) times-interest-earned ratio.
Q4) Vertical analysis is a less sophisticated analysis tool than horizontal analysis.
A)True
B)False
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