Principles of Accounting Exam Solutions
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in the accounting profession. The course covers the basics of recording, classifying, and summarizing financial transactions, as well as the preparation and interpretation of financial statements. Topics include the accounting cycle, double-entry bookkeeping, accrual and cash accounting, basic financial ratios, and internal controls. Students will also explore ethical considerations in accounting and the role of accounting in business decision-making. Through practical exercises and real-world examples, learners will gain a solid foundation to pursue further studies in accounting or related fields.
Recommended Textbook
Financial Managerial Accounting 14th Edition by Carl Warren
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Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) The stockholders' rights to the assets rank ahead of the creditors' rights to the assets.
A)True
B)False Answer: False
Q2) An account receivable is typically classified as a revenue.
A)True
B)False Answer: False
Q3) Prepare a statement of retained earnings for the current year ended March 31. Answer: 11ea8952_b5d8_f6d9_861b_658e86ca2d01_TB6238_00
Q4) The debt created by a business when it makes a purchase on account is referred to as an
A) account payable
B) account receivable
C) asset
D) expense payable
Answer: A
Q5) Prepare an income statement for the current year ended March 31.
Answer: 11ea8952_b5d8_cfc8_861b_c77e0c787ae1_TB6238_00
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) When a transposition error is made on the trial balance,the difference between the debit and credit totals on the trial balance will be
A) zero
B) twice the amount of the transposition
C) one-half the amount of the transposition
D) divisible by 9
Answer: D
Q2) Journalizing a transaction with both the debit and the credit for $69 instead of $96 will cause the trial balance to be out of balance.
A)True
B)False
Answer: False
Q3) Net income will result when
A) revenues (credits)> expenses (debits)
B) revenues (debits)> expenses (credits)
C) expenses (credits)= revenues (debits)
D) revenues (credits)= expenses (debits)
Answer: A
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The general term used to indicate delaying the recognition of an expense already paid or of a revenue already received is
A) depreciation
B) deferral
C) accrual
D) inventory
Answer: B
Q2) The balance in the accumulated depreciation account is the sum of the depreciation expense recorded in past periods.
A)True
B)False
Answer: True
Q3) If the adjustment for depreciation for the year is inadvertently omitted,the assets on the balance sheet at the end of the period will be understated.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The post-closing trial balance differs from the adjusted trial balance in that it does not
A) take into account closing entries
B) take into account adjusting entries
C) include balance sheet accounts
D) include income statement accounts
Q2) Once the adjusted trial balance is in balance,the flow of accounts will now go into the financial statements.
A)True
B)False
Q3) An end-of-period spreadsheet includes columns for A) adjusting entries
B) closing entries
C) reversing entries
D) adjusting and closing entries
Q4) Closing entries are entered directly on the end-of-period spreadsheet.
A)True
B)False
Q5) Describe a classified balance sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Purchased goods in transit should be included in the ending inventory of the buyer if the goods were shipped FOB shipping point.
A)True
B)False
Q2) Inventory is classified on the balance sheet as a
A) current liability
B) current asset
C) long-term asset
D) long-term liability
Q3) Under a periodic inventory system,the cost of inventory on hand at the end of the accounting period is determined by a physical count of the inventory.
A)True
B)False
Q4) When the perpetual inventory system is used,the inventory sold is shown on the income statement as
A) cost of goods sold
B) purchases
C) purchases returns and allowances
D) net purchases
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Chapter 6: Inventories
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Sample Questions
Q1) The value of ending inventory rounded to nearest dollar using average cost is:
A) $1,353
B) $1,263
C) $1,375
D) $1,150
Q2) The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item,by major classification of inventory,or by the total inventory.
A)True
B)False
Q3) A business using the retail method of inventory costing determines that inventory at retail is $2,300,000.If the ratio of cost to retail price is 55%,what is the amount of inventory to be reported on the financial statements?
Q4) All of the following are documents used for inventory control except
A) a petty cash voucher
B) a vendor's invoice
C) a receiving report
D) a purchase order
Q5) Average cost periodic (round average to nearest cent)
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) An element of internal control is
A) risk assessment
B) journals
C) subsidiary ledgers
D) controlling accounts
Q2) List the objectives of internal control and give an example of how each is implemented.
Q3) Internal control does not consist of policies and procedures that
A) protect assets from misuse
B) ensure employees and managers comply with laws and regulations
C) guarantee the company will earn a profit
D) ensure that business information is accurate
Q4) All bank memos reported on the bank reconciliation require entries in the company's accounts.
A)True
B)False
Q5) The bank often informs the company of bank service charges by including a credit memo with the monthly bank statement.
A)True
B)False
Page 9
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Chapter 8: Receivables
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Sample Questions
Q1) At the end of the current year,Accounts Receivable has a balance of $550,000; Allowance for Doubtful Accounts has a credit balance of $5,500; and sales for the year total $2,500,000.An analysis of receivables estimates uncollectible receivables as $25,000.
Determine (a)the amount of the adjusting entry for bad debt expense; (b)the adjusted balances of Accounts Receivable,Allowance for Doubtful Accounts,and Bad Debt Expense; and (c)the net realizable value of accounts receivable.
Q2) Abbott Company uses the allowance method of accounting for uncollectible accounts.Abbott estimates that 3% of credit sales will be uncollectible.On January 1,the Allowance for Doubtful Accounts had a credit balance of $2,400.During the year,Abbott wrote off accounts receivable totaling $1,800 and made credit sales of $100,000.After the adjusting entry,the December 31 balance in Bad Debt Expense will be
A) $1,200
B) $3,000
C) $3,600
D) $7,200
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Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Capital expenditures are costs that improve a fixed asset or extend its useful life.
A)True
B)False
Q2) The higher the fixed asset turnover, the
A) less efficiently a company is using its fixed assets in generating sales
B) more efficiently a company is using its fixed assets in generating sales
C) more efficiently a company is using its current assets in generating sales
D) more efficiently a company is using its intangible assets in generating sales
Q3) On December 31,Strike Company sold one of its batting cages for $20,000.The equipment had an initial cost of $310,000 and had accumulated depreciation of $260,000.Depreciation has been recorded up to the end of the year.What is the amount of the gain or loss on this transaction?
A) gain of $20,000
B) gain of $30,000
C) loss of $20,000
D) loss of $30,000
Q4) A leased asset will appear on the balance sheet as a long-term asset.
A)True
B)False
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Chapter 10: Liabilities: Current,installment Notes,and
Contingencies
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Sample Questions
Q1) An employee receives an hourly rate of $15,with time and a half for all hours worked in excess of 40 during the week.Payroll data for the current week are as follows: hours worked,46; federal income tax withheld,$120; all earnings are subject to social security tax; Social security tax rate,6%; and Medicare tax rate,1.5%; state unemployment compensation tax,3.4% on the first $7,000; federal unemployment compensation tax,0.8% on the first $7,000.Prepare the journal entries to record the salaries expense and the employer payroll tax expense.If required,round your answers to the nearest cent.
Q2) Each year there is a ceiling for the amount that is subject to all of the following except
A) social security tax
B) federal income tax
C) federal unemployment tax
D) state unemployment tax
Q3) Baker Green's weekly gross earnings for the week ending December 7 were $2,500,and her federal income tax withholding was $525.Assuming the social security rate is 6% and Medicare is 1.5%,and all earnings are subject to FICA taxes,what is Green's net pay?
Q4) List five internal controls that relate directly to payroll.
Page 12
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) Bonds Payable has a balance of $1,000,000 and Discount on Bonds Payable has a balance of $15,500.If the issuing corporation redeems the bonds at 98 1 / 2,what is the amount of gain or loss on redemption?
A) $500 loss
B) $15,500 loss
C) $15,500 gain
D) $500 gain
Q2) On January 1,$2,000,000,5-year,10% bonds,were issued for $1,960,000.Interest is paid semiannually on January 1 and July 1.If the issuing corporation uses the straight-line method to amortize discount on bonds payable,the semiannual amortization amount is A) $8,000
B) $2,000
C) $4,000
D) $10,000
Q3) The carrying amount of the bonds is defined as the face value of the bonds plus any unamortized discount or less any unamortized premium.
A)True
B)False
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Chapter 12: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) The number of shares sold to stockholders
A)authorized shares
B)issued shares
C)outstanding shares
D)par value
E)common stock
F)preferred stock
G)Paid-In Capital in Excess of Par
H)transfer agent
Q2) Double taxation is a disadvantage of a corporation because the corporation has to pay income taxes at twice the rate applied to partnerships.
A)True
B)False
Q3) All of the following are normally found in a corporation's stockholders' equity section except
A) Common Stock
B) Excess of Issue Price Over Par
C) Dividends in Arrears
D) Retained Earnings
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Cash paid to purchase long-term investments would be reported in the statement of cash flows in
A) the cash flows from operating activities section
B) the cash flows from financing activities section
C) the cash flows from investing activities section
D) a separate schedule
Q2) On the statement of cash flows,the cash flows from financing activities section would include all of the following except
A) receipts from the sale of bonds payable
B) payments for dividends
C) payments for purchase of treasury stock
D) payments of interest on bonds payable
Q3) In preparing the statement of cash flows,the correct order of reporting cash activities is financing,operating,and investing.
A)True
B)False
Q4) The statement of cash flows is not one of the basic financial statements.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) What is the price-earnings ratio for Diane Company?
A) 8.0 times
B) 2.5 times
C) 4.0 times
D) 6.0 times
Q2) If two companies have the same current ratio,their ability to pay short-term debt is the same.
A)True
B)False
Q3) Based on the data for Privett Company,what is the quick ratio,rounded to one decimal point?
A) 1.7
B) 2.9
C) 1.1
D) 1.0
Q4) An advantage of the current ratio is that it considers the makeup of the current assets.
A)True
B)False
Q5) Define solvency and profitability.How are they alike?
Page 16
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Chapter 15: Introduction to Managerial Accounting
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Sample Questions
Q1) In order to be useful to managers,managerial accounting reports should possess all of the following characteristics except
A) provide objective measures of past operations and subjective estimates about future decisions
B) be prepared in accordance with generally accepted accounting principles
C) be provided at any time management needs information
D) be prepared to report information for any unit of the business to support decision making
Q2) Managerial accounting reports are
A) prepared according to GAAP
B) prepared according to management needs
C) prepared periodically only
D) related to the entire business entity only
Q3) A company sells goods for $150,000 that cost $54,000 to manufacture.Which statement is true?
A) The company will recognize sales on the balance sheet of $150,000.
B) The company will recognize $96,000 gross profit on the balance sheet.
C) The company will decrease finished goods by $54,000.
D) The company will increase finished goods by $54,000.
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Page 17
Chapter 16: Job Order Costing
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Sample Questions
Q1) What is the gross profit for Adams Company at the end of the first quarter?
A) $1,685
B) $2,685
C) $1,000
D) $685
Q2) The Cavy Company estimates that the factory overhead for the following year will be $1,470,000.The company has decided that the basis for applying factory overhead should be machine hours,which is estimated to be 40,000 hours.The machine hours for the month of April for all of the jobs were 4,780.Prepare the journal entry to apply factory overhead.
Q3) A job order cost system would be appropriate for a crude oil refining business. A)True
B)False
Q4) The materials requisition serves as the source document for debiting the accounts in the materials ledger.
A)True
B)False
Q5) The current year's advertising costs are normally considered period costs.
A)True
B)False
Page 18
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Chapter 17: Process Cost Systems
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Sample Questions
Q1) The Blue Lake Water Company has two departments,Purifying and Bottling.The Bottling Department received 76,000 liters from the Purifying Department.During the period,the Bottling Department completed 74,000 liters,including 3,000 liters of work in process at the beginning of the period.The ending work in process was 5,000 liters.How many liters were started and completed during the period?
A) 71,000
B) 69,000
C) 73,000
D) 79,000
Q2) Using the FIFO method,the number of equivalent units of conversion costs was
A) 14,400
B) 14,380
C) 14,550
D) 15,850
Q3) The Mountain Springs Water Company has two departments,Purifying and Bottling.The Bottling Department received 67,000 liters from the Purifying Department.During the period,the Bottling Department completed 65,000 liters,including 3,000 liters of work in process at the beginning of the period.The ending work in process was 5,000 liters.How many liters were started and completed during the period?
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Chapter 18: Activity-Based Costing
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Q1) Estimated activity-base usage quantities are the total activity-base quantities related to each product.
A)True
B)False
Q2) Determine the activity rate per production order for scheduling.
A) $200.00
B) $20.00
C) $29.41
D) $10.42
Q3) Activity rates are computed by dividing the cost budgeted for each activity pool by the estimated activity base for that pool.
A)True
B)False
Q4) Calculate the overhead rate per unit for Product A in the painting department of Adirondack Marketing Inc.
A) $236.32 per unit
B) $325.00 per unit
C) $147.70 per unit
D) $161.00 per unit
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Chapter 19: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Cost behavior refers to the manner in which
A) a cost changes as the related activity changes
B) a cost is allocated to products
C) a cost is used in setting selling prices
D) a cost is estimated
Q2) Which of the following conditions would cause the break-even point to increase?
A) total fixed costs decrease
B) unit selling price increases
C) unit variable cost decreases
D) unit variable cost increases
Q3) If a business had a capacity of $10,000,000 of sales,actual sales of $6,000,000,break-even sales of $4,200,000,fixed costs of $1,800,000,and variable costs of 60% of sales,what is the margin of safety expressed as a percentage of sales?
Q4) Variable costs are costs that vary in total in direct proportion to changes in the activity level.
A)True
B)False
Q5) The Dean Company has sales of $500,000,and the break-even point in sales dollars of $300,000.Determine the company's margin of safety percentage.
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Chapter 20: Variable Costing for Management Analysis
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Q1) For a period during which the quantity of product manufactured exceeded the quantity sold,income from operations reported under absorption costing will be smaller than income from operations reported under variable costing.
A)True
B)False
Q2) Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing concept.
A)True
B)False
Q3) Under absorption costing,the amount of income reported from operations can be increased by producing more units than are sold.
A)True
B)False
Q4) Companies prepare contribution margin reports by market segments and product segments because products contribute to profitability in various ways.
A)True
B)False
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Chapter 21: Budgeting
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Sample Questions
Q1) The sales budget is the starting point for preparation of the direct labor cost budget.
A)True
B)False
Q2) As of January 1 of the current year,the Grackle Company had accounts receivables of $50,000.The sales for January,February,and March were as follows: $120,000,$140,000,and $150,000,respectively.Of each month's sales,20% are for cash.Of the remaining 80% (the credit sales),60% are collected in the month of sale,with the remaining 40% collected in the following month.What is the total cash collected (both from accounts receivable and for cash sales)in the month of February?
A) $129,600
B) $62,400
C) $133,600
D) $91,200
Q3) Budgeted production for product XXX during the month is
A) 522,000 units
B) 552,000 units
C) 518,000 units
D) 520,000 units
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Chapter 22: Evaluating Variances From Standard Costs
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Sample Questions
Q1) The fixed factory overhead volume variance is
A) $9,000 favorable
B) $9,000 unfavorable
C) $5,500 favorable
D) $5,500 unfavorable
Q2) If the price paid per unit differs from the standard price per unit for direct materials,the variance is a
A) variable variance
B) controllable variance
C) price variance
D) volume variance
Q3) If the standard to produce a given amount of product is 500 direct labor hours at $15 and the actual was 600 hours at $17,the rate variance was $1,200 favorable.
A)True
B)False
Q4) Accounting systems that use standards for product costs are called standard cost systems.
A)True B)False
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Chapter 23: Evaluating Decentralized Operations
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Q1) Which of the following is not one of the common types of responsibility centers?
A) cost center
B) profit center
C) investment center
D) revenue center
Q2) One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions.
A)True
B)False
Q3) Which is the best example of a decentralized operation?
A) one owner who prepares plans and makes decisions for the entire company
B) each unit is responsible for their own operations and decision making
C) in a major company,operating decisions are made by top management
D) none of these,all are examples of a centralized operation
Q4) Operating expenses directly traceable to or incurred for the sole benefit of a specific department and usually subject to the control of the department manager are termed direct operating expenses.
A)True
B)False
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Chapter 24: Differential Analysis and Product Pricing
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Q1) What is the differential cost of producing Product D?
A) $6.50 per pound
B) $8.55 per pound
C) $17.00 per pound
D) $5.25 per pound
Q2) In using the variable cost concept of applying the cost-plus approach to product pricing,fixed manufacturing costs and fixed selling and administrative expenses must be covered by the markup.
A)True
B)False
Q3) A bottleneck happens when a key piece of manufacturing machinery can produce 1,000 units per hour and demand for the product supports a production rate of 1,200 units per hour.
A)True
B)False
Q4) The differential revenue of producing Product P is $22 per pound.
A)True
B)False
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Chapter 25: Capital Investment Analysis
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Q1) Uses present value concepts to compute the rate of return on an investment from a capital investment proposal based on its' expected net cash flows
A)Capital rationing
B)Annuity
C)Capital investment analysis
D)Internal rate of return method
E)Payback period
F)Accounting rate of return
Q2) The present value index for this investment is
A) 1.00
B) 0.95
C) 1.25
D) 1.05
Q3) The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net cash flow.
A)True
B)False
Q4) Identify four capital investment evaluation methods discussed in the chapter and discuss the strengths and weaknesses of each method.
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Chapter 26: Lean Manufacturing and Activity Analysis
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Q1) In a lean system,indirect labor is traced directly to product cells.
A)True
B)False
Q2) The budgeted cell conversion cost rate includes which of the following?
A) only factory overhead
B) only direct labor and direct materials
C) direct labor,direct materials,and factory overhead
D) only direct labor and factory overhead
Q3) In a lean environment,the journal entry to record conversion costs would include a debit to the manufacturing overhead control account.
A)True
B)False
Q4) Nonfinancial accounting information is used more often for long-term operating decisions than is financial information.
A)True
B)False
Q5) Lean manufacturing focuses on reducing time,cost,and poor quality in processes. A)True
B)False
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