Principles of Accounting Exam Solutions
Course Introduction
Principles of Accounting introduces students to the foundational concepts and procedures of financial and managerial accounting. The course covers the accounting cycle, including the recording, summarizing, and reporting of financial transactions for various types of organizations. Students learn how to prepare and interpret essential financial statements such as the balance sheet, income statement, and cash flow statement. Emphasis is placed on understanding accounting principles, ethical standards, and the role of accounting information in decision making for businesses and other entities. This course equips students with essential skills for analyzing financial data and applying accounting knowledge in real-world scenarios.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following organizations requires publicly owned companies to be audited by independent accountants (CPAs)?
A)Securities and Exchange Commission (SEC)
B)Public Company Accounting Oversight Board (PCAOB)
C)Financial Accounting Standards Board (FASB)
D)American Institute of Certified Public Accountants (AICPA)
Answer: A
Q2) The balance of Morgan,Capital at the beginning of the year and the end of the year was $50,000 and $63,000,respectively.There were no new capital contributions during the year.Owner withdrawals were $25,000.What was the net income or loss for the year?
A)Net income of $88,000
B)Net loss of $88,000
C)Net loss of $38,000
D)Net income of $38,000
Answer: D
Q3) Assets are economic resources that have no future benefits for the business.
A)True
B)False
Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The account title used for recording the payment of rent in advance for an office building is ________.
A)Prepaid Rent
B)Rent Payable
C)Rent Revenue
D)Rent Expense
Answer: A
Q2) On October 31,a business pays $1,500 cash for television ads that appeared during October.Which of the following accounts is debited?
A)Cash
B)Accounts Payable
C)Prepaid Advertising
D)Advertising Expense
Answer: D
Q3) 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) Get Away,a travel magazine,collected $500,000 in subscription revenue in May.Each subscriber will receive an issue of the magazine for each of the next 12 months,beginning with the June issue.The company uses the accrual method of accounting.Prepare the journal entry for collection of cash in May.(Ignore explanation).Assume the magazine initially records a liability for the subscription revenue.
Answer: 11ea8a75_425a_6b67_a2a1_51b5eadb26c6_TB6701_00
Q2) In the case of a deferred expense,the adjusting entry required at the end of a period will consist of a debit to the Prepaid Expense account.Assume the deferred expense was initially recorded as an asset.
A)True
B)False
Answer: False
Q3) Armstrong Services has a weekly payroll of $50,000.December 31 falls on Thursday and Armstrong will pay its employees the following Monday (January 4)for the previous full week.Assume that the company has a five-day workweek and has an unadjusted balance in Salaries Expense of $845,000 at December 31.Prepare the January 4 journal entry.Reversing entries are not made.
Answer: 11ea8a75_425b_7cdd_a2a1_ff99ee8ab2c7_TB6701_00
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5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The income statement section of the worksheet includes ________.
A)Land and Salaries Payable
B)Owner,Capital and Owner,Withdrawals
C)Furniture and Cash
D)Service Revenue and Utilities Expense
Q2) A balance sheet prepared in the report form lists the assets on the left and the liabilities and owner's equity on the right.
A)True
B)False
Q3) The worksheet helps accountants to ________.
A)prepare the trial balance
B)prepare the financial statements
C)prepare the unadjusted trial balance
D)maintain books of accounts without a journal
Q4) The permanent accounts-assets,liabilities,and owner's equity-are closed to the Income Summary account.
A)True
B)False
Q5) List the steps of the accounting cycle that take place during the period.
Q6) List the steps of the accounting cycle that take place at the end of the period.
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) A company purchased inventory for $2,500 from a vendor on account,FOB shipping point,with terms of 2/10,n/30.The company paid the shipper $200 cash for freight in.The company then returned damaged goods worth $400.The invoice was then paid eight days after the invoice date.Assuming that there was no beginning inventory balance,the cost of inventory would be ________.(Assume a perpetual inventory system. )
A)$2,058
B)$2,258
C)$2,300
D)$2,450
Q2) Which of the following entries would be made to record the purchase of inventory on account,if a company uses the perpetual inventory system?
A)a debit to Purchases and a credit to Accounts Payable
B)a debit to Accounts Payable and a credit to Purchases
C)a debit to Merchandise Inventory and a credit to Accounts Payable
D)a debit to Accounts Payable and a credit to Merchandise Inventory
Q3) Journalize the following transaction for a merchandiser that uses the perpetual inventory system.
Sold goods for cash,$1,200 (cost $750).Omit explanations.
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7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Ending inventory is calculated by multiplying the number of units on hand by the unit cost.
A)True
B)False
Q2) Under which of the following inventory costing methods is the ending inventory based on the costs of the most recent purchases?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q3) Using the FIFO method of inventory valuation will always produce the same results for cost of goods sold and ending inventory whether a company uses perpetual or periodic inventory costing methods.
A)True
B)False
Q4) In computing the lower-of-cost-or-market,current replacement cost is the cost to replace the inventory on hand.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) A control account ________.
A)does not appear on the balance sheet
B)has a balance that equals the sum of the balances in a group of related accounts in a subsidiary ledger
C)is equivalent to a contra account and represents the offsetting nature of debits and credits on a firm's financial statements
D)holds individual accounts that support a general ledger account
Q2) The sales journal is used for all sales of merchandise inventory.
A)True
B)False
Q3) Companies are now spending less amounts of cash to ensure that their data and information are secure.
A)True B)False
Q4) State the purpose of a subsidiary ledger? What is included in the accounts receivable subsidiary ledger?
Q5) Purchases on account are recorded in the purchases journal. A)True B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Internal auditors are employees of the business who ensure that employees are following company policies and that operations are running efficiently.
A)True
B)False
Q2) Under the gross method,when the credit card processor deposits the cash proceeds from credit and debit card sales ________.
A)there will be no fee charged for the transaction
B)the deposit is made on the last day of the month
C)the total sales plus the processing fee assessed equals the net amount of cash deposited
D)the processing fees are deducted from the company's bank account by the processor
Q3) A basic procedure of internal control over cash receipts is that the deposit of the cash and the recording of the receipts into the journal should be separated.
A)True
B)False
Q4) Discuss the roles of the internal auditors and the external auditors.
Q5) Fifth National Bank requires mandatory vacations and job rotation.
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Chapter 9: Receivables
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Sample Questions
Q1) To report accounts receivable at the appropriate amount on the balance sheet,a company determines an accurate estimate of uncollectible accounts and recognizes the associated bad debt expense.
A)True
B)False
Q2) Which of the following statements,regarding notes receivable,is incorrect?
A)Notes receivable usually have longer terms than accounts receivable.
B)A notes receivable is a written promise that a customer will pay a fixed amount of principal plus interest by a certain date in the future.
C)All notes receivable are considered long-term assets.
D)Notes receivable are sometimes called promissory notes.
Q3) On August 14,Park Avenue Bank lent $210,000 to City Coffee Shop on a 75 day,4% note.What is the maturity value of the note? (Use a 360-day year and round answers to the nearest dollar. )
A)$211,726
B)$211,750
C)$210,000
D)$218,400
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11
Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) The double-declining-balance method is an accelerated method of depreciation.
A)True
B)False
Q2) If a business changes the estimated useful life,or estimated residual value,of a plant asset,depreciation expense must be recalculated.
A)True
B)False
Q3) Freeman Company owns a delivery truck.Which of the following costs,associated with the truck,will be capitalized and depreciated?
A)modification for new use
B)oil change and lubrication
C)replacement of tires
D)normal engine repair
Q4) A patent is an exclusive right to reproduce and sell a book,musical composition,film,other work of art,or intellectual property.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Q1) Lawrence,an employee of Light,Inc. ,has gross salary for March of $4,000.The entire amount is under the OASDI limit of $118,500,and thus subject to FICA.His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA.Which of the following is a part of the journal entry to record the employer's payroll taxes?
A)debit to Payroll Tax Expense
B)debit to FICA Taxes Payable
C)credit to Payroll Tax Expense
D)debit to Cash
Q2) Employer FICA is paid by the employer and recorded as a payroll tax expense.
A)True
B)False
Q3) The times-interest-earned ratio is calculated as EBIT divided by interest expense.
A)True
B)False
Q4) A pension plan is a plan that provides benefits to retired employees.
A)True
B)False
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Partnerships
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Sample Questions
Q1) The financial statements of a partnership are similar to the statements of a sole proprietorship.
A)True
B)False
Q2) Gary,Peter,and Chris and have capital balances of $26,000,$38,000,and $30,000,respectively.As per the partnership agreement,Gary gets a profit share of 2/9;Peter gets 4/9;and Chris gets 3/9.The partnership agrees to pay $20,000 as the final settlement to Gary.How much bonus does Peter receive as a result of this transaction? (Do not round intermediate calculations and round the final answer to the nearest dollar. )
A)$3429
B)$2571
C)$3333
D)$2667
Q3) If elected,an S corporation pays no corporate income tax.
A)True
B)False
Q4) The death of a partner dissolves the partnership.
A)True
B)False
Page 14
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Chapter 13: Corporations
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Sample Questions
Q1) A company may purchase treasury stock to support the company's stock price.
A)True
B)False
Q2) On November 1,2018,Nada,Inc.declared a dividend of $5.00 per share on common stock.Nada,Inc.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 30,2018.Which of the following is the journal entry needed on November 30,2018?
A)Debit Cash Dividends $100,000,and credit Dividends Payable-Common $100,000.
B)Debit Dividends Payable-Common $100,000,and credit Cash $100,000.
C)Debit Cash $100,000,and credit Dividends Payable-Common $100,000.
D)Debit Cash Dividends $100,000,and credit Cash $100,000.
Q3) When stock is issued for assets other than cash,the transaction is always recorded at the market value of the stock issued.
A)True
B)False
Q4) No journal entry is made on the dividend declaration date.
A)True
B)False
Q5) List the four basic rights of stockholders.
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Chapter 14: Long-Term Liabilities
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Q1) Which of the following statements is TRUE of a bond that is issued at a premium?
A)The bond will be issued at an amount above face value.
B)The stated interest rate is lower than the prevailing market interest rate.
C)At maturity,the bond will repay an amount that is greater than the face value.
D)The bond will be issued at par.
Q2) The interest rate that determines the amount of cash interest the borrower pays and the investor receives each year is called the ________.
A)amortization rate
B)market interest rate
C)stated interest rate
D)discounting rate
Q3) State Street Beverage Company issues $805,000 of 9%,10-year bonds on March 31,2017.The bonds pay interest on March 31 and September 30.Which of the following statements is TRUE?
A)If the market rate of interest is 10%,the bonds will issue at a premium.
B)If the market rate of interest is 10%,the bonds will issue at a discount.
C)If the market rate of interest is 10%,the bonds will issue at par.
D)If the market rate of interest is 10%,the bonds will issue above par.
Q4) When computing the present value of a bond,which interest rate is used? Why?
Q5) What does the debt to equity ratio show,and how is it calculated?
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Chapter 15: Investments
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Sample Questions
Q1) For each of the following scenarios,state the type of investment:
1.Available-for-sale debt investment
2.No significant influence equity investment
3.Trading debt investment
4.Significant influence equity investment
5.Held-to-maturity debt investment
6.Controlling interest equity investment
Indicate your answer by placing the correct number next to the scenario.
a.________ Golden Corp.owns a debt security in Yellow Corp.Golden plans on selling the debt after one year.
b.________ Horizon Inc.owns 18% of the voting stock of Sunset Corp.Horizon does not have the ability to participate in the decisions of Sunset.
c.________ Eastern Inc.owns 32% of Western's voting stock.Eastern has the ability to exert influence over Western.
Q2) When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date,the investment is reported as a current asset.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) List and discuss three ways in which the statement of cash flows helps financial statement users.
Q2) Regarding the direct and indirect methods of preparing the statement of cash flows,which of the following statements is TRUE?
A)The indirect method and the direct method will produce a different amount of net cash provided by investing activities.
B)The indirect method starts with net income and adjusts it to net cash provided by (used for)operating activities.
C)The direct and indirect methods include different types of cash flows in the investing activities section.
D)The indirect method includes all non-cash activities,whereas the direct method includes only the cash activities.
Q3) The statement of cash flows explains why net income as reported on the income statement does not equal the change in the cash balance.
A)True
B)False
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) A company reports total assets of $920,000 and stockholders' equity of $540,000.Calculate the debt ratio.(Round your answer to two decimal places. )
A)36.99%
B)41.30%
C)58.70%
D)70.37%
Q2) Benchmarking is the comparison of a company's current year results with a previous year's performance.
A)True
B)False
Q3) The inventory turnover ratio measures the average number of days that inventory is held by a company.
A)True
B)False
Q4) In a vertical analysis of the income statement,each line item is shown as a percentage of net sales revenue.
A)True
B)False
Q5) What is a common-size statement? Why are these statements useful?
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