Course Introduction
Principles of Accounting Exam Solutions
Principles of Accounting introduces students to the foundational concepts and practices of financial and managerial accounting. The course covers the accounting cycle, including recording, classifying, and summarizing financial transactions, as well as the preparation and interpretation of financial statements such as the balance sheet, income statement, and cash flow statement. Students will also explore the ethical considerations and regulatory environment of the accounting profession. By understanding these principles, students gain the analytical skills needed to make informed financial decisions and to understand the role of accounting in business operations and strategic planning.
Recommended Textbook
Accounting Business Reporting for Decision Making 6th Edition by Jacqueline Birt
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Page 2
Chapter 1: Introduction to Accounting and Business Decision Making
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Sample Questions
Q1) The number of countries preparing financial reports using global accounting standards is:
A) less than 50.
B) between 50 and 75.
C) between 100 and 120.
D) more than 120.
Answer: D
Q2) The steps in the process of accounting take place in the following order:
A) measuring, identifying, decision making, communicating.
B) identifying, measuring, communicating, decision making.
C) identifying, communicating, measuring, decision making.
D) identifying, decision making, measuring, communicating.
Answer: B
Q3) Which of the following is not a cost associated with providing financial information?
A) Collecting.
B) Processing.
C) Reviewing.
D) Disseminating.
Answer: C
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Chapter 2: Accounting in Society
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Q1) The overriding application of APES 110 Code of Ethics for Professional Accountants requires accountants to:
A) act confidently.
B) act competently.
C) act with integrity.
D) act in the public interest.
Answer: D
Q2) The theory that suggests the motive for serving on a board of directors goes beyond the perspective of pure self-interest is ________________________ theory.
Answer: stewardship
Q3) Deontological theories are concerned with an accountant's sense of duty.Which of the following philosophies is part of this group of theories?
A) Kantianism.
B) Ethical egoism.
C) Psychological egoism.
D) Utilitarianism.
Answer: A
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Chapter 3: Business Structures
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Q1) The AASB's modified reporting requirements for Tier 1 and Tier 2 disclosing entities is known as ________________ ________________.
Answer: differential reporting
Q2) The difference between the financial statements of a sole trader and a partnership is:
A) sole trader financial statements must be prepared according to the AASB accounting standards.
B) partnership capital has more than one account.
C) partnership financial statements are simpler to prepare.
D) there is no difference.
Answer: B
Q3) __________ __________ is when each partner has the right to enter into,and be bound by,any partnership contract.
Answer: Mutual agency
Q4) An individual who manages and controls a business is known as a ___________ ___________.
Answer: sole trader
Q5) The owners of a company are known as ______________.
Answer: shareholders
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Chapter 4: Business Transactions
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Sample Questions
Q1) An accountant sent an invoice to a customer,Matt Bridges,for $300 for preparing his business activity statement.The debit and credit entries are:
A) debit cash $300; credit fees income $300.
B) debit cash $500; credit debtor M. Bridges $300.
C) debit debtor M. Bridges $300; credit fees income $300.
D) debit fees income $300; credit fees payable $300.
Q2) If total claims equal $950 000 and equity is $460 000,assets must be:
A) $590 000
B) $490 000
C) $950 000
D) $460 000
Q3) The error that would be detected by a trial balance is:
A) a cash sale was recorded as $463 in the sales account and recorded as $643 in the cash account.
B) electricity expense recorded as advertising expense.
C) a cashier pocketed $20 from a cash sale worth $40 and entered the sales total as $20 on the register.
D) services provided to a customer on credit were recorded as a cash transaction.
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6
Chapter 5: Balance Sheet
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Sample Questions
Q1) Gentle Ltd leases manufacturing equipment from Soft Ltd.The lease is non-cancellable,and Gentle Ltd has the right to purchase the equipment at the end of the lease term for $50,000.Which of the following statements is true?
A) Gentle Ltd has legal ownership of the equipment.
B) Gentle Ltd controls the equipment but does not have legal ownership of the equipment.
C) Gentle Ltd does not have control over the equipment.
D) Gentle Ltd is the lessor of the equipment.
Q2) A characteristic essential to all assets is:
A) a result of a past event.
B) a resource controlled by the entity.
C) a present economic resource.
D) all of the above.
Q3) ____________ (general/special)-purpose financial statements are prepared by a reporting entity to meet the decision-making needs of its managers.
Q4) The balance sheet does not reflect an entitys full __________ as some economic benefits do not satisfy the definition of an asset.
Q5) Goodwill is regarded as an ______________ intangible asset.
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Chapter 6: Statement of Profit or Loss and Statement of
Changes in Equity
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Sample Questions
Q1) In order to comply with accounting standards,reporting entities are required to classify expenses:
A) without aggregation.
B) by nature or function.
C) by function only.
D) in no particular way.
Q2) Under the accounting standard governing the presentation of the statement of profit or loss,the item that is not required to be presented on the face of the statement for a retail entity is:
A) cost of sales.
B) finance costs.
C) depreciation.
D) tax expense.
Q3) Triple bottom line reporting is when entities report on their:
A) financial performance.
B) social performance.
C) environmental performance.
D) all of the above.
Q4) A loss reported on the statement of profit or loss decreases the __________ section of the balance sheet.
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Chapter 7: Statement of Cash Flows
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Sample Questions
Q1) Using the information below,the net cash flow from operating activities is: \(\begin{array}{|l|r|}
\hline\text{ Cash received from customers} & \$ 213000 \\ \hline \text{Cash paid for salaries and other expenses} & 185000 \\ \hline \text{Cash received from the sale of equipment }& 12000 \\ \hline \text{Gain on the sale of equipment }& 8000 \\ \hline
\end{array}\)
A) inflow of $20 000.
B) inflow of $12 000.
C) inflow of $28 000.
D) inflow of $8 000.
Q2) Which of these is not an example of cash or cash equivalents?
A) Money market deposit with 6 months maturity.
B) Bank overdraft.
C) Bank and non-bank bills.
D) Bank deposits.
Q3) A net total cash outflow in investing activities is considered ____________(normal or abnormal)for a healthy growing business.
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Chapter 8: Analysis and Interpretation of Financial Statements
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Sample Questions
Q1) If the market share price is $20 and the earnings per share is calculated to be $2.50,the price earnings ratio is:
A) 4 times.
B) 5 times.
C) 8 times.
D) 12.5 times.
Q2) Explaining why the ROE (return on equity)ratio has changed requires an examination of the:
A) asset efficiency ratios and debt ratios.
B) profitability ratios and the market performance ratios.
C) return on assets and financial risk.
D) profitability ratios and the asset efficiency ratios.
Q3) The ______________ turnover ratio measures the effectiveness of an entity in generating sales revenue.
Q4) Financial analysis is useful for:
A) evaluating the performance of an entity.
B) evaluating the financial health of an entity.
C) decision making.
D) all of the above.
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Chapter 9: Budgeting
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Sample Questions
Q1) The authoritarian style of budgeting can lead to:
A) unit managers taking very little ownership of the budget.
B) unattainable targets.
C) demotivation of employees.
D) all of the above.
Q2) The schedule of cash receipts from accounts receivable (debtors)provides information to include in the:
A) sales budget.
B) cash budget.
C) budgeted statement of profit or loss.
D) budgeted balance sheet.
Q3) The cash budget shows the ____________ future cash receipts and cash payments.
Q4) The decision to expand the business by opening up a new branch in a different city is part of:
A) strategic planning.
B) master budgeting.
C) strategic budgeting.
D) performance planning.
Q5) The master budget is a set of __________ budgets for a future period.
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Q6) A program budget is commonly used in the __________ and not-for-profit sector.
Chapter 10: Costvolumeprofit Analysis
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Sample Questions
Q1) Which of the following is normally a mixed cost?
A) Motor vehicle running costs.
B) Electricity costs.
C) Telephone costs.
D) All of the above options are examples of mixed costs.
Q2) Which of the following statements is correct when assessing profitability with resource limitations?
A) Most businesses are not limited by market demand.
B) The most profitable result will be to maximise production of the product with the highest contribution margin per unit of the limiting factor.
C) The most profitable result will be to minimise production of the product with the highest overall contribution margin.
D) Limiting factors only relate to labour hours.
Q3) Which of the following cannot be used to determine a break-even point?
A) graphical representation of CVP analysis.
B) regression analysis.
C) contribution margin calculation.
D) mathematical equation.
Q4) Mixed costs possess both ________ and ________ characteristics.
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Chapter 11: Costing and Pricing in an Entity
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Sample Questions
Q1) The type of criteria used to select a cost driver that is based on using direct labour hours to encourage a reduction in the number of labour hours used is known as:
A) cause and effect.
B) behavioural.
C) ability to bear.
D) fairness or equity.
Q2) The formula that is used to allocate indirect costs to a chosen cost driver is:
A) cost pool divided by indirect costs.
B) indirect costs divided by cost pool.
C) indirect costs divided by cost driver usage.
D) cost driver usage divided by indirect costs.
Q3) An entity's internal value chain represents:
A) the link between all activities undertaken by an entity.
B) the production process.
C) the research and development process.
D) none of the above options.
Q4) ________________ pricing is the practice of setting low prices when new products are introduced to increase market share.
Q5) A cost object is an object that has a __________________ measurement of cost.
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Chapter 12: Capital Investment
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Sample Questions
Q1) An investment with a high risk margin has a high discount rate,which makes the net present value:
A) zero.
B) lower.
C) higher.
D) unchanged, as the level of risk has no effect on the NPV.
Q2) Which of the following statements concerning the internal rate of return method of capital decision making is not correct?
A) The IRR is the rate of return that discounts the cash flows of a project so that the present value of the cash inflows just equals the present value of the cash outflows.
B) It takes into account the scale of projects.
C) It is used to find the rate of return of the project.
D) Its decision rule is to accept projects that have an IRR that is higher than the hurdle rate.
Q3) A disadvantage of the internal rate of return method is that it can conflict with the _________ _______________ _________ method rankings.
Q4) The ___________ (shorter/longer)a payback period is,the greater the risk.
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Chapter 13: Financing the Business
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Sample Questions
Q1) The most important source of spontaneous short-term funding for entities is normally:
A) accrued wages.
B) bank overdrafts.
C) trade credit.
D) ordinary shares.
Q2) Which of the following statements about corporate bonds is true?
A) They are an unsecured debt.
B) They are issued to raise funds so that a business can expand its operations.
C) Good credit ratings are extremely important to potential issuers.
D) All of these statements are true.
Q3) Which of the following businesses would be most likely to have the greatest proportion of working capital held as inventory?
A) An accountant.
B) A grocery retailer.
C) A medical practice.
D) An auto repair shop.
Q4) One aspect of managing the entity's credit policy is selecting suitable_____________ customers.
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Chapter 14: Performance Measurement
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Sample Questions
Q1) Non-financial performance measures that help a business keep on track to achieve its goals are generally:
A) balanced.
B) misunderstood.
C) short term.
D) operational.
Q2) Reports are prepared on the performance of divisions so as to:
A) help provide a pricing guide for products and services.
B) consider investment levels.
C) evaluate the division's performance.
D) all of the above.
Q3) Which of the following is an example of a financial performance measure?
A) Production and delivery lead times.
B) Employee productivity.
C) Process downtime.
D) Return on investment.
Q4) Environment ____________ indicators provide information about the local,regional,national or global condition of the environment which could be impacted by an entity.
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