Principles of Accounting Final Exam
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in the accounting profession. The course covers the accounting cycle, including the recording, summarizing, and reporting of financial transactions for both service and merchandising operations. Students will learn how to prepare and interpret key financial statements such as the balance sheet, income statement, and statement of cash flows. Emphasis is placed on understanding generally accepted accounting principles (GAAP), ethical considerations, and the importance of accurate financial information in decision-making processes for businesses and other organizations.
Recommended Textbook
Horngrens Financial and Managerial Accounting 4th Edition by Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Accord Corporation collected $5,000 from its customer,who owed it since the previous month.How does this affect the accounting equation of the business?
A)assets increase by $5,000; liabilities decrease by $5,000
B)assets increase by $5,000; assets decrease by $5,000
C)assets increase by $5,000; liabilities increase by $5,000
D)assets increase by $5,000; equity increases by $5,000
Answer: B
Q2) Equity of a corporation is broken out into two components.Which of the following are the two components of the equity of a corporation?
A)current assets and fixed assets
B)common stock and liabilities
C)revenues and expenses
D)contributed capital and retained earnings
Answer: D
Q3) Members of a limited-liability company (LLC)are not personally liable for the debts of the business.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Which of the following statements is true of the Common Stock account?
A)It is an equity account that has a normal credit balance.
B)It is a liability account that has a normal credit balance.
C)It is a liability account that has a normal debit balance.
D)It is an equity account that has a normal debit balance.
Answer: A
Q2) The first step in the journalizing and posting process is to ________.
A)post the accounts to the ledger
B)identify each account involved and its type
C)determine whether each account has increased or decreased
D)record the transaction in the journal,including a brief explanation
Answer: B
Q3) Posting a transaction means ________.
A)calculating the balance in an account
B)transferring data from the journal to the ledger
C)preparing a summary of account balances
D)finding the account number in the chart of accounts
Answer: B
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4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) A business hired a repairman to overhaul its plumbing system.The repairman began work on September 15 and completed it on October 15.The business agreed to pay him $4,000 when the work was completed.As of September 30,the work was 50% complete and the business made an adjusting entry to accrue repair expense as of the end of September.On October 15,the work was completed and the repairman was paid in full.Provide the journal entry for the cash payment on October 15.(Ignore explanation)
Answer: 11ea84d1_1119_3f79_83dc_e14b76108342_TB3006_00
Q2) The account names in a worksheet are taken from and listed in the same order as the ________.
A)balance sheet
B)audit report
C)journal
D)chart of accounts
Answer: D
Q3) Luminous Electrical Inc.performed services costing $8,000 on January 24 and invoiced the customer.Luminous received the $8,000 on January 31.Provide the journal entry on January 31 when the cash was received.(Ignore explanation.)
Answer: 11ea84d1_1118_f152_83dc_73130524d341_TB3006_00
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The beginning balance in the Common Stock account of a company was $10,000.The revenues and expenses were $200,000 and $120,000,respectively.During the year,the company declared and paid dividends for $4,000.The ending balance in the Retained Earnings was $76,000.(Assume that the opening balance of Retained Earnings was zero.)
A)True
B)False
Q2) A balance sheet that lists the assets above the liabilities and stockholders' equity sections is a(n)________.
A)report form balance sheet
B)unclassified form balance sheet
C)account form balance sheet
D)audited form balance sheet
Q3) GAAP requires publicly traded companies to prepare a post-closing trial balance and publish it in their annual report.
A)True
B)False
Q4) The current ratio shows the profitability of a firm.
A)True
B)False
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Operating income is gross profit minus operating expenses.
A)True
B)False
Q2) A company sold merchandise for $20,000 on account with terms of 3/10,n/30.The company uses a perpetual inventory system.After two days,it received defective merchandise worth $2,000.The journal entry to record the cash receipt for sale if the payment is received within 10 days of the invoice date would include ________.
A)a debit to Cash for $17,460,a credit to Merchandise Inventory for $540,and a credit to Sales Revenue for $18,000.
B)a debit to Cash for $17,460,a debit to Sales Discount for $540,and a credit to Accounts Receivable for $18,000.
C)a debit to Cash for $18,000,a debit to Merchandise Inventory for $2,000 and a credit to Accounts Receivable.
D)A debit to Sales for $20,000,a credit to Accounts Receivable for $20,000,and a credit to Sales Discount for $2,000
Q3) The entry to close Cost of Goods Sold includes a debit to Income Summary.
A)True
B)False
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7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Which of the following is the correct formula to calculate weighted-average unit cost for merchandise inventory?
A)Weighted-average unit cost = Cost of goods available for sale + Number of units available
B)Weighted-average unit cost = Cost of goods available for sale × Number of units available
C)Weighted-average unit cost = Cost of goods available for sale - Number of units available
D)Weighted-average unit cost = Cost of goods available for sale ÷ Number of units available
Q2) The total cost spent on inventory that was available to be sold during a period is called the cost of goods sold.
A)True B)False
Q3) Pluto Inc.sold 500 units of inventory at $25 per unit on account.The company uses the perpetual inventory system.The cost of the units sold was $10 per unit.Provide the journal entries to record the sale on account.
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8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) The journal entry to replenish a petty cash fund includes a debit to the Petty Cash account and a credit to the Expense account.
A)True
B)False
Q2) Which of the following describes the risk assessment component of internal control?
A)Internal auditors monitor company controls to safeguard assets,and external auditors monitor the controls to ensure that the accounting records are accurate.
B)Risk assessment is the "tone at the top" of the business.
C)A company must identify its risks and take necessary steps to minimize it.
D)Risk assessment is designed to ensure that the business's goals are achieved.
Q3) A petty cash fund was established with a $350 balance.It currently has cash of $41 and petty cash tickets totaling $309.Which of the following would be included in the entry to replenish the fund?
A)a credit to Petty Cash for $309
B)a debit to Petty Cash for $41
C)a credit to Cash for $41
D)a credit to Cash for $309
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Chapter 8: Receivables
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Sample Questions
Q1) The expense associated with the cost of uncollectible accounts receivable is known as bad debts expense.
A)True
B)False
Q2) On January 1,Ajax Corp.accepted a one-year note for $5,000 at 4% from one of its customers.When the note matured on December 31,the customer was unable to pay,and the company treated it as a dishonored note.Provide the journal entry for the dishonor of the note in the books of the company.
Q3) Accounts receivable has a balance of $30,000 and the Allowance for Bad Debts has a credit balance of $3,000.The allowance method is used.What is the net realizable value of Accounts Receivable before and after a $2,000 Account Receivable is written off?
A)$27,000; $27,000
B)$14,300; $14,300
C)$16,000; $15,940
D)$16,000; $16,000
Q4) Businesses must maintain a single account receivable account for all customers.
A)True
B)False
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) On October 1,2015,Nurix Inc.purchased a patent for $100,000 cash.Although the patent gives legal protection for 20 years,it is expected to be used for only eight years.Journalize the amortization expense for 2015.Assume straight-line amortization.
Q2) Roggers Corp.'s beginning and ending total assets in the year 2015 were $18,000,000 and $22,000,000,respectively.Its assets turnover ratio for the year was calculated to be 1.75 times.Calculate the amount of net sales for the year 2015.
A)$27,000,000
B)$42,000,000
C)$35,000,000
D)$48,000,000
Q3) Equipment was purchased for $24,000.The equipment's estimated useful life was 5 years,and its residual value was $4,000.The straight-line method of depreciation was used.Give journal entry to record the sale of the equipment if it is sold for $25,000 at the end of the first year.
Q4) Iverycoast Inc.had purchased a van on January 1,2015,for $800,000.Estimated life of the van was 5 years,and its estimated residual value was $90,000.Iverycoast uses the straight-line method of depreciation.Prepare the depreciation schedule.
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11
Chapter 10: Investments
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Sample
Questions
Q1) Gray Financial Services Inc.invested $15,000 to acquire 3,750 shares of Mitt Investments Inc.on March 15,2012.This investment represents less than 20% of the investee's voting stock.On May 7,2016,Greg Financial Services Inc.sells 1,750 shares for $12,250.When the transaction is recorded in a journal entry,________.
A)Gain on Disposal will be credited
B)Long-term Investments-Available-for-Sale will be debited
C)Cash will be credited
D)Long-term Investments-Held-to-Maturity will be debited
Q2) Trading investments are categorized as noncurrent assets.
A)True
B)False
Q3) A security is a share or interest representing financial value.
A)True
B)False
Q4) The unrealized holding gains and losses on available-for-sale investments are reported on the income statement.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Steve,an employee of Panache Inc.,has gross salary for March of $5,000.The entire amount is under the OASDI limit of $110,100,and thus subject to FICA.He is also subject to federal income tax at a rate of 20%.His year-to-date pay has already exceeded the $7,000 cap for FUTA and SUTA.The journal entry in the payroll cycle to record employer's payroll tax expense includes a credit to FICA-Medicare Taxes Payable for $145.(Assume a FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45 %.)
A)True B)False
Q2) The old age,survivors,and disability insurance portion of FICA taxes is imposed on all of an individual employee's earnings.
A)True B)False
Q3) Benefits are extra compensation-items that are not paid directly to an employee. A)True B)False
Q4) Establishing controls for efficiency of the payroll process is one of the two key controls for payroll.
A)True B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) On January 1,2015,Bratios Company purchases equipment and signs a 6-year mortgage note for $80,000 at 15%.The note will be paid in equal annual installments of $21,139,beginning January 1,2016.Calculate the portion of principal amount paid on the third installment.
A)$12,086
B)$12,000
C)$21,139
D)$9,503
Q2) On January 1,2015,Bratios Company purchases equipment and signs a 6-year mortgage note for $80,000 at 15%.The note will be paid in equal annual installments of $21,139,beginning January 1,2016.Calculate the portion of interest expense paid on the third installment.(Round your answer to nearest whole number.)
A)$21,139
B)$9,053
C)$12,000
D)$70,861
Q3) If a bond is issued at a premium,it will sell for more than face value.
A)True
B)False
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Page 14
Chapter 13: Stockholders Equity
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Sample
Questions
Q1) Orleans Inc.was incorporated on January 1,2012.Orleans issued 4,000 shares of common stock and 500 shares of preferred stock on that date.The preferred stock is cumulative,$100 par,with an 8% dividend rate.Orleans has not paid any dividends yet.In 2015,Orleans had its first profitable year,and on November 1,2015,Orleans declared a total dividend of $28,000.What is the total amount that will be paid out to common stockholders?
A)$4,000
B)$16,000
C)$12,000
D)$28,000
Q2) Treasury stock is recorded at cost without reference to par value.
A)True
B)False
Q3) Which of the following would be included in the entry to record the issuance of 5,000 shares of $10 par value common stock at $13 per share cash?
A)Cash would be debited for $65,000
B)Common Stock would be debited for $50,000
C)Common Stock would be credited for $65,000
D)Paid-In Capital in Excess of Par-Common would be debited for $15,000
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Clark Coatings Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for the year 2015: The beginning balance in the Cash account was $2,500
Net cash provided by operating activities: $39,000
Net cash used for investing activities: $(25,000)
Net cash provided by financing activities: $1,200
Which of the following statements is true?
A)The statement of cash flows will show ending cash balance of $15,200.
B)The statement of cash flows will show total net cash flows of $64,000 positive.
C)The statement of cash flows will show total net cash flows of $15,200 negative.
D)The statement of cash flows will show ending cash balance of $17,700.
Q2) Company reported net loss of $13,000 for the year. What was the amount of dividends declared during the year?
A)$4,000
B)$2,000
C)Zero
D)$3,000
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) The price/earnings ratio indicates the ________.
A)dividend yield of the company
B)market price of $1 of earnings
C)proportion of total assets financed by debt
D)ease of selling merchandise inventory
Q2) Working capital measures the ability to meet long-term obligations with current assets.
A)True
B)False
Q3) The figure 47.0% shown for gross profit in 2016 signifies that the ________.
A)gross profit is equal to 47.0% of net income
B)gross profit is increased by 47.0% over the previous year
C)gross profit is 47.0% of net sales revenue
D)gross profit is 47.0% of cost of goods sold
Q4) The study of percentage changes in comparative financial statements is called horizontal analysis.
A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) How much was Webster's manufacturing overhead?
A)$21,060
B)$21,970
C)$24,050
D)$141,897
Q2) One of the primary activities of Rex Inc.is to purchase hats from Viva Inc.in Texas and sell them to its customers in Washington for a profit.It is likely that Rex is a ________.
A)manufacturing company
B)hybrid company
C)service company
D)merchandising company
Q3) Which of the following would be considered a direct labor cost for a manufacturing business?
A)wages of the assembly line staff
B)wages of the factory janitors
C)wages of the factory manager
D)salaries of the internal auditors
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Chapter 17: Job Order Costing
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Sample Questions
Q1) On June 30,Caroline Inc.finished Job 750 with total job costs of $4,600 and transferred the costs to Finished Goods Inventory.On July 6,Caroline completed sale of the goods from Job 750 to a customer for $5,100 cash.In order to record the sale,two entries are necessary,one to record revenue,and one to record cost of goods sold.Which of the following is the correct entry needed to record the revenues?
A)debit Finished Goods Inventory $4,600 and credit Sales Revenue $4,600
B)debit Cash $5,100 and credit Sales Revenue $5,100
C)debit Sales Revenue $5,100 and credit Cash $5,100
D)debit Cost of Goods Sold $4,600 and credit Sales Revenue $4,600
Q2) Which of the following will be debited to the Manufacturing Overhead account of a watch manufacturer?
A)office telephone expenses
B)salaries paid to accountants
C)factory electricity expense
D)cost of printing brochures
Q3) Work-in-Process Inventory is debited when indirect labor costs are incurred in a job order costing system.
A)True
B)False
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Page 19
Chapter 18: Process Costing
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Sample Questions
Q1) Under process costing,the number of units to account for must always be ________ the number of units accounted for.
A)greater than B)lesser than C)equal to D)twice
Q2) Which of the following formulae is used to calculate the cost per equivalent unit of production (EUP)for direct materials?
A)Cost per EUP for direct materials = Total conversion costs ÷ Equivalent units of production for direct materials
B)Cost per EUP for direct materials = Total direct materials costs ÷ Equivalent units of production for direct materials
C)Cost per EUP for direct materials = Total transferred in costs ÷ Equivalent units for transferred in
D)Cost per EUP for direct materials = Total direct materials costs ÷ Equivalent units of production for conversion costs
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Chapter
Management Systems
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Sample Questions
Q1) An activity-based costing system is developed in four steps. a.Compute the allocation rate for each activity.
B.Identify activities and estimate their total costs.
C.Identify the cost driver for each activity and then estimate the quantity of each driver's allocation base.
D.Allocate the indirect costs to the cost object.
Which of the following is the correct order of performing these steps?
A)a,b,c,d
B)c,a,b,d
C)b,c,a,d
D)b,a,c,d
Q2) Phoenix Inc.manufactures widgets.The target sales price is $400 per unit.The company desires a 30% net profit margin on its products.What is the company's target full-product cost per unit using target pricing?
A)$120.00
B)$307.69
C)$235.29
D)$280.00
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Chapter 20: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Fixed costs divided by the contribution margin ratio equals the breakeven point in sales dollars.
A)True B)False
Q2) When the variable cost per unit increases,the contribution margin on each unit decreases.
A)True B)False
Q3) If variable costs go up,and all other factors remain the same,the margin of safety will become smaller.
A)True
B)False
Q4) When the selling price per unit decreases,the breakeven point ________ A)increases
B)decreases
C)remains the same
D)decreases proportionately
Q5) Fixed costs per unit decrease as production levels decrease. A)True B)False
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Chapter 21: Variable Costing
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Q1) Volplex Inc.produces paper and office supplies and uses the just-in-time inventory system.Currently,the company is using variable costing.Which of the following is true of the effect of costing systems on the financial results of Volplex?
A)Its operating profit will be significantly higher if the company uses absorption costing instead of variable costing.
B)Its operating profit will be significantly lower if the company uses absorption costing instead of variable costing.
C)Its operating profit will vary a little if the company uses absorption costing instead of variable costing.
D)Its operating profit will be negative if the company uses absorption costing instead of variable costing.
Q2) Absorption costing is more appropriate than variable costing for making decisions relating to expansion of production capacity of a plant. A)True B)False
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Chapter 22: Master Budgets
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Q1) Which of the following statements is true of the capital expenditures budget?
A)It is a part of the financial budget.
B)It must be completed after the budgeted income statement is prepared.
C)It includes the sales budget.
D)It must be completed before the cash budget is prepared.
Q2) Which of the following is an example of the coordination and communication 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.
Q3) Which of the following describes the production budget?
A)It aids in planning to ensure the company has adequate inventory and cash on hand.
B)It gives the quantity of finished goods to be manufactured during a budget period.
C)It depicts the breakdown of sales on the basis of terms and conditions of collection of sales revenue.
D)It helps in planning to ensure the business has adequate cash.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) When a manufacturing company uses standard costing system,an unfavorable variance has the effect of being a contra expense.
A)True
B)False
Q2) Setting standard costs is a function done within a company's production department and does not require any input from other departments.
A)True
B)False
Q3) Standard costs are developed by the cooperative effort of procurement,production,human resources,and accounting personnel.
A)True
B)False
Q4) A favorable flexible budget variance in sales revenues suggests a(n)________.
A)increase in selling price
B)increase in volume
C)decrease in variable costs per unit
D)decrease in fixed costs
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25
Chapter 24: Responsibility Accounting and Performance Evaluation
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Sample Questions
Q1) Which of the following is the correct formula for calculating residual income (RI)?
A)Weighted average cost of capital - Net operating profit after tax
B)Operating income - Minimum acceptable operating income
C)Historical cost of assets - Accumulated depreciation
D)Operating income ÷ Average assets
Q2) Uniox Inc.intends to increase its profits by 50% in the next financial year.Which of the following is most likely to be a lag indicator in Uniox's performance report?
A)return on investment
B)number of repeat customers
C)rate of on-time deliveries
D)defect rate
Q3) When a division is operating at full capacity,the transfer price can be any of variable cost,full cost or cost plus a mark-up.
A)True
B)False
Q4) Return on investment focuses on net income in the numerator of the ratio.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) A chemical company spent $530,000 to produce 150,000 gallons of a chemical which can be sold for $5.20 per gallon.The chemical can be further processed into a weed killer which can be sold for $7.20 per gallon; it will cost $270,000 to process the chemical into a weed killer.Which of the following is true?
A)To maximize operating income,the company should continue to sell the chemical as is.
B)If the company decides to process further,it will increase operating income by $280,000.
C)If the company decides to process further,it will increase operating income by $30,000.
D)If the company decides to process further,it will decrease operating income by $150,000.
Q2) Special sales orders increase operating income if the revenue from the order exceeds the incremental variable and fixed costs incurred to fill the order.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) To determine the investment's net cash inflows,the inflows are netted against the investment's initial cash outflow.
A)True
B)False
Q2) A company is considering an iron ore extraction project that requires an initial investment of $1,000,000 and will yield annual cash flows of $350,263 for 4 years.The company's hurdle rate is 9%.Calculate IRR.
A)15%
B)18%
C)12%
D)10%
Q3) An operational asset used for a long period of time is known as a capital asset.
A)True
B)False
Q4) The benefit foregone by not choosing an alternative course of action is known as an opportunity cost.
A)True
B)False
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Chapter 27: Accounting Information Systems
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Sample Questions
Q1) The purchases journal is a special journal used to record all purchases of merchandise inventory,office supplies,and other assets on account.
A)True
B)False
Q2) An automobile company purchases spark plugs,for cash.When using a manual accounting information system,the company will record this transaction in the ________.
A)purchases journal
B)general journal
C)cash payments journal
D)sales journal
Q3) The purchases journal of a business that uses periodic inventory system will include a column titled ________.
A)Cost of Goods Sold DR
B)Purchases DR
C)Accounts Payable DR
D)Merchandise Inventory DR
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