Principles of Accounting I Final Exam Questions
Course Introduction
Principles of Accounting I introduces students to the fundamental concepts and procedures of financial accounting. The course covers the principles of recording, classifying, and summarizing financial transactions, the preparation and interpretation of basic financial statements, and the underlying accounting framework including the accounting cycle, double-entry bookkeeping, and generally accepted accounting principles (GAAP). Students will develop skills in analyzing business transactions, posting to ledgers, preparing trial balances, and understanding the roles of accountants in providing financial information for decision-making.
Recommended Textbook
Introductory Financial Accounting for Business 1st Edition by Thomas Edmonds
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Page 2
Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) Expenses are reported on which of the following financial statement(s)?
A) Income statement
B) Balance sheet
C) Statement of changes in stockholders' equity
D) Income statement and statement of changes in stockholders' equity
Answer: A
Q2) Which of the following would be reported in the cash flow from financing activities section of a statement of cash flows?
A) Paid cash for dividends
B) Received cash for common stock
C) Sold land for cash
D) Paying cash for dividends and receiving cash from common stock
Answer: D
Q3) What was the amount of retained earnings that will be reported on Lexington's balance sheet at the end of Year 1?
A) $6,200
B) $5,400
C) $1,400
D) $600
Answer: D
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Chapter 2: Accounting for Accruals
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Sample Questions
Q1) The term "recognition" means to report an economic event in the financial statements.
A)True
B)False
Answer: True
Q2) What is the term used to describe the policies and procedures that are designed to reduce the opportunities for fraud?
A) Internal controls
B) Asset source transactions
C) Accounting standards
D) Financial systems
Answer: A
Q3) What is the purpose of the accrual basis of accounting?
A) Recognize revenue when it is collected from customers.
B) Match assets with liabilities during the proper accounting period.
C) Recognize expenses when cash disbursements are made.
D) Recognizing revenue when it is earned and expenses when they are incurred, regardless of when cash changes hands.
Answer: D
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Page 4
Chapter 3: Accounting for Deferrals
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Sample Questions
Q1) On January 1,Year 1,Alabama Company purchased a machine for $26,000.The machine has an estimated useful life of 4 years and an estimated salvage value of $6,000.What is the book value of the machine reported on Alabama's balance sheet as of December 31,Year 1?
A) $26,000
B) $19,500
C) $21,000
D) $15,000
Answer: C
Q2) Which of the following is an asset use transaction?
A) Purchased land for cash
B) Recorded rent expense at the end of the period
C) Borrowed cash from the bank
D) Accrued salary expense at the end of the period
Answer: B
Q3) Asset use transactions always involve the payment of cash.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) Melbourne Company sold merchandise that it had purchased with a list price of $3,300.The credit terms were of 2/10,n/30.Assuming that Melbourne paid for the merchandise during the discount period,the cost of goods sold for this transaction would be $2,970.
A)True
B)False
Q2) What is the amount of retained earnings that will be shown on the balance sheet at December 31,Year 2?
A) $6,200
B) $26,000
C) $6,800
D) $38,800
Q3) With a periodic inventory system,the cost of goods sold is recorded at the time of a sale of merchandise.
A)True
B)False
Q4) Net income is not affected by a purchase of merchandise.
A)True
B)False
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Chapter 5: Accounting for Inventories
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Q1) The last-in,first-out cost flow method assigns the cost of the items purchased first to ending inventory.
A)True
B)False
Q2) The cost flow method chosen by a company will impact its inventory turnover ratio.
A)True
B)False
Q3) Generally accepted accounting principles restrict or limit a company's freedom to change inventory cost flow methods from one year to the next.
A)True
B)False
Q4) Zinke Company understated its ending inventory at the end of Year 1.Which of the following correctly states the effect of the error on the amounts shown on the Year 1 financial statements?
A) Overstatement of total assets and cost of goods sold.
B) Overstatement of cost of goods sold and retained earnings.
C) Understatement of liabilities and retained earnings.
D) Understatement of total assets and gross margin.
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Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) Most audits result in unqualified audit opinions.
A)True
B)False
Q2) The primary focus of financial statement audits is the discovery of fraud.
A)True
B)False
Q3) How are cash overages reported on the financial statements?
A) Petty Cash Payable
B) Petty Cash Receivable
C) Petty Cash Expense
D) Miscellaneous revenue
Q4) Even a good system of internal controls can be circumvented by collusion among employees.
A)True
B)False
Q5) How will a certified check be shown on a company's bank reconciliation?
A) As a deduction to the company's unadjusted book balance.
B) As an increase to the bank's unadjusted bank balance.
C) As a deduction to the bank's unadjusted bank balance.
D) There is no adjustment when preparing the bank reconciliation.
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Chapter 7: Accounting for Receivables
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Q1) What is the amount of uncollectible accounts expense that will be reported on the Year 2 income statement?
A) $310
B) $725
C) $745.50
D) $550
Q2) When a company accepts a credit card payment for a sale,the amount of sales revenue to be recorded is reduced by the amount of the credit card company's fee.
A)True
B)False
Q3) The net realizable value of accounts receivable is the amount of receivables a company expects to collect.
A)True
B)False
Q4) The longer it takes to collect accounts receivable,the greater the implicit interest cost that is incurred.
A)True
B)False
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Page 9
Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) Pierce Corporation,a U.S.business,is a direct competitor of Zeiss Company,a German firm.The two firms not only compete for customers,but also for investment capital.In Year 1,each company spent about $35,000 U.S.dollars or the equivalent on research and development.U.S.GAAP requires the entire amount to be expensed,while Germany requires its businesses to record R&D expenditures as an asset and then to expense it over its useful life.Assuming the treatment of R&D is the only difference between the two firms,which of the following is correct?
A) Pierce will have higher total assets than Zeiss in Year 1.
B) Pierce will have a higher debt-to-assets ratio than Zeiss in Year 1.
C) Zeiss will have a lower net income for Year 1.
D) This difference in accounting principles does not affect the total amount of assets reported by the two companies.
Q2) What value will be reported for the land on the balance sheet?
A) $370,000
B) $1,100,000
C) $323,000
D) $760,000
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Chapter 9: Accounting for Current Liabilities and Payroll
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Q1) Recording an adjustment for product warranties is a claims exchange transaction.
A)True
B)False
Q2) Contingent liabilities are only recognized if they arise from past events.
A)True
B)False
Q3) Receivables are normally reported on the balance sheet at net realizable value.In contrast,payables are carried at face value.Which accounting principle requires this treatment of payables?
A) Materiality concept
B) Monetary unit assumption
C) Going concern assumption
D) Realizability concept
Q4) Product warranties usually represent legal liabilities that must be reported in the financial statements.
A)True
B)False
Q5) Employers must withhold unemployment taxes from employee salaries.
A)True
B)False
11
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) How does the amortization of the principal balance on an installment note payable affect the amount of interest expense recorded each succeeding year?
A) Reduces the amount of interest expense each year
B) Increase the amount of interest expense each year
C) Has no effect on interest expense each year
D) Cannot be determined from the information provided
Q2) If a bond discount is amortized using the effective interest method,the total amount of interest recognized over the life of the bond is the same as if the straight-line method is used.
A)True
B)False
Q3) On January 1,Year 1,Bluestone Company issued bonds with a face value of $500,000 at 90.How will this transaction affect Bluestone company's cash account?
A) Cash will increase by $450,000
B) Cash will increase by $500,000
C) Cash will increase by $470,000
D) Cash will increase by $50,000
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Chapter 11: Proprietorships, partnerships, and Corporations
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Q1) At the end of the accounting period,Houston Company had $12,000 of common stock,paid-in capital in excess of par value-common of $11,000,retained earnings of $12,000,and $4,000 of treasury stock.What is the total amount of stockholders' equity?
A) $37,000
B) $39,000
C) $19,000
D) $31,000
Q2) Which of the following statements is a reason why a company would buy treasury stock?
A) Because management believes the market price of the stock is undervalued.
B) To have stock available to issue to employees in stock option plans.
C) To avoid a hostile takeover.
D) All of these are reasons a company would buy treasury stock.
Q3) Which of the following terms designates the maximum number of shares of stock that a corporation may issue?
A) Number of shares issued
B) Number of shares authorized
C) Par value
D) Number of shares outstanding
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Page 13
Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) What is the cash flow from financing activities that will be reported during the year ending December 31,Year 1?
A) $0
B) $80,000 inflow
C) $83,000 inflow
D) ($87,200) outflow
Q2) Which of the following would not be reported in the body of the statement of cash flows?
A) The payment of a cash dividend
B) The issuance of preferred stock for cash
C) The purchase and retirement of treasury stock
D) A 2-for-1 stock split
Q3) The direct method of preparing the operating activities section of the statement of cash flows is preferred by the Financial Accounting Standards Board.
A)True
B)False
Q4) Rapid growth of a company can cause it to be short of cash.
A)True
B)False
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Chapter 13: The Double-Entry Accounting System
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Q1) Which of the following statements is true regarding a trial balance that balances?
A) All transactions have been properly recorded.
B) There are no missing transactions.
C) This equality can only be achieved after closing entries have been recorded and posted to the ledger accounts.
D) The equality of debits and credits has been proven.
Q2) A transaction has been recorded in the general journal of Deluty Company as follows:
\[\begin{array} { | l | r | r | }
\hline \text { Unearned Reveruse } & 600 & \\
\hline \text { Consulting Reverue } & & 600 \\
\hline
\end{array}\]
Which of the following describes the effect of this transaction on the company's financial statements?
A) Increases Stockholders' Equity
B) Increases Liabilities
C) Decreases Assets
D) Increases Assets
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15
Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Which ratios measure a company's long-term debt paying ability and its financing structure?
A) Solvency
B) Liquidity
C) Profitability
D) None of these answers is correct.
Q2) As of December 31,Year 1,Gant Corporation had a current ratio of 1.29,quick ratio of 1.05,and working capital of $18,000.The company uses a perpetual inventory system and sells merchandise for more than it cost.On January 1,Year 2 Gant paid $3,600 on accounts payable.Which of the following statements is not true?
A) Gant's quick ratio will increase and its current ratio will decrease.
B) Gant's quick ratio will increase.
C) Gant's working capital will remain the same.
D) Gant's current ratio will increase.
Q3) The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.
A)True
B)False
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