Principles of Accounting I Final Test Solutions
Course Introduction
Principles of Accounting I introduces students to the fundamental concepts and practices of financial accounting. The course covers the accounting cycle, including the identification, recording, and summarizing of business transactions, the preparation of financial statements, and the interpretation of financial information. Students will develop an understanding of key topics such as double-entry bookkeeping, accruals, adjusting entries, and internal controls. Emphasis is placed on the use and analysis of financial statements for decision-making by individuals, businesses, and external stakeholders. This course provides a solid foundation for further study in accounting and business-related fields.
Recommended Textbook
Financial Accounting 13th Edition by Carl S.
Warren
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17 Chapters
3045 Verified Questions
3045 Flashcards
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Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Transactions affecting owner's equity include
A) owner's investments and payment of liabilities
B) owner's investments and owner's withdrawals, revenues, and expenses
C) owner's investments, revenues, expenses, and collection of accounts receivable
D) owner's withdrawals, revenues, expenses, and purchase of supplies on account
Answer: B
Q2) Expenses are recorded when
A) cash is paid for services rendered
B) a bill is received in advance of services rendered
C) assets are used in the process of earning revenue
D) none of these
Answer: C
Q3) Discuss the characteristics of a LLC (Limited liability company).
Answer: A Limited liability company (LLC) combines the attributes of a partnership and a corporation. It is often used as an alternative to a partnership because it has tax and legal liability advantages for owners.
Q4) What are the three sections of the Statement of Cash Flows?
Answer: Operating Activities, Investing Activities, and the Financing Activities
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) An overpayment error was discovered in computing and paying the wages of a Jamison Tree Trimming employee. When Jamison receives cash from the employee for the amount of the overpayment, which of the following entries will Jamison make?
A) Cash, debit; Wages Expense, credit
B) Wages Payable, debit; Wages Expense, credit
C) Wages Expense, debit, Cash, credit
D) Cash, debit; Wages Payable, credit
Answer: A
Q2) Which of the following describes the classification and normal balance of the fees earned account?
A) asset, credit
B) liability, credit
C) owner's equity, debit
D) revenue, credit
Answer: D
Q3) The T account got its name because it resembles the letter "T."
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) A company realizes that the last two day's revenue for the month was billed but not recorded. The adjusting entry on December 31 is debit Accounts Receivable and credit Fees Earned.
A)True
B)False
Answer: True
Q2) On January 2nd, Dog Mart prepaid $30,000 rent for the year and recorded the prepayment in an asset account. Prepare the January 31st adjusting entry for rent expense.
Answer: 11ea8f91_7c8e_6d51_b161_6f6247377932_TB2085_00_TB2085_00_TB2085_00
Q3) Depreciation Expense and Accumulated Depreciation are classified, respectively, as A) expense, contra asset
B) asset, contra liability
C) revenue, asset
D) contra asset, expense
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The totals of the Adjusted Trial Balance columns on a work sheet will always be the sum of the Trial Balance column totals and the Adjustments column totals.
A)True
B)False
Q2) The Statement of Owner's Equity begins with the beginning balance followed by
A) plus Net Income (loss) less withdrawals
B) plus Net Income (loss) plus investments
C) plus investments less withdrawals
D) plus investments plus Net Income (loss) less withdrawals
Q3) The natural business year
A) is a fiscal year that ends when business activities are at its lowest point.
B) is a calendar year that ends when business activities are at its lowest point.
C) is a fiscal year that ends when business activities are at its highest point.
D) is a calendar year that ends when business activities are at its highest point.
Q4) All companies must use a calendar year as their fiscal year.
A)True
B)False
Q5) Explain how net income or loss is determined by using the work sheet.
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Page 6
Chapter 5: Accounting Systems
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Sample Questions
Q1) The Internet creates opportunities for improving the speed and efficiency of transactions. Name and describe three key areas besides e-commerce where the Internet is being used for business purposes.
Q2) Each individual entry in the Revenue Journal is posted to
A) the Accounts Receivable controlling account
B) the accounts receivable subsidiary ledger
C) the Revenue controlling account
D) the accounts receivable subsidiary ledger and the controlling account
Q3) A computerized accounting system will not allow which of the following type of journalizing error?
A) Entering an amount in an incorrect account
B) Reversing the debit and credit account in a transaction
C) Processing a transaction that has unequal debits and credits.
D) Entering a transaction with an incorrect date.
Q4) Which of the following is recorded in the cash receipts journal?
A) cash withdrawn by the owner
B) cash purchase of equipment
C) cash received on customer's account
D) adjusting entry for depreciation
Q5) Define and describe an accounting system.
Page 7
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) A sale of $750 on account, subject to a sales tax of 6%, would be recorded as an account receivable of $750.
A)True
B)False
Q2) Retailers record all credit card sales as credit sales.
A)True
B)False
Q3) During the current year, merchandise is sold for $86,000 cash and for $93,950 on account. The cost of the merchandise sold is $76,240. What is the amount of the gross profit?
Q4) Who pays the freight cost when the terms are FOB destination?
A) the seller
B) the buyer
C) the customer
D) either the buyer or the seller
Q5) Merchandise inventory is classified on the balance sheet as a
A) Current Liability
B) Current Asset
C) Long-Term Asset
D) Long-Term Liability
8
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Chapter 7: Inventories
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Sample Questions
Q1) During times of rising prices, which of the following is not an accurate statement?
A) Average costing will yield results that are between those of FIFO and LIFO.
B) LIFO will result in a higher cost of goods sold than FIFO.
C) FIFO will result in a higher net income than LIFO.
D) LIFO will result in higher income taxes than FIFO.
Q2) The method of computing inventory that uses records of the selling prices of the merchandise is called
A) retail method
B) last-in, first-out
C) first-in, first-out
D) average cost
Q3) During the taking of its physical inventory on December 31, 2011, Gentry Supplies Company incorrectly counted its inventory as $245,000 instead of the correct amount of $254,000. Indicate the affect of the misstatement on Gentry Supplies Company's balance sheet and income statement for the year ended December 31, 2011.
Q4) Generally, the lower the number of days' sales in inventory, the better.
A)True
B)False
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Page 9
Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) Internal control does not consist of policies and procedures that
A) protect assets from misuse
B) aid management in directing operations toward achieving business goals
C) guarantee the company will not go bankrupt
D) ensure that business information is accurate
Q2) Bank customers are considered creditors of the bank so the bank shows their accounts with credit balances on the bank's records.
A)True
B)False
Q3) A $140 petty cash fund has cash of $20 and receipts of $117. The journal entry to replenish the account would include a credit to
A) Cash for $20.
B) Cash Over and Short for $3.
C) Petty Cash for $120.
D) Cash for $120.
Q4) A voucher is a form on which is recorded pertinent data about a liability and the particulars of its payment.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) A $6,000, 60-day, 12% note recorded on November 21 is not paid by the maker at maturity. The journal entry to recognize this event is
A) debit Cash, $6,120; credit Notes Receivable, $6,120
B) debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; Credit Interest Receivable, $120
C) debit Notes Receivable, $6,060; credit Accounts Receivable, $6,060
D) debit Accounts Receivable, $6,120; credit Notes Receivable, $6,000; Credit Interest Revenue, $120
Q2) When a company receives an interest-bearing note receivable, it will
A) debit Notes Receivable for the maturity value of the note.
B) debit Notes Receivable for the face value of the note.
C) credit Notes Receivable for the maturity value of the note.
D) credit Notes Receivable for the face value of the note.
Q3) Both Accounts Receivable and Notes Receivable represent claims that are expected to be collected in cash.
A)True B)False
Q4) Discuss the similarities and differences between accounts receivables, notes receivables and other receivables.
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Chapter 10: Fixed Assets and Intangible Assets
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Sample Questions
Q1) The amount of depreciation expense for the first full year of use of a fixed asset costing $95,000, with an estimated residual value of $5,000 and a useful life of 5 years, is $19,000 by the straight-line method.
A)True
B)False
Q2) Equipment with a cost of $220,000 has an estimated residual value of $30,000 and an estimated life of 10 years or 19,000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used 2,100 hours?
A) $19,000
B) $21,000
C) $22,000
D) $30,000
Q3) The normal balance of the accumulated depreciation account is debit.
A)True
B)False
Q4) Long lived assets held for sale are classified as fixed assets.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Assuming a 360-day year, proceeds of $48,750 were received from discounting a $50,000, 90-day note at a bank. The discount rate used by the bank in computing the proceeds was
A) 6.25%
B) 10.00%
C) 10.26%
D) 9.75%
Q2) The journal entry a company uses to record the issuance of a note for the purpose of converting an existing account payable would be
A) debit Cash; credit Accounts Payable
B) debit Accounts, Payable; credit Cash
C) debit Cash; credit Notes Payable
D) debit Accounts Payable; credit Notes Payable
Q3) Quick assets include
A) cash; cash equivalents, receivables, prepaid expenses, and inventory
B) cash; cash equivalents, receivables, and prepaid expenses
C) cash; cash equivalents, receivables, and inventory
D) cash; cash equivalents, and receivables
Q4) List five internal controls that relate directly to payroll.
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) Henry Jones contributed equipment, inventory, and $44,000 cash to the partnership. The equipment had a book value of $35,000 and market value of $28,000. The inventory has a book value of $25,000, but only had a market value of $12,000. due to obsolescence. The partnership also assumed a $15,000 note payable owed by Henry that was originally used to purchase the equipment. What amount should Henry's capital account be recorded?
A) $104,000
B) $89,000
C) $69,000
D) $84,000
Q2) Details of the division of net income for a partnership should be disclosed
A) in the asset section of the balance sheet
B) in the partners' subsidiary ledger
C) in the statement of cash flows
D) in the partnership income statement
Q3) When a new partner is admitted to a partnership, bonuses attributable to either the old partnership or to the incoming partner may be recognized in accordance with the agreement among the partners.
A)True
B)False
Page 14
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Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) One of the prerequisites to paying a cash dividend is sufficient retained earnings.
A)True
B)False
Q2) When Bayou Corporation was formed on January 1, 20xx, the corporate charter provided for 100,000 share of $10 par value common stock. The following transaction was among those engaged in by the corporation during its first month of operation: The corporation issued 9,000 shares of stock at a price of $23 per share. The entry to record the above transaction would include a
A) debit to Cash for $90,000
B) credit to Common Stock for $207,000
C) credit to Paid in Capital in Excess of Par for $117,000
D) debit to Common Stock for $90,000
Q3) Retained earnings represents past net incomes less past dividends, therefore any balance in this account would be listed on the income statement.
A)True
B)False
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Page 15
Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) If $500,000 of 10-year bonds, with interest payable semiannually, are sold for $494,040 based on (1) the present value of $500,000 due in 20 periods at 5% plus (2) the present value of twenty, $25,000 payments at 5%, the nominal or contract rate and the market rate of interest for the bonds are both 10%.
A)True
B)False
Q2) A bond is simply a form of an interest bearing note.
A)True
B)False
Q3) (a) Prepare the joumal entry to issue $500,000 bonds which sold for $490,000 (b) Prepare the journal entry to issue $500,000 bonds which sold for $515.000
Q4) Bonds Payable has a balance of $1,000,000 and Premium on Bonds Payable has a balance of $7,000. If the issuing corporation redeems the bonds at 101, what is the amount of gain or loss on redemption?
A) $3,000 loss
B) $3,000 gain
C) $7,000 loss
D) $7,000 gain
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Page 16
Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) For accounting purposes, the method used to account for investments in common stock is determined by
A) the amount paid for the stock by the investor.
B) whether the acquisition of the stock by the investor was "friendly" or "hostile."
C) the extent of an investor's influence over the operating and financial affairs of the investee.
D) whether the stock has paid dividends in past years.
Q2) Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1, 2012. Reyes reported net income of $75,000 and declared dividends of $15,000 during 2012. How much would Pepito adjust their investment in Reyes Company under the equity method?
Q3) Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.
A)True
B)False
Q4) (1) Discuss factors contributing to the trend to fair value accounting. (2) What are some of the disadvantages associated with using fair value?
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Equipment with an original cost of $75,000 and accumulated depreciation of $20,000 was sold at a loss of $7,000. As a result of this transaction, cash would
A) increase by $48,000
B) decrease by $7,000
C) increase by $55,000
D) decrease by $27,000
Q2) Using the indirect method, if land costing $85,000 was sold for $145,000, the amount reported in the financing activities section of the statement of cash flows would be $85,000.
A)True
B)False
Q3) When using the worksheet method to analyzing noncash accounts , no order of analysis is required, but it is more efficient to start with Retained Earnings and proceed upward in the account listing.
A)True
B)False
Q4) A cash flow per share amount should be reported on the statement of cash flows.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) What information is generally included in the Management Discussion and Analysis (MD&A) section of a corporate annual report?
Q2) Which of the following ratios provides a solvency measure that shows the margin of safety of bondholders and also gives an indication of the potential ability of the business to borrow additional funds on a long-term basis?
A) ratio of fixed assets to long-term liabilities
B) ratio of net sales to assets
C) number of days' sales in receivables
D) rate earned on stockholders' equity
Q3) Which of the following items appear on the corporate income statement before income from continuing operations?
A) cumulative effect of a change in accounting principle
B) income tax expense
C) extraordinary gain
D) loss on discontinued operations
Q4) Current position analysis indicates a company's ability to liquidate current liabilities.
A)True
B)False
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