Principles of Accounting I Test Bank
Course Introduction
Principles of Accounting I introduces the fundamental concepts and techniques of accounting, focusing on how financial information is prepared, analyzed, and interpreted for decision-making. The course covers the accounting cycle, including recording transactions, adjusting entries, preparing financial statements, and understanding the role of internal controls. Students will learn about generally accepted accounting principles (GAAP), the double-entry system, and the ethical responsibilities of accountants. Emphasis is placed on the analysis of financial statements and the use of accounting information by external stakeholders such as investors and creditors.
Recommended Textbook
Principles of Accounting 11th Edition by Belverd E. Needles
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) The economic resources invested in a business by the owner are represented by owner's equity.
A)True
B)False
Answer: True
Q2) What is the responsibility of the independent auditor? Who is responsible for the content of the published financial statements?
Answer: The responsibility of the independent auditor is to express an opinion about the financial statements of the company being audited. Company's management is responsible for the content of the published financial statements.
Q3) At the beginning of the year, Fourman Company's assets were $270,000 and its owner's equity was $201,000. During the year, assets decreased by $35,000 and liabilities increased by $10,000. What was owner's equity at the end of the year?
Answer: [($270,000 - $35,000) - ($69,000 + $10,000)] = $156,000
Q4) A partnership is dissolved when any partner leaves the business or dies.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Which of the following is not a measurement issue in accounting?
A) Valuation
B) Recognition
C) Evaluation
D) Classification
Answer: C
Q2) If office equipment is sold at cost in exchange for a promissory note,
A) total liabilities increase.
B) total liabilities and owner's equity decrease.
C) total assets decrease.
D) total assets remain the same.
Answer: D
Q3) The Owner's Withdrawals account has a normal credit balance.
A)True
B)False
Answer: False
Q4) Liabilities are established with debits and eliminated with credits.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) Adjusting entries are useful in apportioning costs among two or more accounting periods.
A)True
B)False
Answer: True
Q2) Direct cause-and-effect relationships between revenues and costs can usually be demonstrated.
A)True
B)False
Answer: False
Q3) Distinguish between a deferral and an accrual.
Answer: A deferral is the postponement of the recognition of an expense already paid or of a revenue already received. An accrual is the recognition of an expense or revenue that has arisen but that has not yet been recorded.
Q4) An adjusted trial balance must be prepared before the adjusting entries can be recorded.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The term post means entering transactions into the journal.
A)True
B)False
Q2) Which of the following steps is the last step in accounting cycle?
A) Adjusting entries are recorded and posted.
B) Source documents are analyzed.
C) The financial statements are prepared.
D) Entries are recorded in the journal.
Q3) An important purpose of closing entries is to
A) help achieve the goals of the matching principle.
B) set permanent account balances to zero to begin the next period.
C) update the nominal accounts at year end.
D) transfer net income or net loss to the owner's Capital account.
Q4) The total assets and the total liabilities and owner's equity on the balance sheet are the same as the totals of the Balance Sheet columns on the work sheet.
A)True
B)False
Q5) Reversing entries are never required.
A)True
B)False
6
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Chapter 5: Financial Reporting and Analysis
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Sample Questions
Q1) A merchandiser will earn an operating income of exactly $0 when
A) gross margin equals operating expenses.
B) net sales equals cost of goods sold.
C) cost of goods sold equals gross margin.
D) operating expenses equal net sales.
Q2) The convention of consistency refers to consistent use of accounting principles
A) among firms.
B) within a given accounting period.
C) within industries.
D) among accounting periods.
Q3) General and administrative expenses are a category of operating expense.
A)True
B)False
Q4) Return on assets is a measure of liquidity.
A)True
B)False
Q5) The relevance of accounting information is also an indication of its reliability.
A)True
B)False
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Chapter 6: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) A sale on March 21 with terms of n/10 eom is due to be collected by
A) April 30.
B) March 31.
C) April 10.
D) April 1.
Q2) On the income statement, freight-in is treated as an operating expense.
A)True
B)False
Q3) When a U.S. company does business with a British company and payment is in British pounds, an exchange gain or loss occurs if the exchange rate between dollars and pounds changes between the date of sale and the date of payment.
A)True
B)False
Q4) Which of the following activities is not a component of the operating cycle?
A) Payment of employees' wages
B) Sale of merchandise
C) Purchase of merchandise
D) Collection of cash from merchandise sales
Page 8
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Chapter 7: Internal Control
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Sample Questions
Q1) At the end of each day, the cashier should be the one responsible for comparing the amount on the cash register tape with the day's cash additions to the cash register.
A)True
B)False
Q2) Bonding provides a guarantee against theft.
A)True
B)False
Q3) Which of the following documents would be sent to the treasurer?
A) Purchase order
B) Invoice
C) Check authorization
D) Bank statement
Q4) When a petty cash fund is replenished, the entry requires a debit to Petty Cash.
A)True
B)False
Q5) To assure an efficient system of internal control, management should authorize all transactions.
A)True
B)False
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Chapter 8: Inventories
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Sample
Questions
Q1) A company has goods available for sale of $250,000 at retail and $175,000 at cost. It also had sales of $210,000 for the period. What is the estimated cost of ending inventory, using the retail method?
A) $38,000
B) $28,000
C) $40,000
D) $63,000
Q2) Specific identification is a very popular inventory method because it is very easy to apply.
A)True
B)False
Q3) Inventory methods such as LIFO and FIFO deal more with cost flow than with goods flow.
A)True
B)False
Q4) Why are cost flow assumptions made when accounting for merchandise inventory?
Q5) If prices were to never change, there would be no need for alternative inventory methods.
A)True
B)False
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Chapter 9: Cash and Receivables
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Sample Questions
Q1) When a bank reconciliation balances, no errors could have been made by the bank or the company.
A)True
B)False
Q2) Which of the following would be added to the balance per bank?
A) Outstanding checks
B) Bank service charges
C) Collection of a note receivable by the bank
D) Deposit in transit
Q3) Debit balances in customer accounts appear on the balance sheet as a current liability.
A)True
B)False
Q4) Which of the following statements is not true when FLK Company discounts a note receivable to the bank?
A) FLK may ultimately have to pay the bank when the note is due.
B) If the maker of the note pays the bank on time, no liability will result to FLK.
C) FLK will receive the maturity value from the bank.
D) A contingent liability arises for FLK.
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Product warranties are an expense of the period in which the related product is sold.
A)True
B)False
Q2) Social security and Medicare taxes are borne entirely by the employer.
A)True
B)False
Q3) Current liabilities are debts that are expected to be satisfied within
A) one year or the normal operating cycle, whichever is shorter.
B) one year or the normal operating cycle, whichever is longer.
C) one year.
D) the normal operating cycle.
Q4) Which of the following is both an estimated liability and a contingent liability?
A) Cosignature on $500 loan
B) Current portion of long-term debt
C) Warranty liability
D) Liability for dividends
Q5) Contrast the accounting problems presented by definitely determinable liabilities and those associated with estimated liabilities.
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Chapter 11: Long Term Assets
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Sample Questions
Q1) A specialized piece of equipment closely associated with a mine is most likely to be depreciated over a shorter than normal useful life because the
A) equipment will be fully utilized.
B) income tax laws require that a shorter life be used.
C) equipment contains certain defects.
D) mine is expected to be fully depleted in the shorter length of time.
Q2) In general, a cost incurred in conjunction with a long-term asset is included in the long-term asset account when the cost
A) is incurred subsequent to asset use.
B) exceeds a certain dollar amount.
C) is incurred prior to asset use.
D) will expire in less than one year.
Q3) Which of the following would not be included in the cost of land?
A) Cost of clearing unneeded building from land
B) Sewer assessment from local government
C) Cost of paving land for parking
D) Commission to real estate agent
Q4) What is goodwill and when may it be recorded?
Q5) Present two arguments in favor of the use of accelerated depreciation.
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Chapter 12: Contributed Capital
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Sample Questions
Q1) The following information relates to the number of common shares of the Telly Corporation:
80,000 Authorized shares 30,000 Unissued shares 5,000 Treasury shares
Calculate the number of outstanding shares from the information given. Show your calculations.
Q2) The board of directors of Irondale Corporation declared a cash dividend of $2.50 per share on 57,000 shares of common stock on June 14, 2010. The dividend is to be paid on July 15, 2010, to shareholders of record on July 1, 2010. The effects of the entry to record the payment of the dividend on July 15, 2010, are to
A) increase assets and decrease stockholders' equity.
B) decrease stockholders' equity and decrease liabilities.
C) decrease liabilities and decrease assets.
D) increase stockholders' equity and decrease liabilities.
Q3) Holders of preferred stock normally do not have
A) preference as to dividends.
B) preference as to assets in liquidations.
C) full voting rights.
D) ownership interests in the corporation.
Q4) Define outstanding stock.
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Chapter 13: Long Term Liabilities
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Sample Questions
Q1) If the market interest rate at the date of issuance of a bond exceeds the face interest rate, the bond will probably be sold at a premium.
A)True
B)False
Q2) Bond issue costs have the effect of
A) decreasing a bond discount.
B) increasing a bond premium.
C) decreasing the effective interest rate.
D) decreasing a bond premium.
Q3) Which of the following is an example of off-balance-sheet financing?
A) Leases
B) Bonds
C) Dividends
D) Notes
Q4) When a monthly mortgage payment is made and recorded, the debit to Mortgage Payable represents the reduction in the principal balance.
A)True
B)False
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Page 15
Chapter 14: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) A stock dividend will cause an increase in the total number of shares issued and outstanding.
A)True
B)False
Q2) On July 1, 2010, Tobias Corporation had 20,000 shares of its $100 par value common stock outstanding. On July 2, 2010, Tobias declared a 15 percent stock dividend to be distributed on August 6, 2010, to shareholders of record on July 16, 2010. What amount of retained earnings should be transferred to contributed capital because of this dividend?
A) None
B) Market value of the stock at the date of distribution multiplied by the number of dividend shares
C) Market value of the stock at the date of declaration multiplied by the number of dividend shares
D) Par value per share multiplied by the number of dividend shares
Q3) Which of the following is not true about a 35 percent stock dividend?
A) The market value of the stock is needed to record the stock dividend.
B) Retained earnings decreases.
C) Contributed capital increases.
D) Par value per share remains the same.
Page 16
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) When preparing a statement of cash flows using the indirect method, an increase in accounts receivable is deducted from net income.
A)True
B)False
Q2) Assume that the balance of accounts payable does not change during a period. When preparing a statement of cash flows, an increase in ending inventory over beginning inventory will result in an adjustment to net income under the indirect approach because
A) the amount of cost of goods sold is equal to the amount of cash paid for purchases. B) consumed inventory is an expense but not a use of funds.
C) the amount of cost of goods sold on an accrual basis is less than the amount of cash paid for purchases of inventory.
D) the amount of cash paid for purchases of inventory is less than the amount of cost of goods sold on an accrual basis.
Q3) Give two explanations for why the amount of cash outflow for equipment for the year might not equal the increase in the Equipment account balance from one balance sheet date to the next.
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Chapter 16: Financial Performance Measurement
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Sample Questions
Q1) Rule-of-thumb measures are the best standards of comparison in financial performance evaluation.
A)True B)False
Q2) One of the main parts of an annual report of a publicly held corporation is the fiveto ten-year projection.
A)True B)False
Q3) Cash flows to sales and cash flows to assets are measured in terms of A) times.
B) a percentage.
C) dollars.
D) days.
Q4) The use of rule-of-thumb measures is not an exact science and should be used with great care.
A)True B)False
Q5) The receivable turnover is useful in assessing the profitability of receivables. A)True B)False
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Chapter 17: Partnerships
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Sample Questions
Q1) Nancy invests $60,000 for a one-fifth interest in a partnership in which the other partners have capital totaling $120,000 before admitting Nancy. After distribution of the bonus, Nancy's capital is
A) $60,000
B) $36,000
C) $48,000
D) $24,000
Q2) Which of the following partnership characteristics is a disadvantage?
A) Participation in partnership income
B) Ease of dissolution
C) Unlimited liability
D) Voluntary association
Q3) Donovan invests $60,000 for a 30 percent interest in a partnership in which the other partners have capital totaling $100,000 before admitting Donovan. After distribution of the bonus, what is Donovan's capital balance?
A) $30,000
B) $48,000
C) $60,000
D) $72,000
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Page 19
Chapter 18: The Changing Business Environment-A
Managers Pers
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Sample Questions
Q1) Financial accounting usually involves analyses of various segments of a business, such as cost centers, profit centers, or departments, or of some specific aspect of its operations.
A)True
B)False
Q2) Comparing the number of bytes processed per nanosecond by each computer is an example of using nonfinancial data analysis.
A)True
B)False
Q3) List three characteristics of a JIT operating environment.
Q4) Identify three uses of the costs of quality information.
Q5) Which of the following is not included in the cost of quality?
A) Inspection costs
B) Costs of handling customer complaints
C) Rework costs
D) Inventory ordering costs
Q6) Evaluating employees based upon their performance is an example of developing benchmarks.
A)True
B)False Page 20
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Page 21
Chapter 19: Cost Concepts and Cost Allocation
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Q1) When the activity base used in calculating the predetermined overhead rate is units of output, which of the following also must be known before overhead can be applied to a particular job?
A) Actual overhead incurred during the period
B) Estimated direct labor hours for all jobs during the period
C) Actual units produced for that job
D) Actual units produced for all jobs during the period
Q2) Direct materials, direct labor, and overhead costs will most likely become part of the Cost of Goods Sold account balance in case of manufacturing companies.
A)True
B)False
Q3) Which of the following is a collection of overhead costs related to a cost object?
A) Cost driver
B) Cost function
C) Cost equation
D) Cost pool
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22
Chapter 20: Costing Systems: Job Order Costing
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Sample Questions
Q1) In a job order costing system, a separate job order cost card is used for each individual job.
A)True
B)False
Q2) Unique products are produced in a continuous flow production process.
A)True
B)False
Q3) Service organizations incur little or no cost for
A) applied overhead.
B) actual overhead.
C) materials.
D) labor.
Q4) When a job is completed in a service organization, the job costs are transferred to the
A) Work in Process Inventory account.
B) Finished Goods Inventory account.
C) Cost of Goods Sold account.
D) Cost of Services account.
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Chapter 21: Costing Systems Process Costing
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Q1) Use the following information to perform the calculations requested below, assuming that the average costing approach to a process costing system is being used.
Beginning work in process inventory: 6,000 units, 100 percent complete as to direct materials, 75 percent complete as to conversion costs
Ending work in process inventory: 18,000 units, 100 percent complete as to direct materials, 65 percent complete as to conversion costs
Units started during the month: 44,000
a. Calculate units completed and transferred out during the month.
b. Calculate units to be accounted for during the month.
c. Calculate equivalent units for conversion costs.
d. Calculate equivalent units for direct materials.
Q2) A process costing system first accumulates the costs of direct materials, direct labor, and overhead for each process, department, or work cell and then assigns those costs to the products produced during a particular period.
A)True
B)False
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Chapter 22: Activity-Based Systems-Abm and Lean
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Sample Questions
Q1) Backflush costing aims at reducing waste in the A) accounting system.
B) cost of goods sold.
C) storage of raw materials.
D) production process.
Q2) What would a company using an activity-based management approach attempt to do in regard to activities that add value to the product and those that do not?
Q3) A value-adding activity is one that adds cost to a product or service but does not increase its market value.
A)True
B)False
Q4) The JIT operating philosophy requires pull-through production system. A)True B)False
Q5) To minimize costs, managers continuously seek to improve processes and activities. A)True
B)False
Q6) Why is process value analysis not part of the general ledger accounting system?
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Chapter 23: Cost Behavior Analysis
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Sample Questions
Q1) Unit variable costs vary with changes in productive output, whereas total variable costs remain constant.
A)True
B)False
Q2) Repair bills for large machinery may include a flat fee for the visit to the company's premises plus additional labor charges per hour of repair work and various costs of replacement parts needed. What type of cost is the repair?
A) Selling cost
B) Variable cost
C) Fixed cost
D) Mixed cost
Q3) An increase in the unit sales price will cause the breakeven point to increase.
A)True
B)False
Q4) The contribution margin income statement enables managers to view revenue and cost relationships on a per unit basis or as a percentage of sales.
A)True
B)False
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Chapter 24: The Budgeting Process
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Q1) Which of the following is not true about the direct materials purchases budget?
A) It is determined by the anticipated change in the direct materials inventory level and the production budget.
B) The direct materials purchases budget does not affect the forecasted balance sheet.
C) The direct materials purchases budget is expressed in units and dollars.
D) It is used in preparing the budgeted income statement.
Q2) Financial budgets include
A) pro forma statements, a sales budget, and a cost of goods manufactured budget.
B) a budgeted income statement and budgeted balance sheet only.
C) a budgeted income statement, budgeted balance sheet, and cash budget.
D) pro forma statements, a capital expenditures budget, and a cash budget.
Q3) Which of the following budgets probably would be prepared immediately after the preparation of the production budget?
A) Cash budget
B) Capital expenditures budget
C) Selling and administrative expense budget
D) Direct materials purchases budget
Q4) Describe three benefits budgeting provides to an organization's success.
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Chapter 25: Performance Management and Evaluation
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Q1) A report for a responsibility center includes costs and revenues that are both controllable and uncontrollable by a manager.
A)True
B)False
Q2) The effectiveness of a performance management and evaluation system depends on how well it coordinates the goals of
A) the entire company.
B) responsibility centers.
C) managers.
D) all of these choices.
Q3) The manager of Center B produces a product that is not sold to an external party. What type of responsibility center is Center B?
A) Cost center
B) Discretionary cost center
C) Profit center
D) Revenue center
Q4) Like ROI, residual income is a performance measure displayed as a ratio.
A)True
B)False
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Chapter 26: Standard Costing and Variance Analysis
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Q1) The direct labor rate standard is either set by a labor contract or defined by the company.
A)True
B)False
Q2) A purpose of standard costing is to
A) control costs.
B) allocate costs more accurately.
C) replace subjective decision making.
D) compute the breakeven point.
Q3) The use of realistic predetermined unit costs to facilitate product costing, cost control, cost flow, and inventory valuation is a description of the A) flexible budget concept.
B) budgetary control concept.
C) capacity level concept.
D) standard cost accounting concept.
Q4) The direct materials price standard is determined by averaging costs of current purchases.
A)True B)False
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Chapter 27: Short Run Decision Analysis
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Sample Questions
Q1) A special order should be accepted only if it maximizes operating income.
A)True
B)False
Q2) Contribution margin information is not relevant for
A) the elimination of unprofitable segment decisions.
B) pricing decisions for special orders.
C) sales mix with resource constraint decisions.
D) determining the amount that sales exceeded fixed costs.
Q3) The idea behind incremental analysis is to review decision data that differ between alternatives; information that is the same for all alternatives is considered irrelevant to the decision process.
A)True
B)False
Q4) Joint costs that are incurred before the split-off point should be ignored while making a decision to sell or process a product further.
A)True
B)False
Q5) "Variable costs are relevant and fixed costs are irrelevant." Explain why you agree or disagree with this statement.
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Chapter 28: Capital Investment Analysis
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Q1) Cost of capital of a company will be determined in four steps.
A)True
B)False
Q2) Simple interest is the interest earned on a principal sum that is increased at the end of each period by the interest for that period.
A)True
B)False
Q3) The most commonly used methods in the evaluation of capital investment proposals are net present value method, payback period method and the accounting rate-of-return method.
A)True
B)False
Q4) The payback period is based on a project's net income.
A)True
B)False
Q5) Competition, availability and training of employees, anticipated future technological improvements are some of the examples of qualitative factors.
A)True
B)False
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