Principles of Accounting I Textbook Exam
Questions
Course Introduction
Principles of Accounting I introduces students to the foundational concepts and procedures of financial accounting. The course covers the basic principles of recording, classifying, and summarizing financial transactions in accordance with generally accepted accounting principles (GAAP). Students will learn how to prepare and interpret key financial statements, including the balance sheet, income statement, and statement of cash flows. Emphasis is placed on the accounting cycle, double-entry system, adjusting entries, and the importance of ethical standards in the accounting profession. This course serves as the groundwork for more advanced study in accounting and finance.
Recommended Textbook
Fundamentals of Financial Accounting 5th Edition by Fred Phillips
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Chapter 1: Business Decisions and Financial Accounting
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Sample Questions
Q1) Relevance is an objective of external financial reporting that means:
A) the financial reports of a business are assumed to include the results of only that business's activities.
B) financial information can be compared across businesses because similar accounting methods have been applied.
C) the financial information possesses a feature that allows it to influence a decision.
D) the financial information depicts the economic substance of business activities.
Answer: C
Q2) If National Inc.has Common Stock of $80,000,total assets of $170,000,and total liabilities of $70,000,its Retained Earnings equals:
A) $20,000.
B) $90,000.
C) $100,000.
D) $110,000.
Answer: A
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Chapter 2: Reporting Investing and Financing Results on the Balance Sheet
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Sample Questions
Q1) What is the minimum number of accounts that must be involved in any transaction?
A) One
B) Two
C) Three
D) There is no minimum.
Answer: B
Q2) Journal entries show the effects of transactions on the elements of the accounting equation,as well as the account balances.
A)True
B)False
Answer: False
Q3) In part,a transaction affects the accounting equation by decreasing an asset.There is no effect on liabilities.Which of the following statements is correct with regards to this transaction?
A) If other assets are unchanged, stockholders' equity must be increasing.
B) If other assets are unchanged, stockholders' equity must be decreasing.
C) If stockholders' equity is unchanged, another asset must be decreasing.
D) If stockholders' equity is unchanged, other assets must be unchanged.
Answer: B
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Chapter 3: Reporting Operating Results on the Income Statement
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Q1) Which of the following statements about the cash basis of accounting is correct?
A) It can lead to a distorted view of the company's financial performance.
B) It is the only acceptable method for external reporting.
C) It reports revenues when earned and expenses when incurred.
D) It is used when cash is paid at the same time as the cost is incurred, but is not used when cash is paid before the expense is incurred.
Answer: A
Q2) Costs that benefit future periods are reported as assets.
A)True
B)False
Answer: True
Q3) A net loss results when:
A) assets are greater than liabilities.
B) revenues are less than expenses.
C) revenues are greater than expenses.
D) cash paid is less than cash received.
Answer: B
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Page 5
Chapter 4: Adjustments,financial Statements,and Financial
Results
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Sample Questions
Q1) A company started the year with $1,500 of supplies on hand.During the year the company purchased additional supplies of $800 and recorded them as increase to the supplies asset.At the end of the year the company determined that only $300 of supplies are still on hand.What is the adjusting journal entry to be made at the end of the period?
A) Debit Supplies Expense and credit Supplies for $2,000
B) Debit Supplies and credit Supplies Expense for $300
C) Debit Supplies Expense and credit Supplies for $1,200
D) Debit Supplies and credit Supplies Expense for $1,000
Q2) An adjusted trial balance should be prepared immediately:
A) after the financial statements, but before closing.
B) before posting adjusting entries.
C) after posting adjusting entries.
D) after journalizing adjusting entries.
Q3) Long-lived assets,such as equipment,are reported at their ______ value on the balance sheet.
A) fair market
B) insurable
C) carrying
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Chapter 5: Fraud, Internal Control, and Cash
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Q1) Which of the following is not a reason that a business needs an effective internal control system?
A) Ensure that work is completed efficiently and effectively
B) Produce reliable and timely accounting information for use by people external to the organization
C) Protect assets by reducing the risk of fraud
D) Identify ways to circumvent applicable laws and regulations
Q2) DigDug Corporation had outstanding checks totaling $5,400 on its June bank reconciliation.In July,DigDug issued checks totaling $38,900.The July bank statement shows that $26,300 in checks cleared the bank in July.The amount of outstanding checks on DigDug's July bank reconciliation should be:
A) $12,600.
B) $18,000.
C) $5,400.
D) $7,200.
Q3) The use of internal controls guarantees protection against losses due to fraud,errors,and inefficiencies.
A)True
B)False
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Chapter 6: Internal Control and Financial Reporting for Cash and Merchandising Operations
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Sample Questions
Q1) The journal entry to record taking a discount when paying for goods previously purchased on account:
A) decreases assets and liabilities
B) increases assets and stockholders' equity
C) decreases liabilities and increases in stockholders' equity
D) decreases assets and stockholders' equity
Q2) Beginning inventory plus purchases equals:
A) ending inventory.
B) cost of goods sold.
C) goods available for sale.
D) net purchases.
Q3) Which of the following is inventory?
A) Goods held for sale in the normal course of business
B) Office supplies that a company plans to use in the next few months
C) Equipment used to manufacture products which will be sold later
D) Raw materials and work in process
Q4) FOB shipping point means that ownership of goods passes to the buyer when the goods reach the buyer.
A)True
B)False
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Chapter 7: Reporting and Interpreting Inventories and Cost of Goods Sold
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Q1) Specific identification is:
A) the classification of an account as an asset, liability, or stockholders' equity account.
B) an inventory method that individually identifies and records the cost of each item as cost of goods sold.
C) a detailed list of all of a corporation's stockholders.
D) a high-tech security technique for identifying key employees.
Q2) A declining inventory turnover ratio may mean that:
A) goods are not selling as fast as they were in the past.
B) the company is expecting to sell more in the future.
C) goods are selling, but it is taking longer to collect payment.
D) goods cannot be shipped fast enough.
Q3) Which of the following would be in the raw materials inventory of a company making cheese?
A) Milk and cream used to make the cheese
B) Cheese that has been made but is curing before being ready to sell
C) Cured cheese that is waiting to be shipped to retailers
D) Partially processed cheese
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Page 9
Chapter 8: Reporting and Interpreting Receivables,bad
Debt Expense,and Interest Revenue
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Q1) A scenario under which a company's credit sales are increasing and its accounts receivable turnover is decreasing might suggest:
A) channel stuffing.
B) cookie jar accounting.
C) an investment opportunity.
D) improved receivables monitoring.
Q2) Santiago Cleaners allows customers make purchases using their VISA credit cards.If customers purchase from Santiago using VISA credit cards,which of the following statements is correct?
A) VISA pays Santiago the full amount of purchase, without charging a fee.
B) VISA will wait until the customer makes payment to the credit card company until forwarding payment to Santiago.
C) Santiago does not have to collect directly from customers.
D) Santiago must bear any losses from uncollectible accounts.
Q3) The accounts receivable account for each customer is called a subsidiary account.
A)True
B)False
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Page 10
Chapter 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets
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Q1) On January 1,2014,Xit Company bought a new delivery truck for $30,000.Xit plans to use the truck for 4 years,after which it will be sold for $6,000.Depreciation expense for 2017,the fourth year of use,using double-declining-balance equals:
A) $1,500.
B) $3,750.
C) $6,000.
D) $0.
Q2) The MegaHit Film Studio has a licensing right (or agreement)to distribute films produced by the Artsy Film Company.How would the MegaHit Company classify this licensing right?
A) Tangible asset
B) Research and development
C) Intangible asset
D) Fixed asset
Q3) Impairment occurs when the estimated future cash flows from a long-lived asset are less than its book value.
A)True
B)False
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Chapter 10: Reporting and Interpreting Liabilities
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Sample Questions
Q1) Which of the following is not used to calculate the times interest earned ratio?
A) Net income.
B) Income tax expense.
C) Interest earned on investments.
D) Interest expense
Q2) On January 1,2016,a company issues 3-year bonds with a face value of $200,000 and a stated interest rate of 8%.Because the market interest rate is lower than the stated interest rate,the company receives $209,000 for the bond.The company uses straight-line bond amortization.
Required:
Part a.Determine the amount of the premium that will be amortized during the year ending December 31,2016.
Part b.Prepare the journal entry to record the first interest payment on December 31,2016.
Q3) When a company issues bonds that do not pay periodic interest,the bonds are called:
A) convertible bonds.
B) debenture bonds.
C) serial bonds.
D) zero-coupon bonds.
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Page 12
Chapter 11: Reporting and Interpreting Stockholders Equity
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Q1) A company issues 1 million shares of common stock with a par value of $0.02 for $15 a share.The entry to record this transaction includes a debit to Cash for:
A) $20,000 and a credit to Common Stock for $20,000.
B) $15,000,000 and a credit to Common Stock for $15,000,000.
C) $15,000,000, a credit to Common Stock for $20,000, and a credit to Additional Paid-in Capital for $14,980,000.
D) $20,000, a debit to Capital Receivable for $14,980,000, a credit to Common Stock for $20,000, and a credit to Additional Paid-in Capital for $14,980,000.
Q2) The Wadsworth Corp.has common stock with a par value of $5.During the current year,it declared and paid dividends of $10,000.It sold at $20 per share an additional 1,000 shares of stock that had not been previously issued.In addition,it had net income of $50,000 for the year.What is the amount of change to its stockholders' equity for the year?
A) $70,000
B) $45,000
C) $55,000
D) $60,000
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Page 13
Chapter 12: Reporting and Interpreting the Statement of Cash Flows
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Q1) Assume that the indirect method is used to determine net cash provided by (used in)operating activities and that Accounts Receivable balance decreased by $10 million during the year.That $10 million should be:
A) added to net income.
B) subtracted from net income.
C) added to investing activities.
D) subtracted from investing activities.
Q2) The Viviana Co.uses the indirect method to determine its cash flow from operations.Which of the following items will be subtracted from net income to find its cash flow from operations?
A) Decrease in Supplies
B) Increase in Accounts Payable
C) Depreciation Expense
D) Increase in Accounts Receivable.
Q3) Using the indirect method,which of the following would be added to net income?
A) A decrease in Supplies
B) An increase in Prepaid Insurance
C) A decrease in Salaries and Wages Payable
D) An increase in Equipment
Page 14
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Chapter 13: Measuring and Evaluating Financial Performance
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Q1) A company has a debt-to-assets ratio of 0.45.If the company then borrows cash from the bank to finance a building acquisition,which of the following is a correct statement?
A) The debt-to-assets ratio will be unchanged.
B) The debt-to-assets ratio will increase.
C) The debt-to-assets ratio will decrease.
D) The debt-to-assets ratio will increase as a result of the cash received and then decrease as a result of the building acquisition.
Q2) Kirk Furniture Company had net Accounts Receivable of $750,000 at the beginning of the year and $925,000 at the end of the year.Net Sales Revenue for 2010 was $6,500,000.What is the days to collect from customers?
A) 60.00
B) 42.12
C) 51.94
D) 47.03
Q3) Benchmarks are required to evaluate a company's performance.
A)True
B)False
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