Principles of Accounting II Exam
Materials
Course Introduction
Principles of Accounting II builds upon the foundational concepts introduced in Principles of Accounting I, with a primary focus on managerial accounting and its role in business decision-making. The course examines techniques for planning, controlling, and evaluating business operations, including cost accounting, budgeting, performance evaluation, and internal controls. Students will learn to interpret and use financial information for management purposes, develop skills in analyzing financial statements, and apply various cost measurement and allocation methods. By exploring case studies and real-world scenarios, students gain a deeper understanding of how accounting information is used to support strategic and operational decisions within organizations.
Recommended Textbook
Financial Accounting 2nd Edition by J. David Spiceland
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15 Chapters
1948 Verified Questions
1948 Flashcards
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Page 2
Chapter 1: Accounting Information and Decision Making
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Sample Questions
Q1) Using the information below from the accounting records of Thomas Corporation,owners' claims to the company's resources amount to: \[\begin{array} { l r
}
\text { Assets } & \$ 1,200,000 \\
\text { Liabilities } & \$ \$ 00,000 \\
\text { Net incorne } & \$ 100,000 \\
\text { Retained earmings } & \$ 250,000 \end{array}\]
A)$1,200,000.
B)$800,000.
C)$250,000.
D)$400,000.
Answer: D
Q2) Primary qualitative characteristics of accounting information are:
A)Relevance and comparability.
B)Comparability and consistency.
C)Faithful representation and relevance.
D)Faithful representation and consistency.
Answer: C
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3
Chapter 2: The Accounting Information System
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Sample Questions
Q1) Describe the difference between external events and internal events and give two examples of each.
Answer: External events involve an exchange between the company and a separate economic entity.Examples include purchasing office supplies on account or borrowing money from a bank.Internal events directly affect the financial position of the company but do not involve exchange transactions with another entity.Examples include depreciation of equipment or use of supplies.
Q2) Consider the following accounts: Dividends
Insurance Expense
Cash Service Revenue
How many of these accounts are increased with credits?
A)One.
B)Two.
C)Three.
D)Four. Answer: A
Q3) A company sells common stock for $20,000 cash.Record the transaction. Answer: Cash\(\quad 20,000\) Common Stock\(\quad 20,000\)
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Chapter 3: The Financial Reporting Process
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Sample Questions
Q1) A company provided $1,500 of services to customers during the month of May.The customers paid in June.What would the impact of these transactions be during May on each of the following three items?
\(\quad\)Cash \(\quad\)\(\quad\)\(\quad\)\(\quad\)Cash-basis \(\quad\)Accrual-basis
\(\quad\)Balance\(\quad\)\(\quad\)\(\quad\) Net Income \(\quad\)Net Income
a.\(\text { No effect\quad\quad No effect\quad\quad Increase }\)
b.\(\text { No effect\quad\quad No effect\quad\quad No Effect }\)
c.\(\text { Increase\quad\quad Increase\quad\quad Increase }\)
d.\(\text { Increase \quad \quad Increase\quad\quad No effect }\)
A)Option a
B)Option b
C)Option c
D)Option d
Answer: A
Q2) The closing entry for dividends includes a debit to the Dividends account and a credit to Retained Earnings.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Cash and Internal Controls
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Sample Questions
Q1) The petty cash fund represents cash on hand and is used to pay for minor purchases.
A)True
B)False
Q2) After preparing a bank reconciliation,the collection of a note by the bank on a company's behalf would be recorded with:
A)A credit to Notes Receivable.
B)A credit to Cash.
C)A debit to Notes Receivable.
D)A credit to Accounts Receivable.
Q3) Internal control is a company's plan to (1)improve the accuracy and reliability of accounting information and (2)safeguard the company's assets.
A)True
B)False
Q4) Which of the following is NOT a reason why a bank reconciliation is necessary?
A)The company has transactions that the bank has not recorded.
B)Petty cash has a low balance.
C)The bank has transactions that the company has not recorded.
D)Reconciliations provide a control over cash.
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Chapter 5: Receivables and Sales
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Sample Questions
Q1) A sales discount represents a reduction,not in the selling price of a product or service,but in the amount to be paid by a credit customer if payment is made within a specified period of time.
A)True
B)False
Q2) A credit balance in the Allowance for Uncollectible Accounts before adjustment indicates that last year's estimate of uncollectible accounts may have been too high.
A)True
B)False
Q3) The aging method for estimating uncollectible accounts considers that a higher percentage of "older" accounts will not be collected compared to "newer" accounts.
A)True
B)False
Q4) Accounts receivable represent the amount of cash owed to the company by its customers from the sale of products or services on account.
A)True
B)False
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7
Chapter 6: Inventory and Cost of Goods Sold
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Sample Questions
Q1) The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following accounting principles?
A)Matching principle.
B)Revenue recognition.
C)Conservatism.
D)Materiality.
Q2) When inventory costs are declining,__________ generally results in a lower amount of reported inventory.
Q3) The LIFO conformity rule states that if LIFO is used for:
A)One class of inventory,it must be used for all classes of inventory.
B)Tax purposes,it must be used for financial reporting.
C)One company in an affiliated group,it must be used by all companies in an affiliated group.
D)Domestic companies,it must be used by foreign partners.
Q4) For inventory that is shipped FOB shipping point,title transfers from the seller to the buyer once the seller ships the inventory.
A)True
B)False
Q5) __________ is commonly referred to as the balance sheet approach.
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Chapter 7: Long-Term Assets
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Sample Questions
Q1) If a firm successfully defends an intangible right,it should expense the litigation costs as incurred.
If a firm successfully defends an intangible right,it should capitalize the litigation costs and amortize them over the remaining useful life of the related intangible.
A)True
B)False
Q2) Fruitasia purchased land,a building,and equipment for $800,000.The estimated fair values of the land,building,and equipment are $100,000,$700,000,and $200,000,respectively.At what amount would the company record the land?
A)$80,000.
B)$90,000.
C)$100,000.
D)$800,000.
Q3) An impairment loss is equal to the amount by which book value exceeds the fair value of a long-term asset.
A)True
B)False
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9
Chapter 8: Current Liabilities
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Sample Questions
Q1) Working capital is
A)Current assets divided by current liabilities.
B)Current assets minus current liabilities.
C)Cash,short-term investments,and accounts receivable divided by current liabilities.
D)Cash,short-term investments,and accounts receivable minus current liabilities.
Q2) On November 1,2012,New Morning Bakery signed a $200,000,6%,six-month note payable with the amount borrowed plus accrued interest due six months later on May 1,2013.New Morning Bakery records the appropriate adjusting entry for the note on December 31,2012.What amount of cash will be needed to pay back the note payable plus any accrued interest on May 1,2013?
A)$200,000.
B)$202,000.
C)$204,000.
D)$206,000.
Q3) A line of credit is an informal agreement that permits a company to borrow up to a prearranged limit without having to follow formal loan procedures and paperwork.
A)True
B)False
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) For a bond issue that sells for less than the bond face amount,the stated interest rate is:
A)The actual yield rate.
B)The prime rate.
C)More than the market rate.
D)Less than the market rate.
Q2) Stealth Fitness Center issues 7%,10-year bonds with a face amount of $200,000.The market interest rate for bonds of similar risk and maturity is 8%.Interest is paid semiannually.At what price will the bonds be issued?
Q3) Unsecured bonds are not backed by a specific asset.
A)True
B)False
Q4) Convertible bonds:
A)provide potential benefits only to the issuer.
B)provide potential benefits only to the investor.
C)provide potential benefits to both the issuer and the investor.
D)provide no potential benefits.
Q5) Leverage enables a company to earn a higher return using debt than without debt.
A)True
B)False
Page 11
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Limited liability means that even in the event of bankruptcy,stockholders in a corporation can lose no more than the amount they invested in the company.
A)True
B)False
Q2) When we reissue treasury stock,we report the difference between its cost and the cash received as an increase/decrease in additional paid-in capital.
A)True B)False
Q3) When treasury stock is resold at a price above cost:
A)A gain account is credited.
B)A loss is reported.
C)A revenue account is credited.
D)Additional Paid-in Capital is increased.
Q4) Corporations typically do not start raising capital by issuing stock to the general public.What are the common stages of equity financing leading to an initial public offering (IPO)?
Q5) Explain why preferred stock often is said to have a mixture of attributes somewhere between common stock and bonds.
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Chapter 11: Statement of Cash Flows
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Sample Questions
Q1) Assume net income was $100,000,depreciation expense was $8,000,accounts receivable decreased by $7,500,and accounts payable decreased by $2,500.The amount of cash flows from operating activities is:
A)$103,000.
B)$100,000.
C)$108,000.
D)$113,000.
Q2) Kela Corporation reports net income of $450,000 that includes depreciation expense of $70,000.Also,cash of $50,000 was borrowed on a 5-year note payable.Based on this data,total cash inflows from operating activities are:
A)$380,000.
B)$470,000.
C)$520,000.
D)$570,000.
Q3) Under the indirect method,a decrease in accounts payable is added to net income to arrive at net cash flows from operating activities.
A)True
B)False
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13
Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Return on equity is calculated by dividing the stock return by average stockholders' equity.
A)True B)False
Q2) A low receivables turnover ratio is a positive sign that a company can quickly turn its receivables into cash.
A)True B)False
Q3) The debt to equity ratio is:
A)0.33.
B)0.77.
C)1.17.
D)1.30.
Q4) The gross profit ratio is calculated as gross profit divided by net sales.
A)True B)False
Q5) United Products began the year with an Inventory balance of $180,000,and had a year-end balance of $200,000.Sales of $800,000 generated a gross profit of $150,000.Calculate the inventory turnover ratio for the year.
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Chapter 13: Time Value of Money
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Sample Questions
Q1) Samuel is trying to determine what it's worth today to receive $10,000 in four years at a 7% interest rate.He should use a table for the:
A)Future value of $1.
B)Present value of $1.
C)Future value of an annuity of $1.
D)Present value of an annuity of $1.
Q2) Davenport Inc.offers a new employee a lump-sum signing bonus at the date of employment.Alternatively,the employee can take $30,000 at the date of employment and another $50,000 two years later.Assuming the employee's time value of money is 8% annually,what lump-sum at employment date would make her indifferent between the two options?
A)$60,000.
B)$62,867.
C)$72,867.
D)$80,000.
Q3) If you put $200 into a savings account that pays annual compound interest of 8% per year and then withdraw the money two years later,you will earn interest of $32.
A)True
B)False
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Page 15
Chapter 14: Investments
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Sample Questions
Q1) General Investment Co.(GIC)purchased bonds on January 1,2012.GIC's accountant has projected the following amortization schedule from purchase until maturity: \(\begin{array}{rrrrr}& \text { Cash } & \text { Interest } & \text { Increase in } & \text { Carrying } \\
\text { Date } & \text { Paid } & \text { Expense } & \text { Carrying Value } & \text { Value } \\
1 / 1 / 12 & & & & \$ 194,758\\
6 / 30 / 12 & \$ 7,000 & \$ 7,790 & \$ 790 & 195,548 \\
12 / 31 / 12 & 7,000 & 7,822 & 822 & 196,370 \\
6 / 30 / 13 & 7,000 & 7,855 & 855 & 197,225 \\
12 / 31 / 13 & 7,000 & 7,889 & 889 & 198,114 \\
6 / 30 / 14 & 7,000 & 7,925 & 925 & 199,039 \\
12 / 31 / 14 & 7,000 & 7,961 & 961 & \$ 200,000
\end{array}\)
The investment in bonds has a maturity in:
A)Two years.
B)Three years.
C)Six years.
D)Cannot be determined from the given information.
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Page 16
Chapter 15: International Financial Reporting Standards
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Sample Questions
Q1) Under U.S.GAAP,development expenditures are capitalized,while under IFRS,these expenditures must be expensed immediately.
A)True
B)False
Q2) Suppose a severe storm floods a company's headquarters,causing damages to the building of $300,000 and destruction of inventory of $200,000.Because of the unusual nature of this event,the company had no flood insurance to cover these losses.Under U.S.GAAP,how much would the company report as an extraordinary loss in the current year's income statement?
A)$0.
B)$200,000.
C)$300,000.
D)$500,000.
Q3) Describe at least five reasons why accounting practices differ across countries.Which reason do you think is most important? Explain why.
Q4) The FIFO inventory method is not allowed under IFRS.
A)True
B)False
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