Principles of Accounting II Exam Preparation Guide
Course Introduction
Principles of Accounting II builds on foundational accounting concepts introduced in earlier coursework, with an emphasis on the preparation, interpretation, and analysis of financial statements for partnerships and corporations. The course explores advanced topics such as managerial accounting, cost allocation, budgeting, performance evaluation, and the use of accounting information for decision-making. Students will also examine ethical considerations and professional standards in accounting practice, gaining practical skills in financial analysis essential for further study or careers in business, finance, and accounting.
Recommended Textbook
Financial Accounting 9th Edition by Walter T. Harrison
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13 Chapters
2240 Verified Questions
2240 Flashcards
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Page 2
Chapter 1: The Financial Statements
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) An investor wishing to assess a company's overall financial position at the end of the period would probably examine the:
A) statement of cash flows and the income statement.
B) income Statement only
C) balance sheet.
D) statement of retained earnings.
Answer: C
Q2) Dividends:
A) are paid by a business to shareholders as compensation for services.
B) affect net income.
C) are distributions to stockholders of assets (usually cash) generated by net income.
D) are distributions to stockholders of assets (usually cash) generated by a favorable balance in retained earnings.
Answer: C
Q3) Cost is a verifiable measure that is relatively free from bias.
A)True
B)False
Answer: True
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3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) Lucy Morton opened an engineering office and titled the business Engineering Enterprises P.C. During its first month of operations, it completed the following transactions: I. Lucy invested $30,000 in the business, which in turn issued common stock to her.
II. The business purchased equipment on account for $6,000.
II. The business provided engineering services on account, $10,000.
III. The business paid salaries to the receptionist, $1,000.
IV. The business received cash from a customer as payment on account $6,000.
V. The business borrowed $8,000 from the bank, issuing a note payable.
Total assets would be:
A) $30,000.
B) $37,000.
C) $47,000.
D) $61,000.
Answer: C
Q2) Each journal entry should contain a brief description of the transaction.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) Which of the following combinations of ratios is preferable?
A) A low current ratio and a high debt ratio
B) A high current ratio and a low debt ratio
C) A low current ratio and a low debt ratio
D) A high current ratio and a high debt ratio
Answer: B
Q2) The adjusting entry to recognize unpaid salaries increases net income and increases liabilities.
A)True
B)False
Answer: False
Q3) On a classified balance sheet:
A) Accounts Receivable is a current liability.
B) Salaries Payable is a long-term liability.
C) Notes Payable due in one year is a current liability.
D) Dividends is a current asset.
Answer: C
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Chapter 4: Internal Control Cash
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173 Flashcards
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Sample Questions
Q1) If a bank statement includes an EFT receipt of $200 for interest, the journal entry to record this reconciling item should include a:
A) debit to Cash for $200.
B) debit to Accounts Receivable for $200.
C) credit to Cash for $200.
D) credit to Prepaid Interest for $200.
Q2) When a company receives cash by mail:
A) all incoming mail containing cash receipts should be opened by the accounting department.
B) the mailroom sends all customer checks to the internal audit department.
C) the remittance advice goes to the accounting department for preparation of the journal entries.
D) the bank deposit is prepared by the mail room.
Q3) A purchase order informs a vendor of the company's intention to purchase merchandise.
A)True
B)False
Q4) Explain why separation of duties is such an important procedure for safeguarding assets. Provide two examples of this control procedure.
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) A company with net sales of $1,642,500, a beginning balance of net receivables of $187,500, and an ending balance of net receivables of $235,500 has a days' sales in receivables (rounded) of:
A) 42 days.
B) 47 days.
C) 52 days.
D) 56 days.
Q2) Which of the following is considered to be a more stringent measure of a company's ability to pay its current liabilities than the current ratio?
A) Accounts payable
B) Quick ratio
C) Liquidity ratio
D) Collection period
Q3) Short-term investments are the most liquid asset.
A)True
B)False
Q4) The payee of the note records interest on a note receivable as interest revenue.
A)True
B)False
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Service entities will have both a cost of goods sold and an inventory account.
A)True
B)False
Q2) The disclosure principle requires that management prepare financial reports that disclose all of the following types of information EXCEPT:
A) information that is relevant to decision making.
B) forecasts of expected future earnings to help investors decide whether to invest in the company.
C) the method of inventory used.
D) information that facilitates comparison with other companies' financial reports.
Q3) When prices are rising, a company using the FIFO costing method will generally pay less taxes than if the company had been using the LIFO method.
A)True
B)False
Q4) An error in ending inventory creates errors for three accounting periods.
A)True
B)False
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Chapter 7: Plant Assets, Natural Resources, Intangibles
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Sample Questions
Q1) Treating a capital expenditure as an immediate expense:
A) overstates assets and overstates owners' equity.
B) overstates expenses and understates net income.
C) understates expenses and overstates owners' equity.
D) understates expenses and understates assets.
Q2) On June 1, 2011, Conqueror Company purchased Standard Corp for $26 million cash. At the time of purchase, the market value of Standard's assets was $24,000,000 and Mollie had liabilities of $3,000,000.
Record the purchase transaction on Biddy Corp's books.
Q3) The cost of installing lights in the parking lot should be recorded as:
A) land.
B) land improvements.
C) building.
D) equipment.
Q4) The units-of-production method is an accelerated depreciation method. A)True B)False
Q5) Depreciation expense decreases both assets and equity.
A)True
B)False
Page 9
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Chapter 8: Long-Term Investments the Time Value of Money
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Sample Questions
Q1) When a parent-subsidiary relationship exists, the consolidated statements include:
A) the balance sheet, income statement and the statement of cash flows.
B) only the balance sheet.
C) only the income statement.
D) only the balance sheet and the income statement.
Q2) Dividends received on stock investments of less than 20% should be credited to the Investment account.
A)True
B)False
Q3) When an investor owns between 20% and 50% of the outstanding stock of another company, the ________ method is used to account for stock investments.
A) market value
B) equity
C) consolidated
D) historical cost.
Q4) On the balance sheet, assets are listed by dollar amount (lowest to highest).
A)True
B)False
Page 10
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Chapter 9: Liabilities
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Sample Questions
Q1) Under the effective-interest method of amortization, the cash payment on each interest payment is calculated by multiplying the:
A) face value of the bonds times the effective-interest rate for the appropriate time period.
B) face value of the bonds times the stated interest rate for the appropriate time period.
C) carrying value of the bonds times the stated interest rate for the appropriate time period.
D) carrying value of the bonds times the effective-interest rate for the appropriate time period.
Q2) In a lease agreement:
A) the owner of the property is called the lessee.
B) the renter of the property is called the lessor.
C) the presence of a bargain purchase option indicates that it is a capital lease.
D) there is always a transfer of ownership of the leased asset at the end of the lease.
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11
Chapter 10: Stockholders Equity
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Sample Questions
Q1) When a stock dividend is received, the stockholder would:
A) own more shares of stock.
B) anticipate the par value of the stock to increase.
C) expect the market price per share to increase.
D) expect retained earnings to decrease.
Q2) Wolverine Corporation issued 5,000 shares of its $5 par value common stock in payment for attorney services of $40,000. Wolverine stock has been actively trading at $20 per share. This transaction would include a:
A) debit to Legal Expense $100,000.
B) debit to Legal Expense $40,000.
C) credit to Common Stock $100,000.
D) credit to Common Stock $40,000
Q3) Pretzel, Inc. paid $54,000 to buy back 9,000 shares of its $1 par value common stock. The stock was sold later at a selling price of $10 per share. The entry to record the sale would include a:
A) debit to Paid-in Capital - Treasury Stock $54,000.
B) debit to Common Stock $54,000.
C) credit to Paid-in Capital-Treasury Stock $36,000.
D) credit to Common Stock $36,000.
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Page 12
Chapter
Income, the Statement of Stockholders Equity
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Sample Questions
Q1) Recognizing revenue before it is earned is a major source of financial statement fraud.
A)True
B)False
Q2) The income statement provides better information about a company than the statement of cash flows.
A)True
B)False
Q3) A prior-period adjustment for overstated net income will be:
A) debited to the Retained Earnings account.
B) credited to the Retained Earnings account.
C) shown as a liability on the current year's Balance Sheet.
D) shown as a loss on the current year's Income Statement.
Q4) In a foreign-currency transaction, all funds must be converted to U.S. dollars for reporting purposes.
A)True
B)False
Q5) U.S. GAAP and IFRS do not have the same revenue recognition criteria.
A)True
B)False Page 13
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Page 14
Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following would be reported on a statement of cash flows as a financing activity?
A) Sale of equipment
B) Amortization expense
C) Collection of notes receivable
D) Purchase of treasury stock
Q2) Under the direct method of preparing the statement of cash flows, which statement is correct regarding the method of computing interest revenue?
A) Sales plus a decrease in interest receivable
B) Interest revenue plus a decrease in interest receivable
C) Interest revenue plus an increase in interest receivable
D) Interest revenue less a decrease in interest receivable
Q3) Financing activities involve:
A) issuing debt.
B) acquiring long-term assets.
C) lending money.
D) acquiring investments.
Q4) Operating income is typically equal to cash flow from operating activities.
A)True
B)False
Page 15
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Common-size analysis is also known as:
A) Trend analysis.
B) Ratio analysis.
C) Vertical analysis.
D) Matrix analysis.
Q2) In the statement of cash flows, purchases of fixed assets are considered to be investing activities.
A)True
B)False
Q3) A company's debt ratio is computed as total assets minus total liabilities.
A)True
B)False
Q4) When computing trend percentages:
A) the current year is always equal to 100%.
B) the base year is always the latest year.
C) the base year is always equal to 100%.
D) the base year is equal to the current year plus the previous year divided by two.
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