Principles of Accounting II Final Exam
Course Introduction
Principles of Accounting II builds upon foundational accounting concepts by exploring more advanced topics related to the preparation and analysis of financial statements. The course emphasizes managerial accounting techniques, including budgeting, cost analysis, performance measurement, and decision-making processes. Students will learn about accounting for partnerships, corporations, long-term liabilities, and investments, as well as ethical considerations in the accounting profession. Through practical exercises and real-world applications, this course prepares students to interpret and use accounting information for effective organizational planning and control.
Recommended Textbook
Horngrens Financial and Managerial Accounting The Managerial Chapters 5th Edition by Miller
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Page 2
Chapter 1: Accounting and the Business Environment
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Q1) In a corporation,the board of directors is elected by the chairperson of the company.
A)True
B)False
Answer: False
Q2) Corporations pay their own income tax on corporate income.Stockholders pay personal income tax on the dividends received from corporations.This is an example of
A)double taxation
B)continuous life
C)no mutual agency
D)a limited liability company
Answer: A
Q3) Local,state,and federal governments use accounting information to calculate income taxes.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Q1) Mitchell Florists & Co.reported assets of $1,000 and equity of $450.What is its debt ratio? (Round your percentage answer to two decimal places. )
A)55.00%
B)45.00%
C)100.00%
D)60.00%
Answer: A
Q2) A trial balance summarizes the ledger by listing all the accounts with their balances at a point in time.
A)True
B)False
Answer: True
Q3) Which of the following is the final step in the journalizing and posting process?
A)Posting the accounts to the ledger.
B)Identifying each account affected and its type.
C)Determining whether the accounting equation is in balance.
D)Determining whether each account has increased or decreased.
Answer: C
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4
Chapter 3: The Adjusting Process
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Q1) The Accumulated Depreciation account is ________.
A)a record of the sum of all the depreciation expense recorded
B)the price quoted to the buyer of a used asset
C)an expense account
D)the expense account used to expense the cost of an asset
Answer: A
Q2) Techno Technical Services is working on a six-month job for a client,starting on February 1.It will collect $24,000 from its customer when the job is finished but the revenue is earned evenly over the six months.On March 31,before adjusting entries are made,Techno's Accounts Receivable account had a debit balance of $3,000.After the March 31 monthly adjusting entry has been made,what will be the balance in Accounts Receivable?
A)Debit balance of $4,000
B)Credit balance of $20,000
C)Debit balance of $7,000
D)Debit balance of $24,000
Answer: C
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Page 5
Chapter 4: Completing the Accounting Cycle
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Q1) Which of the following is an example of an intangible asset?
A)Equipment
B)Plant
C)Property
D)Copyright
Q2) The Salaries Expense account is a temporary account.
A)True
B)False
Q3) Which of the following accounts will be closed by debiting the Income Summary account?
A)Depreciation Expense
B)Accounts Payable
C)Service Revenue
D)Accumulated Depreciation
Q4) GAAP requires publicly traded companies to prepare a post-closing trial balance and publish it in their annual report.
A)True
B)False
Q5) Which accounts are closed at the end of the accounting period? Why is it necessary to close these accounts?
6
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Chapter 5: Merchandising Operations
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Q1) Credit terms of 2/10,n/30 indicate that a discount of 2% will be given if payment is made within 10 days of the invoice date.Otherwise,the total invoice amount is due within 30 days of the invoice date.
A)True
B)False
Q2) The gross profit percentage measures the profitability of each sales dollar above the cost of goods sold.
A)True
B)False
Q3) When recording the sale of merchandise inventory,using a periodic inventory system,________.
A)a running record of merchandise inventory is maintained during the accounting period
B)the Sales Revenue account is credited only as an adjusting entry because sales information is not needed during the accounting period
C)sales discounts and sales returns and allowances are not recorded
D)there is no need to record an entry to the Merchandise Inventory and the Cost of Goods Sold accounts
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Chapter 6: Merchandise Inventory
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Questions
Q1) Best Deals,Inc.has 13 units in ending merchandise inventory on December 31.The units were purchased in November for $155 each.The price lists from suppliers indicate the current replacement cost of the item to be $161 each.What would be the amount reported as Merchandise Inventory on the balance sheet?
A)$2,015
B)$4,108
C)$316
D)$2,093
Q2) Which of the following states that a company must perform strictly proper accounting only for items that are significant to the business's financial statements?
A)conservatism
B)materiality concept
C)disclosure principle
D)consistency principle
Q3) If the merchandise inventory's market value is greater than its cost,then it must be adjusted for the difference.
A)True
B)False
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8
Chapter 7: Internal Control and Cash
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Q1) A business keeps cash in a bank account because banks have established practices for safeguarding the business's money.
A)True
B)False
Q2) A company's Cash account shows an ending balance of $4,600.Reconciling items included a bookkeeper error of $105 (a $525 check recorded as $630),two outstanding checks totaling $830,a service charge of $20,a deposit in transit of $260,and interest revenue of $33.What is the adjusted book balance?
A)$4,482
B)$4,030
C)$4,718
D)$5,170
Q3) In a bank reconciliation,a book error will be shown on the bank side of the reconciliation.
A)True
B)False
Q4) Burglar alarms,fire alarms,and security cameras improve internal control.
A)True
B)False
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Chapter 8: Receivables
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Q1) The following information is from the 2017 records of Robin Antique Shop: \(\begin{array}{|l|r|}
\hline\text { Accounts receivable, December } 31,2017 & \$ 44,000 \text { (debit) }\\
\hline
\text { Allowance for Bad Debts, December 31, } \\
\text { prior to adjustment }& 1,100 \text { (debit) } \\
\hline \text { Net credit sales for } 2017 & 176,000 \\
\hline \text { Accounts written off as uncollectible during } & \\ 2017 & 11,000 \\
\hline \text { Cash sales during } 2017 & 27,000\\
\hline
\end{array}\) Bad debts expense is estimated by the percent-of-sales method.Management estimates that 5% of net credit sales will be uncollectible.The ending balance of the Allowance for Bad Debts account after adjustment will be
A)$9,900
B)$9,050
C)$11,250
D)$7,700
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) The cost of an asset is $1,000,000,and its residual value is $290,000.Estimated useful life of the asset is five years.Calculate depreciation for the first year using the double-declining-balance method of depreciation.
A)$284,000
B)$400,000
C)$200,000
D)$142,000
Q2) An intangible asset is an asset with no physical form that is valuable because of the special rights it carries.
A)True
B)False
Q3) Plant assets are long-lived,tangible assets used in the operation of a business.
A)True
B)False
Q4) Intangible assets ________.
A)always have a definite life
B)that are purchased are recorded at cost
C)are always expensed through amortization
D)with definite lives are tested annually for impairment
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Chapter 10: Investments
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Q1) At the end of each accounting period,trading securities must be adjusted and reported at fair value.
A)True
B)False
Q2) Which of the following is the major difference between the accounting for equity securities and debt securities?
A)Debt securities are classified as liabilities,while equity securities are classified as assets.
B)Debt securities are classified as trading investments,while equity securities are classified as held-to-maturity investments.
C)Debt securities earn interest revenue,while equity securities earn dividend revenue.
D)Debt securities of all types have a maturity date,while only a few equity securities have a maturity date.
Q3) Long-term investments are investments in bonds or stocks in which the company intends to hold the investment for longer than one year.
A)True B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Steve is an employee of Panache,Inc.Panache pays a portion of his health insurance premium and also contributes to a retirement plan in his name.The company's share of the health insurance premium is $600,and the company's contribution to the retirement plan is $860.The journal entry to record the employee benefits to be paid by the company should include a debit to Employee Health Insurance Payable for $1,460.
A)True
B)False
Q2) Amounts owed for products or services purchased on account are accounts receivable.
A)True
B)False
Q3) Which of the following is a major control risk related to payroll?
A)theft of inventory by staff
B)a dishonest employee cashing a paycheck that was written to a fictitious person
C)expenses being recorded as assets in order to manipulate earnings
D)contracts being awarded to relatives of employees
Q4) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Long-Term Liabilities
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Q1) Which of the following statements is true if a bond is issued for an amount higher than face value?
A)The bond's stated interest rate is less than the prevailing market interest rate at time of sale.
B)The bond's stated interest rate is the same as the prevailing market interest rate at time of sale.
C)The bond's stated interest rate is more than the prevailing market interest rate at time of sale.
D)The bond is not secured by specific assets of the issuer.
Q2) If a bond's stated interest rate is lower than the market rate,which of the following is true?
A)The bond will be issued at a premium.
B)The bond will be issued at par.
C)The bond will be issued at a discount.
D)The bond will be issued for an amount higher than the maturity value.
Q3) On January 1,2017,Shea Landscaping borrowed $100,000 on a 15%,10-year note with annual installment payments of $10,000 plus interest due on December 31 of each year.Prepare the journal entry for the first installment payment made on December 31,2017.
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Chapter 13: Stockholders Equity
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Q1) Dividends in arrears are ________.
A)a liability on the balance sheet
B)passed dividends on noncumulative preferred stock
C)passed dividends on cumulative preferred stock
D)passed dividends on common stock
Q2) Which of the following actions will decrease the amount of Total Stockholders' Equity?
A)cash dividend declared
B)stock split
C)stock dividend declared
D)repayment of bond principal
Q3) Earnings per share is calculated as net income plus preferred dividends divided by the average number of common shares outstanding.
A)True
B)False
Q4) Small stock dividends increase the Paid-In Capital in Excess of Par account.
A)True
B)False
Q5) What is a prior-period adjustment? How and when is a prior-period adjustment recorded?
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Chapter 14: The Statement of Cash Flows
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Q1) Transnational Company plans to purchase a property to build its corporate headquarters.An investor is willing to exchange land worth $500,000 for common stock.This transaction would be shown in the financing activities section of the statement of cash flows.
A)True
B)False
Q2) The net cash flow from operating activities is calculated in the same way,whether the company uses the direct or the indirect method of preparing the statement of cash flow.
A)True
B)False
Q3) When preparing the statement of cash flows,the amount of net cash flow from operating activities differs between the direct and indirect methods.
A)True
B)False
Q4) The third section presented on the statement of cash flows is the non-cash operating activities section.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Q1) Discontinued operations and extraordinary items are reported without consideration of the income tax effects.
A)True B)False
Q2) The rate of return on common stockholders' equity shows how much income is earned for each $1 of total stockholders' equity.
A)True B)False
Q3) In an audit report in the annual report,a qualified opinion states that the financial statements are presented fairly in all material respects.
A)True
B)False
Q4) List the three ways to analyze financial statements.State what each of these ways provides to investors and creditors.
Q5) A vertical analysis of a financial statement reveals the relationship of each statement item to its base amount,which is 100%.
A)True B)False
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Chapter 16: Introduction to Managerial Accounting
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Q1) Direct materials and direct labor are prime costs.
A)True
B)False
Q2) Planet Manufacturing provided the following information for the month ended March 31:
\[\begin{array} { | l | r | }
\hline \text { Sales Revenue } & \$ 22,000 \\
\hline \text { Beginning Finished Goods Inventory } & 7,000 \\
\hline \text { Ending Finished Goods Inventory } & 6,500 \\
\hline \text { Cost of Goods Manufactured } & 10,600 \\
\hline \text { Selling and Administrative Expenses } & 5,125 \\
\hline
\end{array}\] Prepare the income statement.
Q3) Which of the following would be included as manufacturing overhead for a manufacturing company?
A)direct materials cost
B)indirect materials cost
C)direct labor
D)advertising
Q4) Define direct cost.
18
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Chapter 17: Job Order Costing
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Q1) Olympia Manufacturing uses a predetermined overhead allocation rate based on a percentage of direct labor cost.At the beginning of the year,Olympia estimated total manufacturing overhead costs at $1,010,000 and total direct labor costs at $830,000.In June,Job 511 was completed.The details of Job 511 are shown below. \[\begin{array} { | l | r | }
\hline \text { Direct materials cost } & \$ 26,500 \\
\hline \text { Direct labor cost } & \$ 11,000 \\
\hline \text { Direct labor hours } & 400 \text { hours } \\
\hline \text { Units of product produced } & 300 \text { hours } \\ \hline
\end{array}\] What is the amount of manufacturing overhead costs allocated to Job 511? (Round any percentages to two decimal places and your final answer to the nearest dollar. )
A)$13,386
B)$32,247
C)$9,040
D)$21,777
Q2) Why would the manager of a service company need to use job order costing?
Q3) Define a process costing system and list two types of businesses that would use a process costing system.
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Chapter 18: Process Costing
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Q1) Under process costing,the costs incurred by each department are reported in ________.
A)a job cost sheet
B)the Finished Goods Inventory account
C)the Cost of Goods Sold account
D)a production cost report
Q2) A cellular phone manufacturer is more likely to use a process costing system rather than job order costing.
A)True
B)False
Q3) A production cost report aids in preparing an income statement by providing data for ________.
A)period costs incurred during the period
B)various inventory accounts
C)cost of goods sold during the period
D)revenues generated during the period
Q4) When indirect materials are issued to production,the Manufacturing Overhead account is credited.
A)True
B)False
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Chapter 19: Cost Management Systems: Activity-Based,
and Quality Management Systems
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Q1) A just-in-time costing system does not use the Finished Goods Inventory account; instead,it combines the Finished Goods Inventory account with the Work-in-Process Inventory account.
A)True
B)False
Q2) For each of the following activities,indicate an appropriate allocation base: \(\begin{array}{|l|l|}
\hline\text { Activity } & \text { Allocation Base } \\
\hline \text { Warranty Services - Providing service } & \\
\text { for defective products } & \\
\hline \text { Setup - Setting up machines for } & \\
\text { production } & \\
\hline \text { Shipping - Shipping finished } & \\
\text { products to customers } & \\
\hline \text { Machining - Machine usage } & \\
\hline \text { Purchasing - Purchasing raw } & \\
\text { materials } &\\\hline \end{array}\)
Q3) Define target cost.How is target cost determined?
Q4) List and briefly describe the four types of quality-related costs.
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Browning Company sells two products-X and Y.Product X is sold for $30 per unit and has a variable cost per unit of $15.Product Y is sold for $30 per unit and has a variable cost of $10 per unit.Total fixed costs for the company are $20,000.Browning Company typically sells three units of Product X for every unit of Product Y.What is the breakeven point in total units? (Round any intermediate calculations to two decimal places,and your answer to the nearest unit. )
A)1,231 units
B)923 units
C)308 units
D)1,333 units
Q2) Left Hand,Inc.has fixed costs of $400,000.Total costs,both fixed and variable,are $550,000 when 40,000 units are produced.Calculate the total costs if the volume increases to 64,000 units.(Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )
A)$950,000
B)$150,000
C)$640,000
D)$550,000
Q3) List the cost-volume-profit (CVP)assumptions.
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Chapter 21: Variable Costing
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Q1) The traditional income statement format is prepared under absorption costing.
A)True
B)False
Q2) Titanium,Inc.reports the following information for April: \[\begin{array} { | l | r | r | }
\hline & \text { Alpha } & \text { Beta } \\
\hline \text { Units sold } & 3,000 \text { units } & 750 \text { units } \\
\hline \text { Sales price per unit } & \$ 350 & \$ 600 \\
\hline \text { Variable manufacturing cost per unit } & 200 & 500 \\
\hline \text { Sales commission per unit: } & & \\
\hline \text { Alpha: } 8 \% \text { of sales price } & 28 & \\
\hline \text { Beta: } 6 \% \text { of sales price } & & 36 \\
\hline
\end{array}\] What is the contribution margin ratio of Beta? (Round your answer to two decimal places. )
A)16.67%
B)10.67%
C)42.86%
D)6.00%
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Chapter 22: Master Budgets
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Q1) The inventory,purchases,and cost of goods sold budget determines cost of goods sold for the budgeted income statement,ending Merchandise Inventory for the budgeted balance sheet,and merchandise inventory purchases for the cash budget.
A)True
B)False
Q2) A flexible budget is prepared to represent various levels of sales volume.
A)True
B)False
Q3) A company has prepared the operating budget and the cash budget and is now preparing the budgeted balance sheet.The balance of Accounts Receivable can be obtained from the ________.
A)schedule of inventory,purchases,and cost of goods sold budget
B)cash receipts from customers
C)capital expenditures budget
D)selling and administrative expenses budget
Q4) When preparing the selling and administrative expense budget,there is no need to separate mixed costs into the fixed and variable components.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Cedar Designs Company,a custom cabinet manufacturing company,is setting standard costs for one of its products.The main material is cedar wood,sold by the square foot.The current cost of cedar wood is $4.00 per square foot from the supplier.Delivery costs are $0.20 per square foot.Carpenters' wages are $20.00 per hour.Payroll costs are $3.00 per hour,and benefits are $6.00 per hour.How much is the direct labor standard cost per hour?
A)$20.00
B)$9.00
C)$23.00
D)$29.00
Q2) Western Outfitters projected sales of 79,000 units for the year at a unit sales price of $12.00.Actual sales for the year were 73,000 units at $14.00 per unit.Variable costs were budgeted at $4.00 per unit,and the actual variable cost was $5.00 per unit.Budgeted fixed costs totaled $375,000 while actual fixed costs amounted to $415,000.What is the flexible budget variance for operating income?
A)$209,000 unfavorable
B)$33,000 favorable
C)$33,000 unfavorable
D)$73,000 favorable
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is a responsibility that is common to the managers of cost,profit,and investment centers?
A)generating revenues
B)generating profits
C)managing the invested capital
D)controlling costs
Q2) Which of the following internal business perspective key performance indicators (KPIs)is commonly used to assess the innovation process?
A)number of new products developed
B)number of warranty claims
C)employee turnover rate
D)rate of on-time deliveries
Q3) Performance evaluation systems provide top management with a framework for maintaining control over the entire organization.
A)True
B)False
Q4) Define cost-based transfer price.When should cost-based transfer pricing be used? Explain your answer.
Q5) List the primary goals of performance evaluation systems.
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Chapter 25: Short-Term Business Decisions
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Q1) A company has two different products that sell to separate markets.Financial data are as follows:
\[\begin{array} { | l | r | r | r | }
\hline & \text { Product A } & \text { Product B } &{ \text { Total } } \\
\hline \text { Revenue } & \$ 15,000 & \$ 9,000 & \$ 24,000 \\
\hline \text { Variable costs } & ( 8,000 ) & ( 9,200 ) & ( 17,200 ) \\
\hline \text { Fixed costs (allocated) } & \$ 2,000 ) & \underline { ( 1,000 ) } & \$ 3,000 )
\\
\hline \text { Operating income (loss) } & \$ 5,000 & \$ ( 1,200 ) & \$ 3,800 \\
\hline
\end{array}\] Assume that fixed costs are all unavoidable and that dropping one product would not impact sales of the other.Because the contribution margin of Product B is negative,it should be dropped.
A)True
B)False
Q2) Explain the difference between price-takers and price-setters.
Q3) Define the terms Relevant Cost and Sunk Cost.
Q4) The cost-plus pricing approach is emphasized by price-setters.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) If net cash inflows are unequal,how is the payback period (in years)of an investment is calculated?
Q2) Which of the following situations suggests the acceptance of an investment proposal?
A)The present value of the net cash inflows exceeds the initial investment.
B)The IRR is lower than the hurdle rate.
C)The cash inflows are less than the initial investment.
D)The investment will have a residual value.
Q3) Nylan Tiles is considering an investment in new equipment costing $858,000.The equipment will be depreciated on a straight-line basis over a five-year life and is expected to have a residual value of $62,000.The equipment is expected to generate net cash inflows of $1,002,000 in total during the five-year life.What is the accounting rate of return associated with the equipment investment? (Round your answer to two decimal places. )
A)12.36%
B)8.96%
C)45.23%
D)9.34%
Q4) What are the strengths of the net present value capital budgeting method?
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Chapter 27: Accounting Information Systems
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Q1) In a typical computerized accounting information system,________.
A)transactions must be recorded in debit and credit format
B)the software automatically knows to record a debit or a credit
C)transactions are posted manually
D)spreadsheets must be used to produce financial statements
Q2) Which of the following will be recorded in the Other Accounts CR column of the cash receipts journal?
A)cash sales
B)receipt of interest revenue
C)receipt of accounts receivable
D)sales discounts
Q3) State the purpose of a subsidiary ledger? What is included in the accounts receivable subsidiary ledger?
Q4) Define enterprise resource planning (ERP)systems and state one advantage and one disadvantage of ERP systems.
Q5) Hardware is electronic equipment that includes computers,monitors,printers,and the network that connects them.
A)True
B)False
To view all questions and flashcards with answers, click on the resource link above. Page 29