Principles of Accounting II Study Guide Questions
Course Introduction
Principles of Accounting II builds upon the foundational concepts introduced in the first accounting course, with a greater focus on the study of managerial and cost accounting. Students will learn how accounting information assists managers in planning, controlling, and decision-making within organizations. The course covers topics such as budgeting, performance evaluation, cost-volume-profit analysis, job order and process costing, as well as an introduction to financial statement analysis. Emphasis is placed on interpreting and applying accounting data to solve practical business problems, equipping students with the analytical skills necessary for effective management and financial leadership.
Recommended Textbook
Principles of Accounting 12th Edition by Belverd E. Needles
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Chapter 1: Accounting Principles and the Financial Statements
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Q1) Exchange rates for currency change daily according to the supply and demand for each currency.
A)True
B)False
Answer: True
Q2) Generally accepted accounting principles
A)are changing continually.
B)are sound in theory but rarely used in practice.
C)have eliminated all weaknesses in accounting practice.
D)are accounting rules formulated by the Internal Revenue Service.
Answer: A
Q3) Financial position may be assessed by referring to a balance sheet.
A)True
B)False
Answer: True
Q4) The economic resources invested in a business by the owner are represented by owner's equity.
A)True
B)False Answer: True
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Chapter 2: Analyzing and Recording Business Transactions
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Q1) The controller for Tires and More,Inc.has recorded the following transactions during the month: the owner established the business with a $20,000 investment on the 1st of the month;the company recorded $36,000 of revenue for tires and services provided during the month;and expenses of $22,000 were recorded for the month.Additionally,on the last day of the month the owner withdrew $2,000 for personal expenses.What is the balance of Owner's Equity at the end of the month,and is the balance a debit or a credit?
A)$32,000 debit.
B)$32,000 credit.
C)$18,000 credit.
D)$36,000 debit.
Answer: B
Q2) Which of the following events does not require a journal entry?
A)Purchase of a one-year insurance policy.
B)Agreement to perform a service at a future date.
C)Payment for a service performed previously.
D)All of these choices.
Answer: B
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Chapter 3: Adjusting the Accounts
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Sample Questions
Q1) Which of the following transactions results in the recognition of an expense?
A)Expiration of the usefulness of equipment during the accounting period.
B)Payment on an account payable.
C)Withdrawal of cash by the owner.
D)Payment on the principal portion of a loan.
Answer: A
Q2) A customer's promise to pay for goods or services
A)increases the company's liabilities.
B)decreases the company's Cash account.
C)creates a liability for the company.
D)increases the assets of the company.
Answer: D
Q3) Net income provides a good measure of a business's debt-paying ability.
A)True
B)False
Answer: False
Q4) 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.
Page 5
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The amount of net income (or net loss)for the period is
A)$400 net loss.
B)$500 net income.
C)$900 net income.
D)$400 net income.
Q2) A reversing entry
A)is made on the last day of the fiscal year after closing entries have been posted.
B)is made on the last day of the fiscal year before closing entries have been posted.
C)is made on the first day of an accounting period.
D)replicates the adjusting entry that was made in the previous period because the adjusting entry was closed to retained earnings during the closing process.
Q3) The adjustment dated 12/31/20x1 to accrue interest to be paid most likely would be reversed by which of the following entries?
A)Debit Interest Payable and credit Interest Expense dated 1/1/20x2
B)Debit Interest Expense and credit Interest Payable dated 12/31/20x1
C)Debit Interest Payable and credit Interest Expense dated 12/31/20x1
D)Debit Interest Expense and credit Interest Payable dated 1/1/20x2
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Chapter 5: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) Faithful representation is comprised of all of the following except A)Verifiability
B)Completeness
C)Neutrality
D)Free from error
Q2) The total dollar amount of assets to be classified as investments is
A)$125,000.
B)$95,000.
C)$60,000.
D)$40,000.
Q3) Which of the following is not an enhancing qualitative characteristic?
A)Verifiability
B)Timeliness
C)Understandability
D)Neutrality
Q4) The return on equity for Cane Construction is
A)62.5 percent.
B)43.2 percent.
C)84 percent.
D)60 percent.
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Chapter 6: Accounting for Merchandising Operations
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Q1) Under the perpetual inventory system,which of the following accounts would not be used?
A)Cost of Goods Sold
B)Merchandise Inventory
C)Sales
D)Purchases
Q2) The last step in the operating cycle is the
A)sale of merchandise inventory for cash or on credit.
B)payment for purchases made on credit.
C)collection of cash from credit sales.
D)purchase of merchandise inventory for cash or on credit.
Q3) When freight-in is a relatively small amount,most companies include the cost in
A)operating expenses.
B)cost of goods sold.
C)administrative expenses.
D)merchandise inventory.
Q4) The terms "2/10,n/30" mean that a 2 percent discount is allowed on payments made over 10 but before 30 days after the invoice date.
A)True
B)False
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Chapter 7: Inventories
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Sample Questions
Q1) During periods of consistently falling prices,the FIFO inventory method will produce the highest possible amount of net income.
A)True
B)False
Q2) Which of the following is a reason for not using the specific identification method?
A)It is impractical to keep track of the purchase and sale of individual items.
B)Deciding which of many identical items sold would be arbitrary.
C)Deciding whether lower or higher-priced identical items sold could be a means of manipulating income.
D)All of these are reasons for not using the specific identification method.
Q3) A retail store prices its goods to achieve a gross margin of 35 percent.Up to the date of a fire that destroyed the store's inventory,sales were $250,000 and cost of goods available for sale was $175,000.The estimated cost of the inventory destroyed is
A)$12,500.
B)$43,750.
C)$62,500.
D)$75,000.
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Chapter 8: Cash and Internal Control
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Sample Questions
Q1) Cash Short or Over would be debited for a shortage.
A)True
B)False
Q2) It is usually a good business practice to maintain as large a balance in the Cash account as possible.
A)True
B)False
Q3) Mandisa Sounds,Inc. ,a specialty retailer of customized audio systems for automobiles,installed a perpetual inventory system in the second quarter of 2011.The new system allowed the firm to adjust its merchandise inventories to sales patterns more effectively and to prepare monthly financial statements.Although the system led to an improvement in sales and income,the gross margin on the monthly income statements was falling below both management's expectations and the industry average.At the end of 2014,a physical inventory revealed that actual merchandise inventory was considerably lower than the perpetual inventory records indicated.The merchandise inventories of some stores were off more than others,but all had deficiencies.What probably caused these losses and what steps could be taken to prevent them in the future?
Q4) Explain management's responsibility as it pertains to internal control of a company.
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Chapter 9: Receivables
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Q1) Under the accounts receivable aging method,the balance in Allowance for Uncollectible Accounts must be considered prior to adjusting for estimated uncollectible accounts.
A)True
B)False
Q2) Under the allowance method,Uncollectible Accounts Expense is recorded
A)for an estimated amount.
B)several times during the accounting period.
C)when an individual account is written off.
D)for a known amount.
Q3) Loans to company employees should be included with accounts receivable on the balance sheet.
A)True
B)False
Q4) The allowance method of handling bad debts violates the matching principle. A)True
B)False
Q5) What is a contingent liability,and how does it relate to the discounting of a note receivable at the bank?
Q6) Explain the two methods used to estimate uncollectible accounts.
Page 11
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Chapter 10: Long -Term Assets
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Q1) In 2014,Mansfield Mining purchased a mineral deposit for $12,000,000.It is estimated that 15,000,000 tons can be extracted from the mine.Calculate depletion expense during 2014 assuming 800,000 tons were extracted and 700,000 tons were sold.
Q2) The cost of repairing a machine damaged during installation should be charged as an operating expense.
A)True
B)False
Q3) The exclusive right to sell a product within a certain geographic area is called a A)leasehold.
B)franchise.
C)patent.
D)copyright.
Q4) The cost of tearing down a building on land just purchased should be A)debited to the Land account.
B)debited to the Land Improvements account.
C)debited to the Buildings account.
D)expensed immediately.
Q5) Present two arguments in favor of the use of accelerated depreciation.
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Chapter 11: Current Liabilities and Fair Value Accounting
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Q1) If the amount of a liability cannot be exactly determined,it should not be recorded.
A)True
B)False
Q2) Property Taxes Expense is recorded only in the month it is paid.
A)True
B)False
Q3) Unearned revenue arises from the acceptance of payment in advance for a service to be performed.
A)True
B)False
Q4) Lines of credit from the bank need not be disclosed in the financial statements or in the notes.
A)True
B)False
Q5) Dividends Payable is an example of a(n)
A)contingent liability.
B)definitely determinable liability.
C)estimated liability.
D)long-term liability.
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) Income or loss can be allocated to partners based solely on average capital balances.
A)True
B)False
Q2) Chad invests $20,000 for a one-third interest in a partnership in which the other partners have capital totaling $52,000 before admitting Chad.After distribution of the bonus,what is Chad's capital?
A)$10,666
B)$17,334
C)$20,000
D)$24,000
Q3) When individuals invest property in a partnership,the property becomes an asset of the partnership and is owned jointly by the partners.
A)True
B)False
Q4) A partnership agreement should include the method of distributing income and loss. A)True
B)False
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Chapter 13: Accounting for Corporations
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Q1) The liability of a stockholder is usually limited to the stockholder's investment in the corporation.
A)True B)False
Q2) The entry required to record start-up and organization costs will cause a increase in assets.
A)True B)False
Q3) The date on a statement of stockholders' equity is for a specific point in time.
A)True B)False
Q4) On May 1,20x5,Ironwood Corporation had 200,000 shares of $10 par value common stock outstanding with a market value of $16 per share.On May 2,20x5,Ironwood announced a 4-for-1 stock split.After the split,the par value of the stock
A)remained the same as before the split.
B)was reduced to $2.50 per share.
C)was reduced by $4 per share.
D)was reduced by $2.50 per share.
Q5) Define outstanding stock.
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Chapter 14: Long Term Liabilities
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Sample Questions
Q1) Long-term notes and bonds have similar effects on the financial statements.
A)True
B)False
Q2) Bonds that contain a provision that allows the holders to exchange the bonds for other securities of the issuing corporation are called
A)debenture bonds.
B)secured bonds.
C)callable bonds.
D)convertible bonds.
Q3) When bonds payable are converted into stock,the carrying value of the bonds should be
A)credited to Retained Earnings.
B)credited to contributed capital accounts.
C)debited to Retained Earnings.
D)debited to Loss on Conversion of Bonds.
Q4) Unsecured bonds are also known as debentures.
A)True
B)False
Q5) Discuss and define financial risk,financial leverage,and negative financial leverage.
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Chapter 15: The Statement of Cash Flows
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Q1) Assume the indirect method is used to compute net cash flows from operating activities.For this item extracted from the financial statements-Increase in Prepaid Expenses-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A)Add to net income to arrive at net cash flows from operating activities.
B)Subtract from net income to arrive at net cash flows from operating activities.
C)Not used to adjust net income to calculate net cash flows from operating activities.
Q2) Cash flows to assets is measured in "times."
A)True
B)False
Q3) Issuance of notes,either long- or short-term,would be reflected in the financing activities section of the statement of cash flows.
A)True
B)False
Q4) What does it mean when a company has positive free cash flow? What does it mean when a company has negative free cash flow?
Q5) Which accounts are analyzed to determine cash flows from financing activities?
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Chapter 16: Financial Statement Analysis
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Q1) Consistency requires that a company use the same accounting procedures as other companies in the same industry.
A)True
B)False
Q2) The price/earnings (P/E)ratio is an indication of investor confidence in a company.
A)True
B)False
Q3) A low receivable turnover indicates that
A)few customers are defaulting on their debts.
B)a large proportion of the company's sales are on credit.
C)the company's inventory is moving very quickly.
D)customers are making payments slowly.
Q4) Both diversified companies and conglomerates operate in a single,well-defined industry.
A)True B)False
Q5) Horizontal analysis will result in common-size statements. A)True
B)False
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Chapter 17: Managerial Accounting and Cost Concepts
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Q1) Product costs can be found on both the balance sheet and the income statement.
A)True
B)False
Q2) Direct costs can be conveniently traced to a cost object.
A)True
B)False
Q3) In a manufacturing company,an accountant's salary is a value-adding cost.
A)True
B)False
Q4) Reporting format of managerial accounting is flexible and driven by user's needs.
A)True
B)False
Q5) Period costs are charged against the revenue of the current period.
A)True
B)False
Q6) Managerial accounting primarily provides information on past performance.
A)True
B)False
Q7) Give two examples of each stage in the management process.
Page 19
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Chapter 18: Costing Systems: Job Order Costing
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Q1) To prepare financial statements at the end of the accounting period,the actual overhead cost for the period and the estimated overhead that was applied during the period must be reconciled in a job order costing system.
A)True
B)False
Q2) Which of the following tasks succeeds the disposing under- or overapplied overhead?
A)Preparation of financial statements
B)Comparison of actual and allocated overhead amounts
C)Estimation of overhead costs
D)Establishment of predetermined overhead rate
Q3) Which of the following represents the product costs on the income statement?
A)Cost of goods sold
B)Sales revenue
C)Sales commissions
D)None of these
Q4) In cost-plus contracts,a predetermined amount of profit is added to the cost of the contract.
A)True
B)False
Page 20
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Chapter 19: Costing Systems Process Costing
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Q1) Equivalent production is also called
A)conversion costs.
B)completed work cell units.
C)equivalent units.
D)equivalent transfer.
Q2) A process costing system first accumulates the costs of direct materials,direct labor,and overhead for each process and then assigns those costs to the products produced during a particular period.
A)True
B)False
Q3) Equivalent production is a measure of productive output of units for a period of time,expressed in terms of fully completed or equivalent whole units produced.
A)True
B)False
Q4) Equivalent units for conversion costs of Taylor Company are
A)207,800.
B)192,200.
C)181,800.
D)200,000.
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Chapter 20: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) When managing the production process in a just-in-time environment,the manager's focus is on the quantity of raw material used to produce a product.
A)True
B)False
Q2) The Yeva Company produces children's automobile car seats.The company recently changed from a traditional production environment to just-in-time work cells.The company's car seats are widely distributed in popular retail stores.Would you recommend the use of backflush costing or ABM/ABC for tracking product costs? Explain your choice of system.
Q3) A framework for classifying activities according to the level at which their costs are incurred is called a
A)bill of activities.
B)full product cost.
C)value chain.
D)cost hierarchy.
Q4) The customer's perspective governs whether an activity adds value to a product or service.
A)True
B)False
22
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) The Raquet Business is planning to manufacture a new type of tennis ball.Each tennis ball would sell for $3.75 and would require $1.75 in variable costs.In addition,annual fixed costs associated with the project would total $64,000.
a.Use the contribution margin approach to calculate: (1)the breakeven point in units
(2)the breakeven point in dollars
b.Determine the operating income or loss at a sales volume of 30,000 tennis balls.
c.Determine the number of tennis balls that must be sold to earn a profit of $80,000.
Q2) Explain what cost-volume-profit analysis is and how managers use it.
Q3) The point at which the total cost line intersects with the total revenue line is the breakeven point.
A)True
B)False
Q4) Breakeven analysis helps in finding the level of activity at which sales revenue equals the sum of all variable and fixed costs.
A)True
B)False
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Chapter 22: The Budgeting Process
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Q1) Operating budgets for the DiP Company reveal the following information: net sales,$400,000;beginning materials inventory,$23,000;materials purchased,$185,000;beginning work in process inventory,$64,700;beginning finished goods inventory,$21,600;direct labor costs,$34,000;overhead applied,$67,000;ending work in process inventory,$61,200;ending materials inventory,$18,700;and ending finished goods inventory,$16,300.Compute DiP Company's budgeted gross margin.
A)$299,800
B)$293,800
C)$150,900
D)$100,900
Q2) Total purchases that must be made in order to meet sales and inventory requirements of Lee Carter for the quarter amount to
A)$216,000.
B)$176,000.
C)$246,000.
D)$226,000.
Q3) Sales budget is the final product of the budgeting process.
A)True
B)False
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Chapter 23: Flexible Budgets and Performance Analysis
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Q1) Residual income is excess of operating income over net income.
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) Which of the following performance measures focus on short-term financial performance?
A)Economic value added
B)Residual income
C)ROI
D)All of these choices
Q4) The economic value added performance measure focuses on long-term financial performance.
A)True
B)False
Q5) Write a brief note on the performance-based pay.
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Chapter 24: Standard Costing and Variance Analysis
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Q1) Using the above information provided for Choco Sweet,compute the direct labor efficiency variance for Choco Sweet.
A)$8,500 (U)
B)$2,500 (F)
C)$11,000 (F)
D)$1,375 (U)
Q2) Using the information provided for Robert Inc,compute the fixed overhead cost variance.
A)$2,750 (F)
B)$925 (U)
C)$3,675 (U)
D)$5,800 (U)
Q3) The static budget can be adjusted automatically for changes in the level of output. A)True
B)False
Q4) Another name for a flexible budget is a variable budget.
A)True
B)False
Q5) Mention a few reasons for an unfavorable direct labor cost variance.
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Chapter 25: Short-Run Decision Analysis and Capital
Budgeting
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Q1) Joint costs are also referred to as common cost.
A)True
B)False
Q2) The point where joint products or services become separable and identifiable is known as identifiable point.
A)True
B)False
Q3) If the incremental revenues are greater than the incremental costs,the product should be processed further.
A)True
B)False
Q4) Which of the following typically would be considered an incremental cost?
A)Fixed cost
B)Direct product cost
C)Sunk cost
D)Administrative overhead cost
Q5) The accounting rate of return is calculated by dividing the project's investment by its net income.
A)True
B)False
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