Principles of Accounting
Midterm Exam
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in financial and managerial accounting. The course emphasizes the accounting cycle, including recording, summarizing, and reporting financial transactions according to generally accepted accounting principles (GAAP). Key topics include the preparation and analysis of financial statements, understanding assets, liabilities, equity, revenues, and expenses, and the role of accounting in decision-making processes for both internal and external stakeholders. By the end of the course, students gain a foundational understanding of how accounting information supports business operations and strategic planning.
Recommended Textbook
Introduction to Financial Accounting 11th Edition by Charles T. Horngren
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12 Chapters
1592 Verified Questions
1592 Flashcards
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Page 2
Chapter 1: Accounting: the Language of Business
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127 Verified Questions
127 Flashcards
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Sample Questions
Q1) Public accountants follow the code of ethics for professional conduct established by the
A)Sarbanes-Oxley Act.
B)Securities and Exchange Commission.
C)Financial Accounting Standards Board.
D)Congress of the United States.
E)American Institute of Certified Public Accountants.
Answer: E
Q2) It is against SEC regulations to promote the corporation in the annual report.
A)True
B)False
Answer: False
Q3) International Financial Reporting Standards are
A)used by all European Union countries.
B)never used by corporations operating in the United States.
C)identical to Generally Accepted Accounting Principles.
D)guidelines used by corporations to determine a company's fair value upon cessation.
E)drastically different from Generally Accepted Accounting Principles.
Answer: A
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Page 3
Chapter 2: Measuring Income to Assess Performance
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136 Verified Questions
136 Flashcards
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Sample Questions
Q1) ________ requires accountants to present information clearly and concisely.
A)Verifiability
B)Validity
C)Understandability
D)Relevance
E)Reliability
Answer: C
Q2) The accrual basis of accounting provides a better measure of economic performance than the cash basis.
A)True
B)False
Answer: True
Q3) Which item would most likely be expensed even though it is an asset?
A)desk
B)computer
C)filing cabinets
D)printer
E)trash can
Answer: E
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Page 4
Chapter 3: Recording Transactions
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) If depreciation expense is not recorded for the current accounting period,total assets will be understated.
A)True
B)False
Answer: False
Q2) The trial balance should be prepared
A)after preparing the financial statements.
B)before posting beginning balances to new accounts.
C)after posting closing entries.
D)before posting journal entries to the ledger.
E)after posting journal entries to the ledger.
Answer: E
Q3) Posting is the transferring of amounts from the journal to the appropriate accounts in the ledger.
A)True
B)False
Answer: True
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Chapter 4: Accrual Accounting and Financial Statements
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) An example of a current liability is
A)unearned revenue.
B)accumulated depreciation.
C)long-term note payable.
D)interest expense.
E)retained earnings.
Q2) Which of the following is an example of an accrual?
A)Wages incurred but not yet paid.
B)Payment of insurance 8 months in advance.
C)Purchase of equipment for use in the business.
D)Revenue collected in advance from customer.
E)All of the above.
Q3) Prepaid expenses are listed as current assets on the balance sheet.
A)True
B)False
Q4) If the adjusting entry to record the current period's prepaid rent that is expired is omitted,current assets will be overstated.
A)True
B)False
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Chapter 5: Statement of Cash Flows
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128 Verified Questions
128 Flashcards
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Sample Questions
Q1) Issuing equity securities is an operating activity on the statement of cash flows.
A)True
B)False
Q2) Net cash provided by operating activities is always equal to net income.
A)True
B)False
Q3) Which of the following transactions do not affect cash?
1)Convert debt to common stock
2)Credit sales
3)Purchase a fixed asset by issuing debt
4)Accept rental deposit
5)Write-off of prepaid expenses
A)1 and 2
B)4 and 5
C)1,2,and 3
D)3,4,and 5
E)1,2,3,and 5
Q4) What does a positive free cash flow tell investors about a company's ability to produce cash flows from operations and make necessary investments?
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Chapter 6: Accounting for Sales
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132 Verified Questions
132 Flashcards
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Sample Questions
Q1) Trade discounts are journalized by
A)decreasing returns and allowances.
B)increasing returns and allowances.
C)decreasing gross sales.
D)increasing gross sales.
E)decreasing net sales.
Q2) Office Supply Space has several assets on its balance sheet.The accountant is trying to decipher which assets belong in the Cash account.From the list of assets below,which asset should NOT be included in the Cash account?
A)Checks made payable to Office Supply Space
B)Money orders made payable to Office Supply Space
C)The company's savings account
D)U)S.Treasury bond with a 5 year maturity
E)The company's checking account
Q3) The accounts receivable turnover ratio indicates how rapidly customers pay their bills.
A)True
B)False
Q4) Name four internal controls specific to the cash account.
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Chapter 7: Inventories and Cost of Goods Sold
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120 Verified Questions
120 Flashcards
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Sample Questions
Q1) There is no difference in the value of ending inventory if a company uses perpetual FIFO as opposed to periodic FIFO.
A)True B)False
Q2) LIFO results in a more accurate valuation of ending inventory on the balance sheet than does FIFO.
A)True B)False
Q3) When using a perpetual inventory system,a business will debit inventory and credit cost of goods sold each time a sale is recorded.
A)True
B)False
Q4) When prices and costs are rising,most companies that use LIFO
A)have a higher inventory value than they would under FIFO.
B)report their LIFO reserve on the balance sheet or in the footnotes.
C)have higher total assets than they would under FIFO.
D)have higher stockholders' equity than they would under FIFO.
E)are very rare.
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9
Chapter 8: Long-Lived Assets
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152 Verified Questions
152 Flashcards
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Sample Questions
Q1) Machiel Manufacturing acquired a $60,000 machine on January 1,2009.The machine is estimated to have a useful life of 4 years,and a residual value of $10,000.For units-of-production depreciation purposes,the machine is expected to produce 500,000 units.If Machiel Manufacturing uses straight-line depreciation,what is the depreciation expense in 2011?
A)$ 3,686
B)$ 7,200
C)$ 8,000
D)$ 8,800
E)$12,500
Q2) Compatibility Services acquired an $80,000 machine on January 1,20X3.The machine is estimated to have a useful life of 8 years,and a residual value of $4,000.For units-of-production depreciation purposes,the machine is expected to produce 400,000 units.What is the depreciable value of the machine acquired by Compatibility Services?
A)$4,000
B)$76,000
C)$80,000
D)$8,000
E)Cannot be determined without additional data
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Page 10
Chapter 9: Liabilities and Interest
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196 Verified Questions
196 Flashcards
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Sample Questions
Q1) Smith Lots,Inc.,operates in a state where there is a 6% sales tax.If a customer pays cash for merchandise with a sales price of $500,what effect will this transaction have on Smith Lots' balance sheet? (Ignore the effect on cost of goods sold.)
A)Assets increase by $530,current liabilities increase by $30,and stockholders' equity increases by $500.
B)Assets increase by $500,and stockholders' equity increases by $500.
C)Assets increase by $500,long-term liabilities increase by $30,and stockholders' equity increases by $500.
D)Assets increase by $500,current liabilities increase by $30,and stockholders' equity increases by $470.
E)Assets increase by $530,long-term liabilities increase by $30,and stockholders' equity increases by $500.
Q2) The excess of a bond's issue price over its face value is known as the A)discount.
B)effective interest amount.
C)coupon interest amount.
D)premium.
E)contingent liability.
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Chapter 10: Stockholders Equity
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117 Flashcards
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Sample Questions
Q1) When a corporation issues common stock on a preferred stock conversion,the common stock account is credited for the fair market value of the preferred stock on the date of conversion.
A)True
B)False
Q2) Net income must be greater than zero in order to pay dividends.
A)True
B)False
Q3) Just because a certain number of shares are authorized does not mean that a company will ever offer that many shares to potential investors.
A)True
B)False
Q4) Top management does not need to own a significant number of shares in order to have the authority to exert great influence on the actions of a corporation.
A)True
B)False
Q5) Preferred stocks and bonds have some similar characteristics. A)True
B)False
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Chapter 11: Intercorporate Investments and Consolidations
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110 Flashcards
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Sample Questions
Q1) Debt securities classified as available-for-sale securities are carried at amortized cost on the balance sheet.
A)True
B)False
Q2) An affiliated company is one that has 20% to 50% of its voting shares owned by another company.
A)True
B)False
Q3) Which of the following ownership percentages is the correct one(s)for deciding whether an investor has significant influence over an investee?
A)up to 20%
B)up to 50%
C)between 20% and 50%
D)between 25% and 50%
E)above 20%
Q4) GAAP requires companies using the equity method to report equity investments on the balance sheet at market.
A)True B)False
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Chapter 12: Financial Statement Analysis
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122 Flashcards
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Sample Questions
Q1) Ontario Appliances has the following data: \(\begin{array}{llc} &2X13&2X12\\
\text { Sales } & \$ 930 & \$ 700 \\
\text { Less: Cost of Goods Sold } & \underline{410} & \underline{235} \\
\text { Gross Profit } & 520 & 465 \\
\text { Less: Operating Expenses } & \underline{260} & \underline{231} \\
\text { Operating Income } & 260&234 \\
\text { Less: Other Expense: Interest Expense } & \underline{(30)} & \underline{(30)} \\
\text { Income before Tax } &230&204 \\
\text { Less: Income Tax Expense } &\underline{92} & \underline{82} \\
\text { Net Income }& \$ 138 & \$ 122
\end{array}\) What is the interest coverage for Ontario Appliances in 2X13? Has the interest coverage improved or not improved since 2X12?
A)12.7,unknown
B)7.7,not improved
C)7.7,improved
D)8.7,improved
E)8.7,not improved
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