Principles of Accounting
Mock Exam
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in the recording, classifying, and reporting of financial transactions. The course emphasizes the construction and interpretation of basic financial statements, such as the balance sheet, income statement, and cash flow statement. Students will explore foundational topics including the accounting cycle, double-entry bookkeeping, accrual versus cash accounting, and the impact of financial transactions on business operations. By the end of the course, students will have developed the analytical skills necessary to interpret accounting information and make informed business decisions.
Recommended Textbook Financial Accounting 13th Edition by
Carl S. Warren
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17 Chapters
3045 Verified Questions
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Profit is the difference between
A) assets and liabilities
B) the incoming cash and outgoing cash
C) the assets purchased with cash contributed by the owner and the cash spent to operate the business
D) the amounts received from customers for goods or services and the amounts paid for the inputs used to provide the goods or services.
Answer: D
Q2) Which of the following is not a role of accounting in business?
A) To provide reports to users about the economic activities and conditions of a business.
B) To personally guarantee loans of the business.
C) To provide information to other users to determine the economic performance and condition of the business.
D) To assess the various informational needs of users and design its accounting system to meet those needs.
Answer: B
Q3) What are the three sections of the Statement of Cash Flows?
Answer: Operating Activities, Investing Activities, and the Financing Activities
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) The Drawings account is an example of an expense. A)True
B)False Answer: False
Q2) All owner's equity accounts record increases to the accounts with credits. A)True
B)False Answer: False
Q3) Discuss and describe how errors in accounts can be found. Answer: 1) through audit procedures. 2) by looking at the trial balance. 3) by chance.
Q4) A chart of accounts is a listing of accounts that make up the journal. A)True
B)False Answer: False
Q5) The post reference notation used in the journal is the page number. A)True B)False
Answer: False
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) One of the accounting concepts upon which deferrals and accruals are based is
A) matching
B) cost
C) price-level adjustment
D) conservatism
Answer: A
Q2) Adjusting entries are
A) the same as correcting entries
B) needed to bring accounts up to date and match revenue and expense
C) optional under generally accepted accounting principles
D) rarely needed in large companies
Answer: B
Q3) The net book value of a fixed asset is determined by
A) Original cost less accumulated depreciation
B) Original cost less depreciation expense
C) Original cost less accumulated depreciation plus depreciation expense
D) Original cost plus accumulated depreciation
Answer: A
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Net income appears on the work sheet in the A) debit column of the Balance Sheet columns
B) debit column of the Adjustments columns
C) debit column of the Income Statement columns
D) credit column of the Income Statement columns
Q2) The natural business year
A) is a fiscal year that ends when business activities are at its lowest point.
B) is a calendar year that ends when business activities are at its lowest point.
C) is a fiscal year that ends when business activities are at its highest point.
D) is a calendar year that ends when business activities are at its highest point.
Q3) The totals of the Adjusted Trial Balance columns on a work sheet will always be the sum of the Trial Balance column totals and the Adjustments column totals.
A)True B)False
Q4) A work sheet heading is dated for a period of time. A)True B)False
Q5) Explain how net income or loss is determined by using the work sheet.
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Chapter 5: Accounting Systems
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Sample Questions
Q1) Which transaction is normally recorded in a special journal?
A) sales returns
B) depreciation expense
C) purchases on account
D) issued stock dividend
Q2) An owner transfers a personal automobile to the company with a fair market value of $12,000. The entry will be made in the
A) purchases journal
B) cash payments journal
C) cash receipts journal
D) general journal
Q3) Computerized accounting systems
A) are only used by medium and large sized companies
B) are generally not as accurate as manual systems
C) record and post transactions at the same time
D) must make use of special journals
Q4) Generally, subsidiary ledgers are used for accounts that consist of a large number of individual items.
A)True
B)False
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) In a merchandise business, sales minus operating expenses equals net income.
A)True
B)False
Q2) The service fee that credit card companies charge retailers varies and is the primary reason why some businesses do accept all credit cards.
A)True
B)False
Q3) During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the merchandise sold is $322,325. What is the amount of the gross profit?
Q4) Which of the following accounts will not be found on the Cost of Merchandise Sold section on the Income Statement?
A) Purchases
B) Freight In
C) Sales Returns and Allowances
D) Merchandise Inventory
Q5) Freight-in is considered a cost of purchasing inventory.
A)True
B)False
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Chapter 7: Inventories
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Sample Questions
Q1) A subsidiary inventory ledger can be an aid in maintaining inventory levels at their proper levels.
A)True
B)False
Q2) If ending inventory for the year is understated, net income for the year is overstated.
A)True
B)False
Q3) Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?
A) net income is understated
B) net income is overstated
C) cost of merchandise sold is understated
D) merchandise inventory reported on the balance sheet is overstated
Q4) Use of the retail inventory method requires taking a physical count of inventory.
A)True
B)False
Q5) List three different security measures taken by stores to safeguard inventory.
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Chapter 8: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) The bank reconciliation
A) should be prepared by an employee who records cash transactions
B) is part of the internal control system
C) is for information purposes only
D) is sent to the bank for verification
Q2) List and define each of the five elements of internal control.
Q3) Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus prevent fraud and misleading financial statements.
A)True
B)False
Q4) Money orders are considered cash.
A)True
B)False
Q5) The reconciliation of the cash register tape with the cash in the register is an example of
A) other controls.
B) independent internal verification.
C) establishment of responsibility.
D) segregation of duties.
Q6) Why would a bank require a company to maintain a compensating balance?
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Chapter 9: Receivables
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Sample Questions
Q1) A debit balance in the Allowance for Doubtful Accounts
A) is the normal balance for that account.
B) indicates that actual bad debt write-offs have been less than what was estimated.
C) cannot occur if the percentage of receivables method of estimating bad debts is used.
D) indicates that actual bad debt write-offs have exceeded previous provisions for bad debts.
Q2) The two methods of accounting for uncollectible receivables are the allowance method and the
A) equity method
B) direct write-off method
C) interest method
D) cost method
Q3) Discuss the (1) focus and (2) financial statement emphasis of (a) the percent of sales and (b) the analysis of receivables methods of estimating bad debts.
Q4) Trade receivables occur when two companies trade or exchange notes receivables.
A)True
B)False
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11
Chapter 10: Fixed Assets and Intangible Assets
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Sample Questions
Q1) Computer equipment was acquired at the beginning of the year at a cost of $57,000 that has an estimated residual value of $9,000 and an estimated useful life of 5 years. Determine the 2nd year's depreciation using straight-line depreciation.
A) $13,200
B) $19,200
C) $ 9,600
D) $ 9,000
Q2) The depreciable cost of a building is the same as its acquisition cost.
A)True
B)False
Q3) Xtra Company purchased goodwill from Argus for $96,000. Argus had developed the goodwill over 12 years. How much would Xtra amortize the goodwill for its first year?
A) $7,000
B) $ 8,000
C) Goodwill is not amortized.
D) Not enough information.
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Zennia Company provides its employees with varying amount of vacation per year, depending on the length of employment. The estimated amount of the current year's vacation cost is $135,000. The journal entry to record the adjusting entry required on December 31, the end of the current year, to record the current month's accrued vacation pay is
A) $135,000
B) $67,500
C) $0
D) $11,250
Q2) Taxes deducted from an employee's earnings to finance social security and Medicare benefits are called FICA taxes.
A)True
B)False
Q3) If, prior to the last weekly payroll period of the calendar year, the cumulative earnings for an employee are $98,800, earnings subject to social security tax are $100,000, and the tax rate is 6.0%, the employer's social security tax on the $2,000 gross earnings paid on the last day of the year is $120.
A)True
B)False
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Page 13
Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) Alpha and Beta are partners who share income in the ratio of 1:2 and have capital balances of $40,000 and $70,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $50,000. What amount of loss on realization should be allocated to Alpha?
A) $60,000
B) $20,000
C) $30,000
D) $50,000
Q2) When a partner dies, the capital account balances of the remaining partners
A) will increase
B) will decrease
C) will remain the same
D) may increase, decrease, or remain the same
Q3) The statement of members' equity is used for equity reporting of a partnership. A)True
B)False
Q4) Each partner has a separate capital and withdrawal account.
A)True
B)False
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Chapter 13: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) The excess of sales price of treasury stock over its cost should be credited to
A) Treasury Stock Receivable
B) Premium on Capital Stock
C) Paid-In Capital from Sale of Treasury Stock
D) Income from Sale of Treasury Stock
Q2) The Sneed Corporation issues 10,000 shares of $50 par value preferred stock for cash at $75 per share. The entry to record the transaction will consist of a debit to Cash for $750,000 and a credit or credits to
A) Preferred Stock for $750,000.
B) Preferred stock for $500,000 and Paid-in Capital in Excess of Par Value-Preferred Stock for $250,000.
C) Preferred Stock for $500,000 and Retained Earnings for $250,000.
D) Paid-in Capital from Preferred Stock for $750,000.
Q3) A disadvantage of the corporate form of business entity is
A) mutual agency for stockholders
B) unlimited liability for stockholders
C) corporations are subject to more governmental regulations
D) the ease of transfer of ownership
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is
A) debit Interest Expense, credit Cash and Discount on Bonds Payable
B) debit Interest Expense, credit Cash
C) debit Interest Expense and Discount on Bonds Payable, credit Cash
D) debit Interest Expense, credit Interest Payable and Discount on Bonds Payable
Q2) Only callable bonds can be purchased by the issuing corporation before maturity. A)True
B)False
Q3) On the first day of the fiscal year, a company issues a $500,000, 8%, 10 year bond that pays semi-annual interest of $20,000 ($500,000 × 8% × 1/2), receiving cash of $530,000. Journalize the entry to record the issuance of the bonds.
Q4) Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.
A)True
B)False
Q5) An equal stream of periodic payments is called an annuity.
A)True B)False
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Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) Pepito Company purchased 40% of the outstanding stock of Reyes Company on January 1, 2012. Reyes reported net income of $75,000 and declared dividends of $15,000 during 2012. How much would Pepito adjust their investment in Reyes Company under the equity method?
Q2) The cumulative effects of other comprehensive income items is included in retained earnings, on the balance sheet.
A)True
B)False
Q3) Which of the following is not a part of comprehensive income?
A) foreign currency items
B) cash flows from stock investments
C) unrealized gains and losses
D) pension liability adjustments
Q4) Trading securities should be reported on the financial statements at fair market value.
A)True
B)False
Q5) Comprehensive income must be reported on the income statement.
A)True
B)False
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) Land costing $140,000 was sold for $173,000 cash. The gain on the sale was reported on the income statement as other income. On the statement of cash flows, what amount should be reported as an investing activity from the sale of land?
A) $173,000
B) $140,000
C) $313,000
D) $33,000
Q2) In calculating cash flows from operating activities using the indirect method, a gain on the sale of equipment is
A) added to net income.
B) deducted from net income.
C) ignored because it does not affect cash.
D) reported supplementally as a non-cash investing and financing activity
Q3) Which one of the following below would not be classified as an operating activity?
A) interest expense
B) income taxes
C) payment of dividends
D) selling expenses
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will
A) both decrease.
B) both increase.
C) increase and remain the same, respectively.
D) remain the same and decrease, respectively.
Q2) The percentage analysis of increases and decreases in corresponding items in comparative financial statements is referred to as horizontal analysis.
A)True
B)False
Q3) The numerator of the rate earned on common stockholders' equity ratio is equal to
A) net income
B) net income minus preferred dividends
C) income before income tax
D) operating income minus interest expense
Q4) Define solvency and profitability. How are they alike?
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