Course Introduction
Principles of Accounting Practice Exam
Principles of Accounting introduces students to the fundamental concepts and techniques used in the field of accounting. The course covers the basic principles of financial and managerial accounting, emphasizing the recording, summarizing, and reporting of business transactions. Topics include the accounting cycle, preparation of financial statements, internal controls, ethical considerations, and the use of accounting information for decision-making. By the end of the course, students will have a solid understanding of the role of accounting in business and the skills needed to interpret and analyze financial data.
Recommended Textbook
Financial and Managerial Accounting 8th Edition by John J Wild
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27 Chapters
5985 Verified Questions
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Page 2
Chapter 1: Accounting in Business
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Sample Questions
Q1) Creditors' claims on assets that reflect company obligations to provide assets,products,or services to others are called ________.
Answer: liabilities
Q2) The description of the relation between a company's assets,liabilities,and equity,which is expressed as Assets = Liabilities + Equity,is known as the:
A)Income statement equation.
B)Accounting equation.
C)Business equation.
D)Return on equity ratio.
E)Net income.
Answer: B
Q3) The term ________ refers to a liability that promises a future outflow of resources.
Answer: payable
Q4) From an accounting perspective,an event is a happening that affects the accounting equation,but cannot be measured.
A)True
B)False
Answer: False
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Chapter 2: Accounting for Business Transactions
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Sample Questions
Q1) Unearned revenues are generally:
A)Revenues that have been earned and received in cash.
B)Revenues that have been earned but not yet collected in cash.
C)Liabilities created when a customer pays in advance for products or services before the revenue is earned.
D)Recorded as an asset in the accounting records.
E)Increases to common stock.
Answer: C
Q2) A general journal provides a place for recording all of the following except:
A)The transaction date.
B)The names of the accounts involved.
C)The amount of each debit and credit.
D)An explanation of the transaction.
E)The balance in each account.
Answer: E
Q3) The general journal is a collection of all accounts and their balances.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Adjusting Accounts for Financial Statements
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Sample Questions
Q1) Describe the adjusting entries,including the accounts used,for 1)prepaid expenses,2)depreciation and 3)unearned revenues.
Answer: 1)Prepaid expenses are deferrals,or expenses paid for in advance.The adjusting entry credits a prepaid expense account and debits an expense account.2)Depreciation is the recognition of the decline in usefulness of plant and equipment assets.The adjusting entry for depreciation debits an expense account and credits accumulated depreciation.3)Unearned revenues represent cash collected in advance for products or services.The adjusting entry for unearned revenues debits the unearned revenue account and credits a revenue account.
Q2) A ________ account is an account linked with another account,having an opposite normal balance,and reported as a subtraction from that other account's balance.
Answer: contra
Q3) Profit margin measures the relation of debt to assets.
A)True
B)False
Answer: False
Q4) Profit margin = ________ divided by net sales.
Answer: Net Income
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Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) Under a perpetual inventory system,when a credit customer returns non-defective merchandise to the seller,the seller debits Sales Returns and Allowances and credits Accounts Receivable and also debits Merchandise Inventory and credits Cost of Goods Sold.
A)True
B)False
Q2) Sales less sales discounts,less sales returns and allowances equals:
A)Net purchases.
B)Cost of goods sold.
C)Net sales.
D)Gross profit.
E)Net income.
Q3) Products that a company owns and intends to sell are called ________.
Q4) When a company has no reportable non-operating activities,its income from operations is simply labeled net income.
A)True
B)False
Q5) When a company has no reportable non-operating activities,its income from operations is reported as ________.
Page 6
Q6) Describe the differences between FOB shipping point and FOB destination.
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Chapter 5: Inventories and Cost of Sales
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Sample Questions
Q1) An understatement of the ending inventory balance will overstate cost of goods sold and understate net income.
A)True
B)False
Q2) All of the following statements related to goods on consignment are true except:
A)Goods on consignment are goods provided by the owner,call the consignor.
B)A consignee sells goods for the owner.
C)The consignor continues to own the consigned goods.
D)The consignee reports the goods in its inventory until sold.
E)The consignor reports the goods in its inventory until sold.
Q3) The ________ method of assigning costs to inventory and cost of goods sold requires that we divide the cost of goods available for sale by the units of inventory available at the time of each sale.
Q4) An advantage of FIFO is that it assigns the most recent costs to cost of goods sold,and does a better job of matching current costs with revenues on the income statement.
A)True
B)False
Q5) What is the LIFO conformity rule?
Q6) Identify and describe the four inventory valuation methods.
Page 7
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Chapter 6: Cash,fraud,and Internal Controls
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Sample Questions
Q1) Proper internal control would require that a department manager inform the purchasing department of its needs for additional merchandise by preparing and signing a purchase requisition which lists the merchandise requested to be purchased. A)True
B)False
Q2) The use of electronic communication to transfer cash from one party to another is called ________.
Q3) A ________ fund is used to make cash payments of small amounts to avoid the time and cost of writing checks.
Q4) A company wants to decrease its $200 petty cash fund to $175.The entry to reduce the fund is:
A)Debit Cash Over and Short for $25; credit Petty Cash $25.
B)Debit to Cash $25; credit Petty Cash $25.
C)Debit Miscellaneous Expenses $25; credit Cash $25.
D)Debit Petty Cash for $175; debit Cash Over and Short $25; credit Cash $200.
E)Debit Petty Cash $25; credit Cash $25.
Q5) Define an internal control system and describe its purpose.
Q6) Document used to place an order with a vendor is a ________.
Q7) Explain the difference between cash and cash equivalents.
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) The aging of accounts receivable method involves classifying each account receivable by how long it is past its due date and estimating the percent of each uncollectible class.
A)True
B)False
Q2) Prudence Co.receives a $26,000,90-day,4% note receivable.What is the total principal and interest due at maturity?
Q3) Duerr Company makes a $60,000,60-day,12% cash loan to Ryan Co.The note and interest to be collected at maturity is: \(\bold{\text{(Use 360 days a year.)}}\)
A)$60,000.
B)$1,200.
C)$61,200.
D)$58,800.
E)$67,200.
Q4) The ________ method uses both past and current receivables to estimate the allowance amount,and assumes that the longer an amount is past due,the more likely it is to be uncollectible.
Q5) If a 90-day note receivable is dated July 12,what is the maturity date of the note?
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Chapter 8: Accounting for Long-Term Assets
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Sample Questions
Q1) Depreciation expense in year 4 is:
A)$15,000.
B)$13,750.
C)$55,000.
D)$60,000.
E)$0.
Q2) A company purchased a cooling system on January 2 for $225,000.The system had an estimated useful life of 15 years.After using the system for 13 full years,the company completed a renovation of the system at a cost of $33,000 and now expects the system to be more efficient and last 8 years beyond the original estimate.The company uses the straight-line method of depreciation.
(a)Prepare the journal entry at January 3,to record the renovation of the cooling system.
(b)Prepare the journal entry at December 31,to record the revised depreciation for the thirteenth year.
Q3) Plant assets are used in operations and have useful lives that extend over more than one accounting period.
A)True
B)False
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Chapter 9: Accounting for Current Liabilities
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Sample Questions
Q1) Employees earn vacation pay at a rate of one day per month.The company estimated and must expense $1,500 of accrued vacation benefits for the year.Which of the following is the necessary year-end adjusting entry to record accrued vacation benefits?
A)Debit Vacation Benefits Expense $1,500; credit Prepaid Vacation $1,500.
B)Debit Vacation Benefits Expense $1,500; credit Vacation Benefits Payable $1,500.
C)Debit Payroll Tax Expense $1,500; credit Payroll Taxes Payable $1,500.
D)Debit Prepaid Vacation Benefits $1,500; credit Vacation Benefits Payable $1,500.
E)Debit Prepaid Benefits Payable $1,500; credit Vacation Benefits Expense $1,500.
Q2) Gross pay less all deductions is called ________.
Q3) Recording employee payroll deductions may involve:
A)Liabilities to the employer.
B)Liabilities to federal and state governments.
C)Expenses for state unemployment.
D)Expenses for the gross wages and salaries.
E)Expenses for the employer portion of any medical insurance.
Q4) Identify and explain the types of employer payroll taxes.
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11
Chapter 10: Accounting for Long-Term Liabilities
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Sample Questions
Q1) Present values can be found using Excel,a calculator or present value tables.
A)True
B)False
Q2) What is a bond? Identify and discuss the different characteristics and features bonds may possess.
Q3) On January 1,a company issued and sold a $400,000,7%,10-year bond payable,and received proceeds of $396,000.Interest is payable each June 30 and December 31.The company uses the straight-line method to amortize the discount.The carrying value of the bonds immediately after the second interest payment is:
A)$400,000.
B)$399,800.
C)$396,400.
D)$395,800.
E)$396,200.
Q4) ________ leases are long-term or noncancelable leases by which the lessor transfers substantially all risks and rewards of ownership to the lessee.
Q5) The use of debt financing always yields an increase in return on equity.
A)True
B)False
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Chapter 11: Corporate Reporting and Analysis
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Sample Questions
Q1) The price at which a share of stock is bought or sold is known as par value.
A)True
B)False
Q2) Explain the difference between a large stock dividend and a small stock dividend.In addition,explain how to record these two types of stock dividends.
Q3) The amount of dividends paid to preferred and common shareholders in year 3 is:
A)$7,000 preferred; $25,000 common.
B)$5,000 preferred; $27,000 common.
C)$15,000 preferred; $17,000 common.
D)$32,000 preferred; $0 common.
E)$0 preferred; $32,000 common.
Q4) Minimum legal capital is the least amount that the buyers of stock must contribute to the corporation or be at risk to pay creditors at a future date.
A)True
B)False
Q5) Changes in accounting estimates are accounted for in current and future periods.
A)True
B)False
Q6) What is treasury stock? What reasons might a company hold treasury stock?
Page 13
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Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) Atom Corporation paid cash dividends totaling $75,000 during its most recent fiscal year.How should this information be reported on Atom's statement of cash flows?
A)In operating activities as a source of funds.
B)In investing activities as a source of funds.
C)In investing activities as a use of funds.
D)In financing activities as a source of funds.
E)In financing activities as a use of funds.
Q2) A machine with a cost of $130,000 and accumulated depreciation of $85,000 is sold for $50,000 cash.The amount that should be reported in the operating activities section reported under the direct method is:
A)$50,000.
B)$5,000.
C)$45,000.
D)$0.
E)$35,000.
Q3) Define and explain significant noncash investing and financing activities and the method of reporting them on the statement of cash flows.
Q4) All cash transactions eventually affect noncash ________ accounts.
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Page 14
Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) Powers Company reported net sales of $1,200,000,average Accounts Receivable,net of $78,500,and net income of $51,025.The accounts receivable turnover ratio is:
A)0.65 times.
B)14.3 times.
C)28.6 times.
D)15.3 times.
E)16.3 times.
Q2) A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.
A)True
B)False
Q3) Intra-company standards for financial statement analysis:
A)Are based on a company's prior performance and relations between its financial items.
B)Are often set by competitors.
C)Are set by the company's industry through published statistics.
D)Are based on rules of thumb.
E)Are published by analyst services such as Standard & Poor's.
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15
Chapter 14: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) A ________ system means that a company acquires or produces inventory only when needed.
Q2) ________ inventory consists of goods a company acquires to use in making products.
Q3) A manufacturing company has a beginning finished goods inventory of $28,300,cost of goods manufactured of $58,500,and an ending finished goods inventory of $27,600.The cost of goods sold for this company is:
A)$114,400.
B)$57,800.
C)$2,600.
D)$86,100.
E)$59,200.
Q4) Raw materials that are tangible components of the finished product and can be separately and readily traced through the manufacturing process are called:
A)Raw materials sold.
B)Chargeable materials.
C)Work in process.
D)Indirect materials.
E)Direct materials.
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Chapter 15: Job Order Costing and Analysis
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Sample Questions
Q1) Describe the flow of the employee labor,both direct and indirect,through the inventory accounts.
Q2) The predetermined overhead rate is revised many times during the period to compensate for inaccurate estimates previously made.
A)True
B)False
Q3) If one unit of Product Z2 used $2.50 of direct materials and $3.00 of direct labor,sold for $8.00,and was assigned overhead at the rate of 30% of direct labor costs,how much gross profit was realized from this sale?
A)$8.00.
B)$5.50.
C)$2.50.
D)$1.60.
E)$0.90.
Q4) A company that produces a large number of standardized units would normally use a job order costing system.
A)True
B)False
Q5) When indirect labor is recorded,________ is debited.
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Chapter 16: Process Costing and Analysis
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Sample Questions
Q1) During April,the production department of a process operations system completed and transferred to finished goods 18,000 units that were in process at the beginning of April and 90,000 units that were started and completed in April.April's beginning inventory units were 100% complete with respect to materials and 40% complete with respect to labor.At the end of April,30,000 additional units were in process in the production department and were 100% complete with respect to materials and 60% complete with respect to labor.The beginning inventory included materials cost of $107,000 and the production department incurred direct materials cost of $329,000 during the month.Compute the direct materials cost per equivalent unit for the department using the weighted-average method.
A)$4.03.
B)$3.05.
C)$2.38.
D)$3.16.
E)$2.57.
Q2) Conversion cost per equivalent unit is the combined cost of direct materials,direct labor,and factory overhead per equivalent unit.
A)True
B)False
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Page 18
Chapter 17: Activity-Based Costing and Analysis
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Q1) How much overhead in total will be assigned to the Product A line using activity-based costing?
A)$42,500.
B)$132,900.
C)$90,400.
D)$66,000.
E)$66,450.
Q2) Product costs consist of direct labor,direct materials,and overhead (indirect)costs.
A)True
B)False
Q3) Name and briefly describe three overhead rate methods.
Q4) ABC can be used to assign costs to any cost object that is of management interest. A)True B)False
Q5) The departmental overhead rate method allows each department to have its own overhead rate and its own allocation base.
A)True B)False
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Chapter 18: Cost Behavior and Cost-Volume-Profit Analysis
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Q1) When graphing cost-volume-profit data on a CVP chart:
A)Units are plotted on the horizontal axis; costs on the vertical axis.
B)Units are plotted on the vertical axis; costs on the horizontal axis.
C)Both units and costs are plotted on the horizontal axis.
D)Both units and cost are plotted on the vertical axis.
E)Data points always represent expected future points.
Q2) Dividing a mixed cost into its separate fixed and variable cost components cannot be done in cost-volume-profit analysis.
A)True
B)False
Q3) The proportion of sales volumes for various products in a multiproduct company is known as the composite mix.
A)True
B)False
Q4) The high-low method of deriving an estimated cost line uses all the data points available.
A)True
B)False
Q5) Discuss how CVP analysis can be useful in planning.
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Chapter 19: Variable Costing and Analysis
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Sample Questions
Q1) Countdown Inc.sold 17,000 units of its product at a price of $81 per unit.Total variable cost per unit is $72.09,consisting of $69.05 in variable production cost and $3.04 in variable selling and administrative cost.Compute the total contribution margin.
Q2) Kluber,Inc.had net income of $900,000 based on variable costing.Beginning and ending inventories were 55,000 units and 52,000 units,respectively.Assume the fixed overhead per unit was $1.25 for both the beginning and ending inventory.What is net income under absorption costing?
A)$833,125
B)$903,750
C)$966,875
D)$896,250
E)$900,000
Q3) Under variable costing,product costs consist of direct labor,direct materials,and fixed overhead.
A)True
B)False
Q4) ________ costing is the only acceptable basis for both external reporting and tax reporting.
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Page 21
Chapter 20: Master Budgets and Performance Planning
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Q1) List the three important guidelines that should be followed in the budgeting process.
Q2) Zhang Industries is preparing a cash budget for June.The company has $25,000 cash at the beginning of June and anticipates $95,000 in cash receipts and $111,290 in cash payments during June.The company has no loans outstanding on June 1.Compute the amount the company must borrow,if any,to maintain a $20,000 cash balance.
A)$28,710.
B)$12,290.
C)$16,290.
D)$11,290.
E)$6,290.
Q3) Budgeting is an informal plan for future business activities.
A)True
B)False
Q4) The budget that lists the dollar amounts to be both received from plant asset disposals and spent to purchase additional plant assets to carry out the budgeted business activities is the ________.
Q5) Briefly describe the process by which budgets are developed and administered.
Q6) What is a sales budget? How is the sales budget prepared?
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Chapter 21: Flexible Budgets and Standard Costs
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Q1) The difference between actual price per unit of input and the standard price per unit of input results in a:
A)Standard variance.
B)Quantity variance.
C)Volume variance.
D)Controllable variance.
E)Price variance.
Q2) The difference between the actual sales and the flexible budget sales is called the ________ variance.
Q3) A favorable direct materials price variance might lead to an unfavorable direct materials quantity variance because the company purchased inferior materials.
A)True
B)False
Q4) Job #411 was budgeted to require 3.5 hours of labor at $11.00 per hour.However,it was completed in 3 hours by a person who worked for $14.00 per hour.What is the total labor cost variance for Job #4115?
Q5) The difference between the flexible budget sales and the fixed budget sales is called the ________ variance.
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Chapter 22: Performance Measurement and Responsibility Accounting
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Q1) An accounting system that accumulates and reports costs incurred by each service department for management to evaluate the performance of a department is a:
A)Departmental accounting system.
B)Cost accounting system.
C)Service accounting system.
D)Revenue accounting system.
E)Standard accounting system.
Q2) A company rents a small building with 10,000 square feet of space for $100,000 per year.The rent is allocated to the company's three departments on the basis of the value of the space occupied by each.Department One occupies 1,500 square feet of ground-floor space,Department Two occupies 3,500 square feet of ground-floor space,and Department Three occupies 5,000 square feet of second-floor space.If rent for comparable floor space in the neighborhood averages $15.00 per sq.ft.for ground-floor space and $10.00 per sq.ft.for second-floor space,what annual rent expense should be charged to each department?
Q3) A ________ provides information for managers to use to evaluate the profitability or cost effectiveness of each department's activities.
Q4) Define joint costs and explain how joint costs can be allocated.
Page 24
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Chapter 23: Relevant Costing for Managerial Decisions
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Q1) A company's best sales mix is determined using contribution margin per unit of scarce resource.
A)True
B)False
Q2) A company paid $200,000 ten years ago for a specialized machine that has no salvage value and is being depreciated at the rate of $10,000 per year.The company is considering using the machine in a new project that will have incremental revenues of $28,000 per year and annual cash expenses of $20,000.In analyzing the new project,the $200,000 original cost of the machine is an example of a(n):
A)Incremental cost.
B)Opportunity cost.
C)Variable cost.
D)Sunk cost.
E)Out-of-pocket cost.
Q3) If accepting additional business would cause existing sales to decline,the offer should always be declined.
A)True
B)False
Q4) Relevant costs are also known as ________.
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Chapter 24: Capital Budgeting and Investment Analysis
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Q1) The accounting rate of return (ARR)is computed by dividing a project's after-tax net income by the average annual investment.
A)True B)False
Q2) When computing payback period,the date the initial capital investment is made is year 1.
A)True B)False
Q3) The ________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.
Q4) A capital budgeting method that considers how quickly a project recovers costs is known as ________.An enhancement to this method that also considers the time value of money is called ________.
Q5) For projects financed from borrowed funds,the hurdle rate must exceed the interest rate paid on the borrowed funds.
A)True B)False
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Chapter 25: Time Value of Money
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Q1) Interest may be defined as:
A)Time.
B)A borrower's payment to the owner of an asset for its use.
C)The future value of a present amount.
D)Always a liability.
E)Always an asset.
Q2) Clara is setting up a retirement fund,and she plans on depositing $5,000 per year in an investment that will pay 7% annual interest.How long will it take her to reach her retirement goal of $69,082? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)
A)13.816 years
B)0.072 years
C)10 years
D)20 years
E)5 years
Q3) Protocol Company has acquired equipment from a dealer that requires equal payments of $12,000 at the end of each of the next five years.This transaction includes interest at 9%,compounded annually.What is the value of the machine today?
Q4) Explain the concept of the present value of an annuity.
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Chapter 26: Investments
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Q1) On June 18,Wyman Company (a U.S.Company)sold merchandise to the Nielsen Company of Denmark for 60,000 (Euros),with a payment due in 60 days.If the exchange rate was $1.35 per euro on the date of sale and $1.14 per euro on the date of payment,Wyman Company should recognize a foreign exchange gain or loss in the amount of:
A)$60,000 gain.
B)$60,000 loss.
C)$68,400 loss.
D)$12,600 gain.
E)$12,600 loss.
Q2) A company paid $37,800 to acquire 8% bonds with a $40,000 maturity value.The company intends to hold the bonds to maturity.The cash proceeds the company will receive when the bonds mature equal:
A)$37,800.
B)$38,325.
C)$40,000.
D)$40,525.
E)$43,200.
Q3) ________ refers to all changes in equity for a period except for those due to investments by and distributions to owners.
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Chapter 27: Lean Principles and Accounting
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Sample Questions
Q1) If work in process inventory is $900 and cost of goods sold is $16,425,what is days' sales in work in process inventory?
A)21 days
B)6 days
C)5 days
D)20 days
E)18 days
Q2) Only manufacturers use the lean business model.
A)True
B)False
Q3) Which of the following statements is correct concerning the elements of cycle time?
A)Move time is the time spent moving (1)raw materials from storage to production and (2)goods in process from one factory location to another factory location.
B)Inspection time is the time spent producing the product.
C)Process time is considered non-value-added time.
D)Wait time is considered value-added time.
E)Cycle efficiency is the ratio of non-value-added time to total cycle time.
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