Principles of Accounting
Pre-Test Questions
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques underlying the preparation and interpretation of financial information. The course covers topics such as the accounting cycle, double-entry bookkeeping, preparation of financial statements, and the use of accounting information for decision-making. Students will learn how to analyze business transactions, record them accurately, and communicate financial results to internal and external stakeholders. Emphasis is placed on understanding generally accepted accounting principles (GAAP) and their application in real-world contexts, providing a solid foundation for further study in accounting and finance.
Recommended Textbook Survey of Accounting 5th Edition by Carl
S. Warren
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15 Chapters
1711 Verified Questions
1711 Flashcards
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Chapter 1: The Role of Accounting in Business
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Sample Questions
Q1) Which statement is normally prepared first?
A)Income statement
B)Balance sheet
C)Statement of cash flows
D)Retained earnings statement
Answer: A
Q2) Name and describe the three forms of businesses and their advantages and disadvantages (if any).
Answer: 11ea8a6e_31e9_c152_96ef_b704583ed607_TB6232_00
Q3) An entity that is organized according to state or federal statutes and in which ownership is divided into shares of stock is a
A)proprietorship.
B)corporation.
C)partnership.
D)governmental unit.
Answer: B
Q4) Stockholders in a corporation are internal stakeholders.
A)True
B)False
Answer: False
Page 3
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Chapter 2: Basic Accounting Concepts
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Sample Questions
Q1) For EFG Co. ,the transaction "Receipt of interest income" would
A)increase total assets.
B)decrease total assets.
C)have no effect on total assets.
D)decrease total liabilities.
Answer: A
Q2) For EFG Co. ,the transaction "Purchase of store equipment with cash" would
A)increase total assets.
B)decrease total assets.
C)have no effect on total assets.
D)decrease stockholders' equity.
Answer: C
Q3) Anthony,Inc.buys land for $50,000 cash.The net affect on assets is
A)$50,000 increase.
B)$0.
C)$50,000 decrease.
D)$25,000 increase.
Answer: B
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Chapter 3: Accrual Accounting Concepts
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Sample Questions
Q1) When are sales recognized under the cash basis of accounting? When are expenses recognized?
Answer: Under the cash basis of accounting,the only time revenues or expenses are recognized is when there is a transaction affecting cash.So,when there is a sale and when the cash is exchanged,sales are recognized.When an expense is paid in cash,then it is recognized.
Q2) Under the cash basis of accounting,no adjustments are necessary prior to the preparation of the financial statements.
A)True
B)False
Answer: True
Q3) __________ is/are created when a revenue or expense has NOT been recorded by the end of the accounting period.
A)Prepaid advertising
B)Premiums received in advance
C)Unearned revenue
D)Accruals
Answer: D
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Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) Since merchandise inventory is normally sold within a year,how is it reported on the balance sheet?
A)As a revenue
B)As the cost of merchandise sold
C)It does not appear on the Balance Sheet
D)As a current asset
Q2) Merchandise with an invoice price of $6,000 is purchased subject to terms of 2/10,n/30,FOB destination.Transportation costs paid by the seller totaled $125. What is the net cost of the merchandise?
A)$6,125
B)$6,005
C)$5,880
D)$5,755
Q3) Available discounts taken by the buyer for early payment of an invoice are termed sales discounts by the seller.
A)True
B)False
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Chapter 5: Sarbanes-Oxley,internal Control,and Cash
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Sample Questions
Q1) Accompanying the bank statement was a credit memorandum for a short-term note collected by the bank for the depositor.This item is a(n)
A)deduction from the balance per depositor's records.
B)addition to the balance per bank statement.
C)deduction from the balance per bank statement.
D)addition to the balance per depositor's records.
Q2) When a firm uses internal auditors,it is adhering to which of the following internal control elements?
A)Risk assessment
B)Proofs and security measures
C)Monitoring
D)Separating responsibilities for related operations
Q3) Money orders are considered cash.
A)True
B)False
Q4) If a business has several bank accounts,it has a separate record for each of them.
A)True
B)False
Q5) List the principal advantage of Electronic Funds Transfers.
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Chapter 6: Receivables and Inventories
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Sample Questions
Q1) During inflationary periods,the use of the FIFO method of costing inventory will result in a greater amount of net income than would result from the use of the LIFO cost method.
A)True
B)False
Q2) Receivables not expected to be collected within one year are reported in the fixed assets section of the balance sheet.
A)True
B)False
Q3) "Market," as used in the phrase "lower of cost or market" for valuing inventory,refers to the price at which the inventory is being offered for sale by its owner.
A)True
B)False
Q4) The maturity value of a 12%,60-day note for $5,000 is $5,100.
A)True
B)False
Q5) The due date of a 60-day note dated July 10 is September 9.
A)True
B)False
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Chapter 7: Fixed Assets and Intangible Assets
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Sample Questions
Q1) Expenditures made to extend an asset's life are deemed revenue expenditures.
A)True
B)False
Q2) The acquisition costs of property,plant,and equipment should include all normal,reasonable,and necessary costs to get the asset in place and ready for use.
A)True
B)False
Q3) Intangible assets are used in operations but
A)cannot be specifically identified.
B)cannot be sold.
C)lack physical substance.
D)cannot be long-lived.
Q4) A machine with a useful life of 10 years and a residual value of $4,000 was purchased for $30,000.What is annual depreciation under the straight-line method?
A)$3,000
B)$3,400
C)$2,600
D)$5,200
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Chapter 8: Liabilities and Stockholders Equity
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Sample Questions
Q1) If the market rate of interest is 8% and a corporation's bonds bear interest at 7%,the bonds will sell at a premium.
A)True B)False
Q2) Most employers are required to withhold a portion of the earnings of each employee for FICA tax.
A)True B)False
Q3) FICA tax is a payroll tax that is paid by both the employee and the employer. A)True B)False
Q4) The major subdivisions of the Stockholders' Equity section of the balance sheet are A)Paid-in Capital and Retained Earnings.
B)Common Stock and Retained Earnings.
C)Stock,Paid-In Capital,and Retained Earnings.
D)Common Stock and Preferred Stock.
Q5) The issuance of common stock affects both paid-in capital and retained earnings. A)True B)False
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Chapter 9: Financial Statement Analysis
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Sample Questions
Q1) The purpose of an audit is to
A)determine whether or not a company is a good investment.
B)render an opinion on the fairness of the statements.
C)determine whether or not a company complies with income tax regulations.
D)determine whether or not a company is a good credit risk.
Q2) Which of the following is NOT included in the computation of the quick ratio?
A)Inventory
B)Marketable securities
C)Accounts receivable
D)Cash
Q3) If net income is $130,000 and interest expense is $40,000 for 2011,what is the rate earned on stockholders' equity for 2011 (rounded to one decimal place)?
A)12.0%
B)12.7%
C)13.2%
D)16.5%
Q4) "Working capital" is another term for the current ratio.
A)True
B)False
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Chapter 10: Accounting Systems for Manufacturing Businesses
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Sample Questions
Q1) The cost of materials entering directly into the manufacturing process is classified as A)direct labor cost.
B)factory overhead cost.
C)burden cost.
D)direct materials cost.
Q2) As product costs are incurred in the manufacturing process,they are accounted for as assets and reported on the balance sheet as inventory.
A)True
B)False
Q3) Product costs include all of the following EXCEPT
A)CEO salary.
B)depreciation on factory equipment.
C)wages of an assembly worker.
D)direct materials.
Q4) Which of the following costs are NOT included in finished goods inventory?
A)Direct labor
B)Factory overhead
C)Company president's salary
D)Direct materials
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Chapter 11: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) Total variable costs change as the level of activity changes.
A)True
B)False
Q2) If direct materials cost per unit decreases,the break-even point will increase.
A)True
B)False
Q3) The point in operations at which revenues and expired costs are exactly equal is called the break-even point.
A)True
B)False
Q4) If fixed costs are $750,000 and variable costs are 55% of sales,what is the break-even point (in dollars)?
A)$1,875,000
B)$1,363,636
C)$1,666,667
D)$1,250,000
Q5) Variable costs are costs that remain constant in total with changes in the activity level.
A)True
B)False
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Chapter 12: Differential Analysis and Product Pricing
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Sample Questions
Q1) The amount of income that would result from an alternative use of cash is called
A)differential income.
B)sunk cost.
C)differential revenue.
D)opportunity cost.
Q2) The amount of income that would result from an alternative use of cash is called opportunity cost.
A)True
B)False
Q3) In using the total cost concept of applying the cost-plus approach to product pricing,what is included in the markup?
A)Total selling and administrative expenses plus desired profit
B)Total fixed manufacturing costs,total fixed selling and administrative expenses,and desired profit
C)Total costs plus desired profit
D)Desired profit
Q4) The highest contribution margin per scarce resource is the most profitable.
A)True
B)False
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Chapter 13: Budgeting and Standard Cost Systems
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Sample Questions
Q1) What is the amount of the fixed factory overhead volume variance?
A)$12,500 favorable
B)$10,000 unfavorable
C)$12,500 unfavorable
D)$10,000 favorable
Q2) Financial reporting systems that are guided by the principle of exceptions concept focus attention on variances from standard costs.
A)True
B)False
Q3) Supervisor salaries,maintenance,and indirect factory wages would normally appear in the selling and administrative expenses budget.
A)True
B)False
Q4) The standard cost is how much a product should cost to manufacture.
A)True
B)False
Q5) Standards are designed to evaluate price and quantity variances separately. A)True
B)False
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Chapter 14: Performance Evaluation for Decentralized Operations
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Sample Questions
Q1) Sales commissions expense for a department store is an example of a direct expense.
A)True
B)False
Q2) How much would Division 6's income from operations increase?
A)$75,000
B)$150,000
C)$100,000
D)$50,000
Q3) In an investment center,the manager has the responsibility for and the authority to make decisions that affect
A)the assets invested in the center but not costs and revenues.
B)costs and assets invested in the center but not revenues.
C)both costs and revenues for the department or division.
D)not only costs and revenues but also assets invested in the center.
Q4) The three common types of responsibility centers are referred to as cost centers,profit centers,and segment centers.
A)True
B)False
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Chapter 15: Capital Investment Analysis
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Sample Questions
Q1) The process by which management plans,evaluates,and controls long-term investment decisions involving fixed assets is called
A)absorption cost analysis.
B)variable cost analysis.
C)capital investment analysis.
D)cost-volume-profit analysis.
Q2) Assume in analyzing alternative proposals that Proposal F has a useful life of six years and Proposal J has a useful life of nine years.What is one widely used method that makes the proposals comparable?
A)Ignore the fact that Proposal F has a useful life of six years and treat it as if it has a useful life of nine years.
B)Adjust the life of Proposal J to a time period that is equal to that of Proposal F by estimating a residual value at the end of year six.
C)Ignore the useful lives of six and nine years and find an average (7 1/2 years).
D)Ignore the useful lives of six and nine years and compute the average rate of return.
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