Course Introduction
Principles of Accounting Review Questions
Principles of Accounting introduces the fundamental concepts and practices of financial and managerial accounting. The course covers the accounting cycle, the preparation and analysis of financial statements, and the basics of recording business transactions. Students learn how to interpret financial data, apply ethical standards, and use accounting information for decision-making. Emphasis is placed on understanding assets, liabilities, equity, revenues, expenses, and the role of accounting in the business environment. This foundational course equips students with essential skills for further studies in business and finance.
Recommended Textbook
Financial Accounting 1st Canadian Edition by Jeffrey Waybright
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Page 2
Chapter 1: Business, Accounting, and You
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Sample Questions
Q1) Celia buys a new machine for her shop on credit. What effect does this have on the accounting equation?
Answer: Increase liabilities and increase assets.
Q2) Ling Li Jewellery has the following accounts. Identify the accounts found within the income statement.
Common shares
Jewellery Supplies
Cash
Revenue
Salaries Expense
Accounts Payable
Marketing Expense
Accounts Receivable
Supplies Expense
Answer: Revenue
Salaries Expense
Marketing Expense
Supplies Expense
Q3) Payables are included in which financial statement?
Answer: Balance sheet or statement of financial position
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Chapter 2: Analyzing and Recording Business Transactions
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Sample Questions
Q1) The difference between the total debits and total credits of an account is called a:
A) trial balance.
B) sub-total.
C) ruling.
D) balance.
E) normal balance.
Answer: D
Q2) Net income and dividends are part of __________.
Answer: shareholders' equity
Q3) Debit means:
A) decrease.
B) increase.
C) the right side of an account.
D) the left side of an account.
E) the total of the T-account.
Answer: D
Q4) Jill invested $25,000 in her business, Fashion, Unlimited. The journal entry would include a __________.
Answer: debit to cash for $25,000 and a credit to common shares for $25,000
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Chapter 3: Adjusting and Closing Entries
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Sample Questions
Q1) Respectively, cash, rent expense, and accounts payable are:
A) all permanent accounts.
B) permanent, temporary, and temporary accounts.
C) temporary, permanent, and temporary accounts.
D) permanent, temporary, and permanent accounts.
E) all temporary accounts.
Answer: D
Q2) During a recent week, incurred wages were $700. However, $280 of the wages had not been paid. Prepare the adjusting entry for wages.
Answer: 11ea4bf1_a926_b907_a578_7bd27372f171_TB2774_00 11ea4bf1_a926_b908_a578_476c590e7235_TB2774_00
Q3) The adjusted trial balance for prepaid insurance is a $724 debit. Insurance expense for the period was $1,136. What was the unadjusted trial balance for prepaid insurance? Answer: $1,860 debit.
Calculation: 1,136 + 724 = 1,860
Q4) Accounts receivable would be an example of a(n) __________.
Answer: accrued revenue
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Page 5
Chapter 4: Ethics, Internal Control, and Cash
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Sample Questions
Q1) In a broad sense, fraud is the use of deception or trickery for personal gain.
A)True
B)False
Q2) Differences between when a company records a transaction and when the bank records the same transaction are called "timing" differences.
A)True
B)False
Q3) Fraud is one of the fastest-growing crimes.
A)True
B)False
Q4) Attempting to justify your actions is an example of __________.
Q5) Which of the following would NOT be considered cash?
A) Currency
B) Money market funds
C) Money orders
D) Chequing accounts
E) Cash
Q6) Cash register schemes are a form of __________.
Q7) In order to get a handle on accounting fraud, the U. S. Congress in 2002 passed the
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Chapter 5: Accounting for a Merchandising Business
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Sample Questions
Q1) When a retailer sells merchandise on account, the general entry for the sale would be a:
Q2) A 25-year mortgage with regular monthly principal payments would be listed on the balance sheet as:
A) a current liability only.
B) a long-term liability only.
C) partly a current liability with the balance listed as a long-term liability.
D) a long-term asset.
E) a current asset.
Q3) The name of the supplier (vendor) is listed in the Accounts Payable subsidiary ledger:
A)True
B)False
Q4) A discount offered by a supplier as an inducement for prompt payment of an invoice is called a(n):
Q5) Journalize the following transactions for Jane Co. assuming the periodic system.
May 7 Jane Co. sold $6,900 of merchandise, costing $5,150 on account to Joan, terms 3/10, n/30 FOB Shipping
May 8 Jane Co. pre-pays $500 of shipping costs and charges Joan.
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Chapter 6: Inventory
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Sample Questions
Q1) If the ending inventory in Period 1 is understated, gross profit for Year 1 is
Q2) The first step in using the gross profit method to estimate ending inventory is to:
A) calculate the cost of goods available for sale.
B) estimate the ending inventory.
C) estimate the beginning inventory.
D) estimate the cost of goods sold.
E) calculate net income.
Q3) An accounting department only needs to know:
A) how many units were sold, not which units were sold.
B) which units were sold, not how many units were sold.
C) the specific price of a specific unit.
D) the average price of a specific unit.
E) the physical flow of goods.
Q4) The choice of inventory costing method does not have an effect on net income. A)True B)False
Q5) A manufacturer uses __________ inventory to produce the goods it sells.
Q6) What are the benefits of using FIFO?
Page 8
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Chapter 7: Sales and Receivables
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Sample Questions
Q1) Bad Debts Expense is debited when writing off customer accounts under the Allowance method.
A)True B)False
Q2) The account receivable turnover is computed by taking the average net accounts receivable and dividing by the net credit sales.
A)True
B)False
Q3) Margaret is a customer of Tammy Company. The company wrote off her account of $1,200 on August 15. On October 12, she sent in a payment of $560. What is the journal entry that Tammy Company will record first to reinstate her account?
Q4) There are two methods for accounting for uncollectible receivables. A)True B)False
Q5) Using a 365-day year, what is the maturity value of a 55-day, 7% note for $23,000 rounded to the nearest cent?
Q6) If a company has 90-day credit terms, what would you expect its accounts receivable turnover to be?
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Chapter 8: Long-Term Assets
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Sample Questions
Q1) How is goodwill calculated?
Q2) Jillian Company purchased a set of fixtures on January 1, 2012. The cost was $12,000 and the set had a residual value of $2,000. The fixtures were given a useful life of 8 years. After the end of three years, it was determined that the fixtures would be obsolete in 2 more years. Assume that the estimated residual value is still $2,000. What will be the depreciation under the straight-line method to the nearest dollar for the fourth year? What is the journal entry in the fourth year to record depreciation?
Q3) Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000 and a note was signed. What is the journal entry to record this purchase?
Q4) A van that cost $23,700 and had accumulated depreciation of $21,000 was sold for $1,250.
Record the journal entry required.
Q5) The cost of removing unwanted buildings from land would be allocated to which account?
Q6) If "what you gave up" is more than "what you got," is a gain or loss recognized?
Q7) What type of account is Accumulated Depletion?
Page 10
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Chapter 9: Current Liabilities and Long-Term Debt
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Sample Questions
Q1) Even liabilities of unknown amounts are required to be placed on the balance sheet.
A)True
B)False
Q2) A company receives a note payable for $3,500 at 9% for 45 days. How much interest (to the nearest cent) will the customer owe using a 360-day year?
Q3) Bill Company had total assets of $560,000; total liabilities of $250,000; and total shareholders' equity of $310,000. Bill Company's debt ratio is:
A) 55.4%.
B) 80.6%.
C) 44.6%.
D) 28.7%.
E) 66.4%.
Q4) Rental agreements are typically:
A) capital leases.
B) operating leases.
C) expense leases.
D) revenue leases.
E) financial leases.
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Chapter 10: Corporations: Share Capital and Retained Earnings
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Sample Questions
Q1) Paying dividends causes a decrease in total assets, but an increase in total shareholders' equity.
A)True
B)False
Q2) Earnings that a shareholder receives from a corporation is an example of which shareholder right?
A) Vote
B) Dividends
C) Liquidation
D) Preemption
E) Retained earnings
Q3) ABC Co. issues 500 common shares for $10 per share. Identify the entry that would be recorded.
Q4) ABC Company declares a $50,000 cash dividend to its shareholders. The company has 40,000 outstanding common shares and 15,000 $3 noncumulative preferred shares. Record the journal entry.
Q5) What is the normal balance of the treasury shares account?
Q6) A company's shares that it reacquires are termed "treasury shares."
A)True
B)False Page 12
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Chapter 11: The Cash Flow Statement
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Sample Questions
Q1) Operating expenses other than depreciation for the year were $400,000. Accrued expenses increased by $35,000. Cash payments for operating expenses to be reported on the cash flow statement using the direct method would be:
A) $435,000.
B) $400,000.
C) $365,000.
D) $35,000.
E) $356,000.
Q2) The proceeds from the sale of equipment under the direct method would be reported:
A) in the investing section of the cash flow statement.
B) in the operating section of the cash flow statement.
C) in the financing section of the cash flow statement.
D) as a separate disclosure.
E) in the management section of the cash flow statement.
Q3) Gains on the sale of long-term assets are __________ from __________ activities.
Q4) Why is the direct method preferred over the indirect method?
Q5) Acquisitions and sales of long-term assets belong in the __________ section of a cash flow statement using the indirect method.
Page 14
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) Common-size statements should NOT be used to compare a company's performance against the industry average.
A)True
B)False
Q2) Reporting income from continuing operations helps investors make predictions about a company's future earnings.
A)True
B)False
Q3) By using only percentages in common-size statements, the statements emphasize dollar value bias.
A)True
B)False
Q4) Common-size statements are useful when comparing a company's performance against that of a similar, but not necessarily the same-sized, company.
A)True
B)False
Q5) Net income was $45,000 in 2009 and $60,000 in 2010. The percentage increase or decrease in net income from 2009 to 2010 was __________.
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