Principles of Accounting Review
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Course Introduction
Principles of Accounting introduces students to the fundamental concepts and methods used in the accounting profession. The course covers essential topics such as the accounting cycle, preparation of financial statements, recording and analyzing business transactions, and understanding the role of accounting information in decision-making. Students will explore the principles of double-entry bookkeeping, the accrual basis of accounting, and how various accounting standards affect the financial reporting process. By the end of the course, learners will have a solid foundation for interpreting accounting data, preparing basic financial statements, and understanding the ethical considerations inherent in accounting practices.
Recommended Textbook
Introduction to Accounting An Integrated Approach 6th Edition by Penne Ainsworth
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Chapter 1: Accounting and Business
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Sample Questions
Q1) Which of the following best describes the type of business John Deere Inc is?
A)Manufacturing
B)Manufacturing and Service
C)Manufacturing and Merchandising
D)Manufacturing,Service and Merchandising
Answer: D
Q2) It has been said that the periodicity concept "causes all the in accounting".What is the periodicity concept and how does it "cause "?
Answer: The periodicity concept requires business to measure its performance at regular intervals,rather than waiting until the business ceases to operate and then measuring whether it made money.Periodically measuring performance can create measurement when the time period measured does not capture a firm's long-term performance.For example,if a business signs a significant contract just days after the end of the fiscal year that event will not be reported on in financial statements.However,in the long-run the sum of the periodic measures will sum to the performance of the company over time. Therefore,periodic measurement should not be viewed as a single assessment but part of a collection of assessments over time.
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Chapter 2: Business Processes and Accounting Information
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Q1) Which of the following is part of the conversion subprocess?
A)purchase of merchandise for resale
B)payment of wages to sales people
C)purchase of building
D)requisition of raw materials
Answer: D
Q2) A bank reconciliation will identify all of the following except?
A)Unrecorded bank service charges
B)Double Payment of a bill
C)Outstanding Check
D)Deposits in Transit
Answer: B
Q3) The owners of a pizzeria invest $90,000 into the business for expansion purposes.This is an example of a(n):
A)operating activity
B)investing activity
C)planning activity
D)financing activity
Answer: D
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Chapter 3: Operating Processes: Planning and Control
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Sample Questions
Q1) Explain why the cost estimation ratio of the high/low method differs from the regression method.Explain the role of the R<sup>2</sup> when using regression to forecast cost? What will the manufacturing cost be if Tempo wants to produce 18,000 units?
Answer: The high/low method uses the two extremes of the relevant range and in this case these data points are not typical of the typical manufacturing process.The regression cost estimation ratio provides the best fit of all the data points to the regression line.Because it is a measure of the relationship of all the manufacturing activities and the associated cost it provides a better measure of estimated cost. The R<sup>2</sup> measure the strength of the relationship between the independent variable "X" and the dependent variable "Y".The closer to 1 the greater the relationship.In this case an R<sup>2</sup> of .973596 indicates a strong relationship between X and Y. While we can calculate this using either cost estimation process it would not be appropriate because it is outside the relevant range.
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Chapter 4: Short-Term Decision Making
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Sample Questions
Q1) If only the variable cost decreases the breakeven point
A)Decreases
B)Increases
C)Stays the same
D)Depends on customer demand
Q2) Dreary Days,Inc.sells raincoats at a selling price of $25.00 for each raincoat.The variable cost per raincoat is $16.25.Total fixed costs are $142,000.The breakeven point in units is:
A)5,680
B)8,738
C)16,229
D)16,000
Q3) The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50.Variable costs per unit are $3.86,while total fixed costs amount to $572,200.The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000.The breakeven point in units is:
A)102,251
B)113,975
C)75,720
D)74,896
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Chapter 5: Strategic Planning Regarding Operating Processes
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Sample Questions
Q1) A compensation method under which a company pays employees according to the number of items they produce during a given time-period is known as:
A)piece-rate pay
B)deferred pay
C)contract pay
D)bonus pay
Q2) Malsom Corp's monthly payroll is $100,000.If the FICA rate is 7.65% ,income tax is withheld at a 15% rate,the State Unemployment (SUTA)
A)rate is 2.8% and the Federal Unemployment (FUTA)
A)tax rate is .8%,how much is withheld from the workers' wages and how much does Malsom have to pay in payroll taxes?
Q3) Which of the following statements is false?
A)JIT is a pull system.
B)The JIT philosophy is based on continuous improvement.
C)JIT requires a company to have strong relationships with its suppliers.
D)All of the above are true.
Q4) What is the distinction between penetrating and predatory pricing?
Page 7
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Chapter 6: Planning, The Balanced Scorecard, and Budgeting
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Q1) Farmer Corporation budgeted sales of its product during the next fiscal year at 225,000 units,with a selling price of $17.50 per unit.Sales commissions are 6% of sales and other variable selling and administrative costs are 15% of sales.Fixed selling and administrative costs are estimated at $430,000.The budgeted selling and administrative costs for the next fiscal year are:
A)$ 477,250
B)$1,020,625
C)$1,192,375
D)$1,256,875
Q2) The direct materials purchases budget for June is:
A)517,500
B)537,300
C)599,400
D)661,500
Q3) Conversion cycle planning consists of all the following except:
A)scheduling labor
B)scheduling production
C)planning manufacturing overhead
D)All of the above are part of the conversion cycle planning process
Q4) Describe how the sales budget is related to the production budget.
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The last step in the accounting cycle is to prepare:
A)the post-closing trial balance
B)adjusting entries
C)financial statements
D)closing entries
Q2) Net income would decrease as a result of which of the following adjustments:
A)Adjusting an unearned revenue account
B)Accruing a revenue
C)Accruing an expense
D)Billing a customer for services rendered
Q3) A database system differs from manual and computer-based transactions system in that-
A)A database system contains information about business events and accounting events
B)A database system only produces accounting reports
C)A database system produces more financial statements than transaction based systems
D)A database system produces only nonaccounting reports
Q4) Any event reported on the income statement has impacted the balance sheet.Explain why this is true.
Page 9
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Chapter 8: Purchasinghuman Resourcespayment Process:
Recording and Evaluating Expenditure Process Activities
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Sample Questions
Q1) Why are subsidiary ledgers used?
Q2) Which of the following payroll items is an expense to the employer?
A)Federal income taxes
B)Union dues
C)State unemployment taxes
D)United way contributions by employee
Q3) The gross method records the purchase discount.
A)When it is taken
B)When the inventory is purchased
C)When the inventory is sold
D)When the inventory is returned
Q4) BLP Corporation reported wages expense of $224,000,wages payable of $89,400 at the beginning of the year,and wages payable of $71,300 at the end of the year.Cash payments for wages during the year were:
A)$205,900
B)$224,000
C)$242,100
D)$295,300
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Q5) Why would the amount of supplies expense differ from the amount of cash paid for supplies in a year?
Chapter 9: Recording and Evaluating Conversion Process Activities
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Sample Questions
Q1) Assuming the over-underapplied manufacturing overhead was considered small and,therefore,closed out to Cost of Goods Sold,the cost of goods sold reported on the income statement for the period was:
A)$646,500
B)$675,100
C)$683,600
D)$703,300
Q2) The entry to close out a significant amount of overapplied manufacturing overhead would affect all of the below except:
A)decrease the cost of goods manufactured
B)decrease finished goods inventory
C)increase cost of goods sold
D)increase net income
Q3) When the amount of over-underapplied manufacturing overhead is small,the Manufacturing Overhead account is generally closed out to:
A)Cost of Goods Sold
B)Work-in-Process Inventory
C)Cost of Goods Manufactured
D)Finished Goods Inventory,Work-in-Process Inventory,and Cost of Goods Sold
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Chapter 10: Recording and Evaluating Revenue Process Activities
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Sample Questions
Q1) The account "Advances from Customers" is a(n):
A)asset account
B)liability account
C)revenue account
D)contra-revenue account
Q2) If prices don't change over time,what will be the differences between LIFO and FIFO?
Q3) Libretto,Inc.,uses the FIFO method and had ending inventory for 2010 of $35,000.If Libretto had used the LIFO method,its ending inventory would have been $32,000.Assume equal beginning inventories for the two methods.If Libretto had used the LIFO method instead of the FIFO method in 2010,how would its income before income tax have changed?
A)Decrease of $35,000
B)Increase of $35,000
C)Decrease of $3,000
D)Increase of $3,000
Q4) One of the basic principles of accounting is objectivity.Why,then,do businesses estimate their uncollectible accounts expense instead of waiting to see which accounts receivable will not be collected.That would be objective,wouldn't it?
Page 12
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Chapter 11: Time Value of Money
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Sample Questions
Q1) Casey Cohen would like to have $24,500 in 5 years time to buy a car.The amount that Cohen would have to invest today,assuming an interest rate of 4% compounded annually,in order to reach his goal is:
Q2) Art Burtscher has a choice of investing $10,000 at either 5% simple interest or 5% compound interest that is compounded annually.What will be the difference between The total amount of interest earned after two years?
A)No difference
B)$25
C)$50
D)$100
Q3) The present value on April 1,2010 of 16 semiannual payments of $5,000 each,with the first payment to be made on October 1,2010,assuming an 8% interest rate compounded semiannually is:
Q4) You are trying to decide between leasing a car or buying it.In each case you would have the use of the car for 48 months.At the end of that time,you expect the car to be worth $6,000.Explain how to determine whether leasing or buying is the best for you.
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Chapter 12: Planning Investments: Capital Budgeting
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Sample Questions
Q1) A firm's cost of capital represents all the following except.
A)The weighted average of the cost of both debt and equity financing.
B)The minimum rate that an investment is expected to generate before a company will buy the asset.
C)The cost of the long-term operating assets the firm acquires.
D)The hurdle rate of return.
Q2) If the net-present value of an investment is positive,which of the following is true?
A)The net-present-value represents the amount of profit the company will make if it buys the asset.
B)Describes the actual amount of the expected return.
C)Indicates that the return the new asset will generate is expected to exceed the cost of capital.
D)Describes the amount of difference between the expected return and the cost of capital.
Q3) Explain why both the timing and quantity of cash flows are significant in determining net present value.
Q4) Why should qualitative factors be considered in the capital budgeting process?
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Chapter 13: Planning Equity Financing
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Sample Questions
Q1) Which of the following statements is not true about the times-interest-earned ratio?
A)The greater the times interest earned the lower the risk of defaulting on the firm's debt.
B)The greater the interest expense,the lower the firm's times-interest-earned ratio.
C)The smaller the times-interest-earned the lower the financial risk of the company.
D)A high times-interest-earned and a high debt to equity ratio means the company is effectively using financial leverage.
Q2) Which of the following is not a source of financing for a firm?
A)Selling asset of the firm.
B)Issuing stock for cash
C)Issuing a note to borrow cash
D)Net income
Q3) Which of the following measures a firm's ability to service its debt?
A)Times interest earned
B)Debt to equity ratio
C)Return on owners' equity
D)Return on common stockholders' equity
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Chapter 14: Planning Debt Financing
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Q1) When a note is issued at a discount which of the following is not true?
A)Borrower gets less cash than the face value
B)Interest expense is greater than cash paid for interest during a period
C)Cash repaid at maturity is less than face value of the note
D)Market rate of interest is greater than face rate of interest on note
Q2) On November 1,2010 Michigan Iron works arrange to purchase a $150,000 piece of equipment by making a 20 percent down payment and signing a three-year installment loan contract with interest at 8 percent per year for the balance.The loan is to be repaid in semiannual installments starting on May 1,2011.
Required:
(A.)How much cash will the company pay out in 2010? Where will the cash outflows appear in the financial statements?
(B.)How much interest expense will the company incur from November 1,2010 to November 1,2011?
(C.)How much of the debt will be reduced in the first year of the note?
(D.)How will the installment note be reported on the balance sheet on December 31,2010?
Q3) "Obviously,there is no interest expense on a non-interest-bearing note".Is this statement accurate? Explain.
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Chapter 15: Recording and Evaluating Capital Resource
Process Activities: Financing
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Q1) Olio Corporation has 900,000 shares of $1 par value common stock authorized,and 550,000 shares issued and outstanding.The market value of the stock is $18 per share.The journal entry to record the declaration of a 10% stock dividend would include a:
A)credit to dividend payable for $90,000
B)credit to Common Stock Dividends Distributable for $90,000
C)debit to Retained Earnings for $990,000
D)credit to Paid-in-Capital in Excess of Par for $55,000
Q2) The premium on Notes Payable account is a(n):
A)adjunct liability account
B)contra liability account
C)contributed liability account
D)equity account
Q3) Enco Dynamics purchased a tract of land from Spectrum Associates on July 1,2010,by issuing a 5-year noninterest-bearing note with a face value of $150,000.Enco has a June 30 fiscal year end and normally pays a 12% rate of interest on similar notes payable balances.Prepare the journal entry to record the acquisition of the land and any other journal entries required relative to the note in the fiscal years ended June 30,2011 and 2012.Show how the note would appear on Enco's June 30,2011 balance sheet.
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Chapter 16: Recording and Evaluating Capital Resource
Process Activities: Investing
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Q1) Byrons,Inc.acquired a piece of equipment on January 3,2010.The total cost of the equipment was $28,500.Byrons estimated that the equipment would be used for 6 years before being sold for an estimated $4,500.Assuming the use of straight-line depreciation,the total depreciation expense for the year ended December 31,2010 was:
A)$ 4,000
B)$ 4,750
C)$ 5,500
D)$20,000
Q2) Laguna Enterprises is trading in its old schooner for a new model.The old schooner is on the books at a cost of $535,000 with accumulated depreciation of $384,300.The new schooner has a list price of $765,000 but the manufacturer has agreed to reduce this by $125,000 in return for Laguna's old schooner.The new schooner should be recorded on the books at a cost of:
A)$640,000
B)$739,300
C)$765,000
D)$790,700
Q3) Why might the returns on assets of two firms in the same industry not be useful in comparing the firms?
Page 18
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Chapter 17: Company Performance: Profitability
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Q1) MMM Inc.had 5,000 shares outstanding on January 1,2010.MMM Inc.issued 8,000 shares on May 1 and an additional 9,000 shares on August 1,2010.How many shares will be used to calculated earnings per share (2010).
A)5,000
B)14,083
C)15,225
D)15,301
E)22,000
Q2) A loss on the sale of equipment would be included in which element of net income:
A)operating income
B)prior period adjustments
C)nonoperating section
D)net of tax item
Q3) Comprehensive income is also referred to as:
A)earnings
B)net income
C)income from continuing operations
D)none of the above
Q4) What is comprehensive income and how does it differ from net income?
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Chapter 18: Company Performance: Owners Equity and Financial Position
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Q1) Treasury Stock would be reported on the balance sheet as:
A)retained earnings
B)contributed capital
C)reduction to stockholders' equity
D)a long-term investment
Q2) Which of the following answers would not be classified as a current asset?
A)inventory
B)prepaid insurance
C)common stock
D)cash
Q3) Accounts receivable are reported on the balance sheet at their:
A)fair value
B)stated value
C)net realizable value
D)lower of cost or market value
Q4) Trading Securities would be reported on the balance sheet as a(n):
A)plant asset
B)current asset
C)intangible asset
D)long-term investment
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Chapter 19: Company Performance: Cash Flows
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Q1) Since firms must publish an income statement,why is a statement of cash flows also necessary?
Q2) Cash received on interest earned on an investment bonds is reported included in the
A)Financing section
B)Operating section
C)Investing section
D)Investing and operating section
Q3) The purchase of treasury stock is reported on the statement of cash flows in the A)investing section
B)financing section
C)operating section
D)noncash investing and financing section
Q4) Receipt of dividends from an investment in another company would be reported in the following section of the statement of cash flows:
A)investing activities
B)operating activities
C)financing activities
D)noncash investing and financing activities
Q5) Do you consider the direct or indirect method more useful? Why?
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Chapter 20: Company Performance: Comprehensive Evaluation
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Q1) If total assets for 2010 and 2009 were $500,000 and $530,000,respectively,then the percentage change shown in a horizontal analysis would be:
A)6.0%
B)5.7%
C)(5.7%)D)(6.0%)
Q2) The return on owners' equity for 2010 was:
A)35.0%
B)58.8%
C)60.7%
D)65.3%
Q3) The dividend payout ratio relates the amount of dividends paid to the:
A)period's earnings
B)period's gross margin
C)net sales for the period
D)average assets for the period
Q4) The return on assets for 2010 was:
A)10.5%
B)11.6%
C)13.8%
D)15.1%
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