Course Introduction
Principles of Accounting Review Questions
Principles of Accounting introduces students to the foundational concepts and practices of financial and managerial accounting. The course covers topics such as the accounting cycle, preparation and analysis of financial statements, basic accounting principles, and internal controls. Students learn how to record, classify, and summarize business transactions, understand the role of accounting in decision-making, and apply accounting information to real-world business scenarios. Emphasis is placed on understanding debits and credits, accounting systems, and the ethical standards that guide professional practice in the field.
Recommended Textbook
Financial Managerial Accounting 16th Edition by Jan Williams
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Page 2
Chapter 1: Accounting: Information for Decision Making
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Sample Questions
Q1) Public accounting is the segment of the profession where professionals offer audit, tax, and consulting services to clients.
A)True
B)False
Answer: True
Q2) The Securities and Exchange Commission is instrumental in the development of financial accounting standards.
A)True
B)False
Answer: True
Q3) Management accounting information is oriented toward the future while financial accounting information is historical in nature.
A)True
B)False
Answer: True
Q4) The information is summarized in a set of statements distributed to the public. Answer: Financial
Q5) The information is intended to be used for planning and control decisions. Answer: Management
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Chapter 2: Basic Financial Statements
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Sample Questions
Q1) What amount of net income will be reported on an income statement for the month of August?
A) $20,000.
B) $7,500.
C) $0.
D) $33,500.
Answer: B
Q2) Which of the following activities is not a category into which cash flows are classified?
A) Marketing activities.
B) Operating activities.
C) Financing activities.
D) Investing activities.
Answer: A
Q3) An expense is best defined as:
A) Any payment of cash for the benefit of the company.
B) Past, present, or future payments of cash required to generate revenues.
C) Past payments of cash required to generate revenues.
D) Future payments of cash required to generate revenues.
Answer: B
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Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) The journal entry to record a particular business transaction includes a credit to a liability account. This transaction is most likely also to include:
A) Issuance of new capital stock.
B) The purchase of an asset on account.
C) A cash payment.
D) A credit to Accounts Receivable.
Answer: B
Q2) In accounting, the terms debit and credit indicate, respectively:
A) Increase and decrease.
B) Left and right.
C) Decrease and increase.
D) Right and left.
Answer: B
Q3) In a trial balance prepared at December 31, 2011 the total of the debit column is:
A) $805,000.
B) $780,000.
C) $415,000.
D) $390,000.
Answer: D
Page 5
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) The equipment had an estimated useful life of five years. Compute the book value of the equipment at March 31, after the proper March adjustment is recorded.
A) $10,833.
B) $15,167.
C) $25,567.
D) $10,400.
Q2) Unearned revenue is:
A) An asset.
B) Income.
C) A liability.
D) An expense.
Q3) Which of the following accounting principles is concerned with offsetting revenue with the expenses incurred in producing that revenue?
A) Realization principle.
B) Materiality.
C) Matching.
D) Depreciation.
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6
Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Sample Questions
Q1) A debit balance in the income summary account indicates:
A) An error was made.
B) A Net Profit.
C) A Net Loss.
D) That revenues were greater than expenses.
Q2) The income summary account appears, as stated, on the statement of retained earnings.
A)True
B)False
Q3) The report form of the balance sheet lists liabilities and owners' equity below assets.
A)True
B)False
Q4) The following information is available: What is the return on equity? (round to the nearest number)
A) 5%.
B) 15%.
C) 20%.
D) 25%.
Page 7
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Chapter 6: Merchandising Activities
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Sample Questions
Q1) The following information is available: Calculate the gross profit:
A) $0.
B) $1,500.
C) $450.
D) $900.
Q2) At the beginning of 2012, Wilson Stores has an inventory of $300,000. Because sales growth was strong during 2012, the owner wants to increase inventory on hand to $450,000 at December 31, 2012. If net sales for 2012 are expected to be $2,600,000, and the gross profit rate is expected to be 35%, compute the cost of the merchandise the owner should expect to purchase during 2012.
A) $750,000.
B) $1,240,000.
C) $1,690,000.
D) $1,840,000.
Q3) A periodic inventory system eliminates the need for:
A) Taking an annual physical inventory.
B) Recording the revenue from sales transactions.
C) Recording the cost of merchandise sold as sales occur.
D) None of the above.
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Page 8
Chapter 7: Financial Assets
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Sample Questions
Q1) The term cash equivalent refers to:
A) An item such as a money order, travelers' check, or check from a customer.
B) An account receivable from a reliable customer who has always paid bills within the discount period.
C) A guaranteed line of credit at the company's bank.
D) Very liquid short-term investments such as U.S. Treasury Bills and commercial paper.
Q2) Financial assets:
A) Consist of cash and cash equivalents.
B) Are reported at cost in the balance sheet.
C) Include short-term investments in marketable securities and receivables, as well as cash.
D) Are not very productive assets and should be kept to a minimum in a well-managed company.
Q3) Available-for-sale securities are usually held for:
A) Less than three months.
B) Between six and eighteen months.
C) Greater than one year.
D) Less than one month.
Q4) What is the amount of the deposit in transit?
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Chapter 8: Inventories and the Cost of Goods Sold
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Sample Questions
Q1) The inventory turnover rate provides an indication of how quickly the average quantity of inventory on hand:
A) Spoils.
B) Sells.
C) Increases.
D) Converts into cash.
Q2) The primary reason for the popularity of the LIFO flow assumption is that this method:
A) Is most appropriate when each item in inventory is unique.
B) Tends to minimize taxable income.
C) Causes inventory to be reported at or near its current replacement cost.
D) Reduces the amount of money "tied up" in inventory.
Q3) Carl Equipment's inventory turnover rate is:
A) 6.7 times.
B) 8 times.
C) 10 times.
D) 1.25 times.
Q4) The higher a company's inventory turnover rate, the higher its gross profit.
A)True
B)False
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Chapter 9: Plant and Intangible Assets
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Sample Questions
Q1) Compute the book value of the stallion at May 31, 2009, the date of sale.
$______________
Q2) Effects of depreciation on income and cash flows
In its financial statements, Flysafe Airlines has for many years depreciated its aircraft over an estimated useful life of 12 years. In preparing this year's financial statements, management decided to revise the estimate from 12 years to 15. Briefly explain how this revision in estimated life is likely to affect this year's:
(a) Net income.
(b) Net cash flow.
(c) Taxable income.
Q3) All of the following may be considered intangible assets except:
A) Accounts receivables.
B) Copyrights.
C) Franchises.
D) Goodwill.
Q4) The systematic write-off of intangible assets to expense is called depletion.
A)True
B)False
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Chapter 10: Liabilities
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Sample Questions
Q1) In preparing an amortization table, it is necessary to include:
A) The original amount of the liability, the amount of periodic payments, and the interest rate.
B) The original amount of the liability, the amount of periodic payments, and the amount of past payments.
C) The monthly payment, the total amount of past payments, and the original amount of the liability.
D) The total amount of past payments, the interest rate, and the amount of periodic payments.
Q2) What is the amount of bond interest expense that appears in Seaview's Year 2 income statement relating to these bonds?
What is the amount of accrued bond interest expense that appears in Seaview's balance sheet at December 31, Year 2, with respect to these bonds?
Seaview exercises the call provision and retires one-half of the bond issue on July, 1, Year 4. Prepare the journal entry to record this transaction on July 1, Year 4.
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Page 12
Chapter 11: Stockholders Equity: Paid-In Capital
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Sample Questions
Q1) The book value per share of common stock (assume current-year preferred dividends have been paid) $_____ per share
Q2) The average issue price per share of Revere's preferred stock was:
A) $117.
B) $100.
C) $110.
D) $34.50.
Q3) A stockholders' subsidiary ledger will have entries made for each stockholder showing the number of shares held.
A)True
B)False
Q4) On September 1, 2009, Maryland Corporation's common stock was selling at a market price of $200 per share. On that date, Maryland announced a 3 for 2 stock split. At what price would you expect the stock to trade immediately after the split goes into effect?
A) $100.
B) $200.
C) $133.33.
D) $225.
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Chapter 12: Income and Changes in Retained Earnings
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Sample Questions
Q1) A stock dividend provides a stockholder with more shares of stock, but his or her percentage of ownership in the company is no larger than before.
A)True
B)False
Q2) A small stock dividend of 5,000 shares was declared and distributed during 2009. What was the market price per share on the date of declaration?
A) $82 per share.
B) $80 per share.
C) $2 per share.
D) $78 per share.
Q3) Stock splits are always in a 2 for 1 ratio.
A)True
B)False
Q4) The expropriation (seizure of) of a multinational company's assets by a government is an example of a discontinued operation item.
A)True
B)False
Q5) How many shares of common stock are outstanding?
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) When equipment is purchased entirely through a loan:
A) The equipment is shown as an increase in the investing activities section.
B) The equipment is shown as a decrease in the investing activities section.
C) The loan is shown as an increase in the financing section.
D) Neither the loan nor the purchase of equipment is shown in the investing or the financing sections.
Q2) Peak pricing charges:
A) A higher price when demand is high and a lower price when demand is low.
B) A lower price when demand is high and a higher price when demand is low.
C) A low price when demand is high and a lower price when demand is low.
D) A high price when demand is high and a higher price when demand is low.
Q3) The accountant for Foster Institute, Inc., determined the cash flow for several transactions to be as follows: On the basis of the above transactions alone, determine the net cash flow from financing activities.
A) $275,000 net cash used for financing activities.
B) $440,000 net cash provided by financing activities.
C) Zero: cash inflows equal cash outflows from financing activities.
D) $285,000 net cash provided by financing activities.
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Claret Corporation's gross profit rate for 2009 is:
A) 60.1%.
B) 39.9%.
C) 33%.
D) 68%.
Q2) If a retail store has a current ratio of 2.5 and current assets of $195,000, the amount of working capital is:
A) $78,000.
B) $380.000.
C) $330,000.
D) $117,000.
Q3) ROE - return on equity - is measured by dividing net income by average number of shares outstanding.
A)True
B)False
Q4) Working capital equals:
A) $560,000.
B) $530,000.
C) $270,000.
D) $900,000.
Page 16
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Chapter 15: Global Business and Accounting
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Sample Questions
Q1) China, Japan, and Australia have amended their current standards to converge with International Financial Reporting Standards, but the United States has chosen not to adopt the International Financial Reporting Standards.
A)True
B)False
Q2) Differentiate between Adoption and Convergence as related to International Financial Reporting Standards.
Q3) Which of the following statements are true about globalization methods?
A) International licensing involves the creation of a new company that is owned by two or more firms from different countries.
B) Exporting involves contracts that allow a foreign company to use a domestic company's trademarks, patents, processes, or technology.
C) Global sourcing involves the close coordination of research and development, purchasing, marketing, and manufacturing across national boundaries.
D) A wholly owned international subsidiary is created when a foreign government owns 100% of the equity in a U.S. based firm.
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17
Chapter 16: Management Accounting: a Business Partner
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Sample Questions
Q1) Which of the following should not be classified as a manufacturing cost?
A) Indirect factory labor costs, such as salaries of plant security guards.
B) Direct materials used in the production process.
C) Utility bills related to factory operations.
D) Commissions paid to salespeople.
Q2) Direct labor costs are debited and is credited when the direct labor employees contribute to the production process.
A)True
B)False
Q3) The amount of wages paid to direct workers during April amounted to:
A) $14,000.
B) $12,000.
C) $13,000.
D) Some other amount. $_____________
Q4) Product cost vs. period cost
Briefly define the terms product cost and period cost. Explain why the distinction between these two types of costs is important.
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18
Chapter 17: Job Order Cost Systems and Overhead
Allocations
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Sample Questions
Q1) Which of the following costing systems would always use job cost sheets?
A) Job order costing.
B) Process costing.
C) Activity-based costing.
D) All three systems.
Q2) The method used by managers when comparing unit costs with budgeted costs or other measures is broadly known as:
A) Sales management.
B) Cost control.
C) Employee evaluation.
D) Account reconciliation.
Q3) The journal entry which accounts for the $300,000 transferred out of Work in Process account includes a debit of $300,000 to:
A) Finished Goods.
B) Cost of Goods Sold.
C) Accounts Receivable.
D) Sales.
Q4) Job order costing cannot be used for a service company.
A)True B)False
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Chapter 18: Process Costing
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Q1) If beginning inventory in Work in Process is zero and 2,000 units are started during the period, assuming that 300 units remain in ending inventory, how many equivalent units were completed and transferred out?
A) 2,000.
B) 285.
C) 300.
D) 1,700.
Q2) In a production cost report, the units in beginning Work in Process are always expressed as equivalent units.
A)True
B)False
Q3) The total cost of all cases transferred to finished goods in May was:
A) $74,200.
B) $69,000.
C) $63,600.
D) Some other amount.
Q4) Equivalent units
What is meant by the term equivalent full units? How is this concept used in computing average unit costs?
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Chapter 19: Costing and the Value Chain
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Q1) The suppliers and production component of the value chain would include all of the following costs except:
A) Direct production labor.
B) Production set-up.
C) Salaries for sales personnel.
D) Receipt of direct materials from suppliers.
Q2) External failure costs include:
A) Inspections of materials.
B) Training.
C) Rework.
D) Warranty costs.
Q3) Summit has learned that a competitor plans to introduce a similar widget at a price of $80. In response, Summit may reduce its selling price to $80. If Summit requires a 25% return on sales, what is the target cost for the new widget?
A) $80.
B) $60.
C) $23.75.
D) $20.
Q4) Resourceful's value-adding production activities include:
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Chapter 20: Cost-Volume-Profit Analysis
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Sample Questions
Q1) If monthly fixed costs are $21,000 and the contribution margin ratio is 42%, the monthly sales volume required to break even is:
A) $8,820.
B) $50,000.
C) $78,000.
D) $39,207.
Q2) During the current year, the net sales of Ridgeway, Inc. were 10 percent below last year's level. You should expect Ridgeway's semivariable costs to:
A) Decrease in total, but increase as a percentage of net sales.
B) Increase in total, and increase as a percentage of net sales.
C) Decrease in total, and decrease as a percentage of net sales.
D) Increase in total, but decrease as a percentage of net sales.
Q3) Using the high-low method, compute the fixed element of Olsen's monthly overhead cost.
A) $33,000.
B) $35,000.
C) $37,500.
D) $40,000.
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Chapter 21: Incremental Analysis
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Q1) Assume that Allen Distributors offers to purchase the additional 5,000 saws at a price of $47 per unit. If Burns accepts this price, Burns' monthly gross profit on sales of power saws will:
A) Increase by $35,000.
B) Increase by $185,000.
C) Decrease by $40,000.
D) Decrease by $240,000.
Q2) Widmark Company originally made cell phones at a cost of $60,000 that have since become obsolete due to new technology. They can sell the phones to a dealer for scrap for $11,500 or put more work into them to bring them up-to-date. To re-do the phones would cost $13,000 and they then could be sold for $20,000.
(A.) Should the company scrap them or rework them (show calculations)
(B.) If the original cost had been $50,000 and the company could now sell the phones for $25,000 what should Heston do?
Q3) Joint costs allocated to product B1 total:
A) $8,800.
B) $13,200.
C) $13,500.
D) $22,000.
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Page 23
Chapter 22: Responsibility Accounting and Transfer Pricing
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Q1) Common fixed costs jointly benefit several parts of the business and would not change significantly even if one of the parts of the business were discontinued.
A)True
B)False
Q2) The human resources department of a large company would be considered:
A) A cost center.
B) A profit center.
C) An investment center.
D) A revenue center.
Q3) A responsibility accounting system measures the performance of each of the following centers except:
A) Profit center.
B) Investment center.
C) Control center.
D) Cost center.
Q4) Profit centers generate revenues and expenses.
A)True
B)False
Q5) Contribution margin: $_____________
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Chapter 23: Operational Budgeting
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Q1) Lamberton Manufacturing Company has just completed its master budget. The budget indicates that the company's operating cycle needs to be shortened. Thus, the company will likely attempt:
A) Stocking larger inventories.
B) Reducing cash discounts for prompt payment.
C) Tighten credit policies.
D) None of the above selections is correct.
Q2) Weaver Corporation pays its debt service costs in full each month. April debt service costs are budgeted at $9,000. However, of this amount, only $1,000 represents a reduction of principal. The company expects to issue no new debt during the month. What cash disbursement amount will be shown on Weaver's debt service budget?
$_____________
Q3) Budgeted collections from customers in November total:
A) $32,000.
B) $53,000.
C) $59,000.
D) $48,000.
Q4) As budgeted output per the flexible budget increases, per-unit fixed costs (increase/decrease): ___________
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Chapter 24: Standard Cost Systems
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Q1) Which of the following is not an accurate budgeted amount for an output level of 90,000 units?
A) Total overhead cost, $86,900
B) Total manufacturing costs, $183,150
C) Direct materials, $39,375
D) Direct labor, $49,500
Q2) Caesar, Inc. purchased and used 47,600 pounds of goods to produce an actual quantity of 15,300 units. Each unit required 3 pounds of goods. The quantity variance was $10,200 unfavorable and the price variance was $7,140 unfavorable. What was the actual price and the standard price per pound?
Q3) Favorable standard cost variances are normally closed at the end of the period by:
A) Crediting the variance account and debiting Cost of Goods Sold.
B) Debiting the variance account and crediting Cost of Goods Sold.
C) Debiting the variance account and crediting Work-in-Process.
D) Crediting the variance account and debiting Work-in-Process.
Q4) A favorable variance would be credited to a cost variance account.
A)True
B)False
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Chapter 25: Rewarding Business Performance
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Sample Questions
Q1) Return on investment (ROI) tells us how much earnings can be expected for the average invested dollar.
A)True
B)False
Q2) The following information is available for the Hancock Company.
Compute the answers for items A-D.
\[\begin{array} { l l }
\text { Sales } & \$ 756,000 \\
\text { Cost of Sales } & \$ 315,000 \\
\text { Operating Expenses } & \$ 252,000 \\
\text { Operating Earnings } & \mathrm { A } \\
\text { Average Invested Capital } & \$ 1,890,000 \\
\text { Minimum Acceptable Return } & 12 \% \\
\text { Residual Income } & \mathrm { B } \\
\text { Capital Turnover } & \mathrm { C } \\
\text { ROI } & \mathrm { D }
\end{array}\]
Q3) The value chain starts with the supplier and ends with the consumer.
A)True
B)False
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Chapter 26: Capital Budgeting
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Q1) Most capital budgeting techniques involve analysis of net operating profits.
A)True
B)False
Q2) If all revenue generated by an investment is immediately received in cash, and all of the investment's expenses (other than depreciation) are immediately paid in cash, annual net cash flow of the investment may be determined by:
A) Subtracting the investment's annual depreciation expense from the annual net income earned by the investment.
B) Adding the investment's annual depreciation expense to the annual net income earned by the investment.
C) Subtracting the investment's annual expenses from the annual revenue it generates.
D) Adding the investment's annual depreciation expense to the annual revenue generated by the investment.
Q3) The residual value of an asset should be subtracted from the cost of the asset when determining the average amount invested.
A)True B)False
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Chapter 28: Forms of Business Organization
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Q1) A and B are partners. A has $50,000 in his capital account and B has $75,000 at the beginning of the year. A receives a salary of $15,000 and B receives $12,000. Each partner receives 5% of the beginning balance of their capital accounts. The remainder is split 45% to A and 55% to B. Net income for the year was $125,000. What is the amount of each capital account at year-end?
Q2) Assets contributed to a partnership by a partner would be recorded at:
A) Historical cost.
B) Fair market value.
C) Cost less depreciation.
D) Potential value.
Q3) When closing Income Summary, assuming the corporation had net income for the accounting period, the account Retained Earnings is credited.
A)True
B)False
Q4) Shareholders report and pay income tax on dividends received from a corporation. A)True B)False
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Chapter 27: The Time Value of Money: Future Amounts and
Present Values Answer Key
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Q1) Financial instruments are recorded at:
A) Future values.
B) Present values plus interest.
C) Present values less interest.
D) Present values.
Q2) The time value of money is based on the idea that:
A) The value of money in the future equals the interest received in the present.
B) The value of money in the future will be greater than an amount available today.
C) The value of money at present over some length of time will be reduced by inflation.
D) The future value of money will become the current value as time passes.
Q3) The present value of an ordinary annuity is the amount that equals payments made at the end of successive equal periods is worth today.
A)True B)False
Q4) (a) How long will it take Barbara to accumulate $30,000 to buy a car if she invests $15,000 at 5%? (b) How long will it take if she invests the same amount at 4% semi-annually?
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