Principles of Accounting
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Course Introduction
Principles of Accounting introduces the foundational concepts and practices essential to understanding financial and managerial accounting. The course covers the accounting cycle, including the preparation and analysis of financial statements, basic bookkeeping, and the application of generally accepted accounting principles (GAAP). Students learn how to record, classify, and summarize financial transactions, interpret financial information, and apply accounting data to decision-making processes. Emphasis is placed on ethical standards, internal controls, and the role of accounting in business organizations, providing students with a strong base for further study or entry-level positions in accounting and finance.
Recommended Textbook
Introductory Financial Accounting for Business 1st Edition by Thomas Edmonds
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Chapter 1: An Introduction to Accounting
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Q1) What is the amount of total assets that will be reported on Lexington's balance sheet at the end of Year 1?
A) $11,000
B) $12,000
C) $1,600
D) $7,600
Answer: A
Q2) What is the process of dividing up assets and allocating them to resource providers (creditors and investors)?
A) Equity distribution
B) Stock repayment
C) Liquidation
D) Utilization
Answer: C
Q3) A net loss occurs when
A) expenses are greater than revenues
B) liabilities are greater than assets
C) cash inflow is less than cash outflow
D) the ending cash balance is lower than the beginning cash balance
Answer: A
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Chapter 2: Accounting for Accruals
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Sample Questions
Q1) What is the amount of net income that will be reported on the Year 1 income statement?
A) $2,200
B) $3,200
C) $1,000
D) $200
Answer: C
Q2) What is the amount of net income that will be reported on the Year 1 income statement?
A) $1,400
B) $800
C) $1,000
D) $1,200
Answer: A
Q3) The amount of Carolina's retained earnings on December 31,Year 1 was:
A) $5,900
B) $7,200
C) $3,900
D) $4,900
Answer: D
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Chapter 3: Accounting for Deferrals
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Sample Questions
Q1) Hans Company's December 31,Year 1,balance sheet showed $800 cash,$500 supplies,$400 accounts payable,$300 common stock,and $600 retained earnings.The company experienced the following events during year 2.
(1)Purchased $1,000 of supplies on account
(2)Earned $2,000 cash revenue
(3)Paid $1,200 cash to reduce accounts payable created in Event 1 above
(4)Physical count revealed $300 of supplies on hand at the end of Year 2
Based on this information,the company would report
A) a $200 balance in the accounts payable account on the Year 2 balance sheet.
B) a $800 net cash inflow from operating activities on the Year 2 statement of cash flows.
C) a $1,200 supplies expense on the Year 2 income statement.
D) All of the answers are correct.
Answer: D
Q2) Which of the following is an asset use transaction?
A) Purchased land for cash
B) Recorded rent expense at the end of the period
C) Borrowed cash from the bank
D) Accrued salary expense at the end of the period
Answer: B
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Page 5
Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) Faust Company uses the perpetual inventory system.Faust sold goods that cost $2,300 for $3,600.The sale was made on account.What is the net effect of the sale on the company's financial statements? (Consider the effects of both parts of this event.)
A) Increase total assets by $2,300
B) Increase total stockholders' equity by $3,600
C) Increase total assets by $1,300
D) Increase total assets by $3,600
Q2) Which of the following statements about period costs is true?
A) Most period costs are expensed in the period the costs are incurred.
B) Period costs are expensed when the products associated with these costs are sold.
C) Period costs are usually recorded as assets.
D) Period costs do not adhere to the matching concept.
Q3) What is (are)the term(s)used to describe a discount given to encourage prompt payment?
A) Cash discount.
B) Sales discount by the seller.
C) Purchase discount by the buyer.
D) All of these answer choices are correct.
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) If the company uses the weighted-average inventory cost flow method,what is the average cost per unit (rounded)for May?
A) $4.45
B) $4.50
C) $5.12
D) $6.34
Q2) During a period of rising inventory prices the LIFO cost flow method will result in higher total assets than FIFO.
A)True
B)False
Q3) At the end of the Year 2 accounting period,DeYoung Company determined that the market value of its inventory was $79,800.The historical cost of this inventory was $81,400.DeFazio uses the perpetual inventory method.Assuming the amount is material,how will the necessary write-down to reduce the inventory to the lower-of-cost-or-market affect the elements of the company's financial statements?
A) Decrease total assets and gross margin
B) Decrease total assets and net income
C) Increase total assets and net income
D) Decrease total assets, gross margin, and net income
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Page 7
Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) After the adjustments identified on the bank reconciliation have been recorded,the ending cash (book)balance reflected in the company's records will equal the true cash balance.
A)True
B)False
Q2) What is an outstanding check?
A) A check that has been issued by the company but has not been presented to the bank for payment.
B) A check that is guaranteed for payment by the bank.
C) A check that has been presented to the bank for payment but has not been reported on the bank statement.
D) A check that was written for an amount that is greater than the balance in the account holder's bank account.
Q3) Which of the following will be caused by recording the customer's NSF check?
A) Accounts receivable increases.
B) Cash decreases.
C) stockholders' equity decreases.
D) Accounts receivable increases and cash decreases.
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) How is the average number of days to collect accounts receivable computed?
A) Accounts Receivable ÷ Net income
B) 365 ÷ Accounts receivable turnover ratio
C) Accounts Receivable ÷ 365
D) Sales ÷ Net accounts receivable
Q2) Some accountants believe that the percent of revenue method for estimating uncollectible accounts expense is superior to the percent of receivables method because it is more conservative.
A)True
B)False
Q3) Which one of the following is not an accurate description of the Allowance for Doubtful Accounts?
A) The account is a contra account.
B) The account is a liability.
C) The amount of the Allowance for Doubtful Accounts decreases the net realizable value of a company's receivables.
D) The account is increased by an estimate of uncollectible accounts expense.
Q4) The direct write-off method overstates assets on the balance sheet.
A)True
B)False
Page 9
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) Which of the following statements is true regarding depreciation expense?
A) Different companies in the same industry always depreciate similar assets by the same methods.
B) A company using the straight-line method will show a smaller book value for assets than if the same company uses the double-declining-balance method.
C) Choosing the double-declining balance method over the straight-line method will produce a greater total depreciation expense over the asset's life.
D) A company should use the depreciation method that best matches expense recognition with the use of the asset.
Q2) Hoover Company acquired Burgess Company for $1,200,000 cash.The fair value of Burgess' assets was $1,040,000,and the company had liabilities of $60,000.How much goodwill did Hoover Company acquire in the purchase?
A) $220,000
B) $1,040,000
C) $1,200,000
D) $60,000
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Chapter 9: Accounting for Current Liabilities and Payroll
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Q1) Monthly remittance of sales tax due has no effect on the income statement,but reduces cash flow from operating activities.
A)True
B)False
Q2) Which of the following items would most likely not be classified as a current asset?
A) Office equipment
B) Merchandise inventory
C) Office supplies
D) Prepaid rent
Q3) A company's classified balance sheet shows current assets of $8,650 and current liabilities of $6,000.What is the company's current ratio?
A) 0.69 to 1
B) 1.44 to 1
C) 1.16 to 1
D) 3.26 to 1
Q4) The current ratio is a measure of a company's liquidity.
A)True
B)False
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11
Chapter 10: Accounting for Long-Term Debt
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Q1) The tax deductibility of interest expense on bonds makes the effective cost of borrowing less than the amount of cash paid for interest.
A)True B)False
Q2) The after-tax interest cost of debt equals total interest expense multiplied by the tax rate.
A)True B)False
Q3) Chico Company borrowed $40,000 on a four-year,8% installment note.How will this transaction affect Chicos financial statements?
A) Cash and installment notes payable increase by $43,200 B) Cash and interest payable increase by $40,000
C) Cash and interest payable increase by $43,200
D) Cash and installment notes payable increase by $40,000
Q4) Peak Enterprises issued bonds with a face value of $500,000,receiving cash of $508,000.In this transaction,the liability account,Bonds Payable,will increase by $500,000. A)True B)False
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Page 12
Chapter 11: Proprietorships, partnerships, and Corporations
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Q1) The book value of a share of stock is equal to the market or selling price of the stock.
A)True
B)False
Q2) Which of the following would not be a reason to expect an increase in the market price of the stock of Carlyle Corporation?
A) Carlyle Corp. has a history of earnings growth.
B) Investors expect that revenue and earnings growth in the future will not be as great as revenue and earnings growth has been in the past.
C) The market price has been influenced by positive financial information that is not provided in the financial statements.
D) Investors believe Carlyle Corp. has potential for earnings growth.
Q3) Articles of incorporation,prepared by a business that wishes to incorporate,normally include,but are not limited to,the corporation's name and purpose,its location,and provisions for capital stock.
A)True
B)False
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Chapter 12: Statement of Cash Flows
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Q1) On January 1,Year 2,the balance of Jacobs Corporation's Accounts Receivable was $40,000.Sales on account for Year 2 amounted to $320,000 and the ending balance of Accounts Receivable was $64,000.What is the amount of cash collected from customers?
A) $296,000
B) $256,000
C) $344,000
D) $360,000
Q2) Under the indirect method,which of the following items would be added to net income to determine the cash flow from operating activities?
A) Gain on the sale of equipment
B) Depreciation expense
C) Accrued interest receivable
D) Decrease in the balance of accounts payable
Q3) The investing activities section of the statement of cash flows distinguishes between acquisitions of long-term assets that expand operating capacity and those that replace old,worn-out assets.
A)True
B)False
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Chapter 13: The Double-Entry Accounting System
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Q1) Which one of the following would not be included in a closing entry?
A) A credit to Rent Expense
B) A debit to Unearned Revenue
C) A debit to Service Revenue
D) A credit to Dividends
Q2) The three primary asset use transactions are incurring expenses,accruing liabilities,and paying dividends.
A)True
B)False
Q3) The T-account format is also called the chart of accounts.
A)True
B)False
Q4) A liability account normally has a credit balance.
A)True
B)False
Q5) Double entry accounting requires that every entry must include at least one debit and at least one credit.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Q1) The Fortune Company reported the following income for Year 2: \(\begin{array}{lr}
\text { Sales}&\$130,000\\
\text {Cost of goods sold }&80,000\\
\text { Gross margin}&\$50,000\\
\text {Selling and administrative expense }&15,000\\
\text { Operating income}&\$35,000\\
\text { Interest expense}&5,000\\
\text {Income before taxes }&\$30,000\\
\text {income tax expense }&10,000\\
\text {Net income }&\$20,000\\
\end{array}\)
What is the company's number of times interest earned ratio?
A) 7 times
B) 6 times
C) 4 times
D) None of these answers is correct.
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