Principles of Accounting Test Bank
Course Introduction
Principles of Accounting introduces students to the foundational concepts and techniques used in the recording, classification, and interpretation of financial transactions. The course covers the accounting cycle, including journal entries, ledgers, trial balances, and the preparation of essential financial statements such as the income statement, balance sheet, and cash flow statement. Students explore both theoretical and practical aspects of accounting, with an emphasis on understanding the underlying principles and their application in real-world business scenarios. This course provides essential skills and knowledge for further study in accounting and other business disciplines.
Recommended Textbook
Financial and Managerial Accounting Information for Decisions 5th Edition by John J Wild
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Page 2
Chapter 1: Introducing Accounting in Business
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Sample Questions
Q1) Identify and describe the four basic financial statements.
Answer: The four basic financial statements are the balance sheet,income statement,statement of retained earnings,and statement of cash flows.The balance sheet describes the company's financial position and lists the types and amounts of assets,liabilities,and equity at a point in time.The income statement describes the company's revenues,expenses,and net income over a period of time.The statement of retained earnings explains changes in retained earnings from net income or loss and dividends over a period of time.The statement of cash flows reports on cash flows for operating,investing,and financing activities over a period of time.
Q2) The objectivity principle:
A) Means that information is supported by independent, unbiased evidence.
B) Means that information can be based on what the preparer thinks is true.
C) Means that financial statement should contain information that is optimistic.
D) Means that a business may not recognize revenue until cash is received.
E) Means the assets acquired must be recorded at what the company paid for them.
Answer: A
Q3) Identify the three basic forms of business organizations.
Answer: The three basic forms of business organizations are sole proprietorships,partnerships,and corporations.
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Page 3
Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) Unearned revenues are:
A) Revenues that have been earned and received in cash.
B) Revenues that have been earned but not yet collected in cash.
C) Liabilities created when a customer pays in advance for products or services before the revenue is earned.
D) Recorded as an asset in the accounting records.
E) Increases to retained earnings.
Answer: C
Q2) The third step in the analyzing and recording process is to post the information to _________________________.
Answer: the general ledger (or ledger)
Q3) The accounting process begins with:
A) Analysis of business transactions and events.
B) Preparation of financial statements and other reports.
C) Summarizing the recorded effects of business transactions.
D) Presentation of financial information to decision-makers.
E) Preparation of the trial balance.
Answer: A
Q4) ___________________ is a promise of payment from customers to sellers.
Answer: Accounts receivable
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Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) An asset that cost $50,000 was purchased on January 1.The asset has an estimated useful life of three years and an estimated salvage value of $3,200.Using the straight-line method,prepare the necessary adjusting journal entry for the end of the year.
Answer: Depreciation Expense .$15,600
Q2) A trial balance prepared after adjustments have been recorded is called a(n):
A) Balance sheet
B) Adjusted trial balance
C) Unadjusted trial balance
D) Classified balance sheet
E) Unclassified balance sheet
Answer: B
Q3) __________________________ is the process of allocating the cost of plant assets to their expected useful lives.
Answer: Depreciation
Q4) The cash basis of accounting requires that revenues be recognized when cash payments from customers are received.
A)True
B)False
Answer: True
5
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Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) ABC Corporation had total quick assets of $5,888,000,current assets of $11,700,000,and current liabilities of $8,000,000.Its acid-test ratio equals:
A) 0.50
B) 0.68
C) 0.74
D) 1.50
E) 2.20
Q2) Beginning inventory plus net cost of purchases is:
A) Cost of goods sold.
B) Merchandise available for sale.
C) Ending inventory.
D) Sales.
E) Shown on the balance sheet.
Q3) A _______________________ is a document the buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.
Q4) Distinguish between selling expenses and general and administrative expenses.
Q5) Describe the difference between wholesalers and retailers.
Q6) The acid-test ratio reflects the ___________ of a company.
Q7) List the steps of the operating cycle for a merchandiser with credit sales.
Page 6
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Chapter 5: Inventories and Cost of Sales
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Sample Questions
Q1) The assignment of costs to cost of goods sold and inventory using weighted average usually yields different results depending on whether a perpetual or periodic system is used
A)True
B)False
Q2) Derick Pearson and Felecia Hatcher founded Feverish Ice Cream.Why is managing inventory an important issue for their company?
Q3) The consistency concept requires a company to use the same accounting methods period after period,so that financial statements are comparable across periods.
A)True
B)False
Q4) Toys "R" Us had cost of goods sold of $9,421 million,ending inventory of $2,089 million,and average inventory of $1,965 million.Its days' sales in inventory equals:
A) 0.21
B) 4.51
C) 4.79
D) 76.1 days
E) 80.9 days
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Chapter 6: Cash and Internal Controls
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Sample Questions
Q1) A petty cash fund was originally established with a check for $150.In the petty cash fund on December 31 (the period-end),you find the following:
\[\begin{array} { | l | l | r | }
\hline \text { Petty cash receipts } & \text { Postage } & \$ 43.50 \\
\hline & \text { Office supplies } & 51.85 \\
\hline & \text { Office equipment repair } & 49.00 \\
\hline { \text { Cash } } && 4.25 \\
\hline \end{array}\]
Prepare the general journal entry to record the replenishment of the petty cash fund on December 31.
Q2) Describe the banking activities that promote the control of cash and identify the internal control objectives served by the banking activities.
Q3) Prenumbered printed checks are an example of which internal control principle?
A) Technological controls.
B) Maintain adequate records.
C) Perform regular and independent reviews.
D) Establish responsibilities.
E) Divide responsibility for related transactions.
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Page 8
Chapter 7: Accounts and Notes Receivable
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Sample Questions
Q1) What is the accounts receivable turnover ratio? How is it calculated? How is it used to assess financial condition?
Q2) A 90-day note issued on April 20 has a maturity date of:
A) July 17
B) July 18
C) July 19
D) July 20
E) July 21
Q3) The matching principle requires that accrued interest on outstanding notes receivable be recorded at the end of each accounting period.
A)True
B)False
Q4) ____________________ is the charge for using (not paying)money until a later date.
Q5) A company borrowed $1,000 by signing a six-month promissory note at 5% interest.The total amount of interest on this promissory note is $25.
A)True B)False
Q6) Explain the options a company has when converting its receivables to cash.
Page 9
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Chapter 8: Long-Term Assets
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Sample Questions
Q1) A company purchased land on which to construct a new building for a cost of $250,000.Additional costs incurred were: \(\begin{array}{|l|r|}
\hline\text { Real estate broker's commissions } & \$ 15,000 \\
\hline \text { Legal fees incurred in purchase of the real estate } & 2,500 \\
\hline \text { Landscaping } & 10,000 \\
\hline \text { Expenses to remove old house located on land } & 3,000 \\
\hline \text { Proceeds from selling materials salvaged from old house } & 1,000\\ \hline \end{array}\)
What total dollar amount should be charged to land and what amount should be charged to the new building?
Q2) Treating capital expenditures of a small dollar amount as revenue expenditures is likely to mislead the users of financial statements.
A)True
B)False
Q3) What are the general accounting procedures for recording asset disposals?
Q4) Explain the purpose and method of depreciation for partial years.
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Page 10
Chapter 9: Current Liabilities
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Sample Questions
Q1) A short-term note payable:
A) Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.
B) Is a contingent liability.
C) Is an estimated liability.
D) Is not a liability until the due date.
E) Cannot be used to extend the payment period for an account payable.
Q2) Unearned revenues are listed on the balance sheet under liabilities.
A)True
B)False
Q3) __________ allowances are items that reduce the amount of federal income taxes owed by the individual.
Q4) When the number of withholding allowances increases,the amount of income tax withheld increases.
A)True
B)False
Q5) Vacation benefits are a type of _______________ liability.
Q6) What are estimated liabilities? Provide at least two examples and explain why they are classified as estimated liabilities.
11
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) A lease is a contractual agreement between a lessor and a lessee that grants the lessee the right to use the asset for a period of time in return for cash payment(s)to the lessor.
A)True
B)False
Q2) GAAP criteria for identifying a lease as a capital lease are more general than the criteria under IFRS.
A)True
B)False
Q3) Promissory notes that require the issuer to make a series of payments consisting of both interest and principal are:
A) Debentures
B) Discounted notes
C) Installment notes
D) Indentures
E) Investment notes
Q4) _____________________ bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.
Q5) How are bond issue prices determined?
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Chapter 11: Corporate Reporting and Analysis
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Sample Questions
Q1) For each of the following independent transactions (a)through (d),prepare the necessary journal entry:
(a)Declared a $0.40 per share cash dividend on 200,000 shares of preferred stock outstanding.
(b)Declared and distributed a 12% stock dividend on 800,000 shares of $5 par value common stock outstanding.Market price per common share on this date was $25.
(c)Declared and distributed a 2-for-1 stock split on 500,000 shares of $10 par value common stock outstanding.
(d)Declared and distributed a 30% stock dividend on 400,000 common shares of $5 par value common stock outstanding.Market price per common share on this date was $20.
Q2) A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of contributed capital is:
A) $100
B) $600
C) $1,000
D) $6,000
E) $7,000
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Page 13
Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) Information to prepare the statement of cash flows usually comes from (a)comparative balance sheets,(b)current income statement,and (c)additional information.
A)True
B)False
Q2) A noncash investing transaction should be disclosed as either a footnote or small schedule attached to the statement of cash flows.
A)True
B)False
Q3) The direct method for the preparation of the operating activities section of the statement of cash flows:
A) Separately lists each major item of operating cash receipts and cash payments.
B) Reports adjustments to reconcile net income to net cash provided or used by operating activities in the statement.
C) Reports an amount of cash flows from operations different from the amound determined using the indirect method.
D) Is required if the company is a merchandiser.
E) Is required by the FASB.
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14
Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) A company has long-term notes payable of $175,625,taxes of $9,500,ending merchandise inventory of $450,290,interest expense of $14,050,net sales of $720,000 a gross profit ratio of 35%,a times interest earned ratio of 4.23,and total assets of $1,300,417.What is the company's earnings before interest and taxes?
A) $252,000
B) $65,814
C) $269,710
D) 106,696
E) $59,432
Q2) A company that has days' sales uncollected of 30 days and days' sales in inventory of 18 days implies that inventory will be converted to cash in about 12 days.
A)True
B)False
Q3) Intracompany standards for financial statement analysis:
A) Are often based on a company's prior performance.
B) Are often set by competitors.
C) Are set by the company's industry.
D) Are based on rules of thumb.
E) Are published in Dun and Bradstreet.
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Page 15
Chapter 14: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Newly completed units are combined with beginning finished goods inventory to make up total ending goods in process inventory.
A)True
B)False
Q2) Fraud involves the deliberate or accidental misuse of the employer's assets.
A)True
B)False
Q3) Control is the process of setting goals and determining ways to achieve them.
A)True
B)False
Q4) A financial report that summarizes the amounts and types of costs that were incurred in the manufacturing process during the period is a:
A) Materiality statement
B) Managerial statement
C) Manufacturing statement
D) Merchandise statement
E) Monetary statement
Q5) Ending raw materials inventory divided by raw materials used multiplied by 365 is the _________________________.
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Chapter 15: Job Order Costing and Analysis
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Sample Questions
Q1) If one unit of Product X used $.75 of direct materials and $6.00 of direct labor,sold for $12.00,and was assigned overhead at the rate of 20% of direct labor costs,how much gross profit was realized from this sale?
A) $12.00
B) $6.75
C) $.75
D) $1.20
E) $4.05
Q2) Bean Company uses a job order cost system and last period incurred $70,000 of overhead and $100,000 of direct labor.Bean estimates that its overhead next period will be $65,000.The company also expects to incur $100,000 of direct labor.If Bean bases its overhead applied on direct labor cost,what should be the overhead allocation rate for the next period?
Q3) When time ticket information is entered into the accounting system,the journal entry is a debit to Factory Payroll and a credit to Goods in Process Inventory.
A)True
B)False
Q4) How does job order cost accounting affect the company Astor and Black?
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Page 17
Chapter 16: Process Costing
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Sample Questions
Q1) An organizational unit of a factory that has the responsibility for partially manufacturing or producing a product is called a:
A) Production department.
B) Service department.
C)Primary department.
D) Responsibility department.
E) Control department.
Q2) Describe the flow of labor in a process cost accounting system,including accounts used.
Q3) The use of process costing is of little benefit to a service type of operation.
A)True
B)False
Q4) The FIFO method of process costing accounts for cost flow in a ______________ manner.
Q5) Equivalent units of production need to be determined only if a processing department adds materials and labor to its products at different rates.
A)True B)False
Q6) Compare and contrast the FIFO and weighted-average methods of process costing.
Page 18
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Chapter 17: Activity-Based Costing and Analysis
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Q1) Refer to the data above.How much overhead cost will be assigned to the dessert bar product line using activity-based costing (ABC)?
A) 340,750
B) $247,818
C) $16,000
D) $297,500
E) $313,500
Q2) All of the following are examples of facility sustaining costs except:
A) Costs of cleaning the workplace.
B) Costs of custodial work.
C) Costs of personnel support.
D) Costs of sampling product quality.
E) Costs of employee recreational facilities.
Q3) Examples of volume-related measures include direct labor hours,direct labor cost dollars,and machine hours.
A)True
B)False
Q4) The ________________________ overhead rate method uses a single rate for allocating overhead costs to products.
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Chapter 18: Cost-Volume-Profit Analysis
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Q1) There are at least three different methods to estimate costs.These methods are the _______________,_______________,and _______________methods.
Q2) Using the high-low method and the Willco data above,what is the approximate fixed cost component of the monthly maintenance costs?
A) $33,860
B) $24,500
C) $32,755
D) $32,715
E) $30,686
Q3) At Flint Company's break-even point of 9,000 units,fixed costs are $180,000,and variable costs are $540,000 in total.The unit sales price is:
A) $20
B) $40
C) $60
D) $80
E) $100
Q4) Define variable cost,fixed cost,and mixed cost.
Q5) What is the high-low method? Briefly describe how it is applied.
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Chapter 19: Variable Costing and Performance Reporting
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Q1) Assume a company sells a given product for $33.28 per unit.How many units must the company sell to break-even if variable selling costs are $1.40 per unit,variable production costs are $23.56 per unit,and total fixed costs are $2,080,000?
Q2) Sales less variable costs equals manufacturing margin.
A)True
B)False
Q3) Fomtech,Inc.had net income of $750,000 based on variable costing.Beginning and ending inventories were 50,000 units and 48,000 units,respectively.Assume the fixed overhead per unit was $.75 for both the beginning and ending inventory.What is net income under absorption costing?
A) $751,500
B) $676,500
C) $823,500
D) $748,500
E) $750,000
Q4) Assume a company sells a given product for $83 per unit.Variable selling costs are $20.75 per unit and variable production costs are $49.80 per unit.If the company breaks even when selling 300,000 units,what are total fixed costs?
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Page 21
Chapter 20: Master Budgets and Performance Planning
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Q1) A budget is a formal statement of future plans,usually expressed in monetary terms.
A)True
B)False
Q2) A plan that shows the predicted costs for direct materials,direct labor,and overhead to be incurred in manufacturing the units in the production budget is called the:
A) Sales budget.
B) Merchandise purchases budget.
C) Production budget.
D) Rolling budget.
E) Manufacturing budget.
Q3) The budget process is a continuous activity of planning,revising,and evaluating business activities.
A)True
B)False
Q4) What are rolling budgets? Why are rolling budgets prepared?
Q5) There are at least five benefits from budgeting.Identify two of these benefits:
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Chapter 21: Flexible Budgets and Standard Costs
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Q1) In preparing flexible budgets,the costs that remain constant in total are _______________ costs.Those costs that change in total are _______________ costs.
Q2) Which department is often responsible for the direct materials price variance?
A) The accounting department.
B) The production department.
C) The purchasing department.
D) The finance department.
E) The budgeting department.
Q3) Prepare the journal entry to record the direct materials purchases and the issuance of direct materials into production.
Q4) What is the labor rate variance?
A) $22,000 unfavorable
B) $16,000 unfavorable
C) $6,000 unfavorable
D) $16,000 favorable
E) $22,000 favorable
Q5) Variable budget is another name for a flexible budget.
A)True
B)False
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Chapter 22: Decentralization and Performance Measurement
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Q1) List the steps required to prepare a departmental income statement.
Q2) Midwest Rocks receives and produces an order.What is the company's cycle efficiency assuming the following times were measured during production of this order?
Process time: .7 days Inspection time: .25 days Move time: 1.05 days Wait time: .5 days
A) 10%
B) 28%
C) 42%
D) 20%
E) 50%
Q3) A department that incurs costs without directly generating revenues is a:
A) Service center
B) Production center
C) Profit center
D) Cost center
E) Performance center
Q4) A department can never be considered to be a profit center.
A)True
B)False
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Chapter 23: Relevant Costing for Managerial Decisions
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Q1) A cost that requires a current and/or future outlay of cash,and is usually an incremental cost,is a(n):
A) Out-of-pocket cost
B) Sunk cost
C) Opportunity cost
D) Operating cost
E) Uncontrollable cost
Q2) A company manufactures three products.Each unit of product X requires 10 machine hours,each unit of product Y requires 4 machine hours,and each unit of product Z requires 6 machine hours.The company's productive capacity is limited to 180,000 machine hours.Each unit of product X sells for $15 and has variable costs of $7.Each unit of product Y sells for $8 and has variable costs of $3.Each unit of Z sells for $12 and has variable costs of $4.
Required:
a.Calculate the contribution margin per hour of each of the products.
b.Determine the preferred sales mix if there are no market constraints on any of the products.
c.Determine the preferred sales mix if the demand is limited to 20,000 units of each.
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Chapter 24: Capital Budgeting and Investment Analysis
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Q1) A company is considering purchasing a machine for $123,000.The machine is expected to generate a net after-tax income of $8,200 per year.Depreciation expense would be $12,300.What is the payback period for this machine?
Q2) Which methods of evaluating a capital investment project use cash flows as a measurement basis?
A) Net present value, accounting rate of return, and internal rate of return.
B) Internal rate of return, payback period, and accounting rate of return.
C) Accounting rate of return, net present value, and payback period.
D) Payback period, internal rate of return, and net present value.
E) Net present value, payback period, accounting rate of return, and internal rate of return.
Q3) What is capital budgeting? Why are capital budgeting decisions often difficult and risky?
Q4) How does the calculation of break-even time (BET)differ from the calculation of payback period (PBP)?
Q5) The _______________________________ is computed by dividing a project's after-tax net income by the average amount invested in it.
Q6) How can management evaluate the risk of an investment?
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Chapter 25: Accounting With Special Journals
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Q1) The _______________________ ratio is a measure of a segment's profitability and is calculated as segment operating income divided by segment average assets.
Q2) When the sales journal's column for accounts receivable and sales is totaled at the end of the month,its total is:
A) Debited to Sales and credited to Accounts Receivable.
B) Debited to Accounts Receivable and credited to Cash.
C) Debited to Cash and credited to Accounts Receivable.
D) Debited to Accounts Receivable and credited to Sales.
E) Debited to Cash and credited to Sales.
Q3) The flexibility principle of accounting information systems requires that the:
A) Benefits from an activity outweigh the costs of the activity.
B) System report useful, understandable, timely, and pertinent information for effective decision making.
C) System aid managers in controlling and monitoring business activities.
D) System adapt to changes in the company, business environment, and needs of decision makers.
E) System conform with a company's activities, personnel, and structure.
Q4) What are the five basic components of accounting information systems?
Q5) List the five basic principles of accounting information systems.
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Chapter 26: Time Value of Money
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Q1) Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for five years.The annual interest rate on the loan is 12%.What is the present value of the building?
A) $72,096
B) $113,004
C) $147,202
D) $86,590
E) $200,000
Q2) What is interest?
Q3) _____________ is a borrower's payment to the owner of an asset for its use.
Q4) An _____________ is a series of equal payments occurring at equal intervals.
Q5) Explain the concept of the future value of a single amount.
Q6) Big League Sports borrowed $883,212 and must make annual year-end payments of $120,000 each.If the applicable interest rate is 6%,how many years will it take Big League Sports to pay off the loan?
Q7) Explain the concept of the present value of a single amount.
Q8) The future value of an ________________ annuity is the accumulated value of each annuity payment with interest as of the date of the final payment.
Q9) Explain the concept of the future value of an annuity.
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Chapter 27: Investments and International Operations
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176 Verified Questions
176 Flashcards
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Sample Questions
Q1) Explain how available-for-sale debt and equity securities are accounted for at and after acquisition and how they are reported in financial statements.
Q2) An investor with significant influence owns as least 20%,but not more than 50%,of another company's voting stock.
A)True
B)False
Q3) A U.S.company makes a sale to a foreign customer payable in 30 days in the customer's currency.The sale would be recorded by the U.S.company on the date:
A) Of sale using a projected estimate of the U.S. dollar value at payment date.
B) Of sale using a 30-day average U.S. dollar value.
C) Of sale using the current dollar value.
D) Of sale using the foreign currency value.
E) When payment is received.
Q4) Held-to-maturity securities are ____________ securities a company intends and is able to hold until maturity.
Q5) __________________________ are investments in securities that are not readily convertible to cash or are not intended to be converted to cash in the short-term.
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Page 29
Chapter 28: Accounting for Partnerships
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126 Verified Questions
126 Flashcards
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Sample Questions
Q1) Elaine Valero is a limited partner in a marketing and design firm.During the previous year her return on partnership equity was 14%.During this time,the beginning and ending balances in her capital account were $210,000 and $230,000 respectively.What was Elaine's partnership net income for this year?
A) $29,400.00
B) $30,800.00
C) $32,200.00
D) $1,500,000.00
E) $1,642,857.14
Q2) When a partner invests in a partnership,his/her capital account is __________ for the invested amount.
Q3) Partners' withdrawals are credited to their separate withdrawals accounts. A)True B)False
Q4) What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.
Q5) Partner return on equity is calculated as ______________________________.
Q6) Explain the steps involved in the liquidation of a partnership.
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