Principles of Accounting Test Questions
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in financial and managerial accounting. The course covers the recording, classification, and summarization of business transactions, the preparation and interpretation of financial statements, and the application of accounting information for decision-making purposes. Students will explore the accounting cycle, principles of internal control, and ethical considerations in accounting. By the end of the course, students will develop a solid foundation in understanding how accounting information is used by businesses, investors, and other stakeholders to assess financial performance and make informed economic decisions.
Recommended Textbook
Horngrens Financial and Managerial Accounting 4th Edition by Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) The total assets and the total liabilities of Smart Financial Services are shown below.The company issued no common stock and paid no dividends during the year.
\[\begin{array} { | l | r | r | }
\hline & \text { Assets } & \text { Liabilities } \\
\hline \text { Beginning of year } & \$ 425,000 & \$ 280,000 \\
\hline \text { End of year } & 500,000 & 325,000 \\
\hline
\end{array}\] What was the amount of net income for the year?
A)$75,000
B)$45,000
C)$30,000
D)$120,000
Answer: C
Q2) The return on assets is calculated by ________.
A)subtracting net income from average total assets
B)adding net income and average total assets
C)dividing net income by average total assets
D)multiplying net income and average total assets
Answer: C
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The first step in the journalizing and posting process is to ________.
A)post the accounts to the ledger
B)identify each account involved and its type
C)determine whether each account has increased or decreased
D)record the transaction in the journal,including a brief explanation
Answer: B
Q2) A business pays $500 cash for office supplies.Which of the following accounts will be credited?
A)Cash
B)Accounts Payable
C)Office Supplies
D)Utilities Expense
Answer: A
Q3) Which of the following sequences states the order in which a trial balance lists accounts?
A)Equity Assets Liabilities
B)Liabilities Assets Equity
C)Assets Equity Liabilities
D)Assets Liabilities Equity
Answer: D
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) A business hired a repairman to overhaul its plumbing system.The repairman began work on September 15 and intends to complete it on October 15.The business will pay him $4,000 when the work is completed.As of September 30,the work was 50% complete.Provide the adjusting entry to accrue repair expense by the end of September.(Ignore explanation)
Answer: 11ea84d1_1119_3f78_83dc_e148db8850e8_TB3006_00
Q2) Which of the following is considered a fiscal year?
A)six months
B)three months
C)twelve months
D)four months
Answer: C
Q3) A business hired a repairman to overhaul its plumbing system.The repairman began work on September 15 and completed it on October 15.The business agreed to pay him $4,000 when the work was completed.As of September 30,the work was 50% complete and the business made an adjusting entry to accrue repair expense as of the end of September.On October 15,the work was completed and the repairman was paid in full.Provide the journal entry for the cash payment on October 15.(Ignore explanation)
Answer: 11ea84d1_1119_3f79_83dc_e14b76108342_TB3006_00
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Maywood Inc.has a current ratio of 2.00.This indicates that the company has $2 in
A)current liabilities for every $1 of current assets
B)total assets for every $1 of current liabilities
C)current assets for every $1 of current liabilities
D)total assets for every $1 of current assets
Q2) Permanent accounts are not closed at the end of the accounting period.
A)True
B)False
Q3) Which of the following accounts would appear in the balance sheet credit column?
A)Prepaid Insurance
B)Buildings
C)Unearned service revenue
D)Service Revenue
Q4) The current ratio measures a company's ________.
A)overall ability to pay liabilities
B)ability to pay current liabilities with current assets
C)proportion of assets that are financed by debt
D)rate of cash flow
Q5) Provide the closing entry for the Income Summary account.
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) In a multi-step income statement,interest revenue and interest expense are included in operating income.
A)True
B)False
Q2) Merchandise Inventory and Cost of Goods Sold appear ________.
A)on the balance sheet and statement of retained earnings,respectively
B)on the statement of retained earnings and income statement,respectively C)on the balance sheet and income statement,respectively D)on the income statement and statement of cash flows,respectively
Q3) An invoice is also known as a bill.
A)True
B)False
Q4) G-mart,a small-scale grocer,wants to introduce an inventory system to track its inventory.G-mart does not currently use optical scanning registers and computer systems.The perpetual inventory system is most suitable for its operations.
A)True
B)False
Q5) Give journal entry to close the expense accounts and contra revenue accounts with a debit balance.
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Chapter 6: Merchandise Inventory
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Sample
Questions
Q1) Pluto Inc.sold 500 units of inventory at $25 per unit on account.The company uses the perpetual inventory system.The cost of the units sold was $10 per unit.Provide the journal entries to record the sale on account.
Q2) A company that uses the periodic inventory method provides the following information:
1.Beginning Inventory $10,000
2.Net Purchases $90,000
At the end of the period,the company does an inventory count and finds $15,000 of inventory on hand.
What is the amount of Cost of goods sold?
A)$90,000
B)$115,000
C)$85,000
D)$75,000
Q3) Under the last-in,first-out (LIFO)method,the cost of goods sold is based on the oldest purchases.
A)True
B)False
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) At Insignia Services,the accounting clerk fills out unnumbered purchase order forms for purchases of supplies.An operations engineer completes the form with a detailed description of the supplies being ordered,and the operations manager approves the purchase and passes the purchase order back to the accountant for processing. In the above situation,which internal control procedure needs strengthening?
A)assignment of responsibilities
B)competent,reliable,and ethical personnel
C)separation of duties
D)documents
Q2) A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.
A)True
B)False
Q3) The ________ is a measure of a company's ability to meet its short-term obligations from cash and cash equivalents.
A)cash conversion cycle
B)cash ratio
C)gross profit
D)debt equity ratio
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Page 9
Chapter 8: Receivables
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Sample Questions
Q1) Bad debts expense is estimated by the percent-of-sales method.The management estimates that 3% of net credit sales will be uncollectible.Calculate the amount of bad debts expense for 2015.
A)$5,250
B)$3,450
C)$2,250
D)$2,850
Q2) The Allowance for Bad Debts account has a credit balance of $2,000 before the adjusting entry for bad debt expense.The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015.Net credit sales for the year amounted to $250,000.Give journal entry to record the bad debts expense at December 31,2015.
Q3) The acid-test ratio is a more stringent measure of liquidity than the cash ratio. A)True
B)False
Q4) An acid-test ratio of 1.0 is considered safer than a ratio of 0.50.
A)True
B)False
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) When an asset is fully depreciated,no further depreciation expense is recorded.
A)True
B)False
Q2) Ordinary repairs to plant assets are referred to as revenue expenditures.
A)True
B)False
Q3) During the year 2015,Sanchez Corp.sold goods and earned revenue of $16,000,000.The corporation's beginning total assets was $8,000,000.Its assets turnover ratio was 1.6 times.Calculate the ending total assets of Sanchez.
A)$12,000,000
B)$8,000,000
C)$14,000,000
D)$6,000,000
Q4) When a business sells a plant asset for book value,a gain or loss should be recorded.
A)True
B)False
Q5) On June 30,2015,Regal Furniture discarded fully depreciated equipment costing $35,000.Journalize the disposal of the equipment.
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Chapter 10: Investments
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Sample Questions
Q1) A parent company is a company that ________.
A)is controlled by another corporation
B)owns a controlling interest in another company
C)is the first to begin operations in an industry
D)has a trading investment in another company
Q2) Long-term investments ________.
A)include all debt securities that are trading investments or held-to-maturity investments
B)are investments in debt and equity securities that are highly liquid and that the investor intends to sell in one year or less
C)include debt and equity securities that the investor expects to hold longer than one year or debt or equity securities that are not readily marketable
D)are investments in debt securities or equity securities in which the investor holds less than 20% of the voting stock and that the investor plans to sell in the very near future
Q3) Significant interest investments must be accounted for using the equity method.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Firewood Inc.signed a three-year note payable for $45,000 at 7% annual interest.What is the interest expense for 2013 if the note was signed on August 1,2013?
A)$1,575
B)$1,313
C)$9,450
D)$3,150
Q2) Tanner's gross pay for the week is $980.His yearly pay is under the limit for OASDI.Assume that the rate for state and federal unemployment compensation taxes is 6.2%,and that Tanner's pay year-to-date has previously exceeded the $7,000 cap.What is the amount of state and federal unemployment tax that his employer must record as payroll tax expense and pay to the federal and state governments?
A)$0
B)$14.21
C)$74.97
D)$60.76
Q3) Benefits are extra compensation-items that are not paid directly to an employee.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.
A)True
B)False
Q2) Which of the following is true of a Discount on Bonds Payable account?
A)It is added to the Bonds Payable balance and shown with long-term liabilities on the balance sheet.
B)It is subtracted from the Bonds Payable balance and shown with the current liabilities on the balance sheet.
C)It is added to the Bonds Payable balance and shown with stockholders' equity on the balance sheet.
D)It is subtracted from the Bonds Payable balance and shown with long-term liabilities on the balance sheet.
Q3) A bond once sold to a bondholder,can be resold to another investor on the bond market.
A)True B)False
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) Stock dividends are declared by the ________.
A)chief financial officer of the company
B)board of directors of the company
C)chief executive officer of the company
D)stockholders of the company
Q2) Which of the following statements is true?
A)Both a stock dividend and a stock split increase the balance in the common stock account.
B)Both a stock dividend and a stock split reduce retained earnings.
C)Neither a stock dividend nor a stock split will result in net gains or losses.
D)A stock split increases the par value per share of the stock.
Q3) Which of the following is true of stockholders?
A)Stockholders have a right to access confidential information about the business before the information is disseminated to the public.
B)Stockholders can claim a portion of the corporate assets after the corporation pays it debts in the event the company is liquidated.
C)Stockholders may authorize a business contract on behalf of the corporation.
D)Stockholders may determine at what price the company issues stock.
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following sections of the statement of cash flows is presented differently between the direct method and indirect method?
A)investing activity
B)financing activity
C)operating activity
D)non-cash activity
Q2) Financing activities on the statement of cash flows affect the long-term liability and equity accounts,such as Long-Term Notes Payable,Bonds Payable,Common Stock,and Retained Earnings.
A)True
B)False
Q3) Qtopia Electric Company uses the direct method to prepare its statement of cash flows.It has reported Operating Expenses of $63,000 on its income statement for the year 2014.If the balance in Accrued Liabilities has gone up by $6,000 during the year,then $6,000 will have to be added to $63,000 as part of the process to calculate payments to suppliers for operating expenses.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Which of the following is a correct conclusion from the above analysis?
A)Net income for the year 2015 has increased by 115% over that for the year 2013
B)Net income for the year 2015 has decreased by 15% over that for the year 2013.
C)Net income for the year 2015 has decreased by 115% over that for the year 2013
D)Net income for the year 2015 has increased by 15% over that for the year 2013.
Q2) The income statement is also known as the ________.
A)statement of operations
B)statement of cash flows
C)statement of stockholders' equity
D)statement of financial position
Q3) The study of percentage changes in comparative financial statements is called horizontal analysis.
A)True
B)False
Q4) The figure 47.0% shown for gross profit in 2016 signifies that the ________.
A)gross profit is equal to 47.0% of net income
B)gross profit is increased by 47.0% over the previous year
C)gross profit is 47.0% of net sales revenue
D)gross profit is 47.0% of cost of goods sold
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Which of the following will most likely be considered an indirect material cost for a bakery?
A)spices
B)flour
C)milk
D)eggs
Q2) ERP systems can integrate all of a company's functions,departments,and data into a single system.
A)True
B)False
Q3) Which of the following correctly describes the accounting for factory depreciation?
A)Factory depreciation is a product cost and is expensed as incurred.
B)Factory depreciation is a period cost and is expensed as incurred.
C)Factory depreciation is a product cost and is expensed when the manufactured product is sold.
D)Factory depreciation is a period cost and is expensed when the manufactured product is sold.
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Chapter 17: Job Order Costing
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Sample Questions
Q1) On January 1,2015,Jackson Inc.'s Work-in-Process Inventory account showed a balance of $65,000.During 2015,materials requisitioned for use in production amounted to $70,000 of which $66,000 represented direct materials.Factory wages for the period were $209,000 of which $186,400 were for direct labor.Manufacturing overhead is allocated on the basis of 60% of direct labor cost.Actual overhead was $116,440.Jobs costing $353,240 were completed during 2015.The December 31,2015,balance in Work-in-Process Inventory is ________.
A)$80,000
B)$72,800
C)$107,200
D)$76,000
Q2) Manufacturing Overhead is a temporary account used to ________ indirect production costs during the accounting period.
A)allocate
B)assign
C)accumulate
D)approximate
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Chapter 18: Process Costing
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Sample Questions
Q1) A process is one of a series of steps in manufacturing production,usually associated with making large quantities of similar items.
A)True
B)False
Q2) At the start of June,the Polishing Department of Laminates Inc.had 15,000 units in beginning inventory which were 100% complete with respect to direct materials and conversion costs.During the month,it received 25,000 units from the Machining Department.It started and completed 17,000 units and transferred 32,000 units to the Packaging Department.It had 8,000 units in ending Work-in-Process Inventory.Direct materials are added at the beginning of the process.Units in ending Work-in-Process Inventory were 40% complete with respect to conversion costs. Prepare the production cost report for the Polishing Department for the equivalent units of production for the month of June.Use the FIFO method.
Q3) The adjusting entry for overallocated or underallocated manufacturing overhead is usually prepared at the beginning of the accounting period.
A)True
B)False
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Page 20
Chapter 19: Cost Management Systems: Activity-Based,
and Quality Management Systems
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Sample Questions
Q1) A just-in-time costing system does not use the Finished Goods Inventory account; instead,it combines the Finished Goods Inventory account with the Work-in-Process Inventory account.
A)True
B)False
Q2) Under the just-in-time costing system,underallocated and overallocated conversion costs are treated just like underallocated and overallocated manufacturing overhead.
A)True
B)False
Q3) How much of the account inquiry cost will be assigned to the Midwest Office?
A)$2,000
B)$6,500
C)$3,000
D)$6,000
Q4) What is the cost of machining per ceiling fan?
A)$18
B)$180
C)$30
D)$144
Chapter 20: Cost-Volume-Profit Analysis
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Q1) Both the traditional income statement approach and the contribution margin approach will yield the same answer for calculating breakeven points.
A)True
B)False
Q2) Total fixed costs can change from one relevant range to another.
A)True
B)False
Q3) Jenna Manufacturers produces flooring material.The monthly fixed costs are $10,000 per month.The unit selling price is $75 and variable cost per unit is $35.If Jenna's managers create a CVP graph from volume levels of zero to 500 units,at what sales level (in units)will the revenue and total cost lines intersect?
A)250 units
B)190 units
C)240 units
D)275 units
Q4) Pluto Hand blenders Company sells a product for $80 per unit.Variable costs are $25 per unit and fixed costs are $4,000 per month.Pluto sold 2,000 units in October,2014.Prepare an income statement for October using the contribution margin format.
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Chapter 21: Variable Costing
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Sample Questions
Q1) The contribution margin format of the income statement categorizes costs by their behavior.
A)True
B)False
Q2) What is the contribution margin ratio for Le Chaud and Le Frais,respectively?
A)17%; 15%
B)29%; 20%
C)35%; 30%
D)21%; 20%
Q3) Unit product cost calculations using absorption costing does not include ________.
A)fixed manufacturing overhead
B)variable manufacturing overhead
C)variable selling and administrative costs
D)direct materials
Q4) For short-term pricing decisions,fixed costs are usually not relevant as they do not change.
A)True
B)False
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Chapter 22: Master Budgets
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Sample Questions
Q1) Based on the above data,calculate the shortfall the company is projected to have at the end of September.
A)$43,000
B)$28,000
C)$35,000
D)$40,000
Q2) Farmerlands Inc.has budgeted sales for the months of September and October at $300,000 and $280,000,respectively.Monthly sales are 80% credit and 20% cash.Of the credit sales,50% are collected in the month of sale and 50% are collected in the following month.Calculate cash collections for the month of October.
A)$168,000
B)$232,000
C)$288,000
D)$290,000
Q3) Calculate the ending merchandise inventory for the month of March.
A)$38,750
B)$52,000
C)$33,750
D)$39,000
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Flexible budget variance is the difference between the ________.
A)actual results and the expected results in the flexible budget for the actual units sold
B)expected results in the flexible budget for the units expected to be sold and the static budget
C)flexible budget and actual amounts due to differences in volumes
D)flexible budget and static budget due to differences in fixed costs
Q2) In a standard costing system,each item has a cost standard and a quantity standard.
A)True
B)False
Q3) Only unfavorable variances should be investigated,if substantial,to determine their causes.
A)True
B)False
Q4) When a manufacturing company uses standard costing system,the direct material cost variance will be recorded at the time of issue of raw material for production.
A)True
B)False
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25
Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is a responsibility that is common to the managers of cost,profit,and investment centers?
A)generating revenues
B)generating profits
C)managing the invested capital
D)controlling costs
Q2) A unique factor of responsibility accounting performance reports is the focus on responsibility and controllability.
A)True
B)False
Q3) Which of the following perspectives of the balanced scorecard focuses on revenue growth and productivity?
A)financial perspective
B)customer perspective
C)internal business perspective
D)learning and growth perspective
Q4) Flexible budgets use budgeted costs at the actual level of activity.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) When replacing an old asset with a new one,the original purchase price of the old asset represents ________.
A)relevant cost
B)differential costs
C)opportunity cost
D)sunk cost
Q2) The company can sell up to 7,000 units of Product A per month,and up to 3,000 units of Product B for the month.What is the optimum product mix to maximize company's operating income?
A)2,000 units of A and 4,000 units of B
B)6,000 units of A and 3,000 units of B
C)zero units of A and 3,000 units of B
D)12,000 units of A and zero units of B
Q3) What is the contribution margin per machine hour for the Bedford lamp?
A)$4 per machine hour
B)$2 per machine hour
C)$6 per machine hour
D)$8 per machine hour
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Chapter 26: Capital Investment Decisions
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Q1) Under conditions of limited resources,when a company is comparing several investments with different amounts of initial outlay,the decision should be made on the basis of the ________.
A)highest total cash inflows
B)shortest payback period
C)highest profitability index
D)highest NPV
Q2) At the internal rate of return (IRR),the present value of cash inflows will be equal to the ________.
A)initial investment
B)residual value
C)average operating income
D)profit from the project
Q3) Which of the following two methods are typically used for initial screening of investments,rather than for detailed in-depth analysis?
A)payback and accounting rate of return
B)net present value and payback
C)internal rate of return and net present value
D)accounting rate of return and net present value
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Chapter 27: Accounting Information Systems
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Q1) The sale of merchandise inventory for cash is recorded in the ________.
A)general journal
B)cash receipts journal
C)sales journal
D)accounts receivable journal
Q2) When recording in a purchases journal with a periodic inventory system,the Merchandise Inventory DR column would be replaced with a column titled Cost of Goods Sold DR.
A)True
B)False
Q3) Which of the following accounting information system activities can be classified under payroll business transactions?
A)approval of new employees
B)receipt of customer payment
C)processing of vendor invoice
D)payment for goods or services
Q4) In cloud computing,the software and data are stored on the company's server instead of a third-party server.
A)True
B)False
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