Accounting Concepts and Applications
Chapter Exam Questions
Course Introduction
Accounting Concepts and Applications introduces students to the fundamental principles and practices of accounting, emphasizing how financial information is identified, recorded, and communicated to users for decision making. The course covers essential topics such as the accounting cycle, preparation of financial statements, understanding assets, liabilities, and equity, and interpreting financial data. Real-world applications are explored through case studies, enabling students to develop critical thinking and analytical skills for solving accounting problems. This course lays the foundation for further study in accounting and equips students with practical knowledge that can be applied in personal finance, business, and various professional settings.
Recommended Textbook Financial Accounting 1st Canadian Edition by Jeffrey Waybright
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Chapter 1: Business, Accounting, and You
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Q1) Identify and explain the two underlying assumptions of the conceptual framework.
Answer: Accrual basis
Financial statements are prepared on the accrual basis, meaning that the business transactions are recognized and recorded when they occur, not when cash is exchanged.
Going-concern principle
Financial statements are prepared based on the assumption that the business entity is a going concern and will continue in operation for the foreseeable future.
Q2) Under IFRS, what are the four basic financial statements?
Answer: Statement of comprehensive income, statement of changes in equity, statement of financial position, and statement of cash flow.
Q3) A transaction is a business event that does NOT have an impact on the finances of a company.
A)True
B)False
Answer: False
Q4) Name the first financial statement prepared.
Answer: Income statement
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Chapter 2: Analyzing and Recording Business Transactions
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Q1) A promissory note owed to another company would most likely appear in which categories?
Answer: Notes payable
Q2) Accounts that increase on the credit side are assets, dividends, and expenses.
A)True
B)False
Answer: False
Q3) The difference between the total debits and total credits of an account is called a:
A) trial balance.
B) sub-total.
C) ruling.
D) balance.
E) normal balance.
Answer: D
Q4) The order in which accounts appear in the chart of accounts is: __________.
Answer: assets, liabilities, shareholders' equity, revenues, expenses
Q5) Dividends, accounts receivable, and buildings have normal balances of __________, __________, and __________, respectively.
Answer: debit, debit, and debit
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Chapter 3: Adjusting and Closing Entries
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Q1) Journalize the following entries for March 31. Explanations are not required.
a. A machine costing $7,000 with no salvage value was purchased on March 1 and straight-line depreciation is being used. The life is 5 years.
b. Unearned revenue was earned at the rate of $300 per month, starting November 1.
c. Wages incurred but not paid are $2,300.
Answer: 11ea4bf1_a927_7c64_a578_272369da2553_TB2774_00
Q2) If a piece of equipment was purchased on September 1, it would have ________ months depreciation included in the adjusting entry for the year ended December 31.
Answer: 4
September, October, November, and December.
Q3) The total revenues of $6,500, total expenses of $3,500, and dividends of $500 were recorded in the closing entries. Calculate the net income.
Answer: Net income is 3,000.
Calculation:
6,500 - 3,500 = 3,000
Q4) The account to which dividends are closed is called __________.
Answer: retained earnings
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5
Chapter 4: Ethics, Internal Control, and Cash
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Q1) Attempting to justify your actions is an example of __________.
Q2) The Audit Committee's responsibilities are assigned by the:
A) Chief Executive Officer.
B) Chief Financial Officer.
C) Board of Directors.
D) company Controller.
E) Finance Manager.
Q3) The petty cash fund of $500 includes the following activity for the month of March.
Cash $294.00
Delivery Expense $89.00
Postage 55.00
Flowers for a special celebration 25.00
Meals 30.00
Requirements:
1. Prepare general journal entries+ to replenish the petty cash fund.
2. On April 1, the controller gives instructions to decrease the petty cash fund by $50. Make the appropriate journal entry.
Q4) The __________ verifies the amount of the deposit and the total amount posted to the cash account.
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Chapter 5: Accounting for a Merchandising Business
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Q1) A record to keep the amount owed to each supplier is called a(n):
A) accounts receivable subsidiary ledger.
B) accounts payable subsidiary ledger.
C) transportation ledger.
D) general ledger for accounts payable.
E) trial balance.
Q2) Journalize the following transactions for Jill Company using the periodic inventory system.
June 8 Jacob Co. sold $5,500 of merchandise, costing $4,150 on account to Breanne, terms 2/10, n/30.
June 12 Breanne returned $550 of the merchandise, costing $410 to Jacob Company for credit on her account.
June 16 Breanne paid her balance.
Q3) Cost of goods sold is part of general and administrative expenses.
A)True
B)False
Q4) What is the term used to indicate that the seller pays all of the shipping and freight costs?
Q5) If an invoice reads n/15, what does this mean?
Q6) How is Gross Profit calculated?
Page 7
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Chapter 6: Inventory
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Q1) If ending inventory in Period 1 is understated, cost of goods sold in Period 2 is
Q2) When merchandise is sold and the perpetual system of inventory is used, the journal entry to record a sale of merchandise on account would include:
Q3) Which account would always be used for an inventory adjustment?
Q4) Other than the cost of purchasing the inventory, another large cost of inventory would be storage of the inventory.
A)True
B)False
Q5) The LCM rule compares original cost to current replacement cost to determine the amount at which inventory should be valued.
A)True
B)False
Q6) Inventory turnover equals the cost of goods sold divided by ending inventory. A)True B)False
Q7) What are the two things about inventory that must be disclosed in the notes of the financial statements?
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Chapter 7: Sales and Receivables
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Q1) Margaret is a customer of Tammy Company. The company wrote off her account of $1,200 on August 15. On October 12, she sent in a payment of $560. What is the journal entry that Tammy Company will record first to reinstate her account?
Q2) Assume that at December 31, 2013, Alyson Corporation has an Accounts Receivable balance of $240,000 and its Allowance for Doubtful Accounts balance is $13,900. Prepare a partial Balance Sheet showing the Accounts Receivable section.
Q3) MasterCard and Visa sales are treated like cash sales. A)True
B)False
Q4) Receivables of a company CANNOT be long-term assets. A)True
B)False
Q5) Andy Corporation lent $25,000 to Casey Corporation for 75 days at 7% interest on November 22, 2010. How much interest will have accrued to Andy Corporation on December 31, 2010, assuming a 360-day year?
Q6) If a company has 90-day credit terms, what would you expect its accounts receivable turnover to be?
Q7) What are the most common credit cards issued by financial institutions?
Page 9
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Chapter 8: Long-Term Assets
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Q1) What type of marketable securities are reported at market value on the balance sheet date?
Q2) A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $500. What is the journal entry to record this transaction?
Q3) A company purchased a van at a cost of $42,000 and expects its salvage value to be $6,000 after 120,000 kilometres of service. Using the units-of-production method, what is the first year's depreciation if the van is driven 24,000 kilometres?
Q4) Assume fair value of a vehicle is $14,000, value in use is $14,500, and carrying value $15,500. Is the asset impaired under IFRS? If so, what is the impairment loss?
Q5) What is a repair that extends the useful life of an asset?
Q6) Subtracting accumulated depletion from the asset account "coal mine" would yield the __________.
Q7) How is goodwill calculated?
Q8) Under Canadian ASPE, at what value is Property, Plant, and Equipment recorded on the balance sheet?
Q9) To which account should title transfer fees be recorded?
Q10) What are the three common ways that an asset can be disposed of?
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Chapter 9: Current Liabilities and Long-Term Debt
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Q1) A warranty is an example of a(n):
A) contingent liability.
B) known liability.
C) estimated liability.
D) settled liability.
E) unknown obligation.
Q2) Notes payable would be an example of a known liability.
A)True
B)False
Q3) Tim Hortons is a public company and prepares its financial statements in accordance to IFRS. The company has a contingent liability estimated at $232,000. The likelihood of the obligation occurring is remote or < 5%. What is the appropriate accounting treatment for the company?
Q4) What effect will there be on reported liabilities and net income if a company does NOT accrue warranty expense?
Q5) Even liabilities of unknown amounts are required to be placed on the balance sheet. A)True B)False
Q6) A $300,000 issue of bonds that sold at 105 will cost __________.
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Chapter 10: Corporations: Share Capital and Retained Earnings
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Q1) The date of declaration creates ________ for the corporation.
A) an asset
B) a liability
C) an expense
D) a revenue
E) no obligation
Q2) Aztec Industries has 100,000 common shares outstanding and 10,000 $2 cumulative preferred shares. If the company declares a total dividend of $35,000, how much will be distributed to common shareholders?
Q3) What are the effects of a stock dividend?
Q4) Earned Capital includes Retained Earnings and Accumulated Other Comprehensive Income.
A)True
B)False
Q5) Identify and explain the four basic rights of a shareholder.
Q6) Identify the advantages and disadvantages of the corporate form of business.
Q7) The formula for return on equity is net income divided by average shareholders' equity.
A)True
B)False Page 12
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Chapter 11: The Cash Flow Statement
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Q1) Which would be added back to net income in the operating section of an indirect cash flow statement?
A) A decrease in accounts payable
B) Depreciation
C) An increase in accounts receivable
D) An increase in inventory
E) A gain on the sale of a vehicle
Q2) Casey Company has an accounts receivable turnover of 36 days, an inventory turnover of 77 days, and an accounts payable turnover of 40 days. Casey's cash conversion cycle is:
A) 153 days.
B) 81 days.
C) 73 days.
D) 1 day.
E) 135 days.
Q3) A company settles a long-term note payable plus interest by paying $68,000 cash toward the principal amount and $5,440 cash for the interest. Under the direct method of reporting interest, the $5,440 would be listed as a(n) __________ activity.
Q4) Gains on the sale of long-term assets are __________ from __________ activities.
Page 14
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Chapter 12: Financial Statement Analysis
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Q1) Common-size statements use the same percentages that are computed during a __________ analysis, but no dollar amounts are shown.
Q2) Eagle Creek Outfitters sells hiking and other outdoor equipment. It also sells a few trail books and outdoor guides about the area. What would the revenue from the books and guides be recorded as in their income statement?
Q3) A liquidity ratio is defined as the ability to meet short-term obligations with current assets.
A)True
B)False
Q4) If Rick's net sales increased from $40,000 to $80,000 and its operating expenses increased from $30,000 to $50,000, then, using vertical analysis based on net sales, what percentages would show for operating expenses for the two periods (to the nearest tenth of a percent)?
Q5) If management wishes to know the ability to pay off upcoming debts, they could use the __________ ratio.
Q6) A useful tool to compare the performance of similar companies is to do a __________ analysis on each one.
Q7) What is retrospective application?
Page 15
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