Accounting I Exam Questions
Course Introduction
Accounting I provides students with a foundational understanding of the principles and procedures of financial accounting. The course covers the accounting cycle, including the analysis and recording of business transactions, preparation of financial statements, and the use of accounting information in decision-making. Students will explore essential topics such as journal entries, ledgers, trial balances, adjusting entries, and internal controls, equipping them with the skills necessary to interpret and communicate financial information effectively in a business context.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Financial statements are business documents used to communicate information needed to make business decisions.
A)True
B)False
Answer: True
Q2) Certified Public Accountants are licensed professional accountants who serve the general public.
A)True
B)False
Answer: True
Q3) Critical thinking and judgment skills are not necessary for accountants because technology has made the activities routine.
A)True
B)False
Answer: False
Q4) Assets are economic resources that have no future benefits for the business.
A)True
B)False Answer: False
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The trial balance reports the balances of assets, liabilities, and equity.
A)True
B)False Answer: True
Q2) When a business makes a cash payment, the Cash account is debited.
A)True
B)False Answer: False
Q3) Explain the difference between Prepaid Rent and Unearned Revenue.
Answer: Prepaid Rent is an asset account that represents the payment of rent expense in advance. It is considered an asset because the prepayment provides a benefit in the future.
Unearned Revenue is a liability account that occurs when a company receives cash before providing a service or delivering a good. The company owes a service or good to the customer or a refund, thus making this a liability.
Q4) Revenues and stockholders' contributions in the business increase equity.
A)True
B)False Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Aquatic Supplies, Inc. purchased $2,000 of supplies on account. Under the accrual basis of accounting, no entry is made until the amount is paid.
A)True
B)False
Answer: False
Q2) Financial statements are prepared from the balances in a(n) ________.
A) general journal
B) chart of accounts
C) unadjusted trial balance
D) adjusted trial balance
Answer: D
Q3) Adjusting entries do not update balance sheet accounts.
A)True
B)False
Answer: False
Q4) Accrued revenue represents the receipt of cash before the revenue has been earned.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) When a business uses a computerized accounting system, the software automatically closes the books.
A)True B)False
Q2) If a business has a net loss, the closing entry to close Income Summary would be a debit to Income Summary and a credit to Retained Earnings.
A)True B)False
Q3) Prepaid Rent in the worksheet's unadjusted trial balance column is $7,000. Prepaid Rent in the balance sheet column is $6,000. Which of the following entries would have caused this difference?
A) a $1,000 debit entry to Prepaid Rent in the worksheet's adjustments column
B) a $1,000 credit entry to Rent Expense in the worksheet's adjustments column
C) a $1,000 credit entry to Prepaid Rent in the worksheet's adjustments column
D) a $1,000 credit entry to Rental Revenue in the worksheet's adjustments column
Q4) The Dividends account is included in the income statement section of the worksheet. A)True B)False
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Page 6
Chapter 5: Merchandising Operations
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Sample Questions
Q1) After making a sale, a seller may have customers that return goods. The seller uses the perpetual inventory system. This requires the seller to ________.
A) use historical data to record sales revenue in the amount that is expected to be received
B) record two adjusting entries to account for the estimated returns
C) reduce sales and cost of goods sold for the period
D) All of the statements are correct.
Q2) Gross profit is calculated as ________.
A) sales revenue less sales discounts and allowances
B) sales revenue less operating expenses
C) net sales revenue less sales discounts
D) net sales revenue less cost of goods sold
Q3) An invoice, with payment terms of 2/10, n/30, was issued on April 28 for $250.00. If the payment was made on May 12, the amount of payment will be ________. (Round your answer to the nearest cent.)
A) $250.00
B) $225.00
C) $245.00
D) $248.00
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Page 7
Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Which of the following inventory costing methods yields the lowest net income during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Q2) Which of the following statements regarding a periodic inventory system is incorrect?
A) A periodic inventory system is simpler than a perpetual inventory system.
B) A periodic inventory system works well for small businesses in which inventory costs can be controlled by visual inspection.
C) The only way to determine the ending merchandise inventory and cost of goods sold in a periodic inventory system is to take a physical inventory.
D) The various inventory costing methods are not used in a periodic inventory system.
Q3) The ending inventory of a company was $552,000 as per the perpetual inventory records. The current replacement cost for the ending inventory is $547,000. Prepare the journal entry to adjust inventory. Omit explanation.
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) When replenishing the petty cash fund, the company debits the Petty Cash account and credits the Cash account.
A)True
B)False
Q2) At Carlson Services, the cashier collects checks and cash from customers, and the junior accountant records the transactions in the journal. The controller approves the journal entries and bank reconciliations. The treasurer signs checks and approves contracts. Which internal control procedure is exemplified in the above situation?
A) assignment of responsibilities
B) competent, reliable, and ethical personnel
C) separation of duties
D) documents
Q3) The primary reason that businesses keep their cash in a bank account is the ability to earn interest.
A)True
B)False
Q4) Promoting operational efficiency reduces expenses and business profits.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) To report accounts receivable at the appropriate amount on the balance sheet, a company determines an accurate estimate of uncollectible accounts and recognizes the associated bad debt expense.
A)True
B)False
Q2) The percent-of-sales method calculates bad debts expense as a percentage of net credit sales.
A)True
B)False
Q3) On August 14, Second Street Bank lent $210,000 to City Restaurant on a 75 day, 4% note. What is the maturity date of the note?
A) Oct. 27
B) Oct. 28
C) Oct. 29
D) Oct. 30
Q4) The days' sales in receivables indicates the number of days it takes to collect the average level of accounts receivable.
A)True
B)False
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Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) A trademark should not be amortized over its useful life.
A)True
B)False
Q2) A company's accountant capitalized a payment that should have been recorded as a revenue expenditure. How will this error affect the company's financial statements?
A) Net income will be overstated.
B) Revenues will be understated.
C) Assets will be understated.
D) Liabilities will be understated.
Q3) A business, which has a calendar year accounting period, purchased an asset on March 1, 2018. The business disposed of the asset on August 31, 2019. For the calendar year 2019, depreciation should be calculated from January 1 to August 31.
A)True
B)False
Q4) On October 1, 2018, Mobile, Inc. purchased a patent for $100,000 cash. Although the patent gives legal protection for 20 years, it is expected to be used for only eight years. The patent has no residual value. Journalize the amortization expense for 2018. Assume straight-line amortization. Omit explanation.
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Page 11
Chapter 10: Investments
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Sample Questions
Q1) When the maturity date of a held-to-maturity debt investment is within one year of the balance sheet date, the investment is reported as a current asset.
A)True
B)False
Q2) Debt securities represent a credit relationship with another company or governmental entity.
A)True
B)False
Q3) When a company invests in equity securities with 20% to 50% ownership in the investee's voting stock, the investor can significantly influence the investee's decisions.
A)True
B)False
Q4) A(n) ________ represents stock ownership in another company and sometimes pays dividends.
A) debt security
B) Treasury bill
C) corporate bond
D) equity security
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) The times-interest-earned ratios of four companies are given below:
\[\begin{array} { | l | r }
\hline \text { Forge Corp. } & 8.9 \\
\hline \text { Fellow, Inc. } & 9.2 \\
\hline \text { Stacy Corp. } & 6.7 \\
\hline \text { Bennett, Inc. } & 13.5 \\
\hline
\end{array}\] Which of the above companies has the highest debt-paying ability?
A) Forge Corp.
B) Fellow, Inc.
C) Stacy Corp.
D) Bennett, Inc.
Q2) When a company co-signs a note payable for another entity, a current liability must be recorded.
A)True
B)False
Q3) The times-interest-earned ratio is also called the short interest ratio.
A)True
B)False
Q4) What is a contingent liability? Provide two examples of contingencies.
Page 13
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Adventure Travel signed a 14%, 10-year note for $152,000. The company paid an installment of $2200 for the first month. After the first payment, what is the principal balance? (Do not round any intermediate calculations, and round your final answer to the nearest dollar.)
A) $149,800
B) $150,227
C) $151,573
D) $154,200
Q2) If bonds with a face value of $209,000 are issued at 93, the amount of cash proceeds is ________.
A) $208,907
B) $209,000
C) $194,370
D) $179,740
Q3) On December 31, 2018, Anderson Hardware Company purchases $300,000 of property by paying $50,000 in cash and signing a 10-year mortgage note at 13% for the balance. The amortization schedule shows that the company will pay $46,072 per year. Journalize the first yearly payment on December 31, 2019. Omit explanation.
Q4) What is the only difference between present value and future value?
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) The following information is from the December 31, 2018 balance sheet of May Corporation. \[\begin{array} { | l | r | }
\hline \text { Preferred Stock, } \$ 100 \text { par } & \$ 390,000 \\
\hline \text { Paid-In Capital in Excess of Par-Preferred } & 25,000 \\
\hline \text { Common Stock, } \$ 1 \text { par } & 152,000 \\
\hline \text { Paid-In Capital in Excess of Par-Common } & 346,000 \\
\hline \text { Retained Earnings } & \underline { 83,900 } \\
\hline \text { Total Stockholders' Equity } & \$ 996,900 \\ \hline
\end{array}\] What was the total paid-in capital as of December 31, 2018?
A) $736,000
B) $996,900
C) $913,000
D) $888,000
Q2) A profitable corporation may make distributions to stockholders in the form of bonuses.
A)True
B)False
Q3) List the four basic rights of stockholders.
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Murphy & Murphy Enterprises expects the following for 2018: Net cash provided by operating activities of \(\$ 226,000\)
Net cash provided by financing activities of \(\$ 16,000\)
Net cash provided by investing activities of \(\$ 70,000\)
Cash dividends paid to stockholders of \(\$ 20,000\) The business plans to spend $110,000 to purchase equipment.
What is the expected amount of free cash flow for 2018?
A) $96,000
B) $116,000
C) $62,000
D) $42,000
Q2) The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity's business.
A)True
B)False
Q3) The three sections of the statement of cash flows report only activities that involve cash.
A)True
B)False
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) When performing vertical analysis of a balance sheet, the base amount is
A) total assets
B) total cash and cash equivalents
C) net income
D) gross profit
Q2) When performing vertical analysis of an income statement, the base amount is
A) total expenses
B) net sales revenue
C) sales revenue
D) gross profit
Q3) Which of the following is NOT a purpose of using of using ratios to explain different aspects of a company?
A) evaluating profitability
B) evaluating stock as an investment
C) evaluating the ability to pay current liabilities
D) evaluating income tax return information
Q4) List the three ways to analyze financial statements. State what each of these ways provides to investors and creditors.
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Chapter 16: Introduction to Managerial Accounting
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Q1) The cost of direct materials cannot easily be traced to the manufactured product, and therefore, it is a component of manufacturing overhead.
A)True
B)False
Q2) Anika, a division manager, is purchasing materials to ensure she has enough to meet customers' demands. Anika is engaging in the ________.
A) planning function
B) directing function
C) controlling function.
D) decision function
Q3) How does a service company calculate unit cost per service? Why do managers need to know the unit cost per service?
Q4) Define planning. List and briefly discuss the two types of planning managers perform.
Q5) In a manufacturing company, advertising and marketing costs are included in manufacturing overhead.
A)True B)False
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Chapter 17: Job Order Costing
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Q1) Summit Financial Advisors provides accounting and finance assistance to customers in the retail business. Summit has four professionals on staff and an office with six clerical staff. Total compensation, including benefits, for the professional staff run about $779,000 per year, and it normally has about 8200 billable hours per year. The professional staff keep detailed time sheets organized by client number. The total office and administrative costs for the year are $615,000. Summit allocates office and administrative costs to clients monthly, using a predetermined overhead allocation rate based on billable hours. During July, Summit's professionals spent 46 hours on their client. What is the total amount of cost that Summit will record for the client for the month? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
A) $4370
B) $3450
C) $1,394,000
D) $7820
Q2) Actual manufacturing overhead costs are credited to the Manufacturing Overhead account.
A)True
B)False
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Chapter 18: Process Costing
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Q1) During the month, Kimura Manufacturing incurred (not paid) $47,000 in direct labor costs in Department 1, $26,000 direct labor costs in Department 2, and $3500 of indirect labor costs. The summary journal entry to record these transactions includes a ________. Process costing is used.
A) credit to Manufacturing Overhead for $3500
B) debit to Work-in-Process Inventory for $73,000
C) credit to Wages Payable for $73,000
D) debit to Work-in-Process Inventory-Department 2 for $26,000
Q2) On September 30, the Sorting Department of Java Works had ending Work-in-Process Inventory of 30,000 units that was 46% complete for materials and 36% complete for conversion costs. The company uses the FIFO method. This means that for the beginning Work-in-Process Inventory, ________% of the materials and ________% of conversion costs were added during October.
A) 46; 36
B) 64; 54
C) 54; 64
D) 36; 46
Q3) List the four steps, in the order of occurrence, that are used in preparing a production cost report.
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Page 20
Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Sample Questions
Q1) Just-in-time costing systems use a combined account for Raw Materials Inventory and Work-in-Process Inventory known as the ________.
A) Raw Materials Inventory account
B) Work-in-Process Inventory account
C) Raw and In-Process Inventory account
D) Process account
Q2) Why is it difficult to measure external failure costs? What are some nonfinancial measures quality management systems can use to gauge external failure?
Q3) The common factor in all quality management systems is the desire to
A) improve performance
B) increase the number of quality inspections
C) complete repairs in a timely manner
D) ignore the costs and benefits of changes to products
Q4) Activity-based management focuses on making decisions that improve customers' satisfaction while also increasing profits.
A)True
B)False
Q5) Define target cost. How is target cost determined?
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Chapter 20: Cost Volume Profit Analysis
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Q1) One of the assumptions of cost-volume-profit (CVP) analysis is that there are no changes in the ________.
A) accounts payable
B) cash balance
C) inventory levels
D) account receivables
Q2) Awanita Enterprises sells computer flash drives for $3.16 per unit. Unit variable cost is $0.06. The breakeven point in units is 3600, and expected sales in units are 4300. What is the margin of safety in dollars?
A) $2170
B) $2212
C) $42
D) $11,376
Q3) Which of the following costs change in total in direct proportion to a change in volume?
A) fixed costs
B) variable costs
C) mixed costs
D) period costs
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Page 22
Chapter 21: Variable Costing
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Q1) Framework Company provides architectural services. The company provides the following financial data:
\[\begin{array} { l l }
\text { Service Revenue } & \$ 30,000 \\
\text { Salaries and Othe Variable Costs } & 20,350 \\
\text { Rent Expense } & 4,500 \\
\text { Depreciation Expense } & 500
\end{array}\] Requirements:
a) Calculate the contribution margin, contribution margin ratio, and operating income. b) Framework provided service to 150 customers during the month. Determine the average amount the company charged each customer.
Q2) The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.
A)True
B)False
Q3) Absorption costing is used to analyze contribution margin.
A)True
B)False
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23
Chapter 22: Master Budgets
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Q1) For manufacturing companies, the primary source of cash is from its customers.
A)True
B)False
Q2) Verle, Inc. has a cash balance of $20,000 on April 1. The company is now preparing the cash budget for the second quarter. Budgeted cash collections and payments are as follows: \[\begin{array} { | l | r | r | r | }
\hline & { \text { Apr } } & { \text { May } } & { \text { Jun } } \\
\hline \text { Cash collections } & \$ 25,000 & \$ 24,000 & \$ 25,000 \\
\hline \text { Cash payments: } & & & \\
\hline \text { Purchases of direct materials } & 5800 & 5800 & 7000 \\
\hline \text { Operating expenses } & 3500 & 5000 & 5300 \\ \hline
\end{array}\] There are no budgeted capital expenditures or financing transactions during the quarter. Based on the above data, calculate the projected cash balance at the end of May.
A) $24,000
B) $59,700
C) $53,900
D) $48,900
Q3) What is a common method of accessing short-term financing?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Marshall Company uses a standard cost system. Variable overhead costs are allocated based on direct labor hours. In the first quarter, Marshall had a favorable efficiency variance for variable overhead costs. Which of the following scenarios is a reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.
Q2) Akao Products uses a standard cost system. Variable overhead costs are allocated based on direct labor hours. In the first quarter, Akao had an unfavorable efficiency variance for variable overhead costs. Which of the following scenarios is a reasonable explanation for this variance?
A) The actual number of direct labor hours was lower than the budgeted hours.
B) The actual variable overhead costs were higher than the budgeted costs.
C) The actual variable overhead costs were lower than the budgeted costs.
D) The actual number of direct labor hours was higher than the budgeted hours.
Q3) A favorable variance reflects a decrease in operating income.
A)True
B)False
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Page 25
Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is the correct formula for calculating residual income?
A) Weighted average cost of capital - Net operating profit after tax
B) Operating income - Minimum acceptable operating income
C) Historical cost of assets - Accumulated depreciation
D) Operating income / Average assets
Q2) A kiosk that sells sunglasses at a local mall is an example of a(n) ________.
A)responsibility center
B)cost center
C)investment center
D)revenue center
E)profit center
Q3) Management by exception directs management's attention to important differences between the actual and the budgeted amounts.
A)True
B)False
Q4) Discuss the difference between a centralized company and a decentralized company.
Q5) All costs are ultimately controllable at the upper levels of management. A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Kitchen Convenience Company manufactures two products-toaster ovens and bread machines. The following data are available: \[\begin{array} { | l | r | r | }
\hline & \text { Toaster Ovens } & \text { Bread Machines } \\
\hline \text { Sales price } & \$ 100 & \$ 160 \\
\hline \text { Variable costs } & \$ 20 & \$ 50 \\
\hline \end{array}\] Kitchen Convenience can manufacture six toaster ovens per machine hour and four bread machines per machine hour. Kitchen Convenience's production capacity is 2000 machine hours per month. What is the contribution margin per machine hour for bread machines?
A) $80
B) $110
C) $440
D) $660
Q2) The cost-plus pricing approach is emphasized by price-setters.
A)True
B)False
Q3) Define joint cost. Should joint costs be considered in the decision to sell or further process the product? Explain your answer.
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Page 27
Chapter 26: Capital Investment Decisions
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Q1) All of the following are factors needed when calculating the future value of money except
A) the principal amount
B) the number of periods
C) the maturity value
D) the interest rate
Q2) All else being equal, the shorter the investment period, the higher the total amount of interest earned.
A)True B)False
Q3) Management's minimum desired rate of return on a capital investment is known as the return on investment.
A)True B)False
Q4) The net present value method of evaluating capital investments suggests that an investment with discounted net cash inflows which exceed the initial cost of the investment is desirable.
A)True B)False
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Chapter 27: Understanding Accounting Information
Systems and their Components
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Q1) Which of the following is an accounting information system activity that can be classified as a payroll business transaction?
A) approval of new employees
B) receipt of customer payment
C) processing of vendor invoices
D) payment for goods or services
Q2) Generally, all transactions are recorded in both a special journal and the general journal.
A)True
B)False
Q3) Because of the risk of fraud, electronic invoices and electronic receiving reports are seldom used in accounting information systems.
A)True
B)False
Q4) The main computer where data are stored, which can be accessed from many different computers, is known as software.
A)True
B)False
Page 29
Q5) Describe the transactions recorded in the purchases journal.
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