Accounting I Pre-Test Questions
Course Introduction
Accounting I offers an introduction to the fundamental principles and practices of financial accounting. This course covers the accounting cycle, including recording transactions, preparing adjusting entries, and compiling financial statements such as the balance sheet, income statement, and statement of cash flows. Students will also learn about the importance of ethics in accounting, as well as the roles of assets, liabilities, and equity. Through practical exercises and case studies, students develop the skills necessary to analyze and interpret financial information for decision-making in a business context.
Recommended Textbook
Financial Managerial Accounting 16th Edition by Jan Williams
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Page 2
Chapter 1: Accounting: Information for Decision Making
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Sample Questions
Q1) The primary function of external auditors is to:
A) Express an opinion on the fairness and reliability of the company's financial statements.
B) Determine the accuracy of the management reports.
C) Evaluate the efficiency of operations and the degree of compliance with management's policies in all departments within a large organization.
D) Determine that financial statements and all special reports to management are prepared in conformity with generally accepted accounting principles.
Answer: A
Q2) The principal difference between management accounting and financial accounting is that financial accounting information is:
A) Prepared by managers.
B) Intended primarily for use by decision makers outside the business organization.
C) Prepared in accordance with a set of accounting principles developed by the Institute of Certified Management Accountants.
D) Oriented toward measuring solvency rather than profitability.
Answer: B
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3
Chapter 2: Basic Financial Statements
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Sample Questions
Q1) If Capital Stock is $320,000, total assets of Braun Corporation at December 31, 2009, amount to:
A) $686,000.
B) $926,000.
C) $726,000.
D) $106,000.
Answer: A
Q2) A transaction caused an increase in both assets and owners' equity. This transaction could have been:
A) A sale of service to a customer producing revenue.
B) Sale of land for a price less than its cost.
C) Borrowing money from a bank.
D) Sale of land for cash at a price equal to its cost.
Answer: A
Q3) Any business event that might affect the future profitability of a business should be reported in its balance sheet.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) What is the total of Hunter Products' liabilities at the end of May?
A) $253,000.
B) $190,000.
C) $63,000.
D) $313,000.
Answer: A
Q2) Transactions are recorded in the general journal in:
A) Numerical order.
B) Chronological order.
C) Account number order.
D) Financial statement order.
Answer: B
Q3) On June 4, the balance in the Cash account is:
A) $17,600.
B) $5,000.
C) $10,600.
D) Some other amount.
Answer: C
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) At January 31, the amount of supplies on hand is $2,300. What amount is shown on the January income statement for supplies expense?
A) $2,300.
B) $5,400.
C) $3,100.
D) $7,700.
Q2) Videobusters, Inc. offered books of video rental coupons to its patrons at $40 per book. Each book contained a certain number of coupons for video rentals. During the current period 500 books were sold for $20,000, and this amount was credited to Unearned Rental Revenue. At the end of the period, it was determined that $15,000 worth of book coupons had been used by customers to rent videos. The appropriate adjusting entry at the end of the period would be:
A) Debit Rental Revenue $5,000 and credit Unearned Rental Revenue $5,000.
B) Debit Rental Revenue $15,000 and credit Unearned Rental Revenue $15,000.
C) Debit Unearned Rental Revenue $5,000 and credit Rental Revenue $5,000.
D) Debit Unearned Rental Revenue $15,000 and credit Rental Revenue $15,000.
Q3) On June 1, 2008, the park purchased a 12-month insurance policy. Give the adjusting entry to record insurance coverage expiring in January. (Hint: The company adjusts its books on a monthly basis.)
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Page 6
Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Q1) The return on equity ratio equals net income divided by common stock.
A)True
B)False
Q2) Refer to the information above. After closing the accounts, Retained earnings at December 31 equals:
A) $11,000.
B) $7,250.
C) Zero.
D) $22,250.
Q3) Refer to the information above. Income Summary will have what balance before it is closed?
A) Zero.
B) $11,750.
C) $7,250.
D) $11,000.
Q4) The current ratio equals current assets plus current liabilities. A)True
B)False
Page 7
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Chapter 6: Merchandising Activities
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Sample Questions
Q1) Inventory systems
Briefly distinguish between a perpetual inventory system and a periodic inventory system.
Q2) Net sales is calculated by:
A) Subtracting cost of sales from sales.
B) Subtracting sales returns and sales discounts from sales.
C) Subtracting sales returns, cost of sales, and sales discounts from sales.
D) Subtracting gross profit from sales.
Q3) Best Hardware uses a periodic inventory system. Its inventory was $38,000 at the beginning of the year, and $40,000 at the end. During the year, Best made purchases of merchandise totaling $107,000. Identify all of the correct answers:
A) To use this system, Best must take a complete physical inventory twice each year.
B) Prior to making adjusting and closing entries at year-end, the balance in Best's Inventory account is $38,000.
C) The cost of goods sold for the year is $109,000.
D) As sales transactions occur, Best makes no entries to update its inventory records or record the cost of goods sold.
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Page 8
Chapter 7: Financial Assets
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Sample Questions
Q1) Many fraudulent financial reporting schemes seek to manipulate accounts payable in order to overstate revenue and income.
A)True
B)False
Q2) A credit memoranda from a bank indicates that they have decreased the depositor's cash balance.
A)True
B)False
Q3) What is the amount of the deposit in transit?
A) $5,856.
B) $9,513.
C) $3,067.
D) $3,083.
Q4) Available-for-sale securities are usually held for:
A) Less than three months.
B) Between six and eighteen months.
C) Greater than one year.
D) Less than one month.
Q5) What is the adjusted cash balance in the September 30 bank reconciliation?
Q6) What is the amount of the deposit in transit?
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Chapter 8: Inventories and the Cost of Goods Sold
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Sample Questions
Q1) If the terms of a sale are F.O.B. shipping point, the sale should not be recorded until the goods are delivered to the buyer.
A)True
B)False
Q2) Compute the cost of goods sold for the current year based on the FIFO method of inventory valuation.
A) $12,500.
B) $29,175.
C) $10,975.
D) $27,650.
Q3) From an accounting point of view, one implication of an effective just-in-time inventory system is that:
A) Sales transactions must be recorded using on-line point-of-sale terminals.
B) Inventories are less material in dollar amount and alternative inventory flow assumptions will produce more similar results.
C) The cost of goods sold is significantly reduced.
D) Purchases of merchandise are recorded as cash payments are made, and sales transactions are recorded as cash is received.
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Page 10
Chapter 9: Plant and Intangible Assets
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Q1) Yale Company purchased equipment having an invoice price of $21,500. The terms of sale were 2/10, n/30, and Yale paid within the discount period. In addition, Yale paid a $320 delivery charge, $350 installation charge, and $1,183 sales tax. The amount recorded as the cost of this equipment is:
A) $21,070.
B) $21,500.
C) $21,740.
D) $22,923
Q2) In accounting, depreciation refers to a decline in the asset's current market value, not the allocation of the cost of an asset to expense.
A)True
B)False
Q3) Accelerated depreciation methods are used primarily in:
A) Income tax returns.
B) The financial statements of small businesses.
C) The financial statements of publicly owned corporations.
D) Companies with computer-based accounting systems.
Q4) Briefly explain the difference between a revenue expenditure and a capital expenditure.
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Chapter 10: Liabilities
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Sample Questions
Q1) Identify all correct statements concerning payrolls and related payroll costs:
A) Both employers and employees pay Social Security and Medicare taxes.
B) Workers' compensation premiums are withheld from employees' wages.
C) An employer's total payroll costs usually exceed total wages expense by about 7 1/2%.
D) Under current law, employers are required to pay Social Security taxes on employees' earnings, but are not required to pay for health insurance.
Q2) The total liability related to this mortgage reported in Bradley's balance sheet at December 31, Year 1, is:
A) $432,100.
B) $199,600.
C) $194,923.
D) $200,000.
Q3) On March 1, 2011, five-year bonds are sold for $508,026 that have a face value of $500,000 and an interest rate of 10%. Interest is paid semi-annually on March 1 and September 1. Using the straight-line amortization method, prepare the borrower's journal entries on:
March 1, 2011; September 1, 2011; December 31, 2011; and March 1, 2012.
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Page 12
Chapter 11: Stockholders Equity: Paid-In Capital
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Q1) The following two items are disclosed in the stockholders' equity section of Riverside Corporation's December 31, 2009, balance sheet: If the company had reacquired 700 shares of treasury stock in February of 2009, then for what amount was the other treasury stock sold for during 2009?
A) $2 per share above its par value.
B) $2 per share.
C) $2 per share above its cost.
D) $22 per share above its cost.
Q2) A corporation continues in existence even if a stockholder dies or withdraws from the organization.
A)True
B)False
Q3) When a state authorizes the sale of stock to stockholders, the corporation will credit Retained Earnings for the par value of the stock.
A)True
B)False
Q4) Treasury stock is stock that is issued and outstanding but not authorized. A)True B)False
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Chapter 12: Income and Changes in Retained Earnings
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Q1) A prior period adjustment is a correction made to:
A) Retained earnings of the beginning of the period.
B) Retained earnings at the end of the period.
C) Net income of the current year.
D) Only to last years' financial statements.
Q2) Sovereign Foods suffered a $1,500,000 loss (net of tax) when the FDA prohibited the sale of food products containing red dye no. 3. On its other products, Sovereign Foods had net sales of $6,580,000 and costs and other expenses of $6,505,000. Which of the following statements is not true? (Ignore taxes)
A) Sovereign Foods reports a net loss of $1,425,000 for the current year.
B) Sovereign Foods reports income before extraordinary items of $75,000.
C) Sovereign Foods combines the $1,500,000 loss with its other costs and expenses of $6,505,000, since this item does not qualify for any special disclosure.
D) Sovereign Foods shows the $1,500,000 loss in a separate section of the income statement as an extraordinary item.
Q3) "Discontinued operations" is an example of an extraordinary item.
A)True
B)False
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Total cash proceeds received by Johnson from sales of plant assets during the current year amounted to:
A) $13,000.
B) $104,000.
C) $195,000.
D) $41,000.
Q2) Collections of interest revenue are classified as operating activities.
A)True B)False
Q3) Rent expense in Burr Company's income statement is $480,000. If Prepaid Rent was $120,000 on January 1 and is $95,000 on December 31, the cash paid for rent during the year is:
A) $480,000.
B) $455,000.
C) $360,000.
D) $575,000.
Q4) The purchase or sale of marketable securities is reported in the statement of cash flows as a financing activity.
A)True
B)False
Page 15
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) The quick ratio:
A) Is computed by dividing current assets by current liabilities.
B) Is always higher than the current ratio.
C) Cannot be higher than the current ratio.
D) May be higher or lower than the current ratio.
Q2) Current assets are those assets that can be converted into cash within:
A) One year and never longer.
B) One year or the operating cycle, whichever is longer.
C) One year or the operating cycle, whichever is shorter.
D) Management's discretion.
Q3) Return on assets measures the efficiency with which management:
A) Generates earnings from the assets under its control, regardless of how these assets are financed.
B) Generates earnings from the assets under its control, giving consideration to any costs of financing these assets.
C) Generates cash from the assets under its control, regardless of accrual-based measures of profitability.
D) Converts its current assets into cash.
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Page 16
Chapter 15: Global Business and Accounting
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Sample Questions
Q1) The price of one currency stated in terms of another currency is the:
A) Current ratio.
B) Exchange rate.
C) Facilitating payment.
D) International clearing price.
Q2) On November 1, a French company purchased machinery from an American company for 800,000 euros when the exchange rate was $0.83. When preparing financial statements on December 31, assuming the rate for Euros was $0.88, what amount of gain or loss should the American company report?
A) $40,000 gain.
B) $40,000 loss.
C) $19,000 gain.
D) No gain or loss would be reported.
Q3) Accounting practices are affected by all of the following except:
A) Political systems.
B) Economic systems.
C) Technology and infrastructure.
D) Management knowledge of accounting practices.
Q4) Explain the major provisions of the Foreign Corrupt Practices Act as amended in 1986.
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Chapter 16: Management Accounting: a Business Partner
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Q1) The payment of raw materials previously purchased on account is recorded by an entry debiting:
A) Raw Materials Inventory.
B) Accounts Payable.
C) Work in Process Inventory.
D) Cash.
Q2) The cost of finished goods manufactured in April amounted to:
A) $72,000.
B) $80,000.
C) $47,000.
D) Some other amount. $_____________
Q3) The placing of direct materials into the production process is recorded by an entry debiting:
A) Materials Expense.
B) Raw Materials Inventory.
C) Work in Process Inventory.
D) Finished Goods Inventory.
Q4) Product costs are selling expenses that appear on the income statement. A)True
B)False
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Chapter 17: Job Order Cost Systems and Overhead
Allocations
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Q1) The two steps required in activity-based costing are identifying separate activity cost pools and allocating each cost pool to the product using an appropriate cost driver.
A)True
B)False
Q2) What is the finished goods inventory at November 30? $___________
Q3) The document that provides information for the cost of goods manufactured is:
A) The job cost sheet.
B) Time cards.
C) Material requisition.
D) Payroll check.
Q4) Benefits of activity-based costing include all of the following except:
A) More accurate measures of product costs.
B) More accurate evaluations of product profitability.
C) A better understanding of what "drives" manufacturing overhead costs.
D) More subjective product pricing decisions.
Q5) Objectives of a cost accounting system
What are the major objectives of a cost accounting system in a manufacturing company?
Q6) What is the finished goods inventory at October 31? $___________
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Chapter 18: Process Costing
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Q1) All of the following are characteristics of the products of process costing except:
A) High volume.
B) Different amounts of direct materials.
C) Identical amounts of direct materials.
D) Repetitive operations.
Q2) What are the equivalent units for direct labor and overhead?
A) 140,000.
B) 80,000.
C) 160,000.
D) 130,000.
Q3) Conversion costs include direct labor and overhead costs and direct materials associated with converting units so that they can be transferred out of Work-in-Process.
A)True
B)False
Q4) United Construction Company, which manufactures residential buildings, would most likely use a process costing system.
A)True
B)False
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Chapter 19: Costing and the Value Chain
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Q1) Target costing
Ray-Dee, Inc. is considering the introduction of a new deluxe quality stereo tabletop radio. This radio will produce exceptional sound quality through new speaker technology. Market research indicates that customers would be willing to pay $400 for a radio of the quality considered. Ray-Dee requires a 30% return on sales for all its products.
Required: Compute Ray-Dee's target cost for the radio under consideration.
Q2) Which of the following would be considered non-value-added activities by a bakery's bread customers?
A) The mixing of flour, eggs, milk and other ingredients.
B) Baking the bread.
C) Shipping the loaves to a warehouse to await distribution to local stores.
D) Delivering loaves to local stores.
E) Rotating bread stock in the stores so that older loaves are sold first.
Q3) Just-in-time costing considers all potential resources used by the product over its entire life.
A)True
B)False
Q4) Cost of quality
Name four components of the cost of quality and list three examples of each.
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Olsen's projected August operations will require approximately 110,000 machine hours. Using the high-low method, compute total manufacturing overhead estimated for August.
A) $177,500.
B) $187,500.
C) $197,500.
D) $198,000.
Q2) If the unit sales price is $7 and variable costs are $3, how many units have to be sold to earn a profit of $3,600 if fixed costs equal $5,000?
A) 900.
B) 1,250.
C) 1,500.
D) 2,150.
Q3) Costs which increase in total amount in direct proportion to an increase in output are called variable costs.
A)True
B)False
Q4) At the original selling price of $50 per unit, how many units must Paulsen sell to break even?
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Chapter 21: Incremental Analysis
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Q1) Scrap or rework decision
Nielson has 5,000 defective televisions on hand which cost $380,000 to manufacture. Nielson can either sell these defective televisions as scrap for $65 per unit, or spend an additional $120,000 on repairs and then sell the televisions for $135 per unit. Should Nielson repair the defective TVs to sell them as scrap?
Show your supporting computations:
Q2) The most common method to allocate joint costs is in proportion to the relative sales value of the products.
A)True
B)False
Q3) Seeking creative solutions to problems
Explain why it would be irresponsible and short-sighted for managers to base decisions entirely on revenue and cost figures.
Q4) Sunk costs have already been incurred and cannot be changed by future actions.
A)True
B)False
Q5) Joint costs allocated to product MB total: $_____________
Q6) Joint costs allocated to product EB total: $_____________
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Chapter 22: Responsibility Accounting and Transfer Pricing
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Q1) One of the unique services provided by San Francisco's St. Francis Hotel is cleaning and polishing coins (pocket change) for the guests. From the standpoint of hotel management, this "money laundry" should be viewed as:
A) A contribution center.
B) A cost center.
C) An investment center.
D) A profit center (other than an investment center).
Q2) San Francisco's famous St. Francis Hotel is owned by Westin Hotel and Resort Group. Westin should evaluate the St. Francis as:
A) A cost center.
B) A historical landmark.
C) An investment center.
D) A profit center (other than an investment center).
Q3) Responsibility margin is equal to:
A) Revenue, less contribution margin and traceable fixed costs.
B) Revenue, less variable costs.
C) Revenue, less variable costs and traceable fixed costs.
D) Revenue, less variable fixed costs, traceable fixed costs, and common costs.
Q4) Contribution margin ratio: _____________%
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Chapter 23: Operational Budgeting
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Q1) A budget that can be adjusted easily to show budgeted revenues, costs, and cash flows at different levels of activity is known as:
A) A flexible budget.
B) A master budget.
C) A production budget.
D) A multi-level budget.
Q2) As budgeted output per the flexible budget increases, per-unit fixed costs (increase/decrease): ___________
Q3) Establishing budgeted amounts
(a) The text discusses two basic philosophies as to the levels at which budgeted amounts should be set. Identify and describe briefly each of these two philosophies. (b) Which of the two management philosophies would be more likely to elicit the following comment?
"At our company, budgeted revenue is set so high and budgeted costs so low that no department can ever meet the budget. This way, department managers can never relax; they are motivated to keep working harder no matter how well they are already doing."
Q4) Explain what is meant by "profit rich, yet cash poor".
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25
Chapter 24: Standard Cost Systems
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Q1) The Delux Company purchased and used 2,900 yards of material in its manufacturing process. The actual cost of the materials was $2.20 per yard. Standard materials and costs were 2,700 yards at $2.00 per yard.
Required:
(a) Compute the materials quantity variance.
(b) Compute the materials price variance.
(c) Compute the total material variance.
Q2) In setting standards, management's level of performance expectation must be something less than ideal.
A)True
B)False
Q3) A standard cost is the per unit cost actually incurred under normal operating conditions.
A)True
B)False
Q4) What is the standard cost for direct labor?
A) $100.
B) $287.
C) $180.
D) $285.
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Chapter 25: Rewarding Business Performance
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Q1) Capital turnover can be improved by reducing invested capital while keeping sales constant.
A)True
B)False
Q2) The Parry company provided the following information regarding its operations: What is Parry's ROI for the year ending 2012?
A) 1.50%.
B) 2.72%.
C) 1.76%.
D) 1.82%.
Q3) What is division's Y ROI for product B?
A) 12.0%.
B) 10.0%.
C) 11.0%.
D) 12.5%.
Q4) Capital turnover is calculated by dividing operating income by invested capital. A)True B)False
Q5) Explain the importance of incentive systems for motivating performance.
Q6) Calculate and explain residual income and economic value added.
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Chapter 26: Capital Budgeting
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Q1) Which of the following is not considered a capital investment?
A) The purchase of a large machine.
B) The development of a new product line.
C) The purchase of a large order of raw materials used in the production process.
D) The acquisition of a subsidiary company.
Q2) A cost that has been incurred irrevocably by past actions is a (an):
A) Capital expenditure.
B) Incremental cost.
C) Sunk cost.
D) Fixed cost.
Q3) Compute the net present value of this proposed investment, using a discount rate of 12%. (An annuity table shows that the present value of $1 received annually for six years, discounted at 12%, is 4.111.)
A) $105,600.
B) ($41,078).
C) $369,600.
D) $434,121.
Q4) What is the expected return on average investment associated with the cutting machine? $_____________
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Chapter 28: Forms of Business Organization
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Q1) In a limited liability partnership, a partner has unlimited liability for his own actions and limited liability for the actions of his partners.
A)True
B)False
Q2) Mutual agency refers to the ability of each partner to withdraw cash and other assets at will.
A)True
B)False
Q3) Which of the following is a characteristic of a corporation?
A) Mutual agency.
B) Stockholder liability for business debts.
C) Indefinite existence.
D) Taxable at individual rates.
Q4) When closing Income Summary, assuming the corporation had net income for the accounting period, the account Retained Earnings is credited.
A)True
B)False
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Chapter 27: The Time Value of Money: Future Amounts and
Present Values Answer Key
Available Study Resources on Quizplus for this Chatper
49 Verified Questions
49 Flashcards
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Sample Questions
Q1) The future amount of an annuity is calculated by multiplying the periodic payment amount by the discounted factor from the future value of an annuity table.
A)True
B)False
Q2) Explain how compound interest applies to the time value of money.
Q3) An annuity due assumes the cash flow will occur at the beginning of the period.
A)True
B)False
Q4) Your wealthy aunt wishes to give you a trip to Paris when you graduate from college in three years. She estimates the trip will cost $4,000. How much must she invest now at 4% to accumulate enough for you to take this trip?
A) $3,287.72.
B) $3,556.00.
C) $4,499.44.
D) $3,161.24.
Q5) Powers Company wishes to issue $2,000,000 of 8%, 10 year bonds which pay interest semi-annually. The current discount rate is 6%. What amount should the bonds sell for?
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Q6) Explain what is meant by the "time value of money." Provide examples.
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