Accounting I Study Guide Questions
Course Introduction
Accounting I provides an introduction to the fundamental principles and practices of financial accounting. Students will learn the basics of recording, classifying, and summarizing financial transactions, as well as preparing and interpreting key financial statements such as the balance sheet, income statement, and statement of cash flows. Emphasis is placed on the accounting cycle, double-entry bookkeeping, and the role of accounting information in decision-making for businesses. This course lays the foundation for further study in accounting and is essential for understanding how organizations track and report their financial performance.
Recommended Textbook
Horngren's Accounting 11th Edition by
Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) Venus,Inc.paid $5,000 on accounts payable.How does this transaction affect the accounting equation of Venus?
A)assets decrease by $5,000 and equity increases by $5,000
B)assets decrease by $5,000 and liabilities decrease by $5,000
C)assets increase by $5,000 and equity decreases by $5,000
D)assets increase by $5,000 and liabilities increase by $5,000
Answer: B
Q2) Which of the following appears on both the income statement and statement of owner's equity?
A)Ending owner's capital
B)Total revenues
C)Net income
D)Owner's withdrawals
Answer: C
Q3) 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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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Data from a trial balance is used to prepare the income statement,statement of owner's equity,and the balance sheet.
A)True
B)False
Answer: True
Q2) Liabilities are economic resources that are expected to benefit the business in the future.
A)True
B)False
Answer: False
Q3) Which of the following is an asset account?
A)Cash
B)Notes Payable
C)Dividends
D)Unearned Revenue
Answer: A
Q4) A business purchased land for $250,000 cash.Record the transaction in the journal.
Answer: 11ea8a42_4ef0_cd48_8b44_2f8f5f521d10_TB5024_00
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Chapter 3: The Adjusting Process
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Q1) In the case of deferred revenue,the adjusting entry at the end of the period includes a debit to Service Revenue.Assume the deferred revenue is initially recorded as a liability.
A)True
B)False
Answer: False
Q2) A business purchased equipment for $120,000 on January 1,2017.The equipment will be depreciated over the five years of its estimated useful life using the straight-line depreciation method.The business records depreciation once a year on December 31.Which of the following is the adjusting entry required to record depreciation on equipment for the year 2017? (Assume the residual value of the acquired equipment to be zero. )
A)Debit $120,000 to Equipment,and credit $120,000 to Cash.
B)Debit $24,000 to Depreciation Expense-Equipment,and credit $120,000 to Accumulated Depreciation-Equipment.
C)Debit $24,000 to Depreciation Expense-Equipment,and credit $24,000 to Accumulated Depreciation-Equipment.
D)Debit $24,000 to Depreciation Expense,and credit $24,000 to Equipment.
Answer: C
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Chapter 4: Completing the Accounting Cycle
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Q1) In which of the columns of the worksheet would Net Income be found?
A)the unadjusted trial balance credit column,the adjusted trial balance credit column,and the balance sheet credit column
B)the unadjusted trial balance debit column,the adjusted trial balance debit column,and the balance sheet debit column
C)the balance sheet debit column and the income statement credit column
D)the balance sheet credit column and the income statement debit column
Q2) Prepaid Rent is always classified as a long-term asset.
A)True
B)False
Q3) In a balance sheet,assets are classified as either current or long term,depending on their liquidity.
A)True
B)False
Q4) The ending balances in the Owner,Capital and Owner,Withdrawals accounts are shown on the income statement columns of the worksheet.
A)True
B)False
Q5) List the steps of the accounting cycle that take place during the period.
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Chapter 5: Merchandising Operations
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Q1) When preparing the worksheet for a merchandising business using the perpetual inventory system,the main new account is the Merchandise Inventory account.
A)True
B)False
Q2) The normal balances of Sales,Sales Discounts,and Sales Returns and Allowances are
A)debit,credit,and credit,respectively
B)debit,debit,and credit,respectively
C)credit,debit,and debit,respectively
D)credit,credit,and debit,respectively
Q3) If a merchandiser uses the periodic inventory system,it is necessary to conduct a physical count of inventory to determine the quantity of inventory on hand.
A)True
B)False
Q4) Under the terms FOB destination,title to the merchandise will pass to the purchaser when the goods are received by the purchaser.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Q1) List and briefly discuss three measures that can be taken to maintain good controls over merchandise inventory.
Q2) The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory.
A)True
B)False
Q3) A company purchased 400 units for $20 each on January 31.It purchased 520 units for $26 each on February 28.It sold a total of 560 units for $40 each from March 1 through December 31.What is the amount of ending inventory on December 31 if the company uses the first-in,first-out (FIFO)inventory costing method? (Assume that the company uses a perpetual inventory system. )
A)$9,360
B)$4,960
C)$7,200
D)$2,240
Q4) When using the periodic inventory system and weighted-average inventory costing method,when is the weighted average cost per unit computed?
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Chapter 7: Accounting Information Systems
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Q1) In cloud computing,the software and data are stored on the company's server instead of a third-party server.
A)True
B)False
Q2) Liberty Corporation sells a product for $500 cash to Sarah Lewis.This transaction will be recorded in the ________.
A)cash payments journal
B)sales journal
C)cash receipts journal
D)purchase journal
Q3) Which of the following will be recorded in the general journal when using a manual accounting information system?
A)adjusting and closing entries
B)payment of accounts payable
C)purchase of merchandise inventory on account
D)sale of merchandise inventory on account
Q4) Cash purchases are recorded in the purchases journal.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Q1) For the following situation,state whether it represents a strength or weakness in internal control and give the reason for your answer.
Baker Auto Supply purchases merchandise inventory from A & B Company.The accountant places the order,verifies receipt of the merchandise,and records the transaction in the general journal.
Q2) Cash in the bank is more liquid than a petty cash fund.
A)True
B)False
Q3) Campaign Services hired a new accounting manager.He signed a contract for a new accounting information system,but his position did not specify whether he was authorized to do so or not.
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
Q4) When calculating the cash ratio,the numerator includes cash equivalents.
A)True
B)False
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Chapter 9: Receivables
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Q1) The maturity value of a note is the sum of the principal minus interest due at maturity.
A)True
B)False
Q2) When using the allowance method,the write-off of a receivable ________.
A)involves a contra-revenue account
B)reduces the amount of the Allowance for Bad Debts account
C)decreases net income
D)affects the net realizable value
Q3) On November 1,2017,Kelemen Jewelers accepted a 3-month,15% note for $6,000 in settlement of an overdue account receivable.The accounting period ends in December.Give the journal entry to record the accrued interest at the year end.
Q4) Accounts receivable are also known as trade receivables.
A)True
B)False
Q5) Interest on a $60,000 note at 10% for 45 days is $740.(Use a 360 day year.Round your answer to the nearest dollar. )
A)True
B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) A truck costs $320,000 and is expected to be driven 116,000 miles during its five-year life.Residual value is expected to be zero.If the truck is driven 29,000 miles during the first year,how much depreciation should the business record under the units-of-production method? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$98,600
B)$26,680
C)$80,040
D)$51,040
Q2) On January 1,2017,Doyle Manufacturing Corporation purchased a machine for $40,000,000.The corporation expects to use the machine for 24,000 hours over the next six years.The estimated residual value of the machine at the end of the sixth year is $40,000.The corporation used the machine for 3,600 hours in 2017 and 5,000 hours in 2018.Calculate depreciation expense for 2018 if the company uses the units-of-production method of depreciation.
Q3) Depreciation is the allocation of a plant asset's cost to expense over its useful life. A)True B)False
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Chapter 11: Current Liabilities and Payroll
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Questions
Q1) Dana Appliances sells dishwashers with a four-year warranty.In 2017,sales revenue for dishwashers is $90,000.The company estimates warranty expense at 4.5% of revenues.What is the 2017 warranty expense? (Round your final answer to the nearest dollar. )
A)$4,050
B)$1,013
C)$0
D)$3,176
Q2) If the likelihood of a future event is remote,how should the company report the contingency?
Q3) Which of the following accounts is credited by the seller when tax is collected on retail sales?
A)Accounts Payable
B)Payroll Tax
C)Sales Tax Payable
D)Unearned Revenue
Q4) If the likelihood of a future event is probable and the amounts of the expense cannot be estimated,how should the company report the contingency?
Q5) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Partnerships
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Q1) Which of the following statements is true of partnerships?
A)If the partners have no partnership agreement specifying how to divide profits and losses,then they share profits and losses equally.
B)It is legally required to share the profit and losses equally,irrespective of the partnership agreement.
C)The stated ratio of profit sharing needs to be approved by the SEC.
D)The profit sharing is always based on each partner's capital balances and any losses will be shared equally.
Q2) Which of the following is true when a partner withdraws his interest from the partnership?
A)He is obliged to pay a bonus to the existing partners.
B)The existing partners are obliged to pay a bonus to the withdrawing partner.
C)The partner's capital account will be closed.
D)He must get the book-value of his interest.
Q3) Which of the following businesses is most likely to be organized as an LLP?
A)a bookstore run by two partners
B)an international retail chain
C)an accounting firm run by two partners
D)a stationery store owned by an individual
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Chapter 13: Corporations
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Q1) Which of the following is true of a stock split and a stock dividend?
A)A stock split will increase total stockholders' equity,but a stock dividend will not.
B)Neither a stock split nor a stock dividend will increase total stockholders' equity.
C)A stock dividend will increase total stockholders' equity,but a stock split will not.
D)A stock split will decrease retained earnings,but a stock dividend will not.
Q2) Lerner had net income for 2016 of $105,000.Lerner had 39,000 shares of common stock outstanding at the beginning of the year and 48,000 shares of common stock outstanding at the end of the year.There were 5,000 shares of preferred stock outstanding all year.During 2016,Lerner declared and paid preferred dividends of $29,000.On December 31,2106,the market price of Lerner's common stock is $35 per share and the market price of its preferred stock is $63 per share.What is Lerner's price/earnings ratio? (Round any intermediate calculations and your final answer to the nearest cent. )
A)36.00
B)14.50
C)16.00
D)20.00
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Chapter 14: Long-Term Liabilities
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Q1) The effective-interest amortization method allocates an amount of bond discount or premium,based on the market interest rate at issuance,to each interest period over the life of the bond.
A)True
B)False
Q2) On January 1,2017,Toland Sales issued $26,000 in bonds for $20,300.These are eight-year bonds with a stated interest rate of 14% pay semiannual interest.Toland Sales uses the straight-line method to amortize the bond discount.What is the bond carrying amount after the first interest payment on June 30,2017? (Round your intermediate answers to the nearest dollar. )
A)$26,000
B)$17,806
C)$20,656
D)$23,506
Q3) On January 2,2017,Chabot Sales issues $10,000 in bonds for $10,900.These are 5-year bonds with a stated rate of 4%,and pay semiannual interest.Chabot Sales uses the straight-line method to amortize bond premium.Prepare the journal entry for the first interest payment on June 30,2017.
Q4) When computing a bond's cash flow for interest,which interest rate is used? Why?
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Chapter 15: Investments
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Q1) U.S.government securities are ________.
A)real estate investments
B)equity securities
C)debt securities
D)forward contracts
Q2) The fair value method is used to account for available-for-sale investments because they are normally sold in the near future at their current market value.
A)True
B)False
Q3) When a company pays cash for a long-term investment in bonds,________.
A)equity remains unchanged
B)current assets increase
C)liabilities increase
D)total assets increase
Q4) Consolidation accounting is the way to combine the financial statements of two or more companies that have the same owners.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Q1) What does free cash flow represent? How is it used to evaluate business performance?
Q2) The payment of interest on a loan is considered a ________ on a statement of cash flows prepared using the direct method.
A)cash outflow for operating activities
B)cash outflow for investing activities
C)cash outflow for financing activities
D)non-cash activity
Q3) Rubin Installations Company uses the direct method to prepare its statement of cash flows.Rubin has reported cost of goods sold of $95,000 on its income statement for 2017.If the balance in the Merchandise Inventory account decreased by $6,000 during the year,then $6,000 needs to be added to $95,000 to calculate payments to suppliers for inventory purchases.
A)True
B)False
Q4) In practice,most companies face complex situations.In these cases,a spreadsheet can help in preparing the statement of cash flows.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Normally,companies with low gross profit percentages will have low asset turnover.
A)True
B)False
Q2) Extraordinary items are both unusual and infrequent in nature.
A)True
B)False
Q3) A corporation has 3,000 shares,10% preferred stock of $50.00 par preferred stock,and 6,000 shares of common stock outstanding.The net income for the year is $290,000.Calculate earnings per share.(Round your answer to the nearest cent. )
A)$50.00
B)$45.83
C)$48.33
D)$96.67
Q4) The audit report in the annual report attests to the fairness of the presentation of the financial statements.
A)True
B)False
Q5) What is an annual report? Briefly describe the key parts of the annual report.
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Chapter 18: Introduction to Managerial Accounting
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Q1) Unit product costs can be used to measure operating income and determine the cost of Finished Goods Inventory.
A)True
B)False
Q2) One of the primary activities of Rex,Inc.is to purchase hats from Viva,Inc.in Texas and sell them to its customers in Washington for a profit.It is likely that Rex is a ________.
A)manufacturing company
B)hybrid company
C)service company
D)merchandising company
Q3) The entire sequence of activities that add value to a company's products and services is called ________.
A)the value chain
B)the planning process
C)TQM production chain
D)Enterprise Resource Planning
Q4) All costs incurred in the manufacture of final products are product costs.
A)True
B)False
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Chapter 19: 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 $731,000 per year,and it normally has about 8,500 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 $561,000.
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 43 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)$3,698
B)$2,838
C)$1,292,000
D)$6,536
Q2) For a service company,such as an accounting firm,each client is considered a job.
A)True B)False
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Chapter 20: Process Costing
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Q1) Iowa,Inc.purchased raw materials for $6,000 and $25,000 for cash and on account,respectively.Provide the journal entry to record the purchase of raw materials.
Q2) The task of summarizing the flow of physical units is one of the four steps involved in the preparation of the production cost report.
A)True
B)False
Q3) In a production cost report,________ includes the number of units completed and transferred out of a process and the number of units remaining in ending WIP.The weighted-average method is used.
A)total units estimated for B)total units budgeted for C)total units accounted for D)total units to account for
Q4) Production cost reports prepared using the first-in,first-out (FIFO)method assume that the first units started in the production process are the first units completed and transferred out.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Variable costing prepares the income statement using the traditional format.
A)True
B)False
Q2) Which of the following appears as a line item in a contribution margin income statement?
A)Gross profit
B)Cost of goods sold
C)Operating income
D)Selling and administrative expenses
Q3) Bryant Company sells glass vases at a wholesale price of $2.6 per unit.The variable cost of manufacture is $0.35 per unit.The monthly fixed costs are $9,000.Bryant's current sales are 25,000 units per month.If Bryant wants to increase operating income by 25%,how many additional units,must Bryant sell? (Round your intermediate calculations to two decimal places. )
A)47,250 glass vases
B)9,000 glass vases
C)59,063 glass vases
D)5,250 glass vases
Q4) Total variable costs change in direct proportion to changes in the volume of production.
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Chapter 22: Master Budgets
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Q1) The production budget is the first component of the operating budget.
A)True
B)False
Q2) Budgetary slack occurs when managers intentionally overstate expected revenues or understate expected expenses.
A)True
B)False
Q3) The cost accountant works with the office and sales managers to develop the selling and administrative expense budget.
A)True
B)False
Q4) The capital expenditures budget represents the company's plan for purchasing the long-term assets.
A)True
B)False
Q5) Sensitivity analysis is a what-if technique.
A)True
B)False
Q6) List the three sections of the cash budget.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) The fixed overhead volume variance always reveals underallocated fixed overhead costs.
A)True
B)False
Q2) What does the fixed overhead cost variance measure?
Q3) Mountain Sports Equipment Company projected sales of 82,000 units at a unit sales price of $12 for the year.Actual sales for the year were 76,000 units at $14.00 per unit.Variable costs were budgeted at $3 per unit,and the actual amount was $6 per unit.Budgeted fixed costs totaled $376,000,while actual fixed costs amounted to $410,000.What is the sales volume variance for total revenue?
A)$80,000 favorable
B)$80,000 unfavorable
C)$72,000 unfavorable
D)$72,000 favorable
Q4) List three ways in which using a standard cost system helps managers.
Q5) A static budget is prepared for only one level of sales volume.
A)True
B)False
Q6) List the direct labor variances and briefly describe each.
Q7) What does the variable overhead efficiency variance measure?
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Which of the following is the correct formula for the profit margin ratio?
A)Net profit / Sales
B)Net sales / Average total assets
C)Net profit × Capital invested
D)Operating income / Net sales
Q2) Flexible budgets use budgeted (or standard)costs at the actual level of activity.
A)True
B)False
Q3) List the primary goals of performance evaluation systems.
Q4) The limitations of financial performance measures ________.
A)lead management to use a time horizon of more than five years
B)make it difficult for companies to create goal congruence
C)lead management to use the gross book value of assets
D)can be overcome by taking a broader view of performance
Q5) Companies evaluate investment centers using the same measures as the profit centers.
A)True
B)False
Q6) Explain the difference between a controllable and a noncontrollable cost.
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Chapter 25: Short-Term Business Decisions
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Q1) Route Two Tire Company makes a special kind of racing tire.Variable costs are $200 per unit,and fixed costs are $30,000 per month.Route Two sells 500 units per month at a sales price of $300.The company believes that it can increase the price if the tire quality is upgraded.If so,the variable cost will increase to $240 per unit,and the fixed costs will rise by 25%.The CEO wishes to increase the company's operating income by 30%.Which sales price level would give the desired results? (Round your answer to the nearest cent. )
A)$1,020.00 per unit
B)$260.00 per unit
C)$340.00 per unit
D)$367.00 per unit
Q2) Henderson Products is a price-setter that uses the cost-plus pricing approach.The products are specialty components used in industrial equipment.The CEO is certain that the company can produce and sell 500,000 units per year,due to the high demand for the product.Variable costs are $3.25 per unit.Total fixed costs are $860,000 per year.The target operating income for the year is $150,000.What sales price would allow the CEO to achieve the target if the cost-plus pricing method is used? (Round your answer to nearest cent. )Show all computations.
Q3) Define the terms Relevant Cost and Sunk Cost.
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Chapter 26: Capital Investment Decisions
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Q1) The only difference between the present value and future value of a lump sum is the amount of interest that is earned in the intervening time span.
A)True
B)False
Q2) List the steps of the capital budgeting process and identify actions that relate to each step.
Q3) When the internal rate of return is the same as the required rate of return,the net present value of an investment will be positive.
A)True
B)False
Q4) Compound interest assumes that all interest earned will remain invested and earn additional interest at the same interest rate.
A)True
B)False
Q5) Under what circumstances is the investment with the shortest payback the best choice? How should managers use the payback method?
Q6) What are the strengths of the net present value capital budgeting method?
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