Accounting II
Study Guide Questions
Course Introduction
Accounting II is an intermediate-level course that builds upon the foundational principles covered in introductory accounting. The course delves deeper into topics such as financial statement analysis, accounting for partnerships, corporate accounting, bonds and long-term liabilities, and the preparation and interpretation of cash flow statements. Students also explore managerial accounting concepts, including cost behavior, budgeting, and performance evaluation. Emphasis is placed on developing analytical and practical skills necessary for understanding more complex accounting scenarios and making informed financial decisions in business environments.
Recommended Textbook
Financial and Managerial Accounting 12th Edition by Carl
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Page 2
S. Warren
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Name and describe the four primary financial statements for a corporation.
Answer: 1. Income Statement: A summary of the revenue and expenses for a specific period of time, such as a month or a year.
2. Retained Earnings Statement: A summary of the changes in retained earnings that have occurred during a specific period of time, such as a month or a year.
3. Balance Sheet: A list of the assets, liabilities, and stockholders' equity as of a specific date, usually at the close of the last day of a month or a year.
4. Statement of Cash Flows: A summary of the cash receipts and cash payments for a specific period of time, such as a month or a year.
Q2) Select the type of business that is most likely to obtain large amounts of resources by issuing stock.
A) partnership
B) corporation
C) proprietorship
D) none of these
Answer: B
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3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) A notation in the post reference column of the general journal indicates that the amount has been posted to the ledger.
A)True
B)False
Answer: True
Q2) The journal includes both debit and credit accounts for each transaction.
A)True
B)False
Answer: True
Q3) The debit side of an account
A) depends on whether the account is an asset, liability or stockholders' equity item
B) can be either side of the account depending on how the accountant set up the system
C) is the right side of the account
D) is the left side of the account
Answer: D
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) An adjusting entry would adjust an expense account so the expense is reported when incurred.
A)True
B)False
Answer: True
Q2) Indicate whether the following error would cause the adjusted trial balance totals to be unequal. If the error would cause the adjusted trial balance totals to be unequal, indicate whether the debit or credit total is higher and by how much.
Answer: The adjustment for accrued fees of $1,170 was journalized as a debit to Accounts Receivable for $1,170 and a credit to Fees Earned for $1,107. The total will be unequal with the debit total higher by $63 ($1,170 - $1,107).
Q3) An adjusting entry would adjust revenue so it is reported when earned and not when cash is received.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) List/describe the four closing entries in the order that they should occur.
Q2) The journal entry to close the Fees Earned, $750, and Rent Revenue, $175, accounts on December 31st during the closing process would be:
A) Dec. 31 Fees Earned 750 Rent Revenue 175 Income Summary 925
B) Dec. 31 Income Summary 925 Fees Earned 750 Rent Revenue 175
C) Dec. 31 Revenues 575 Income Summary 575
D) Dec. 31 Income Summary 925 Revenues 925
Q3) The income statement columns in the worksheet show that debits are equal to $55,800 and credits are $67,520. What does this information mean to the accountant?
A) Net income of $11,720
B) Net loss of $11,720
C) The accounts are out of balance, indicating an error has been made.
D) The accounts have not been updated.
Q4) Prepaid Insurance is an example of a current asset.
A)True
B)False
Q5) Explain how net income or loss is determined by using the work sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) During the current year, merchandise is sold for $137,500 cash and $425,600 on account. The cost of the merchandise sold is $322,325. What is the amount of the gross profit?
Q2) If the seller is to pay the freight costs of delivering merchandise, the delivery terms are stated as
A) FOB shipping point
B) FOB destination
C) FOB n/30
D) FOB seller
Q3) A chart of accounts for a merchandising business
A) usually is the same as the chart of accounts for a service business
B) usually requires more accounts than does the chart of accounts for a service business
C) usually is standardized by the FASB for all merchandising businesses
D) always uses a three-digit numbering system
Q4) In a perpetual inventory system, merchandise returned to vendors reduces the merchandise inventory account.
A)True
B)False
Q5) Discuss the following statement:
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Chapter 6: Inventories
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Sample Questions
Q1) Stevens Company started the year with an inventory cost of $145,000. During the month of January they purchased inventory that cost of $53,000. January sales totaled $140,000. Estimated gross profit is 35%. The estimated ending inventory as of January 31 is
A) $58,000
B) $91,000
C) $107,000
D) $69,300
Q2) Merchandise inventory at the end of the year was understated. Which of the following statements correctly states the effect of the error?
A) net income is understated
B) net income is overstated
C) cost of merchandise sold is understated
D) merchandise inventory reported on the balance sheet is overstated
Q3) The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item, by major classification of inventory, or by the total inventory.
A)True
B)False
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Page 8
Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) On April 2nd, Granger Sales decides to establish a $125.00 Petty Cash Account to relieve the burden on Accounting.
(a) Journalize this event.
(b) On April 10th, the petty cash fund has receipts for mail and postage of $43.50, contributions and donations of $29.50, meals and entertainment of $38.25 and $13.55 in cash. Journalize the replenishment of the fund.
(c) On April 11th, Granger Sales decides to increase petty cash to $200.00. Journalize this event.
Q2) When the petty cash fund is replenished, the petty cash account is credited for the total of all expenditures made since the fund was last replenished.
A)True
B)False
Q3) Which one of the following would not cause a bank to debit a company's account?
A) Bank service charge
B) Collection of a note receivable
C) Checks marked NSF
D) Wiring of funds to other locations
Q4) List the principal advantage of Electronic Funds Transfers.
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Page 9
Chapter 8: Receivables
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Sample Questions
Q1) If the direct write-off method of accounting for uncollectible receivables is used, what general ledger account is debited to write off a customer's account as uncollectible?
A) Uncollectible Accounts Receivable
B) Accounts Receivable
C) Allowance for Doubtful Accounts
D) Bad Debts Expense
Q2) At the end of the current year, Accounts Receivable has a balance of $550,000; Allowance for Doubtful Accounts has a credit balance of $5,500; and net sales for the year total $2,500,000. An analysis of receivables estimates uncollectible receivables as $25,000. Determine the amount of the adjusting entry for bad debt expense and the adjusted balance of Allowance of Doubtful Accounts, respectively.
A) $19,500 and $25,000
B) $30,500 and $525,000
C) $19,500 and $525,000
D) $30,500 and $25,000
Q3) Notes Receivable and Accounts Receivable can also be called trade receivables.
A)True
B)False
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Page 10
Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) When land is purchased to construct a new building, the cost of removing any structures on the land should be charged to the building account.
A)True
B)False
Q2) A fixed asset with a cost of $41,000 and accumulated depreciation of $36,500 is traded for a similar asset priced at $60,000. Assuming a trade-in allowance of $3,000, the recognized loss on the trade is
A) $3,000
B) $4,500
C) $ 500
D) $1,500
Q3) Falcon Company acquired an adjacent lot to construct a new warehouse, paying $40,000 and giving a short-term note for $410,000. Legal fees paid were $13,275, delinquent taxes assessed were $14,500, and fees paid to remove an old building from the land were $15,800. Materials salvaged from the demolition of the building were sold for $6,800. A contractor was paid $890,000 to construct a new warehouse. Determine the cost of the land to be reported on the balance sheet and show your work.
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11
Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) Payroll entries are made with data from the A) wage and tax statement
B) employee's earning record
C) employer's quarterly federal tax return
D) payroll register
Q2) The use of a separate payroll bank account is not an advantageous control, because it creates more complexity in reconciliation functions for a company and invites theft.
A)True
B)False
Q3) A defined contribution plan promises employees a fixed annual pension benefit.
A)True
B)False
Q4) Federal unemployment taxes are paid by the employer and the employee.
A)True
B)False
Q5) Medicare taxes are paid by both the employee and the employer.
A)True
B)False
Q6) List five internal controls that relate directly to payroll.
Page 12
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Chapter 11: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) Those most responsible for the major policy decisions of a corporation are the A) management.
B) board of directors. C) employees.
D) stockholders.
Q2) On April 1, 10,000 shares of $5 par common stock were issued at $22, and on April 7, 5,000 shares of $50 par preferred stock were issued at $104. Journalize the entries for April 1 and 7.
Q3) The day on which the board of directors of the corporation distributes a dividend is called the declaration date.
A)True B)False
Q4) When a corporation issues stock at a premium, it reports the premium as an other income item on the income statement. A)True B)False
Q5) On April 10, a company acquired land in exchange for 1,000 shares of $20 par common stock with a current market price of $73. Journalize this transaction.
Page 13
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) The Designer Company issued 10-year bonds on January 1, 2011. The 6% bonds have a face value of $800,000 and pay interest every January 1 and July 1. The bonds were sold for $690,960 based on the market interest rate of 8%. Designer uses the effective-interest method to amortize bond discounts and premiums. On July 1, 2011, Designer should record interest expense (round to the nearest dollar) of
A) $27,638
B) $24,000
C) $48,000
D) $55,277
Q2) Premium on bonds payable may be amortized by the straight-line method if the results obtained by its use do materially differ from the results obtained by use of the interest method.
A)True
B)False
Q3) There are two methods of amortizing a bond discount or premium: the straight-line method and the double-declining-balance method.
A)True
B)False
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Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) The amount of interest paid when buying a bond as an investment should be credited to Interest Revenue.
A)True
B)False
Q2) The account Valuation Allowance for Trading Securities is found on the:
A) Income statement as Other Revenue (Expenses)
B) Balance sheet as an adjustment to the asset account
C) Balance sheet as an adjustment to Stockholders' Equity
D) Statement of Retained Earnings
Q3) The company whose more than 50% stock is owned by the another company is called the
A) controlling company.
B) investee company.
C) subsidiary company.
D) sibling company.
Q4) Generally accepted accounting principles (GAAP) require the use of fair value accounting for all assets and liabilities.
A)True
B)False
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Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) Which of the following can be found on the statement of cash flows?
A) cash flows from operating activities
B) total assets
C) total changes in stockholders' equity
D) changes in retained earnings
Q2) The acquisition of land in exchange for common stock is an example of noncash investing and financing activity.
A)True
B)False
Q3) Which one of the following below would not be classified as an operating activity?
A) interest expense
B) income taxes
C) payment of dividends
D) selling expenses
Q4) Repayments of bonds would be shown as a cash outflow in the investing section of the statement of cash flows.
A)True
B)False
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) In a common-sized income statement, each item is expressed as a percentage of net income.
A)True
B)False
Q2) Define solvency and profitability. How are they alike?
Q3) In a company's annual report, the section called management discussion and analysis provides critical information in interpreting the financial statements and assessing the future of the company.
A)True
B)False
Q4) The ratio of the sum of cash, receivables, and marketable securities to current liabilities is referred to as the current ratio.
A)True
B)False
Q5) In a common size balance sheet, the 100% figure is:
A) total property, plant and equipment.
B) total current assets.
C) total liabilities.
D) total assets.
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Chapter 16: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) All of the following are ways that managers use managerial information except A) to evaluate the company's stock performance
B) to evaluate the performance of a company's operations
C) to support long-term planning decisions
D) to determine the cost of manufacturing a product
Q2) Costs other than direct materials cost and direct labor cost incurred in the manufacturing process are classified as:
A) factory overhead cost
B) miscellaneous expense
C) product costs
D) period cost
Q3) The cost of materials entering directly into the manufacturing process is classified as factory overhead cost.
A)True
B)False
Q4) Cost of goods sold for a manufacturer equals cost of goods manufactured plus:
A) beginning work in process inventory less ending work in process inventory
B) ending work in process inventory less beginning work in process inventory
C) beginning finished goods inventory less ending finished goods inventory
D) ending finished goods inventory less beginning finished goods inventory
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Chapter 17: Job Order Costing
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Sample Questions
Q1) A process cost accounting system provides for a separate record of the cost of each particular quantity of product that passes through the factory.
A)True
B)False
Q2) Which of the following would probably not be found in the accounting system of a service provider?
A) Cost ledger
B) Finished jobs ledger
C) Deferred revenue account
D) Job cost sheets
Q3) Which of the following would record the labor costs to an individual job?
A) Clock card
B) In-and-out cards
C) Time tickets
D) Payroll register
Q4) Nonmanufacturing costs are generally classified into two categories: selling and administrative.
A)True
B)False
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Chapter 18: Process Cost Systems
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Sample
Questions
Q1) If Department K had 2,500 units, 45% completed, in process at the beginning of the period, 15,000 units were completed during the period, and 1,200 units were 40% completed at the end of the period, what was the number of equivalent units of production for the period for conversion if the first-in, first-out method is used to cost inventories? Assume the completion percentage applies to both direct materials and conversion cost.
A) 16,855
B) 16,605
C) 13,460
D) 14,355
Q2) In the manufacture of 15,000 units of a product, direct materials cost incurred was $165,000, direct labor cost incurred was $105,000, and applied factory overhead was $53,500. What is the total conversion cost?
A) $270,000
B) $158,500
C) $323,500
D) $53,500
Q3) Explain the concept of equivalent units. Give an example to validate your explanation.
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Page 20
Chapter 19: Cost Behavior and Cost-Volume-Profit Analysis
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Q1) Zipee Inc.'s unit selling price is $90, the unit variable costs are $40.50, fixed costs are $170,000, and current sales are 12,000 units. How much will operating income change if sales increase by 5,000 units?
A) $125,000 decrease
B) $175,000 increase
C) $75,000 increase
D) $247,500 increase
Q2) Variable costs are costs that vary on a per-unit basis with changes in the activity level.
A)True
B)False
Q3) Only a single line, which represents the difference between total sales revenues and total costs, is plotted on the cost-volume-profit chart.
A)True
B)False
Q4) Unit variable cost does not change as the number of units of activity changes.
A)True
B)False
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21
Chapter 20: Variable Costing for Management Analysis
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Q1) Variable costs are $80 per unit, and fixed costs are $40,000. Sales are estimated to be 4,000 units. (a) How much would absorption costing income from operations differ between a plan to produce 4,000 units and a plan to produce 5,000 units? (b) How much would variable costing income from operations differ between the two production plans?
Q2) Variable costing is also known as direct costing.
A)True
B)False
Q3) Property taxes on a factory building would be included as part of the cost of products manufactured under the absorption costing concept.
A)True
B)False
Q4) If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to increase the sales of that product with the highest contribution margin.
A)True
B)False
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22
Chapter 21: Budgeting
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Q1) To meet projected annual sales, Greenleaf Manufacturers, Inc. needs to produce 75,000 machines for 2012. The estimated January 1, 2012, inventory is 7,000 units, and the desired December 31, 2012, inventory is 12,000 units. What are projected sales units for 2012?
Q2) The cash budget summarizes future plans for acquisition of fixed assets.
A)True
B)False
Q3) Describe a master budget and the sequence in which the individual budgets within the master budget are prepared.
Q4) For February, sales revenue is $700,000; sales commissions are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $80,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,500 plus 1/2 of 1% of sales. Total selling expenses for the month of February are:
A) $151,000
B) $227,500
C) $225,000
D) $231,000
Q5) Describe at least five benefits of budgeting.
Q6) Why is the sales budget usually prepared first?
Page 23
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Chapter 22: Performance Evaluation Using Variances From
Standard Costs
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Q1) The formula to compute direct labor rate variance is to calculate the difference between
A) actual costs + (actual hours * standard rate)
B) actual costs - standard cost
C) (actual hours * standard rate) - standard costs
D) actual costs - (actual hours * standard rate)
Q2) Tippi Company produces lamps that require 2.25 standard hours per unit at an hourly rate of $15.00 per hour. If 7,700 units required 17,550 hours at an hourly rate of $15.20 per hour, what is the direct labor (a) rate variance, (b) time variance, and (c) cost variance?
Q3) The Flapjack Corporation had 8,200 actual direct labor hours at an actual rate of $12.40 per hour. Original production had been budgeted for 1,100 units, but only 1,000 units were actually produced. Labor standards were 7.6 hours per completed unit at a standard rate of $13.00 per hour. Compute the labor rate variance.
A) 4,920U
B) 4,920F
C) 4,560U
D) 4,560f
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Chapter 23: Performance Evaluation for Decentralized Operations
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Q1) The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.
A)True
B)False
Q2) Operating expenses incurred for the entire business as a unit that are not subject to the control of individual department managers are called indirect expenses.
A)True
B)False
Q3) Investment centers differ from profit centers in that they
A) are responsible for net income only.
B) are able to invest in assets.
C) have less responsibilities than cost centers and profit centers.
D) are only responsible for revenues.
Q4) A responsibility center in which the authority over and responsibility for costs and revenues is vested in the department manager is termed a profit center.
A)True B)False
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Chapter 24: Differential Analysis and Product Pricing
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Q1) In using the variable cost concept of applying the cost-plus approach to product pricing, fixed manufacturing costs and both fixed and variable selling and administrative expenses must be covered by the markup.
A)True
B)False
Q2) Activity-based costing is determined by charging products for only the services (activities) they used during production.
A)True
B)False
Q3) In using the product cost concept of applying the cost-plus approach to product pricing, selling expenses, administrative expenses, and profit are covered in the markup.
A)True
B)False
Q4) The Owl Company produces and sells Product X at a total cost of $35 per unit, of which $28 is product cost and $7 is selling and administrative expenses. In addition, the total cost of $35 is made up of $24 variable cost and $11 fixed cost. The desired profit is $6 per unit. Determine the mark up percentage on product cost.
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Chapter 25: Capital Investment Analysis
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Sample Questions
Q1) A series of equal cash flows at fixed intervals is termed a(n):
A) present value index
B) price-level index
C) net cash flow
D) annuity
Q2) If in evaluating a proposal by use of the net present value method there is a deficiency of the present value of future cash inflows over the amount to be invested, the proposal should be rejected.
A)True
B)False
Q3) The expected average rate of return for a proposed investment of $500,000 in a fixed asset, with a useful life of four years, straight-line depreciation, no residual value, and an expected total net income of $240,000 for the 4 years, is:
A) 18%
B) 48%
C) 24%
D) 12%
Q4) What is capital investment analysis? Why are capital investment analysis decisions often difficult and risky?
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Chapter 26: Cost Allocation and Activity-Based Costing
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Q1) When a plantwide factory overhead rate is used, overhead costs are applied to all products by a single rate.
A)True
B)False
Q2) Which of the following is a cost pool used with the activity-based costing method?
A) total selling and administrative overheads
B) direct material dollars
C) total factory overheads
D) production setups
Q3) A single plantwide overhead rate method is very expensive to apply.
A)True
B)False
Q4) Service companies can effectively use activity-based costing to compute product (service) costs.
A)True B)False
Q5) Activity cost pools are cost accumulations associated with a given activity. A)True
B)False
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Chapter 27: Cost Management for Just-In-Time
Environments
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Sample Questions
Q1) Sifton Electronics Corporation manufactures and assembles electronic motor drives for video cameras. The company assembles the motor drives for several accounts. The process consists of a just-in-time cell for each customer. The following information relates only to one customer's just-in-time cell for the coming year. Projected labor and overhead, $7,370,000; materials costs, $28 per unit. Planned production included 4,000 hours to produce 27,500 motor drives. Actual production for August was 1,600 units, and motor drives shipped amounted to 1,380 units. From the foregoing information, determine the manufacturing cost per unit.
A) $240.00
B) $268.00
C) $296.00
D) $1,870.50
Q2) Which of the following is considered non-value-added lead time?
A) packing
B) moving from process to process
C) converting raw materials to finished product
D) all of the above
Q3) In a just-in-time (JIT) environment, operations only respond to customer orders.
A)True
B)False
Page 29
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