Basic Accounting Exam
Answer Key
Course Introduction
Basic Accounting introduces students to the fundamental concepts and principles of accounting, focusing on the systematic recording, summarizing, and interpretation of financial transactions. The course covers essential topics such as the accounting cycle, preparation of financial statements, double-entry bookkeeping, and basic financial analysis. Students will develop practical skills in managing accounts, understanding debits and credits, and applying accounting practices to real-world business scenarios, laying a solid foundation for advanced study in accounting and related fields.
Recommended Textbook
Fundamental Financial Accounting Concepts 10th Edition by Thomas P Edmonds
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13 Chapters
1246 Verified Questions
1246 Flashcards
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Chapter 1: An Introduction to Accounting
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Sample Questions
Q1) Retained earnings reduces a company's commitment to use its assets for the benefit of its stockholders.
A)True
B)False
Answer: False
Q2) Algonquin Company reported assets of $50,000,liabilities of $22,000 and common stock of $15,000.Based on this information only,what is the amount of the company's retained earnings?
A)$7,000.
B)$57,000.
C)$13,000.
D)$87,000.
Answer: C
Q3) Which of the following appears in the investing activities section of the statement of cash flows?
A)Cash inflow from interest revenue
B)Cash inflow from the issuance of common stock
C)Cash outflow for the payment of dividends
D)Cash outflow for the purchase of land
Answer: D
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Chapter 2: Accounting for Accruals and Deferrals
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Sample Questions
Q1) Bledsoe Company acquired $17,000 cash by issuing common stock on January 1,Year
1.During Year 1,Bledsoe earned $8,500 of revenue on account.The company collected $6,000 cash from customers in partial settlement of its accounts receivable and paid $5,400 cash for operating expenses.Based on this information alone,what was the impact on total assets during Year 1?
A)Total assets increased by $20,100.
B)Total assets increased by $600.
C)Total assets increased by $26,100.
D)Total assets did not change.
Answer: A
Q2) On October 1,Year 1,Jason Company paid $7,200 to lease office space for one year beginning immediately.What is the amount of rent expense that will be reported on the Year 1 income statement and what is the cash outflow for rent that would be reported on the Year 1 statement of cash flows?
A)$7,200;$7,200
B)$1,800;$1,800
C)$1,800;$7,200
D)$1,200;$7,200
Answer: C
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Chapter 3: The Double-Entry Accounting System
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Sample Questions
Q1) The employees of Able Company have worked the last two weeks of Year 1,but the employees' salaries have not been paid or recorded as of December 31,Year 1.The adjusting entry that Able should make to accrue these unpaid salaries on December 31,Year 1 is:
A)debit to Salaries Expense and credit to Cash.
B)debit to Salaries Expense and credit to Salaries Payable.
C)debit to Salaries Payable and credit to Salaries Expense.
D)no entry is required until the employee is paid next period.
Answer: B
Q2) The year for which companies prepare their financial statements is their fiscal year. A)True
B)False
Answer: True
Q3) What is the company's return-on-assets ratio?
A)5%
B)10%
C)20%
D)50%
Answer: B
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Chapter 4: Accounting for Merchandising Businesses
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Sample Questions
Q1) With a perpetual inventory system,the cost of merchandise inventory is recognized at the time of purchase.
A)True
B)False
Q2) What is the gross margin that results from these four transactions?
A)$5,100
B)$7,726
C)$6,550
D)$11,074
Q3) What is the chief advantage of the periodic system?
A)Efficiency and ease of recording
B)Immediate feedback on the inventory on hand at any time during the period
C)Timely discovery of losses due to theft
D)Better control over inventory
Q4) With a perpetual inventory system,assets and stockholders' equity increase by the amount of the gross margin when inventory is sold.(Consider the effects of both parts of this event. )
A)True
B)False
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Chapter 5: Accounting for Inventories
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Sample Questions
Q1) Generally accepted accounting principles restrict or limit a company's freedom to change inventory cost flow methods from one year to the next.
A)True
B)False
Q2) Assuming that longer inventory holding periods act to increase expenses,which of the three companies would be expected to have the lowest inventory holding costs?
A)All three companies have equal holding costs
B)Company X
C)Company Y
D)Company Z
Q3) On December 31,Year 1,Owings Corporation overstates the ending inventory by $5,000.How will this affect the amount of retained earnings shown on the balance sheet at December 31,Year 2?
A)Retained Earnings will be correctly stated.
B)Retained Earnings will be understated by $5,000.
C)Retained Earnings will be overstated by $5,000.
D)Cannot be determined with the above information.
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Chapter 6: Internal Control and Accounting for Cash
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Sample Questions
Q1) The Securities and Exchange Commission is authorized to establish and enforce the accounting rules for public companies.
A)True B)False
Q2) Segregation of duties in an organization should be required to reduce the likelihood of theft.
A)True B)False
Q3) Which of the following adjustments reflected on a bank reconciliation would not require an adjusting journal entry?
A)An error in which the company's accountant recorded a check as $235 that was written correctly for $253.
B)A check for $37 deposited during the month,but returned for non-sufficient funds.
C)An error in which the bank charged the company $83 for a check that had been written by another account holder.
D)All of these answer choices would require adjusting journal entries.
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) Which accounting concept can be used by some companies to justify the use of the direct write-off method?
A)The entity concept
B)The materiality concept
C)The going concern concept
D)The monetary principle
Q2) Elliston Company accepted credit card payments for $10,000 of services provided to customers.The credit card company charges a 3% fee for handling the transaction.Which of the following describes the effect of this transaction?
A)Increase revenue by $9,700
B)Increase assets by $10,000
C)Increase stockholders' equity (retained earnings)by $9,700
D)Increase net income by $10,000
Q3) The year-end adjusting entry to accrue interest on a note receivable is an asset source transaction.
A)True
B)False
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Chapter 8: Accounting for Long-Term Operational Assets
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Sample Questions
Q1) The depreciable cost of a long-term asset is the difference between the amount paid for the asset and its salvage value.
A)True
B)False
Q2) Laramie Co.paid $800,000 for a purchase that included land,building,and office furniture.An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land,$100,000,Building,$740,000,and Office Furniture,$160,000.What is the cost that should be allocated to the land?
A)$80,000
B)$70,000
C)$100,000
D)$107,000
Q3) Which of the following would not be classified as property,plant and equipment?
A)Computers
B)Buildings
C)Land
D)Office furniture
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10
Chapter 9: Accounting for Current Liabilities and Payroll
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Sample Questions
Q1) Based on this information alone,what is the amount of total liabilities appearing on Madison's balance sheet as of December 31,Year 1?
A)$24,720
B)$24,800
C)$25,920
D)$24,000
Q2) The issuer of a note payable is also known as the maker.
A)True
B)False
Q3) Which of the following statements is true regarding discount notes?
A)They are recorded in the account "notes payable" at more than face value on the day of issue.
B)They are recorded in the account "notes payable" at face value on the day of issue.
C)They are recorded in the account "notes payable" at less than face value on the day of issue.
D)They are not recorded until the maturity date.
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Chapter 10: Accounting for Long-Term Debt
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Sample Questions
Q1) How much will the company still owe on the loan at the end of Year 2? (Round your final answer to the nearest dollar. )
A)$186,727
B)$184,000
C)$129,090
D)$165,910
Q2) What is the amount of interest expense shown on Jones' income statement for the year ending December 31,Year 1?
A)$16,200
B)$21,000
C)$15,000
D)$13,800
Q3) Assuming Wayne issued the bond for 102.5,what is the amount of interest expense that will be reported on the income statement for the year ending December 31,Year 1?
A)$34,500
B)$36,000
C)$37,500
D)$15,000
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12
Chapter 11: Proprietorships,partnerships,and Corporations
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Sample Questions
Q1) Napoli Industries had net income for Year 2 of $650,000.Napoli had an average number of shares outstanding at the end of the year of 500,000 shares.On January 1,Year 2,the market price of Napoli's stock was $20 per share.On December 31,Year 2,the market price was $22 per share.What is the price-earnings ratio for Napoli at the end of Year 2?
A)16.9
B)16.2
C)15.4
D)None of these answer choices is correct
Q2) Flagler Corporation shows a total of $660,000 in its Common Stock account and $1,600,000 in its Paid-in Capital Excess account.The par value of Flagler's common stock is $8.How many shares of Flagler stock have been issued?
A)117,500
B)200,000
C)82,500
D)The number of shares cannot be determined using the information provided.
Q3) A separate capital account is maintained for each partner in a partnership.
A)True
B)False
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Chapter 12: Statement of Cash Flows
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Sample Questions
Q1) The three main sections of the statement of cash flows are,in order,operating activities,investing activities,and financing activities.
A)True
B)False
Q2) When using the indirect method to complete the cash flows from operating activities section of the statement of cash flows,what is the proper disposition of a loss on disposal of equipment?
A)Disregard the loss because it relates to an investing activity.
B)Disregard the loss because it relates to a financing activity.
C)Add the loss to net income.
D)Subtract the loss from net income.
Q3) The indirect method for preparing the operating activities section of the statement of cash flows begins with the amount of sales revenue reported on the income statement.
A)True
B)False
Q4) Rapid growth of a company can cause it to be short of cash.
A)True
B)False
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) The drawback of studying absolute amounts reported in financial statements is the problem of differing materiality levels.
A)True
B)False
Q2) Which of the following statements regarding the information disclosed in financial statements is not true?
A)The costs of providing all possible information about a firm would be prohibitively high for the business.
B)Some information disclosed in financial statements may be irrelevant to some users.
C)Financial statements should be detailed enough to answer any financial-related question an investor might have.
D)When too much information is presented users may suffer from information overload.
Q3) Factor(s)involved in communicating useful information is (are):
A)Attributes of the users
B)Purpose for which the information will be used
C)Process by which the information is analyzed
D)All of these answers are correct.
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