Basic Accounting Test Preparation
Course Introduction
Basic Accounting introduces students to the fundamental principles and concepts of accounting, focusing on the preparation, analysis, and interpretation of financial statements. The course covers essential topics such as the accounting cycle, double-entry bookkeeping, recording transactions, adjusting entries, and the preparation of balance sheets, income statements, and cash flow statements. Emphasis is placed on understanding the role of accounting in business decision-making and providing students with practical skills necessary for maintaining accurate financial records. This foundational knowledge is essential for students pursuing further studies in business, finance, or accounting-related fields.
Recommended Textbook
Fundamental Accounting Principles 23rd Edition by John Wild
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27 Chapters
5793 Verified Questions
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Page 2
Chapter 1: Accounting in Business
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291 Verified Questions
291 Flashcards
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Sample Questions
Q1) Describe the income statement and the relation between revenues, expenses, and net income or loss.
Answer: The income statement describes a company's revenues and expenses along with the resulting net income or loss over a period of time due to earnings activities. Revenues are the increases in equity from sales of products and services to customers. Expenses are the costs of providing products and services to customers. When revenues exceed expenses, net income occurs. When expenses exceed revenues, a net loss occurs.
Q2) External users include lenders, shareholders, customers, and regulators.
A)True
B)False
Answer: True
Q3) All of the following regarding a Certified Public Accountant are true except:
A) Must meet education and experience requirements.
B) Must pass an examination.
C) May also be a Certified Management Accountant.
D) Must exhibit ethical character.
E) Cannot hold any certificate other than a CPA.
Answer: E
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Page 3
Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) If cash was incorrectly debited for $100 instead of correctly crediting it for $100, the cash account's balance will be overstated (too high).
A)True
B)False
Answer: True
Q2) If Jerry made no investments in the business but withdrew $5,000 during the year, what was the amount of net income earned by Jerry's Butcher Shop?
Answer: Beginning owner's equity = $114,000 - $68,000 = $46,000 Ending owner's equity = $135,000 - $73,000 = $62,000 Increase in owner's equity = $62,000 - $46,000 = $16,000
Net income = $16,000 + $5,000 = $21,000
Q3) Neither U.S. GAAP nor IFRS require the use of accrual basis accounting.
A)True
B)False
Answer: False
Q4) The right side of an account is called the debit side.
A)True
B)False
Answer: False
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Page 4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) If a company mistakenly forgot to record depreciation on office equipment at the end of an accounting period, the financial statements prepared at that time would show:
A) Assets, net income, and equity understated.
B) Assets overstated and equity understated.
C) Assets and equity both understated.
D) Assets, net income, and equity overstated.
E) Assets overstated, net income understated, and equity overstated.
Answer: D
Q2) A broad principle that requires identifying the activities of a business with specific time periods such as months, quarters, or years is the:
A) Time period assumption.
B) Operating cycle of a business.
C) Going-concern assumption.
D) Accrual basis of accounting.
E) Expense recognition (matching) principle.
Answer: A
Q3) ________ revenues are liabilities requiring delivery of products and for services.
Answer: Unearned
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The steps in the closing process are (1) close credit balances in revenue accounts to Income Summary; (2) close debit balances in expense accounts to Income Summary; (3) close Income Summary to Owner's Capital; (4) close Withdrawals to Owner's Capital.
A)True
B)False
Q2) Two common subgroups for liabilities on a classified balance sheet are:
A) Current liabilities and intangible liabilities.
B) Current liabilities and long-term liabilities.
C) Present liabilities and operating liabilities.
D) General liabilities and specific liabilities.
E) Intangible liabilities and long-term liabilities.
Q3) Closing entries are required at the end of each accounting period to close all ledger accounts.
A)True
B)False
Q4) The first step in the accounting cycle is to analyze transactions and events to prepare for journalizing.
A)True
B)False
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Chapter 5: Accounting for Merchandising Operations
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256 Verified Questions
256 Flashcards
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Sample Questions
Q1) The gross margin ratio equals net sales less ________ divided by net sales.
Q2) Delivery expense is reported as part of general and administrative expense in the seller's income statement.
A)True
B)False
Q3) Describe the recording process (including costs) for the types of transactions associated with sales of merchandise inventory using a perpetual inventory system.
Q4) A journal entry with a debit to cash of $980, a debit to Sales Discounts of $20, and a credit to Accounts Receivable of $1,000 means that a customer has taken a 10% cash discount for early payment.
A)True
B)False
Q5) Under the net method of recording purchases, the Discounts Lost account is used when the purchaser fails to take a discount offered by the seller.
A)True
B)False
Q6) What is inventory shrinkage? How do managers account for shrinkage?
Q7) Identify and explain the key components of a merchandiser's net income.
Page 7
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Chapter 6: Inventories and Cost of Sales
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Sample Questions
Q1) Hasham purchases inventory from overseas and incurs the following costs: the merchandise cost is $80,000, credit terms 1/10, n/30, applicable only to the $80,000; FOB shipping point freight charges are $2,500; insurance during transit is $300; and import duties are $1,500. Hasham paid within the discount period. Compute the cost that should be assigned to the inventory.
A) $83,500
B) $81,700
C) $84,300
D) $79,200
E) $81,000
Q2) What specific costs and deductions are used to determine the final cost of merchandise inventory? Identify all costs including the incidental costs.
Q3) Regardless of what inventory method or system is used, cost of goods available for sale must be allocated between ________ and ________.
Q4) Errors in the period-end inventory balance only affect the current period's records and financial statements.
A)True
B)False
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Page 8
Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The following information is available for Napa, Inc. (all amounts are in millions):
\[\begin{array} { | l | r | r | r | }
\hline& \text { U.s. } & \text { Canada. } & \text { Europe } \\
\hline \text { Segment sales } & \$ 7,745 & \$ 8,940 & \$ 4.780 \\
\hline \text { Segment operating income } & 2,320 & 2,455 & 595 \\
\hline \text { Segment average assets } & 5,590 &8 . 7 5 0 & 1,480 \\
\hline
\end{array}\] a. Determine the segment return on assets for each geographic segment. b. Comment on the results. How do the segments compare with respect to profitability?
Q2) Doughton Furniture Company purchased merchandise on credit from Furniture Supply for $8,000. Two days later Doughton returned $2,000 of the merchandise due to damage. Doughton would record the return of merchandise in the:
A) Cash disbursements journal.
B) General journal.
C) Purchases journal.
D) Accounts Payable controlling account.
E) Cash receipts journal.
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Chapter 8: Cash and Internal Controls
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Sample Questions
Q1) Based on this information, the amount of cash in the fund before the replenishment is:
A) $32.
B) $40.
C) $260.
D) $300.
E) $48.
Q2) Outstanding checks are checks the bank has paid and deducted from the customer's account during the month.
A)True
B)False
Q3) An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):
A) Bank audit.
B) Internal audit.
C) Analysis of debits and credits.
D) Bank reconciliation.
E) Trial reconciliation.
Q4) Explain the difference between cash and cash equivalents.
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Chapter 9: Accounting for Receivables
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Sample Questions
Q1) Gemstone Products allows customers to use bank credit cards to charge purchases. The bank used by Gemstone Products processes all bank credit cards in exchange for a 3% processing fee and all credit card receipts deposited are credited to the company account on the day of deposit. Assume that on January 18, Gemstone Products sold and deposited $18,000 worth of bank credit card receipts. Prepare the general journal entry to record this transaction.
Q2) A company received a $15,000, 90-day, 10% note receivable. The journal entry to record receipt of the note includes a debit to Notes Receivable.
A)True
B)False
Q3) A company borrowed $10,000 by signing a six-month promissory note at 5% interest. The amount of interest to be paid at maturity is $25.
A)True
B)False
Q4) A ________ is a signed agreement to pay a specified amount of money either on demand or at a definite future date.
Q5) __________refers to the expected proceeds from converting an asset into cash.
Q6) Explain how to record the receipt (acceptance) of a note receivable.
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Chapter 10: Plant Assets Natural Resoures and Intangibles
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Sample Questions
Q1) A company had net sales of $1,540,500 in 2015 and $1,495,000 in 2016. Its average assets were $810,000 for 2015 and $800,000 for 2016. (1) Calculate the total asset turnover for each year. (2) Interpret and comment on the company's efficiency in the use of its assets.
Q2) Natural resources may be reported under either plant assets or their own separate category on the balance sheet.
A)True
B)False
Q3) When an asset is purchased (or disposed of) at a time other than the beginning or the end of an accounting period, depreciation is recorded for part of a year so that the year of purchase or the year of disposal is charged with its share of the asset's depreciation.
A)True
B)False
Q4) How is the cost principle applied to plant asset acquisitions, including lump-sum purchases?
Q5) Capital expenditures that extend an asset's useful life beyond its original estimate are called________.
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Chapter 11: Current Liabilities and Payroll Accounting
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Sample Questions
Q1) Athena Company's salaried employees earn two weeks of vacation per year. It pays $858,000 in total employee salaries for 52 weeks but its employees work only 50. Record Athena Company's weekly journal entry to record the vacation expense:
A) Debit Vacation Benefits Expense $17,160; credit Vacation Benefits Payable $17,160.
B) Debit Vacation Benefits Payable $16,500; credit Vacation Benefits Expense $16,500.
C) Debit Vacation Benefits Payable $660; credit Vacation Benefits Expense $660.
D) Debit Vacation Benefits Expense $16,500; credit Vacation Benefits Payable $16,500.
E) Debit Vacation Benefits Expense $660; credit Vacation Benefits Payable $660.
Q2) The state unemployment tax rates applied to an employer are adjusted according to an employer's merit rating.
A)True B)False
Q3) Drake Company pays its employees for two weeks of vacation each year. The total annual cost of the vacation benefit is $109,920. Prepare the journal entry to record the monthly accrued vacation expense.
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13
Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) Discuss the options for the allocation of income and loss among partners, including with and without a partnership agreement.
Q2) A partnership that has at least two classes of partners, general and limited, allows the limited partners to have no personal liability beyond the amounts they invest in the partnership, and the limited partners have no active role except as specified in the partnership agreement is a __________partnership.
Q3) If a partner withdraws from a partnership and the recorded value of his or her equity is overstated, then a bonus goes to ; if the recorded value of the withdrawing partner's equity is understated, then a bonus goes to ________.
Q4) Pat and Nicole formed Here & There as a limited liability company. Unless the member owners elect to be treated otherwise, the Internal Revenue Service will tax the LLC as:
A) A joint venture.
B) An S corporation.
C) A partnership.
D) A C corporation.
E) A non-taxable entity.
Q5) What factors should be considered before establishing a partnership?
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) The date the directors vote to declare and pay a dividend is called the:
A) Date of declaration.
B) Date of payment.
C) Date of stockholders' meeting.
D) Date of record.
E) Liquidating date.
Q2) The price-earnings ratio reveals information about the stock market's expectations for a company's future earnings growth.
A)True
B)False
Q3) Preferred stock which confers rights to prior periods' unpaid dividends even if they were not declared is called:
A) Noncumulative preferred stock.
B) Participating preferred stock.
C) Cumulative preferred stock.
D) Convertible preferred stock.
E) Callable preferred stock.
Q4) What is a stock split? How is a stock split different from a stock dividend?
Q5) ________ are corrections of material errors in prior period financial statements.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7%, bonds that pay interest semiannually on January 1 and July 1. The bond issue price is $3,197,389 and the market rate of interest for similar bonds is 8%. The bond premium or discount is being amortized using the straight-line method at a rate of $10,087 every six months. The life of these bonds is:
A) 30 years.
B) 26.5 years.
C) 35 years.
D) 32 years
E) 15 years.
Q2) Describe the recording procedures for the issuance, retirement, and paying of interest for installment notes.
Q3) Operating leases are long-term or noncancelable leases in which the lessor transfers substantially all the risks and rewards of ownership to the lessee.
A)True
B)False
Q4) ___________leases are short-term or cancelable leases in which the lessor retains the risks and rewards of ownership.
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Page 16
Chapter 15: Investments
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Sample Questions
Q1) A company has net income of $250,000, net sales of $2,000,000, and average total assets of $1,500,000. Its return on total assets equals:
A) 12.5%.
B) 75.0%.
C) 600.0%.
D) 16.7%.
E) 13.3%.
Q2) Long-term investments in debt securities not classified as trading or held-to-maturity securities are classified as available-for-sale securities.
A)True B)False
Q3) A company reported net income for Year 1 of $98,000 and $106,000 for Year 2. It also reported net sales of $835,000 in Year 1 and $918,000 in Year 2. The company's average total assets in Year 1 were $1,850,000 and $1,720,000 in Year 2. Calculate the company's profit margin, total asset turnover and return on total assets for Year 1 and Year 2. Comment on the results.
Q4) A company that is a controlling investor in another company is known as the ________.
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Page 17
Chapter 16: Reporting the Statement of Cash Flows
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Sample Questions
Q1) A cash equivalent must be readily convertible to a known amount of cash, and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.
A)True
B)False
Q2) Managers only use the cash flow statement to evaluate the net cash increase or decrease, and do not pay much attention to the details of cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities.
A)True
B)False
Q3) The use of a spreadsheet for analysis is especially useful when preparing the statement of cash flows using the ________ method.
Q4) Equipment costing $200,000 with accumulated depreciation of $160,000 is sold at a loss of
$10,000. This implies that $30,000 cash was received from the sale. A)True
B)False
Q5) Explain how cash flows from investing and financing activities are determined.
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Chapter 17: Analysis of Financial Statements
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Sample Questions
Q1) Net sales divided by average total assets is the:
A) Sales return ratio.
B) Total asset turnover.
C) Profit margin.
D) Return on total assets.
E) Current ratio.
Q2) External users of accounting information make the strategic and operating decisions of a company.
A)True
B)False
Q3) One purpose of financial statement analysis for internal users is to provide strategic information to improve company efficiency and effectiveness in providing products and services.
A)True
B)False
Q4) Identify and explain the four building blocks of financial statement analysis.
Q5) The comparison of a company's financial condition and performance to a base amount is known as
Q6) Describe ratio analysis including its purpose, application, and interpretation.
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Chapter 18: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Current information for the Stellar Corporation follows:
\[\begin{array} { l | r }
\text { Beginning work in process inventory } & \$ 17,900 \\
\hline \text { Ending work in process inventory } & 19,300 \\
\hline \text { Direct materials } & 147,000 \\
\hline \text { Direct labor } & 85,000
\end{array}\] \[\begin{array} { l | r }
\text { Beginning work in process inventory } & \$ 17,900 \\
\hline \text { Ending work in procests inventory } & 19,300 \\
\hline \text { Direct materials } & 147,000 \\
\hline \text { Direct labor } & \mathbf { 8 5 , 0 0 0 } \\
\hline
\end{array}\]
Stellar Corporation's Cost of Goods Manufactured for the year is:
A) $293,700.
B) $313,000.
C) $295,100.
D) $275,800.
E) $296,500.
Q2) List the four goals of an internal control system.
Page 20
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Chapter 19: Job Order Costing
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Sample Questions
Q1) Explain how a service firm, such as an advertising agency, might use job order costing.
Q2) A job order costing system would be appropriate for a manufacturer of automobile tires.
A)True
B)False
Q3) A job order costing system would best fit the needs of a company that makes:
A) Custom machinery.
B) Cement.
C) Shoes and apparel.
D) Pencils and erasers.
E) Paint.
Q4) What amount will Andrew debit to Work in Process Inventory for the month of March?
A) $154,000
B) $33,000
C) $141,000
D) $165,000
E) $13,000
Q5) When factory payroll for indirect labor is assigned, ________ is debited.
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Chapter 20: Process Costing
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Sample Questions
Q1) Which of the following characteristics does not usually apply to process operations systems?
A) Different managers are responsible for different processes.
B) The output of all processes except the final process is an input to the next process.
C) Each unit of product is separately identifiable.
D) Costs are computed using equivalent units.
E) Partially completed products are transferred between processes.
Q2) In process costing, direct labor includes only the labor that is applied directly to individual units of product.
A)True
B)False
Q3) Prepare the required general journal entries to record the following transactions for the Ringer Company.
a. Purchased $40,000 of raw materials on account.
b. Used $12,000 of direct materials in the production department.
c. Used $5,000 of indirect materials.
Q4) In a manufacturing operation with two process departments (1 and 2), the flow of costs would proceed from Work in Process, Department #1 to ________.
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Page 22
Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The Goldfarb Company manufactures and sells toasters. Each toaster sells for $23.75 and the variable cost per unit is $16.25. Goldfarb's total fixed costs are $25,000, and budgeted sales are 8,000 units. What is the contribution margin per unit?
A) $16.25.
B) $23.75.
C) $1.25.
D) $7.50.
E) $60,000.
Q2) The contribution margin per composite unit for the current sales mix (round to the nearest cent) is:
A) $ 5.67.
B) $20.00.
C) $25.00.
D) $37.00.
E) $17.00.
Q3) The relevant range of operations includes extremely high and low levels of production that are unlikely to occur.
A)True
B)False
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Chapter 22: Master Budgets and Planning
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Sample Questions
Q1) The process of planning future business actions and expressing them as a formal plan is called:
A) Variance analysis.
B) Budgeting.
C) Cost accounting.
D) Managerial accounting.
E) Standard cost analysis.
Q2) The budgeted production units for January are:
A) 3,120 units.
B) 2,880 units.
C) 3,720 units.
D) 3,420 units.
E) 3,000 units.
Q3) The most useful budget figures are developed:
A) By the budget committee.
B) From the "bottom-up" following a participatory process.
C) By the CEO.
D) After the accounting period has begun.
E) From the "top-down".
Q4) What is a cash budget? How can management use a cash budget?
Page 24
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) A company provided the following direct materials cost information. Compute the direct materials price variance. \(\text {Standard costs assigned:}\) \(\begin{array}{llr}
\text {Direct materials standard cost \( (405,000 \) units @\$2.00/unit) } & \$ 810,000\\
\text { Actual costs:} &\\
\text {Direct Materials costs incurred ( 403,750 units @\$2.20/unit) } &\$ 888,250 \end{array}\)
A) $81,000 Unfavorable.
B) $80,750 Favorable.
C) $78,250 Favorable.
D) $80,750 Unfavorable.
E) $81,000 Favorable.
Q2) A cost variance is the difference between actual cost and standard cost. A)True B)False
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Chapter 24: Performance Measurement and Responsibility Accounting
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Sample Questions
Q1) Regardless of the system used in departmental cost analysis:
A) Direct costs are allocated, indirect costs are not.
B) Indirect costs are allocated, direct costs are not.
C) Neither direct nor indirect costs are allocated.
D) Total departmental costs will always be the same.
E) Both direct and indirect costs are allocated.
Q2) Kragle Corporation reported the following financial data for one of its divisions for the year; average invested assets of $470,000; sales of $930,000; and income of $105,000. The investment turnover is:
A) 1.98.
B) 50.5.
C) 447.6.
D) 11.3.
E) 22.3.
Q3) ________ are costs incurred to produce or purchase two or more products at the same time.
Q4) Return on investment is a useful measure to evaluate the performance of a cost center manager.
A)True
B)False
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Chapter 25: Capital Budgeting and Managerial Decisions
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Sample Questions
Q1) Identify at least three reasons for managers to favor the internal rate of return (IRR) over other capital budgeting approaches.
Q2) Epsilon Co. can produce a unit of product for the following costs: \(\begin{array}{llr}
\text { Direct material} &\$8\\
\text { Direct labor} &24\\
\text { Overhead } &40\\
\text {Total costs per unit } &\$72 \end{array}\)
An outside supplier offers to provide Epsilon with all the units it needs at $60 per unit. If Epsilon buys from the supplier, the company will still incur 40% of its overhead. Epsilon should choose to:
A) Buy since the relevant cost to make it is $56.
B) Make since the relevant cost to make it is $48.
C) Buy since the relevant cost to make it is $48.
D) Make since the relevant cost to make it is $56.
E) Buy since the relevant cost to make it is $72.
Q3) ________ is the process of analyzing alternative long-term investments and deciding which assets to acquire or sell.
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Chapter 26: Present and Future Values in Accounting
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Sample Questions
Q1) Explain the concept of the present value of a single amount.
Q2) Jackson has a loan that requires a $17,000 lump sum payment at the end of four years. The interest rate on the loan is 5%, compounded annually. How much did Jackson borrow today? (<sup>PV</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, <sup>FV</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, <sup>PVA</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>, and <sup>FVA</sup><sup> </sup><sup>of</sup><sup> </sup><sup>$1</sup>) (Use appropriate factor(s) from the tables provided.)
A) $15,343
B) $11,504
C) $16,150
D) $13,986
E) $13,600
Q3) A company is setting aside $21,354 today, and wishes to have $30,000 at the end of three years for a down payment on a piece of property. What interest rate must the company earn?
Q4) A company has $46,000 today to invest in a fund that will earn 4% compounded annually. How much will the fund contain at the end of 6 years?
Q5) ________ is a borrower's payment to the owner of an asset for its use.
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Chapter 27: Activity-Based Costing
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Sample Questions
Q1) In activity-based costing, all overhead is lumped together and a predetermined overhead rate per unit of an allocation base, is computed and used to assign overhead to jobs and processes.
A)True
B)False
Q2) An activity ________ is a temporary account accumulating the costs a company incurs to support an identified set of activities.
Q3) According to the activity-based costing system, the total overhead cost for producing the 340 units of the J71B product is:
A) $17,957.92
B) $30,972.72
C) $15,504.00
D) $21,622.72
E) $37,126.72
Q4) Activity cost pools are not a necessary part of the allocation of overhead costs using activity-based costing.
A)True
B)False
Q5) Briefly describe the process of activity-based costing.
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