Fundamentals of Accounting Solved Exam Questions
Course Introduction
Fundamentals of Accounting introduces students to the core principles and practices that form the basis of financial and managerial accounting. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, recording transactions, and the role of accounting in business decision-making. Students also learn about the conceptual framework of accounting, generally accepted accounting principles (GAAP), and the ethical issues surrounding financial reporting. By mastering these foundational concepts, students gain the skills necessary to understand and interpret financial information critical to both individuals and organizations.
Recommended Textbook
Financial and Managerial Accounting 12th Edition by
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Page 2
Carl S. Warren
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Krammer Company has liabilities equal to one fourth of the total assets. Krammer's stockholders' equity is $45,000. Using the accounting equation, what is the amount of liabilities for Krammer?
Answer: Assets = Liabilities + Stockholders' Equity
4x = x + $45,000
3x = $45,000
x = $15,000 in liabilities
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
Q3) Collins Landscape Company purchased various landscaping supplies on account to be used for landscape designs for its customers. How will this business transaction affect the accounting equation?
Answer: Increase in Assets (Supplies) and increase in Liabilities (Accounts Payable)
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3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) A proof of the equality of debits and credits in the ledger at the end of an accounting period is called a balance sheet.
A)True
B)False
Answer: False
Q2) A dividends account records amounts paid to stockholders.
A)True
B)False
Answer: True
Q3) Which of the following accounts are debited to record increase in balances?
A) assets and liabilities
B) dividends and liabilities
C) expenses and liabilities
D) assets and expenses
Answer: D
Q4) Journal entries can have more than two accounts as long as the debits equal the credits.
A)True
B)False
Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) When is the adjusted trial balance prepared?
A) before adjusting journal entries are posted
B) after adjusting journal entries are posted
C) after the adjusting journal entries are journalized
D) before the adjusting journal entries are journalized
Answer: B
Q2) A fixed asset's market value is reflected in the Balance Sheet.
A)True
B)False
Answer: False
Q3) What is the purpose of an adjusted trial balance? What types of errors does it detect? What types of errors does it not detect?
Answer: The purpose of an adjusted trial balance is to make sure that debits equal credits before financial statements are prepared. If a debit is incorrectly posted as a credit or visa versa, the error will be detected. Likewise, if the debit(s) and credit(s) for a posted transaction do not equal, that error will be detected. Errors that will not be detected include entirely omitting a required adjusting entry or posting a debit or credit for the correct amount to the wrong account.
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) On September 1, the company pays rent for twelve months in advance and debits an asset account. At year end, the adjusting entry on the work sheet would
A) increase an expense account
B) decrease a liability account
C) increase an asset account
D) decrease an expense account
Q2) Accrued expenses are ordinarily listed on the balance sheet as current assets.
A)True
B)False
Q3) Once an account has been closed for the period, inserting a line in the balance columns zeros out the account, making it ready for the following period.
A)True
B)False
Q4) The entry to close the appropriate insurance account at the end of the accounting period is
A) debit Income Summary; credit Prepaid Insurance
B) debit Prepaid Insurance; credit Income Summary
C) debit Insurance Expense; credit Income Summary
D) debit Income Summary; credit Insurance Expense
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Sampson Co. sold merchandise to Batson Co. on account, $46,000, terms 2/15, net 45. The cost of the merchandise sold is $38,500. Sampson Co. issued a credit memo for $1,500 for merchandise returned that originally cost $950. The Batson Co. paid the invoice within the discount period. Prepare the entries that both Sampson and Batson Companies would record for the above. Assume both Sampson and Batson use a perpetual inventory system.
Q2) Maxi Company's perpetual inventory records indicate that $820,300 of merchandise should be on hand on October 31, 2014. The physical inventory indicates that $781,900 is actually on hand. Journalize the adjusting entry for the inventory shrinkage for Maxi Company for the year ended October 31, 2014.
Q3) A sales invoice included the following information: merchandise price, $10,000; freight, $900; terms 1/10, n/eom, FOB shipping point. Assuming that a credit for merchandise returned of $500 is granted prior to payment and that the invoice is paid within the discount period, what is the amount of cash that should be received by the seller?
A) $10,305
B) $9,500
C) $9,306
D) $9,900
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Page 7
Chapter 6: Inventories
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Sample Questions
Q1) Under the _________ inventory method, accounting records maintain a continuously updated inventory value.
A) retail
B) periodic
C) physical
D) perpetual
Q2) If the cost of an item of inventory is $60 and the current replacement cost is $75, the amount included in inventory according to the lower of cost or market is
A) $15
B) $60
C) $75
D) $135
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
Q4) List three different security measures taken by stores to safeguard inventory.
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Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) A $100 petty cash fund contains $91 in petty cash receipts, and $4.75 in currency and coins. The journal entry to record the replenishment of the fund would include a
A) credit to Petty Cash for $95.75.
B) credit to Cash for $90.
C) debit to Cash Short and Over for $4.25.
D) credit to Cash Short and Over for $4.25.
Q2) On April 3rd, Snappy Sales decides to establish a $135.00 Petty Cash Account to relieve the burden on Accounting.
(a) Journalize this event.
(b) On April 11th, the petty cash fund has receipts for mail and postage of $32.75, contributions and donations of $25.25, meals and entertainment of $68.00 and $9.75 in cash. Journalize the replenishment of the fund.
(c) On April 12th, Snappy Sales decides to increase petty cash to $175.00. Journalize this event.
Q3) A voucher system is an example of an internal control procedure over cash payments.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) If a promissory note is dishonored, the payee should still record interest revenue.
A)True
B)False
Q2) Accounts Receivable Turnover measures
A) how frequently during the year the accounts receivable are converted to cash
B) the number of days of accounts receivable outstanding
C) the fair market value of accounts receivable
D) the efficiency of the accounts payable function
Q3) When using the analysis of receivables method for estimating uncollectible receivables, the amount computed in the analysis is usually the amount that would be recorded in the end-of-period adjusting entry.
A)True
B)False
Q4) Discount Mart utilizes the allowance method of accounting for uncollectible receivables. On December 12th the company receives a $550 check from Chad Thomas in settlement of Thomas' $1,100 outstanding accounts receivable. Due to Thomas' failing health he is closing his company and is expecting to make no further payments to Discount Mart. Journalize this declaration.
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Page 10
Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) The calculation for annual depreciation using the straight-line depreciation method is
A) initial cost / estimated useful life
B) depreciable cost / estimated useful life
C) depreciable cost * estimated useful life
D) initial cost * estimated useful life
Q2) A fixed asset with a cost of $41,000 and accumulated depreciation of $36,000 is traded for a similar asset priced at $50,000. Assuming a trade-in allowance of $4,000, the cost basis of the new asset is
A) $54,000
B) $45,000
C) $51,000
D) $50,000
Q3) Costs associated with normal research and development activities should be treated as intangible assets.
A)True
B)False
Q4) A capital lease is accounted for as if the asset has been purchased.
A)True
B)False
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Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) The payroll register of Seaside Architecture Company indicates $870 of Social Security and $217 of Medicare tax withheld on total salaries of $14,500 for the period. Assume earnings subject to state and federal unemployment compensation taxes are $5,250. at the federal rate of 0.8% and state rate of 5.4%. Provide the journal entry to record the payroll tax expense for the period.
Q2) A pension plan which requires the employer to make annual pension contributions, with no promise to employees regarding future pension payments, is termed A) funded
B) unfunded
C) defined benefit
D) defined contribution
Q3) List five internal controls that relate directly to payroll.
Q4) A pension plan which promises employees a fixed annual pension benefit, based on years of service and compensation, is called a(n)
A) defined contribution plan
B) defined benefit plan
C) unfunded plan
D) compensation plan
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Chapter 11: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) The charter of a corporation provides for the issuance of 100,000 shares of common stock. Assume that 45,000 shares were originally issued and 5,000 were subsequently reacquired. What is the amount of cash dividends to be paid if a $2 per share dividend is declared?
A) $80,000
B) $10,000
C) $90,000
D) $100,000
Q2) A deficit in Retained Earnings is reported in the stockholders' equity section of the balance sheet.
A)True
B)False
Q3) 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
Q4) On May 1, 10,000 shares of $10 par common stock were issued at $30, and on May 7, 5,000 shares of $50 par preferred stock were issued at $111. Journalize the entries for May 1 and May 7.
Page 13
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Gains and losses on the redemption of bonds are reported as other income or other expense on the income statement.
A)True
B)False
Q2) On January 1, 2011, Citrus Retail Co. issued a $500,000, 5 year, 8% installment note payable with payments of $100,000 principal plus interest due on January 1 of each year for the next 5 years.
1. Prepare the adjusting journal entry at December 31, 2011 to accrue interest for the year.
2. Show the account(s) and amount(s) and where it will appear on a multi-step income statement prepared on December 31, 2011.
3. Show the account(s) and amount(s) and where they will appear on a classified balance sheet prepared on December 31, 2011.
Q3) Callable bonds can be redeemed by the issuing corporation at the fair market price of the bonds.
A)True
B)False
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Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) Which of the following would be considered an "Other Comprehensive Income" item?
A) net income.
B) extraordinary loss related to flood.
C) gain on disposal of discontinued operations.
D) unrealized loss on available-for-sale securities.
Q2) Armando Company owns 17,000 of the 70,000 shares of common stock outstanding of Tito Company and exercises a significant influence over its operating and financial policies. The investment should be accounted for by the
A) equity method
B) market method
C) cost or market method
D) cost method
Q3) In general, consolidated financial statements should be prepared
A) when a corporation owns more than 20% and less than 40% of the common stock of another company
B) when a corporation owns more than 50% of the common stock of another company
C) only when a corporation owns 100% of the common stock of another company
D) whenever the market value of the stock investment is significantly lower than its cost
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Chapter 14: Statement of Cash Flows
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Q1) To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation.
A)True
B)False
Q2) Cash, as the term is used for the statement of cash flows, could indicate either cash or cash equivalents.
A)True
B)False
Q3) On the statement of cash flows prepared by the indirect method, the cash flows from operating activities section would include
A) receipts from the sale of investments
B) amortization of premium on bonds payable
C) payments for cash dividends
D) receipts from the issuance of capital stock
Q4) The statement of cash flows is an optional financial statement.
A)True
B)False
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Chapter 15: Financial Statement Analysis
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Sample
Questions
Q1) Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.
A)True
B)False
Q2) Which of the following should be classified as an extraordinary item on the income statement?
A) Gain on a sale of a long term investment.
B) Loss due to discontinued operations.
C) Restructuring charges.
D) Loss resulting from an infrequent natural disaster.
Q3) A loss due to a discontinued operation should be reported in the income statement
A) above income from continuing operations.
B) without related tax effect.
C) below income from continuing operations.
D) as an operating expense.
Q4) Define solvency and profitability. How are they alike?
Q5) Why would you compare or not compare Coca-Cola and Pepsi-Cola (PepsiCo) as companies to each other?
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Chapter 16: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) Cost of goods manufactured during 2011 is $240, work in process inventory on December 31, 2011, is $50. Work in process inventory during 2011 decreased by 60%. Total manufacturing costs incurred during 2011 amount to:
A) $190
B) $165
C) $290
D) $315
Q2) Which of the following costs are referred to as conversion costs?
A) Direct labor cost and factory overhead cost
B) Direct materials cost and direct labor cost
C) Factory overhead cost
D) Direct materials cost and factory overhead cost
Q3) If the cost of employee wages is not a significant portion of the total product cost, the wages are classified as direct materials cost.
A)True
B)False
Q4) In most business organizations, the chief accountant is called the treasurer.
A)True
B)False
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Chapter 17: Job Order Costing
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Sample Questions
Q1) A law firm would use a job order cost system to accumulate all of the costs associated with a particular client engagement, such as lawyer time, copying charges, filing fees, and overhead.
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) The Winston Company estimates that the factory overhead for the following year will be $1,250,000. The company has decided that the basis for applying factory overhead should be machine hours, which is estimated to be 50,000 hours. The total machine hours for the year was 54,300. The actual factory overhead for the year was $1,348,800.
a) Determine the total factory overhead amount applied.
b) Calculate the over or under applied amount for the year.
c) Prepare the journal entry to close factory overhead into Cost of Goods Sold.
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Chapter 18: Process Cost Systems
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Sample Questions
Q1) Amos Company's molding department opened on October 1, 2012. During October, 35,000 units were completed and transferred out to the next department. On October 31, 2012, the 9,000 units which remained in inventory were 40% complete with respect to conversion costs and 100% complete with respect to materials.
Required:
How many equivalent units of work did the molding department complete during October for materials and conversion costs?
Q2) In a process cost system, the amount of work in process inventory is valued by:
A) finding the sum of all open job costs
B) allocating departmental costs between completed and partially completed units
C) multiplying units in ending inventory by the direct materials cost per unit
D) all of the above
Q3) If the costs for direct materials, direct labor, and factory overhead were $277,300, $52,600, and $61,000, respectively, for 14,000 equivalent units of production, the total conversion cost was $390,900.
A)True
B)False
Q4) Describe the flow of materials in a process cost accounting system.
Q5) Discuss how equivalent units are computed under the average cost method.
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Chapter 19: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) If sales are $820,000, variable costs are 45% of sales, and operating income is $260,000, what is the contribution margin ratio?
A) 45%
B) 55%
C) 62%
D) 32%
Q2) The dollars available from each unit of sales to cover fixed cost and profit is the unit variable cost.
A)True
B)False
Q3) If fixed costs increased and variable costs per unit decreased, the break-even point would:
A) increase
B) decrease
C) remain the same
D) cannot be determined from the data provided
Q4) A low operating leverage is normal for highly automated industries.
A)True
B)False
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Chapter 20: Variable Costing for Management Analysis
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Sample Questions
Q1) Companies prepare contribution margin reports by market segments and product segments because products contribute to profitability in various ways.
A)True
B)False
Q2) Which of the following would not be an appropriate activity base for cost analysis in a service firm?
A) lawns mowed
B) inventory produced
C) customers served
D) haircuts given
Q3) On the variable costing income statement, all of the fixed costs are deducted from the contribution margin.
A)True
B)False
Q4) In determining cost of goods sold, two alternate costing concepts can be used: direct costing and variable costing.
A)True
B)False
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Page 22
Chapter 21: Budgeting
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Sample Questions
Q1) Supervisor salaries and indirect factory wages would normally appear in the direct labor cost budget.
A)True
B)False
Q2) Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.
A)True
B)False
Q3) The task of preparing a budget should be the sole task of the most important department in an organization.
A)True
B)False
Q4) A variant of fiscal-year budgeting whereby a twelve-month projection into the future is maintained at all times is termed:
A) flexible budgeting
B) continuous budgeting
C) zero-based budgeting
D) master budgeting
Q5) Describe at least five benefits of budgeting.
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Chapter 22: Performance Evaluation Using Variances From
Standard Costs
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Q1) Standard costs are used in companies for a variety of reasons. Which of the following is not one of the benefits for using standard costs?
A) Used to indicate where changes in technology and machinery need to be made.
B) Used to identify inventory
C) Used to plan direct materials, direct labor, and factory factory overhead.
D) Used to control costs.
Q2) An example of a nonfinancial measure is the number of customer complaints.
A)True
B)False
Q3) An unfavorable volume variance may be due to a failure of supervisors to maintain an even flow of work.
A)True
B)False
Q4) The unfavorable volume variance may be due to all of the following factors except:
A) failure to maintain an even flow of work
B) machine breakdowns
C) unexpected increases in the cost of utilities
D) failure to obtain enough sales orders
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Chapter 23: Performance Evaluation for Decentralized Operations
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Q1) Division A of Mocha Company has sales of $155,000, cost of goods sold of $83,000, operating expenses of $43,000, and invested assets of $150,000. What is the rate of return on investment for Division A?
A) 19.3%
B) 48.0%
C) 18.7%
D) 5.47%
Q2) The following is a measure of a manager's performance working in an investment center.
A) rate of return on investment
B) residual income
C) divisional income statements
D) all of the responses
Q3) It is beneficial for two related companies to use the cost price approach for transfer pricing when both of the companies operate as cost centers and are not concerned with the revenue.
A)True
B)False
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Chapter 24: Differential Analysis and Product Pricing
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Q1) Opportunity cost is the amount of increase or decrease in cost that would result from the best available alternative to the proposed use of cash or its equivalent.
A)True
B)False
Q2) Widgeon Co. manufactures three products: Bales; Tales; and Wales. The selling prices are: $55; $78; and $32, respectively. The variable costs for each product are: $20; $50; and $15, respectively. Each product must go through the same processing in a machine that is limited to 2,000 hours per month. Bales take 5 hours to process, Tales take 7 hours, and Wales take 1 hour. What is the contribution margin per machine hour for Bales?
A) $5
B) $7
C) $35
D) $28
Q3) Make or buy options often arise when a manufacturer has excess productive capacity in the form of unused equipment, space, and labor.
A)True
B)False
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Chapter 25: Capital Investment Analysis
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Q1) The amount of the estimated average income for a proposed investment of $90,000 in a fixed asset, giving effect to depreciation (straight-line method), with a useful life of four years, no residual value, and an expected total income yield of $21,600, is:
A) $10,800
B) $21,600
C) $ 5,400
D) $45,000
Q2) The excess of the cash flowing in from revenues over the cash flowing out for expenses is termed net discounted cash flow.
A)True
B)False
Q3) A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $150,000. The present value of the future cash flows is $143,000. Should the company invest in this project?
A) yes, because net present value is +$7,000
B) yes, because net present value is -$7,000
C) no, because net present value is +$7,000
D) no, because net present value is -$7,000
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Chapter 26: Cost Allocation and Activity-Based Costing
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Q1) In a service organization, the multiple department overhead rate method is the most effective in providing information about the cost of services.
A)True
B)False
Q2) Everest Co. uses a plantwide factory overhead rate based on direct labor hours. Overhead costs would be overcharged to which of the following departments?
A) A labor-intensive department
B) A capital-intensive department
C) A materials-intensive department
D) All of the above
Q3) Service companies can effectively use single facility-wide overhead costing to compute product (service) costs.
A)True B)False
Q4) Activity-based costing can only be used to allocate manufacturing factory overhead.
A)True B)False
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Chapter 27: Cost Management for Just-In-Time
Environments
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Q1) In a just-in-time (JIT) environment, the journal entry to record conversion costs would include a debit to the manufacturing overhead control account.
A)True
B)False
Q2) In a just-in-time (JIT) system, there are more transactions to record than there are in a traditional system.
A)True
B)False
Q3) Employee involvement in a product-oriented factory emphasizes employee teams, rather than individual employees.
A)True
B)False
Q4) 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
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