Fundamentals of Accounting Study Guide Questions
Course Introduction
Fundamentals of Accounting introduces students to the core principles and practices essential for understanding the language of business. The course covers key concepts such as the accounting cycle, double-entry bookkeeping, preparation and analysis of financial statements, and the regulatory framework governing accounting. Students will learn how to record, classify, and summarize financial transactions, as well as gain insight into the roles of accounting in decision-making and financial reporting for various organizational stakeholders. By the end of the course, learners will be equipped with foundational skills necessary to interpret and communicate financial information effectively.
Recommended Textbook
Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition by Gary
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2
Chapter 1: Accounting As a Form of Communication
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Q1) ___________________ means the presentation of information is free from bias toward a particular result.
Answer: Neutrality
Q2) All of the following are important provisions of the Sarbanes-Oxley Act except
A)the establishment of a new Public Company Accounting Oversight Board.
B)the requirement to prepare both FASB and IASB financial statements.
C)a requirement that the external auditors report directly to the company's audit committee.
D)a clause to prohibit public accounting firms that audit a company from providing any other services that could impair their ability to act independently in the course of their audit.
Answer: B
Q3) Which of the following organizations is responsible for setting auditing standards followed by public accounting firms in conducting independent audits of financial statements?
A)Financial Accounting Standards Board (FASB)
B)Securities and Exchange Commission (SEC)
C)Public Company Accounting Oversight Board (PCAOB)
D)International Accounting Standards Board (IASB)
Answer: C
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Chapter 2: Financial Statements and the Annual Report
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Sample Questions
Q1) Which financial statement reports information helpful in assessing working capital?
A)Income statement
B)Balance sheet
C)Statement of retained earnings
D)Statement of cash flows
Answer: B
Q2) Obligations related to operating activities that will be paid within the company's operating cycle must be reported as current liabilities on a classified balance sheet.
A)True
B)False
Answer: True
Q3) For which of the following is the current ratio most useful?
A)In evaluating a company's profitability
B)In evaluating a company's solvency
C)In evaluating a company's return on assets
D)In evaluating a company's liquidity
Answer: D
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Chapter 3: Processing Accounting Information
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Sample Questions
Q1) Falcon Services was organized on October 1,2017.The company received a contribution of $2,000 from each of the two principal owners.During the month,Falcon Services provided services for cash of $1,400 and services on account for $600,received $350 from customers in payment of their accounts,purchased supplies on account for $800 and equipment on account for $1,050,received a utility bill for $150 that will not be paid until November,and paid the full amount due on the equipment.
Required
Show your work to determine the company's Cash balance on October 31,2017.
Answer: $4,000 + $1,400 + $350 - $1,050 = $4,700
Q2) One effect on the accounting equation when a firm borrows money is that A)stockholders' equity decreases.
B)assets increase.
C)liabilities decrease.
D)assets decrease.
Answer: B
Q3) A(n)____________________ is a chronological record of all transactions entered into by a business.
Answer: JOURNAL
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Page 5
Chapter 4: Income Measurement and Accrual Accounting
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Sample Questions
Q1) ____________________ is the allocation of the cost of a tangible,long-term asset over its useful life.
Q2) Which one of the following adjustments increases net income for the period?
A)Recognition of the amount of supplies used
B)Recognition of interest on a note receivable
C)Recognition of wages earned,but not paid to employees
D)Recognition of rent costs that had been paid to the landlord in advance
Q3) The success of accounting as a form of communication depends on two concepts,____________________ and ____________________.
Q4) Every company prepares only four adjustments-one for each of the four types of adjustments.
A)True
B)False
Q5) Expenses can be matched against revenue
A)if the earnings process is not complete.
B)when cash is collected from the sale of products.
C)through allocation to the accounting periods in which the benefits are recognized.
D)when payment is made for costs related to revenue.
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Chapter 5: Inventories and Cost of Goods Sold
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Sample Questions
Q1) If Adam uses the FIFO method,how much is ending inventory on January 31?
A)$8
B)$12
C)$16
D)$40
Q2) Refer to the information for Takenson Corp. ?
Calculate the cost of goods sold
A)$275,000
B)$259,000
C)$241,000
D)$211,000
Q3) Ending inventory valued under the FIFO method will be the same regardless of whether the periodic system or the perpetual system is used.
A)True
B)False
Q4) Sales revenue is an inflow of assets.
A)True
B)False
Q5) The __________ method most nearly approximates replacement cost of inventory on the balance sheet.
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Chapter 6: Cash and Internal Control
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Sample Questions
Q1) The set of items below was identified in preparing a bank reconciliation for Mars Corp.as of August 31,2017. ?
\[\begin{array} { l r }
\text { Bank statement balance } & \$ 19,500 \\
\text { Mars's book balance (before adjustments) } & ? \\
\text { Outstanding checks } & 2,700 \\
\text { Customer's NSF check } & 350 \\
\text { Service charges } & 100 \\
\text { Deposit in transit } & 1,000 \\
\text { Interest earned on checking account } & 60
\end{array}\] Mars Corp.'s balance per books before the reconciliation is
A)$17,410.
B)$17,900.
C)$18,190.
D)$18,310.
Q2) A check written by a company but not yet presented to the bank for payment is called a(n)__________.
Q3) The IFRS definition of cash equivalents is very similar to that used by __________.
Q4) A(n)__________ is a form sent by the seller to the buyer as evidence of a sale.
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Chapter 7: Receivables and Investments
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Sample Questions
Q1) On November 2,2017,Quaint General Store concluded that a customer's $400 account receivable was uncollectible and that the account should be written off.What effect will this write-off have on Quaint's 2017 net income and balance sheet totals assuming the allowance method is used to account for bad debts?
A)Decrease in net income;decrease in total assets
B)Increase in net income;no effect on total assets
C)No effect on net income;decrease in total assets
D)No effect on net income;no effect on total assets
Q2) The maker of a note recognizes __________ on its income statement.
Q3) If a company uses the allowance method of accounting for bad debts,which one of the following statements is true?
A)It will report accounts receivable on the balance sheet at their net realizable value.
B)It will record bad debts only when an account is determined to be uncollectible.
C)It will reduce the accounts receivable at the end of the accounting period for estimated uncollectible accounts.
D)It violates the matching principle.
Q4) The party that receives the payment due from a note is called the __________.
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Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
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Sample Questions
Q1) Refer to the information for Chambersburg Corp. ?
Between 2017 and 2018,Chambersburg sold some equipment that had an original cost of $57,500.Which statement is most likely true concerning transactions that must have occurred during the period?
A)Chambersburg also purchased additional equipment during the year.
B)The selling price of the equipment sold was reported with net sales.
C)The equipment that was sold had a book value of $12,500.
D)The equipment sold had not been reported with Chambersburg's property,plant,and equipment.
Q2) A machine with a cost of $100,000 and accumulated depreciation of $80,000 was sold at a loss of $6,000.What amount of cash was received from the sale?
A)$26,000
B)$14,000
C)$20,000
D)$94,000
Q3) Land is not a depreciable asset,but the amount allocated to the building is subject to __________.
Q4) __________ depreciation is the GAAP depreciation method considered to be "accelerated" in nature.
Page 10
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Chapter 9: Current Liabilities, Contingencies, and the Time Value of Money
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Sample Questions
Q1) A note payable due in two years is a current liability.
A)True
B)False
Q2) An example of a current liability that must be accrued is
A)accounts payable.
B)current maturity of long-term debt.
C)revenue received in advance.
D)income taxes payable.
Q3) A company has $8,000 in cash,$9,250 in accounts receivable,and $19,500 in inventory.If current liabilities are $14,350,then the quick ratio would be
A)5.0 to 1.
B)2.6 to 1.
C)2.0 to 1.
D)1.2 to 1.
Q4) Advance ticket sales for a concert next month are a current liability.
A)True
B)False
Q5) Using the indirect method,an increase in accounts payable would be shown as a(n)__________ in the __________ Activities section of the statement of cash flows.
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) Which of the following statements regarding bonds payable is true?
A)Generally,bonds are issued in denominations of $100.
B)When an issuing company's bonds are traded in the "secondary" market,the company will receive part of the proceeds when the bonds are sold from the first purchaser to the second purchaser.
C)A debenture bond is backed by specific assets of the issuing company.
D)Most bonds are term bonds,meaning that the entire principal amount will mature on a single date.
Q2) Happy Corporation leased a building from Sensor Company.The ten-year lease is recorded as a capital lease.The annual payments are $10,000,and the recorded cost of the asset is $67,100.The straight-line method is used to calculate depreciation.Which of the following statements is true?
A)Depreciation expense of $6,710 will be recorded each year.
B)Depreciation expense of $10,000 will be recorded each year.
C)No depreciation expense will be recorded by Happy Corporation.
D)No interest expense will be recorded by Happy Corporation.
Q3) The __________ rate of interest is the rate that bondholders could obtain by investing in other bonds that are similar to the issuing firm's bonds.
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Chapter 11: Stockholders Equity
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Sample Questions
Q1) Which of the following is false regarding the issue of stock versus the issue of bonds to raise capital?
A)The issuance of stock decreases several important financial ratios.
B)Issuing bonds dilutes the voting power of the stockholders.
C)Corporations are not required to return the investment to the stockholders.
D)Investors expect to earn a higher rate of return on stocks than bonds.
Q2) Derek and Kent are partners.At the beginning of the current year,Derek's capital account is $30,000,while Kent's is $50,000.The partners decided to allocate income with 10% interest on capital balances at the beginning of the period and divide the balance equally.Net income for the current year,2017,is $80,000.Each partner withdrew $15,000 for personal use during the year.Determine the amount of income that each partner will be allocated.
Q3) What is the difference between book value and market value of stock?
Q4) Name two different examples of items that can be received (in addition to cash)in exchange for issuing stock.Describe how the value of each item affects additional paid-in capital.
Q5) Explain the two ways that a dividend rate on preferred stock may be stated by giving examples.
Q6) The maximum number of shares a company may issue is the number of
Page 13
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Carpet World Inc.reported the following information for 2017 and 2018:\(\begin{array}{lrr}&2017&2018\\
\text { Accounts receivable } & \$ 51,000 & \$ 57,000 \\
\text { Inventories } & 42,000 & 39,000 \\
\text { Accounts payable } & 43,000 & 48,000 \\
\text { Net income } & & 60,000 \\
\text { Depreciation expense } & & 8,000
\end{array}\) If Carpet World uses the indirect method to prepare the Operating Activities section of the statement of cash flows,what amount will be reported as net cash inflow from operating activities for 2018?
A)$64,000
B)$66,000
C)$68,000
D)$70,000
Q2) A __________,is a useful device to help in the preparation of a statement of cash flows.
Q3) The financial statement that summarizes the operating,investing,and financing activities of a business over a period of time is the __________.
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Page 14
Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) Use the Current Assets section of the balance sheets of Breeze Company as of June 30,2018 and 2017 presented below to answer the questions that follow.
\(\begin{array}{lrr}&2018&2017\\
\text { Cash and cash equival ents } & \$ 75,000 & \$ 58,800 \\
\text { Trade accounts receivable, net } & 157,500 & 193,200 \\
\text { Inventory } & 208,200 & 253,400 \\
\text { Other current assets } & 18,400 & 15,500 \\
\quad \text { Total current assets } & \$ 459,100 & \$ 520,900 \\
\text { Total assets } & \$ 2,650,000 & \$ 3,430,000
\end{array}\) Required
Complete a vertical analysis of the Current Assets section of Breeze Company's balance sheets for 2018 and 2017.Your answers should be rounded to one decimal place,
Q2) Apple Company had terms of net 60 days for customers.The number of days' sales in accounts receivable for Apple was 42 days.Apple is efficient in the collection of its receivables.
A)True
B)False
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Chapter 14: International Financial Reporting Standards
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Sample Questions
Q1) Companies in Mexico have to begin using IFRS by 2020.
A)True
B)False
Q2) What is the name for the balance sheet under international accounting standards?
A)Assets and equity attributable to shareholders
B)Statement of financial position
C)Statement of balance
D)The equitable claims statement
Q3) Which of the following inventory costing methods is prohibited under IFRS?
A)FIFO
B)Weighted average
C)LIFO
D)Perpetual
Q4) On the reporting of liabilities where a range of values exists as a possible outcome,IFRS require which of the following points to be recorded as a provision,if the outcome is probable?
A)Low end of the range
B)High end of the range
C)Midpoint of the range
D)IFRS present no specific guidance as to this point.
Page 16
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