Introduction to Accounting Exam Review
Course Introduction
Introduction to Accounting provides students with a foundational understanding of accounting principles and practices. This course explores the role of accounting in business, the accounting cycle, and the preparation and analysis of financial statements. Students will learn to record financial transactions, understand the significance of assets, liabilities, and equity, and develop the ability to interpret financial information for decision-making purposes. Emphasis is placed on the ethical responsibilities of accountants and the relevance of accounting information in both personal and professional contexts.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) Star Homes Ltd just recorded a transaction in its books of accounts.If this transaction increased the total liabilities by $12,000:
A) assets or equity must decrease by $12,000
B) assets must increase or equity must decrease by $12,000
C) assets must decrease by $12,000
D) both assets and equity must each decrease by $6000
Answer: B
Q2) Martin Supply Service paid $350 cash to a materials supplier that it owed from the previous month.What is the effect of the cash payment on account of the business?
A) Accounts payable increases; Owners' capital account decreases.
B) Cash account decreases; Accounts payable decreases.
C) Materials account increases; Owners' capital account decreases.
D) Cash account decreases; Accounts payable increases.
Answer: B
Q3) An investor is someone who lends money to a business.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) Which of the following accounts is an owners' equity account?
A) Accrued liability
B) Prepaid expense
C) Accounts payable
D) Capital Answer: D
Q2) In a trial balance,total debits are always equal to total credits.
A)True
B)False
Answer: True
Q3) Which of the following accounts decreases with a debit?
A) Prepaid insurance
B) Bills payable
C) Land
D) Cash Answer: B
Q4) An asset account is increased by a debit.
A)True
B)False Answer: True
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Chapter 3: The Adjusting Process
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Q1) In the case of Unearned revenue,the adjusting entry at the end of the period includes a debit to Service revenue.
A)True
B)False
Answer: False
Q2) Entries that record an expense before the cash is paid are:
A) unearned revenues.
B) prepaid expenses.
C) accrued expenses.
D) accrued revenues.
Answer: C
Q3) Financial statements are prepared from a(n):
A) adjusted trial balance.
B) unadjusted trial balance.
C) general journal.
D) general ledger.
Answer: A
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The following contains information from the records of the Wellborn Engineers and Architects.
Wellborn Engineers and Architects
Selected financial information
31 December 2016
\[\begin{array} { | l | l | }
\hline \text { Current assets } & \$ 80,000 \\
\hline \text { Current liabilities } & 42,000 \\
\hline \text { Non-current assets } & 97,000 \\
\hline \text { Non-current liabilities } & 64,000 \\
\hline \text { Total revenues } & 53,000 \\
\hline \text { Total expenses } & 34,000 \\
\hline
\end{array}\]
Calculate the current ratio.
A) 1.9
B) 0.6
C) 1.52
D) 2.23
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Chapter 5: Retailing Operations
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Sample Questions
Q1) Which of the following defines Gross profit?
A) Sales revenue less Overhead expenses
B) Net sales revenue less Sales discounts
C) Net sales revenue less Cost of sales
D) Sales revenue less Sales discounts and allowances
Q2) Which of the following are the normal balances of Sales,Sales discounts and Sales returns and allowances,respectively?
A) Debit, credit and credit
B) Credit, debit and debit
C) Debit, debit and credit
D) Credit, credit and debit
Q3) A company sold inventory worth $212 for $330 on credit.The seller uses the perpetual inventory system.The entry to record the cost of inventory sold would include:
A) a debit to Inventory for $212 and a credit to Cost of sales for $212
B) a debit to Cost of sales and a credit to Inventory for $212
C) a debit to Sales and a credit to Cash for $330
D) a debit to Cash and a credit to Sales for $330
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Chapter 6: Retail Inventory
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Sample Questions
Q1) Rubal Ltd earned revenue of $600,000 and incurred cost of sales of $340,000.Calculate the gross profit percentage.
A) 21.65%
B) 56.7%
C) 100%
D) 43.3%
Q2) If the historical cost of inventory falls below replacement cost,the business must write down the inventory cost.
A)True
B)False
Q3) The ending inventory for the current year is overstated by $20,000.What effect will this error have on the following year's Net profit?
A) Net profit will be overstated by $40,000.
B) Net profit will be understated by $20,000.
C) Net profit will be overstated by $20,000.
D) Net profit will be understated by $40,000.
Q4) Ending inventory equals the number of units on hand multiplied by the unit cost.
A)True B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The purchase of equipment for cash would be recorded in the:
A) sales journal.
B) purchases journal.
C) general journal.
D) cash payments journal.
Q2) The total of all balances in the accounts receivable subsidiary ledger should equal the balance of the:
A) accounts receivable account in the general ledger.
B) cash account in the general ledger.
C) accounts payable account in the general ledger.
D) sales revenue account in the general ledger.
Q3) Amounts are posted individually from the purchases journal to the:
A) inventory account in the general ledger.
B) cash account in the general ledger.
C) accounts payable account in the general ledger.
D) accounts payable subsidiary ledger.
Q4) Computerised accounting packages are organised by modules.Changes to one module will automatically update information in other modules.
A)True
B)False
Page 9
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) The cash balance in a company's general ledger and the bank's balance on the bank statement will generally be different because of the time lag in recording transactions.
A)True
B)False
Q2) If the bank reconciliation includes a bank service charge,a journal entry is required that debits Cash and credits Miscellaneous expense.
A)True
B)False
Q3) Which of the following is a general internal control,but is not classified as an 'accounting control'?
A) Authorising transactions
B) Ensuring the accuracy of financial records
C) Encouraging employees to follow organisational policy
D) Safeguarding assets
Q4) In a bank reconciliation,a deposit in transit will be shown on the bank side of the reconciliation.
A)True B)False
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Chapter 9: Receivables
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Q1) Archer Company and Zorro Company both have significant amounts of accounts receivable at any time and both experience bad debts from time to time.Archer uses the percentage of sales method to account for bad debts and Zorro uses the direct write-off method.Archer Company's method complies with IFRS and produces a better matching of revenues and expenses than Zorro Company's method.
A)True
B)False
Q2) The Allowance for doubtful debts account has a debit balance of $9000 before the adjusting entry for bad debt expense.After analysing the accounts in the accounts receivable subsidiary ledger,the company's management estimates that uncollectable accounts will be $13,000.What will be the amount of the adjustment in the Allowance for doubtful debts account?
A) $22,000
B) $13,000
C) $21,250
D) $20,900
Q3) Accounts receivable are also known as trade receivables.
A)True
B)False
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Page 11
Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Sample Questions
Q1) An item of property,plant and equipment is fully depreciated when the carrying amount is:
A) equal to the residual value.
B) greater than the market value.
C) equal to the market value.
D) greater than the residual value.
Q2) If goodwill decreases,the company records a loss and writes down the value of the goodwill.
A)True
B)False
Q3) When an asset is fully depreciated,no further depreciation expense is recorded. A)True
B)False
Q4) Estimated residual value is the expected cash value of an asset at the end of its useful life.
A)True B)False
Q5) A revaluation decrement increases the carrying amount of an asset.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) A certain contingent liability was evaluated at year-end,and considered to have a reasonable possibility of becoming an actual liability.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would this have on the financial reporting of the company?
A) The information about the transaction would be inadequately disclosed in the notes.
B) The liabilities on the balance sheet would be understated.
C) There would be no effect.
D) The net profit of the company would be understated.
Q2) Firewood Company signed a three-year note payable for $58,000 at 9% annual interest.What is the interest expense for 2016 if the note was signed on 1 August 2016?
A) $2610
B) $15,660
C) $2175
D) $5220
Q3) Unearned revenue is an obligation to provide goods or services to the customer.
A)True
B)False
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Chapter 12: Non-Current Liabilities,debentures Payable and
Classification of Liabilities on the Balance
Sheet
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Q1) Which of the following is the amount the borrower must pay back to the debenture holders?
A) Present value
B) Principal amount
C) Market value
D) Stated interest value
Q2) If a debenture is issued at a discount,it will sell for more than face value.
A)True
B)False
Q3) On 1 January 2017,Carter Sales issued $27,000 in debentures for $33,800.They were eight year debentures with a stated rate of 14% and pay semiannual interest.Carter Sales uses the straight-line method to amortise the debenture premium.On 30 June 2017,when Carter makes the first payment to investors,how much will they report as Interest expense? (Round to the nearest dollar.)
A) $5335
B) $1480
C) $1890
D) $1465
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Chapter 13: Partnerships
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Sample Questions
Q1) When a partnership is formed and a partner contributes property,plant and equipment,it is recorded on the books of the partnership at its net book value-the original cost less accumulated depreciation.
A)True
B)False
Q2) Steve owns 62% and Mark owns 38% of a partnership business.For developing the business,they purchased equipment for $10,300.The current market value of the equipment at the time of purchase was $9800.At the time of the balance sheet preparation,depreciation of $220 was incurred.Based on the information provided,which of the following is true of the partnership balance sheet?
A) The Equipment account will be debited at $9800 on the date of purchase.
B) The Equipment account will be debited at $9580 on the date of purchase.
C) The Equipment account will be debited at $10,080 on the date of purchase.
D) The Equipment account will be debited at $10,300 on the date of purchase.
Q3) Each partner in a partnership:
A) shares in a jointly held capital account.
B) pays his or her share of the partnership business profit tax.
C) has co-ownership of the assets of the partnership.
D) has limited liability for the debts of the business.
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Page 15
Chapter 14: Companies: Formation and Shareholders
Equity
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Sample Questions
Q1) Lerner Company had the following transactions in 2016,its first year of operations.
Issued 25,000 ordinary shares.The issue price of the shares was $18.00 per share.
Issued 1200 preference shares for $200 per share.
Earned net profit of $36,000.
Paid no dividends.
At the end of 2016,what is the total amount of shareholders' equity?
A) $290,000
B) $690,000
C) $400,000
D) $726,000
Q2) When a company records the year-end closing entries,the Income summary balance,before it is closed to Retained earnings,should be equal to the Profit or Loss for the year.
A)True
B)False
Q3) All forms and classes of shares carry voting rights.
A)True
B)False
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Chapter 15: Companies: Capital Management and the Income Statement
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Sample Questions
Q1) Share dividends are declared by the:
A) board of directors of the company.
B) shareholders of the company.
C) chief financial officer of the company.
D) chief executive officer of the company.
Q2) An appropriation guarantees that cash will be available either for a specific or general purpose in the future.
A)True
B)False
Q3) Which of the following is a common reason for companies to buy back shares?
A) To make a profit on the retirement of shares
B) To reward the shareholders
C) To return surplus cash to shareholders when few profitable investment opportunities exist
D) To increase shareholders' equity
Q4) Which of the following statements is TRUE?
A) A share buy-back decreases assets and increases shareholders' equity.
B) A share buy-back decreases assets and decreases shareholders' equity.
C) A share buy-back increases assets and decreases shareholders' equity.
D) A share buy-back increases assets and increases shareholders' equity.
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Chapter 16: The Cash Flow Statement
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Sample Questions
Q1) Expense transactions are entered on a worksheet as:
A) a debit to the expense account.
B) a credit to the expense account.
C) a debit to retained earnings.
D) a credit to retained earnings.
Q2) Free cash flow is the measure of cash available from operations after paying for planned investment acquisitions and planned dividend disbursements.
A)True
B)False
Q3) Which one of the following is a principal function of the cash flow statement?
A) To evaluate the level of debt and leverage of a company
B) To predict future profit growth
C) To calculate the turnover of inventory
D) To predict the ability to pay debts and dividends
Q4) In creating a cash flow statement using the indirect method,we consider that a decrease in current liabilities causes an increase in cash.
A)True
B)False
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18
Chapter 17: The Framework of Accounting
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Q1) The Financial Reporting Council (FRC)was established by the federal government to oversee the Australian standard-setting process.
A)True
B)False
Q2) Information is regarded as material if its omission or misstatement could influence the economic decisions made by users of financial reports.
A)True
B)False
Q3) The underlying basis for the use of historical cost is the:
A) relevance principle.
B) matching principle.
C) comparability principle.
D) reliability principle.
Q4) Under the comparability principle,financial statements should,as far as possible,be:
A) comparable from one period to the next.
B) comparable with foreign businesses.
C) comparable from business to business.
D) both A and C
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Chapter 18: Financial Statement Analysis
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Sample Questions
Q1) Which of the following is NOT one of the non-financial elements of a company annual report:
A) Income statement
B) Managing director's report
C) Chairman's report
D) Auditor's report
Q2) Vertical analysis is used with the income statement,but not with the balance sheet.
A)True
B)False
Q3) Partridge Company provides the following information for the year 2016:
Earnings per share $0.24/share
Market price of ordinary shares: $12.00/share
Dividends paid: $0.80/share
(No preference shares issued)
How much was the dividend payout for one share?
A) 0.30
B) 3.95
C) 1.67
D) 3.33
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Page 20
Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) The cost of sales for Frye Manufacturing in 2017 was $213,000.The 1 January 2017 finished goods inventory balance was $30,800 and the 31 December 2017 finished goods inventory balance was $24,500.Calculate the cost of goods manufactured during 2017.
A) $6300
B) $55,300
C) $237,500
D) $206,700
Q2) South State Company used $76,500 of direct materials and incurred $37,200 of direct labour costs during 2017.Indirect labour amounted to $2720 while indirect materials used totalled $5290.Other operating costs pertaining to the factory included electricity & gas of $4020,maintenance of $3599; repairs of $5335; depreciation of $8040; and,property taxes of $3512.There was no beginning or ending finished goods inventory,but work in process inventory began the year with a $5300 balance and ended the year with a $7700 balance.
How much is the cost of goods manufactured?
A) $138,516
B) $151,516
C) $143,816
D) $146,216
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Chapter 20: Job Costing
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Q1) An activity-based costing system would be of less value to a business making a single product than it would be for a company with multiple products.
A)True
B)False
Q2) The main difference between activity-based costing and traditional costing systems is that activity-based costing uses a separate allocation rate for each activity.
A)True
B)False
Q3) Haverhill Products just completed job number 440.In addition to direct labour and direct materials cost,Haverhill allocated $450 of manufacturing overhead to the job.Which of the following describes the correct journal entry to record the allocation of overhead to the job?
A) Debit Manufacturing overhead, credit Work in process
B) Debit Work in process, credit Manufacturing overhead
C) Debit Work in process, credit Cash
D) Debit Finished goods, credit Manufacturing overhead
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) If variable costs go down,and all other factors remain the same,the margin of safety will become larger.
A)True
B)False
Q2) Perfect Fit Company sells hand-sewn shirts for $55 per shirt.It incurs monthly fixed costs of $7000.The contribution margin ratio is calculated to be 20%.What is the variable cost per shirt?
A) $70.00 per shirt
B) $55 per shirt
C) $44.00 per shirt
D) $66.00 per shirt
Q3) Roberts Company has fixed costs of $12,000.Their contribution margin ratio is 50% and ratio of selling expenses to sales is 30%.What is the breakeven point in sales dollars?
A) $24,000
B) $3600
C) $2400
D) $40,000
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Chapter 22: Short-Term Business Decisions
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Q1) Rica Company is a price-taker and uses target pricing.Refer to the following information:
\[\begin{array} { | l | l | l | }
\hline \text { Production volume } & \$601,000 & \text { units per year } \\
\hline \text { Market price } & \$ 30 & \text { per unit } \\
\hline \text { Desired operating profit } & 15 \% & \text { of total assets } \\
\hline \text { Total assets } & \$ 13,800,000 & \\
\hline \text { Variable cost per unit } & \$ 19 & \text { per unit } \\
\hline \text { Fixed cost per year } & \$ 5,500,000 & \text { per year } \\
\hline
\end{array}\]
With the current cost structure,Rica cannot achieve its profit goals.It will have to reduce either the fixed costs or the variable costs.Assuming that fixed costs cannot be reduced,how much will be the target variable costs per unit per year? (Round your answer to the nearest cent.)
A) $19.00
B) $4.50
C) $17.40
D) $11.00
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24
Chapter 23: Capital Investment Decisions and the Time Value of Money
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Q1) Newman Automobiles Manufacturing is considering two alternative investment proposals with the following data:
\[\begin{array} { | l | c | c | }
\hline & \text { Proposal X} & \text { Proposal Y } \\
\hline \text { Investment } & \$ 11,000,000 & \$ 450,000 \\
\hline \text { Useful life } & { 5 \text { years } } &{ \text { 5 years } } \\
\hline \text { Estimated annual net cash inflows for 5 years } & \$ 2,200,000 & \$ 99,000 \\
\hline \text { Residual value } & \$ 55,000 & \$ 26,000 \\
\hline \text { Depreciation method } & \text { Straight-line } & \text { Straight-line } \\
\hline \text { Required rate of return } & 14 \% & 10 \% \\
\hline \end{array}\]
Calculate accounting rate of return for Proposal Y.
A) 10.91%
B) 16.54%
C) 10.64%
D) 5.97%
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Page 25