Introductory Accounting Exam Review
Course Introduction
Introductory Accounting provides students with a foundational understanding of the principles and practices of financial accounting. The course covers essential topics such as the accounting cycle, preparation and interpretation of financial statements, and fundamental accounting concepts like assets, liabilities, equity, revenues, and expenses. Emphasis is placed on the role of accounting in business decision-making, ethical considerations, and the use of accounting information both internally by management and externally by investors and regulators. Through lectures, exercises, and practical examples, students gain the skills necessary to analyze and record business transactions and understand the financial position of organizations.
Recommended Textbook
Horngren's Accounting 12th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Johnson Waterworks Company provides plumbing services.The company is a sole proprietorship.Transactions during the first year of operations are provided below.
a)The owner,Mitchell Johnson,contributed $14,000 cash in exchange for capital.
b)Paid $1,100 for equipment to be used for plumbing repairs.
c)Borrowed $13,000 from a local bank and deposited the money in the checking account.
d)Paid $300 in rent for the year.
e)Paid $200 for plumbing supplies to be used on various jobs next year.
f)Completed a plumbing repair for a law firm and received $3,300.
Calculate the amount of total assets at the end of the first year.Assume the plumbing supplies of $200 are left at the end of the year.
A) $1,300
B) $1,100
C) $27,000
D) $30,000
Answer: D
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3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) All asset accounts and equity accounts increase with a debit.
A)True
B)False
Answer: False
Q2) Both the chart of accounts and the ledger ________.
A) provide the balance of each account at a specific point in time
B) list the account names and numbers of the business
C) fulfill the task of showing all of the increases and decreases in each account
D) All of the statements are correct.
Answer: B
Q3) Accounts Receivable is a(n)________ account and has a normal ________ balance.
A) liability; debit
B) asset; debit
C) liability; credit
D) asset; credit
Answer: B
Q4) What are two ways in which a company can improve its debt ratio?
Answer: Increase assets
Reduce debt
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Oakland Tax Planning Service bought computer equipment for $24,000 on January 1,2018.It has an estimated useful life of four years and zero residual value.Oakland uses the straight-line method to calculate depreciation and records depreciation expense in the books at the end of each month.Calculate the amount of Depreciation Expense for the period,January 1,2018 through September 30,2018,for this equipment.(Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar.)
A) $6,000
B) $4,500
C) $6,500
D) $5,000
Answer: B
Q2) The Pediatric Dental Company prepays the rent on its dental office.On July 1,the company paid $18,000 for 6 months of rent.The rent period begins on July 1.How much Rent Expense should the company record for the three months ended September 30 under the cash basis? Why?
Answer: Pediatric Dental should report Rent Expense of $18,000 because the expenses are recorded when cash is paid.
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) After closing entries have been posted,________.
A) the ending balance of Moses, Capital has been properly updated.
B) only permanent accounts carry balances.
C) Moses, Withdrawals has been closed into Moses, Capital
D) All of the above statements are correct.
Q2) Which of the following statements regarding intangible assets is incorrect?
A) Intangible assets have no physical form.
B) Intangible assets are valuable because of the special rights they carry.
C) Intangible assets are not reported on the balance sheet.
D) Intangible assets include the exclusive right to produce or sell an invention.
Q3) An increase in the current ratio implies that the profitability of the company has increased from the previous period.
A)True
B)False
Q4) The Martinez,Withdrawals account is a permanent account.
A)True
B)False
Q5) Why are temporary accounts not included in the post-closing trial balance?
Q6) List the steps of the accounting cycle that take place during the period.
Page 6
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) On a multi-step income statement,the operating expenses are subtracted from ________ to arrive at operating income.
A) net sales
B) cost of goods sold
C) net profit
D) gross profit
Q2) For each of the following accounts,state type of account and the normal account balance.Assume a periodic inventory system.
\[\begin{array} { | l | l | l | }
\hline \text { Account Title } & \text { Type of Account } & \text { Normal Account Balance } \\
\hline \text { Freight In } & & \\
\hline \text { Purchase Discounts } & & \\
\hline \text { Merchandise Inventory } & & \\
\hline
\end{array}\]
Q3) Gross profit percentage reflects a business's ability to raise selling prices.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) The days' sales in inventory ratio is calculated by dividing cost of goods sold by the average merchandise inventory.
A)True
B)False
Q2) Which of the following inventory costing methods yields the highest cost of goods sold during a period of rising inventory costs?
A) specific identification
B) weighted-average
C) last-in, first-out
D) first-in, first-out
Q3) The last-in,first-out (LIFO)costing system may or may not match the physical flow of goods.
A)True
B)False
Q4) A company discovers that its cost of goods sold is understated by an insignificant amount.It does not need to correct the error because of the conservatism principle.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which of the following is TRUE of posting from a sales journal to the general ledger?
A) Entries in the sales journal are posted to either the accounts receivable subsidiary ledger or the general ledger.
B) Individual accounts receivable are posted daily from the sales journal to the accounts receivable subsidiary ledger.
C) Even though the sales journal is posted monthly to the subsidiary ledger, it is a reliable record of the amount received from each customer.
D) Under a perpetual inventory system, the sales journal will not have the Cost of Goods Sold DR and Merchandise Inventory CR column.
Q2) If there is cash involved in a business transaction,the transaction should be recorded in either the ________.
A) cash payments journal or cash receipts journal
B) cash payments journal or general journal
C) cash payments journal or cash receipts journal and in general journal
D) sales journal or purchases journal
Q3) List and briefly discuss the three basic components of an accounting information system.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following is an attribute of the internal control component-monitoring of controls?
A) Internal auditors monitor company controls to safeguard assets, and external auditors evaluate the controls to ensure that the accounting records are accurate.
B) Monitoring of controls is the "tone at the top" of the business.
C) Monitoring of controls is designed to ensure that the business's goals are achieved.
D) Monitoring of controls deals with identification and assessment of business risks.
Q2) Regarding controls over cash receipts by mail,the accounting department should prepare the deposit ticket from the remittance advices.
A)True
B)False
Q3) By accepting credit and debit cards,companies are able to attract more customers. A)True B)False
Q4) List the five components of internal control.
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Chapter 9: Receivables
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Sample Questions
Q1) If a note receivable is outstanding at the end of an accounting period,the interest earned up to year-end is recorded as interest revenue when the cash is received.
A)True
B)False
Q2) Fleet Transportation is a new business.During its first year of operations,credit sales were $40,000 and collections of credit sales were $36,000.One account,$650,was written off.Management uses the percent-of-sales method to account for bad debts expense and estimates 2% of credit sales to be uncollectible.Prepare the entry to record bad debts expense.Omit explanation.
Q3) Which of the following is TRUE of the acid-test ratio?
A) It measures a company's ability to pay its current liabilities.
B) It measures the ability of the company to earn net income.
C) It measures a company's ability to meet its short-term obligations with cash and cash equivalents.
D) It indicates how much cash could be realized by selling the inventory.
Q4) The acid-test ratio is also known as the quick ratio.
A)True
B)False
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Page 11
Chapter 10: Plant Assets,natural Resources,and Intangibles
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Sample Questions
Q1) An asset is considered to be obsolete when a newer asset can perform the job more efficiently.
A)True
B)False
Q2) IFRS permits the presentation of plant assets at their fair market value because
A) U. S. GAAP requires this presentation
B) fair market value may be more relevant
C) fair market value is easier to compute than book value
D) financial statements users are indifferent as to how plant assets are presented
Q3) The cost of an asset is $10,000,000,and its residual value is $100,000.Estimated useful life of the asset is four years.Prepare the schedule of depreciation using the double-declining-balance method of accounting.
Q4) On January 1,2019,Ennis Company purchased a patent for $200,000 cash.Although the patent gives legal protection for 20 years,the patent is expected to be used for only 10 years.The patent has no residual value.Journalize the amortization expense for 2019.Assume straight-line amortization.Omit explanation.
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Unearned revenues are current liabilities until they are earned.
A)True
B)False
Q2) If a business knows that a liability exists but does not know the exact amount,the business is unable to record the liability.
A)True
B)False
Q3) If the likelihood of a future event is probable and the amount of the expense can be estimated,how should the company report the contingency?
Q4) Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.
A)True
B)False
Q5) Maywood Company withholds $720 from Steve's paycheck for federal income tax.This amount is part of the company's payroll tax expense.
A)True
B)False
Q6) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Partnerships
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Sample Questions
Q1) A withdrawing partner acquires a bonus if the assets they receive in the dissolution are worth more than the book value of their equity.
A)True
B)False
Q2) When a partner dies,the partnership ceases to exist,and the deceased partner's estate will have ownership of the partner's equity in the partnership.
A)True
B)False
Q3) Keith and Jim are partners.Keith has a capital balance of $47,000 and Jim has a capital balance of $32,000.Jim sells $15,000 of his ownership to Bill.Which of the following is TRUE of the journal entry to admit Bill?
A) Bill, Capital will be debited for $17,000.
B) Jim, Capital will be debited for $17,000.
C) Jim, Capital will be credited for $15,000.
D) Bill, Capital will be credited for $15,000.
Q4) Neil and Paul formed a partnership.During the year,Neil and Paul withdrew $13,000 and $6,000,respectively.Provide the journal entry to close the withdrawal accounts.Omit explanation.
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) Accounting for stated value common stock is identical to accounting for par value stock.
A)True
B)False
Q2) Which of the following actions will decrease the amount of Total Stockholders' Equity?
A) cash dividend declared
B) stock split
C) stock dividend declared
D) repayment of bond principal
Q3) Stock dividends are declared by the ________.
A) chief financial officer of the company
B) board of directors of the company
C) chief executive officer of the company
D) stockholders of the company
Q4) A company may purchase treasury stock to support the company's stock price.
A)True
B)False
Q5) Jarrell,Inc.purchases 8,500 shares of the company's own $6 par common stock for $8 per share.Journalize the transaction.Omit explanation.
Page 15
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On January 1,2019,Outdoor Services issued $20,000 of 8% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.Provide the journal entry for the payment made on June 30,2019.Omit explanation.
Q2) The balance in the Bonds Payable is a credit of $74,000.The balance in the Premium on Bonds Payable is a credit of $1600.What is the bond carrying amount?
A) $1600
B) $75,600
C) $74,000
D) $72,400
Q3) The balance in the Bonds Payable account is a credit of $67,000.The balance in the Discount on Bonds Payable account is a debit of $3350.What is the bond's carrying amount?
A) $3350
B) $70,350
C) $67,000
D) $63,650
Q4) What is the only difference between present value and future value?
Q5) When computing the present value of a bond,which interest rate is used? Why?
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Chapter 15: Investments
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Sample Questions
Q1) Which of the following may pay dividends?
A) preferred stock
B) investors
C) Treasury bills
D) notes payable
Q2) Under the equity method,the Equity Investments account is debited for the receipt of a dividend because the dividend increases the investee's equity.
A)True
B)False
Q3) A preferred stock is an example of a debt security.
A)True
B)False
Q4) When a company receives a dividend payment on investments in equity securities with no significant influence,the ________.
A) total assets will remain unaffected
B) long-term assets will decrease
C) total equity will increase
D) total liabilities will decrease
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Page 17
Chapter 16: The Statement of Cash Flows
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Q1) IFRS requires the use of the indirect method for the operating activities section of the statement of cash flows.
A)True
B)False
Q2) Boston Recyclers Company uses the indirect method to prepare its statement of cash flows.Refer to the following information for 2019: 1.Retained Earnings,beginning balance,$139,000
2)Retained Earnings,ending balance,$120,000
3)There is a net loss of $15,000 for the year.
What is the amount of dividends declared during the year?
A) $34,000
B) $5000
C) $4000
D) $14,000
Q3) The operating activities section of the statement of cash flows reflects the cash flows that affect current assets and current liabilities.
A)True
B)False
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) Provide a description of the contents of each of the following components of the annual report.
\[\begin{array} { | l | l | }
\hline \text { Annual Report Component } & \text { Description of the contents } \\
\hline \text { MD\&A } & \\
\hline \text { Notes to financial statements } & \\
\hline
\end{array}\]
Q2) Annual reports ________.
A) are required to be prepared by every corporation
B) discuss the company's competitors and the risks related to the company's business
C) are also called a Form 10-Q
D) only include the company's financial statements
Q3) The price/earnings ratio shows the market price of $1 of earnings.
A)True
B)False
Q4) What is an annual report? Briefly describe the key parts of the annual report.
Q5) What is a common-size statement? Why are these statements useful?
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) Mason Cabinet Company sells standard kitchen cabinets.The following information summarizes Mason's operating activities for the year:
\[\begin{array} { | l | r | }
\hline \text { Selling and Administrative Expenses } & \$ 42,750 \\
\hline \text { Purchases } & 85,700 \\
\hline \text { Sales Revenue } & 154,500 \\
\hline \text { Merchandise Inventory, January 1 } & 12,500 \\
\hline \text { Merchandise Inventory, December 31 } & 16,200 \\
\hline
\end{array}\] Mason sold 950 cabinets during the year.
Calculate the operating income for the year.
Compute the unit cost for one cabinet (Round to two decimal places.)
Q2) Which of the following is a period cost for a manufacturing company?
A) office rent
B) wages of factory janitor
C) insurance cost of production equipment
D) raw materials
Q3) Financial reporting is typically much more detailed than managerial accounting.
A)True
B)False
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Chapter 19: Job Order Costing
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Sample Questions
Q1) Pandora Manufacturing purchased $95,000 of raw materials on account and $5,000 of raw materials for cash.The materials will be used to produce furniture.Provide the journal entry for the purchase of materials.Omit explanation.
Q2) The cost of indirect materials is transferred out of the Manufacturing Overhead account and accumulated in the Raw Materials Inventory account.
A)True
B)False
Q3) When job order costing is used in the service industry,the allocation of indirect costs is normally based on machine hours.
A)True
B)False
Q4) The actual direct labor costs are assigned to individual jobs,and the actual direct labor cost is recorded with a debit to Work-in-Process Inventory.
A)True
B)False
Q5) Patrick Manufacturing Systems uses job order costing and a perpetual inventory system.When recording the sale of a job,which account(s)is(are)credited?
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21
Chapter 20: Process Costing
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Sample Questions
Q1) Under process costing,the number of units to account for must always be ________ the number of units accounted for.
A) greater than B) lesser than C) equal to D) twice
Q2) Production cost reports prepared using the first-in,first-out (FIFO)method assume that the first units started in the production process are the last units completed and sold.
A)True
B)False
Q3) What are conversion costs? In determining equivalent units of production,why are conversion costs calculated separately from direct materials?
Q4) Which of the following is NOT a way in which managers use the production cost reports to make decisions for their companies?
A) evaluating performance
B) identifying the most profitable products
C) controlling period costs
D) preparing the financial statements
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Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) Delectable Foods produces a gourmet condiment that sells for $20 per unit.Variable cost is $8 per unit,and fixed costs are $5000 per month.If Delectable expects to sell 1500 units,compute the margin of safety in dollars.(Round any intermediate calculations to the nearest whole unit,and your final answer to the nearest dollar.)
A) $21,660
B) $1083
C) $5000
D) $8664
Q2) The fixed costs per unit will ________.
A) increase as production decreases
B) decrease as production decreases
C) remain the same as production levels change
D) increase as production increases
Q3) The use of variable costing to determine managers' bonuses does not give the incentive to produce more products than needed.
A)True
B)False
Q4) Explain the meaning of the operating loss and operating income areas on a cost-volume-profit (CVP)graph.
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Chapter 22: Master Budgets
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Sample Questions
Q1) Which of the following would not appear on the selling and administrative budget of O'dell Company?
A) Rent Expense
B) Depreciation Expense
C) Salaries Expense
D) Indirect Labor
Q2) Kwanzan Industries expects to sell 470 units of Product A and 410 units of Product B each day at an average price of $25 for Product A and $28 for Product B.The expected cost for Product A is 45% of its selling price and the expected cost for Product B is 65% of its selling price.Kwanzan Industries has no beginning inventory,but it wants to have a four-day supply of ending inventory for each product.Compute the budgeted purchases for the next (seven-day)week.(Round the answer to the nearest dollar.)
A) $89,247
B) $92,920
C) $162,610
D) $140,245
Q3) A master budget is a financial plan for a specific segment of an organization.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A company is analyzing its month-end results by comparing it to both static and flexible budgets.During the month,the actual fixed costs were lower than the expected fixed costs as per the static budget.This difference results in a(n)________.
A) unfavorable flexible budget variance for fixed costs
B) favorable sales volume variance for fixed costs
C) favorable flexible budget variance for fixed costs
D) unfavorable sales volume variance for fixed costs
Q2) The production manager of a company,in an effort to gain a promotion,negotiated a new labor contract with the factory employees that required them to bear a greater percentage of benefit costs than before,thus bringing down the cost of direct labor to the company.Shortly afterward,several experienced and highly skilled workers resigned,and were replaced by new employees whose work was very slow during their training period.At the end of the quarter,the company's profits fell 10%.This would produce a(n)________.
A) unfavorable direct materials cost variance
B) favorable direct labor cost variance
C) favorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance
Q3) What does the variable overhead cost variance measure?
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Communicating top management's expectations to segment managers improves goal congruence.
A)True
B)False
Q2) Investment center managers are responsible for generating profits and making the best use of the investment center's assets.
A)True
B)False
Q3) The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.
A)True
B)False
Q4) Goal congruence can be achieved when ________.
A) segment manager's goals align with top management's goals
B) each segment manager makes decisions which best benefits their own division
C) managers don't fully understand the "big picture"
D) top management institutes strategic plans which segment managers have difficulty implementing
Q5) List two objectives in setting transfer prices.
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Chapter 25: Short-Term Business Decisions
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Q1) Paper Tiger Stationary Company is a price-taker and uses target pricing.Refer to the following information: \[\begin{array} { | l | l | l | }
\hline \text { Production volume } & \$ 01,000 & \text { units per year } \\
\hline \text { Market price } & \$ 30 & \text { per unit } \\
\hline \text { Desired operating income } & 16 \% & \text { of total assets } \\
\hline \text { Total assets } & \$ 1,600,000 & \\
\hline
\end{array}\] What is the target full product cost per year? Assume all units produced are sold.
A) $18,030,000
B) $17,774,000
C) $25,600,000
D) $10,217,000
Q2) An outsourcing decision is a choice made by management about whether to make a component internally or buy it from an outside source.
A)True
B)False
Q3) Explain the difference between price-takers and price-setters.
Q4) Define the terms Relevant Cost and Sunk Cost.
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Chapter 26: Capital Investment Decisions
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Q1) When the internal rate of return is the same as the required rate of return,the net present value of an investment will be positive.
A)True
B)False
Q2) The accounting rate of return method considers the time value of money.
A)True
B)False
Q3) The payback method is a screening device and is rarely used as the sole method for deciding whether to invest in an asset.
A)True
B)False
Q4) When computing the present value,the interest rate will vary depending on the amount of risk.Safer investments,such as FDIC-insured bank deposits,yield lower interest rates.
A)True B)False
Q5) If the net cash inflows are unequal,how is the payback period (in years)of an investment calculated?
Q6) What are the strengths of the net present value capital budgeting method?
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