Principles of Accounting Exam Preparation Guide
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques used in financial and managerial accounting. The course covers the accounting cycle, including the recording, classification, and summarization of financial transactions, as well as the preparation and analysis of financial statements such as the balance sheet, income statement, and statement of cash flows. Emphasis is placed on understanding the role of accounting in decision-making for both internal and external stakeholders, ethical considerations, and the regulatory environment. Students will also explore basic cost concepts and budgeting, providing a solid foundation for more advanced accounting studies.
Recommended Textbook
Fundamentals of Financial Accounting 5th Edition by Fred Phillips
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13 Chapters
2859 Verified Questions
2859 Flashcards
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Chapter 1: Business Decisions and Financial Accounting
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211 Verified Questions
211 Flashcards
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Sample Questions
Q1) The purpose of a statement of retained earnings is to:
A) estimate the current value of a company's assets.
B) report the way that net income and dividends affected the financial position of the company during the period.
C) show where the cash is flowing into and out of a company.
D) report the specific revenues and expenses arising during the period.
Answer: B
Q2) Use the information above to answer the following question.What is the amount of net income for Year 4?
A) $3,825.
B) $1,825.
C) $10,300.
D) $5,625.
Answer: B
Q3) Creditors are:
A) people or organizations who owe money to a business.
B) people or organizations to whom a business owes money.
C) stockholders of a business.
D) customers of a business.
Answer: B
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Chapter 2: Reporting Investing and Financing Results on the Balance Sheet
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Sample Questions
Q1) Oats,Inc.has $14,000 in Cash,$37,000 in Accounts Receivable,$2,500 in Supplies,$52,000 in Accounts Payable and $12,400 in Wages Payable.If Oats uses Cash to pay off $8,000 of the Wages Payable,which of the following statements is correct?
A) The company's current ratio will not change since current assets decreased by the same amount that current liabilities increased.
B) The company will look more favorable to creditors.
C) The company has a greater ability to pay current liabilities.
D) The company's current ratio will decrease.
Answer: D
Q2) For both accounts and amounts,the standard formatting for a journal entry lists:
A) credits first and then debits, both aligned to the left.
B) credits first and then debits, indented underneath.
C) debits first and then credits, both aligned to the right.
D) debits first and then credits, indented to the right underneath.
Answer: D
Q3) A business is obliged to repay both debt and equity financing.
A)True
B)False
Answer: False
Page 4
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Chapter 3: Reporting Operating Results on the Income Statement
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235 Flashcards
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Sample Questions
Q1) Which of the following accounts has a normal credit balance?
A) Cash
B) Notes Receivable
C) Salaries and Wages Expense
D) Unearned Revenue
Answer: D
Q2) This month,a company performed $517,000 of services and incurred total expenses of $438,000.The company was paid in cash for all its services and paid cash for all its expenses.These transactions would cause:
A) revenues to increase by $517,000, expenses to increase by $438,000, and Retained Earnings to decrease by $79,000.
B) Cash to increase by $517,000, expenses to increase by $438,000, and Common Stock to increase by $79,000.
C) revenues to increase by $517,000, expenses to increase by $438,000, and Cash to increase by $79,000.
D) revenues to increase by $79,000, expenses to increase by $438,000, and Cash to increase by $517,000.
Answer: C
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Chapter 4: Adjustments,financial Statements,and Financial
Results
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246 Flashcards
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Sample Questions
Q1) Lansing Limited had a beginning balance in its Retained Earnings account of $385,600.During the year,the company declared and paid a $4,700 dividend,and at the end of the year,it reported Retained Earnings of $399,860.The company's net income for the year was:
A) $14,260.
B) $18,960.
C) $9,560.
D) $0.
Q2) The term,deferral,best describes a situation in which:
A) cash is paid in advance of recognizing an expense.
B) an expense is recognized before it is paid for with cash.
C) an expense is recognized after cash has been received.
D) a liability is established at the time an expense is recognized.
Q3) Your business purchased an investment security on April 1 that will pay $90 interest on June 30.Which of the following adjusting entries would be made on April 30?
A) Debit Interest Receivable and credit Interest Revenue for $90
B) Debit Interest Revenue and credit Interest Receivable for $30
C) Debit Interest Receivable and credit Interest Revenue for $30
D) Debit Interest Revenue and credit Interest Receivable for $90
Page 6
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Chapter 5: Fraud, Internal Control, and Cash
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188 Flashcards
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Sample Questions
Q1) A voucher is an internal file that:
A) is prepared after an invoice is received.
B) is used as a substitute for an invoice
C) is a collection of documents prepared at each step in the voucher system
D) takes the place of a bank check
E) is prepared before the company orders goods.
Q2) A highly effective internal control should not be implemented if the cost is greater than the benefit.
A)True
B)False
Q3) Use the information above to answer the following question.What is the up-to-date ending Cash balance?
A) $18,000
B) $17,230
C) $19,000
D) $19,270
Q4) Define internal control and identify the objectives of internal control system.
Q5) Identify at least five reasons why the company's records might differ from the bank's records.Describe the purpose of a bank reconciliation and discuss why it is a key control.
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Chapter 6: Internal Control and Financial Reporting for Cash and
Merchandising
Operations
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210 Flashcards
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Sample Questions
Q1) If merchandise costing $500 is sold on account for $620,how is this transaction recorded when using a perpetual inventory system?
A) Debit Accounts Receivable, credit Sales Revenue for $620; debit Cost of Goods Sold, and credit Inventory for $500
B) Debit Accounts Receivable and credit Sales Revenue for $620
C) Debit Cash and credit Sales Revenue for $620; debit Cost of Goods Sold and credit Inventory for $500
D) Debit Accounts Receivable and credit Sales Revenue for $620; debit Inventory and credit Cost of Goods Sold for $500
Q2) Contra-revenue accounts:
A) are balance sheet accounts.
B) increase net income.
C) are increased with a debit.
D) increase net sales.
Q3) The operating cycle involves:
A) generating revenues and collecting from customers
B) purchasing of long-term assets
C) borrowing and repaying of long-term debt
D) issuing of stock
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Chapter 7: Reporting and Interpreting Inventories and Cost of Goods
Sold
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Sample Questions
Q1) Which company is most likely to have a higher inventory turnover than its competitors within the same industry?
A) A company with lower-priced goods and lower gross profit
B) A company with higher-priced goods and lower gross profit
C) A company with higher-priced goods and higher gross profit
D) A company that reports lower cost of goods sold and higher inventory values
Q2) Lucia Inc.uses a perpetual inventory system.The company has a beginning inventory of 400 units at $70 per unit.The company purchases 1,000 units in August at $72 each and 600 units in November at $75 each.The company sells 1,000 units in September and 900 units in December.
Required:
Calculate the company's ending inventory and cost of goods sold using the each of following inventory costing methods.(Round the per unit cost to two decimal places and then round your answer to the nearest whole dollar.)
Part a.FIFO
Part b.LIFO
Part c.Weighted Average
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Page 9
Chapter 8: Reporting and Interpreting Receivables,bad
Debt Expense,and Interest Revenue
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Sample Questions
Q1) Establishing a note receivable by loaning cash to another company will have which of the following net effects on the accounting equation?
A) Increase assets; No effect on liabilities; Increase stockholders' equity
B) Increase assets; No effect on liabilities; No effect on stockholders' equity
C) No effect on assets; No effect on liabilities; Decrease stockholders' equity
D) No effect on assets; No effect on liabilities; No effect on stockholders' equity
Q2) Specialty Inc.converts an existing account receivable to a note receivable to allow an extended payment period.Specialty receives a $2,000,3-month,12% promissory note from its customer.What entry will Specialty make upon receipt of the note?
A) Debit Notes Receivable and credit Accounts Receivable for $2,060
B) Debit Accounts Receivable and credit Notes Receivable for $2,000
C) Debit Notes Receivable for $2,000, debit Interest Receivable for $60, credit Accounts Receivable for $2,000, and credit Interest Revenue for $60
D) Debit Notes Receivable and credit Accounts Receivable for $2,000
Q3) The decision to sell to extend credit to customers will decrease wage costs.
A)True
B)False
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Page 10
Chapter 9: Reporting and Interpreting Long-Lived Tangible and Intangible Assets
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Sample Questions
Q1) Loss on Impairment is a(n):
A) operating expense that appears on the balance sheet.
B) reduction to depreciation expense for the year.
C) contra-revenue account.
D) operating expense that appears on the income statement.
Q2) Morris Lest,Inc.sold its truck and received less cash than the truck's book value.The net effect of this sale on the accounting equation is a(n):
A) increase to total assets.
B) increase to stockholders' equity.
C) decrease to total liabilities.
D) decrease to stockholders' equity.
Q3) The units-of-production method provides the closest matching of a long-lived asset's depreciation expense to the revenues generated by using that asset when the:
A) amount of production is the highest in the early years of an asset's life and lower in later years.
B) long-lived asset is used by a merchandising operation.
C) amount of production remains fairly constant from one period to the next.
D) amount of asset production varies significantly from one period to the next.
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Chapter 10: Reporting and Interpreting Liabilities
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Sample Questions
Q1) Bonds that are not backed by collateral are referred to as "debentures."
A)True
B)False
Q2) Which one of the following accounts would not necessarily be classified as a current liability?
A) Accounts payable
B) Accrued liabilities
C) Contingent liabilities
D) Current portion of long-term debt
Q3) Use the information above to answer the following question.What is the issue price of these bonds?
A) $300,000
B) $285,000
C) $315,000
D) $330,000
Q4) The straight-line method of amortization allocates the amount of bond premium or discount over each period of a bond's life in amounts corresponding to the bond's carrying value.
A)True
B)False
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Chapter 11: Reporting and Interpreting Stockholders Equity
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Sample Questions
Q1) A corporation does not have a legal obligation to pay dividends.
A)True
B)False
Q2) Contributed capital totals $30,000,Retained Earnings equals $65,000,Treasury Stock equals $18,000,and Common Stock equals $10,000.If the company does not have any accumulated other comprehensive income (loss),stockholders' equity,what is the total amount of stockholders' equity?
A) $113,000
B) $77,000
C) $123,000
D) $87,000
Q3) At the end of the accounting period,but before the closing entries have been recorded,Harry,the proprietor of Harry's Bar and Grill,has a debit of $24,500 in his drawing account and a credit of $126,800 in his capital account.If his capital account has a credit balance of $137,900 after the closing,what was his net income?
A) $11,100
B) $35,600
C) $113,400
D) $13,400
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Page 13
Chapter 12: Reporting and Interpreting the Statement of Cash Flows
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Sample Questions
Q1) Which of the following statements about the statement of cash flows is not correct?
A) The statement of cash flows can be used to assess the likelihood of a company paying dividends.
B) Net cash flow is the best measure of profitability since it does not rely on estimates.
C) A company can have positive net income but at the same time have negative cash flow.
D) The statement of cash flows is the only financial statement that reports business activities.
Q2) Free cash flow is a positive cash flow from operating activities:
A) beyond what is needed to replace current property, plant, and equipment and pay cash dividends.
B) across all three activity components of the statement of cash flows.
C) beyond what has been allotted for future property, plant, and equipment replacement and expansion.
D) across both financing and investing activities.
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Chapter 13: Measuring and Evaluating Financial Performance
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Sample Questions
Q1) Horizontal analysis is the comparison of each financial statement amount to another amount on the same financial statement.
A)True
B)False
Q2) Which of the following statements about the Price/Earnings ratio is not correct?
A) The Price/Earnings ratio indicates how much investors are willing to pay for a share of a company's stock as a multiple of current earnings.
B) A high Price/Earnings ratio may mean that investors have pushed the price of the stock up in anticipation of higher future net income.
C) If EPS decreases and there is no change in the market price of the stock, the Price/Earnings ratio will decrease.
D) If the market price of the stock increases and there is no change in EPS, the Price/Earnings ratio will increase.
Q3) Financial statement analysis is useful for:
A) evaluating a company's success in meeting the challenges that it faces.
B) selecting the most appropriate accounting rules to follow.
C) determining the market price of a company's stock.
D) comparing US companies with foreign companies.
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