Principles of Accounting I Practice Questions
Course Introduction
Principles of Accounting I introduces students to the fundamental concepts and techniques used in financial accounting. The course covers the accounting cycle, including the recording, classification, and summarization of financial transactions for sole proprietorships. Emphasis is placed on understanding the preparation and interpretation of basic financial statements such as the balance sheet, income statement, and statement of owners equity. Students will learn the rules of double-entry bookkeeping, the use of journals and ledgers, and the significance of generally accepted accounting principles (GAAP). This foundation prepares students for advanced study in accounting and equips them with critical skills for making informed business decisions.
Recommended Textbook
Horngrens Accounting The Financial Chapters 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) Jones Supply Services paid $350 cash,the amount owed from the previous month,to a materials supplier.Which of the following accounts decrease?
A)Accounts Receivable
B)Accounts Payable
C)Jones,Capital
D)Office Supplies
Answer: B
Q2) A business can be organized as a sole proprietorship,partnership,corporation,or limited-liability company (LLC).
A)True
B)False
Answer: True
Q3) The SEC is a governmental agency that oversees world-wide financial markets and organizations that set accounting standards.
A)True
B)False Answer: False
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Page 3
Chapter 2: Recording Business Transactions
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Q1) An owner's withdrawals and expenses increase owner's equity.
A)True
B)False Answer: False
Q2) Which of the following is a liability account?
A)Accounts Payable
B)Prepaid Expense
C)Salaries Expense
D)Service Revenue
Answer: A
Q3) When is a trial balance usually prepared?
A)after each entry is journalized
B)before the financial statements are prepared
C)after the financial statements are prepared
D)at the beginning of an accounting period
Answer: B
Q4) The Owner,Withdrawals 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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Sample Questions
Q1) Luminous Electrical Company performed services of $8,000 on January 24 and invoiced the customer.Luminous received the $8,000 on January 31.Provide the journal entry on January 24 when services were performed.(Ignore explanation. )
Answer: 11ea8a75_425d_78b4_a2a1_0fda1de8762b_TB6701_00
Q2) The accountant for Barnes Auto Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year.Which of the following is an effect of this omission?
A)The net income will be overstated.
B)The total assets will be understated.
C)The net income will be understated.
D)The total assets will be overstated.
Answer: A
Q3) On March 1,2016,Nortons Company paid $60,000 as office rent covering the three-month period ending May 31,2016.Journalize the entry on March 1 by using the alternative treatment of deferred expenses.Omit explanation.
Answer: 11ea8a75_4264_cbdf_a2a1_dfaa78ef7670_TB6701_00
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) An increase in the current ratio implies that the profitability of the company has increased from the previous period.
A)True
B)False
Q2) Property,plant,and equipment are ________.
A)presented in order of the category name,with Land being presented last
B)also called fixed or plant assets
C)either tangible or intangible assets
D)easily converted to cash
Q3) The permanent accounts-assets,liabilities,and owner's equity-are closed to the Income Summary account.
A)True
B)False
Q4) Which of the following would be considered the weakest current ratio?
A)0.35
B)1.00
C)1.25
D)2.50
Q5) List the steps of the accounting cycle that take place during the period.
Q6) Why are temporary accounts not included in the post-closing trial balance?
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Chapter 5: Merchandising Operations
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Q1) Defective,damaged,or otherwise unsuitable merchandise that is returned to the seller is referred to as purchase allowances by the purchaser.
A)True
B)False
Q2) An amount that a business earns from selling merchandise inventory is known as sales revenue or sales.
A)True B)False
Q3) Cost of Goods Sold is based on the company's cost,not the retail price.
A)True
B)False
Q4) The main expense of a merchandiser is usually ________.
A)cost of goods sold
B)merchandise inventory
C)selling and administrative expenses
D)purchasing expense
Q5) Gross profit is the excess of cost of goods sold over net sales revenue. A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) During a period of declining inventory costs,which of the following inventory costing methods should be used by a company that intends to minimize its income tax expenses?
A)first-in,first-out
B)last-in,first-out
C)weighted-average
D)specific identification
Q2) Which of the following inventory costing methods is based on the actual cost of each particular unit of inventory?
A)specific identification
B)weighted-average
C)last-in,first-out
D)first-in,first-out
Q3) When using the weighted-average inventory costing method,the dollar amounts for ending inventory and cost of goods sold are the same for both the perpetual and periodic inventory costing methods.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The cash payments journal has two debit columns - one for Accounts Payable and one for Merchandise Inventory.
A)True
B)False
Q2) In a purchases journal,the total of the ________ column is not posted to the general ledger.
A)Merchandise Inventory DR
B)Other Accounts DR,Amount
C)Accounts Payable CR
D)Office Supplies DR
Q3) A general ledger is an accounting journal designed to record one specific type of transaction.
A)True B)False
Q4) The sales journal is used for all sales of merchandise inventory.
A)True B)False
Q5) List and briefly discuss the three basic components of an accounting information system.
Page 9
Q6) List and describe two features of an effective accounting information system.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) A receiving report should be matched with the supplier invoice before a payment to the supplier is approved.
A)True
B)False
Q2) Public companies ________.
A)must issue an internal control report which states that the outside auditor is responsible for the adequacy of internal controls
B)are audited by accounting firms that do not also provide certain consulting services to the public company
C)are required by the Financial Accounting Standards Board to maintain a system of internal controls
D)are overseen by the Public Company Accounting Oversight Board
Q3) Which of the following describes a firewall?
A)a malicious program that enters program code or destroys data without authorization
B)when two or more people cooperate together to defraud a company
C)a technique for protecting data
D)when a company defrauds its suppliers by making false claims
Q4) List the five components of internal control.
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Chapter 9: Receivables
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Sample Questions
Q1) The aging-of-receivables method is a balance sheet approach of estimating uncollectible accounts.
A)True
B)False
Q2) A company has net credit sales of $94,000,beginning net accounts receivable of $23,000 and ending net accounts receivable of $18,000.Calculate the days' sales in receivables.(Use 365 days in calculations as needed.Round any intermediate calculations to two decimal places,and your final answer to the nearest whole day. )
A)73 days
B)50 days
C)91 days
D)80 days
Q3) Bad Debt Expense is not debited when a company writes off an account receivable when using the allowance method because the company has already recorded the Bad Debt Expense as an adjusting entry.
A)True
B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) In 2018,a company purchased a small business for $250,000.The market value of the small business's assets was $400,000,and the market value of the liabilities was $200,000.The company recorded goodwill of $50,000 at the time of acquisition.At the end of 2019,it measured goodwill and found it had a remaining fair value of only $20,000.At year-end 2019,the company will ________.
A)record a loss on sale of assets
B)record an impairment loss
C)record accumulated depletion
D)record a gain in goodwill
Q2) The gain or loss on the sale of a plant asset is determined by comparing the market value of assets received with the ________ of asset sold.
A)book value
B)residual value
C)original cost
D)salvage value
Q3) The process of allocating the cost of a plant asset over its useful life is known as cost reduction.
A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) Vacation,health,and pension benefits must be estimated and recorded as a liability.
A)True
B)False
Q2) Angie Pereira and Ferro Schwartz are employees of Free Star Company.In February 2019,Angie's gross pay was $6000,and Ferro's gross pay was $7400.All earnings are subject to FICA-OASDI Tax of 6.2% and FICA-Medicare Tax of 1.45%.Which of the following would be included in the entry to record the salaries expense for February?
A)a debit to Salaries Payable to employees for $830.80
B)a debit to FICA-Medicare Taxes Payable for $830.80
C)a credit to FICA-OASDI Taxes Payable for $830.80
D)a credit to Salaries Expense for $830.80
Q3) Which of the following statements about the times-interest-earned ratio is TRUE?
A)A lower ratio indicates a higher debt paying ability.
B)Debt reduction leads to an increase in interest expense.
C)The times-interest-earned ratio is also called the interest-coverage ratio.
D)The times-interest-earned ratio is calculated by dividing gross income by interest expense.
Q4) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Partnerships
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Q1) When a partner sells his interest to another party,the journal entry simply credits the withdrawing partner's capital account and debits the new partner's capital.
A)True
B)False
Q2) Frank and Harry are partners.Frank has a capital balance of $51,000 and Harry has a capital balance of $40,000.Bill contributes a building with a fair market value of $27,000 to the partnership for an ownership interest of 20%.Calculate Bill's capital in the new partnership.
A)$13,000
B)$27,000
C)$24,000
D)$23,600
Q3) A written partnership agreement is also known as the articles of partnership. A)True
B)False
Q4) Whenever a partner mix in a partnership changes,the old partnership ceases to exist and a new partnership begins.
A)True
B)False
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Chapter 13: Corporations
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Q1) Preferred stock is stock ________.
A)that sells for a high price
B)that is distributed to employees as annual bonuses
C)that is distributed by corporations to avoid liquidation
D)that gives its owners certain advantages over common stockholders
Q2) On the income statement,earnings per share is shown for income from continuing operations.
A)True
B)False
Q3) A higher price/earnings ratio signifies a higher return on investment.
A)True
B)False
Q4) Which of the following is included in the entry to record the issuance of 14,000 shares of $7 par value common stock at $21 per share for cash?
A)Cash is debited for $294,000.
B)Common Stock is debited for $98,000.
C)Common Stock is credited for $294,000.
D)Paid-In Capital in Excess of Par-Common is debited for $196,000.
Q5) What is a prior-period adjustment? How and when is a prior-period adjustment recorded?
Page 15
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Chapter 14: Long-Term Liabilities
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Q1) The fact that invested cash earns interest over time is called the time value of money.
A)True
B)False
Q2) When a bond is issued,the issue price is the present value of the interest payments the bondholder will receive while holding the bond,plus the present value of the bond principal that will be received at maturity.
A)True
B)False
Q3) On January 1,2018,Western Services issued $20,000 of 8% bonds that mature in five years.The bonds were issued for $20,750.Prepare the journal entry to issue bonds.Omit explanation.
Q4) The time value of money is used to determine the market price of a bond. A)True
B)False
Q5) Bonds are short-term debt issued to multiple lenders called bondholders,usually in increments of $1,000 per bond.
A)True
B)False
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Chapter 15: Investments
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Sample Questions
Q1) A(n)________ is an example of equity securities.
A)preferred stock
B)municipal bond
C)corporate bond
D)Treasury bill
Q2) For no significant influence equity investments,provide the following:
a.Accounting method:
b.Balance Sheet effects:
c.Income Statement effects:
Q3) On May 18,2018,Fran Co.invested excess cash of $50,000 by purchasing bonds of Hans Inc.At year-end,December 31,2018,the market price of the bonds was $52,000.The investment is categorized as a trading debt investment.Journalize the adjusting entry needed at December 31,2018.Omit explanation.
Q4) Under the equity method,dividend revenue is treated as ________.
A)a debit to revenue from investments
B)dividend revenue
C)a return of capital
D)a credit to current assets
Q5) List and discuss two common reasons why companies invest in debt or equity securities.
Page 17
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Chapter 16: The Statement of Cash Flows
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Q1) The non-cash investing and financing activities section of the statement of cash flows appears as a separate schedule of the statement of cash flows or in the notes to the financial statements.
A)True
B)False
Q2) When preparing the statement of cash flows using the indirect method,depreciation expense is subtracted from net income under operating activities.
A)True
B)False
Q3) IFRS requires the use of the indirect method for the operating activities section of the statement of cash flows.
A)True
B)False
Q4) The three major categories included on the statement of cash flows are ________.
A)investing,operating,and financing activities
B)investing,capital,and financing activities
C)investing,operating,and contracting activities
D)financial,operating,and internal control activities
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Chapter 17: Financial Statement Analysis
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Q1) The times-interest-earned ratio measures the number of times earnings before interest and taxes can cover interest expense.
A)True
B)False
Q2) In a vertical analysis of the income statement,each line item is shown as a percentage of net income.
A)True
B)False
Q3) In regards to benchmarking,which of the following statements is incorrect?
A)Benchmarking is the practice of comparing a company with other leading companies.
B)The industry average is not a useful benchmark for evaluating a company.
C)Providing common-size percentages in a graphical manner highlights differences.
D)The two main types of benchmarks in financial statement analysis include benchmarking against the industry average and benchmarking against a key competitor.
Q4) An annual report provides information about a company's financial condition.
A)True
B)False
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