Principles of Accounting II Exam Solutions
Course Introduction
Principles of Accounting II builds on foundational concepts introduced in the first accounting course, focusing on more advanced aspects of financial and managerial accounting. The course covers topics such as accounting for partnerships and corporations, the analysis and interpretation of financial statements, and the study of cash flows. Students will explore cost accounting systems, budgeting, standard costing, and variance analysis, providing insights into how accounting information supports internal decision-making processes in organizations. Emphasis is placed on the application of accounting principles to real-world business scenarios, preparing students for further studies in accounting and finance or for practical use in a professional setting.
Recommended Textbook
Financial and Managerial Accounting 12th Edition by
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Page 2
Carl S. Warren
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) Within the United States, the dominant body in the primary development of accounting principles is the
A) American Institute of Certified Public Accountants (AICPA)
B) American Accounting Association (AAA)
C) Financial Accounting Standards Board (FASB)
D) Institute of Management Accountants (IMA)
Answer: C
Q2) The unit of measure concept
A) is only used in the financial statements of manufacturing companies
B) is not important when applying the cost concept
C) requires that different units be used for assets and liabilities
D) requires that economic data be reported in yen in Japan or dollars in the United States
Answer: D
Q3) The accounting equation can be expressed as Assets - Liabilities = Stockholders' Equity.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Expenses follow the same debit and credit rules as A) revenues
B) dividends
C) capital stock
D) liabilities
Answer: B
Q2) The chart of accounts classifies the accounts to make identification of the accounts easier. This is done by way of assigning a number to each account. The first number identifies the classification of the type of account. Which of the following indicates the use of this classification?
A) 1-Assets, 2-Liabilities, 3-Stockholders' Equity, 4-Expenses, 5-Revenues
B) 1-Assets, 2-Liabilities, 3-Stockholders' Equity, 4-Revenues, 5-Expenses
C) 1-Assets, 2-Stockholders' Equity, 3-Revenues, 4-Expenses, 5-Dividends
D) 1-Stockholders' Equity, 2-Dividends, 3-Revenues, 4-Expenses
Answer: B
Q3) Transactions are initially entered into a record called a journal.
A)True
B)False
Answer: True
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Page 4
Chapter 3: The Adjusting Process
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Sample Questions
Q1) The adjustment for accrued fees was debited to Accounts Payable instead of Accounts Receivable. This error will be detected when the Adjusted Trial Balance is prepared.
A)True
B)False
Answer: False
Q2) A contra asset account for Land will normally appear in the balance sheet.
A)True
B)False
Answer: False
Q3) At the end of the fiscal year, the usual adjusting entry for depreciation on equipment was omitted. Which of the following statements is true?
A) Total assets will be understated at the end of the current year.
B) The balance sheet and income statement will be misstated, but the retained earnings statement will be correct for the current year.
C) Net income will be overstated for the current year.
D) Total liabilities and total assets will be understated.
Answer: C
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) A fiscal year
A) ordinarily begins on the first day of a month and ends on the last day of the following twelfth month.
B) for a business is determined by the federal government.
C) always begins on January 1 and ends on December 31 of the same year.
D) should end at the height of the business's annual operating cycle.
Q2) The majority of businesses end their fiscal year on December 31.
A)True
B)False
Q3) An indication that the work sheet columns are in balance and the work sheet is completed is
A) the word "Total" is written at the bottom of each pair of columns
B) each pair of columns is double underlined
C) each pair of columns has the totals circled
D) the final figures are written in ink
Q4) The end-of-period spreadsheet (work sheet) for the current year for Jamal Company shows Balance Sheet columns with a debit total of $630,430 and a credit total of $614,210. This is before the amount for net income or net loss has been included. In preparing the income statement from work sheet, what is the amount of net income or net loss?
Page 6
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) The cost of merchandise inventory is limited to the purchase price less any purchase discounts.
A)True
B)False
Q2) A retailer purchases merchandise with a catalog list price of $25,000. The retailer receives a 30% trade discount and credit terms of 2/10, n/30. What amount should the retailer debit to the Merchandise Inventory account?
A) $7,500
B) $17,500
C) $25,000
D) $17,250
Q3) Retailers record all credit card sales as credit sales.
A)True
B)False
Q4) A deduction allowed to wholesalers and retailers from the price of merchandise listed in catalogs is called cash discounts.
A)True
B)False
Q5) Discuss the following statement:
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Chapter 6: Inventories
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Sample Questions
Q1) FIFO is the inventory costing method that follows the physical flow of the goods.
A)True
B)False
Q2) Inventory controls start when the merchandise is shelved in the store area.
A)True
B)False
Q3) Control of inventory should begin as soon as the inventory is received. Which of the following internal control steps is not done to meet this goal?
A) check the invoice to the receiving report
B) check the invoice to the purchase order
C) check the invoice with the person who specifically purchased the item
D) check the invoice extensions and totals
Q4) Unsold consigned merchandise should be included in the consignee's inventory.
A)True
B)False
Q5) Generally, the lower the number of days' sales in inventory, the better.
A)True
B)False
Q6) List three different security measures taken by stores to safeguard inventory.
Page 8
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Chapter 7: Sarbanes-Oxley, Internal Control, and Cash
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Sample Questions
Q1) There are two internal control objectives and they are to ensure accurate financial reports, and ensure compliance with applicable laws.
A)True
B)False
Q2) Sarbanes-Oxley requires companies to maintain strong and effective internal controls and thus prevent fraud and misleading financial statements.
A)True
B)False
Q3) The Sarbanes-Oxley Act of 2002 was passed by Congress due to the public outcry after the financial scandals of the early 2000s.
A)True
B)False
Q4) For strong internal control system over cash, it is important to have the duties related to cash receipts and cash payments divided among different employees.
A)True
B)False
Q5) List the principal advantage of Electronic Funds Transfers.
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Page 9
Chapter 8: Receivables
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Sample Questions
Q1) Financial Statement data for the years ended December 31 for Parker Corporation is as follows:
2012 2011
Net Sales $2,595,600 $2,409,500 Accounts Receivable
Beginning of the year $ 390,000 $400,000
End of the year 434,000 390,000
a) Determine the accounts receivable turnover for 2012 and 2011.
b) Determine the number of days' sales in receivables for 2012 and 2011.
c) Does the change in accounts receivable turnover and number of days' sales in receivables from 2011 to 2012 indicate a favorable or unfavorable trend.?
Q2) A 60-day, 9% note for $10,000, dated May 1, is received from a customer on account.
The maturity value of the note is
A) $10,000
B) $10,150
C) $10,900
D) $9,100
Q3) List at least three things that indicate a receivable may be uncollectible.
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Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) When a company replaces a component of property, plant and equipment, which statement below does not account for one of the steps in the process?
A) book value of the replaced component is written off to depreciation expense
B) the asset cost of the replaced component is credited
C) any cost to remove the old component is charged to expense
D) the identifiable direct costs associated with the new component are capitalized
Q2) On June 1, 2014, Aaron Company purchased equipment at a cost of $120,000 that has a depreciable cost of $90,000 and an estimated useful life of 3 years and 30,000 hours.
Using straight line depreciation, prepare the journal entry to record depreciation expense for (a) the first year, (b) the second year and (c) the last year.
Q3) The double-declining-balance method is an accelerated depreciation method.
A)True B)False
Q4) A copy machine acquired on March 1, 2011 with a cost of $1,410 has an estimated useful life of 3 years. Assuming that it will have a residual value of $150, determine the depreciation for the first and second year by the straight-line method.
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11
Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) Which of the following will have no effect on an employee's take-home pay?
A) Social security tax
B) Unemployment tax
C) Marital status
D) Number of exemptions claimed
Q2) The amount of federal income taxes withheld from an employee's gross pay is recorded as a(n)
A) payroll expense
B) contra account
C) asset
D) liability
Q3) On June 8, Alton Co. issued an $95,000, 6%, 120-day note payable to Seller Co. What is the due date of the note?
A) October 8
B) October 7
C) October 6
D) October 5
Q4) One of the more popular defined contribution plans is the 401k plan.
A)True
B)False
Page 12
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Chapter 11: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) The day on which the board of directors of the corporation distributes a dividend is called the declaration date.
A)True
B)False
Q2) Organizational expenses are classified as intangible assets on the balance sheet. A)True
B)False
Q3) The main source of paid-in-capital is from issuing stock.
A)True
B)False
Q4) On April 10, a company acquired land in exchange for 1,000 shares of $20 par common stock with a current market price of $73. Journalize this transaction.
Q5) Match the value to the appropriate account. For the year ended 2012 ABC had the following transactions:
Q6) The retained earnings statement may be combined with the income statement. A)True
B)False
Page 13
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) A $300,000 bond was redeemed at 104 when the carrying value of the bond was $315,000. The entry to record the redemption would include a
A) loss on bond redemption of $3,000.
B) gain on bond redemption of $3,000.
C) gain on bond redemption of $4,000.
D) loss on bond redemption of $4,000.
Q2) On January 1, 2010 Orange Retail Co. issued a $300,000, 3 year, 6% installment note payable with payments of $100,000 principal and interest due on January 1st for each of the next 3 years.
1. Prepare the adjusting journal entry to accrue interest at the end of the 2nd year12/31/11.
2. Show the account(s) and amount (s) and where the account(s) will appear on a multi-step income statement prepared on December 31, 2011.
3. Show the account(s) and amount(s) and where the account(s) will appear on a classified balance sheet prepared on December 31, 2011.
Q3) The unamortized Discount on Bonds Payable account is a contra-liability account. A)True B)False
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Chapter 13: Investments and Fair Value Accounting
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Sample Questions
Q1) The company whose more than 50% stock is owned by the another company is called the
A) controlling company.
B) investee company.
C) subsidiary company.
D) sibling company.
Q2) Foreign currency translation adjustment is an example of an item that would be included in Other Comprehensive Income.
A)True
B)False
Q3) Blanton Corporation purchased 35% of the outstanding shares of common stock of Worton Corporation as a long-term investment. Subsequently, Worton Corporation reported net income and declared and paid cash dividends. What journal entry would Blanton Corporation use to record the dividends it receives from Worton Corporation?
A) debit Investment in Worton Corporation; credit Cash
B) debit Cash; credit Dividend Revenue
C) debit Investment in Worton Corporation; credit Income of Worton Corporation
D) debit Cash; credit Investment in Worton Corporation
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15
Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) Cash dividends of $50,000 were declared during the year. Cash dividends payable were $10,000 and $5,000 at the beginning and end of the year, respectively. The amount of cash for the payment of dividends during the year is
A) $55,000
B) $50,000
C) $65,000
D) $60,000
Q2) Cash outflows from financing activities include the payment of cash dividends, the acquisition of treasury stock, and the repayment of amounts borrowed.
A)True
B)False
Q3) A ten-year bond was issued at par for $250,000 cash. This transaction should be shown on a statement of cash flows under
A) investing activities
B) financing activities
C) noncash investing and financing activities
D) operating activities
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Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Ratios and various other analytical measures are not a substitute for sound judgment, nor do they provide definitive guides for action.
A)True
B)False
Q2) When the rate of return on total assets ratio is greater than the rate of return on common stockholders' equity ratio, the management of the company has effectively used leverage.
A)True
B)False
Q3) In performing a vertical analysis, the base for cost of goods sold is
A) total selling expenses.
B) net sales.
C) total expenses.
D) gross profit.
Q4) The ratio of fixed assets to long-term liabilities provides a measure of a firm's ability to pay dividends.
A)True
B)False
Q5) Define solvency and profitability. How are they alike?
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Chapter 16: Managerial Accounting Concepts and Principles
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Sample Questions
Q1) All of the following would probably be considered a direct material except:
A) steel
B) fabric
C) glue
D) lumber
Q2) Which of the following is not a factory overhead cost?
A) materials used directly in the manufacturing process of the product
B) insurance on factory equipment
C) salaries of production supervisors
D) property tax on factory building
Q3) The cost of goods sold for Heedy manufacturing in 2011 was $233,000. The January 1, 2011, finished goods inventory balance was $31,600, and the December 31, 2011, finished goods inventory balance was $24,200. Cost of goods manufactured during the period was:
A) $233,000
B) $225,600
C) $288,800
D) $240,400
Q4) Differentiate between financial and managerial accounting, addressing such issues as what reports are generated, when, and for whom.
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Chapter 17: Job Order Costing
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Sample Questions
Q1) In a job order cost accounting system for a service business, materials costs are normally included as part of overhead.
A)True
B)False
Q2) A receiving report is prepared when purchased materials are first received by the manufacturing department.
A)True
B)False
Q3) Flagler Company allocates overhead based on machine hours. They estimated overhead costs for the year to be $420,000. Estimated machine hours were 50,000. Actual hours and costs for the year were 46,000 machine hours and $380,000 of overhead.
Required:
a. Calculate the overhead application rate for the year.
b. What is the amount of applied overhead for the year?
c. What is the amount of under or overapplied overhead for the year? Indicate whether it is over- or underapplied.
Q4) List the accounts used in the cost flow for (a) a manufacturer and (b) a service provider.
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Chapter 18: Process Cost Systems
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Sample Questions
Q1) In the manufacture of 15,000 units of a product, direct materials cost incurred was $165,000, direct labor cost incurred was $105,000, and applied factory overhead was $53,500. What is the total conversion cost?
A) $270,000
B) $158,500
C) $323,500
D) $53,500
Q2) Department A had 4,000 units in work in process that were 60% completed as to labor and overhead at the beginning of the period, 29,000 units of direct materials were added during the period, 31,000 units were completed during the period, and 2,000 units were 80% completed as to labor and overhead at the end of the period. All materials are added at the beginning of the process. The first-in, first-out method is used to cost inventories. The number of equivalent units of production for material costs for the period was:
A) 33,000
B) 29,800
C) 29,000
D) 32,000
Q3) Describe the flow of materials in a process cost accounting system.
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Page 20
Chapter 19: Cost Behavior and Cost-Volume-Profit Analysis
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Sample Questions
Q1) Direct materials and direct labor costs are examples of variable costs of production. A)True
B)False
Q2) If fixed costs are $300,000, the unit selling price is $31, and the unit variable costs are $22, what is the break-even sales (units) if fixed costs are reduced by $30,000?
A) 30,000 units
B) 8,710 units
C) 12,273 units
D) 20,000 units
Q3) Calzone Co. has budgeted salary increases to factory supervisors totaling 8%. If selling prices and all other cost relationships are held constant, next year's break-even point:
A) will decrease by 8%
B) will increase by 8%
C) cannot be determined from the data given
D) will increase at a rate greater than 8%
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Chapter 20: Variable Costing for Management Analysis
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Q1) Fixed factory overhead costs are included as part of the cost of products manufactured under the absorption costing concept.
A)True
B)False
Q2) For a period during which the quantity of product manufactured was less than the quantity sold, income from operations reported under absorption costing will be larger than income from operations reported under variable costing.
A)True
B)False
Q3) If the ability to sell and the amount of production facilities devoted to each of two products is equal, it is profitable to increase the sales of that product with the highest contribution margin.
A)True
B)False
Q4) The factory superintendent's salary would be included as part of the cost of products manufactured under the absorption costing concept.
A)True
B)False
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Chapter 21: Budgeting
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Q1) The budgeting process is used to effectively communicate planned expectations regarding profits and expenses to the entire organization.
A)True
B)False
Q2) A budget can be an effective means of communicating management's plans to the employees of a business.
A)True
B)False
Q3) The budgetary unit of an organization which is led by a manager who has both the authority over and responsibility for the unit's performance is known as a:
A) control center
B) budgetary area
C) responsibility center
D) managerial department
Q4) The budgeted direct materials purchases is normally computed as the sum of (1) the materials for production and (2) the desired ending inventory.
A)True
B)False
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Page 23
Chapter 22: Performance Evaluation Using Variances From Standard
Costs
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Q1) If the standard to produce a given amount of product is 2,000 units of direct materials at $12 and the actual was 1,600 units at $13, the direct materials quantity variance was $5,200 favorable.
A)True
B)False
Q2) A company should only use nonfinancial performance measures when financial measures cannot be calculated.
A)True
B)False
Q3) Standard costs are determined by multiplying expected price by expected quantity. A)True
B)False
Q4) Define ideal and currently attainable standards. Which type of standard should be used and why?
Q5) Standard costs should always be revised when they differ from actual costs. A)True B)False
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Chapter 23: Performance Evaluation for Decentralized Operations
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Q1) Service department charges are similar to the expenses of a profit center that purchased services from a source outside the company.
A)True
B)False
Q2) The rates at which services are charged to each division are called service department charge rates.
A)True
B)False
Q3) The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers.
A)True
B)False
Q4) Developing and retaining quality managers is an advantage of decentralization.
A)True
B)False
Q5) The DuPont formula uses financial and nonfinancial information to measure the performance of a business.
A)True B)False
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Chapter 24: Differential Analysis and Product Pricing
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Q1) Flyer Company sells a product in a competitive marketplace. Market analysis indicates that their product would probably sell at $48 per unit. Flyer management desires a 12.5% profit margin on sales. Their current full cost per unit for the product is $44 per unit. What is the target cost of the company's product?
A) $44
B) $42
C) $43
D) $40
Q2) Target costing is arrived at by
A) taking the selling price and subtracting desired profit.
B) taking the selling price and adding desired profit.
C) taking the selling price and subtracting the budget standard cost.
D) taking the budget standard cost and reducing it by 10%.
Q3) Which of the following reasons would cause a company to reject an offer to accept business at a special price?
A) The additional sale will not conflict with regular sales.
B) The additional sales will increase differential income.
C) The additional sales will not increase fixed expenses.
D) The additional sales will increase fixed expenses.
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Page 26
Chapter 25: Capital Investment Analysis
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Q1) Average rate of return equals average investment divided by estimated average annual income.
A)True
B)False
Q2) A company is contemplating investing in a new piece of manufacturing machinery. The amount to be invested is $100,000. The present value of the future cash flows at the company's desired rate of return is $100,000. The IRR on the project is 12%. Which of the following statements is true?
A) The project should not be accepted because the net present value is negative.
B) The desired rate of return used to calculate the present value of the future cash flows is less than 12%.
C) The desired rate of return used to calculate the present value of the future cash flows is more than 12%.
D) The desired rate of return used to calculate the present value of the future cash flows is equal to 12%.
Q3) A series of equal cash flows at fixed intervals is termed an annuity.
A)True
B)False
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Chapter 26: Cost Allocation and Activity-Based Costing
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Q1) All of the following can be used as an allocation base for calculating factory overhead rates except:
A) direct labor dollars
B) direct labor hours
C) machine hours
D) total overhead costs
Q2) Everest Co. uses a plantwide factory overhead rate based on direct labor hours. Overhead costs would be overcharged to which of the following departments?
A) A labor-intensive department
B) A capital-intensive department
C) A materials-intensive department
D) All of the above
Q3) The Sawtooth Leather Company manufactures leather handbags and moccasins. For simplicity reasons, they have decided to use the single plantwide factory overhead rate method to allocate factory overhead. Calculate the amount of factory overhead to be allocated to each unit using direct labor hours.
Q4) Product costing consists of only direct materials and direct labor.
A)True
B)False
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Chapter 27: Cost Management for Just-In-Time
Environments
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Q1) Maximum effectiveness and efficiency are reached when the just-in-time (JIT) philosophy is used only by manufacturers.
A)True
B)False
Q2) In a just-in-time (JIT) environment, the journal entry to record raw materials purchases would include a credit to the raw materials inventory account.
A)True
B)False
Q3) In a pull manufacturing system, raw materials are released to production based on forecasted demand.
A)True
B)False
Q4) Just-in-time manufacturing philosophy reduces all of the following except A) inventory
B) setup time
C) lead time
D) overhead costs
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