Principles of Accounting Question Bank
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques of financial and managerial accounting. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, and the role of accounting information in business decision-making. Students learn the principles governing recording transactions, measuring business performance, and communicating financial results to stakeholders, while gaining practical skills in applying accounting methods to real-world scenarios. This foundation is designed to benefit those pursuing further studies in business, finance, or related fields.
Recommended Textbook
Corporate Financial Accounting 15th Edition by Carl S. Warren
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15 Chapters
3080 Verified Questions
3080 Flashcards
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Page 2
Chapter 1: Accounting and Business
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244 Flashcards
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Sample Questions
Q1) Explain the meaning of the business entity assumption.
Answer: The business entity assumption limits the economic data in an accounting system to data related directly to the activities of the business. In other words, the business is viewed as an entity separate from its owners, creditors, or other businesses.
Q2) Which of the following is not a characteristic of a corporation?
A) Corporations are organized as a separate legal taxable entity.
B) Ownership is divided into shares of stock.
C) Corporations experience an ease in obtaining large amounts of resources by issuing stock.
D) A corporation's resources are limited to its individual owners' resources.
Answer: D
Q3) Senior executives cannot be criminally prosecuted for the wrong doings they commit on behalf of the companies where they work.
A)True
B)False
Answer: False
Q4) What are the three sections of the statement of cash flows?
Answer: Operating Activities, Investing Activities, and Financing Activities
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Chapter 2: Double-Entry Accounting
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Sample Questions
Q1) Which of the following accounts would be increased with a credit?
A) Land; Accounts Payable; Dividends
B) Accounts Payable; Unearned Revenue; Common Stock
C) Dividends; Accounts Receivable; Unearned Revenue
D) Cash; Accounts Receivable; Common Stock
Answer: B
Q2) Even when a trial balance is in balance, there may be errors in the individual accounts.
A)True
B)False Answer: True
Q3) A dividends account represents the amount of earnings paid to the stockholders. A)True B)False Answer: True
Q4) On October 17, Nikle Company purchased a building and a plot of land for $750,000. The building was valued at $500,000 while the land carried a value of $250,000. Nikle paid $300,000 down in cash and signed a note payable for the balance. Provide the journal entry for this transaction.
Answer: 11ea84e6_b037_e969_9a63_b970a524d3d7_TB2281_00_TB2281_00
Page 4
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Chapter 3: Adjustments: Accruals and Deferrals
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Sample Questions
Q1) Prior to the adjusting process, accrued revenue has
A) been earned and cash received
B) been earned and not recorded as revenue
C) not been earned but recorded as revenue
D) not been recorded as revenue but cash has been received
Answer: B
Q2) DogMart Company records depreciation for equipment. Depreciation for the period ending December 31 is $1,400 for office equipment and $2,650 for production equipment. Prepare the two entries to record the depreciation.
Answer: 11ea84e6_b02f_f9b6_9a63_916feae9dc8a_TB2281_00_TB2281_00 11ea84e6_b02f_f9b7_9a63_59e97718e82e_TB2281_00_TB2281_00
Q3) An adjusting entry would adjust an expense account so the expense is reported when incurred.
A)True
B)False
Answer: True
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Chapter 4: The Accounting Cycle
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Sample Questions
Q1) The following are all the steps in the accounting cycle. List them in the order in which they should be done.
- Closing entries are journalized and posted to the ledger.
- An unadjusted trial balance is prepared.
- An optional end-of-period spreadsheet is prepared.
- A post-closing trial balance is prepared.
- Adjusting entries are journalized and posted to the ledger.
- Transactions are analyzed and recorded in the journal.
- Adjustment data are assembled and analyzed.
- Financial statements are prepared.
- An adjusted trial balance is prepared.
- Transactions are posted to the ledger.
Q2) Determine the net income (loss) for the period.
A) net income $9,250
B) net loss $790
C) net loss $5,670
D) net income $3,580
Q3) List and describe the purpose of the four closing entries.
Q4) Describe a classified balance sheet.
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Chapter 5: Accounting for Retail Businesses
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Sample Questions
Q1) Gross profit is equal to
A) sales plus cost of goods sold
B) sales plus selling expenses
C) sales less selling expenses
D) sales less cost of goods sold
Q2) In a perpetual inventory system, the Inventory account is only used to reflect the beginning inventory.
A)True
B)False
Q3) In credit terms of 3/15, n/45, the "3" represents the
A) number of days in the discount period
B) full amount of the invoice
C) number of days when the entire amount is due
D) percent of the cash discount
Q4) Who is responsible for the freight costs when the terms are FOB shipping point?
A) the ultimate customer
B) the buyer
C) the seller
D) either the seller or the buyer
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Chapter 6: Inventories
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Sample Questions
Q1) Using the table provided, calculate total sales, cost of goods sold, gross profit, and ending inventory using each of the LIFO perpetual inventory method.
A) Total sales: $56,975.00
Cost of goods sold: $36,431.25
Gross profit: $20,543.75
Ending inventory: $19,981.2
B) Total sales: $56,975.00
Cost of goods sold: $36,587.50
Gross profit: $20,387.50
Ending inventory: $19,825.00
C) Total sales: $56,975.00
Cost of goods sold: $37,312.50
Gross profit: $19,662.50
Ending inventory: $19,573.25
D) Total sales: $56,975.00
Cost of goods sold: $37,401.75
Gross profit: $19,573.25
Ending inventory: $19,010.75
Q2) List three different security measures taken to safeguard inventory.
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) A bank reconciliation should be prepared periodically because
A) the company's records and the bank's records are in agreement
B) the bank has not recorded all of its transactions
C) any differences between the company's records and the bank's records should be determined, and any errors made by either party should be discovered and corrected
D) the bank must make sure that its records are correct
Q2) Using the following information, prepare a bank reconciliation for Candace Co. for May 31: (a) The bank statement balance is \(\$ 2,936\).
(b) The cash account balance is \(\$ 3,194\).
(c) Outstanding checks amounted to \(\$ 465\).
(d) Deposits in transit are \(\$ 655\).
(e) The bank service charge is \(\$ 50\).
(f) A check for \(\$ 97\) for supplies was recorded as \(\$ 79\) in the ledger.
Q3) Which of the following would be subtracted from the balance per bank on a bank reconciliation?
A) outstanding checks
B) deposits in transit
C) notes collected by the bank
D) service charges
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Page 9
Chapter 8: Receivables
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Sample Questions
Q1) The direct write-off method
A) may be used only by businesses with five or fewer accounts receivable.
B) is used by businesses whose receivables are a small part of their current assets.
C) may not be used by companies that accept MasterCard or VISA.
D) does not allow for reinstatement if the amount owed is received after being written off.
Q2) Although Allowance for Doubtful Accounts normally has a credit balance, it may have either a debit or a credit balance before adjusting entries are recorded at the end of the accounting period.
A)True
B)False
Q3) An aging of a company's accounts receivable indicates that the estimate of the uncollectible accounts totals $4,000. If Allowance for Doubtful Accounts has a $800 credit balance, the adjustment to record the bad debt expense for the period will require a
A) debit to Allowance for Doubtful Accounts for $3,200
B) debit to Bad Debt Expense for $3,200
C) debit to Allowance for Doubtful Accounts for $4,000
D) credit to Allowance for Doubtful Accounts for $4,000
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Page 10
Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Once the useful life of a depreciable asset has been estimated and the amount to be depreciated each year has been determined, the amounts cannot be changed.
A)True
B)False
Q2) Determine the depreciation, for the year of acquisition and for the following year of a fixed asset acquired on October 1 for $500,000, with an estimated life of 5 years, and residual value of $50,000, using (a) the double declining-balance method and (b) the straight-line method. Assume a fiscal year ending December 31.
Q3) A leased asset will appear on the balance sheet as a long-term asset.
A)True B)False
Q4) The acquisition costs of property, plant, and equipment should include all normal, reasonable and necessary costs to get the asset in place and ready for use. A)True
B)False
Q5) Minerals removed from the earth are classified as intangible assets.
A)True
B)False
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Chapter 10: Liabilities: Current, Installment Notes, and Contingencies
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Sample Questions
Q1) The journal entry used to record the payment of an interest-bearing note is
A) debit Cash; credit Notes Payable
B) debit Accounts Payable; credit Cash
C) debit Notes Payable and Interest Expense; credit Cash
D) debit Notes Payable and Interest Receivable; credit Cash
Q2) Journalize the following entries on the books of Winston Co. for August 1, September 1, and November 30. (Assume a 360-day year is used for interest calculations.)
\[\begin{array} { ll }
\text{Aug. 1}& \text{Winston Co. purchased merchandise for \$ 75,000 on account from Bagley Co., terms n / 30 .}\\
\text{Sept. 1}& \text{Winston Co . issued a 90 -day, 6 \% note for \$ 75,000 on account.}\\
\text{Nov. 30}& \text{Winston Co . paid the amount due.}
\end{array}\]
Q3) Martin Services Company provides its employees vacation benefits and a defined contribution pension plan. Employees earned vacation pay of $39,500 for the period. The pension plan requires a contribution to the plan administrator equal to 9% of employee salaries. Salaries were $750,000 during the period. Provide the journal entries for (a) the vacation pay and (b) the pension benefit.
Page 12
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) Interest payments on 12% bonds with a face value of $20,000 and interest paid semiannually would be $2,400 every 6 months.
A)True
B)False
Q2) On February 1, Clayton Co. issued $1,300,000 of 20-year, 9% bonds for $1,225,000. Interest is payable semiannually on February 1 and August 1. Present the entries to record the following transactions. (a) Issuance of the bonds. (b) First semiannual interest payment (record as separate entry from premium amortization).
(c) Amortization of bond discount for the year, using the straight-line method of amortization. (Round to the nearest dollar when necessary.)
Q3) The effective interest rate method of amortizing a bond discount or premium is the preferred method.
A)True B)False
Q4) Bondholder claims on the assets of the corporation rank ahead of stockholders. A)True B)False
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Page 13
Chapter 12: Corporations: Organization, Stock Transactions, and Dividends
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Sample Questions
Q1) The primary purpose of a stock split is to reduce the number of shares outstanding in order to encourage more investors to enter the market for the company's shares.
A)True
B)False
Q2) A restriction/appropriation of retained earnings establishes cash assets that are set aside for a specific purpose.
A)True
B)False
Q3) On February 1, Marine Company reacquired 7,500 shares of its common stock at $30 per share. On March 15, Marine sold 4,500 of the reacquired shares at $34 per share. On June 2, Marine sold the remaining shares at $28 per share.
Journalize the transaction of February 1, March 15, and June 2.
Q4) If a company has preferred stock, the preferred stock dividend is added to net income when computing earnings per common share.
A)True
B)False
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Which of the following should be deducted from net income in calculating net cash flow from operating activities using the indirect method?
A) a decrease in inventory
B) a decrease in accounts payable
C) preferred dividends declared and paid
D) a decrease in accounts receivable
Q2) Which of the following should be added to net income in calculating net cash flow from operating activities using the indirect method?
A) an increase in inventory
B) a decrease in accounts payable
C) preferred dividends declared and paid
D) a decrease in accounts receivable
Q3) On the statement of cash flows, the cash flows from financing activities section would include all of the following except
A) receipts from the sale of bonds payable
B) payments for dividends
C) payments for purchase of treasury stock
D) payments of interest on bonds payable
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15
Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) A company with $70,000 in current assets and $50,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will
A) both decrease
B) both increase
C) increase and remain the same, respectively
D) remain the same and decrease, respectively
Q2) Which of the following is not a characteristic evaluated in ratio analysis?
A) liquidity
B) profitability
C) solvency
D) marketability
Q3) What is the dividend yield for Diane Company?
A) 7.5%
B) 0.75%
C) 13.3%
D) 1.3%
Q4) A 15% change in sales will result in a 15% change in net income.
A)True
B)False
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Chapter 15:Investments
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Sample Questions
Q1) During the first year of operations, Makala Company purchased two trading investments as follows:
\(\begin{array}{|l|c|r|}
\hline \text { Security } & \text { Shares Purchased } &{\text { Cost }} \\
\hline \text { Oceanna Company } & 700 & \$ 29,000 \\
\hline \text { Rockledge, Inc. } & 1,900 & 41,000 \\
\hline
\end{array}\)
Assume that as of December 31, the Oceanna Company stock had a market value of $49 per share and Rockledge, Inc. stock had a market value of $20 per share. Makala had 10,000 shares of no-par stock outstanding that was issued for $150,000. For the year ending December 31, Makala had net income of $105,000. No dividends were paid.
(a) Frepare the current assets section of the balance sheet presentation for the trading securities as of December 31.
(b) Explain how the gain or loss would be reported on the income statement.
Q2) Temporary investments are recorded at their cost, which would include broker's commissions.
A)True
B)False
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Page 17