Principles of Accounting Review
Questions
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and practices of financial and managerial accounting. The course covers the accounting cycle, preparation and analysis of financial statements, and the basic principles of recording, classifying, and summarizing business transactions. Topics include assets, liabilities, equity, revenues, expenses, and the interpretation of key financial data for decision-making. Students will develop skills in using accounting information for planning, control, and performance evaluation in various business contexts, laying a solid foundation for further study in accounting and related fields.
Recommended Textbook
Horngren's Accounting 8th Australia Edition by Tracie Nobles
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Page 2
Chapter 1: The Role of Accounting in Decision Making
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Sample Questions
Q1) Each financial statement includes a heading giving three pieces of data.Which of the following items is NOT included in these headings?
A) Name of the preparer of the statement
B) Name of the business
C) Name of the financial statement
D) Date or time period covered
Answer: A
Q2) Venus Ltd paid $10,000 for an account payable.How does this transaction affect the accounting equation of Venus?
A) assets decrease by $10,000 and liabilities decrease by $10,000
B) assets increase by $10,000 and liabilities increase by $10,000
C) assets increase by $10,000 and equity decreases by $10,000
D) assets decrease by $10,000 and equity increases by $10,000
Answer: A
Q3) Outside investors would ordinarily use financial accounting information to decide whether or not to invest in a business.
A)True
B)False
Answer: True
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Chapter 2: Recording Business Transactions
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Q1) The following are the current month's balances for Toys Galore:
\[\begin{array} { | l | l | }
\hline \text { Accounts payable } & \$ 10,000 \\
\hline \text { Revenue } & 3000 \\
\hline \text { Cash } & 3000 \\
\hline \text { Expenses } & 1200 \\
\hline \text { Furniture } & 11,000 \\
\hline \text { Accounts receivable } & 15,000 \\
\hline \text { Iones, capital } & 7250 \\
\hline \text { Loan payable } & 6500 \\
\hline
\end{array}\]
Calculate the total amount of credits for the trial balance.
A) $31,750
B) $23,750
C) $24,500
D) $21,750
Answer: A
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Chapter 3: The Adjusting Process
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Q1) If a company fails to make an adjusting entry for accrued revenues,the profit will be overstated.
A)True
B)False
Answer: False
Q2) Smith Technical Services is working on a six-month job for a client,starting on 1 February.They will collect $20,000 from their customer when the job is finished.On 1 March,their Accounts receivable account had a debit balance of $4000.At the end of March,after monthly adjusting entries have been made,what will be the balance in Accounts receivable?
A) Debit balance of $3333
B) Debit balance of $7333
C) Credit balance of $16,667
D) Debit balance of $20,000
Answer: B
Q3) Prepaid insurance is an asset account.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Completing the Accounting Cycle
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Q1) Where does Profit appear on a worksheet?
A) Profit appears only in the Income statement debit column.
B) Profit appears in the Income statement credit column and in the balance sheet debit column.
C) Profit appears in the balance sheet credit column and in the Income statement debit column.
D) Profit appears only in the balance sheet credit column.
Q2) Which of the following would be considered a non-current asset?
A) Land
B) Inventory
C) Prepaid insurance
D) Accounts receivable
Q3) Which of the following is NOT a non-current asset?
A) Accounts receivable
B) Equipment
C) Land
D) Buildings
Q4) Capital is a permanent account.
A)True
B)False
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Chapter 5: Retailing Operations
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Q1) Purchase returns and allowances decrease the net amount of cash that will be paid for the inventory,and so they should reduce the cost of the inventory as recorded in the Inventory account.
A)True
B)False
Q2) Which of the following is used to determine the rate of inventory turnover?
A) Cost of sales divided by Average inventory
B) Cost of sales times Gross profit
C) Cost of sales times Average inventory
D) Cost of sales divided by Gross profit
Q3) Gilbert Ltd generated sales revenues of $1,400,000 in the year 2017.Its cost of sales amounted to \(\$ 560,000 .\) Calculate Gilbert's gross profit percentage.(Round your answer to the nearest whole percentage.)
A) 250%
B) 167%
C) 60%
D) 40%
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Page 7
Chapter 6: Retail Inventory
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Sample Questions
Q1) Given the same purchase and sales data,the three major costing methods will result in three different amounts for Sales revenue.
A)True B)False
Q2) Ending inventory for the current period is understated.What effect will this error have on equity?
A) Equity will be overstated at the end of the current period and overstated at the end of the next period.
B) Equity will be understated at the end of the current period, but it will be correct at the end of the next period.
C) Equity will be overstated at the end of the current period, but it will be correct at the end of the next period.
D) Equity will be overstated at the end of the current period and understated at the end of the next period.
Q3) If the historical cost of inventory falls below replacement cost,the business must write down the inventory cost.
A)True B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Design of an accounting information system begins with a trial balance.
A)True
B)False
Q2) Posting the entries in the sales journal to the general ledger:
A) should be done on a daily basis.
B) should be done at the end of each month.
C) should be done only at the end of the accounting period.
D) should be done on a weekly basis.
Q3) The chart of accounts lists all the accounts and their account numbers.
A)True
B)False
Q4) Debit postings to the accounts receivable general ledger account come from the cash receipts journal and the general journal.
A)True
B)False
Q5) A chart of accounts uses number ranges for accounts.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following items is NOT required to be examined by the controller or treasurer before signing a cheque?
A) The journal entry
B) The receiving report
C) The purchase order
D) The invoice
Q2) Which of the following statements describes a receiving report?
A) It is a statement from the supplier showing the goods purchased and the amount due.
B) It is a document authorising a payment to a supplier.
C) It is a report showing that the goods have been received in good condition, as ordered.
D) It is an order to purchase goods from a supplier.
Q3) A company makes a legitimate,properly authorised payment to a supplier.The accountant changes the date of the transaction to shift it to a later time period.Because the transaction is legitimate,this action would not be considered unethical.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) On which of the following dates does a three-month bill dated 12 November mature?
A) 11 February
B) 10 February
C) 12 February
D) 13 February
Q2) AASB requires companies to use the:
A) direct write-off method to evaluate bad debts.
B) allowance method to evaluate bad debts.
C) 360-day method to evaluate bad debts.
D) amortisation method to evaluate bad debts.
Q3) A debtor is a party to the transaction who will receive the cash for the transaction at a later date.
A)True
B)False
Q4) Which of the following is the party lending funds on a bill?
A) The debtor of the bill
B) The principal of the bill
C) The acceptor of the bill
D) The drawer of the bill
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Chapter 10: Non-Current Assets: Property, plant and Equipment, and Intangibles
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Q1) Which of the following items is included in the journal entry if a company sells equipment at a price less than its carrying amount?
A) a credit to Accumulated depreciation
B) a credit to Gain on sale of equipment
C) a debit to Loss on sale of equipment
D) a debit to Equipment for its carrying amount
Q2) The depreciation method in which residual value is ignored until the end of the life of the asset is:
A) units of output.
B) reducing balance.
C) First-in, first-out.
D) straight line.
Q3) Albatross Services scrapped a van.The van originally cost $40 000,had an estimated residual value of zero and an estimated life of 10 years.At the time it was scrapped,it was fully depreciated.What was the effect of scrapping the van?
A) loss of $1 000
B) loss of $2 000
C) no gain or loss
D) gain of $2 000
Page 12
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Which of the following is a control procedure to prevent fictitious persons cashing pay cheques?
A) Requiring photo IDs for employees picking up their pay cheques
B) Keeping computerised records of payroll data
C) Serial numbering of pay cheques
D) Having employees clock in and out of work
Q2) A certain contingent liability was evaluated at year-end; the company felt it was probable that it would become an actual liability,and the amount could be reasonably estimated.If the accountant decided NOT to report it on the balance sheet or in the notes to the financial statement,what effect would it have on the financial reporting of the company?
A) The information about the transaction would be inadequately disclosed in the notes.
B) The net profit of the company would be understated.
C) The liabilities on the balance sheet would be understated.
D) There would be no effect.
Q3) An accrued expense is an expense that has been incurred,but has not yet been paid.
A)True
B)False
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Chapter 12: Non-Current Liabilities,debentures Payable and
Classification of Liabilities on the Balance
Sheet
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Q1) On 1 January 2017,Bratios Company purchases equipment and signs a 6-year mortgage payable for $93,000 at 15%.The mortgage will be paid in equal annual instalments of $24,574,beginning 1 January 2018.Calculate the portion of principal amount paid on the third instalment.(Round to the nearest dollar.)
A) $14,050
B) $10,524
C) $24,574
D) $13,950
Q2) The market rate is the rate used to calculate the actual cash payments made to debenture holders.
A)True
B)False
Q3) Which of the following statements is TRUE about a debenture that is issued at a discount?
A) It will be sold for less than the face value.
B) Its interest rate is higher than the prevailing market rate.
C) It will be sold at par.
D) It will repay principal at less than the face value.
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Chapter 13: Partnerships
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Q1) Whenever there is a change in the mix of partners,the old partnership is dissolved and a new one begins.
A)True
B)False
Q2) If a new person wishes to be admitted to a partnership with two existing partners,and the existing partners accept,then the new person is automatically entitled to share in one-third the profits of the partnership.
A)True
B)False
Q3) Anna and Naomi are partners.Anna has a capital balance of $49,000 and Naomi has a capital balance of $43,000.Gary invested $27,000 to acquire an ownership interest of $23,000.Which of the following is true of the partnership journal entry to record the receipt of Gary's contribution? (Assume the existing partners equally divide the bonus.)
A) Cash is credited for $23,000 and Gary, capital is debited for $23,000.
B) Cash is debited for $23,000 and Gary, capital is credited for $23,000.
C) Cash is credited for $27,000 and Gary, capital is debited for $23,000.
D) Cash is debited for $27,000 and Gary, capital is credited for $23,000.
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Page 15
Chapter 14: Companies: Formation and Shareholders
Equity
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Q1) On 1 November 2016,Oster Company declared a dividend of $3.00 per share.Oster Company has 20 000 ordinary shares outstanding and no preference shares.The date of record is 15 November,and the payment date is 30 November 2016.Which of the following statements is TRUE about the date of record?
A) The company transfers cash to a stockbroking firm on the date of record.
B) Cash is disbursed to shareholders on the date of record.
C) The liability must be recorded on the date of record.
D) No journal entry is made on the date of record.
Q2) Normally,a company's book profit and taxable income should be the same.
A)True
B)False
Q3) Which of the following is NOT part of the role of the board of directors?
A) electing a chairperson
B) appointing the chief executive officer
C) setting company policy
D) electing non-executive board members
Q4) Retained earnings as shown on the balance sheet can,under certain circumstances,show a negative balance.
A)True
B)False
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Chapter 15: Companies: Capital Management and the Income Statement
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Q1) Which of the following is a reason why a company would do a share split?
A) To reduce the market price at which the share is trading
B) To defend against a hostile takeover
C) To provide the shareholders with something of value when the company cannot afford a cash dividend
D) To generate additional sales revenues
Q2) Which of the following BEST describes profit from continuing operations?
A) The profit or loss generated from unusual or infrequent events
B) The gains and losses from transactions that are not part of the normal operations of the business
C) The profit or loss from segments of the business that have been sold or terminated
D) The profit or loss generated from the normal operations of the business
Q3) A share buy-back requires a credit to the Ordinary share capital account.
A)True
B)False
Q4) An appropriation guarantees that cash will be available either for a specific or general purpose in the future.
A)True
B)False
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Chapter 16: The Cash Flow Statement
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Q1) How would a new issue of ordinary shares be shown on the cash flow statement?
A) Negative cash flow in the investing section
B) Positive cash flow in the financing section
C) Positive cash flow in the investing section
D) Negative cash flow in the financing section
Q2) The Australian Accounting Standards require the cash flow statement to be prepared using either the direct method or the indirect method.
A)True
B)False
Q3) Sonesta Company sold equipment for cash.The income statement shows a loss on sale of $9000.The net book value of the asset prior to the sale was $25,900.Which of the following statements describes the cash effect of the transaction?
A) positive cash flow of $16,900 from investing activities
B) positive cash flow of $34,900 from financing activities
C) negative cash flow of $16,900 for financing activities
D) negative cash flow of $16,900 for operating activities
Q4) Issuing preference shares to shareholders would be a financing activity.
A)True
B)False
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Chapter 17: The Framework of Accounting
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Q1) Since Freda's Alterations has very few transactions each year,financial statements are only prepared for the bank every alternate year.This violates the reliability principle.
A)True
B)False
Q2) The total contract price to build an office building is $4 200 000,with estimated costs of $2 800 000.The construction firm's costs for Year 1 were $800 000.Under the percentage of completion method,gross profit reported in Year 1 is:
A) $2 200 000.
B) $1 200 000.
C) $400 000.
D) none of the above
Q3) AASB 110 refers to subsequent events that relate to conditions that have arisen after the reporting date.Such events,if they could influence decision making:
A) must be referred to in a special mail-out to shareholders.
B) need not be accounted for.
C) must be disclosed in a footnote to the financial statements.
D) require adjustments to the figures in the financial statements.
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Chapter 18: Financial Statement Analysis
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Q1) Partridge Ltd provides the following information for the year 2017: \[\begin{array} { | l | l | }
\hline \text { Net profit } & \$ 34,000 \\
\hline \text { Market price per share of ordinary shares } & \$ 17 / \text { share } \\
\hline \text { Dividends paid } & \$ 0.75 / \text { share } \\
\hline \text { Ordinary shares outstanding at 1 Jan 2016 } & 130,000 \text { shares } \\
\hline \text { Ordinary shares outstanding at 31 Dec 2017 } & 150,000 \text { shares } \\
\hline \end{array}\]
The company has no preference shares outstanding.Calculate the dividend yield for ordinary shares.
A) 4.41%
B) 3%
C) 1.41%
D) 4.62%
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Chapter 19: Introduction to Managerial Accounting and the Master Budget
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Q1) Kyanite Company,a retailer,reports costs for 2017 as follows:
\[\begin{array} { | l | l | }
\hline \text { Raw materials } & \$ 62,500 \\
\hline \text { Wages to line workers } & 73,500 \\
\hline \text { Office rent } & 24,500 \\
\hline \text { Indirect materials } & 64,500 \\
\hline
\end{array}\]
How much are the total period costs of Kyanite?
A) $24,500
B) $73,500
C) $64,500
D) $62,500
Q2) Which of the following statements is TRUE about the capital expenditures budget?
A) It includes the sales budget.
B) It is a part of the financial budget.
C) It must be completed before the cash budget can be prepared.
D) It must be completed before the budgeted income statement is prepared.
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Chapter 20: Job Costing
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Q1) Full-product cost includes all manufacturing costs plus selling expenses,but does not include administrative expenses.
A)True
B)False
Q2) Activity-based costing systems combine many various elements of overhead into a single cost pool.
A)True
B)False
Q3) Sybil Ltd uses a predetermined overhead allocation rate to allocate manufacturing overhead costs to jobs.The company recently completed Job 300X.This job used 19 machine hours and 1 direct labour hours.The predetermined overhead allocation rate is calculated to be $50 per machine hour.What is the amount of manufacturing overhead allocated to Job 300X using machine hours as the allocation base?
A) $950
B) $900
C) $50
D) $1000
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Page 22
Chapter 21: Cost-Volume-Profit Analysis
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Q1) Assume that John's mobile phone service provider charges $7 per month and $0.3 per minute per call.If John's current bill is $90,how many calling minutes did John use?
A) 277 minutes
B) 254 minutes
C) 300 minutes
D) 330 minutes
Q2) Which of the following statements is CORRECT with respect to variable cost per unit,within the relevant range?
A) It will decrease as production increases.
B) It will remain the same as production levels change.
C) It will increase as production decreases.
D) It will decrease as production decreases.
Q3) Which of the following statements is CORRECT with respect to total variable costs,within the relevant range?
A) They will decrease as production decreases.
B) They will increase as production decreases.
C) They will decrease as production increases.
D) They will remain the same as production levels change.
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Chapter 22: Short-Term Business Decisions
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Q1) If a company is a price-taker,it has considerable flexibility in setting its products' prices.
A)True
B)False
Q2) A company produces 1000 packs of chicken feed per month.Sales price is $5 per pack.Variable cost is $1.50 per unit and fixed costs are $1700 per month.Management is considering adding a vitamin supplement to improve the value of the product.The variable cost will go up from $1.50 to $1.80 per unit and fixed costs will go up by 20%.At what price for the new product will the two alternatives (sell as is or process further)produce the same operating income? Round to nearest cent.
A) $1.80
B) $5.64
C) $3.84
D) $5.00
Q3) If a business is considering buying a new vehicle,the cost of insurance on the new vehicle is information that is relevant to the business decision.
A)True
B)False
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Chapter 23: Capital Investment Decisions and the Time Value of Money
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Q1) Which of the following methods ignores the time value of money?
A) Internal rate of return
B) Return on assets
C) Payback
D) Net present value
Q2) Which of the following is TRUE regarding capital rationing decisions for capital assets?
A) Companies should always choose the investment with the highest accounting rate of return.
B) Companies should consider several different methods of evaluation before choosing an investment.
C) Companies should always choose the investment with the highest net present value.
D) Companies should always choose the investment with the shortest payback period.
Q3) Which of the following best describes the profitability index?
A) the ratio of present value of net cash inflows to initial investment
B) an array of possible investment outcomes at different discount rates
C) an index of projects based on their net profit
D) the ratio of total cash inflows to initial investment
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