Principles of Accounting Review Questions
Course Introduction
Principles of Accounting introduces students to the fundamental concepts and techniques of financial accounting. This course covers the accounting cycle, including the recording, classification, and summarization of business transactions, preparation of financial statements, and understanding of generally accepted accounting principles (GAAP). Students learn how to analyze and interpret financial information for decision-making purposes and gain foundational knowledge applicable to careers in business, finance, and accounting. Emphasis is placed on ethical considerations, accuracy, and the role of accounting in various organizational contexts.
Recommended Textbook
Financial Accounting 9th Edition by Walter T. Harrison
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13 Chapters
2240 Verified Questions
2240 Flashcards
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Page 2
Chapter 1: The Financial Statements
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174 Verified Questions
174 Flashcards
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Sample Questions
Q1) All corporations must use the calendar year as its accounting year.
A)True
B)False
Answer: False
Q2) The principle stating that assets acquired by the business should be recorded at their actual cost on the date of purchase is the:
A) historical cost principle.
B) objectivity principle.
C) reliability principle.
D) stable dollar principle.
Answer: A
Q3) The fundamental qualitative characteristics of accounting are relevance and materiality.
A)True
B)False
Answer: False
Q4) Accounting is often called the language of business.
A)True
B)False
Answer: True
Page 3
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) If the total debits and the total credits of a trial balance are not equal, the error could be due to:
A) recording the same transaction twice.
B) recording both the debit and credit of the journal entry for the same incorrect amount.
C) an error in determining an account balance.
D) forgetting to record a transaction.
Answer: C
Q2) If a company buys inventory on account:
A) cash would decrease.
B) accounts payable would increase.
C) net income would increase.
D) common Stock would decrease.
Answer: B
Q3) An important rule of debits and credits is:
A) credits increase a liability account.
B) debits decrease an asset account
C) revenues are increased by a debit.
D) expenses are increased by a credit.
Answer: A
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) In the preparation of the adjusted trial balance:
A) the trial balance data comes from the journal.
B) four columns are needed for the adjustments.
C) the adjusted trial balance columns give the final account balances.
D) the debits to not have to equal the credits.
Answer: C
Q2) A measure of a company's ability to pay current liabilities with current assets is the:
A) liability ratio.
B) current ratio.
C) debt ratio.
D) asset ratio.
Answer: B
Q3) Expenses have a future benefit to the company.
A)True
B)False
Answer: False
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Page 5
Chapter 4: Internal Control Cash
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Sample Questions
Q1) The basic attributes of internal control are the same for a sophisticated IT system and a manual system.
A)True
B)False
Q2) Alpha Company has an account at First Bank. Alpha writes a check payable to Beta Company. In this transaction, Alpha Company is the: A) payee. B) payer. C) drawer. D) maker.
Q3) Smart hiring practices and separation of duties is part of the control environment.
A)True
B)False
Q4) The following duties should always be segregated:
A) purchasing of goods and receiving of goods.
B) purchasing of goods and payment of the invoice.
C) purchasing of goods, receiving of goods, and approving and paying for goods. D) all of the above.
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) Days' sales in receivables tells a company how long it takes to collect its average level of receivables.
A)True
B)False
Q2) Accounts (trade) receivables are amounts to be collected from customers from the sale of goods or services.
A)True
B)False
Q3) A business offers credit terms of 1/15, n/30. These terms indicate that:
A) the total amount of the invoice must be paid within 15 days.
B) a discount of 1% can be taken if the invoice is paid within 15 days.
C) the buyer can take a 1% discount if the bill is paid within 15 or 30 days.
D) no discount is offered for early payment.
Q4) Hunter's Nest had net sales for the current period of $310,000 and average receivables were $28,700. What is the amount of day's sales in receivables?
A) 10 days
B) 25 days
C) 34 days
D) 79 days
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) The financial statements of a merchandising company will show:
A) the same accounts as the financial statements of a service company.
B) gross profit after net income on the income statement.
C) inventory as a current asset on the balance sheet.
D) cost of goods sold as an operating expense on the income statement.
Q2) A gross profit margin of 30% means that:
A) for each dollar of sales, the company has a cost of goods sold of seventy cents.
B) for each dollar of sales, the company has a gross profit of thirty cents.
C) for each dollar of sales, the company has a cost of goods sold of thirty cents.
D) both A and B are true.
Q3) A LIFO ________ occurs when inventory quantities fall below the level of the previous period.
A) adjustment
B) failure
C) liquidation
D) materiality
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Chapter 7: Plant Assets, Natural Resources, Intangibles
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Sample Questions
Q1) WorldCom committed financial statement fraud by:
A) expensing items that should have been capitalized.
B) understating net income.
C) using IFRS to make the company look better.
D) capitalizing items that should have been expensed.
Q2) Equipment costing $37,450 with a book value of $18,410 is sold for $20,000. The journal to record the sale will include a :
A) debit to cash for $18,410.
B) debit to accumulated depreciation for $18,410.
C) debit to gain on sale of equipment for $1,590.
D) debit to accumulated depreciation for $19,040.
Q3) A purchaser is willing to pay for goodwill when they feel the company they are buying has abnormal earning power.
A)True
B)False
Q4) On January 1, 2012, Sandy's Tax Service acquired a new color copier in exchange for an old color copier. The old copier had a cost of $14,500 and accumulated depreciation of $8,000. Sandy's Office Store also paid out $12,000 in cash. Prepare the journal entry to record the exchange.
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Chapter 8: Long-Term Investments the Time Value of Money
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Sample Questions
Q1) When the investment is readily convertible to cash and the investor plans to convert the investment to cash within one year, the investment is shown on the balance sheet as:
A) short-term.
B) long-term.
C) equity.
D) either long-term or short-term.
Q2) Unrealized Gain/Loss on investments account appears under other comprehensive income on a separate section of the income statement.
A)True
B)False
Q3) The equity method is used to account for stock investments in which the investor company owns less than 20%.
A)True
B)False
Q4) Dividends received on stock investments of less than 20% should be credited to the Investment account.
A)True
B)False
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Chapter 9: Liabilities
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Sample Questions
Q1) Wolverines, Inc. issued $1,000,000 of 7.5%, 10-year bonds dated June 1, 2012, with semiannual interest payments on June 1 and December 1. The bonds were issued on June 1, 2012, at 103 3/4. Wolverines' year end is December 31.
1. If the company uses the straight-line method of amortization, what is the amount of interest expense for the year ended December 31, 2012?
2. What is the carrying value of the bonds on December 31, 2012?
Q2) On January 1, Woodbridge Corporation issued $2,000,000, 14%, 5-year bonds with interest payable on January 1 and July 1. The bonds sold for $2,197,080. The market rate of interest was 12%. Using the effective-interest method, the debit entry to interest expense on July 1 is (round to the nearest dollar):
A) $153,796.
B) $120,000.
C) $140,000.
D) $131,825.
Q3) A capital lease requires the lessee to record the lease as a purchase.
A)True
B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) The book value per share of common stock is the amount of owners' equity on the company's books for each share of its stock.
A)True
B)False
Q2) Fortune, Inc. declares a 10% common stock dividend when it has 20,000 shares of $10 par value common stock outstanding. If the market value of the common stock is $25, the journal entry to record the stock dividend would include a:
A) credit to Common Stock $50,000.
B) credit to Common Stock $20,000.
C) credit to Paid-in Capital in Excess of Par Value $30,000.
D) credit to Paid-in Capital in Excess of Par Value $20,000
Q3) A company can sell stock only for cash.
A)True
B)False
Q4) The purchase of treasury stock appears on the statement of cash flows as a financing activity.
A)True
B)False
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Page 12
Chapter
Statement, the Statement of Comprehensive Income, the Statement of Stockholders Equity
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Sample Questions
Q1) Extraordinary gains and losses are shown "net of tax" on the income statement. A)True
B)False
Q2) Comprehensive income can be combined with net income into a unified statement of comprehensive income.
A)True
B)False
Q3) Comprehensive income does not include foreign-currency translation adjustments. A)True B)False
Q4) The formula to determine income tax expense is:
A) taxable income (from the income tax return) multiplied by the income tax rate. B) taxable income(from the income statement) multiplied by the income tax rate.
C) income before income tax expense (from the tax return) multiplied by the income tax rate.
D) income before income tax expense (from the income statement) multiplied by the income tax rate.
Page 13
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) Depreciation expense is listed on the direct-method statement of cash flows because it affects income.
A)True
B)False
Q2) Operating income is typically equal to cash flow from operating activities.
A)True
B)False
Q3) Which of the following transactions does NOT affect cash during a period?
A) Sale of treasury stock
B) Write-off of an uncollectible account
C) Purchase of property
D) Payment of an accounts payable
Q4) During 2012, ABC Corporation's purchases totaled $250,000 and Accounts Payable decreased by $7,000; therefore, the cash paid to suppliers was $257,000.
A)True
B)False
Q5) An example of a cash equivalent is a money-market account.
A)True
B)False
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) On a statement of cash flows, an increase or decrease in inventory is considered:
A) an operating activity.
B) an investing activity.
C) a financing activity.
D) an investing or financing activity.
Q2) In vertical analysis:
A) a base amount is optional.
B) a base amount is required.
C) comparative statements are optional.
D) comparative statements are required.
Q3) On the statement of cash flows of a healthy company, net cash from operating activities generally exceeds net income because of the reduction for depreciation.
A)True
B)False
Q4) Vertical analysis compares an item on the financial statement to the same item in a prior period.
A)True
B)False
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Page 15