Principles of Accounting

Final Exam Mock Test

T1 2024
Part A: Multiple-choice questions
1. The accounting profession can be divided into three major categories; specifically, the
practice of public accounting, private accounting, and governmental accounting. A
somewhat unique and important service of public accountants is:
a) Financial accounting.
b) Managerial accounting.
c) Auditing.
d) Cost accounting.

2. Wilson Company owns land that cost $100,000. If a “quick sale” of the land was necessary to
generate cash, the company feels it would receive only $80,000. The company continues to
report the asset on the balance sheet at $100,000. Which of the following concepts justifies
this?
a) Historical cost principle
b) Fair Value principle
c) Economic Entity Assumption
d) Conformity Rule

3. Which of the following would not be included on a balance sheet?

a) Cash
b) Accounts Receivables
c) Notes Payable
d) Sales

4. Which of the following transactions would have no impact on owner’s equity?

a) Net loss
b) Withdrawals
c) Investment in cash
d) Purchase of supplies on credit

5. Cost of goods sold is determined only at the end of the accounting period in
a) a perpetual inventory system
b) a periodic inventory system
c) both a perpetual and a periodic inventory system
d) neither a perpetual nor a periodic inventory system

6. The proper journal entry to record Hillson Company’s billing of clients for $500 of services
rendered is:
 ​ a) Dr. Cash 500

Cr. Accounts Receivable 500

​
​ b) Dr. Accounts Receivable 500

Cr. Sales Revenue 500

​
​ c) Dr. Accounts Receivable 500

Cr. Service Revenue 500

​
​ d) Dr. Cash 500

Cr. Service Revenue 500

7. Failure to record the receipt of a utility bill for services already received will result in:
a) An overstatement of assets.
b) An overstatement of liabilities.
c) An overstatement of equity.
d) An understatement of assets.

Failure to record utility bill -> Understated expense -> Overstated equity (Equity = Owner’s
Capital + Revenue - Expense - Drawings)

8. On November 1, 20X1, Nutshell Company purchased a one-year insurance policy for

$12,000. Nutshell Company debited Cash and credited Prepaid Insurance for $12,000. On
December 31, 20X1, the company found out the mistake. The journal entries to correct and
properly adjust on December 31, 20X1, would be:
​
a) Dr. Prepaid Insurance 12,000; Cr. Cash 12,000
Dr. Insurance Expense 2,000; Cr. Prepaid Insurance 2,000
b) Dr. Prepaid Insurance 12,000; Cr. Cash 12,000
Dr. Insurance Expense 12,000; Cr. Prepaid Insurance 12,000
c) Dr. Cash 12,000; Cr. Prepaid Insurance 12,000
Dr. Insurance Expense 2,000; Cr. Cash 2,000
d) Dr. Cash 12,000; Cr. Prepaid Insurance 12,000
Dr. Prepaid Insurance 2,000; Cr. Insurance Expense 2,000

9. For purposes of measuring business income, the life of a business is:

a) divided into specific points in time.
b) divided into irregular cycles.
c) divided into discrete accounting periods.
d) considered to be a continuous cycle.
10. The field of accounting that focuses on providing information for internal decision-makers is
A) managerial accounting.
B) financial accounting.
C) cost accounting.
D) non-monetary accounting

11. Which of the following accounts has a normal credit balance?

a. Sales Returns and Allowances
b. Sales Discounts
c. Owner's capital
d. Cost of Goods Sold

12. The factors affect the computation of depreciation, except

A. Salvage value
B. Cost
C. Useful life
D. Accumulated depreciation

13. The accountant’s worksheet:

A. lays the groundwork for formal financial statement preparation.
B. is a fundamental financial statement.
C. provides details necessary for full disclosure and the preparation of footnotes.
D. is prepared at the end of each operating cycle.

14. In preparing a worksheet, a net loss would be computed and entered in the:
A. debit column of the income statement columns of the worksheet.
B. credit column of the income statement columns of the worksheet.
C. in the debit column of the adjusted trial balance.
D. in the credit column of the balance sheet columns of the worksheet.

15. What is the final stage of the accounting process?

(a) Journal
(b) Financial statement
(c) Ledger
(d) Trial balance

16. Which of the following journal entries correctly closes the Expense account for a sole
proprietorship?
a) Dr. Income Summary, Cr. Accounts Payable
b) Dr. Income Summary, Cr. Expense
c) Dr. Capital Account, Cr. Expense
 d) Dr. Cash, Cr. Expense

17. 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

18. The time span during which cash is paid for goods and services, which are then sold to
customers from whom the business collects cash, is called the ________.
A. production time
B. operating cycle
C. accounting cycle
D. sales time

19. Using the FIFO method, if the beginning inventory is 100 units at $5 each, and a new
purchase of 50 units is made at $6 each, what is the cost of goods sold for the first 70 units
sold?
a. $350
b. $420
c. $300
d. $370

20. A company engages in an FOB Destination transaction. If the goods are shipped on
December 31, but do not arrive at the buyer's location until January 3, in which period should
the seller recognize the sale?
a. December 31
b. January 3
c. December 31 or January 3
d. A specific day between December 31 and January 3

21. A company uses the perpetual inventory system. It purchased inventory for $8,000 on credit
and later returned $2,000 worth of defective goods. What is the correct journal entry for the
return?
a. Debit Accounts Payable $2,000, Credit Inventory $2,000
b. Debit Inventory $2,000, Credit Accounts Payable $2,000
c. Debit Accounts Payable $8,000, Credit Inventory $8,000
d. Debit Inventory $8,000, Credit Accounts Payable $8,000

22. A company provided a customer with credit terms of 3/15, n/45. If the customer purchases
inventory for $5,000 and pays within the discount period, what entries would the company
journalize?
a. Debit Accounts Receivable $5,000, Credit Sales $5,000
b. Debit Cash $4,850, Debit Sales Discounts $150, Credit Accounts Receivable $5,000
c. Debit Cash $5,000, Credit Sales Discounts $150, Credit Sales $4,850
d. Debit Accounts Receivable $4,850, Debit Sales Discounts $150, Credit Sales $5,000

23. A company received $6,000 in advance for services to be provided evenly over a six-month
period. At the end of the first month, what is the adjusting journal entry to recognize the revenue
earned?
a. Debit Service Revenue $6,000, Credit Unearned Revenue $6,000
b. Debit Unearned Revenue $6,000, Credit Service Revenue $6,000
a. Debit Unearned Revenue $1,000, Credit Service Revenue $1,000
d. Debit Service Revenue $1,000, Credit Unearned Revenue $1,000

24. A company has issued a bond that matures in 10 years. The first five years require no
principal repayments, only interest. The remaining five years involve both principal and interest
payments. How should this bond be classified on the balance sheet?
a. Current Liability
b. Long-Term Liability
c. Contingent Liability
d. Operating Liability

25. A company's beginning inventory is $50,000, purchases during the period amount to
$120,000, and the ending inventory is $30,000. Calculate the COGS using the periodic
inventory system.
a. $90,000
b. $100,000
c. $140,000
d. $160,000

26. Which is the true statement?

a. In a CVP income statement, costs and expenses are classified only by function.
b. The CVP income statement is prepared for both internal and external use.
c. The CVP income statement shows contribution margin instead of gross profit.
d. In a traditional income statement, costs and expenses are classified as either variable or
fixed.

27. A company offers credit terms of "2/10, n/30" to its customers. What does this mean?
a. Customers have 10 days to pay the invoice in full, with no discount.
b. Customers have a 2% discount if they pay within 10 days; otherwise, the net amount is due in
30 days.
c. Customers must pay the invoice within 2 days to receive a 10% discount.
d. Customers have 30 days to pay the invoice in full, with a 2% discount.
28. A company uses the direct write-off method for its uncollectible accounts. A customer owes
$1,000, and it is determined that the amount is uncollectible. What is the journal entry to write off
this bad debt?
a. Debit Bad Debt Expense $1,000; Credit Accounts Receivable $1,000
b. Debit Uncollectible Accounts $1,000; Credit Accounts Receivable $1,000
c. Debit Allowance for Doubtful Accounts $1,000; Credit Accounts Receivable $1,000
d. Debit Accounts Receivable $1,000; Credit Cash $1,000

29. When a company follows the accrual basis of accounting, which of the following statements
is true?
a. Revenues and expenses are recognized when cash is received or paid.
b. Revenues and expenses are recognized when they are incurred, regardless of when cash is
received or paid.
c. Only cash transactions are recorded in the financial statements.
d. Revenues and expenses are recognized only when cash is received.

30. A company uses straight-line depreciation for its furniture. If the annual depreciation on
furniture is $2,000, what is the correct adjusting entry to record depreciation at the end of the
year?
a. Debit Furniture $2,000; Credit Depreciation Expense $2,000
b. Debit Depreciation Expense $2,000; Credit Accumulated Depreciation $2,000
c. Debit Accumulated Depreciation $2,000; Credit Furniture $2,000
d. Debit Furniture $2,000; Credit Accumulated Depreciation $2,000

31. A company sells a piece of equipment for $8,000, which originally cost $15,000.
Accumulated depreciation on the equipment is $10,000. What is the gain or loss on the
disposal?
a. Gain of $3,000
b. Loss of $7,000
c. Gain of $7,000
d. Loss of $3,000

32. What is a common reason for a company to engage in factoring?

a. To increase its accounts payable.
b. To speed up the collection of cash from sales.
c. To obtain long-term financing for capital projects.
d. To decrease liquidity.

33. If a company incurred $40,000 in direct labor costs, $30,000 in manufacturing overhead
costs, and $20,000 in direct materials costs during a period, what is the total conversion cost?
a. $40,000
b. $50,000
c. $60,000
d. $70,000

34. A company produces shoes, and the total cost is $30,000 for 2,000 units at the high level of
activity and $18,000 for 1,000 units at the low level of activity. What is the equation of mixed
costs?
a. Y = 18X + 7,000 (Y: mixed costs; X: units)
b. Y= 10X + 3,000 (Y: mixed costs; X: units)
c. Y= 6X + 6,000 (Y: mixed costs; X: units)
d. Y= 12X + 6,000 (Y: mixed costs; X: units)

35. A company has a contribution margin ratio of 40%, fixed costs of $60,000, and a target net
income of $20,000. What is the required sales revenue to achieve the target net income?
a. $100,000
b. $150,000
c. $200,000
d. $250,000

36. Company A and Company B both have a contribution margin ratio of 40%. However,
Company B has lower fixed costs. If both companies want to achieve a net income of $100,000,
which company needs to have a higher level of sales?
a. Company A
b. Company B
c. Both companies need the same level of sales
d. It cannot be determined with the given information

37. What is the primary characteristic of a participative budget?

a. It is solely prepared by top management without input from lower-level employees.
b. It includes input from various organizational levels, encouraging employee involvement.
c. It focuses only on historical data and does not consider future goals.
d. It is rigid and does not allow any adjustments once finalized.

38. A company had previously written off a customer's account of $1,000 as uncollectible. If the
company later receives a payment of $500 from the customer, what is the journal entry to record
the recovery under the AFDA?
a. Debit Allowance for Doubtful Accounts, $500; Credit Accounts Receivable, $500
b. Debit Cash, $500; Credit Allowance for Doubtful Accounts, $500
c. Debit Accounts Receivable, $500; Credit Allowance for Doubtful Accounts, $500
d. Debit Cash, $500; Credit Accounts Receivable, $500

39. A firm's budgeted production for May is 6,000 units and for June is 10,000 units. Each unit
produced requires 5 pounds of raw material. The budgeted ending inventory must equal 30
percent of next month's budgeted production. If the raw materials purchases budgeted for the
month of May is 25,000 pounds, the beginning inventory for the month of May is _____ units.
a. 2,000
 b. 3,000
c. 4,000
d. 5,000

40. In the month of January, Lilia Company made $50,000 in total sales. Of these, 58% were
cash sales, and the remaining were credit sales. In February, the company collected 32% of the
credit sales made in January and the company made $25,000 in cash sales. How much cash
did Lilia Company collect in February?
a. $46,784
b. $59,537
c. $31,720
d. $99,289

Part B: Short-Answer Questions

1.
a) List and briefly define 4 financial statements.
b) State revenue, expense recognition principle, and matching principle.
c) Explain why the direct write-off method violates the matching principle.

2. Hong Electronics Corporation, a retail electronics store, provides the following financial
information for the fiscal year:
Cost of Goods Sold (COGS): $100,000
Beginning Inventory: $60,000
Ending Inventory: $40,000
Instructions:
a) Calculate inventory turnover and days in inventory.
b) Interpret the results

3. Tony Starki Industries began the year with inventory of $81,000. Purchases of inventory on
account totaled $306,000 on Jan 15. Inventory costing $331,000 was sold on account for
$512,000 on Jan 31.
Required:
Record transactions for the purchase and the sale of inventory on account using a perpetual
system.
Determine the balance of Inventory at the end of January.

4. Tiffany Co. produces two different products with the following monthly data.
Handbag Perfume Total
Selling price per unit $100 $400
Variable cost per unit $ 40 $240
Expected unit sales 21,000 9,000 30,000
Fixed costs $1,800,000
Assume the sales mix remains the same at all levels of sales.
How many units of each product must be sold to earn a monthly profit of $180,000?
5.
a)
Sales budget for Wonderball, Inc.

Sofia needs to produce the units she intends to sell each quarter. Also, she would like to
produce additional units to have on hand. Specifically, she wants to produce a desired ending
finished goods inventory in the current quarter (Year 2) equal to 20% of the next quarter’s
budgeted units in sales. The 11,400 was the desired ending inventory that she produced in
quarter 4 of year 1. In the first quarter of year 3, the desired ending finished goods inventory is
projected to be 12,700 units.

Instruction
a) Prepare production budget.
b) What is the master budget?
c) Do budgets have to be completed in a specific order?
d) Which budget is considered as a foundation that drives many organizational decisions?