Accounting for Business Exam Bank
Course Introduction
This course introduces students to the fundamental principles and practices of accounting with a focus on their application in the business environment. Topics include the accounting cycle, preparation and analysis of financial statements, and understanding the role of accounting in decision-making. Students will explore key concepts such as assets, liabilities, equity, revenues, and expenses, while gaining practical skills in recording and reporting financial transactions. The course emphasizes the use of accounting information for effective business planning, control, and performance evaluation, preparing students to interpret and apply financial data in real-world business scenarios.
Recommended Textbook
Fundamental Accounting Principles 21st Edition by
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Page 2
John J. Wild
Chapter 1: Accounting in Business
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Sample Questions
Q1) A balance sheet lists:
A)The types and amounts of the revenues and expenses of a business.
B)Only the information about what happened to equity during a time period.
C)The types and amounts of assets, liabilities, and equity of a business as of a specific date.
D)The inflows and outflows of cash during the period.
E)The assets and liabilities of a company but not the owner's equity.
Answer: C
Q2) Risk is:
A)Net income divided by average total assets.
B)The reward for investment.
C)The uncertainty about the expected return to be earned.
D)Unrelated to expected return.
E)Derived from the idea of getting something back from an investment.
Answer: C
Q3) ______________ activities involve using resources to research,develop,purchase,produce,distribute,and market products and services.
Answer: Operating
Q4) _________________ is net income divided by average total assets.
Answer: Return on assets
Page 3
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Chapter 2: Analyzing and Recording Transactions
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Q1) The journal is known as a book of original entry.
A)True
B)False Answer: True
Q2) Withdrawals by the owner are a business expense.
A)True
B)False Answer: False
Q3) Indicate whether a debit or credit entry would be made to record the following changes in each account.
a.To decrease Cash
b.To increase Owner,Capital
c.To decrease Accounts Payable.
d.To increase Salaries Expense.
e.To decrease Supplies.
f.To increase Revenue.
g.To decrease Accounts Receivable.
h.To increase Owner,Withdrawals.
Answer: a.Credit,b.Credit,c.Debit,d.Debit,e.Credit,f.Credit,g.Credit,h.Debit
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Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) Accrued expenses reflect transactions where cash is paid before a related expense is recognized.
A)True
B)False
Answer: False
Q2) A company paid $9,000 for a six-month insurance policy.The policy coverage began on February 1.On February 28,$150 of insurance expense must be recorded.
A)True
B)False
Answer: False
Q3) The difference between the cost of an asset and the accumulated depreciation for that asset is called
A)Depreciation Expense.
B)Unearned Depreciation.
C)Prepaid Depreciation.
D)Depreciation Value.
E)Book Value.
Answer: E
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Chapter 4: Completing the Accounting Cycle
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Q1) In the process of completing a work sheet,you determine that the Income Statement debit column totals $83,000,while the Income Statement credit column totals $65,000.To enter net income (or net loss)for the period into the work sheet would require an entry to
A)the Adjustments debit column and the Adjustments credit column.
B)the Unadjusted Trial Balance debit column and the Adjustments credit column.
C)it is not practical to enter Net Income (or Net Loss) on the work sheet.
D)the Balance Sheet & Statement of Owner's Equity debit column and the Income Statement credit column.
E)the Income Statement debit column and the Balance Sheet & Statement of Owner's Equity credit column.
Q2) Closing entries are required at the end of each accounting period to close all ledger accounts.
A)True
B)False
Q3) The ___________________ account is used only in the closing process.
Q4) Cash and office supplies are both classified as current assets.
A)True
B)False
Q5) Explain why temporary accounts are closed each period.
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Chapter 5: Accounting for Merchandising Operations
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Q1) A debit memorandum is:
A)Required whenever a journal entry is recorded.
B)The source document for the purchase of merchandise inventory.
C)Required when a purchase discount is granted.
D)The document a buyer issues to inform the seller of a debit made to the seller's account in the buyer's records.
E)Not necessary in a perpetual inventory system.
Q2) What are the difference(s)between the periodic and the perpetual inventory systems?
Q3) What is inventory shrinkage? How do managers account for shrinkage?
Q4) Cost of goods sold is also called cost of sales. A)True B)False
Q5) A retailer is an intermediary that buys products from manufacturers and sells them to wholesalers.
A)True B)False
Q6) Identify and explain the key components of income for a merchandising company.
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Q7) Beginning inventory plus the net cost of purchases is the
Chapter 7: Accounting Information Systems
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Q1) Posting debits from the Sales journal to Accounts Receivable twice - once to the general ledger account Accounts Receivable and once to the customer's subsidiary account - violates the accounting equation of debits equal credits.
A)True
B)False
Q2) The __________________ principle requires that an accounting information system conform with a company's activities,personnel,and structure,and must adapt to a company's unique characteristics.
Q3) List the five basic principles of accounting information systems.
Q4) With on-line systems,all information storage should be off-line to protect the data.
A)True
B)False
Q5) Input devices are the means to make accounting information available to users.
A)True
B)False
Q6) Describe the posting process for special journals.
Q7) Explain how the amounts in the subsidiary ledgers are tested for accuracy.
Q8) A __________________ is an all-purpose journal that can record any transaction.
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Chapter 8: Cash and Internal Controls
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Q1) The journal entry for petty cash reimbursement involves a debit to the appropriate expenses and a credit to Petty Cash.
A)True
B)False
Q2) A check involves three parties:
A)The writer, the cashier, and the bank.
B)The maker, the payee, and the bank.
C)The maker, the manager, and the payee.
D)The bookkeeper, the payee, and the bank.
E)The signer, the cashier, and the company.
Q3) A person who controls or has access to an asset must not keep that asset's accounting records.This describes the internal control principle of ________________________.
Q4) The _____________ of recording purchases records purchases under the assumption that the cash discount for prompt payment will be taken.
Q5) The voucher register is a journal that is used to record approved vouchers.
A)True
B)False
Q6) What is a voucher system?
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Chapter 9: Accounting for Receivables
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Q1) Griggs Company uses the direct write-off method of accounting for uncollectible accounts receivable.On December 6,Year 1,Griggs sold $6,300 of merchandise to the Hillman Company.On August 8,Year 2,after numerous attempts to collect the account,Griggs determined that the $6,300 account of the Hillman Company was uncollectible.
a.Prepare the journal entry required to record the transactions on August 8.
b.Assuming that the $6,300 is material,explain how the direct write-off method violates the matching principle in this case.
Q2) The person that borrows money and signs a promissory note is called the payee. A)True B)False
Q3) Electron borrowed $75,000 cash from TechCom by signing a promissory note.TechCom's entry to record the transaction should include a:
A)Debit to Notes Receivable for $75,000.
B)Debit to Accounts Receivable for $75,000.
C)Credit to Notes Receivable for $75,000.
D)Debit Notes Payable for $75,000.
E)Credit to Sales for $75,000.
Q4) The person to whom a note is payable is known as the ______________.
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) A company had a building destroyed by fire.The building originally cost $650,000,and its accumulated depreciation as of the date of the fire was $300,000.The company received $400,000 cash from an insurance policy that covered the building and will use that money to help rebuild.Prepare the single journal entry to record the destruction of the building and the receipt of cash from the insurance company.
Q2) A company purchased a plant asset for $45,000.The asset has an estimated salvage value of $6,000,and an estimated useful life of 10 years.The annual depreciation expense using the straight-line method is $3,900 per year.
A)True
B)False
Q3) What are some of the variables that make a plant asset's useful life difficult to predict?
Q4) The useful life of a plant asset is:
A)The length of time it is productively used in a company's operations.
B)Never related to its physical life.
C)Its productive life, but not to exceed one year.
D)Determined by the FASB.
E)Determined by law.
Q5) _____________ are the federal income tax rules for depreciating assets.
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Chapter 11: Current Liabilities and Payroll Accounting
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Q1) A payroll register is a cumulative record of an employee's hours worked,gross earnings,deductions,and net pay.
A)True
B)False
Q2) A company's payroll for the week ended May 15 included earned salaries of $20,000.All of that week's pay is subject to FICA social security taxes of 6.2% and Medicare taxes of 1.45%.In addition,the company withholds the following amounts for this weekly pay period:
$900 for medical insurance,$3,400 for federal income taxes,and $180 for union dues.
a.Prepare the general journal entry to accrue the payroll.
b.The company is subject to state unemployment taxes at the rate of 2% and federal unemployment taxes at the rate of 0.8%.By May 15,some employees had earned over $7,000,so only $9,000 of the $20,000 weekly gross pay was subject to unemployment tax.Prepare the general journal entry to accrue the employer's payroll tax expense.
Q3) Describe how to account for and report on contingent liabilities.
Q4) Agro Depot's income before interest expense and income taxes was $5,909 million,and interest expense was $37 million.Calculate Agro Depot's times interest earned.
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) Partners' withdrawals of assets are:
A)Credited to their withdrawals accounts.
B)Debited to their withdrawals accounts.
C)Credited to their retained earnings.
D)Debited to their retained earnings.
E)Debited to their asset accounts.
Q2) A capital deficiency can arise from liquidation losses,excessive withdrawals before liquidation,or recurring losses in prior periods.
A)True
B)False
Q3) When the current value of a partnership is greater than the recorded amounts of equity,the current partners usually require any new partner to pay a bonus for the privilege of joining.
A)True
B)False
Q4) Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.
A)True
B)False
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Chapter 13: Accounting for Corporations
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Q1) A company issued 60 shares of $100 par value stock for $7,000 cash.The total amount of paid-in capital is:
A)$ 100.
B)$ 600.
C)$1,000.
D)$6,000.
E)$7,000.
Q2) A company paid $0.48 in cash dividends per share.Its earnings per share is $4.20 and its market price per share is $30.00.Its dividend yield equals:
A)1.60%.
B)6.25%.
C)8.75%.
D)11.43%.
E)14.00%.
Q3) Dividend yield is computed by dividing annual cash dividends per share by the market value per share.
A)True
B)False
Q4) How is the retirement of stock recorded?
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Chapter 14: Long-Term Liabilities
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Q1) Callable bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.
A)True
B)False
Q2) Return on equity _______________ when the expected rate of return from the acquired assets is greater than the rate of interest on the bonds used to finance the asset acquisition.
Q3) Mortgage bonds are backed only by the good faith and credit of the issuing company.
A)True
B)False
Q4) Two common ways of retiring bonds before maturity are to (1)exercise a call option or (2)purchase them on the open market.
A)True
B)False
Q5) A basic present value concept is that cash paid or received in the future is worth more than the same amount of cash received today.
A)True
B)False
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Chapter 15: Investments and International Operations
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Q1) On May 1,Franke Co.purchases 2,000 shares of Computech stock for $25,000.This investment is considered to be an available-for-sale investment.On July 31 (Franke's year-end),the stock had a market value of $28,000.Franke should record a credit to Unrealized Gain-Equity for $3,000.
A)True
B)False
Q2) Select the correct statement from the following:
A)Profit margin reflects a company's ability to produce net sales from total assets.
B)Total asset turnover reflects the percent of net income in each dollar of net sales.
C)Return on total assets can be separated into gross margin ratio and price-earnings ratio.
D)High returns on total assets are desirable.
E)Return on total assets analysis is beneficial in evaluating a company but is not useful for competitor analysis.
Q3) Explain how held-to-maturity debt securities are accounted for at and after acquisition and how they are reported in the financial statements.
Q4) Discuss the reasons companies make investments.
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Chapter 16: Reporting the Statement of Cash Flows
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Q1) A cash equivalent must be readily convertible to a known amount of cash,and must be sufficiently close to its maturity so its market value is unaffected by interest rate changes.
A)True
B)False
Q2) The cash flow on total assets ratio is computed by dividing average total assets by operating income.
A)True
B)False
Q3) Trenton reports net income of $230,000 for the year ended December 31,Year 2.It also reports $87,700 depreciation expense and a $5,000 gain on the sale of equipment.Its comparative balance sheet reveals a $35,500 decrease in accounts receivable,a $15,750 increase in accounts payable,and a $12,500 decrease in wages payable.Calculate the new cash provided (used)in operating activities using the indirect method.
A)$376,450.
B)$351,450.
C)$356,450.
D)$319,950.
E)$263,750.
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Chapter 17: Analysis of Financial Statements
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Q1) Evaluation of company performance does not include analysis of (1)past and current performance,(2)current financial position,and (3)future performance and risk.
A)True
B)False
Q2) A good financial report does not link interpretations and conclusions of analysis with the underlying information.
A)True B)False
Q3) The current ratio is calculated as current liabilities divided by current assets. A)True B)False
Q4) Horizontal analysis is used to reveal changes in the relative importance of each financial statement item.
A)True B)False
Q5) The comparison of a company's financial condition and performance to a base amount is known as _________________.
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Chapter 18: Managerial Accounting Concepts and Principles
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Q1) An approach that aids continuous improvement by augmenting financial measures with information on the drivers or indicators of future financial performance along the four dimensions of (1.financial,(2.customer,(3.internal business processes; (4.learning and growth.
A)Managerial accounting
B)Continuous improvement
C)Raw materials inventory
D)Customer orientation
E)Just-in-time manufacturing
F)Goods in process inventory
G)Lean business model
H)Balanced scorecard
I)Prime costs
J)Raw materials inventory turnover
Q2) Policies and procedures used by management to monitor and control business activities are known as ____________________________.
Q3) A _________________ cost contains a combination of fixed and variable costs.
Q4) _____________________ inventory consists of goods a company acquires to use in making products.
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Chapter 19: Job Order Costing
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Q1) A job order cost accounting system would be appropriate for a manufacturer of automobile tires.
A)True
B)False
Q2) The rate established prior to the beginning of a period that uses estimated overhead and an allocation factor such as estimated direct labor,and that is used to assign overhead cost to jobs,is the:
A)Predetermined overhead allocation rate.
B)Overhead variance rate.
C)Estimated labor cost rate.
D)Chargeable overhead rate.
E)Miscellaneous overhead rate.
Q3) The file of job cost sheets for completed but undelivered jobs equals the balance in the Goods in Process Inventory account.
A)True
B)False
Q4) A ________ accounting system records production activities using a periodic inventory system.A ________ accounting system records production activities using a perpetual inventory system.
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Chapter 20: Process Costing
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Q1) The following data are available for a company's manufacturing activities: Beginning goods in process inventory ..5,000 units,1/4 of the labor added this period Units started and completed ..15,000 Ending goods in process inventory ..6,000 units,1/2 of the labor added this period If materials are added when the production process begins and direct labor is applied uniformly throughout the process,what are the equivalent units for direct materials and for direct labor,respectively using the FIFO method of process costing?
A)16,250; 19,250.
B)16,250; 21,750.
C)21,000; 19,250.
D)19,250; 18,750.
E)21,000; 22,250.
Q2) Describe the flow of materials in a process cost accounting system,including accounts used.
Q3) A ____________________ contains features of both process and job order operations.
Q4) What are the four steps in accounting for production activity in a period?
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21
Chapter 21: Cost-Volume-Profit Analysis
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Q1) Cost-volume-profit analysis is based on three basic assumptions.Which of the following is not one of these assumptions?
A)Total fixed costs remain constant over changes in volume.
B)Curvilinear costs change proportionately with changes in volume throughout the relevant range.
C)Variable costs per unit of output remain constant as volume changes.
D)Sales price per unit remains constant as volume changes.
E)All of these are basic assumptions.
Q2) Define the break-even point of a company.
Q3) A graphic presentation of cost-volume-profit data is known as a __________________ graph (or chart); this presentation is also sometimes called a ______________ chart.
Q4) Ginger Company's product has a contribution margin per unit of $11.25 and a contribution margin ratio of 22.5%.What is the selling price of the product?
A)$ 5.
B)$20.
C)$30.
D)$40.
E)$50.
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Chapter 22: Master Budgets and Planning
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Q1) The master budget process usually ends with:
A)The production budget.
B)The sales budget.
C)The selling expense budget.
D)The budgeted balance sheet.
E)The overhead budget.
Q2) The master budget process nearly always begins with the preparation of the ___________________ and usually finishes with the preparation of the ______________________,the ________________,and the ______________________.
Q3) To determine the production budget for an accounting period,consideration is given to all of the following except:
A)Budgeted ending inventory.
B)Budgeted beginning inventory.
C)Budgeted sales.
D)Budgeted overhead.
E)Ratio of inventory to future sales.
Q4) A ________________________ is a continuously revised budget that adds future months or quarters to replace months or quarters that have lapsed.
Q5) Why is the sales budget usually prepared first?
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) Chips Co.assigned direct labor cost to its products in May for 1,300 standard hours of direct labor at the standard $8 per hour rate.The direct labor rate variance for the month was $200 favorable and the direct labor efficiency variance was $150 favorable.Prepare the journal entry to charge Goods in Process Inventory for the standard labor cost of the goods manufactured in May and to record the direct labor variances.Assuming that the direct labor variances are immaterial,prepare the journal entry that Chips would make to close the variance accounts.
Q2) Brewer Company specializes in selling used cars.During the month,the dealership sold 22 cars at an average price of $15,000 each.The budget for the month was to sell 20 cars at an average price of $16,000.Compute the dealership's sales price variance for the month.
A)$22,000 unfavorable.
B)$10,000 favorable.
C)$22,000 favorable.
D)$32,000 unfavorable.
E)$32,000 favorable.
Q3) __________ are preset costs for delivering a product or service under normal conditions.
Q4) What are some causes of direct labor rate and efficiency variances?
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) A difficult problem in calculating the total costs and expenses of a department is:
A)Determining the gross profit ratio.
B)Assigning direct costs to the department.
C)Assigning indirect expenses to the department.
D)Determining the amount of sales of the department.
E)Determining the direct expenses of the department.
Q2) ___________________ are costs incurred to produce or purchase two or more products at the same time.
Q3) Calculating return on total assets for an investment center is defined by the following formula for an investment center:
A)Contribution margin/Ending assets.
B)Gross profit/Ending assets.
C)Net income/Ending assets.
D)Net income/Average invested assets.
E)Contribution margin/Average invested assets.
Q4) An example of a service department is the human resources department.
A)True
B)False
Q5) A _______________________ incurs costs and generates revenues.
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) The ___________ is computed by discounting the future net cash flows from the investment at the project's required rate of return and then subtracting the initial amount invested.
Q2) A company is considering a new project that will cost $19,000.This project would result in additional annual revenues of $6,000 for the next 5 years.The $19,000 cost is an example of a(n):
A)Sunk cost.
B)Fixed cost.
C)Incremental cost.
D)Uncontrollable cost.
E)Opportunity cost.
Q3) The decision to accept an additional volume of business should be based on a comparison of the revenue from the additional business with the sunk costs of producing that revenue.
A)True
B)False
Q4) Another name for relevant cost is unavoidable cost.
A)True
B)False
Q5) Relevant costs are also known as ___________________.
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Chapter 26: Time Value of Money B
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Q1) A company is considering investing in a project that is expected to return $350,000 four years from now.How much is the company willing to pay for this investment if the company requires a 12% return?
A)$ 55,606
B)$137,681
C)$222,425
D)$265,764
E)$350,000
Q2) When you reach retirement age,you will have one fund of $100,000 from which you are going to make annual withdrawals of $14,702.The fund will earn 6% per year.For how many years will you be able to draw an even amount of $14,702?
Q3) An interest rate is also called a discount rate.
A)True B)False
Q4) Explain the concept of the present value of an annuity.
Q5) The number of periods in a present value calculation can only be expressed in years. A)True B)False
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Chapter 27: Activity-Based Costing C
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Q1) A basis for allocating the cost of a resource to an activity cost pool or allocating the cost of an activity cost pool to a cost object is a(n):
A)Direct factor.
B)Indirect factor.
C)Cost driver.
D)Joint cost.
E)Opportunity cost.
Q2) Under traditional cost allocation methods,low-volume complex products are often ________________ and high-volume simpler products are likely to be
Q3) Activity-based costing can be especially effective in situations where many different products are manufactured in the same department or departments.
A)True
B)False
Q4) Briefly describe the process of activity-based costing.
Q5) A _________________ is a factor that causes the cost of an activity to go up and down.
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