Accounting for Business Exam Practice Tests
Course Introduction
Accounting for Business offers an introduction to the fundamental concepts and practices of accounting within a business context. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, and the use of accounting information in decision-making. Students explore the roles of assets, liabilities, equity, revenues, and expenses, while gaining practical skills in recording business transactions and interpreting financial data. By understanding the language of business, students develop the ability to utilize accounting information for operational, strategic, and financial decisions across various organizational settings.
Recommended Textbook Principles of Accounting 11th Edition by Belverd E. Needles
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) Financial accounting information is used primarily by management. A)True
B)False Answer: False
Q2) Independence is the avoidance of all relationships that impair or appear to impair the objectivity of the accountant.
A)True
B)False Answer: True
Q3) The statement of owner's equity relates the income statement to the balance sheet by showing how the owner's Capital account changed during the accounting period. A)True
B)False Answer: True
Q4) Due care means carrying out one's professional responsibilities honestly and impartially.
A)True
B)False Answer: False
Page 3
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Which of the following statements is true about a journal entry?
A) The Post. Ref. column is filled in prior to posting.
B) All debits are listed before any credits.
C) The name of the month should be repeated for each entry.
D) An explanation must follow each debit and each credit.
Answer: B
Q2) Journal entries are typically posted to the ledger only at the end of the year.
A)True
B)False
Answer: False
Q3) An increase in an asset is recorded by a debit.
A)True
B)False
Answer: True
Q4) The chart of accounts makes finding accounts in the ledger easier.
A)True
B)False
Answer: True
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Page 4
Chapter 3: Measuring Business Income
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Sample Questions
Q1) An adjusting entry includes at least one balance sheet account and at least one income statement account.
A)True
B)False
Answer: True
Q2) Which of the following accounts probably would need to be adjusted at year end?
A) Notes Payable
B) Land
C) Supplies
D) Owner's Withdrawals
Answer: C
Q3) The matching rule relates the least to
A) systematic and rational allocation.
B) the cash basis of accounting.
C) revenues and expenses.
D) cause-and-effect relationships.
Answer: B
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The heading of a work sheet might contain the line "As of February 28, 20xx."
A)True
B)False
Q2) Which of the following accounts appears in the Balance Sheet columns of a work sheet?
A) Withdrawals
B) Earned Revenue
C) Wages Expense
D) Depreciation Expense-Equipment
Q3) On which financial statement does Income Summary appear?
A) Statement of owner's equity
B) Balance sheet
C) On no financial statement
D) Income statement
Q4) The balances of the Accumulated Depreciation accounts will appear on the credit side of the work sheet's Balance Sheet columns.
A)True
B)False
Q5) Briefly distinguish between adjusting and closing entries.
Q6) What two broad purposes do closing entries serve?
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Chapter 5: Financial Reporting and Analysis
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Sample Questions
Q1) Sales returns and allowances are deducted from gross sales on the balance sheet.
A)True
B)False
Q2) The use of the lower-of-cost-or-market method for inventory is an application of the convention of conservatism.
A)True
B)False
Q3) Which of the following is not expressed in terms of a percentage?
A) Return on equity
B) Debt to equity ratio
C) Current ratio
D) Profit margin
Q4) The user can depend on the accuracy of financial information when which of the following qualitative characteristics has been followed?
A) Relevance
B) Faithful representation
C) Understandability
D) Timeliness
Q5) State the definition of a current asset.
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Chapter 6: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) Which of the following does not represent a sale?
A) Merchandise placed aside for a customer who plans to come in next week and pay with cash
B) Purchase of merchandise by a customer who pays cash
C) Sale of merchandise to a customer who uses a credit card
D) Purchase of merchandise by a customer who uses a debit card
Q2) FOB shipping point means that the seller incurs the shipping costs.
A)True
B)False
Q3) Under the perpetual inventory system, when merchandise is sold, its cost is transferred from the Merchandise Inventory account to the Sales account. A)True
B)False
Q4) The use of major credit cards requires sellers to establish the customer's credit. A)True
B)False
Q5) Under a perpetual inventory system, is it necessary to take a physical inventory at the end of the period? Why or why not?
8
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Chapter 7: Internal Control
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Sample Questions
Q1) Which of the following is not a goal of a system of internal control over merchandising transactions?
A) Keep credit losses as low as possible.
B) Prevent the theft of cash and inventory.
C) Keep the maximum amount of inventory on hand at all times.
D) Keep enough cash on hand to take advantage of purchase discounts.
Q2) When a petty cash fund is not replenished at the end of the accounting period, the adjusting entry would contain a credit to Petty Cash.
A)True
B)False
Q3) The petty cash fund should be replenished
A) only for the total amount of expense receipts on hand.
B) for the total amount that was originally set up in the imprest fund.
C) for the total amount of expense receipts on hand plus cash remaining before replenishment.
D) for the amount needed to bring the petty cash fund back to its imprest amount.
Q4) Why is the separation of duties an important control activity in a good system of internal control?
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Page 9
Chapter 8: Inventories
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Sample Questions
Q1) In periods of rising inventory prices, the LIFO method will result in a higher inventory valuation than will the average-cost method.
A)True
B)False
Q2) The higher the inventory turnover, the higher the days' inventory on hand.
A)True
B)False
Q3) Inventory turnover is expressed in terms of A) days.
B) a percentage.
C) dollars.
D) times.
Q4) Which of the following costs normally would be included in the inventory cost?
A) Ordering costs
B) Receiving costs
C) Applicable taxes
D) Storage costs
Q5) How does the perpetual inventory system differ from the periodic inventory system in the determination of cost of goods sold?
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Chapter 9: Cash and Receivables
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Sample Questions
Q1) Use this information to answer the following question. The general ledger account for Accounts Receivable shows a debit balance of $50,000. Allowance for Uncollectible Accounts has a credit balance of $1,000. Net sales for the year were $500,000. In the past, 2 percent of sales have proved uncollectible, and an aging of accounts receivable accounts results in an estimate of $13,500 of uncollectible accounts. Using the accounts receivable aging method, the Allowance for Uncollectible Accounts balance (after adjustment) would be
A) $14,500.
B) $14,000.
C) $13,500.
D) $12,500.
Q2) When using the direct charge-off method, year-end adjustments for uncollectible accounts expense must be made.
A)True B)False
Q3) Having a compensating balance increases a company's liquidity. A)True B)False
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Heidi wishes to deposit an amount into her savings account that will enable her to withdraw $800 per year for the next four years. She should deposit $800, multiplied by the
A) present value of a single sum factor.
B) present value of an ordinary annuity factor.
C) future value of a single sum factor.
D) future value of an ordinary annuity factor.
Q2) All of the following are measures of liquidity except
A) the quick ratio.
B) return on assets.
C) the current ratio.
D) working capital.
Q3) Recording estimated product warranty expense in the year of the sale best follows which of the following accounting principles?
A) Matching
B) Consistency
C) Historical cost
D) Full disclosure
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Chapter 11: Long Term Assets
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Sample Questions
Q1) Grannis Corporation purchased land adjacent to its plant to improve access for trucks making deliveries. Expenditures incurred by the company were as follows: purchase price, $40,000; broker's fees, $7,000; title search and other fees, $6,000; demolition of an old building on the property, $3,700; grading, $1,200; digging foundation for the road, $3,000; laying and paving driveway, $25,000; lighting, $7,500; signs, $1,500. List the items and the amounts that should be included in the Land account.
Q2) The Land account would include all of the following costs except
A) drainage costs.
B) commissions paid to real estate agents.
C) the cost of building a fence.
D) the cost of tearing down a building.
Q3) Which of the following assets is not subject to depreciation, depletion, or amortization?
A) Land improvements, such as parking lots and fences
B) Gas fields
C) Land
D) Patents
Q4) Present two arguments in favor of the use of accelerated depreciation.
Q5) What is goodwill and when may it be recorded?
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Chapter 12: Contributed Capital
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Sample Questions
Q1) Beckham Corporation has 3,000 shares of $100 par value, 7 percent cumulative preferred stock, and 10,000 shares of $10 par value common stock outstanding during its first five years of operation. Beckham Corporation paid cash dividends as follows: 2006, $10,500; 2007, $0; 2008, $65,000; 2009, $30,000; 2010, $15,000. The amount of dividends the common stockholders received during 2006 was
A) $0.
B) $5,250.
C) $10,500.
D) $15,750.
Q2) When stock is issued for noncash assets or services, how does one place a valuation (dollar amount) on the transaction?
Q3) Dividends in arrears are forfeited when a corporation calls in its preferred stock.
A)True
B)False
Q4) Callable preferred stock is preferred stock that may be redeemed or retired at the option of the stockholder.
A)True
B)False
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Page 14
Chapter 13: Long Term Liabilities
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Sample Questions
Q1) Deferred income taxes arise when accounting methods used for financial reporting differ from those used on the income tax return.
A)True
B)False
Q2) When all the bonds of an issue mature at the same time, they are called serial bonds.
A)True B)False
Q3) A corporation probably does not know who owns its coupon bonds.
A)True
B)False
Q4) If bonds are retired by an issuer by purchase on the open market at a price below the bonds' carrying value, a gain will result.
A)True
B)False
Q5) Entering into a lease is an example of off-balance-sheet financing.
A)True B)False
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Chapter 14: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) When common stock is originally issued, its market value per share should approximate its par or stated value per share.
A)True
B)False
Q2) Draw two distinctions between accounting for a stock split and accounting for a stock dividend.
Q3) An excess of income taxes expense over income taxes payable for a period is associated with a(n)
A) excess of taxable income over accounting income.
B) error.
C) debit to the Deferred Income Taxes account.
D) excess of accounting income over taxable income.
Q4) The book value of one share of callable preferred stock is equal to the call value of the preferred share minus any dividends in arrears.
A)True
B)False
Q5) Investments by owners are contained in comprehensive income.
A)True
B)False
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) A cash flow yield of 2.5 times is considered better than one of 2.0 times.
A)True
B)False
Q2) Assume the indirect method is used to compute net cash flows from operating activities. For this item extracted from the financial statements-Increase in Income Taxes
Payable-indicate the effect on net income in arriving at net cash flows from operating activities by choosing one of the following:
A) Add to net income to arrive at net cash flows from operating activities
B) Subtract from net income to arrive at net cash flows from operating activities
C) Not used to adjust net income to calculate net cash flows from operating activities
Q3) Royer Corporation engaged in this transaction: Purchased land for cash.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.
A) Operating activities section
B) Investing activities section
C) Financing activities section
D) Does not represent a cash flow
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Chapter 16: Financial Performance Measurement
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Sample Questions
Q1) One of the main parts of an annual report of a publicly held corporation is the five- to ten-year projection.
A)True
B)False
Q2) What is horizontal analysis, and why is it useful in performing financial performance measurement?
Q3) Market strength is the ability to increase the wealth of stockholders.
A)True
B)False
Q4) A change in the company's auditors must be reported to the SEC within a few days of the change.
A)True
B)False
Q5) The ability to pay bills when due and to meet unexpected needs for cash most closely describes
A) cash flow adequacy.
B) long-term solvency.
C) liquidity.
D) profitability.
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Chapter 17: Partnerships
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Sample Questions
Q1) In a liquidation, the liabilities of the partnership should be paid
A) after a revaluation of assets
B) before any sales of assets
C) before the distribution of cash to partners
D) before the distribution of gains and losses on the disposal of assets
Q2) When a partner withdraws assets greater than his or her capital balance, the excess is treated as a bonus to the remaining partners.
A)True
B)False
Q3) When a partner withdraws from a partnership, an audit might be performed and the assets reappraised.
A)True
B)False
Q4) Each partner has a separate Capital and Withdrawals account.
A)True
B)False
Q5) When a new partner is admitted, a new partnership agreement should be in place. A)True
B)False
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Chapter 18: The Changing Business Environment-A
Managers Pers
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Sample Questions
Q1) A business plan is a comprehensive statement of how a company will achieve its objectives, but does not include budgets or performance goals.
A)True
B)False
Q2) The balanced scorecard has gained little acceptance as an approach to establish effective performance measurement.
A)True
B)False
Q3) The just-in-time philosophy emphasizes
A) completing products on schedule.
B) increasing production.
C) finishing all products before starting new ones.
D) eliminating waste.
Q4) Management executes a plan by overseeing the daily operations of an organization.
A)True
B)False
Q5) Identify and explain the important questions a manager must address before preparing a managerial report. (Hint: Think "w's.")
Page 20
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Chapter 19: Cost Concepts and Cost Allocation
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Sample Questions
Q1) Period costs are consumed entirely in the current reporting period.
A)True
B)False
Q2) For a manufactured product, all costs incurred to get the product ready for sale are included in the inventory value of the product.
A)True
B)False
Q3) The product is the cost object when assigning indirect product costs.
A)True
B)False
Q4) The product costs that appear in the financial statements are actual product costs.
A)True
B)False
Q5) Inventoriable cost is a synonym of period cost.
A)True
B)False
Q6) Sugar is an indirect cost in the manufacture of candy.
A)True
B)False
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Chapter 20: Costing Systems: Job Order Costing
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Sample Questions
Q1) Teddy's To Hug, produces Teddy Bears for heart patients. Last month the company produced 5,000 bears. Using job order costing, determine the product unit cost for one bear based on the following costs: production facility utilities, $600; depreciation on production equipment, $550; indirect materials, $450; direct materials, $1,300; indirect labor, $900; direct labor, $2,500; sales commissions, $3,000; president's salary, $5,000; insurance on production facility, $700; advertising expense, $600; rent on production facility, $5,000; rent on sales office, $3,000; and legal expense, $300. Carry your answer to two decimal places.
Q2) Job order costing is used by companies that make large or unique products.
A)True
B)False
Q3) Regardless of the cost accounting system used, when the products are completed, they are transferred from work in process inventory to finished goods inventory.
A)True
B)False
Q4) In a process costing system, product costs are traced to individual products.
A)True
B)False
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Chapter 21: Costing Systems Process Costing
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Q1) The number of possible combinations of product flows and production processes is limitless.
A)True
B)False
Q2) The basis used in computing unit cost for the process costing system is made up of certain specific jobs worked on during the fiscal year.
A)True
B)False
Q3) Equivalent units are defined as the number of units completed and transferred out of work in process inventory during the current period.
A)True
B)False
Q4) Which of the following cost flow assumptions most closely follows the logical product flow in a process costing environment?
A) Average
B) LIFO
C) FIFO
D) HIFO
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Page 23
Chapter 22: Activity-Based Systems-Abm and Lean
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Sample Questions
Q1) How can activity-based systems help managers in a global marketplace?
Q2) Activity-based management includes all of the following except identifying
A) customer satisfaction with a product or service.
B) the resources that are consumed by each activity.
C) activities as value-adding.
D) how resources are consumed by each activity.
Q3) Under new methods of management, attempts to continuously improve the work environment come from
A) top management..
B) each department manager.
C) the board of directors
D) everyone in the company.
Q4) A nonvalue-adding activity is defined as a(n)
A) administrative or support activity that adds overhead cost to the product and increases its market value.
B) activity that adds cost to a product but does not increase its market value.
C) activity that adds no cost to the product but increases its market value.
D) wasteful but unavoidable production activity.
Q5) Distinguish between a supply chain and a value chain. How do they relate to each other?
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Chapter 23: Cost Behavior Analysis
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Q1) Suppose a company rents a building for $250,000 a year for the purpose of manufacturing between 80,000 and 140,000 units (the relevant range of activity). The rental cost per unit of production will __________ as production levels increase.
A) behave in a nonlinear fashion
B) increase
C) decrease
D) remain fixed
Q2) In terms of cost behavior, telephone expense and direct materials are classified as A) variable and fixed, respectively.
B) fixed and variable, respectively.
C) mixed and fixed, respectively.
D) mixed and variable, respectively.
Q3) The contribution margin income statement enables managers to view revenue and cost relationships on a per unit basis or as a percentage of sales.
A)True
B)False
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25
Chapter 24: The Budgeting Process
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Sample Questions
Q1) A company seeks to have as much cash as possible on hand. Cash budgeting helps to accomplish this.
A)True
B)False
Q2) Which of the following provides the catalyst for all operating budgets?
A) Firm's ten-year plan
B) Production budget (units)
C) Capital expenditures budget
D) Unit sales forecast
Q3) J. J. Johnson has decided to supplement his income by selling beehives. He expects to sell 25,000 hives in 2010. He ended 2009 with 2,500 completed hives in inventory and would like to complete operations in 2010 with at least 2,800 completed hives in inventory. There is no ending work in process inventory. One beehive holds about 250 bees. The bees are purchased for $4.00 per 1,000 bees. The hives sell for $15.00 each.
What would be the total of the 2010 period sales budget?
A) $378,000
B) $375,000
C) $379,500
D) $376,500
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Chapter 25: Performance Management and Evaluation
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Q1) The manager of Center B produces a product that is not sold to an external party. What type of responsibility center is Center B?
A) Cost center
B) Discretionary cost center
C) Profit center
D) Revenue center
Q2) How effective a performance management and evaluation system is depends on how well the goals of the entire company are coordinated rather than on how well the goals of individual responsibility centers and managers are coordinated.
A)True
B)False
Q3) Responsibility accounting is more concerned with performance evaluation than performance management.
A)True
B)False
Q4) Most organizations use very similar performance measures in their day-to-day business operations.
A)True
B)False
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Chapter 26: Standard Costing and Variance Analysis
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Q1) Standard costs are useful for all but which of the following?
A) Determining actual costs
B) Preparing budgets and forecasts
C) Evaluating the performance of workers and management
D) Helping to develop appropriate selling prices
Q2) Even if a variance is insignificant, corrective action should be taken.
A)True
B)False
Q3) The difference between actual quantity used and standard quantity multiplied by standard price is the equation for computing the
A) direct labor efficiency variance.
B) direct materials price variance.
C) direct labor rate variance.
D) direct materials quantity variance.
Q4) A standard cost accounting system can be used for A) direct materials.
B) overhead.
C) direct labor.
D) all of these.
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Chapter 27: Short Run Decision Analysis
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Sample Questions
Q1) All of the following are relevant in a sell or process-further decision except
A) sales value at the split-off point.
B) sales value after further processing.
C) additional processing costs.
D) joint costs.
Q2) The normal selling price of our product is $42 per unit. The costs of production are direct materials, $8; direct labor, $6; variable overhead, $7; and fixed overhead, $4 (based on normal capacity). The company has received a special order for 11,900 units at a unit sales price of $23. There is ample unused capacity to fill the order and $1 per unit will be incurred for additional freight costs. If the order is accepted, operating income will
A) increase by $11,900.
B) decrease by $35,700.
C) increase by $23,800.
D) decrease by $23,800.
Q3) Irrelevant costs are costs that are
A) different among alternatives.
B) avoidable costs.
C) opportunity costs.
D) sunk costs.
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Chapter 28: Capital Investment Analysis
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Q1) The carrying value of the old asset in a machine replacement decision is irrelevant.
A)True
B)False
Q2) An organization with several branches and a highly developed system for capital investment analysis requires that all proposals should go through preliminary screening.
A)True
B)False
Q3) Qualitative factors will not be considered in the evaluation of capital investment proposals.
A)True
B)False
Q4) The time value of money concept is given consideration in long-range investment decisions by
A) investing only in short-term projects.
B) weighting cash flows with subjective probabilities.
C) assuming equal annual cash flow patterns.
D) assigning greater value to more immediate cash flows.
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