Accounting for Business Majors Exam Review
Course Introduction
Accounting for Business Majors introduces students to the fundamental principles and concepts of financial and managerial accounting within a business context. The course covers the preparation, interpretation, and analysis of financial statements, emphasizing their role in decision-making for internal and external stakeholders. Topics include the accounting cycle, accruals and deferrals, internal controls, budgeting, cost behavior, and performance evaluation. By integrating real-world applications and ethical considerations, this course equips business majors with the essential accounting literacy necessary for effective management and informed financial decision-making in diverse organizational settings.
Recommended Textbook
Intermediate Accounting 8th Edition by
J. David Spiceland
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Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Sample Questions
Q1) Fundamental qualitative characteristics of accounting information are:
A)Relevance and comparability.
B)Comparability and consistency.
C)Faithful representation and relevance.
D)Neutrality and consistency.
Answer: C
Q2) Recognizing expected losses immediately,but deferring expected gains,is an example of:
A)Materiality.
B)Conservatism.
C)Cost-effectiveness.
D)Timeliness.
Answer: B
Q3) The Public Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)changed the entity responsible for setting auditing standards in the United States.
A)True
B)False
Answer: True
Q4) Compute the cash balance at the end of the first year for Tri Fecta.
Answer: 11ea906f_5651_c387_a7a0_1b181fe04ce3_TB2444_00
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Chapter 2: Review of the Accounting Process
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Q1) Owners' equity can be expressed as assets minus liabilities.
A)True
B)False
Answer: True
Q2) Describe the difference between external events and internal events,and provide two examples of each.
Answer: External events involve an exchange between the company and a separate economic entity.Examples include purchasing inventory on account or borrowing money from a bank.Internal events directly affect the financial position of the company but do not involve exchange transactions with another entity.Examples include depreciation of equipment or use of supplies.
Q3) Property taxes payable
Answer: 11ea906f_564c_1dfb_a7a0_094b7289fa2f_TB2444_00
Q4) Collected a note receivable at maturity,including the interest that had already been accrued.
Answer: 11ea906f_564c_e159_a7a0_71a907f9f3cb_TB2444_00
Q5) Accrued property taxes were paid.
Answer: 11ea906f_564d_568f_a7a0_090da526eff2_TB2444_00
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Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) What would Symphony report as total shareholders' equity?
A)$323.
B)$808.
C)$838.
D)$928. Answer: B
Q2) Assets classified as property,plant,and equipment include machinery,equipment,and inventories.
A)True
B)False Answer: False
Q3) The usual difference between accounts payable and notes payable is:
A)Legally enforceable debt.
B)Current-noncurrent classification.
C)Known payment terms.
D)Explicitly stated interest. Answer: D
Q4) Altoid Co.'s debt to equity ratio.Round your answer to two decimal places. Answer: ($450 + 600)/$(150 + 1,000)= .91 Debt to equity ratio
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Chapter 4: The Income Statement, comprehensive Income, and
the Statement of Cash Flows
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Q1) The division's book value and fair value less cost to sell on December 31 were $3,000,000 and $3,500,000,respectively.What before-tax amount(s)should Mercedes report as loss on discontinued operations in its 2016 income statement?
A)$2,000,000 loss.
B)$2,500,000 loss.
C)No loss would be reported.
D)$500,000 gain included in continuing operations and a $2,000,000 loss from discontinued operations.
Q2) Arrow Printers paid $2,000 interest on short-term notes payable,$10,000 interest on long-term bonds,and $6,000 in dividends on its common stock.Arrow would report cash outflows from activities,as follows:
A)Operating,$2,000;financing,$16,000.
B)Operating,$0;financing,$18,000.
C)Operating,$12,000;financing,$6,000.
D)Operating,$18,000;financing,$0.
Q3) Explain,using an example,how a company can use earnings management and justify it by conservatism.
Q4) Briefly explain why the income statement is referred to as a change statement.
Q5) Briefly explain when and why intraperiod tax allocation is necessary.
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Chapter 5: Income Measurement
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Q1) On January 1,2016,Elite Advertising was contracted to run a marketing campaign for Pharm King's new dieting pills.In addition to getting a base fee of $150,000 for the 3-year campaign,Elite also may get an additional 5% of the base fee as a bonus if a targeted sales level is reached at the end of three years.Elite currently lacks sufficient information to make an estimate of the likelihood of the expected bonus,with the marketing director indicating that "If you forced me to make an estimate,I'd say we have a 50/50 chance.But don't quote me on that - it's really too early to tell." Elite concludes this contract qualifies for revenue recognition over time,and estimates variable consideration using the most likely amount.How much revenue should Elite recognize as of December 31,2016?
A)$50,000
B)$51,250
C)$52,500
D)$57,500
Q2) How much cash remains to be collected by CCC on the project?
A)$70 million.
B)$202.5 million.
C)$240 million.
D)Cannot be determined from the given information.
Q3) Its asset turnover ratio for 2016.Round your answer to two decimal places.
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Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) Explain how you would compute the imputed interest on cash borrowed at 0% interest when the market rate of interest is 8%.
Q2) On February 1,2016,Lynda Brown,proud mother of newborn daughter
Goldie,purchased $600,000 in zero-coupon bonds that mature on February 1,2036.The bonds pay no interest during the period of time they are outstanding.The interest rate for such borrowings is at 12%.
Required: Calculate the price Lynda paid for the bonds.
Q3) Quaker State Inc.offers a new employee a lump-sum signing bonus at the date of employment.Alternatively,the employee can take $8,000 at the date of employment plus $20,000 at the end of each of his first three years of service.Assuming the employee's time value of money is 10% annually,what lump sum at employment date would make him indifferent between the two options?
A)$23,026.
B)$57,737.
C)$62,711.
D)None of these answer choices is correct.
Q4) Briefly describe the difference between simple interest and compound interest.
Q5) Briefly describe the differences between an ordinary annuity,an annuity due,and a deferred annuity.
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Chapter 7: Cash and Receivables
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Q1) What kind of account is the Allowance for Loan Losses in Winchester's financial statements?
Q2) For each posted entry in the allowance account during 2013,prepare the journal entry.
Q3) If Wilson reports under U.S.GAAP,its 12/31/2016 balance sheet would show what cash balance?
A)($5,000).
B)$55,000.
C)$60,000.
D)None these answer choices are correct.
Q4) Calistoga's accounts receivable at December 31,2016,are:
A)$467,000.
B)$473,280.
C)$465,280.
D)$469,280.
Q5) The net method of accounting for cash discounts requires adjusting entries for discounts taken.
A)True
B)False
Q6) Define what it is meant by internal control.
Page 9
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) Purchases equal the invoice amount:
A)Plus freight-in,plus discounts lost.
B)Less purchase returns,plus purchase allowances.
C)Plus freight-in,less purchase discounts.
D)Plus discounts,less purchase returns.
Q2) When reported in financial statements,a LIFO allowance account usually:
A)Is shown in the firm's income statement.
B)Is added to LIFO cost to indicate what the inventory would cost on a FIFO basis.
C)Indicates the effect on income if LIFO were not used.
D)Shows the current rate of inflation for that asset.
Q3) LIFO periodic and LIFO perpetual always produce the same dollar amounts for ending inventory.
A)True
B)False
Q4) The choice of cost flow assumption (FIFO,LIFO,or average)does not depend on the actual physical flow of the product.
A)True
B)False
Q5) Briefly explain the advantages of dollar-value LIFO (DVL).
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) The conventional retail inventory method is based on:
A)Average cost.
B)LIFO cost.
C)Average,lower of cost and net realizable value.
D)LIFO,lower of cost and net realizable value.
Q2) Required: Determine the reported inventory value assuming the lower of cost and net realizable value rule is applied to individual trees.
Q3) To the nearest thousand,estimated ending inventory using the conventional retail method is:
A)$163,000.
B)$124,000.
C)$127,000.
D)$136,000.
Q4) The average cost-to-retail percentage is:
A)52.2%.
B)61.5%.
C)56.8%
D)55%.
Q5) Determine the inventory book value for Products A,B,and C.
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Chapter 10: Property, plant, and Equipment and Intangible
Assets: Acquisition and Disposition
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Q1) Goodwill is:
A)Amortized over the greater of its estimated life or 40 years.
B)Only recorded by the seller of a business.
C)The excess of the fair value of a business over the fair value of all net identifiable assets.
D)None of these answer choices are correct.
Q2) Property,plant,and equipment and intangible assets are long-term,revenue producing assets.
A)True
B)False
Q3) An exclusive 20-year right to manufacture a product or use a process is a:
A)Patent.
B)Copyright.
C)Trademark.
D)Franchise.
Q4) The fixed-asset turnover ratio provides:
A)The rate of decline in asset lives.
B)The rate of replacement of fixed assets.
C)The amount of sales generated per dollar of fixed assets.
D)The decline in book value of fixed assets compared to capital expenditures.
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Chapter 11: Property, plant, and Equipment and Intangible
Assets: Utilization and Impairment
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Q1) Any method of depreciation should be both systematic and rational.
A)True
B)False
Q2) Assuming an asset is used evenly over a four-year service life,which method of depreciation will always result in the largest amount of depreciation in the first year?
A)Straight-line.
B)Units-of-production.
C)Double-declining balance.
D)Sum-of-the-year's digits.
Q3) Changes in the estimates involved in depreciation,depletion,and amortization require retroactive restatement of financial statements.
A)True
B)False
Q4) Briefly explain the differences between the terms depreciation,depletion,and amortization.
Q5) Briefly explain how to account for a change in depreciation method.
Q6) The physical life of a depreciable asset is bounded by its service life.
A)True
B)False
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Chapter 12: Investments
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Sample Questions
Q1) Assume Arctic Cat did not purchase any trading securities during 20X5.Write a journal entry to record any unrealized holding gains or losses on trading securities during 20X5.
Q2) GAAP regarding accounting for unrealized gains and losses on investments in equity securities will apply to an investment when the percentage of ownership of another company is:
A)Less than 20%.
B)20% to 50%.
C)Over 50%.
D)Exactly 100%.
Q3) What would be the balance in Beresford's accumulated other comprehensive income with respect to these investments in its 12/31/2016 balance sheet (ignore taxes)?
A)$55,100.
B)$26,500.
C)$10,400.
D)None of these answer choices is correct.
Q4) Prepare the journal entry (in thousands)that Kirby made at the end of 2016 to record the information disclosed above.
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Chapter 13: Current Liabilities and Contingencies
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Q1) Which of the following is not true about deferred revenue?
A)Deferred revenue with respect to gift cards is recognized as revenue when the gift cards expire.
B)Deferred revenue is a liability.
C)Deferred revenue is recognized on credit sales when collectibility can be estimated.
D)Customer prepayments typically require recognition of deferred revenue.
Q2) A loss contingency should be accrued in a company's financial statements only if the likelihood that a liability has been incurred is:
A)At least remotely possible and the amount of the loss is known.
B)Reasonably possible and the amount of the loss is known.
C)Reasonably possible and the amount of the loss can be reasonably estimated.
D)Probable and the amount of the loss can be reasonably estimated.
Q3) The rate of interest printed on the face of a note payable is called the:
A)Yield rate.
B)Effective rate.
C)Market rate.
D)Stated rate.
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Chapter 14: Bonds and Long-Term Notes
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Q1) What is the interest expense on the bonds in 2017?
A)$700,700.
B)$600,000.
C)$347,464.
D)$100,700.
Q2) When a company issues bonds between interest dates the entry to record the issuance of the bonds will:
A)Include a debit to cash that has been reduced by accrued interest from the last interest date.
B)Include a credit to accrued interest payable.
C)Include a debit to interest expense.
D)Be unaffected by the timing of issue.
Q3) What is the annual effective interest rate on the bonds?
A)3%
B)3.5%
C)6%
D)7%
Q4) Required: What will Morton Sales Co.report on these bonds in its December 31,2016,balance sheet?
Q5) Required: How much interest will Morton Sales Co.pay on these bonds in 2016?
Page 16
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Chapter 15: Leases
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Q1) What is the outstanding balance after payment 5?
A)$1,818.
B)$2,000.
C)$2,182.
D)$3,818.
Q2) What is the outstanding balance after payment 9?
A)$ 8,929.
B)$13,463.
C)$ 5,000.
D)$ 5,537.
Q3) Of the four criteria for a capital lease,the one that most often is the decisive criteria is:
A)The 75% of economic life test.
B)The transfer of title.
C)The 90% of fair value test.
D)The bargain purchase option.
Q4) How do U.S.GAAP and International Financial Reporting Standards (IFRS)differ with respect to leases of land and buildings?
Q5) Discuss the economic advantages of leasing.
Q6) What is meant by the term "minimum lease payments"?
Page 17
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Chapter 16: Accounting for Income Taxes
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Q1) What did Puritan report on December 31,2016,as the deferred tax asset for the NOL Carryforward?
A)$280,000.
B)$200,000.
C)$100,000.
D)$ 0.
Q2) In the statement of cash flows,by using the indirect method for determining cash flows from operating activities,a decrease in deferred tax liabilities is:
A)Added to net income.
B)Subtracted from net income.
C)Ignored.
D)Included under financing activities.
Q3) How should Hobson report tax on the discontinued operation?
A)A tax receivable of $12 million in the balance sheet.
B)A tax benefit of $12 million to net against the $30 million pretax loss.
C)A deferred tax asset of $12 million in the balance sheet.
D)None of these answer choices are correct.
Q4) What is a valuation allowance for deferred tax assets and when is it used?
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) Compared to the ABO,the PBO usually is:
A)Less material.
B)Less representationally faithful.
C)Less relevant.
D)Less reliable.
Q2) The EPBO for a particular employee on January 1,2016,was $150,000.The APBO at the beginning of the year was $30,000.The appropriate discount rate for this postretirement plan is 5%.The employee is expected to serve the company for a total of 25 years with 5 of those years already served as of January 1,2016.What is the APBO at December 31,2016?
A)$37,800.
B)$42,800.
C)$31,500.
D)$30,000.
Q3) What is different about the expected postretirement benefit obligation and the accumulated postretirement benefit obligation?
Q4) The components of postretirement benefit expense are similar to the components of pension expense.How does the service cost component differ between the two expenses?
Q5) How do U.S.GAAP and IFRS differ with regard to reporting prior service costs.
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Chapter 18: Shareholders Equity
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Q1) The preemptive right refers to the shareholder's right to:
A)Maintain a proportional ownership interest in the corporation.
B)Vote for members of the board of directors.
C)Receive a share of dividends.
D)Share in profits proportionally with all other stockholders.
Q2) A statement of comprehensive income does not include:
A)Net income.
B)Losses resulting from the return on pension assets exceeding expectations.
C)Losses from changes in estimates regarding the PBO.
D)Prior service cost.
Q3) On June 1,2016,Blue Co.distributed to its common stockholders 200,000 outstanding common shares of its investment in Red,Inc. ,an unrelated party.The book value on Blue's books of Red's $1 par common stock was $2 per share.Immediately after the declaration,the market price of Red's stock was $2.50 per share.In its income statement for the year ended June 30,2016,what amount should Blue report as gain before income taxes on disposal of the stock?
A)$ 0.
B)$100,000.
C)$400,000.
D)$500,000.
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) On December 31,2015,Beta Company had 300,000 shares of common stock issued and outstanding.Beta issued a 5% stock dividend on June 30,2016.On September 30,2016,40,000 shares of common stock were reacquired as treasury stock.What is the appropriate number of shares to be used in the basic earnings per share computation for 2016?
A)315,000.
B)307,500.
C)305,000.
D)267,500.
Q2) Burns Company reported $752.4 million in net income in 2016.On January 1,2016,the company had 400 million shares of common stock outstanding.On March 1,2016,24 million new shares of common stock were sold for cash.On June 1,2016,the company's common stock split 2 for 1.On July 1,2016,8 million shares were reacquired as treasury stock.
Required:
Compute Burns' basic earnings per share for the year ended December 31,2016.
Q3) What is the advantage of stock appreciation rights over stock options?
Q4) Why are preferred dividends deducted from net income when calculating EPS?
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Q5) What is restricted stock? Describe how compensation expense is determined and recorded for a restricted stock plan.
Chapter 20: Accounting Changes
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Q1) On January 2,2016,Tobias Company began using straight-line depreciation for a certain class of assets.In the past,the company had used double-declining-balance depreciation for these assets.As of January 2,2016,the amount of the change in accumulated depreciation is $40,000.The appropriate tax rate is 40%.The separately reported change in 2016 earnings is:
A)An increase of $40,000.
B)A decrease of $40,000.
C)An increase of $24,000.
D)None of these answer choices is correct.
Q2) Which of the following accounting changes should not be accounted for prospectively?
A)The correction of an error.
B)A change from declining balance to straight-line depreciation.
C)A change from straight-line to declining balance depreciation.
D)A change in the expected salvage value of a depreciable asset.
Q3) If inventory is understated at the end of 2015 and the error is not discovered,how will net income be affected in 2016?
Q4) Describe the way we account for an error when that error is discovered in a subsequent reporting period.
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Chapter 21: The Statement of Cash Flows
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Q1) Kinney reported cost of goods sold of $168,114,150 in its fiscal 2015 income statement.Compute its net inventory purchases during the year.
Q2) Interest payments to creditors are reported in a statement of cash flows as:
A)An investing activity.
B)A borrowing activity.
C)A financing activity.
D)An operating activity.
Q3) Which of the following financial statements is prepared as of a particular point in time rather than for a period of time?
A)Statement of cash flows.
B)Income statement.
C)Statement of shareholders' equity.
D)Balance sheet.
Q4) (a. )What is the most significant change in operating cash outflow activity in 2015 relative to 2014?
(b. )What balance sheet accounts would likely have changed during 2015 in relation to the cash flow change that you identify in (a)?
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