Accounting for Business Majors Test Bank
Course Introduction
Accounting for Business Majors introduces students to fundamental accounting principles and practices essential for all areas of business. The course covers the preparation and analysis of financial statements, the accounting cycle, and methodologies for recording and summarizing financial transactions. Emphasis is placed on the role of accounting in decision-making, planning, and control within a business environment. Students will also explore how accounting information assists managers, investors, and regulatory bodies in evaluating organizational performance. Through practical examples and problem-solving exercises, students gain essential skills to interpret financial data and apply core accounting concepts in real-world business scenarios.
Recommended Textbook
Intermediate Accounting 8th Edition by J. David Spiceland
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Page 2
Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Sample Questions
Q1) Accrual accounting attempts to measure revenues and expenses that occurred during accounting periods so they equal net operating cash flow.
A)True
B)False
Answer: False
Q2) Which of the following Statements of Financial Accounting Concepts defines the 10 elements of financial statements?
A)SFAC 4.
B)SFAC 3.
C)SFAC 5.
D)SFAC 6.
Answer: D
Q3) The International Accounting Standards Board:
A)Was the predecessor to the IASC.
B)Can overrule the FASB when their policies disagree.
C)Promotes the use of high-quality,understandable global accounting standards.
D)Has its headquarters in Geneva.
Answer: C
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Chapter 2: Review of the Accounting Process
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Sample Questions
Q1) Cost of goods sold
Answer: 11ea906f_564b_cfd7_a7a0_89e25dd6d609_TB2444_00
Q2) Based on the information presented above,prepare the 2016 Income Statement for Krafty Foods.
Answer: 11ea906f_564d_a4b6_a7a0_0702d5245d52_TB2444_00
Q3) Supplies expense
Answer: 11ea906f_564c_450e_a7a0_6528e8fc03e3_TB2444_00
Q4) What is the purpose of the closing process?
Answer: The closing process serves a dual purpose:(1)the temporary accounts are reduced to a zero balance,ready to measure activity in the next accounting period,and (2)the balances of these temporary accounts are transferred to retained earnings to reflect the changes that have occurred in that account during the period.Revenue and expense accounts are first transferred to income summary.The net balance in income summary is then transferred to retained earnings.
Q5) Purchased building and equipment for $10,000,000,paying 20% cash and issuing a 30-year note for the balance.
Answer: 11ea906f_564c_9333_a7a0_33970e7aa2f0_TB2444_00
Q6) Received payment for services to be performed next year.
Answer: 11ea906f_564d_086c_a7a0_b3b3878d271b_TB2444_00
Page 4
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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 current assets?
A)$823.
B)$838.
C)$843.
D)$1,696.
Answer: A
Q2) HHF's long-term debt to equity ratio equity is:
A)133.3%.
B)75%.
C)180%.
D)0%.
Answer: B
Q3) Compute the return on shareholders' equity ratio for Marjoram Company.Round your answer to two decimal places.
Answer: $73,080 / ($70,000 + 157,000)= 32% Return on shareholders' equity
Q4) Compute the times interest earned ratio for Marjoram Company.Round your answer to two decimal places.
Answer: ($73,080 + 31,320 + 11,000)/$11,000 = 10.49 Times interest earned ratio
Q5) Altoid Co.'s current ratio.Round your answer to two decimal places.
Answer: ($150 + 200 + 300 + 450)/$450 = 2.44 Current ratio
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Chapter 4: The Income Statement, comprehensive
and the Statement of Cash Flows
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Q1) Reporting comprehensive income can be accomplished by each of the following methods except:
A)In the statement of shareholders' equity.
B)A single,continuous statement of comprehensive income.
C)In two separate,but consecutive statements.
D)All of the above are acceptable methods.
Q2) Intraperiod income tax presentation is primarily a matter of:
A)Valuation.
B)Going concern.
C)Periodicity.
D)Allocation.
Q3) Comprehensive income is the total change in shareholders' equity that occurred during the period.
A)True
B)False
Q4) Briefly explain why the income statement is referred to as a change statement.
Q5) Material restructuring costs are reported as an element of income from continuing operations.
A)True
B)False
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Chapter 5: Income Measurement
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Sample Questions
Q1) Mahogany Billiards sells upscale pool tables and related supplies.It sells a premium package consisting of a pool table imported from Europe,a full set of cues and balls,and on-site installation by its staff.Mahogany determines that each of these components is a performance obligation.Mahogany sells the pool table separately for $3,000 and the set of cues and balls for $1,000.The entire package is sold at $4,500.Mahogany does not offer on-site installation separately,as part of company policy.It also estimates that it incurs about $350 of compensation and other costs per each installation.Other competing vendors sell on-site installation separately for $450,on average.Mahogany typically earns a profit margin of 40% over cost,and its prices are generally 5% lower than those charged by competitors.
Required: Estimate the stand-alone selling price of the installation service using (a)the adjusted market assessment approach, (b)the expected cost plus margin approach,and (3)the residual approach.
Q2) In 2015,Lake would recognize realized gross profit of:
A)$150,000.
B)$0.
C)$300,000.
D)$450,000.
Q3) Its receivables turnover ratio for 2016.Round your answer to one decimal place.
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Page 7
Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) Spielberg Inc.signed a $200,000 noninterest-bearing note due in five years from a production company eager to do business.Comparable borrowings have carried an 11% interest rate.What is the value of this debt at its inception?
A)$200,000.
B)$178,000.
C)$118,690.
D)$222,000.
Q2) Column 2 is an interest table for the:
A)Present value of an ordinary annuity of 1.
B)Future value of an ordinary annuity of 1.
C)Present value of an annuity due of 1.
D)Future value of an annuity due of 1.
Q3) How much must be invested now at 9% interest to accumulate to $10,000 in five years?
A)$9,176.
B)$6,499.
C)$5,500.
D)$5,960.
Q4) Provide two examples of the use of present value techniques in accounting.
Q5) The total cash interest payments in 2016 for these notes.
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) In a bank reconciliation,adjustments to the book balance could include adding or subtracting company errors.
A)True
B)False
Q2) Accounting for the pledging of accounts receivable as collateral for a loan requires:
A)Reporting the receivables net of the borrowed amount.
B)Removal of the pledged receivables from current assets and including them with noncurrent investments.
C)Disclosure of the arrangement in notes to the financial statements.
D)None of these answer choices are correct.
Q3) The journal entry to replenish the petty cash fund includes:
A)A credit to petty cash and a debit to various expenses for $126.
B)A debit to petty cash and a credit to cash for $150.
C)A credit to cash and a debit to various expenses for $126.
D)None of these answer choices are correct.
Q4) Securitization of receivables is a type of secured borrowing.
A)True
B)False
Q5) Describe some key elements of an internal control system for cash.
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Chapter 8: Inventories: Measurement
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Q1) On January 1,2015,ECT Co.adopted the dollar-value LIFO method for its one inventory pool.The pool's value on this date was $600 million.The 2015 and 2016 ending inventory valued at year-end costs were $702 million and $840 million,respectively.The appropriate cost indexes are 1.08 for 2015 and 1.20 for 2016.
Required:
Calculate the inventory balance that ECT Co.would report on its year-end balance sheets for 2015 and 2016,using the dollar-value LIFO method.
Q2) Costs and prices regularly fall every year in the microcomputer industry.Briefly indicate your recommendation and rationale for an inventory method for a firm about to enter this industry.
Q3) The ending inventory assuming LIFO and a periodic inventory system is:
A)$1,580.
B)$1,510.
C)$1,575.
D)$1,470.
Q4) Required: Compute the January 31 ending inventory and cost of goods sold for January,assuming Random Creations uses average cost and a perpetual inventory system.
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Page 10
Chapter 9: Inventories: Additional Issues
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Q1) Under the LIFO retail method,the current period cost-to-retail percentage includes both net markdowns and net markups.
A)True
B)False
Q2) To the nearest thousand,estimated ending inventory is:
A)$55,000.
B)$52,000.
C)$57,000.
D)None of these answer choices are correct.
Q3) Required: Determine the reported inventory value assuming the lower of cost and net realizable value rule is applied to individual types of feeds.
Q4) An argument against use of the lower of cost and net realizable value rule is its lack of:
A)Relevance.
B)Reliability.
C)Consistency.
D)Objectivity.
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) Sales tax paid on equipment acquired for use in the business is not capitalized. A)True
B)False
Q2) Use a T- account to show the balances and changes during 2013 in Boston Beer's: Property,Plant and Equipment account and its Accumulated depreciation-Property,Plant & Equipment account.
Q3) Why would an oil company argue to use the full-cost method of accounting for oil and gas exploration costs?
Q4) Why are software development costs treated differently than other types of R&D?
Q5) Average accumulated expenditures for 2016 was:
A)$300,000.
B)$350,000.
C)$500,000.
D)$400,000.
Q6) Property,plant,and equipment and intangible assets are long-term,revenue producing assets.
A)True
B)False
Page 12
Q7) Show the journal entry to record Boston Beer's sale of property,plant and equipment during 2013.
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Chapter 11: Property, plant, and Equipment and Intangible
Assets: Utilization and Impairment
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Sample Questions
Q1) Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,2016 and 2017,assuming the units-of-production is used.
Q2) Granite Enterprises acquired a patent from Southern Research Corporation on January 1,2016,for $4 million.The patent will be used for 5 years,even though its legal life is 20 years.Rocky Corporation has made a commitment to purchase the patent from Granite for $200,000 at the end of five years.Compute Granite's patent amortization for 2016,assuming the straight-line method is used.
A)$380,000.
B)$400,000.
C)$760,000.
D)$800,000.
Q3) Briefly discuss why straight-line is the most common depreciation method used in practice.
Q4) Required:
Compute depreciation for 2016 and 2017 and the book value of the spooler at December 31,2016 and 2017,assuming the straight-line method is used.
Q5) Briefly differentiate between activity-based and time-based allocation methods.
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Chapter 12: Investments
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Q1) When an investor owns 20% to 50% of the voting stock of an investee company,the investor is presumed to exercise significant influence over the investee unless there is evidence to the contrary.
Required:
(1. )What factors could be evidence of significant influence?
(2. )What factors could be evidence of lack of significant influence?
Q2) Krogstad Corporation bought 1,000 shares of Cole Inc.for $90 per share plus a brokerage fee of $1,800.Three months later,the shares were sold for $110 per share.The brokerage fee on the sale was $2,200.
Required:
(1. )Prepare the appropriate journal entry to record the purchase of the stock.
(2. )Prepare the appropriate journal entry to record the sale of the stock.
Q3) If an investment is accounted for under the equity method,the investor reduces investment income and the investment account for amortization of goodwill acquired in the investment.
A)True
B)False
Q4) Prepare appropriate entry(s)at December 31,2017,and indicate how the scenario will affect net income,OCI,and comprehensive income.
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Chapter 13: Current Liabilities and Contingencies
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Sample Questions
Q1) Oklahoma Oil Corp.paid interest of $785,000 during 2016,and the interest payable account decreased by $125,000.What was interest expense for the year?
A)$910,000.
B)$660,000.
C)$555,000.
D)$785,000.
Q2) In May of 2016,Raymond Financial Services became involved in a penalty dispute with the EPA.At December 31,2016,the environmental attorney for Raymond indicated that an unfavorable outcome to the dispute was probable.The additional penalties were estimated to be $770,000 but could be as high as $1,170,000.After the year-end,but before the 2016 financial statements were issued,Raymond accepted an EPA settlement offer of $900,000.Raymond should have reported an accrued liability on its December 31,2016,balance sheet of:
A)$ 770,000.
B)$ 900,000.
C)$ 970,000.
D)$1,170,000.
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Page 16
Chapter 14: Bonds and Long-Term Notes
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Q1) Rick's Pawn Shop issued 11% bonds,dated January 1,with a face amount of $400,000 on January 1,2017.The bonds sold for $370,000.For bonds of similar risk and maturity the market yield was 12%.Interest is paid semiannually on June 30 and December 31.Rick's determines interest at the effective rate and elected the option to report these bonds at their fair value.On December 31,2017,the fair value of the bonds was $365,000,with $2,000 of the change due to a change in general interest rates.Rick's statement of comprehensive income will include:
A)An unrealized gain from change in the fair value of debt of $5,412.
B)An unrealized loss from change in the fair value of debt of $3,412.
C)An unrealized gain from change in the fair value of debt of $2,000.
D)An unrealized gain from change in the fair value of debt of $3,412.
Q2) A disclosure note in the annual financial statements of Macy's Inc.included the following:
"Future maturities of long-term debt,other than capitalized leases and premium on acquired debt,are shown below:"
For how many years subsequent to the current year must Macy's report these amounts? Name at least two other items that must be disclosed for a company's long-term debt.
Q3) A zero-coupon bond pays no interest.Explain.
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17
Chapter 15: Leases
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Q1) GAAP requires that some lease agreements be accounted for as purchases.The theoretical justification for this treatment is that a lease of this type:
A)Complies with the concept of form over substance
B)Reflects the relationship of cause and effect
C)Satisfies the concept of historical cost
D)Conveys most of the benefits of property ownership.
Q2) Hamilton Security leased equipment to American Parcel Service for a 16-year period,at which time possession of the leased asset will revert back to Hamilton.The equipment cost Hamilton $16 million and has an expected useful life of 22 years.Its normal sales price is $23 million.The present value of the minimum lease payments for both the lessor and lessee is $20 million.The first payment was made at the inception of the lease.
Required:
How would American Parcel Service classify this lease if it prepares its financial statements using U.S.GAAP? IFRS? Why?
Q3) Discuss the financial statement disclosure requirements for all leases entered into by the lessee.
Q4) What is meant by the term "minimum lease payments"?
Q5) What lease disclosures are required of the lessor and lessee?
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Chapter 16: Accounting for Income Taxes
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Q1) Pretax accounting income for the year ended December 31,2016,was $50 million for Truffles Company.Truffles' taxable income was $60 million.This was a result of differences between straight-line depreciation for financial reporting purposes and MACRS for tax purposes.The enacted tax rate is 30% for 2016 and 40% thereafter.What amount should Truffles report as the current portion of income tax expense for 2016?
A)$15 million.
B)$18 million.
C)$20 million.
D)$24 million.
Q2) The way companies deal with uncertainty in tax positions is prescribed by GAAP in FASB ASC 740-10: Income Taxes-Overall (previously FASB Interpretation No.48 (FIN 48)).Describe the two-step process provided by GAAP (previously FIN 48).
Q3) Franklin's taxable income ($ in millions)is:
A)$ 40.
B)$165.
C)$110.
D)$160.
Q4) What is a valuation allowance for deferred tax assets and when is it used?
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Page 19
Chapter 17: Pensions and Other Postretirement Benefits
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Sample Questions
Q1) Consider the following:
I.Present value of vested benefits at present pay levels.
II.Present value of nonvested benefits at present pay levels.
III.Present value of additional benefits related to projected pay increases. Which of the above constitutes the vested benefit obligation?
A)I & II.
B)I,II,III.
C)II.
D)I only.
Q2) Conceptually,the service method provides a better matching of costs and benefits in amortizing prior service cost than does the straight-line method.
A)True
B)False
Q3) Revenue and expense items and components of other comprehensive income can be reported in the statement of shareholders' equity using:
A)U.S.GAAP.
B)IFRS.
C)Both U.S.GAAP and IFRS.
D)Neither U.S.GAAP nor IFRS.
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Chapter 18: Shareholders Equity
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Q1) When stock traded on an active exchange is issued for a machine:
A)No entry is recorded until restrictions are lifted.
B)An asset is recorded for the fair value of the stock.
C)An asset is recorded for the appraised value of the machine.
D)Paid-in capital is increased by the appraised value of the machine.
Q2) Treasury stock transactions never increase retained earnings or net income.
A)True
B)False
Q3) The declaration and issuance of a stock dividend on shares of common stock:
A)Has no effect on assets,liabilities,or total shareholders' equity.
B)Decreases total shareholders' equity and increases common stock.
C)Decreases assets and decreases total shareholders' equity.
D)Does not change retained earnings or paid-in capital.
Q4) What is comprehensive income and how does it differ from net income? Where is it reported in the balance sheet?
Q5) Retained earnings represent a company's:
A)Undistributed net income.
B)Undistributed net assets.
C)Extra paid-in capital.
D)Undistributed cash.
Page 21
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Burns Company reported $752.4 million in net income in 2016.On January 1,2016,the company had 400 million shares of common stock outstanding.On March 1,2016,24 million new shares of common stock were sold for cash.On June 1,2016,the company's common stock split 2 for 1.On July 1,2016,8 million shares were reacquired as treasury stock.
Required:
Compute Burns' basic earnings per share for the year ended December 31,2016.
Q2) If a company reports discontinued operations,EPS must be disclosed for both income from continuing operations and net income.
A)True
B)False
Q3) What would be the total compensation indicated by these options?
A)$ 3 million.
B)$27 million.
C)$ 8 million.
D)$35 million.
Q4) Dilutive convertible bonds affect both the numerator and the denominator in computing diluted EPS.
A)True
B)False
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Chapter 20: Accounting Changes
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Q1) If inventory is understated at the end of 2015 and the error is not discovered,how will net income be affected in 2016?
Q2) At the end of the current year,a company failed to accrue interest of $500,000 on its investments in municipal bonds.Its tax rate is 30%.As a result of this error,net income is:
A)Unaffected.
B)Understated by $350,000.
C)Understated by $500,000.
D)Understated by $150,000.
Q3) The cumulative effect of most changes in accounting principle is reported:
A)In the income statement between income from continuing operations and net income.
B)In the income statement after income and before income tax.
C)In the income statement before income from continuing operations.n.
D)In the balance sheet accounts affected.
Q4) Describe the way we account for a change in estimate.What is the appropriate accounting if we are unable to determine whether a change is a change in estimate or a change in principle?
Q5) Name and briefly describe the three categories of accounting changes.
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Chapter 21: The Statement of Cash Flows
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Q1) What method (direct or indirect)does Henchman & Co.use to present its Statement of Cash Flows? Explain how you can determine which method is used.
Q2) Property dividends distributed are reported in connection with a statement of cash flows as:
A)A financing activity.
B)An investing activity.
C)A noncash activity.
D)Not reported in the statement of cash flows.
Q3) The sale of stock and the sale of bonds are reported as financing activities.Are payments of dividends to shareholders and payments of interest to bondholders also reported as financing activities? Explain.
Q4) The primary objective of the statement of cash flows is to provide information about a company's:
A)Cash receipts and disbursements.
B)Noncash financing and investing activities.
C)Financial position.
D)Profitability.
Q5) Did accounts receivable increase or decrease during 2016? Explain.
Q6) Is depreciation a source of cash? Explain.
Page 24
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