Accounting for Business Test Bank
Course
Introduction
Accounting for Business introduces students to the fundamental principles and practices of accounting within a business context. The course covers key topics such as the accounting cycle, financial statement preparation, and the interpretation of financial data for effective decision-making. Students will explore the role of accounting in planning, control, and performance evaluation, gaining practical skills in recording transactions, managing budgets, and understanding regulatory frameworks. Emphasis is placed on the importance of ethical standards and accuracy in financial reporting, empowering students to apply accounting concepts to real-world business scenarios.
Recommended Textbook
Fundamental Accounting Principles 23rd Edition by John Wild
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Page 2
Chapter 1: Accounting in Business
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Sample Questions
Q1) In a business decision where there are ethical concerns, the preferred course of action should be one that:
A) Results in maintaining operations at the current level.
B) Is agreed upon by the most managers.
C) Avoids casting doubt on the decision maker and upholds trust.
D) Maximizes the company's profits.
E) Costs the least to implement.
Answer: C
Q2) ________ is an information and measurement system that identifies, records and communicates relevant, reliable and comparable information about an organization's economic activities.
Answer: Accounting
Q3) Describe the three important guidelines for revenue recognition.
Answer: The three important guidelines for revenue recognition include: (1) Revenue is recognized when earned. (2) Assets received from selling products and services do not need to be in cash. (3) Revenue recognized is measured by cash received plus the cash equivalent of other assets received.
Q4) The owner's claim on assets, also known as net assets, is called ________.
Answer: equity
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Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) Debit means increase and credit means decrease for all accounts.
A)True
B)False
Answer: False
Q2) On February 5, Teddy's Catering purchased an oven that cost $35,000. The firm made a down payment of $5,000 cash and signed a long-term note payable for the balance. Show the general journal entry to record this transaction.
Answer: \(\begin{array} { l l l }
2 / 5& \text { Oven } & 35,000 & \\
&\text { Cash } & & 5,000 \\
&\text { Note Payable } && 30,000 \end{array}\)
Q3) Select the account below that normally has a credit balance.
A) Owner, Withdrawals.
B) Cash.
C) Sales Salaries Expense.
D) Office Equipment.
E) Wages Payable.
Answer: E
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Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Q1) What adjusting entry should be made by Santa Fe, Inc. for the adjustment on December 31 of the first year assuming the company is using a calendar-year reporting period and no previous adjustments had been made?
A) Debit Subscription Expense $516 and credit Prepaid Subscriptions $516.
B) Debit Unearned Subscriptions $387 and credit Subscription Expense $387.
C) Debit Subscription Expense $387 and credit Cash $387.
D) Debit Prepaid Subscriptions $516 and credit Subscription Expense $516.
E) Debit Subscription Expense $387 and credit Prepaid Subscriptions $387.
Answer: E
Q2) A company purchased $6,000 worth of supplies in August and recorded the purchase in the Supplies account. On August 31, the fiscal year-end, the physical count of supplies indicates the cost of unused supplies is $3,200. The adjusting entry would include a $2,800 debit to Supplies.
A)True
B)False
Answer: False
Q3) If a prepaid expense account were not adjusted for the amount used, on the balance sheet assets would be ________ and equity would be ________.
Answer: overstated; overstated
Page 5
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Chapter 4: Completing the Accounting Cycle
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Q1) During the closing process, Owner's Capital is closed to the Owner's Withdrawals account.
A)True
B)False
Q2) List the steps in the accounting cycle.
Q3) Revenue and expense accounts are permanent (real) accounts and should not be closed at the end of the accounting period.
A)True
B)False
Q4) Which of the following is classified as a plant asset?
A) Office equipment.
B) Merchandise inventory.
C) Patent.
D) Office supplies.
E) Cash.
Q5) On the work sheet, net income is entered in the Income Statement Credit column as well as the Balance Sheet or Statement of Owner's Equity Credit column.
A)True
B)False
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Chapter 5: Accounting for Merchandising Operations
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Q1) What is gross margin ratio? How is it used as an indicator of profitability?
Q2) Credit terms of 2/10, n/30 imply that the seller offers the purchaser a 2% cash discount if the amount is paid within 10 days of the invoice date. Otherwise, the full amount is due in 30 days.
A)True
B)False
Q3) Merchandise inventory refers to products that a company owns and intends to sell to customers.
A)True
B)False
Q4) Which of the following accounts would be closed at the end of the accounting period with a debit?
A) Operating Expenses.
B) Cost of Goods Sold.
C) Sales Returns and Allowances.
D) Sales.
E) Sales Discounts.
Q5) ________ can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts.
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Chapter 6: Inventories and Cost of Sales
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Q1) Discuss the important accounting features of a periodic inventory system including accounts and procedures used.
Q2) A company made the following merchandise purchases and sales during the month of May:
\[\begin{array} { | l | l | l | l | }
\hline \text { May l } & \text { Pur chased } & 380 \text { units at } & \$ 15 \text { each } \\
\hline \text { May 5 } & \text { Pur chased } & 270 \text { units at } & \$ 17 \text { each } \\
\hline \text { May 10 } & \text { Sold } & 400 \text { units at } & \$ 50 \text { each } \\
\hline \text { May 20 } & \text { Pur chased } & 300 \text { units at } & \$ 22 \text { each } \\
\hline \text { May 25 } & \text { Sold } & 400 \text { units at } & \$ 50 \text { each } \\ \hline
\end{array}\] There was no beginning inventory. If the company uses the LIFO periodic inventory method, what would be the cost of the ending inventory?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) ______________are the part of the accounting information system that provide the means to take information out of the system and make it available to users.
Q2) The following information is available for some of Branson's segments (all amounts are in millions):
\[\begin{array} { | l | l | l | l | }
\hline & \text { North America } & \text { Asia } & \text { Central America } \\
\hline \text { Segment sales } & \$ 5,190 & \$ 750 & \$ 2,350 \\
\hline \text { Segment operating income } & 1,494 & 273 & 1,127 \\
\hline \text { Segment average assets } & 4,700 & 541 & 1,382 \\
\hline
\end{array}\] a. Determine the segment return on assets for each geographic segment. b. Comment on the results. How do the segments compare with respect to profitability?
Q3) Because special journals are designed to suit businesses, good systems design for a business could include collapsing the sales and cash disbursements journal into one journal.
A)True B)False
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Chapter 8: Cash and Internal Controls
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Q1) Describe the basic bank services that contribute to the control of cash and identify at least two internal control objectives served by the banking activities.
Q2) When a company purchases an insurance policy against losses from theft by an employee, that employee___________
Q3) An analysis that explains differences between the checking account balance according to the depositor's records and the balance reported on the bank statement is a(n):
A) Bank audit.
B) Internal audit.
C) Analysis of debits and credits.
D) Bank reconciliation.
E) Trial reconciliation.
Q4) A bank statement provided by the bank includes:
A) A list of outstanding checks.
B) A list of petty cash amounts.
C) A listing of deposits in transit.
D) A reconciliation to the depositor cash account.
E) The beginning and the ending balance of the depositor's account.
Q5) Describe a petty cash account and its purpose.
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Chapter 9: Accounting for Receivables
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Q1) Food Supplier's journal entry to record the collection on the maturity date is: (Use 360 days a year.)
A) Debit Notes Receivable $4,000; credit Cash $4,000
B) Debit Notes Receivable $4,060; credit Sales $4,060
C) Debit Cash $4,000; debit Interest Receivable $60; credit Sales $4,060
D) Debit Cash $4,060; credit Notes Receivable $4,060
E) Debit Cash $4,060; credit Interest Revenue $60; credit Notes Receivable $4,000
Q2) For legal reasons, it is not advisable to accept a note receivable in exchange for an overdue account receivable.
A)True B)False
Q3) The use of the direct write-off method is allowed under the materiality constraint. A)True B)False
Q4) The________ method of accounting for bad debts records the loss from an uncollectible account receivable at the time it is determined to be uncollectible (and not before).
Q5) ________ is the charge for using borrowed money until its due date.
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Chapter 10: Plant Assets Natural Resoures and Intangibles
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Q1) Martinez owns an asset that cost $87,000 with accumulated depreciation of $40,000. The company sells the equipment for cash of $42,000. At the time of sale, the company should record:
A) A gain on sale of $2,000.
B) A loss on sale of $45,000.
C) A loss on sale of $5,000.
D) A loss on sale of $2,000.
E) A gain on sale of $5,000.
Q2) A company paid $150,000, plus a 7% commission and $5,000 in closing costs for a property. The property included land appraised at $87,500, land improvements appraised at $35,000, and a building appraised at $52,500. What should be the allocation of this property's costs in the company's accounting records?
A) Land $82,750; Land Improvements, $33,100; Building, $49,650.
B) Land $75,000; Land Improvements, $30,800; Building, $46,200.
C) Land $80,250; Land Improvements, $32,100; Building, $48,150.
D) Land $77,500; Land Improvements; $31,000; Building; $46,500.
E) Land $75,000; Land Improvements, $30,000; Building, $45,000.
Q3) __________is an estimate of an asset's value at the end of its benefit period (or useful life).
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Page 12
Chapter 11: Current Liabilities and Payroll Accounting
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Q1) Obligations not due within one year or the company's operating cycle, whichever is longer, are reported as current liabilities.
A)True
B)False
Q2) A company's fixed interest expense is $8,000, its income before interest expense and income taxes is $32,000. Its net income is $9,600. The company's times interest earned ratio equals:
A) 0.25.
B) 3.33.
C) 0.30.
D) 4.0.
E) 0.83.
Q3) What is the amount of this employee's gross pay for the first week of January?
A) $784
B) $1,156
C) $1,004
D) $736
E) $1,104
Q4) Companies with many employees often use a special ________ account to pay employees.
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) Conklin plans to leave the CAP Partnership. The recorded balance in her capital account is $48,000. The remaining partners, Arthurs and Preston, agree to pay Conklin $58,000 cash and Conklin accepts. The partners share income and loss equally. Prepare the journal entry to record the transaction.
Q2) Peters and Chong are partners and share equally in income or loss. Peters' current capital balance is $140,000 and Chong's is $130,000. Peters and Chong agree to accept Aaron with a 30% interest in the partnership. Aaron invests $98,000 in the partnership. The amount credited to Aaron's capital account is:
A) $114,533.
B) $81,000.
C) $110,400.
D) $98,000.
E) $102,600.
Q3) Partners in a partnership are not taxed on their withdrawals , but rather on ________.
Q4) When a partner leaves a partnership, the present partnership ends.
A)True B)False
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Chapter 13: Accounting for Corporations
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Q1) The date of record is the date that directors vote to pay a cash dividend to shareholders.
A)True
B)False
Q2) On June 30, a company declared a cash dividend of $0.35 per common share to the shareholders of record on July 15. The cash dividend will be paid on July 31. This company has 500,000 shares authorized and 100,000 shares outstanding. Prepare the journal entries required on June 30, July 15 and July 31.
Q3) Robin Company had net income of $67,000. The company had 9,000 weighted average common shares outstanding. The basic earnings per share equal $7.44 per share.
A)True
B)False
Q4) A company made an error in recording the Year 1 purchase of computer equipment as an expense. This was discovered in Year 2. The item should be reported as a prior period adjustment on the Year 2 income statement.
A)True
B)False
Q5) Stock that has been issued and is held by stockholders is ________ stock.
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Chapter 14: Long-Term Liabilities
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Q1) Bonds and long-term notes are similar in that they are typically transacted with multiple lenders.
A)True
B)False
Q2) The journal entry to record the first interest payment using straight-line amortization is:
A) Debit Bond Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
B) Debit Bond Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
C) Debit Bond Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
D) Debit Bond Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
E) Debit Interest Payable $13,500; credit Cash $13,500.00.
Q3) On July 1 of the current year a corporation issued (sold) $1,000,000 of its 12% bonds at par. The bonds pay interest June 30 and December 31. What amount of bond interest expense should the company report on its current year income statement?
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Chapter 15: Investments
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Q1) Any cash dividends received from equity securities are recorded as Dividend Expense.
A)True
B)False
Q2) Cosmos Corporation had the following long-term investment transactions.
Jan 2 Purchased 5,000 shares of Visual, Inc. for $42 per share plus $7,000 in fees and commission. These shares represent a 35% ownership of Visual.
Oct 15 Received Visual, Inc. cash dividend of $2 per share. Dec 31 Visual reported a net loss of $66,000 for the year.
Prepare the journal entries Cosmos Corporation should record for these transactions and events.
Q3) Comprehensive income includes all except:
A) Gains and losses reported in the income statement.
B) All changes in equity for a period except those due to investments and distributions to owners.
C) Unrealized gains and losses on long-term available-for-sale securities.
D) Dividends paid to shareholders.
E) Revenues and expenses reported in the income statement.
Q4) Return on total assets is computed by dividing ________ by ________.
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Chapter 16: Reporting the Statement of Cash Flows
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Q1) The use of a spreadsheet for analysis is especially useful when preparing the statement of cash flows using the ________ method.
Q2) In preparing a company's statement of cash flows for the most recent year, Ransom Corp. reported the following information: \(\begin{array}{llr}
\text {Repayment of outstanding bonds } &\$107,000\\
\text {Purchase of treasury stock } &62,000\\
\text { Issuance of common stock } &46,000\\
\text { Payment of cash dividends } &15 \end{array}\)
Net cash flows from financing activities for the year were:
A) $230,000 of net cash provided.
B) $108,000 of net cash used.
C) $138,000 of net cash provided.
D) $230,000 of net cash used.
E) $138,000 of net cash used.
Q3) Explain how cash flows from investing and financing activities are determined.
Q4) All cash transactions eventually affect noncash ________ accounts.
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Chapter 17: Analysis of Financial Statements
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Q1) Refer to the following selected financial information from Shakley's Incorporated. Compute the company's times interest earned for Year 2. \[\begin{array} { | l | r | r | }
\hline & { \text { Year 2 } } & { \text { Year 1 } } \\
\hline \text { Net sales } & \$ 478,500 & \$ 426,250 \\
\hline \text { Cost of goods sold } & 276,300 & 250,120 \\
\hline \text { Interest expense } & 9,700 & 10,700 \\
\hline \text { Net income before tax } & 67,250 & 52,680 \\
\hline \text { Net income after tax } & 46,050 & 39,900 \\
\hline \text { Total assets } & 317,100 & 288,000 \\
\hline \text { Total liabilities } & 181,400 & 167,300 \\
\hline \text { Total equity } & 135,700 & 120,700 \\
\hline \end{array}\]
A) 14.0.
B) 7.9.
C) 4.8.
D) 5.8.
E) 6.9.
Q2) ________ ratios include the price-earnings ratio and dividend yield.
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Chapter 18: Managerial Accounting Concepts and Principles
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Q1) A direct cost is a cost that is:
A) Does not change with the volume of activity.
B) Identifiable as controllable.
C) Traceable to multiple cost objects.
D) Traceable to a single cost object.
E) Traceable to the company as a whole.
Q2) Beginning finished goods inventory plus cost of goods manufactured equals cost of goods sold.
A)True
B)False
Q3) _____________is the deliberate misuse of the employer's assets for the employee's personal gain.
Q4) Prime costs consist of direct labor and factory overhead.
A)True
B)False
Q5) Product costs are expenditures necessary and integral to finished products.
A)True
B)False
Q6) Identify and describe the three categories of manufacturing costs.
Q7) What is managerial accounting and how is it used to aid decision makers? Page 20
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Chapter 19: Job Order Costing
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Q1) When time ticket information is entered into the accounting system, the journal entry is a debit to Factory Wages Payable and a credit to Work in Process Inventory.
A)True
B)False
Q2) A source document that an employee uses to report how much time was spent working on a job or on overhead activities and that is used to determine the amount of direct labor to charge to the job or to determine the amount of indirect labor to charge to factory overhead is called a:
A) Factory Overhead Ledger.
B) Payroll Register.
C) Time ticket.
D) General Ledger.
E) Factory payroll record.
Q3) Overapplied or underapplied overhead should be removed from the Factory Overhead account at the end of each accounting period.
A)True
B)False
Q4) A ________ is a separate record maintained for each job.
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Chapter 20: Process Costing
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Q1) During January, the production department of a process operations system completed and transferred to finished goods a total of 78,000 units. At the end of January, 9,000 additional units were in process in the production department and were 65% complete with respect to labor. The beginning inventory included labor cost of $37,100 and the production department incurred direct labor cost of $294,300 during January. Compute the direct labor cost per equivalent unit for the department using the weighted-average method.
A) $3.95.
B) $6.34.
C) $3.51.
D) $4.25.
E) $3.77.
Q2) Process operations, also called process manufacturing or process production, is the ________ production of similar products in a ________ flow of sequential steps.
Q3) The process cost summary presents calculations of the cost of units completed during the reporting period, but does not present any information about the ending Work in Process inventory.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) If a firm's forecasted sales are $250,000 and its break-even sales are $190,000, the margin of safety in dollars is:
A) $60,000.
B) $250,000.
C) $440,000.
D) $24,000.
E) $190,000.
Q2) The following data relate to a product sold by Hallstone Company: \[\begin{array} { | l | l | }
\hline \text { Total Variable costs } & \$ 90,000 \\
\hline \text { Total fixed costs } & \$ 27,000 \\
\hline \text { Predicted pre-tax income } & \$ 18,000 \\
\hline \text { Contribution margin per unit } & \$ 5.00 \\
\hline
\end{array}\] (a) Calculate the number of units expected to be sold. (b) Calculate the expected total dollar sales.
Q3) An important assumption in multiproduct CVP analysis is a constant sales mix. A)True B)False
Q4) Briefly describe a CVP chart, including its major components.
Page 24
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Chapter 22: Master Budgets and Planning
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Q1) In a company that employs continuous budgeting on a quarterly basis and has an accounting period that ends December 31 of each year, what period would the first revision and update to the January through December 2017 budget cover?
A) December 2017-November 2018
B) February 2017-January 2018
C) March 2017-February 2018
D) April 2017-March 2018
E) January 2018-December 2018
Q2) Which of the following must be prepared before the direct labor budget?
A) Merchandise purchases budget.
B) Capital expenditures budget.
C) Production budget.
D) Selling expense budget.
E) Budgeted income statement.
Q3) The central guidance of the budget process is the responsibility of the:
A) Chief Executive Officer (CEO).
B) Budget Committee.
C) Chief Financial Officer (CFO).
D) Board of Directors.
E) Chief Accounting Officer.
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) A company's flexible budget for 36,000 units of production showed variable overhead costs of $54,000 and fixed overhead costs of $50,000. The company actually incurred total overhead costs of $95,300 while operating at a volume of 32,000 units. What is the controllable variance?
Q2) The difference between the actual cost incurred and the standard cost is called the:
A) Flexible variance.
B) Price variance.
C) Controllable variance.
D) Cost variance.
E) Volume variance.
Q3) Flexible budgets may be prepared before or after an actual period of activity. Why would management prepare such budgets at differing time frames?
Q4) A variable or flexible budget is so named because it only focuses on variable costs.
A)True B)False
Q5) Identify the four steps in the budgetary control process.
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) The process of preparing departmental income statements begins with allocating service department expenses.
A)True
B)False
Q2) A(n) ___________is a department that generates revenues and incurs costs and whose manager is also responsible for using the center's assets to generate income for the center.
Q3) Using number of setups as the activity base, the amount of setup cost allocated to each unit of product for Plus and Max, respectively is:
A) $54.00; $27.00.
B) $108.00; $2.70.
C) $60.00; $60.00.
D) $200.00; $16,000.00
E) $21.60; $.54.
Q4) Define joint costs and explain how joint costs can be allocated.
Q5) Departmental income statements are prepared for service departments but not operating departments.
A)True
B)False
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) A company is considering two projects, Project A and Project B. The following information is available for each project:
\(\begin{array} { l r r }
&{ \text { Project A } } &{ \text { Project B } } \\
\text { Investment } & \$ 2,500,000 & \$ 2,000,000 \\
\text { Net present value of cash flows } &\$ 900,000 & \$ 800,000 \end{array}\)
Calculate the profitability index for each project. Based on the profitability index, which project should the company pursue and why?
Q2) A shorter payback period reduces the company's ability to respond to unanticipated changes and increases the risk of having to keep an unprofitable investment.
A)True
B)False
Q3) If the internal rate of return (IRR) of an investment is lower than the hurdle rate, the project should be accepted.
A)True
B)False
Q4) Identify the five steps involved in managerial decision making.
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Chapter 26: Present and Future Values in Accounting
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84 Verified Questions
84 Flashcards
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Sample Questions
Q1) The number of periods in a present value calculation may only be expressed in years. A)True
B)False
Q2) Which interest rate column would you use from a present value or future value table for 8% interest compounded quarterly?
A) 2%
B) 12%
C) 1%
D) 6%
E) 3%
Q3) Present and future value computations enable companies to measure or estimate the interest component of holding assets or liabilities over time.
A)True
B)False
Q4) To calculate present value of an amount, two factors are required: The ________ and the________.
Q5) Explain the concept of the present value of an annuity.
Q6) Explain the concept of the future value of an annuity.
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Chapter 27: Activity-Based Costing
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Sample Questions
Q1) Using activity-based costing for assigning overhead costs, the total product cost per unit for Product B is:
A) $78.85 per unit
B) $12.75 per unit
C) $75.60 per unit
D) $13.40 per unit
E) $14.60 per unit
Q2) The company produced 4,000 units of product during the period. Direct materials cost $7.30 per unit and direct labor cost $5.45 per unit. How much total cost would be assigned to the 4,000 units of Product P59G using the activity-based costing system?
A) $31,814.40
B) $51,000.00
C) $10,014.40
D) $39,214.40
E) $61,014.40
Q3) Activity-based costing uses pre-determined overhead rates to allocate costs.
A)True
B)False
Q4) Briefly describe the process of activity-based costing.
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