Accounting for Business Test Questions
Course Introduction
Accounting for Business introduces students to the fundamental principles and practices of accounting as they are applied in the business world. The course covers core topics such as the accounting cycle, preparation and analysis of financial statements, the role of accounting information in decision-making, and the regulatory and ethical framework governing accounting practices. Students will gain hands-on experience with basic accounting tools and techniques, learn how to interpret financial data, and understand how managerial and financial accounting contribute to effective business operations and strategic planning. This course provides a strong foundation for further study in accounting, finance, and related fields.
Recommended Textbook Principles of Accounting 12th Edition by Belverd E. Needles
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Chapter 1: Accounting Principles and the Financial Statements
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Sample Questions
Q1) The statement of cash flows discloses significant events related to the operating,investing,and financing activities of a business.
A)True
B)False
Answer: True
Q2) Inventory is an example of a nonmonetary asset.
A)True
B)False
Answer: True
Q3) The terms "bookkeeping" and "accounting" are not synonymous.
A)True
B)False
Answer: True
Q4) Which of the following might be motivation for fraudulently covering up a financial weakness?
A)to obtain a loan
B)to meet stockholder expectations
C)to obtain bonus compensation
D)all of these are possible motivations
Answer: D
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Chapter 2: Analyzing and Recording Business Transactions
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Q1) Discuss the difference between business events that are transactions and those that are not.Why is the distinction important?
Answer: Business events become transactions and are recorded when title passes from the seller to the buyer or,in the case of services,when the service is performed.The distinction is important because the recording of a transaction will have an effect on the financial position of the business.
Q2) One of the general rules of the double-entry system is that total debits must always be equal to total credits.
A)True
B)False
Answer: True
Q3) A $155 credit item is posted as a debit.The trial balance column totals therefore will differ by
A)$310
B)$620
C)$155
D)$0
Answer: A
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Chapter 3: Adjusting the Accounts
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Sample Questions
Q1) Custom Realty Services sold a house for a client and will be paid a commission for its services.Using the SEC's four conditions or revenue recognition,explain why Custom Realty Services either should or should not recognize the revenue now.
Answer: Custom Realty Services should recognize the revenue now because:
1.The company and the client agree that the customer owes for the service (pervasive evidence of an arrangement exists).
2.The service has been rendered (a product or service has been delivered).
3.Both parties understand the price (the seller's price to the buyer is fixed or determinable)
4.There is a reasonable expectation that the client will pay the bill (collectibility is reasonably assured).
Q2) The matching rule is most closely related to the cash basis of accounting.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The adjusting entries involving Depreciation Expense-Buildings and Supplies Expense could be reversed.
A)True
B)False
Q2) The total amount of revenue earned for the period is
A)$300.
B)$600.
C)$700.
D)$900.
Q3) What two broad purposes do closing entries serve?
Q4) The heading of a work sheet might contain the line "As of February 28,20x5."
A)True
B)False
Q5) The post-closing trial balance differs from the adjusted trial balance in that it does not
A)take into account owner investments and withdrawals.
B)take into account adjusting entries.
C)include income statement accounts.
D)include balance sheet accounts.
Q6) What does the preparation of reversing entries accomplish?
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Chapter 5: Foundations of Financial Reporting and the
Classified Balance Sheet
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Sample Questions
Q1) Which accounting convention requires a note to the financial statements explaining the company's method of revenue recognition?
A)Comparability and consistency
B)Materiality
C)Conservatism
D)Full disclosure
Q2) The total amount of working capital for National Textile is
A)$2,000.
B)$6,000.
C)$4,000.
D)$30,000.
Q3) Goodwill would appear in which balance sheet section?
A)Investments
B)Property,plant,and equipment
C)Current assets
D)Intangible assets
Q4) Describe how the current ratio is calculated.If a company has a very low current ratio,what might this mean? If a company has a very high current ratio,what might this mean?
Q5) State the definition of a current asset.
Chapter 6: Accounting for Merchandising Operations
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Sample Questions
Q1) The periodic inventory system has traditionally been used most commonly by companies that sell
A)low-priced,high-volume merchandise.
B)low-priced,low-volume merchandise.
C)high-priced,low-volume merchandise.
D)high-priced,high-volume merchandise.
Q2) Under the perpetual inventory system,the entry to record a purchase return would include a credit to which account?
A)Merchandise Inventory
B)Purchases Returns and Allowances
C)Accounts Payable
D)Sales
Q3) Which of the following is not considered an operating expense?
A)General office expenses.
B)Cost of goods sold.
C)Freight-out expense.
D)Advertising expense.
Q4) What is the financing period? Is a longer or shorter financing period most desireable?
Q5) Describe how to compute the cost of goods available for sale.
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Chapter 7: Inventories
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Sample Questions
Q1) An overstatement of beginning inventory in a period will result in an overstatement of gross margin in the next period.
A)True
B)False
Q2) In a period of rising prices,which inventory method is best to use for tax purposes?
A)FIFO
B)Average-cost
C)Specific identification
D)LIFO
Q3) Inventory is an example of a long-term asset.
A)True
B)False
Q4) Both the retail method and the gross profit method are useful in estimating the inventory cost.
A)True
B)False
Q5) Why are cost flow assumptions made when accounting for merchandise inventory?
Q6) What is the chief objective of supply-chain management? How is it accomplished?
Q7) What is a LIFO liquidation,and what is its effect on income before income taxes?
Page 9
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Chapter 8: Cash and Internal Control
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Sample Questions
Q1) Which of the following documents is prepared by a company's accounting department?
A)Bank statement
B)Receiving report
C)Check authorization
D)Invoice
Q2) The use of a cash register would be an example of a physical control.
A)True
B)False
Q3) A check authorization would be prepared after a receiving report.
A)True
B)False
Q4) Under an effective system of internal control,errors occur only as a result of fraud or dishonesty.
A)True
B)False
Q5) Internal control involves,in part,the protection of a company's assets.
A)True
B)False
Q6) On a balance sheet,what items normally are included in Cash?
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Chapter 9: Receivables
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Sample Questions
Q1) Both the allowance method and the direct charge-off method are acceptable for tax purposes.
A)True
B)False
Q2) On December 31,Ferndale Enterprises has an $800 debit balance in Allowance for Uncollectible Accounts.If an accounts receivable aging method analysis indicated that an estimated $6,400 of December 31 receivables are uncollectible,for what amount would the adjusting entry for uncollectible accounts be recorded? (Show your work. )
Q3) Under the accounts receivable aging method,the balance in Allowance for Uncollectible Accounts must be considered prior to adjusting for estimated uncollectible accounts.
A)True
B)False
Q4) If the amount of uncollectible accounts expense is overstated at year end, A)Allowance for Uncollectible Accounts will be understated. B)net income will be overstated.
C)net Accounts Receivable will be understated.
D)total liabilities and stockholders' equity will be overstated.
Q5) Explain the two methods used to estimate uncollectible accounts.
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Chapter 10: Long -Term Assets
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Sample Questions
Q1) When discarding equipment,depreciation need not by updated.
A)True
B)False
Q2) A positive free cash flow means that a company has funds available to reduce debt or expand operations.
A)True
B)False
Q3) According to generally accepted accounting principles,most expenditures for intangible assets acquired from others should be treated as revenue expenditures when incurred.
A)True
B)False
Q4) Under what circumstances will a loss be recorded on the sale of equipment,and what effect will the loss have on stockholders' equity?
Q5) Which of the following items would be considered a revenue expenditure?
A)Plant assets
B)Routine maintenance
C)Addition
D)Betterment
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Chapter 11: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) Sales Tax Payable is an example of a(n)
A)estimated liability.
B)contingent liability.
C)trade liability.
D)definitely determinable liability.
Q2) All of the following are classified as definitely determinable liabilities except A)sales tax payable.
B)estimated property tax payable.
C)the current portion of long-term debt.
D)unearned revenue.
Q3) An estimated liability is not a definite obligation of the firm because the amount cannot be definitely determined.
A)True
B)False
Q4) The future value of an ordinary annuity table would not include the factor A)0.909.
B)2.010.
C)20.300. D)1.000.
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) A partnership agreement need not be in writing.
A)True
B)False
Q2) Gains and losses on the sale of assets in a liquidation are divided among partners according to the stated ratios.
A)True
B)False
Q3) When a new partner is admitted,the old partnership agreement is still in effect.
A)True
B)False
Q4) One of the benefits of forming a partnership is limited liability.
A)True
B)False
Q5) Which of the following does not result in the dissolution of a partnership?
A)Death of a partner
B)Admission of a new partner
C)Withdrawal of a partner
D)Sale of partnership assets
Q6) List four advantages and four disadvantages of the partnership form of business.
Page 14
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) Legal capital is a descriptive phrase for
A)stockholders' equity.
B)residual equity.
C)market value.
D)par value.
Q2) The declaration of a cash dividend causes an increase in a corporation's liabilities at the date of declaration.
A)True
B)False
Q3) Receiving dividends is the only way in which stockholders can earn a return on their investment in a corporation.
A)True
B)False
Q4) Which of the following is not true about a 35 percent stock dividend?
A)The market value of the stock is needed to record the stock dividend.
B)Retained earnings decreases.
C)Contributed capital increases.
D)Par value per share remains the same.
Q5) Define outstanding stock.
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Chapter 14: Long Term Liabilities
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Sample Questions
Q1) When bonds are converted to common stock,what is the basis for recording (valuing)the stock issued?
Q2) Weller Co.issued $600,000 of 30-year,8 percent bonds at 106 on one of its semiannual interest dates.The straight-line method of amortization is to be used.What is the total interest cost of the bonds?
A)$1,439,000
B)$1,404,000
C)$1,440,000
D)$1,476,000
Q3) Financial leverage refers to the issuance of stock to raise cash. A)True
B)False
Q4) Discuss and define financial risk,financial leverage,and negative financial leverage.
Q5) The calculation of cash for interest to be paid each interest period in connection with a bond payable is not influenced by any premium or discount upon issuance. A)True
B)False
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Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) The statement of cash flows explains the difference between net income as shown on the income statement and the net cash flows generated from operations.
A)True
B)False
Q2) During 20x5,Oates Company had sales of $250,000,net income of $25,000,average total assets of $350,000,dividend payments of $17,500,net cash flows from operating activities of $26,000,purchases of plant assets of $37,500,and sales of plant assets of $45,000.Cash flow yield equals (Round amounts to one decimal place)
A)1.5 times.
B)1.0 times.
C)2.1 times.
D)1.3 times.
Q3) The calculation of free cash flow could include all of the following except A)cash purchases of plant assets.
B)net cash flows from operating activities.
C)net income.
D)dividends paid.
Q4) Which accounts are analyzed to determine cash flows from financing activities?
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Chapter 16: Financial Statement Analysis
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Sample Questions
Q1) Which of the following is a market strength ratio?
A)Return on equity
B)Dividend yield
C)Debt to equity ratio
D)Payables turnover
Q2) A company with $75,000 in current assets,$37,500 in quick assets,and $45,000 in current liabilities makes a payment of a $3,000 oncurrent debt.As a result of this transaction,the current ratio and quick ratio will
A)both decrease.
B)increase and decrease,respectively.
C)both increase.
D)remain the same and decrease,respectively.
Q3) The number of days' spayable uncollected is determined by dividing
A)the number of days in a year by the payables turnover.
B)the number of days in a year by average accounts payable.
C)cost of goods sold by average accounts payable.
D)inventory by average accounts payable.
Q4) Asset turnover is most closely associated with a company's liquidity position.
A)True
B)False
Page 18
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Chapter 17: Managerial Accounting and Cost Concepts
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Q1) Management accounting accumulates,maintains,and processes an organization's financial and nonfinancial information.
A)True
B)False
Q2) Management accounting complements each stage of the management process.
A)True
B)False
Q3) Inventoriable cost is a synonym of product cost.
A)True
B)False
Q4) Although some management accountants strive to update their knowledge and skills,such updating is within the realm of management accountants' ethical standards. A)True
B)False
Q5) Financial accounting information is confidential and private.
A)True
B)False
Q6) Give two examples of each stage in the management process.
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Chapter 18: Costing Systems: Job Order Costing
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Sample Questions
Q1) Which of the following is a characteristic of a job order costing system?
A)Uses several Work in Process Inventory accounts
B)Uses job cost cards to keep track of each job in process
C)Assigns costs to specific processes
D)Recognizes cost of materials when products are sold
Q2) The balances on the job cost sheets of uncompleted jobs will be equal to the balance in the
A)Finished Goods Inventory account.
B)Cost of Goods Sold account.
C)Work in Process Inventory account.
D)Overhead account.
Q3) Job order costing is used by companies that make unique or special-order products.
A)True
B)False
Q4) Which of the following is not an objective of product costing systems?
A)To provide information for cost planning
B)To assist in the preparation of the income statement
C)To determine the taxable profits
D)To provide information for product pricing
Page 20
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Chapter 19: Costing Systems Process Costing
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Q1) Which of the following statements is true?
A)The Work in Process Inventory account is the focal point of process costing.
B)Labor costs are accounted for differently from overhead costs in a process costing system.
C)Equivalent units usually are computed for direct materials and overhead combined.
D)A process cost report should be prepared only if the average costing method is used.
Q2) The type of product costing system used by a company is dictated by the A)project manager.
B)production process.
C)company president.
D)plant supervisor.
Q3) In a process costing system,the amount of total costs to be accounted for is made up of direct materials and conversion costs incurred during the current period plus those costs included in the beginning Work in Process Inventory account.
A)True
B)False
Q4) Mention the two cost allocation methods used in a process costing system.
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Chapter 20: Value-Based Systems: Activity-Based Costing and Lean Accounting
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Q1) Which of the following creates a flexible work cell in a just-in-time manufacturing environment?
A)Grouping similar machines together
B)Bringing people with differing work skills together into one work area
C)Placing together a complete set of machines that produce a complete product
D)Grouping people with similar skills together
Q2) Activity-based management includes all of the following except identifying
A)the level of 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) In a traditional manufacturing environment,both push-through and pull-through methods trigger scheduling of production.
A)True
B)False
Q4) The JIT operating philosophy must be adopted by everyone in a company before its total benefits can be realized.
A)True
B)False
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Which of the following is true of the engineering method of separating costs?
A)It is generally used to estimate the cost of activities and new products.
B)It is sometimes called a time and motion study.
C)It separates costs by performing a step-by-step analysis of various elements involved.
D)All of these choices are correct.
Q2) Contribution margin income statement helps managers to view revenue and cost relationships on a per unit basis or as a percentage of sales.
A)True
B)False
Q3) Depreciation cost of a controller's computer calculated using the straight-line method is an example of a variable cost.
A)True
B)False
Q4) Breakeven is when total fixed costs equal total revenues.
A)True
B)False
Q5) Briefly explain the use of statistical methods to separate mixed cost components.
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Chapter 22: The Budgeting Process
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Q1) After management has set short-term goals,the budgeting process typically starts with
A)a clearly defined timetable of events.
B)input only from the accounting personnel.
C)the naming of an efficient coordinator or director.
D)a set of procedures or instructions.
Q2) Which of the following is true of budgets?
A)Every budget must contain both revenues and expenses.
B)Budgets reduce the comparability concept of accounting.
C)The data in budgets are presented in dollars only;nonfinancial data should be excluded.
D)Budgets are synonymous with managing an organization.
Q3) Revising the budgets to include all planning decisions will improve the quality of the budgets.
A)True
B)False
Q4) The budget committee oversees each stage in the preparation of a master budget.
A)True
B)False
Q5) Describe three benefits budgeting provides to an organization's success.
Page 24
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Chapter 23: Flexible Budgets and Performance Analysis
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Q1) A responsibility center whose manager is held accountable for both revenues and costs and for the resulting operating income is called a revenue center.
A)True
B)False
Q2) For residual income figures to be comparable on a companywide basis,all investment centers must have equal access to resources and similar asset investment bases.
A)True
B)False
Q3) Using the information provided for Dry Cat Food division,the flexible budget is based on how many units produced?
A)0 units
B)30 units
C)70 units
D)100 units
Q4) Unlike ROI,residual income is expressed in dollars.
A)True
B)False
Q5) Write a brief note on the performance-based pay.
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Chapter 24: Standard Costing and Variance Analysis
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Q1) The total overhead cost variance is equal to the difference between A)fixed overhead costs and variable overhead costs.
B)estimated overhead rate and applied overhead rate.
C)actual overhead costs and variable overhead costs.
D)actual overhead costs and standard overhead costs.
Q2) Using the above information provided for Candy Stores,compute the direct materials price variance for Candy Stores.
A)$186,000 (F)
B)$186,000 (U)
C)$42,000 (F)
Q3) The direct labor rate variance is the difference between the standard hours allowed and the actual hours multiplied by the actual labor rate.
A)True
B)False
Q4) The responsibility of a production manager is limited to direct materials used. A)True B)False
Q5) Mention a few reasons for an unfavorable direct labor cost variance.
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Chapter 25: Short-Run Decision Analysis and Capital Budgeting
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Q1) Employees from every part of an organization participate in capital investment analysis.
A)True
B)False
Q2) Net present value method and accounting rate of return method are the two important decision variables used in the evaluation of proposals.
A)True
B)False
Q3) Only quantitative data are used in the capital investment decision-making process. A)True
B)False
Q4) The carrying value of the old asset in a machine replacement decision is relevant. A)True
B)False
Q5) Discuss the qualitative factors that should be considered in the evaluation of proposals in addition to the quantitative factors.
Q6) What are the two steps in the analysis of a sales mix decision?
Page 27
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