Business Accounting
Chapter Exam Questions
Course Introduction
Business Accounting provides students with a foundational understanding of how financial information is recorded, processed, and communicated within a business context. The course covers essential topics such as the accounting cycle, preparation of financial statements, analysis of assets and liabilities, and the role of accounting in decision-making. Students will also explore internal controls, ethical considerations, and the impact of various accounting practices on business operations. Designed for those pursuing careers in management, entrepreneurship, or finance, the course emphasizes practical applications and analytical skills necessary for interpreting financial data to support organizational objectives.
Recommended Textbook
Financial Accounting Fundamentals 6th Edition by
John J Wild
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Chapter 1: Accounting in Business
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Sample Questions
Q1) The primary objective of managerial accounting is to provide general purpose financial statements to help external users analyze and interpret an organization's activities.
A)True
B)False
Answer: False
Q2) The three major types of business activities are operating,financing,and investing.
A)True
B)False
Answer: True
Q3) An exchange of value between two entities that yields a change in the accounting equation is called:
A) The accounting equation.
B) Recordkeeping or bookkeeping.
C) An external transaction.
D) An asset.
E) Net Income.
Answer: C
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Chapter 2: Analyzing for Business Transactions
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Q1) Dividends distributed to stockholders should be treated as an expense of the business.
A)True
B)False
Answer: False
Q2) When a company provides services for which cash will not be received until some future date,the company should record the amount billed as accounts receivable.
A)True
B)False
Answer: True
Q3) A credit entry:
A) Increases asset and expense accounts, and decreases liability, common stock, and revenue accounts.
B) Is always a decrease in an account.
C) Decreases asset and expense accounts, and increases liability, common stock, and revenue accounts.
D) Is recorded on the left side of a T-account.
E) Is always an increase in an account.
Answer: C
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Page 4
Chapter 3: Adjusting Accounts for Financial Statements
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Sample Questions
Q1) The adjusting entry to record an accrued expense is:
A) Increase an expense; increase a liability.
B) Increase an asset; increase revenue.
C) Decrease a liability; increase revenue.
D) Increase an expense; decrease an asset.
E) Increase an expense; decrease a liability.
Answer: A
Q2) All of the following regarding reversing entries are true except:
A) Reversing entries are optional.
B) Reversing entries are recorded in response to accrued assets and accrued liabilities that were created by adjusting entries at the end of the previous accounting period.
C) Reversing entries are used to simplify a company's record keeping.
D) Reversing entries are dated the first day of the new accounting period.
E) Reversing entries should not be the exact opposite of previous period adjusting entries.
Answer: E
Q3) An ________ is a listing of all of the accounts in the ledger with their account balances before adjustments are made.
Answer: unadjusted trial balance
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Page 5
Chapter 4: Accounting for Merchandising Operations
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Sample Questions
Q1) Beginning inventory plus net purchases equals merchandise available for sale.
A)True
B)False
Q2) Purchase discounts are the same as trade discounts.
A)True
B)False
Q3) A company has sales of $375,000 and its gross profit is $157,500.Its cost of goods sold equals:
A) $(217,000).
B) $375,000.
C) $157,500.
D) $217,500.
E) $532,500.
Q4) Which of the following accounts is used in the periodic inventory system but not used in the perpetual inventory system?
A) Merchandise Inventory
B) Sales
C) Sales Returns and Allowances
D) Accounts Payable
E) Purchases
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Chapter 5: Inventories and Cost of Sales
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Sample Questions
Q1) On March 31 a company needed to estimate its ending inventory to prepare its first quarter financial statements.The following information is available:
Beginning inventory,January 1: $4,000
Net sales: $80,000
Net purchases: $78,000
The company's gross margin ratio is 25%.Using the gross profit method,the estimated ending inventory value would be:
A) $82,000.
B) $60,000.
C) $20,000.
D) $22,000.
E) $19,500.
Q2) A company's cost of inventory was $219,500.Due to phenomenal demand the market value of its inventory increased to $221,700.This company should record the inventory at its market value.
A)True
B)False
Q3) Explain the reason a company might use the retail inventory method for valuing inventory.
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Page 7
Chapter 6: Cash, fraud, and Internal Controls
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Q1) On a bank statement,deposits are shown as ________,because the depositor's account is a liability on the bank's records.
Q2) The internal document prepared to notify the appropriate persons that goods ordered have been received,describing the quantities and condition of the goods is the:
A) Purchase requisition.
B) Purchase order.
C) Invoice.
D) Receiving report.
E) Invoice approval.
Q3) Cash equivalents are short-term highly liquid investment assets that are readily converted to a known cash amount,and have maturities of one year.
A)True
B)False
Q4) ________ includes currency,coins,and amounts on deposit in checking accounts and savings accounts.
Q5) ________ are short-term,highly liquid investment assets that are readily convertible to a known amount of cash.
Q6) ________ reflects the liquidity of a company's accounts receivable.
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Chapter 7: Accounting for Receivables
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Sample Questions
Q1) Describe how accounts receivable arise and how they accounted for,including the use of a subsidiary ledger and an allowance account.
Q2) The expected proceeds from converting an asset into cash.
A)Expense recognition (matching) principle
B)Realizable value
C)Interest
D)Bad debts
E)Accounts receivable
F)Aging of accounts receivable
G)Allowance for doubtful accounts
H)Promissory note
I)Payee of a note
J)Maker of a note
Q3) For legal reasons,it is not advisable to accept a note receivable in exchange for an overdue account receivable.
A)True
B)False
Q4) ________ are amounts owed by customers from credit sales where payment is required in periodic amounts over an extended time period.
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Chapter 8: Accounting for Long-Term Assets
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Sample Questions
Q1) ________ are capital expenditures that make a plant asset more productive but do not always increase an asset's life; they often involve adding a component to an asset or replacing one of its old components with a better one.
Q2) Owning a patent:
A) Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 70 years.
B) Gives the owner exclusive rights to manufacture and sell a patented item or to use a process for 20 years.
C) Gives its owner an exclusive right to manufacture and sell a device or to use a process for 50 years.
D) Indicates that the value of a company exceeds the fair market value of a company's net assets if purchased separately.
E) Gives its owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 17 years.
Q3) If a machine is damaged during unpacking,the repairs are added to its cost.
A)True B)False
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Page 10
Chapter 9: Accounting for Current Liabilities
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Sample Questions
Q1) Amounts received in advance from customers for future products or services:
A) Are revenues.
B) Increase income.
C) Are liabilities.
D) Are not allowed under GAAP.
E) Require an outlay of cash in the future.
Q2) An employee earned $37,000 during the year working for an employer when the maximum limit for Social Security was $118,500.The FICA tax rate for Social Security is 6.2% and the FICA tax rate for Medicare is 1.45%.The employee's annual FICA taxes amount is:
A) $2,294.00.
B) $536.50.
C) $2,830.50.
D) $1,757.50.
E) $8,950.50.
Q3) The more ________ allowances an employee claims,the less federal income tax the employer will deduct from pay.
Q4) Vacation benefits are a type of ________ liability.
Q5) Explain the responsibilities of and the accounting by employers for deductions from employee payroll.
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Chapter 10: Accounting for Long-Term Liabilities
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Q1) A company with a low level of liabilities in relation to stockholders' equity is likely to have a very high debt-to-equity ratio.
A)True
B)False
Q2) Explain the present value concept as it applies to long-term liabilities.
Q3) Explain the amortization of a bond discount.Identify and describe the amortization methods available.
Q4) A bond traded at 102½ means that:
A) The bond pays 2.5% interest.
B) The bond traded at 102.5% of its par value.
C) The market rate of interest is 2.5%.
D) The bonds were retired at $1,025 each.
E) The market rate of interest is 2½% above the contract rate.
Q5) An installment note is an obligation of the issuing company that requires a series of periodic payments to the lender.
A)True
B)False
Q6) ________ bonds have an option exercisable by the issuer to retire them at a stated dollar amount prior to maturity.
Page 12
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Chapter 11: Corporate Reporting and Analysis
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Q1) A proxy is:
A) A document that delegates a stockholder's voting rights to an agent.
B) A contractual commitment by an investor to purchase unissued shares of stock.
C) An amount of assets defined by state law that stockholders must invest and leave invested in a corporation.
D) The right of common stockholders to protect their proportionate interests in a corporation by having the first opportunity to purchase additional shares of common stock issued by the corporation.
E) An arbitrary amount assigned to no-par stock by the corporation's board of directors.
Q2) Alto Company issued 7% preferred stock with a $100 par value.This means that:
A) Preferred shareholders have a guaranteed dividend.
B) The amount of the potential dividend is $7 per year per preferred share.
C) Preferred shareholders are entitled to 7% of the annual income.
D) The market price per share will approximate $100 per share.
E) Only 7% of the total paid-in capital can be preferred stock.
Q3) Minimum legal capital requirements are intended to protect creditors.
A)True
B)False
Q4) Stock that has been issued and is held by stockholders is ________ stock.
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Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) Paid interest on a note payable.
A)O
B)N
C)I
D)F
Q2) Bagwell's net income for the year ended December 31,Year 2 was $185,000.Information from Bagwell's comparative balance sheets is given below.Compute the cash received from the sale of its common stock during Year 2. \[\begin{array} { | l | r | r | }
\hline \text { At December 31 } & \text { Year 2 } & \text { Year 1 } \\
\hline \text { Common Stock, \$5 par value } & \$ 500,000 & \$ 450,000 \\
\hline \text { Paid-in capital in excess of par } & 948,000 & 853,000 \\
\hline \text { Retained earnings } & 688,000 & 582,000 \\
\hline \end{array}\]
A) $185,000.
B) $106,000.
C) $95,000.
D) $50,000.
E) $145,000.
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Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) Horizontal analysis is used to reveal patterns in data covering two or more successive periods.
A)True
B)False
Q2) Refer to the following selected financial information from McCormik,LLC.Compute the company's accounts receivable turnover for Year 2.
A) 8.62.
B) 8.28.
C) 8.94.
D) 5.78.
E) 7.90.
Q3) Ratios may be expressed as (1)________, (2)________,or (3)________.
Q4) The evaluation of company performance and financial condition focuses solely on past performance.
A)True
B)False
Q5) ________ applies analytical tools to general-purpose financial statements and related data for making business decisions.
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Chapter 14: Time Value of Money
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Q1) The future value of $100 compounded semiannually for 3 years at 12% equals $140.49.(PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)
A)True
B)False
Q2) The present value of $2,000 to be received nine years from today at 8% interest compounded annually is $1,000.40.(PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)
A)True
B)False
Q3) What amount can you borrow if you make seven semiannual payments of $4,000 at an 8% annual rate of interest? (PV of $1,FV of $1,PVA of $1,and FVA of $1)(Use appropriate factor(s)from the tables provided.)
A) $28,000.00
B) $25,760.00
C) $31,049.00
D) $24,008.40
E) $35,691.20
Q4) Explain the concept of the future value of a single amount.
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Chapter 15: Investments
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Sample Questions
Q1) At the end of the accounting period,the owners of debt securities:
A) Must report the dividend income accrued on the debt securities.
B) Must retire the debt.
C) Must record a gain or loss on the interest income earned.
D) Must record a gain or loss on the dividend income earned.
E) Must record any interest earned on the debt securities during the period.
Q2) On May 1 of the current year,a company paid $200,000 cash to purchase 6%,10-year bonds with a par value of $200,000; interest is paid semiannually each May 1 and November 1.The company intends to hold these bonds until they mature.Prepare the journal entry to record the receipt of the first semiannual interest payment on November 1.
Q3) Management's intent determines whether an available-for-sale security is classified as long-term or short-term.
A)True B)False
Q4) Any unrealized gain or loss for the portfolio of available-for-sale securities is reported on the income statement in the other gain or loss section.
A)True B)False
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Chapter 16: Partnership Accounting
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Q1) Partners in a partnership are not taxed on their withdrawals ,but rather on
Q2) Masters,Hardy,and Rowen are dissolving their partnership.Their partnership agreement allocates income and losses equally among the partners.The current period's ending capital account balances are Masters,$15,000; Hardy,$15,000; Rowen,$(2,000).After all the assets are sold and liabilities are paid,but before any contributions to cover any deficiencies,there is $28,000 in cash to be distributed.Rowen pays $2,000 to cover the deficiency in his account.The general journal entry to record the final distribution would be:
A) Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; credit Cash $30,000.
B) Debit Masters, Capital $14,000; debit Hardy, Capital $14,000; credit Cash $28,000.
C) Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; credit Rowen, Capital $2,000; credit Cash $28,000.
D) Debit Cash $28,000; debit Rowen, Capital $2,000; credit Masters, Capital $15,000; credit Hardy, Capital $15,000.
E) Debit Masters, Capital $9,334; debit Hardy, Capital $9,333; debit Rowen, Capital $9,333; credit Cash $28,000.
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