Business Accounting
Exam Answer Key
Course Introduction
Business Accounting is an essential course that introduces students to the fundamental principles and techniques used in the recording, classification, and interpretation of financial transactions within a business environment. Through the examination of accounting cycles, financial statements, and regulatory frameworks, students learn how to prepare, analyze, and communicate financial information that supports effective decision-making. The course covers topics such as journal entries, ledgers, trial balances, accrual accounting, and the interpretation of income statements and balance sheets, providing a solid foundation for further study or professional practice in accounting and business management.
Recommended Textbook
Financial Accounting 10th Edition by Walter
T. Harrison
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Chapter 1: The Financial Statements
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Sample Questions
Q1) Which financial statement answers the following question: What is the company's operating performance over the past year?
A)statement of cash flows
B)income statement
C)statement of retained earnings
D)balance sheet
Answer: B
Q2) The ending balance of Cash is reported on the:
A)Balance Sheet only.
B)Statement of Retained Earnings only.
C)Statement of Cash Flows only.
D)A and C.
Answer: D
Q3) A company issues common stock for $100,000.On a statement of cash flows,this will be reported as a(n):
A)financing cash flow.
B)investing cash flow.
C)operating cash flow.
D)noncash activity.
Answer: A
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Chapter 2: Transaction Analysis
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Sample Questions
Q1) Which account includes bank account balances in multiple checking accounts?
A)Accounts Receivable
B)Notes Receivable
C)Cash
D)Prepaid Expenses
Answer: C
Q2) Purchasing supplies on account would:
A)increase total assets and decrease total liabilities.
B)increase total liabilities and decrease total assets.
C)increase total assets and increase total liabilities.
D)increase total liabilities and increase stockholders' equity.
Answer: C
Q3) When an expense account is increased:
A)an amount is entered on the credit side of the expense account.
B)an amount is entered on the debit side of the expense account.
C)cash must always be credited.
D)stockholders' equity is not affected.
Answer: B
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Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) The balance sheet reports:
A)assets,liabilities and stockholders' equity.
B)the changes in retained earnings.
C)assets,liabilities,revenues and expenses.
D)revenues and expenses.
Answer: A
Q2) On October 1 of the current year,a company received $4,800 for services to be performed evenly over the next six months.If no adjusting entry was made on December 31 of the current year:
A)net income would be understated by $4,800.
B)net income would be understated by $2,400.
C)net income would be overstated by $1,200.
D)net income would be overstated by $2,400.
Answer: B
Q3) The matching principle matches cash receipts and cash disbursements.
A)True
B)False
Answer: False
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) Lori's Company has the following items: cash in a checking account,$1,000; cash in a savings account,$4,000; high-grade government securities due in one month,$3,586; accounts receivable,$3,000; cash in a compensating balance agreement,$3,200.How much should appear as Cash and Cash Equivalents on the balance sheet?
A)$4,000
B)$8,586
C)$11,558
D)$11,786
Q2) A fidelity bond is a(n):
A)employment contract for a specified period of time.
B)insurance policy that reimburses a company for employee theft.
C)contract prohibiting former employees from working for a competitor.
D)promise by a company to safeguard customers' personal information.
Q3) Creating bogus websites for the purpose of stealing unauthorized data is a(n):
A)encryption device.
B)phishing expedition.
C)computer virus.
D)Trojan horse.
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Chapter 5: Short-Term Investments Receivables
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Sample Questions
Q1) Using the percentage-of-sales method,you estimate that total uncollectible accounts is $6,322.The Allowance for Uncollectible Accounts prior to adjustment has a debit balance of $2,635.The Accounts Receivable balance is $44,320.The amount of the adjusting entry for Uncollectible-Accounts Expense is:
A)$2,635.
B)$3,687.
C)$6,322.
D)$8,957.
Q2) Following Generally Accepted Accounting Principles,two methods to estimate uncollectible accounts receivable are the direct write-off method and the allowance method.
A)True
B)False
Q3) When goods are shipped FOB destination:
A)revenue is recognized when the goods leave the shipping dock.
B)revenue is recognized after any returns are received by the seller.
C)revenue is recognized only after cash payment is received.
D)revenue is recognized when the goods are received by the customer.
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) Under a perpetual inventory system,when a sale is made,the seller prepares:
A)no journal entry.
B)one journal entry only.
C)two journal entries.
D)three journal entries.
Q2) Speedy Corporation reported net income of $425,000 for the current year.After the financial statements had been prepared,it was discovered that ending inventory had been understated by $25,000.If the tax rate is 40%,after the error has been corrected,net income will:
A)increase by $15,000.
B)decrease by $15,000.
C)increase by $25,000.
D)decrease by $25,000.
Q3) For most firms,the gross profit percentage changes significantly from year to year.
A)True
B)False
Q4) An error in ending inventory creates errors for two accounting periods.
A)True
B)False
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Chapter 7: Plant Assets,natural Resources, Intangibles
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Sample Questions
Q1) A company exchanges an old machine for a new machine and cash is paid for the new machine.Assume there is a Gain on Exchange of Machine.In the journal entry to record the exchange by the owner of the old machine,what accounts will the accountant debit?
A)Machine and Accumulated Depreciation
B)Cash and Machine
C)Accumulated Depreciation,Cash and Machine
D)Accumulated Depreciation,Cash,Machine and Gain on Exchange of Machine
Q2) Plenty of Oil,Inc.purchased an oil field that is estimated to have 15,000,000 barrels of oil for $45 million in 2014.In 2014,1,800,000 barrels of oil were extracted and sold.In 2015,2,000,000 barrels of oil were extracted and sold.The oil field will have no residual value.What is the book value of the oil reserves that will be reported on the balance sheet as of December 31,2015?
A)$31,785,000
B)$33,600,000
C)$39,000,000
D)$45,000,000
Q3) The normal balance of the Accumulated Depreciation account is a debit.
A)True
B)False
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Chapter 8: Long-Term Investments: The Time Value of Money
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Sample Questions
Q1) Santa Ana Company purchased merchandise on account from a company in England.The price was 1,000 pounds.At the time of the purchase,the exchange rate for a pound was $1.52.At the time Santa Ana Company paid for the merchandise,the exchange rate for a pound was $1.55.What can we say about the pound relative to the U.S.dollar?
A)the pound weakened and the U.S.dollar strengthened over time
B)the pound strengthened and the U.S.dollar weakened over time
C)the pound and U.S.dollar strengthened over time
D)the pound and U.S.dollar weakened over time
Q2) When an investment is readily convertible to cash and the investor plans to convert the investment to cash within one year,the investment is reported on the balance sheet as:
A)a current asset.
B)a long-term asset.
C)stockholders' equity.
D)a cash equivalent.
Q3) Interest is the cost of using money.
A)True
B)False
Page 10
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Chapter 9: Liabilities
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Sample Questions
Q1) A company has a pending lawsuit that has a remote possibility of being settled in favor of the plaintiff who is a former employee.What should the company do?
A)Nothing.
B)Prepare a note to the financial statements.
C)Prepare a journal entry.
D)Prepare a note to the financial statements and a journal entry.
Q2) All of the following are reported as current liabilities EXCEPT:
A)unearned revenues for services to be provided in 16 months.
B)sales tax payable.
C)accounts payable.
D)bonds payable due in 6 months.
Q3) Bonds that are secured by real estate are called:
A)term bonds.
B)secured bonds.
C)mortgage bonds.
D)B and C.
Q4) Lease payments are paid by the lessor.
A)True
B)False
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Using DuPont analysis,what are the components of return on stockholders' equity?
A)Return on Sales and Leverage Ratio
B)Return on Sales,Debt Ratio and Asset Turnover Ratio
C)Return on Assets and Debt Ratio
D)Net Profit Margin Ratio,Asset Turnover Ratio,and Leverage Ratio
Q2) If a corporation pays taxes on its income,then the stockholders will not have to pay taxes on the dividends received from that corporation.
A)True
B)False
Q3) A company can sell common stock in exchange for assets other than cash. A)True
B)False
Q4) If a company has a deficit in retained earnings:
A)then retained earnings has a credit balance.
B)the deficit is subtracted to determine total stockholders' equity on the balance sheet.
C)the deficit is added to determine total stockholders' equity on the balance sheet.
D)then the corporation's lifetime earnings exceed lifetime losses and dividends.
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Chapter
11:
the Income Statement, the Statement of Comprehensive Income
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Sample Questions
Q1) An event or transaction should be reported as an extraordinary item if it is unusual in nature and if it occurs infrequently.
A)True
B)False
Q2) Extraordinary gains and losses are shown "net of tax" on the income statement.
A)True
B)False
Q3) On June 15,Copps Stores sold twenty-five computers,on account,to a company located in Argentina for 3,000,000 pesos.On that date the peso is worth $0.079.On July 15,when the peso was worth $0.070,payment was received.The journal entry on July 15 by Copps Stores would include a:
A)credit to Cash $237,000.
B)credit to Accounts Receivable $210,000.
C)debit to Foreign-Currency Transaction Loss $27,000. D)credit to Sales $210,000.
Q4) Comprehensive income does not include foreign-currency translation adjustments. A)True B)False
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Chapter 12: The Statement of Cash Flows
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Sample Questions
Q1) On the statement of cash flows,in which section would the purchase of land with cash appear?
A)Operating activities
B)Investing activities
C)Financing activities
D)Noncash investing and financing activities
Q2) On a statement of cash flows prepared with the indirect method,financing activities do NOT include:
A)payment of principal amounts of long-term debt.
B)payment of interest on long-term debt.
C)payment of dividends.
D)sale of treasury stock.
Q3) Usually,the most important category on the statement of cash flows is cash flows from:
A)operating activities.
B)investing activities.
C)financing activities.
D)noncash activities.
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Chapter 13: Financial Statement Analysis
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Sample Questions
Q1) To compute the gross profit percentage,divide:
A)sales by cost of goods sold.
B)gross profit by net sales.
C)net income by stockholders' equity.
D)operating income by net sales.
Q2) Which of the following statements about financial ratios is FALSE?
A)When calculating return on assets,preferred dividends are subtracted from net income.
B)When calculating return on equity,preferred dividends are subtracted from net income.
C)When calculating the price-earnings ratio,preferred dividends are subtracted from market price per share.
D)When calculating earnings per share,preferred dividends are subtracted from net income.
Q3) In the statement of cash flows,purchases of fixed assets are considered to be investing activities.
A)True
B)False
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