Business Accounting Exam Preparation Guide
Course Introduction
Business Accounting is an essential course that introduces students to the fundamental principles and practices of accounting within a business context. The course covers key topics such as the accounting cycle, preparation and analysis of financial statements, and the interpretation of accounting information for decision-making. Students will gain practical skills in recording transactions, managing assets and liabilities, and understanding revenue and expense recognition. Additionally, the course examines the importance of accounting ethics and regulatory frameworks, equipping students with the knowledge required to ensure accurate and transparent financial reporting in both small businesses and large organizations.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) Certified Public Accountant
A)Specializes in accounting and financial management knowledge
B)Serves the general public
C)Performs reviews of companies to ensure compliance to rules and regulations
D)Compiles financial statements, interacts with auditors, oversees regulatory reporting
Answer: B
Q2) The statement of owner's equity informs users about changes in the owner's capital account over a period of time.
A)True
B)False
Answer: True
Q3) Which of the following financial statements lists the entity's assets,liabilities,and owner's equity as of a specific date?
A)Balance sheet
B)Statement of owner's equity
C)Income statement
D)Statement of cash flows
Answer: A
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Chapter 2: Recording Business Transactions
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Q1) A shortened form of the ledger is called a ________.
A)working account
B)summary account
C)chart of accounts
D)T-account Answer: D
Q2) When using a four-column account,the posting reference column allows the user of the financial data to trace the amounts in the journal back to the ledger.
A)True
B)False Answer: False
Q3) Which of the following is provided in a typical chart of accounts?
A)Account balance
B)Account number
C)Dates of transactions
D)Transaction amounts Answer: B
Q4) A business purchased land for $250,000 cash.Record the transaction in the journal. Answer: 11ea8a75_426f_a179_a2a1_012b3fd67520_TB6701_00
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Chapter 3: The Adjusting Process
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Q1) The accountant for Watson Electrical Repair Company failed to make an adjusting entry to record $5,000 of unpaid salaries for the last two weeks of the year.Which of the following statements is TRUE?
A)The total revenue will be overstated.
B)The total revenue will be understated.
C)The total expenses will be overstated.
D)The total expenses will be understated.
Answer: D
Q2) Laramie Company signed a contract with a service provider for security services at a rate of $350 per month for the period of January through June.Laramie Company will pay the service provider the entire amount at the end of June.Laramie Company makes adjusting entries each month.During the month of June,it should record total security expense of $700.
A)True
B)False
Answer: False
Q3) A contract can only have one performance obligation.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Q1) Which of the following statements is TRUE of the accounting cycle?
A)It takes place only at the end of an accounting period.
B)It involves preparation of adjusting entries after the closing entries.
C)It ignores the beginning balances of accounts.
D)It is a process by which financial statements for a period are produced.
Q2) Which of the following statements is an accurate interpretation of the current ratio?
A)A current ratio of 1.5 or higher is considered a high-risk ratio.
B)A current ratio below 1.00 is considered a good and safe ratio.
C)A current ratio of 2.0 indicates a strong ability to pay current liabilities.
D)A current ratio of 0.60 or lower is a good and safe ratio.
Q3) Only permanent accounts appear on the post-closing trial balance.
A)True
B)False
Q4) Which of the following is a measure of how quickly an item can be converted to cash?
A)Debt ratio
B)Return on assets ratio
C)Liquidity
D)Accounting cycle
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Chapter 5: Merchandising Operations
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Q1) An invoice is also known as a bill.
A)True
B)False
Q2) The Merchandise Inventory account is only used in a perpetual inventory system.
A)True
B)False
Q3) Gross profit is calculated as the difference between net sales revenue and ________.
A)purchase expense
B)cost of goods sold
C)cost of merchandise inventory
D)operating expenses
Q4) In a periodic inventory system,purchases,purchase discounts,and purchase returns and allowances are recorded in the Merchandise Inventory account as and when they occur.
A)True
B)False
Q5) Briefly discuss what gross profit represents and how it affects the net earnings of a merchandiser.
Q6) What does the gross profit percentage measure? How is it computed?
Page 7
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Chapter 6: Merchandise Inventory
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Q1) When inventory costs are declining,which of the following inventory costing method will result in the lowest ending merchandise inventory?
A)first-in,first-out
B)last-in,first-out
C)weighted-average
D)specific identification
Q2) Under International Financial Reporting Standards (IFRS),companies may only use the specific identification,FIFO,and weighted-average methods to cost inventory.
A)True
B)False
Q3) The last-in,first-out (LIFO)costing system is permitted under International Financial Reporting Standards (IFRS).
A)True
B)False
Q4) "The amounts obtained for cost of goods sold and ending merchandise inventory are always the same for FIFO perpetual and FIFO periodic." Is this statement TRUE? Why or why not?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Which of the following activities is handled by selecting the "Make payment" action of QuickBooks?
A)entering sales receipts
B)selecting bills to be paid
C)recording a bill that has been received
D)recording customer payments
Q2) When using Quickbooks,the Vendors tab is used to record a bill that has been received.
A)True
B)False
Q3) Which of the following is an accounting information system activity that can be classified as a payroll business transaction?
A)approval of new employees
B)receipt of customer payment
C)processing of vendor invoices
D)payment for goods or services
Q4) In a networked system,the server stores the program and the data.
A)True
B)False
Q5) List and describe two features of an effective accounting information system.
Page 9
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Chapter 8: Internal Control and Cash
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Q1) Proceeds from credit and debit card transactions are deposited on the day of the actual sale.
A)True
B)False
Q2) A company has a cash ratio of 2.3.What does this imply?
A)The company has an unnecessarily large amount of cash and cash equivalents.
B)The company does not have enough cash supply.
C)The company is not in a position to pay off its long-term liabilities.
D)The company is not in a position to pay off its current liabilities.
Q3) The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board.
A)True
B)False
Q4) The cash balance in a company's general ledger and the company's bank balance on the bank statement will always be the same.
A)True
B)False
Q5) In addition to the account number,a check shows the 9-digit routing number.
A)True
B)False
Page 10
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Chapter 9: Receivables
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Q1) At the beginning of 2019,Patriots Company has the following account balances: Accounts Receivable $40,000 (Debit)
Allowance for Bad Debts $7000 (Credit)
Bad Debts Expense $0
During the year,credit sales amounted to $810,000.Cash collected on credit sales amounted to $790,000,and $17,000 has been written off.At the end of the year,the company adjusted for bad debts expense using the percent-of-sales method and applied a rate,based on past history,of 2.5%.The amount of bad debts expense for 2019 is
A)$20,250
B)$41,000
C)$17,000
D)$10,250
Q2) The two major types of receivables are interest receivable and taxes receivable.
A)True
B)False
Q3) After a company has written off an account,the company continues to attempt to collect on the receivable.
A)True B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) Companies may choose to report plant assets as a single amount,with a note to the financial statements that provides detailed information,or companies may provide detailed information on the face of the statement.
A)True
B)False
Q2) If a minor repair was incorrectly debited to the asset account,expenses and net income would be understated.
A)True
B)False
Q3) Regarding impairment of intangible assets,which of the following statements is incorrect?
A)Impairment occurs when the fair value of an intangible asset is less than the book value.
B)Intangible assets are impaired when there has been a permanent decline in the value of the asset.
C)Intangible assets with an indefinite life are tested for impairment annually.
D)If any impairment occurs,the company records a loss in the period in which the intangible asset was acquired.
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Chapter 11: Current Liabilities and Payroll
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Q1) Because amounts owed for products or services on account are typically due in 60 days,they are current liabilities.
A)True
B)False
Q2) Norwood Company signs a $11,000,8.5%,six-month note dated November 1,2018.The interest expense recorded for this note in 2018 will be ________.(Do not round any intermediate calculations,and round your final answer to the nearest dollar. )
A)$935
B)$156
C)$468
D)$312
Q3) Which of the following statements regarding vacation benefits is correct?
A)No entry is needed until the employee takes a paid vacation.
B)The account,Vacation Expense is debited when the employee takes a paid vacation.
C)Health and pension benefits are recorded in the same manner as vacation benefits.
D)When an employee takes a paid vacation,the account,Vacation Benefits Payable is credited.
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Chapter 12: Partnerships
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Q1) Trevor and Brian enter into a partnership and decide to share profits and losses as follows:
1.The first allocation is a salary allowance with Trevor receiving $10,000 and Brian receiving $20,000.
2.The second allocation is 20% of the partners' capital balances at year end.On December 31,2019,the capital balances for Trevor and Brian are $50,000 and $40,000,respectively.
3.Any remaining profit or loss is allocated equally. For the year ending December 31,2019,the partnership reported net income of $50,000.
Required:
1.Calculate the share of profit allocated to each partner.
2.Prepare the journal entry to record the allocation of profit on December 31,2019.
Q2) In a partnership,when a partner contributes a particular asset to the firm,he or she is considered to be the sole owner of the asset.
A)True
B)False
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Chapter 13: Corporations
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Q1) A deficit occurs when a company has reoccurring losses and/or declares dividends in excess of retained earnings.
A)True B)False
Q2) A 3-for-1 stock split of a $3 par value share will result in three shares of $1 par value being issued for each share of $3 par value stock.
A)True B)False
Q3) Cash dividends and treasury stock purchases ________.
A)represent cash payments that are made to ensure higher reported profits
B)may be limited by creditors to ensure that the company maintains a minimum level of stockholders' equity
C)may be restricted as a way to lower federal income tax expense
D)make more resources available to pay liabilities
Q4) Define treasury stock and provide two reasons why a corporation would purchase treasury stock.
Q5) The par value of a stock has no relation to the market value.
A)True B)False
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Chapter 14: Long-Term Liabilities
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Q1) In order to expand its business,the management of Hampton,Inc.issued a long-term notes payable for $50,000 on January 1,2018.The note will be paid over a 10-year period with equal annual principal payments,December 31 of each year.The annual interest rate is 12%.Prepare the journal entry for the first installment payment.Omit explanation.
Q2) On January 1,2019,Outdoor Services issued $20,000 of 8% bonds that mature in five years.They were issued at par.The bonds pay semiannual interest payments on June 30 and December 31 of each year.Provide the journal entry for the payment made on June 30,2019.Omit explanation.
Q3) On January 1,2018,Brazos Company purchased equipment and signed a six-year mortgage note for $97,000 at 15%.The note will be paid in equal annual installments of $25,631,beginning January 1,2019.On January 1,2019,the journal entry to record the first installment payment will include a ________.(Round your answer to the nearest whole number. )
A)debit to Mortgage Payable for $25,631
B)debit to Interest Expense for $14,550
C)credit to Cash for $11,081
D)credit to Mortgage Payable for $97,000
Q4) What is the difference between simple interest and compound interest?
Q5) When computing a bond's cash flow for interest,which interest rate is used? Why?
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Chapter 15: Investments
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Q1) When a company receives interest revenue on a long-term investment in bonds,________.
A)long-term assets decrease
B)long-term assets increase
C)equity increases
D)current assets decrease
Q2) Depending on the maturity date,held-to-maturity debt investments are categorized as current assets or long-term assets on the balance sheet.
A)True
B)False
Q3) On the maturity date of a bond investment,the journal entry includes ________.
A)a debit to Cash and a credit to Held-to-Maturity Debt Investments
B)a debit to Long-term Investments and a credit to Cash
C)a debit to the Interest Revenue and a credit to Cash
D)recording a gain or loss on disposition at maturity
Q4) The owner of a bond or stock of a corporation is referred to as the investor.
A)True
B)False
Q5) List and discuss two common reasons why companies invest in debt or equity securities.
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Chapter 16: The Statement of Cash Flows
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Q1) Cash received from the issuance of notes payable is a(n)________ activity on the statement of cash flows.
A)non-cash investing and financing
B)financing
C)operating
D)investing
Q2) In preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.
A)is added back as an adjustment to Net Income in the operating activities section
B)is shown as a negative cash flow in the investing activities section
C)is added back to Purchases of Plant Assets under investing activities
D)is shown as a negative cash flow under operating activities
Q3) The three major categories included on the statement of cash flows are ________.
A)investing,operating,and financing activities
B)investing,capital,and financing activities
C)investing,operating,and contracting activities
D)financial,operating,and internal control activities
Q4) List and discuss three ways in which the statement of cash flows helps financial statement users.
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Chapter 17: Financial Statement Analysis
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Q1) Unexpected or inconsistent movements among sales,merchandise inventory,and receivables reflect normal market conditions and do not pose red flags in financial statements.
A)True
B)False
Q2) Which of the following is used to determine how the sales revenue of a company has changed from one year to the next?
A)vertical analysis of the balance sheet
B)horizontal analysis of the income statement
C)horizontal analysis of the balance sheet
D)vertical analysis of the income statement
Q3) In regards to benchmarking,which of the following statements is incorrect?
A)Benchmarking is the practice of comparing a company with other leading companies.
B)The industry average is not a useful benchmark for evaluating a company.
C)Providing common-size percentages in a graphical manner highlights differences.
D)The two main types of benchmarks in financial statement analysis include benchmarking against the industry average and benchmarking against a key competitor.
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