Business Accounting
Exam Questions
Course Introduction
Business Accounting introduces students to the fundamental principles and practices of accounting within a business context. The course covers essential topics such as the accounting cycle, financial statement preparation, and the analysis and interpretation of financial information. Emphasis is placed on understanding how accounting data supports effective decision-making, internal controls, and compliance with relevant standards. Students will also gain practical skills in journalizing transactions, managing accounts, and preparing budgets, providing a solid foundation for further study or careers in accounting, finance, or business management.
Recommended Textbook
Fundamental Accounting Principles 21st Edition by
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Page 2
John J. Wild
Chapter 1: Accounting in Business
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Sample Questions
Q1) External auditors examine financial statements to verify that they are prepared according to generally accepted accounting principles.
A)True
B)False
Answer: True
Q2) The ____________________ describes a company's revenues and expenses over a period of time due to earnings activities.
Answer: income statement
Q3) Operating activities:
A)Are the means organizations use to pay for resources like land, buildings and equipment.
B)Involve using resources to research, develop, purchase, produce, distribute and market products and services.
C)Involve acquiring and disposing of resources that a business uses to acquire and sell its products or services.
D)Are also called asset management.
E)Are also called strategic management.
Answer: B
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Chapter 2: Analyzing and Recording Transactions
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Sample Questions
Q1) Preparation of a trial balance is the first step in the analyzing and recording process.
A)True
B)False
Answer: False
Q2) A general journal is:
A)A ledger in which amounts are posted from a balance column account.
B)Not required if T-accounts are used.
C)A complete record of any transaction and the place from which transaction amounts are posted to the ledger accounts.
D)Not necessary in electronic accounting systems.
E)A book of final entry because financial statements are prepared from it.
Answer: C
Q3) Montgomery Marketing Co.had assets of $475,000; liabilities of $275,500; and equity of $199,500.Calculate its debt ratio.
Answer: Debt Ratio = Total Liabilities/Total Assets = $275,500/$475,000 = 58%
Q4) The third step in the analyzing and recording process is to post the information to ___________________.
Answer: ledger accounts
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Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) It is acceptable to record prepayment of expenses as debits to expense accounts.
A)True
B)False
Answer: True
Q2) Adjusting entries made at the end of an accounting period accomplish all of the following except:
A)Updating liability and asset accounts to their proper balances.
B)Assigning revenues to the periods in which they are earned.
C)Assigning expenses to the periods in which they are incurred.
D)Assuring that financial statements reflect the revenues earned and the expenses incurred.
E)Assuring that external transaction amounts remain unchanged.
Answer: E
Q3) The accrual basis of accounting recognizes revenues when cash is received from customers.
A)True
B)False Answer: False
Q4) Profit margin = ___________________ divided by net sales. Answer: Net Income
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The work sheet is a required report.
A)True
B)False
Q2) Which of the following statements about a company's operating cycle is not true:
A)Non-current items are those expected to come due within one year or the company's operating cycle.
B)The operating cycle is the time span from when cash is used to acquire goods and services until cash is received from the sale of goods and services.
C)The length of a company's operating depends on its activities.
D)For a merchandiser selling products, the operating cycle is the time span between paying suppliers for merchandise and receiving cash from customers.
E)Most operating cycles are less than one year.
Q3) Revenue accounts should begin each accounting period with zero balances. A)True
B)False
Q4) A current ratio of 2.1 suggests that a company has ____________ current assets to cover current liabilities.
Q5) The current portion of long-term debt is classified with the______________.
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Chapter 5: Accounting for Merchandising Operations
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Q1) A trade discount is:
A)A term used by a purchaser to describe a cash discount given to customers for prompt payment.
B)A reduction in price below the list price.
C)A term used by a seller to describe a cash discount granted to customers for prompt payment.
D)A reduction in price for prompt payment.
E)Also called a rebate.
Q2) Sales of $350,000 and net sales of $323,000 could reflect sales discounts of $27,000.
A)True
B)False
Q3) A ___________ inventory system updates the accounting record for inventory only at the end of a period.
Q4) The quick assets are defined as:
A)Cash, short-term investments, and inventory.
B)Cash, short-term investments, and current receivables.
C)Cash, inventory, and current receivables.
D)Cash, noncurrent receivables, and prepaid expenses.
E)Accounts receivable, inventory, and prepaid expenses.
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The accounting principle that prescribes an accounting information system conform with a company's activities,personnel,and structure is the:
A)Control principle.
B)Compatibility principle.
C)Relevance principle.
D)Flexibility principle.
E)Cost-Benefit principle.
Q2) A subsidiary ledger that contains a separate account for each supplier (creditor)to the company is a(n):
A)Controlling account.
B)Accounts receivable ledger.
C)Accounts payable ledger.
D)General ledger.
E)Special journal.
Q3) The __________________ principle requires that the benefits from an activity in an accounting information system outweigh the costs of that activity.
Q4) Using _______________ ledgers removes unnecessary details from the general ledger.
Q5) What are the five basic components of accounting information systems?
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Chapter 8: Cash and Internal Controls
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Sample Questions
Q1) Cash equivalents:
A)Include savings accounts.
B)Include checking accounts.
C)Are short-term investments sufficiently close to their maturity date that their value is not sensitive to interest rate changes.
D)Include time deposits.
E)Have no immediate value.
Q2) A company made a bank deposit on September 30 that did not appear on the bank statement dated as of September 30.In preparing the September 30 bank reconciliation,the company should:
A)Deduct the deposit from the bank statement balance.
B)Send the bank a debit memorandum.
C)Deduct the deposit from the September 30 book balance and add it to the October 1 book balance.
D)Add the deposit to the book balance of cash.
E)Add the deposit to the bank statement balance.
Q3) Describe the net method of accounting for purchases.Why do companies use the net method?
Q4) Define an internal control system and describe its purpose.
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Chapter 9: Accounting for Receivables
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Sample Questions
Q1) Each December 31,Davis Company ages its accounts receivable to determine the amount of its adjustment for bad debts.At the end of the current year,management estimated that $16,900 of the accounts receivable balances would be uncollectible.The Allowance for Doubtful Accounts account had a debit balance of $3,200 before any year-end adjustment for bad debts.Prepare the adjusting journal entry that Davis Company should make on December 31,of the current year,to estimate bad debts expense.
Q2) Receivables can be used to obtain cash by either selling them or using them as security for a loan.
A)True
B)False
Q3) The accounts receivable turnover indicates how often accounts receivable are received and collected during the period.
A)True
B)False
Q4) What is the accounts receivable turnover ratio?
How is it calculated?
How is it used to assess financial condition?
Q5) If a 90-day note receivable is dated June 12,what is the maturity date of the note?
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) Record the following events and transactions for Axle Company for the current year.
1.On January 2,Axle purchased a patent for $35,000 with a useful life of 10 years.Prepare the journal entry to amortize the patent at the end of the first year.
2.On January 3,Axle purchased a leasehold for $8,400,000.The leasehold expires in 15 years.Prepare the journal entry to amortize the leasehold at the end of the first year.
3.On January 4,Axle purchased a music distributor's collection of lyrics and songs for $1,425,000.The copyrights are expected to last another 30 years.Prepare the journal entry to amortize the copyright at the end of the first year.
Q2) A company discarded a display case originally purchased for $8,000.The accumulated depreciation was $7,200.The company should recognize a (an):
A)$0 gain or loss.
B)$800 loss.
C)$800 gain.
D)$8,000 loss.
E)$7,200 loss.
Q3) Explain the purpose of and method of depreciation for partial years.
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Chapter 11: Current Liabilities and Payroll Accounting
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Q1) A _______________________ is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle,whichever is longer.
Q2) An employer's federal unemployment taxes (FUTA)are reported:
A)Annually.
B)Semiannually.
C)Quarterly.
D)Monthly.
E)Weekly.
Q3) Employers can use a wage bracket withholding table to compute federal income taxes withheld from each employee's gross pay.
A)True
B)False
Q4) The Wage and Tax Statement is:
A)Form 940.
B)Form 941.
C)Form 1040
D)Form W-2.
E)Form W-4.
Q5) Gross pay less all deductions is called ____________________.
Page 12
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Chapter 12: Accounting for Partnerships
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Sample Questions
Q1) Armstrong plans to leave the FAP Partnership.The recorded balance in her capital account is $48,000.The remaining partners,Peters and Floyd,agree to pay Armstrong $58,000 cash and Armstrong accepts.The partners share income and loss equally.Prepare the journal entry to record the transaction.
Q2) The life of a partnership is ____________________ in duration.
Q3) Groh and Jackson are partners.Groh's capital balance in the partnership is $64,000,and Jackson's capital balance $61,000.Groh and Jackson have agreed to share equally in income or loss.Groh and Jackson agree to accept Block with a 25% interest.Block will invest $35,000 in the partnership.The bonus that is granted to Block equals:
A)$5,000.
B)$2,500.
C)$6,667.
D)$3,333.
E)$0, because Block must actually grant a bonus to Groh and Jackson.
Q4) A partnership has an unlimited life.
A)True
B)False
Q5) During the closing process,each partner's withdrawals account is closed to
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Chapter 13: Accounting for Corporations
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Sample Questions
Q1) A stock _________________ keeps stockholder records and prepares official lists of stockholders for stockholder meetings and dividend payments.
Q2) Stock that was reacquired and is still held by the issuing corporation is called:
A)Capital stock.
B)Treasury stock.
C)Redeemed stock.
D)Preferred stock.
E)Callable stock.
Q3) __________________________ is the annual amount of cash dividends distributed to common shareholders relative to the stock's market price.
Q4) The annual amount of cash dividends distributed to common shareholders relative to the common stock's market value is the:
A)Dividend payout ratio.
B)Dividend yield.
C)Price-earnings ratio.
D)Current yield.
E)Earnings per share.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On January 1,a company issues bonds dated January 1 with a par value of $300,000.The bonds mature in 5 years.The contract rate is 9%,and interest is paid semiannually on June 30 and December 31.The market rate is 8% and the bonds are sold for $312,177.The journal entry to record the first interest payment using straight-line amortization is:
A)Debit Interest Payable $13,500; credit Cash $13,500.00.
B)Debit Interest Expense $12,282.30; debit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
C)Debit Interest Expense $14,717.70; credit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
D)Debit Interest Expense $14,717.70; credit Discount on Bonds Payable $1,217.70; credit Cash $13,500.00.
E)Debit Interest Expense $12,282.30; debit Premium on Bonds Payable $1,217.70; credit Cash $13,500.00.
Q2) A company issued 10-year,9% bonds,with a par value of $500,000 when the market rate was 9.5%.The issuer received $484,087 in cash proceeds.Prepare the issuer's journal entry to record the bond issuance.
Q3) What is a lease?
Explain the difference between an operating lease and a capital lease.
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Chapter 15: Investments and International Operations
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Sample Questions
Q1) All of the following statements regarding accounting for influential securities under U.S.GAAP and IFRS are true except:
A)Under the equity method, the share of investee's net income is reported in the investor's income in the same period the investee earns that income.
B)Under the consolidation method, investee and investor revenues and expenses are combined.
C)Under the equity method, the investment account equals the acquisition cost plus the share of investee income plus the share of investee dividends.
D)Under the consolidation method, nonintercompany assets and liabilities are combined (eliminating the need for an investment account).
E)U.S.GAAP companies commonly refer to noncontrolling interests in consolidated subsidiaries as minority interests whereas IFRS companies use noncontrolling interests.
Q2) Explain the difference between short-term and long-term investments.Cite examples of each.
Q3) Long-term investments in available-for-sale securities are reported at their _______ on the balance sheet.
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Chapter 16: Reporting the Statement of Cash Flows
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Sample Questions
Q1) The direct method of reporting operating cash flows:
A)Is recommended but not required by the FASB.
B)Must be used by all companies.
C)Is used by most companies.
D)Is considered supplementary disclosure.
E)Is not recommended by the FASB, but is commonly used.
Q2) Noncash financing and investing activities are disclosed in the ____________ or in a separate ______________________________.
Q3) The cash flow on total assets ratio is computed by dividing _____________ by ____________.
Q4) Preparation of the statement of cash flows involves:
A)Computing the net increase or decrease in cash.
B)Computing and reporting net cash provided or used by operations.
C)Computing and reporting net cash provided or used by investing activities.
D)Computing and reporting net cash provided or used by financing activities.
E)All of the choices are included in the preparation of the statement of cash flows.
Q5) _____________ activities include the cash effects of transactions and events that determine net income.
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Chapter 17: Analysis of Financial Statements
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Q1) Identify and explain the four building blocks of financial statement analysis.
Q2) Intra-company analysis is based on comparisons with competitors.
A)True
B)False
Q3) The current ratio and acid-test ratio are used to reflect the ____________ of a business.
Q4) Horizontal analysis is the comparison of a company's financial condition and performance to a base amount.
A)True
B)False
Q5) Capital structure refers to a company's long-run financial viability and its ability to cover long-term obligations.
A)True
B)False
Q6) The standards for comparisons in financial statement analysis include (1)___________,(2)____________,(3)_____________,and (4)_______________.
Q7) The base amount for a common-size balance sheet is usually total assets.
A)True
B)False
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Chapter 18: Managerial Accounting Concepts and Principles
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Q1) Which of the following items represents a difference between financial and managerial accounting?
A)Users of the information.
B)Flexibility of practices.
C)Timeliness and time dimension of the information reported.
D)Nature of the information.
E)All of the choices represent differences between financial and managerial accounting.
Q2) An employer is unsure if an act by an employee constitutes fraud.What are some of the indications that an employee is involved in a fraud scheme?
Q3) An employee overstates his reimbursable expenses in one period in order to receive needed additional cash.Since he intends to reduce his expenses the next period by the current overstatement,this act is not considered fraudulent.
A)True
B)False
Q4) Direct materials are not usually easily traced to a product.
A)True
B)False
Q5) What is managerial accounting and how is it used to aid decision makers?
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Chapter 19: Job Order Costing
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Sample Questions
Q1) A source document that production managers use to request materials for production and that is used to assign materials costs to specific jobs or to overhead is a:
A)Job cost sheet.
B)Production order.
C)Materials requisition.
D)Materials purchase order.
E)Receiving report.
Q2) Describe the use of the Factory Payroll account in a job order cost accounting system.
Q3) Briefly describe how manufacturing firms dispose of overapplied or underapplied factory overhead.
Q4) Large aircraft producers such as McDonnell Douglas normally use:
A)Job order costing.
B)Process costing.
C)Mixed costing.
D)Full costing.
E)Simple costing.
Q5) A ______________________ is a separate record maintained for each job.
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Chapter 20: Process Costing
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Q1) Direct labor and indirect labor are recorded,respectively,to:
A)Factory Overhead and Goods in Process Inventory.
B)Goods in Process Inventory and Finished Goods Inventory.
C)Finished Goods Inventory and Goods in Process Inventory.
D)Goods in Process Inventory and Factory Overhead.
E)Cost of Goods Sold and Finished Goods Inventory.
Q2) If Department Q uses $60,000 of direct materials and Department T uses $15,000 of direct materials,the following journal entry would be recorded by the process cost accounting system:
Goods in Process Inventory,Department Q 60,000
Goods in Process Inventory,Department T 15,000
Raw Materials Inventory 75,000
A)True
B)False
Q3) Describe the flow of overhead costs in a process cost accounting system,including accounts used.
Q4) A process cost summary shows the cost of a particular job manufactured in the reporting period.
A)True
B)False
21
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Use the following information to determine the margin of safety in dollars: Unit sales 50,000 Units
Dollar sales $500,000
Fixed costs $204,000
Variable costs $187,500
A)$ 88,500.
B)$108,500.
C)$173,600.
D)$326,400.
E)$500,000.
Q2) Mueller Corp.manufactures compact discs that sell for $5.00.Fixed costs are $28,000 and variable costs are $3.60 per unit.Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year,but will decrease variable costs by $0.40 per unit.What effect would the purchase of the new machine have on Mueller's break-even point in units?
A)4,444 unit increase.
B)9,850 unit decrease.
C)5,714 unit increase.
D)4,444 unit decrease.
E)No effect on the break-even point in units.
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Chapter 22: Master Budgets and Planning
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Q1) Grafton sells a product for $700.Unit sales for May were 400 and a 3% growth in unit sales is forecasted for each month.Grafton pays a sales manager a monthly salary of $3,000 and a commission of 2% of sales in dollars.Compute the projected selling expense to be reported on the selling expense budget for the manager for month ended June 30.
A)$8,600.
B)$11,652.
C)$8,652.
D)$5,768.
E)$8,768.
Q2) There are at least five benefits from budgeting.Identify two of these benefits: (1)_______________________________________ (2)_______________________________________
Q3) List the three important guidelines that should be followed in the budgeting process.
Q4) A ________________________ is a continuously revised budget that adds future months or quarters to replace months or quarters that have lapsed.
Q5) There are three major subgroups of the master budget.These are _________________,___________________,and
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Chapter 23: Flexible Budgets and Standard Costs
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Q1) Which department is often responsible for the direct materials price variance?
A)The accounting department.
B)The production department.
C)The purchasing department.
D)The finance department.
E)The budgeting department.
Q2) A direct labor cost variance may be broken down into a controllable variance and a volume variance.
A)True
B)False
Q3) Fixed budget performance reports compare actual results with the expected amounts in the fixed budget.
A)True
B)False
Q4) In producing 700 units of Product CBA last period,Cobalt Company used 5,000 pounds of Material H,costing $34,250.The company has established the standard of using 7.2 pounds of Material H per unit of CBA,at a price of $7.50 per pound.Calculate the materials price and quantity variances associated with producing the 700 units,and indicate whether they are favorable or unfavorable:
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Chapter 24: Performance Measurement and Responsibility Accounting
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Q1) Departmental contribution to overhead is calculated as revenues of the department less:
A)Controllable costs.
B)Product and period costs.
C)Direct expenses.
D)Direct and indirect costs.
E)Joint costs.
Q2) Explain the difference between direct and indirect expenses in accounting for departments.
Q3) Samm's Department Store operates three departments (A,B and C).If total costs of $4,500 are to be allocated on the basis of square feet of space (Dept.A = 1,500 Sq.Ft.; Dept.B = 900 Sq.Ft.; Dept.C = 600 Sq.Ft.)then Dept A's share (in percent)of the $4,500 cost would be ________%; Dept.B would be ______%,and Dept C would be __________%.The amount of cost allocated to Dept.C would be $__________.
Q4) The number of hours that a department uses equipment and machinery is a reasonable basis for allocating depreciation.
A)True
B)False
Q5) What is a profit center?
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Chapter 25: Capital Budgeting and Managerial Decisions
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Q1) Significant sunk costs are relevant to decisions about the future.
A)True
B)False
Q2) A disadvantage of an investment with a short payback period is that it will produce revenue for only a short period of time.
A)True
B)False
Q3) The hurdle rate is often set at:
A)The rate the company could earn if the investment were placed in the bank.
B)The company's cost of capital.
C)10% above the IRR of current projects.
D)10% above the ARR of current projects.
E)The rate at which the company is taxed on income.
Q4) The __________________________ is the rate that yields a net present value of zero for an investment.
Q5) A special order of goods or services should always be accepted when the incremental revenue exceeds the incremental costs.
A)True
B)False
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Chapter 26: Time Value of Money B
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Q1) You are little late planning your retirement,but are looking forward to retiring in 10 years.You expect to save $6,000 a year at an annual rate of 8%.How much will you have accumulated when you retire?
Q2) In a present value or future value table,the length of one time period may be interpreted as one year,one month,or any other length of time.
A)True
B)False
Q3) What interest rate is required to accumulate $6,802.50 in four years from an investment of $5,000?
A)5%
B)8%
C)10%
D)12%
E)15%
Q4) A company has $50,000 today to invest in a fund that will earn 7%.How much will the fund contain at the end of 8 years?
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Chapter 27: Activity-Based Costing C
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Q1) Activity cost pools are an important part of the allocation of overhead costs using activity-based costing.
A)True B)False
Q2) Unit costs can be significantly different when using activity-based costing compared to traditional cost allocation methods.
A)True
B)False
Q3) Why would a firm use activity-based costing (ABC)rather than traditional two-stage methods of cost allocation for overhead?
Q4) Activity-based costing attempts to better allocate costs to the proper users of overhead by focusing on activities.
A)True
B)False
Q5) Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports.
A)True B)False
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