Business Accounting Exam Review
Course Introduction
Business Accounting is an essential course that introduces students to the fundamental principles and practices of accounting in the business environment. The course covers key topics such as the accounting cycle, financial statements, recording business transactions, and understanding assets, liabilities, and equity. Students will learn how to analyze and interpret financial information to support effective decision-making, budgeting, and strategic planning in organizations. Emphasis is placed on both practical skills and theoretical knowledge, ensuring students are well-prepared to manage accounting tasks and contribute to business success.
Recommended Textbook
Principles of Accounting 11th Edition by Belverd E. Needles
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28 Chapters
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) The Public Company Accounting Oversight Board (PCAOB) was created to determine the standards that auditors must follow.
A)True
B)False
Answer: True
Q2) The obligation to provide services to another entity is a type of liability.
A)True
B)False Answer: True
Q3) Net assets equal assets plus liabilities.
A)True
B)False Answer: False
Q4) Owner's equity equals cumulative net income or loss plus owner investments minus cumulative withdrawals.
A)True
B)False Answer: True
Page 3
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) Which pair of accounts follows the rules of debit and credit in the same manner?
A) Revenue from Services and Equipment
B) Prepaid Rent and Advertising Expense
C) Repair Expense and Notes Payable
D) Owner's Capital and Rent Expense
Answer: B
Q2) The ledger account form has a Balance column.
A)True
B)False
Answer: True
Q3) Which of the following errors will not cause the debit and credit columns of a trial balance to be unequal?
A) A debit was posted to an account as a credit.
B) A journal entry was posted twice.
C) The trial balance was incorrectly summed.
D) Only part of a journal entry was posted.
Answer: B
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Chapter 3: Measuring Business Income
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Sample Questions
Q1) A deferral is the recognition of an expense that has arisen but has not yet been recorded.
A)True
B)False
Answer: False
Q2) What is the purpose of adjusting entries?
Answer: Adjusting entries result in financial statements that include all transactions experienced during the accounting period. They are prepared to apply accrual accounting to transactions that span more than one accounting period.
Q3) Which of the following accounts would not need to be adjusted at year end?
A) Prepaid Advertising
B) Land
C) Office Supplies
D) Unearned Revenue
Answer: B
Q4) Depreciation Expense-Equipment is an example of a contra account.
A)True
B)False Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Nominal account balances are reduced to zero by closing entries.
A)True
B)False
Q2) A work sheet is useful for all except which of the following?
A) Preparing financial statements
B) Recording closing entries
C) Recording adjusting entries
D) Recording transactions from source documents
Q3) On a work sheet, the balance of the owner's Capital account is its ending amount for the period.
A)True
B)False
Q4) Income Summary is closed with a debit to Income Summary and a credit to the Withdrawals account.
A)True B)False
Q5) The process of crossfooting requires vertical addition and subtraction.
A)True
B)False
Q6) What does the preparation of reversing entries accomplish?
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Chapter 5: Financial Reporting and Analysis
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Sample Questions
Q1) Use the following information to calculate the liquidity and profitability ratios listed below. Round to two decimal places.
\(\begin{array}{lrlr}
\text { Average owner's equity } & \$ 9,250 & \text { Net income } & \$ 1,500 \\
\text { Average total assets } & 18,000 & \text { Net sales } & 15,625 \\
\text { Current assets } & 11,250 & \text { Total liabilities } & 8,750 \\
\text { Current liabilities } & 7,500 & & \end{array}\)
a. Current ratio
b. Working capital
c. Return on equity
d. Profit margin
e. Debt to equity ratio
f. Return on assets
g. Asset turnover
Q2) Financial statements are generally prepared for a limited number of users. A)True B)False
Q3) Why is it important for a company to maintain the same accounting methods and practices from period to period?
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Chapter 6: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) The collection of a $1,000 account beyond the 2 percent discount period would result in a(n)
A) increase to Cash for $980.
B) decrease to Accounts Receivable for $1,000.
C) decrease to Cash for $1,000.
D) increase to Sales Discounts for $20.
Q2) An American company makes a credit purchase of goods from a company in London for 1,000 British pounds. On the date of purchase, the exchange rate was $1.65 per pound. However, on the date of payment, the rate had declined to $1.60 per pound.
As a result, the American company would record
A) an exchange gain of $50.
B) an exchange loss of $1,600.
C) an exchange loss of $50.
D) no exchange gain or loss.
Q3) A merchandising business will earn a net income of exactly $0 when
A) net sales equals cost of goods sold.
B) operating expenses equal net sales.
C) gross margin equals operating expenses.
D) cost of goods sold equals gross margin.
Page 8
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Chapter 7: Internal Control
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Sample Questions
Q1) In a purchase system, the most appropriate department to control goods upon arrival at the company is the
A) accounting department.
B) receiving department.
C) treasury department.
D) requesting department.
Q2) A company's merchandise inventory includes all of the following, except A) goods in possession, but which cannot be sold.
B) goods on shelves.
C) damaged goods that can be sold at a reduced price.
D) goods in storerooms.
Q3) Internal control involves, in part, the protection of a company's assets.
A)True
B)False
Q4) The use of prenumbered documents is important to a good system of internal control.
A)True
B)False
Q5) Under a perpetual inventory system, is it necessary to take a physical inventory at the end of the period? Why or why not?
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Chapter 8: Inventories
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Sample Questions
Q1) Goods in transit shipped FOB destination should not be included in the buyer's ending inventory.
A)True B)False
Q2) When the average-cost method is applied to a perpetual inventory system, the sale of goods will change the unit cost of the goods that remain in inventory.
A)True B)False
Q3) A retail company has goods available for sale of $500,000 at retail and $200,000 at cost and ending inventory of $57,000 at retail. What is the estimated cost of goods sold?
A) $143,000
B) $188,600
C) $177,200
D) $165,800
Q4) The specific identification method is well suited for a discount department store. A)True B)False
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Page 10
Chapter 9: Cash and Receivables
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Sample Questions
Q1) The balance of Accounts Receivable, net of the allowance account, is $35,000 before the write-off of a $2,800 account. What is the Accounts Receivable balance, net of the allowance account, after the write-off?
A) $35,000
B) $32,200
C) $2,800
D) $37,800
Q2) A company's acceptance of credits cards, like MasterCard, is an example of factoring with recourse.
A)True
B)False
Q3) A discounted note represents a contingent liability because a potential liability exists.
A)True
B)False
Q4) Under securitization, a company sells its receivables in batches at a discount.
A)True
B)False
Q5) On a balance sheet, what items normally are included in Cash?
Q6) What is a compensating balance? By whom is it required?
Page 11
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Chapter 10: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) The costs associated with coupons and rebates are usually reflected in contra-revenue accounts.
A)True
B)False
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) Ronald Company has current assets of $115,000 and current liabilities of $75,000 of which accounts payable are $65,000. Arnold's cost of goods sold is $420,000, its merchandise inventory increased by $20,000, and accounts payable were $45,000 the prior year. Calculate Ronald's working capital, payables turnover, and days' payable.
Q4) When compound interest is used, interest accumulates less quickly than when simple interest is used.
A)True
B)False
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12
Chapter 11: Long Term Assets
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Sample Questions
Q1) One reason for an asset's limited useful life is obsolescence.
A)True
B)False
Q2) On January 1, 2009, Pung Manufacturing Company purchased for $94,000 a machine that will produce an estimated 75,000 units of Product X. The machine has an estimated useful life of five years and an estimated residual value of $4,000. Calculate the following amounts: (a) the carrying value of the machine after it has been used for three and one-half years, under the straight-line method; (b) depreciation expense for 2010, under the production method (assume that 13,000 units were produced that year); and (c) accumulated depreciation at the end of 2010, under the double-declining-balance method. (Show your work.)
Q3) Asset impairment occurs when the fair value of a long-term asset exceeds its carrying value.
A)True
B)False
Q4) Depreciation is a process of allocation, not of valuation.
A)True
B)False
Q5) What is goodwill and when may it be recorded?
Q6) Present two arguments in favor of the use of accelerated depreciation.
Page 13
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Chapter 12: Contributed Capital
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Sample Questions
Q1) Beckham Corporation has 3,000 shares of $100 par value, 7 percent cumulative preferred stock, and 10,000 shares of $10 par value common stock outstanding during its first five years of operation. Beckham Corporation paid cash dividends as follows: 2006, $10,500; 2007, $0; 2008, $65,000; 2009, $30,000; 2010, $15,000. The amount of dividends the common stockholders received during 2006 was
A) $0.
B) $5,250.
C) $10,500.
D) $15,750.
Q2) Compensation expense related to employee stock options is recorded on a corporation's books only when the option price exceeds the current market price at the date the options are granted.
A)True
B)False
Q3) The entry required to record start-up and organization costs will cause a decrease in net income for the period.
A)True
B)False
Q4) Define outstanding stock.
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Chapter 13: Long Term Liabilities
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Sample Questions
Q1) Lenz Corporation issued ten-year, 8 percent bonds payable in 2009 at a premium. During 2010, the company's accountant failed to amortize any of the bond premium. The omission of the premium amortization will
A) cause net income for 2009 to be overstated.
B) not affect net income reported for 2009.
C) cause net income for 2009 to be understated.
D) cause retained earnings at the end of 2009 to be overstated.
Q2) All of the following are advantages of issuing bonds rather than stock except A) financial leverage.
B) payment of bond interest is not required
C) bond interest is tax-deductible.
D) bondholders do not have voting rights.
Q3) When the terms of a lease require that the lessee record an asset and a liability, the two accounts are recorded at the present value of the total lease payments required. A)True B)False
Q4) Boris Corporation had income before income taxes of $4,000,000 and interest expense of $450,000. Calculate Boris's interest coverage ratio, rounded to one decimal place.
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Chapter 14: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) Why must certain income statement items be presented "net of taxes"?
Q2) When common stock is originally issued, its market value per share should approximate its par or stated value per share.
A)True
B)False
Q3) A convertible security is used in the computation of
A) diluted earnings per share.
B) simple earnings per share.
C) undiluted earnings per share.
D) primary earnings per share.
Q4) Which of the following has an effect on total stockholders' equity?
A) Conversion of preferred stock into common stock
B) Cash dividend
C) Stock dividend
D) Stock split
Q5) A stock dividend does not affect the total amount of stockholders' equity.
A)True
B)False
Q6) Distinguish between cash and retained earnings.
Q7) Specifically, what gives rise to the Deferred Income Taxes account? Page 16
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Page 17
Chapter 15: The Statement of Cash Flows
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Sample Questions
Q1) If the indirect method is used, which of the following would be subtracted from net income to arrive at net cash flows from operating activities?
A) Increase in Notes Payable
B) Decrease in Inventory
C) Decrease in Accounts Payable
D) Depreciation Expense
Q2) Cash inflows and outflows are not netted in the investing activities section of the statement of cash flows but are separately disclosed to give the reader full information.
A)True
B)False
Q3) Royer Corporation engaged in this transaction: Purchased land and building with a mortgage.
Indicate which section, if any, the above transaction would appear in, or relate to, on a statement of cash flows.
A) Financing activities section
B) Operating activities section
C) Investing activities section
D) Schedule of noncash investing and financing transactions
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18
Chapter 16: Financial Performance Measurement
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Sample Questions
Q1) Companies in the same industry are required to use the same methods to value inventory and to depreciate similar assets.
A)True
B)False
Q2) Investors, creditors, and customers are considered external users of financial statements.
A)True
B)False
Q3) If sales for 2008 (the base year), 2009, and 2010 are $20,000, $15,600, and $24,600, respectively, the index numbers assigned to 2009 and 2010, respectively, are
A) 62.4 and 128.
B) 156 and 118.
C) 128.2 and 133.
D) 78 and 123.
Q4) One of the main parts of an annual report of a publicly held corporation is the fiveto ten-year projection.
A)True
B)False
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Page 19
Chapter 17: Partnerships
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Sample Questions
Q1) Doris invests $10,000 for a one-third interest in a partnership in which the other partners have capital totaling $26,000 before admitting Doris. After distribution of the bonus, what is Doris's capital?
A) $5,333
B) $8,667
C) $10,000
D) $12,000
Q2) When a partner invests assets in a partnership, the assets are recorded at the partner's book value.
A)True
B)False
Q3) Donovan invests $60,000 for a 30 percent interest in a partnership in which the other partners have capital totaling $100,000 before admitting Donovan. After distribution of the bonus, what is Donovan's capital balance?
A) $30,000
B) $48,000
C) $60,000
D) $72,000
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Chapter 18: The Changing Business Environment-A
Managers Pers
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Q1) The management accountant must be knowledgeable about all relevant laws, regulations, and technical standards that pertain to his or her duties.
A)True
B)False
Q2) An advantage of value chain analysis is that it allows a company to
A) evaluate ethical conduct.
B) focus on its core competencies.
C) use the four "w's."
D) increase sales to customers.
Q3) Which of the following types of information is not essential for a manager to run a business effectively?
A) Product or service costing information
B) Data for planning and controlling of operations
C) Special reports and analyses to support decisions
D) Quote of the current price of the company's stock
Q4) Like balance sheets and income statements, management accounting formats are much the same from company to company.
A)True
B)False
21
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Chapter 19: Cost Concepts and Cost Allocation
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Sample Questions
Q1) Raisin Company's overhead cost was overapplied by $1,500 in the current year. The estimated overhead was $170,000, and the applied overhead was $166,000. Compute the actual overhead.
A) $164,500
B) $169,500
C) $168,500
D) $171,500
Q2) Both product costs and period costs could appear on the income statement.
A)True
B)False
Q3) The job order cost card reflects the product cost per unit.
A)True
B)False
Q4) Total manufacturing costs include all direct materials used as well as all direct labor costs and overhead costs incurred for a period.
A)True
B)False
Q5) Lubrication used for machines is an example of a direct material.
A)True
B)False
22
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Chapter 20: Costing Systems: Job Order Costing
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Sample Questions
Q1) Which of the following accurately describes a difference between job order and process costing systems?
A) In job order costing systems, overhead costs are treated as product costs, whereas in process costing systems, overhead costs are treated as period costs.
B) Job order costing systems do not need to assign costs to production, whereas process costing systems do.
C) In job order costing systems, costs are traced to a specific job order, whereas in process costing systems, costs are traced to work cells and then assigns costs to products manufactured.
D) Since costs are assigned to products in a job order costing system, selling costs are treated as period costs in the job order costing system, whereas they are treated as product costs in process costing systems.
Q2) A zero balance in Finished Goods Inventory at the start of the period means all previously completed products have been shipped.
A)True
B)False
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Chapter 21: Costing Systems Process Costing
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Sample Questions
Q1) The types of computations for costs to be transferred out of Work in Process Inventory differ if the production process involves multiple departments rather than a single department.
A)True
B)False
Q2) D.Q. Company uses the FIFO method in its process costing system. Beginning inventory in the mixing department consisted of 6,000 units that were 75 percent complete with respect to conversion costs. Ending work in process inventory consisted of 5,000 units that were 60 percent complete with respect to conversion costs. If 12,000 units were transferred to the next processing department during the period, the equivalent units for conversion costs would be
A) 12,500 units.
B) 10,500 units.
C) 13,500 units.
D) 13,000 units.
Q3) In a process costing system, product costs are traced to individual products.
A)True
B)False
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Chapter 22: Activity-Based Systems-Abm and Lean
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Sample Questions
Q1) How do managers measure an activity's performance?
Q2) Comparing activity-based management (ABM) and lean operations all of the following are correct except
A) both identify value-adding and nonvalue-adding activities.
B) ABM uses a more complex accounting system.
C) both are activity-based systems.
D) JIT focuses on the accuracy of cost assignment.
Q3) In a just-in-time manufacturing environment, a flexible work cell is created by 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.
Q4) Engineering design for mass-produced automobiles is classified as a(n) __________-level activity in an activity-based costing system.
A) operations
B) batch
C) unit
D) product
Q5) Why is process value analysis not part of the general ledger accounting system?
Page 25
Q6) How can activity-based systems help managers in a global marketplace?
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Chapter 23: Cost Behavior Analysis
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Q1) Lakeside has gathered the following data in order to calculate the weighted-average contribution margin: \(\begin{array}{lrrr} & \text { Unit Sales Price } & \text { Unit Variable Costs } & \text { Unit Sales } \\
\text { Product A } & \$ 150 & \$ 100 & 8,000 \\ \text { Product B } & 100 & 60 & 2,000 \end{array}\) The weighted-average contribution margin is
A) $42.
B) $45.
C) $48.
D) $90.
Q2) The point at which the total cost line intersects with the total revenue line provides information on the number of units that must be sold to break even.
A)True B)False
Q3) Explain what cost-volume-profit analysis is and how managers use it. Give examples of some purposes for which it might be used.
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Chapter 24: The Budgeting Process
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Q1) Leaverton's forecast of sales is as follows: July, $60,000; August, $90,000; September, $130,000. Sales are normally 80 percent cash and 20 percent credit in any month. Credit sales are collected in full in the following month. Merchandise cost averages 60 percent of sales price. The company desires an inventory as of September 30 of $52,000. The inventory as of June 30 was $25,000. Total cash receipts for August will be
A) $72,000.
B) $66,000.
C) $98,000.
D) $84,000.
Q2) Projected financial statements are the final product of the budgeting process. A)True B)False
Q3) Total purchases that must be made in order to meet sales and inventory requirements for the quarter amount to A) $195,000.
B) $253,000.
C) $141,000.
D) $307,000.
Q4) Describe three benefits budgeting provides to an organization's success.
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Chapter 25: Performance Management and Evaluation
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Q1) How effective a performance management and evaluation system is depends on how well the goals of the entire company are coordinated rather than on how well the goals of individual responsibility centers and managers are coordinated.
A)True
B)False
Q2) The manager of Center D designs, produces, and sells products to external parties. The manager makes both long-term and short-term decisions. What type of responsibility center is Center D?
A) Cost center
B) Profit center
C) Revenue center
D) Investment center
Q3) A performance management and evaluation system is mainly utilized to account for and report on financial performance.
A)True
B)False
Q4) Why is it important that a manager's evaluation be based only on those revenues and costs that he or she can control?
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Chapter 26: Standard Costing and Variance Analysis
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Q1) The direct labor rate standard is either set by a labor contract or defined by the company.
A)True
B)False
Q2) Standard costing is typically a sophisticated and inexpensive component to add to a company's existing cost accounting system.
A)True
B)False
Q3) A(n) ________ cost is synonymous with the product cost calculated in a conventional standard cost accounting system.
A) fixed
B) direct
C) joint
D) expected
Q4) A standard cost accounting system can be used for A) direct materials. B) overhead.
C) direct labor.
D) all of these.
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Chapter 27: Short Run Decision Analysis
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Q1) Fixed costs are irrelevant in make-or-buy decisions.
A)True
B)False
Q2) It is not possible for a company to provide the full variety of products or services which the customer demands within a given time.
A)True
B)False
Q3) The point where joint products or services become separable and identifiable is known as split-off point.
A)True
B)False
Q4) Avoidable costs are the direct variable costs and direct fixed costs traceable to the segments.
A)True
B)False
Q5) Many of the decisions that managers make does not affect their organization's activities in the short run.
A)True
B)False
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Chapter 28: Capital Investment Analysis
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Q1) The financing structure of Taylor communications is as follows: \[\begin{array} { |l | c | c | }
\hline \text { Eaurce of Capital } & \text { Propartion of Capital } & \text { Cast of Capital } \\
\text { Debt financing } \$ 300,000 & 30 \% & 6 \% \\
\text { Preferred stack, } \$ 100,000 & 10 \% & 8 \% \\
\text { Cammon stack, } \$ 400,000 & 40 \% & 12 \% \\
\text { Retained earninge, } \$ 200,000 & 20 \% & 12 \% \\
\hline
\end{array}\] The weighted cost of debt is
A) 2.4%
B) 4.8%
C) .8%
D) 1.8%
Q2) A minimum rate of return will be set by the organizations to guard
A) the minimum costs
B) the profitability
C) fixed costs
D) variable costs
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