Business Accounting
Final Exam Questions
Course Introduction
Business Accounting provides students with a comprehensive understanding of 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 analysis, recording transactions, adjusting entries, and the use of accounting information for decision-making. Students will explore the roles of assets, liabilities, equity, revenues, and expenses, gaining practical experience through case studies and real-world examples. By the end of the course, participants will be equipped with the skills necessary to interpret financial information, ensure regulatory compliance, and contribute effectively to the financial management of an organization.
Recommended Textbook
Horngren's Accounting 11th Edition by
Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) A lawyer provides legal services for clients who do not pay immediately.There is no effect on the counting equation until the client pays for the services.
A)True
B)False
Answer: False
Q2) The relative proportion of economic resources and obligations would be shown by the balance sheet.
A)True
B)False
Answer: True
Q3) The Sarbanes-Oxley Act (SOX)________.
A)requires independent accountants to take responsibility for the accuracy and completeness of the financial reports
B)created the SEC
C)ensures that financial scandals will no longer occur
D)requires companies to take responsibility for the accuracy and completeness of their financial reports
Answer: D
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) A customer's promise to pay in the future for services or goods sold is called a(n)________.
A)Accounts Receivable
B)Accounts Payable
C)Unearned Revenue
D)Notes Payable
Answer: A
Q2) Owner's withdrawals and expenses increase equity.
A)True
B)False Answer: False
Q3) Balancing errors can be detected by computing the difference between total debits and total credits on the trial balance.
A)True
B)False Answer: True
Q4) The trial balance is also known as the balance sheet.
A)True
B)False Answer: False
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Which of the following accounting terms assumes that a business's activities can be divided into small segments and that financial statements can be prepared for specific periods,such as a month,quarter,or year?
A)adjusting entry concept
B)economic entity concept
C)matching principle
D)time period concept
Answer: D
Q2) The revenue recognition principle is the basis for recording revenues-both when to record revenue and the amount of revenue to record.
A)True
B)False
Answer: True
Q3) An adjusting entry is completed ________.
A)at the beginning of the accounting period
B)at the end of the accounting period
C)when the balance sheet is prepared
D)when accounts need to be balanced in the ledger
Answer: B
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Where does net income appear on a worksheet?
A)Net income appears only in the income statement debit column.
B)Net income appears in the balance sheet credit column and in the income statement debit column.
C)Net income appears in the income statement credit column and in the balance sheet debit column.
D)Net income appears only in the balance sheet credit column.
Q2) The beginning balance in the Owner,Capital account of a company was $12,000.The revenues and expenses were $240,000 and $140,000,respectively.During the year,the owner made withdrawals of $6,000.The ending balance in Owner,Capital was $112,000.(Assume the owner made no new contributions during the year. )
A)True
B)False
Q3) Adjusting journal entries are prepared ________.
A)after preparing the adjusted trial balance
B)after preparing the unadjusted trial balance
C)after posting the closing entries
D)after preparing the financial statements
Q4) List the steps of the accounting cycle that take place at the end of the period.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) The Merchandise Inventory account is an expense account that is used for goods purchased that the business owns and intends to resell to customers,as well as for purchase of office supplies and equipment.
A)True
B)False
Q2) Under the perpetual inventory system,two journal entries are used to record the sales of merchandise.One entry records the Sales Revenue and another entry records the Cost of Goods Sold.
A)True
B)False
Q3) The revenue,expenses,Sales Returns and Allowances,and Sales Discounts will be closed via the ________ account.
A)Income Summary
B)Owner,Capital
C)Dividend
D)Stockholders' Equity
Q4) Net sales revenue is equal to sales revenue less cost of goods sold.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) A company uses the weighted-average method of inventory valuation under a periodic inventory system.The company began the year with a zero inventory balance.They had the following transactions during the year.
1.Purchased 62 units at $7 per unit
2.Purchased 110 units at $7 per unit
3.Sold 90 units at $10 per unit
4.Purchased 50 units at $8 per unit
5.Sold 90 units at $13.50 per unit
At the end of the year,the company counted the inventory and found 42 units remaining.Calculate the cost of goods sold for the year.(Round the unit costs to two decimal places and total costs to the nearest dollar. )
A)$7
B)$304
C)$1,604
D)$1,300
Q2) When using the periodic inventory system and weighted-average inventory costing method,when is the weighted average cost per unit computed?
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) If there is cash involved in a business transaction,the transaction should be recorded in either the ________.
A)cash payments journal or cash receipts journal
B)cash payments journal or general journal
C)cash payments journal or cash receipts journal and in general journal
D)sales journal or purchases journal
Q2) When using a computerized accounting information system,transactions do not need to be recorded in a debit and credit format.
A)True
B)False
Q3) Blue Company has four customers: A,B,C,and D.The accounts receivable balance in the general ledger is $9,383 and the accounts receivable subsidiary ledger of customers
A,C,and D have $1,546,$2,696,and $3,440,respectively.Calculate the amount in the accounts receivable subsidiary ledger account of customer B.
A)$7,682
B)$3,247
C)$2,391
D)$1,701
Q4) Describe the transactions recorded in the purchases journal.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) The cash balance in a company's general ledger and the bank's balance on the bank statement will always be the same.
A)True
B)False
Q2) Which of the following is a measure for discouraging theft for a retail store that accepts cash receipts over the counter?
A)A receipt is issued for each transaction to ensure that each sale is recorded.
B)At the end of the day,the sales clerk proves the cash by comparing the cash in the drawer against the machine's record of cash sales.
C)The sales clerk uses the machine tape to record the journal entry for cash receipts and sales revenue.
D)The store clerk deposits the cash in the bank.
Q3) Journal entries are required if the bank reconciliation includes outstanding checks. A)True
B)False
Q4) Why is it necessary to journalize transactions from the bank reconciliation? List two examples of items that need to be journalized.
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Chapter 9: Receivables
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Sample Questions
Q1) Businesses must maintain a single Accounts Receivable account regardless of the number of customers.
A)True
B)False
Q2) The Allowance for Bad Debts account has a debit balance of $9,000 before the adjusting entry for bad debts expense.After analyzing the accounts in the accounts receivable subsidiary ledger using the aging-of-receivables method,the company's management estimates that uncollectible accounts will be $13,000.What amount of bad debts expense will be reported on the income statement?
A)$5,000
B)$22,000
C)$4,000
D)$13,000
Q3) The direct write-off method is only acceptable for companies that have very few uncollectible receivables.
A)True
B)False
Q4) What is net realizable value? How is net realizable value affected when a receivable is written off under the allowance method?
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) The lump-sum amount paid for a group of assets is divided among the acquired assets based on their relative market values.This method is known as the relative-market-value method.
A)True
B)False
Q2) Which of the following should be included in the cost of land?
A)cost to build sidewalks on the land
B)cost to clear the land of old buildings
C)cost of installing signage
D)cost of installing fences
Q3) Which of the following statements,regarding the reporting of intangible assets,is correct?
A)If a company uses the contra account,Accumulated Amortization,this account typically shown on the balance sheet.
B)Amortization expense is reported on the balance sheet.
C)Intangible assets are shown only at their net book value.
D)All intangible assets are shown on the balance sheet at fair market value on balance sheet date.
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Which of the following deductions is paid by both the employer and employee?
A)federal income taxes
B)federal unemployment taxes
C)FICA taxes
D)SUTA taxes
Q2) Warranties pose an accounting challenge because a company does not know which or how many products will have to be repaired.
A)True
B)False
Q3) Cycle Haven,Inc.offers warranties on all their bikes.They estimate warranty expense at 4.5% of sales.At the beginning of 2017,the Estimated Warranty Payable account had a credit balance of $2,200.During the year,Cycle Haven had $305,000 in sales and had to pay out $6,000 in warranty payments.How much Warranty Expense will be reported on the 2017 income statement?
A)$9,925
B)$8,200
C)$11,525
D)$13,725
Q4) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Partnerships
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Sample Questions
Q1) Steve and Roger allocate 2/3 of their partnership's profits and losses to Steve and 1/3 to Roger.If the net income of the firm is $30,000,calculate the share of Roger's net income.
A)$20,000
B)$10,000
C)$30,000
D)$25,000
Q2) Which of the following is true of the assets of a partnership?
A)The partner who is more actively involved in the daily business affairs is considered to be the sole owner of the partnership's assets.
B)Any new assets purchased by the partnership are jointly owned by each partner.
C)When a partner contributes a particular asset to the firm,he is considered to be the sole owner of the asset.
D)In case of liquidation of assets,the partners must be paid based on the profit sharing ratio of the partnership.
Q3) The addition of a new partner to a firm does not dissolve the old partnership.
A)True
B)False
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Chapter 13: Corporations
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Sample
Questions
Q1) Flowers,Inc.had beginning retained earnings of $125,000 on January 1,2017.During the year,Flowers declared and paid $40,000 of cash dividends and earned $55,000 of net income.Prepare a statement of retained earnings for Flowers,Inc.for the year ending December 31,2017.
Q2) Legal capital refers to the portion of stockholders' equity that cannot be used for dividends.
A)True
B)False
Q3) If a company retires preferred stock,________.
A)total stockholders' equity will decrease
B)total stockholders' equity will increase
C)the company can record a gain or loss on retirement of stock
D)the number of outstanding shares will increase
Q4) List the four basic rights of stockholders.
Q5) Which of the following occurs when a cash dividend is declared?
A)liabilities remain unchanged
B)stockholders' equity decreases
C)liabilities decrease
D)assets increase
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) On June 1,2017,Smith & Beecham Services issued $32,000 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.On December 31,2017,what is the total amount paid to bondholders?
A)$1,280
B)$2,560
C)$640
D)$853
Q2) When using the effective-interest amortization method,the discount amortization is the excess of the calculated interest expense over the interest payment.
A)True
B)False
Q3) Unlike cash dividends,which are optional payments to stockholders,the interest payment on bonds is required.
A)True
B)False
Q4) When computing the present value of a bond,which interest rate is used? Why?
Q5) What does the debt to equity ratio show,and how is it calculated?
Q6) When computing a bond's cash flow for interest,which interest rate is used? Why?
Page 16
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Chapter 15: Investments
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Q1) On the maturity date of a bond investment,the journal entry includes ________.
A)a debit to Cash and a credit to Long-term Investments - Held-to-Maturity
B)a debit to Long-term Investments - Held-to-Maturity and a credit to Cash
C)a debit to the Interest Revenue and a credit to Cash
D)a debit to Cash and a credit to Interest Revenue
Q2) When there is an unrealized loss on trading investments,the ________ will decrease.
A)total equity
B)cash
C)total liabilities
D)long-term investments
Q3) Which of the following is an example of a security?
A)dividends
B)municipal bond
C)interest expense
D)depreciation
Q4) Long Company owns a 2% investment in the common stock of Smith Company.The receipt of a cash dividend from Smith will have no effect on Long's total equity.
A)True
B)False
Page 17
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Chapter 16: The Statement of Cash Flows
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Q1) Martinez Installations Company uses the direct method to prepare its statement of cash flows.Martinez has reported sales revenues of $200,000 on its income statement for 2017.If the balance in Accounts Receivable has increased by $10,000 during the year,then $10,000 needs to be added to $200,000 to calculate collections from customers.
A)True
B)False
Q2) The purchase of equipment financed by a long-term notes payable is an example of ________.
A)investing activity
B)financing activity
C)operating activity
D)non-cash investing and financing activity
Q3) The operating activities section of the statement of cash flows includes activities that create revenue or expenses for the entity's business.
A)True
B)False
Q4) What does free cash flow represent? How is it used to evaluate business performance?
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Chapter 17: Financial Statement Analysis
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Q1) A company that reports a discontinued operation or an extraordinary item must also report earnings per share for each of these line items.
A)True
B)False
Q2) A vertical analysis of a financial statement reveals the relationship of each statement item to its base amount,which is 100%.
A)True
B)False
Q3) List the two distinctly different gains and losses that are included on the income statement after continuing operations.
Q4) The price/earnings ratio shows the market price of $1 of earnings.
A)True
B)False
Q5) A common-size statement reports the same percentages that appear in a vertical analysis.
A)True
B)False
Q6) What is a common-size statement? Why are these statements useful?
Q7) What is an annual report? Briefly describe the key parts of the annual report.
Page 19
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) For a manufacturer,rent paid for an office building is an example of a period cost.
A)True
B)False
Q2) An Enterprise Resource Planning system (ERP)________.
A)is a cost management system in which a company produces products just in time to satisfy needs
B)requires the implementation of Total Quality Management
C)integrates all worldwide functions,departments,and data of a company into a single system
D)cannot be implemented in service companies
Q3) Sales commissions are included in manufacturing overhead.
A)True
B)False
Q4) Which of the following represents the combined sum of direct materials and direct labor?
A)conversion costs
B)period costs
C)prime costs
D)fixed costs
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Chapter 19: Job Order Costing
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Sample Questions
Q1) The journal entry for adjustment of underallocated manufacturing overhead includes a ________.
A)credit to Finished Goods Inventory
B)credit to Manufacturing Overhead
C)debit to Work-in-Process Inventory
D)credit to Cost of Goods Sold
Q2) Pluto Travel Services provided the following information: Direct labor rate: $45 per hour
Predetermined overhead allocation rate for indirect costs: $24 per direct labor hour
Pluto is negotiating a job with a new client.The job will require 10 hours of direct labor.If Pluto wishes to have at least a 15% gross profit on the revenues,it needs to earn $716 of revenues.
A)True
B)False
Q3) Unlike manufacturing companies,service companies use an allocation base for allocating both direct and indirect costs.
A)True
B)False
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Chapter 20: Process Costing
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Q1) When indirect materials are issued to production,the Raw Materials Inventory account is credited.
A)True
B)False
Q2) The ________ account is credited to adjust for underallocated overhead costs.
A)Cost of Goods Sold
B)Sales Revenue
C)Manufacturing Overhead
D)Finished Goods Inventory
Q3) Production cost reports prepared using first-in,first-out (FIFO)method determine the average cost of equivalent units of production by combining beginning inventory costs with current period costs.
A)True
B)False
Q4) In process costing,which of the following is recorded by debiting the Manufacturing Overhead account?
A)transfer of units from one process to the next
B)direct labor costs incurred
C)depreciation on factory machinery
D)office electricity charges
Page 22
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) When there are no beginning or ending balances in Finished Goods Inventory,variable and absorption costing will result in ________.
A)different amounts for ending Finished Goods Inventory
B)the same operating income
C)different sales revenue
D)different amounts for cost of goods sold
Q2) Total fixed costs can change from one relevant range to another.
A)True
B)False
Q3) If the volume of activity doubles in the relevant range,total variable costs will also double.
A)True
B)False
Q4) Under absorption costing,the more units added to ending Finished Goods Inventory,the less fixed manufacturing overhead is '"hidden" in ending Finished Goods Inventory at the end of the accounting period.
A)True
B)False
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Chapter 22: Master Budgets
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Sample Questions
Q1) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.
A)True
B)False
Q2) The amount of accumulated depreciation for the budgeted balance sheet can be obtained from the ________.
A)cash budget
B)selling and administrative expense budget and the prior balance sheet
C)cash payments for selling and administrative expense budget
D)financial budget
Q3) The production budget determines the number of units to be produced during the period.
A)True
B)False
Q4) List and describe the three types of budgets that are included in the master budget.
Q5) What is the cornerstone of the master budget for a merchandising company? Why?
Q6) All organizations use one standardized budgeting process.
A)True
B)False
Page 24
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A favorable variance reflects a decrease in operating income.
A)True
B)False
Q2) A manufacturer,using a standard cost system,purchased 250 units of direct materials at a cost of $2 per unit.The standard cost per unit of direct materials is $1.85.Prepare the journal entry to record the direct materials cost variance at the time of purchase.
Q3) The fixed overhead volume variance always reveals underallocated fixed overhead costs.
A)True
B)False
Q4) In a standard costing system,each input of direct materials,direct labor,and manufacturing overhead has a cost standard and an efficiency standard.
A)True
B)False
Q5) What does the fixed overhead volume variance measure?
Q6) A standard cost system helps management set performance standards.
A)True
B)False
25
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Responsibility accounting can help managers identify the causes of variances,thereby allowing them to determine what was controllable.
A)True
B)False
Q2) List two objectives in setting transfer prices.
Q3) Direct material costs and direct labor costs cannot be easily traced to products.Therefore,they are allocated to products.
A)True
B)False
Q4) Which of the following is the correct formula for the asset turnover ratio?
A)Net sales / Average total assets
B)Net sales / Cost of goods sold
C)Net sales / Net assets
D)Net profit / Net sales
Q5) A modification of the overhead allocation method which uses a single plantwide rate,is to use multiple predetermined overhead allocation rates that have a single allocation base.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Fixed costs are relevant to a special pricing decision if they are subject to change as a result of the special order.
A)True
B)False
Q2) A company produces 1,000 packages of chicken feed per month.The sales price is $6 per pack.Variable cost is $1.50 per unit,and fixed costs are $1,700 per month.Management is considering adding a vitamin supplement to improve the value of the product.The variable cost will increase from $1.50 to $1.90 per unit,and fixed costs will increase by 10%.At what sales price for the new product will the two alternatives (sell as is or process further)produce the same operating income? (Round your answer to the nearest cent. )
A)$3.77
B)$6.57
C)$2.80
D)$6.00
Q3) List three questions managers should consider when deciding whether to drop a product or a business segment.
Q4) Explain the difference between price-takers and price-setters.
Q5) Define the terms Relevant Cost and Sunk Cost.
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Chapter 26: Capital Investment Decisions
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Q1) Which of the following best describes a capital budgeting post-audit?
A)an audit of an operating unit of a company
B)an audit performed only at the end of the project's life span
C)an analysis of an investment's cash flows prior to committing to the initial investment
D)a comparison of actual results of capital investments with projected results
Q2) Sensitivity analysis is a technique that ________.
A)sets the budgets of alternative investment opportunities
B)analyzes the effect of an investment on workers' morale
C)evaluates the different available investment options
D)shows how results differ when underlying assumptions change
Q3) Discounted cash flow methods typically ________.
A)use simple interest calculations
B)assume that cash flows will be reinvested when received
C)focus on the payback period
D)comply with the requirements of GAAP
Q4) If an investment's internal rate of return is higher than the required rate of return,the company should reject the investment.
A)True
B)False
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