Business Accounting
Final Test Solutions
Course Introduction
Business Accounting provides a comprehensive introduction to the fundamental principles and practices of accounting within a business context. The course covers essential topics such as financial statement preparation and analysis, the accounting cycle, recording and reporting transactions, and the interpretation of financial information for decision-making. Students will gain practical knowledge of key accounting concepts, including assets, liabilities, equity, revenues, and expenses, as well as exposure to financial accounting standards and ethical considerations. Through real-world case studies and exercises, learners will develop the analytical skills needed to understand the financial health of businesses and contribute effectively to organizational financial management.
Recommended Textbook
Financial Accounting 15th Edition by Carl Warren
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Page 2
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) The primary financial statements of a proprietorship are the income statement,statement of owner's equity,and balance sheet.
A)True
B)False
Answer: False
Q2) Net income and net profit do not mean the same thing.
A)True
B)False
Answer: False
Q3) A modular homebuilder
A)Service business
B)Manufacturing business
C)Merchandising business
Answer: B
Q4) Collins Landscape Company purchased various landscaping supplies on account to be used for landscape designs for its customers.How will this business transaction affect the accounting equation?
Answer: Increase assets (Supplies)and increase liabilities (Accounts Payable)
Q5) Prepare an income statement for the current year ended March 31.
Answer: 11ea8d32_2887_7aa9_b445_4930253f6350_TB6239_00
Page 3
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) In the chart of accounts,the balance sheet accounts are normally listed in which order?
A)liabilities, assets, owner's equity
B)assets, liabilities, owner's equity
C)owner's equity, assets, liabilities
D)assets, owner's equity, liabilities
Answer: B
Q2) Which of the following entries records the payment of a bill for your insurance premium?
A)debit Prepaid Insurance; credit Cash
B)debit Insurance Payable; credit Accounts Receivable
C)debit Accounts Payable; credit Cash
D)debit Cash; credit Prepaid Insurance
Answer: A
Q3) The payment for the monthly rent will require which of the following entries?
A)debit Cash and debit Rent Expense
B)credit Cash and credit Rent Expense
C)debit Rent Expense and credit Cash
D)credit Rent Expense and debit Cash
Answer: C
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Property taxes are paid annually.The estimated monthly amount for the taxes was not recorded.
A)Assets and owner's equity overstated
B)Assets and owner's equity understated
C)Assets overstated and owner's equity understated
D)Assets understated and owner's equity overstated
E)Liabilities and owner's equity overstated
F)Liabilities and owner's equity understated
G)Liabilities overstated and owner's equity understated
H)Liabilities understated and owner's equity overstated
Answer: H
Q2) On March 1,a business paid $3,600 for a 12-month liability insurance policy.On April 1,the business entered into a two-year rental contract for equipment at a total cost of $18,000.Determine the following amounts:
(a) Insurance expense for the month of March
(b) Balance in prepaid insurance as of March 31
(c) Equipment rent expense for the month of April
(d) Balance in prepaid equipment rental as of April 30
Answer: 11ea8d32_2869_92af_b445_7b659102a594_TB6239_00
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The unadjusted,adjusted,and final trial balances are prepared during the accounting cycle of a period.
A)True
B)False
Q2) The work sheet is not considered a part of the formal accounting records.
A)True
B)False
Q3) The balances of the capital accounts from the Adjusted Trial Balance columns of the work sheet are extended to the Statement of Owner's Equity columns.
A)True
B)False
Q4) The chart of accounts,the journal,and the ledger are essential parts of the accounting system.
A)True
B)False
Q5) If end-of-period spreadsheets are not considered part of the formal accounting records,why are they used?
Q6) Describe a classified balance sheet.
Q7) List and describe the purpose of the four closing entries.
Page 6
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Chapter 5: Accounting Systems
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Sample Questions
Q1) Using the Internet to perform business transactions is called e-commerce.
A)True
B)False
Q2) Accounts receivable subsidiary ledger/Accounts Receivable Cr.
A)Purchases on account
B)Collections from customers on account
C)Adjustment for expired insurance
D)Payments to creditors on account
E)Sales on account
Q3) An accounting system design consists of internal controls and information processing methods.
A)True
B)False
Q4) Accounts payable subsidiary ledger/Accounts Payable Cr.
A)Purchases on account
B)Collections from customers on account
C)Adjustment for expired insurance
D)Payments to creditors on account
E)Sales on account
Q5) Briefly describe the three-step process of accounting system development.
Page 7
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Chapter 6: Accounting for Merchandising Businesses
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Sample Questions
Q1) If title to merchandise purchases passes to the buyer when the goods are shipped from the seller,the terms are
A)n/30
B)FOB shipping point
C)FOB destination
D)consigned
Q2) Freight is considered a cost of inventory under FOB shipping point.
A)True
B)False
Q3) Freight is the amount paid by the seller to deliver merchandise sold to a customer under FOB shipping point.
A)True
B)False
Q4) Expenses that are incurred directly or entirely in connection with the sale of merchandise are classified as
A)selling expenses
B)general expenses
C)other expenses
D)administrative expenses
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Chapter 7: Inventories
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Sample Questions
Q1) In valuing merchandise for inventory purposes,net realizable value is the estimated selling price less any direct costs of disposal.
A)True
B)False
Q2) Which of the following companies would be more likely to use the specific identification inventory costing method?
A)Gordon's Jewelers
B)Lowe's
C)Best Buy
D)Walmart
Q3) All of the following are reasons to use an estimated method of costing inventory except
A)perpetual inventory records are not maintained
B)purchase records are not maintained
C)a disaster has destroyed the inventory records and the inventory
D)interim financial statements are required but physical inventory is only taken at the end of the financial accounting period
Q4) Describe three inventory cost flow assumptions and how they impact the financial statements.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Which of the following would be subtracted from the balance per bank on a bank reconciliation?
A)outstanding checks
B)deposits in transit
C)notes collected by the bank
D)service charges
Q2) A check drawn by a company in payment of a voucher for $965 was recorded in the journal as $695.This item would be included in the bank reconciliation as a (n)
A)deduction from the balance per the company's records
B)addition to the balance per the bank statement
C)deduction from the balance per the bank statement
D)addition to the balance per the company's records
Q3) Expenditures from a petty cash fund are documented by a petty cash receipt.
A)True
B)False
Q4) Error in recording a check
A)Bank statement adjustment
B)Company books adjustment
C)Either
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Chapter 9: Receivables
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Sample Questions
Q1) Measures how frequently during the year accounts receivable are being turned into cash
A)Accounts receivable turnover
B)Net realizable value
C)Accounts receivable
D)Aging the receivables
E)Receivables
F)Direct write-off method
G)Allowance for doubtful accounts
H)Bad debt expense
I)Notes receivable
Q2) On the balance sheet,the amount shown for Allowance for Doubtful Accounts is equal to the
A)uncollectible accounts expense for the year
B)total of the accounts receivable written off during the year
C)total estimated uncollectible accounts as of the end of the year
D)sum of all accounts that are past due
Q3) The maturity value of a note receivable is always the same as its face value.
A)True
B)False
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Chapter 10: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) Loss from Impaired Goodwill
A)Current assets
B)Fixed assets
C)Intangible assets
D)Current liability
E)Long-term liability
F)Owner's equity
G)Revenues
H)Operating expenses
I)Other revenue and expense
Q2) The calculation for annual depreciation using the straight-line depreciation method is
A)Initial Cost/Estimated Useful Life
B)Depreciable Cost/Estimated Useful Life
C)Depreciable Cost × Estimated Useful Life
D)Initial Cost × Estimated Useful Life
Q3) A machine costing $57,000 with a six-year life and $54,000 depreciable cost was purchased January 1.Compute the yearly depreciation expense using straight-line depreciation.
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Mobile Sales has five sales employees that receive weekly paychecks.Each earns $11.50 per hour and each has worked 40 hours in the pay period.Each employee pays 12% of gross in federal income tax,3% in state income tax,6.0% of gross in social security tax,1.5% of gross in Medicare tax,and 0.5% in state disability insurance.Journalize the pay period ending January 19 that will be paid to the employees January 26.
Q2) Current liabilities are
A)due and receivable within one year
B)due and to be paid out of current assets within one year
C)due, but not payable for more than one year
D)payable if a possible subsequent event occurs
Q3) All long-term liabilities eventually become current liabilities.
A)True
B)False
Q4) When a borrower receives the face amount of a discounted note less the discount,the amount is known as the
A)note proceeds
B)note discount
C)note deferred interest
D)note principal
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Chapter 12: Accounting for Partnerships and Limited Liability Companies
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Sample Questions
Q1) In the distribution of income,the net income is less than the salary and interest allowances granted; the remaining balance will be a negative amount that must be divided among the partners as though it were a loss.
A)True
B)False
Q2) The characteristic of a partnership that gives the authority to any partner to legally bind the partnership and all other partners to business contracts is called
A)unlimited liability
B)ease of formation
C)mutual agency
D)dissolution
Q3) Trevor Smith contributed equipment,inventory,and $54,000 cash to a partnership.The equipment had a book value of $30,000 and a market value of $36,000.The inventory had a book value of $60,000,but only had a market value of $20,000,due to obsolescence.The partnership also assumed a $17,000 note payable owed by Smith that was used originally to purchase the equipment.Provide the journal entry for Smith's contribution to the partnership.
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Page 14
Chapter 13: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) Treasury stock should be reported in the financial statements of a corporation as a (n)
A)investment
B)liability
C)current asset
D)deduction from stockholders' equity
Q2) A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $120.If the corporation issues a 5-for-1 stock split,the par value of the stock after the split will be
A)$5
B)$60
C)$25
D)$24
Q3) Preferred stockholders must receive their current-year dividends before the common stockholders can receive any dividends.
A)True
B)False
Q4) On April 10,a company acquired land in exchange for 1,000 shares of $20 par common stock with a current market price of $73.Journalize this transaction.
Page 15
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Chapter 14: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) Bonds Payable has a balance of $1,000,000,and Discount on Bonds Payable has a balance of $15,500.If the issuing corporation redeems the bonds at 98.5,what is the amount of gain or loss on redemption?
A)$500 loss
B)$15,500 loss
C)$15,500 gain
D)$500 gain
Q2) The times interest earned ratio is computed as
A)(Income Before Income Taxes + Interest Expense) ÷ Interest Expense
B)(Income Before Income Taxes - Interest Expense) ÷ Interest Expense
C)Income Before Income Taxes ÷ Interest Expense
D)(Income Before Income Taxes + Interest Expense) ÷ Interest Revenue
Q3) If the contract rate exceeds the effective rate
A)Contract rate
B)Effective rate
C)Bond discount
D)Bond premium
E)Bond
F)Bond indenture
G)Principal
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Chapter 15: Investments and Fair Value Accounting
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Sample Questions
Q1) On June 1,$50,000 of treasury bonds were purchased between interest dates.The brokerage commission was $500.The bonds pay interest at 12%,which is paid semiannually on January 1 and July 1.What is the total cost to be debited to Investments-Treasury Bonds?
A)$50,000
B)$50,500
C)$49,500
D)$53,000
Q2) Unrealized gains and losses on trading securities are not included in the calculation of income from operations.
A)True
B)False
Q3) It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.
A)True
B)False
Q4) Investment in Bonds is reported on the balance sheet at lower of cost or market.
A)True
B)False
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Chapter 16: Statement of Cash Flows
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Sample Questions
Q1) A business issues 20-year bonds payable in exchange for preferred stock.This transaction would be reported on the statement of cash flows in A)a separate schedule
B)the Cash flows from financing activities section
C)the Cash flows from investing activities section
D)the Cash flows from operating activities section
Q2) A corporation uses the indirect method for preparing the statement of cash flows.A fixed asset has been sold for $25,000 representing a gain of $4,500.The value in the operating activities section regarding this event would be
A)$25,000
B)$(4,500)
C)$29,500
D)$4,500
Q3) Financing activities include
A)lending money
B)acquiring investments
C)issuing debt
D)acquiring long-lived assets
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18
Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) An advantage of the current ratio is that it considers the makeup of the current assets.
A)True
B)False
Q2) Reporting unusual items separately on the income statement allows investors to isolate the effects of these items on income and cash flows.
A)True
B)False
Q3) A common measure of liquidity is
A)the asset turnover ratio
B)dividends per share of common stock
C)the accounts receivable turnover
D)the profit margin
Q4) A loss on disposal of a segment would be reported on the income statement as a (n)
A)administrative expense
B)other expense
C)deduction from income from continuing operations
D)selling expense
Q5) Define solvency and profitability.How are they alike?
Page 19
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