Business Accounting
Final Test Solutions
Course Introduction
Business Accounting provides a comprehensive introduction to the fundamentals of accounting within a business context. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, and the principles of recording, classifying, and summarizing financial transactions. Students will also explore the role of accounting in decision-making, budgeting, internal controls, and financial planning. Emphasis is placed on understanding generally accepted accounting principles (GAAP) and their practical application in real-world business scenarios, equipping students with the skills needed to analyze financial information and contribute effectively to the financial health of an organization.
Recommended Textbook
Financial Managerial Accounting 16th Edition by Jan Williams
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Chapter 1: Accounting: Information for Decision Making
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Sample Questions
Q1) Statements of Financial Accounting Standards are developed by:
A) The Financial Accounting Standards Board.
B) Certified public accountants.
C) The Securities and Exchange Commission.
D) The Internal Revenue Service.
Answer: A
Q2) Overseeing a company's affairs to ensure that the company is managed with the best interest of shareholders in mind is called:
A) Internal control.
B) Financial integrity.
C) Corporate governance.
D) The audit function.
Answer: C
Q3) The Code of Ethics of the AICPA calls for a member in public practice to be independent in fact and appearance when providing auditing services.
A)True
B)False
Answer: True
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3
Chapter 2: Basic Financial Statements
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Sample Questions
Q1) If $9,600 cash and a $31,000 note payable are given in exchange for some office machines to be used in a business:
A) Total assets are increased.
B) Total liabilities are decreased.
C) Total assets are decreased.
D) The owners' equity is increased.
Answer: A
Q2) If total assets equal $270,000 and total liabilities equal $202,500, the total owners' equity must equal:
A) $472,500.
B) $67,500.
C) $270,000.
D) Cannot be determined from the information given.
Answer: B
Q3) A statement of cash flows for February, would report an increase in cash of:
A) $4,000.
B) $47,000.
C) $53,600.
D) $96,600.
Answer: D
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Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) On January 5, 2009, total liabilities are:
A) $0.
B) $30,000.
C) $56,000.
D) $41,000.
Answer: D
Q2) The balance in the Cash account at the end of June:
A) $52,000.
B) $350,000.
C) $420,000.
D) $380,000.
Answer: C
Q3) In accounting, the terms debit and credit indicate, respectively:
A) Increase and decrease.
B) Left and right.
C) Decrease and increase.
D) Right and left.
Answer: B
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) Adjusting entries are needed:
A) Whenever revenue is not received in cash.
B) Whenever expenses are not paid in cash.
C) Only to correct errors in the initial recording of business transactions.
D) Whenever transactions affect the revenue or expenses of more than one accounting period.
Q2) Murphy's Auto Co. purchased a large piece of equipment on January 1, 1998. The equipment is being depreciated, using the Straight-Line method, at the rate of $16,000 per year. On January 5, 2009 the book value of the machine was $190,000.
(a) What was the original cost of the machine?
(b) What will the book value be on December 31, 2010?
Q3) Tuna Co. purchased a building in 2009 for $650,000 and debited an asset called "Buildings" for the entire amount. The company never depreciated the building although it had a useful life of 15 years. This action will cause:
A) Net income to be understated.
B) Net income to be overstated.
C) Net income will not be affected.
D) Total assets will be understated.
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6
Chapter 5: The Accounting Cycle: Reporting Financial Results
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Sample Questions
Q1) Which accounts should not be closed?
A) Expenses and revenues.
B) Dividends.
C) Income summary.
D) Accumulated depreciation.
Q2) After preparing the financial statements for the current year, the accountant for Exquisite Gems closed the Dividends account at year-end by debiting Income Summary and crediting the Dividends account. What is the effect of this entry on current-year net income and the balance in the Retained Earnings account at year-end?
A) Net income is overstated and the balance in the Retained Earnings account is correct.
B) Net income is correct and the balance in the Retained Earnings account is overstated. C) Net income is understated and the balance in the Retained Earnings account is understated.
D) Net income is understated and the balance in the Retained Earnings account is overstated.
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Chapter 6: Merchandising Activities
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Sample Questions
Q1) To arrive at net sales:
A) Add sales discounts to sales.
B) Subtract the cost of goods sold from the sales price.
C) Subtract sales returns and sales discounts from sales.
D) Subtract accounts receivable from sales.
Q2) Big Brother, a retail store, purchased 100 television sets from Krueger Electronics on account at a cost of $200 each. Kruger offers credit terms of 2/10, n/30; Big Brother uses a perpetual inventory system and records purchases at net cost. Big Brother determines that 10 of these television sets are defective and returns them to Krueger for full credit. In recording this return, Big Brother will:
A) Debit Sales Returns and Allowances, $1,960.
B) Debit Accounts Payable, $1,960.
C) Debit Cost of Goods Sold, $1,960.
D) Credit Inventory, $2,000.
Q3) When making sales, the sales taxes received are:
A) Revenue.
B) A liability.
C) An expense if incurred.
D) A reduction in inventory value.
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Page 8
Chapter 7: Financial Assets
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Sample Questions
Q1) On January 1, Dillon Company had a $3,100 credit balance in the Allowance for Doubtful Accounts. During the year, sales totaled $780,000 and $6,900 of accounts receivable were written off as uncollectible. A December 31 aging of accounts receivable indicated the amount probably uncollectible to be $5,300. (No recoveries of accounts previously written off were made during the year.) Dillon's financial statements for the current year should include:
A) Uncollectible accounts expense of $9,100.
B) Uncollectible accounts expense of $5,300.
C) Allowance for Doubtful Accounts with a credit balance of $1,500.
D) Allowance for Doubtful Accounts with a credit balance of $8,400.
Q2) Varsity Corporation sold available-for-sale marketable securities costing $800,000 for $860,000 cash. This transaction is reported in Varsity's income statement and statement of cash flows, respectively, as:
A) A $60,000 gain and a $60,000 cash receipt.
B) A $860,000 gain and a $60,000 cash receipt.
C) A $60,000 gain and a $860,000 cash receipt.
D) A $860,000 gain and a $860,000 cash receipt.
Q3) What is the amount of the deposit in transit?
Q4) What is the adjusted cash balance in the September 30 bank reconciliation?
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Chapter 8: Inventories and the Cost of Goods Sold
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Sample Questions
Q1) In a periodic inventory system, the cost of goods sold is determined as follows:
A) Year-end inventory, plus purchases during the year, less the inventory at the beginning of the year.
B) Net sales, less the balance in the Gross Profit account.
C) Cost of goods available for sale during the year, less the ending inventory.
D) A physical count is made of all items sold throughout the year, and a cost flow assumption is applied at year-end.
Q2) If the beginning inventory of the current year and the ending inventory of the past year were overstated by the same amount:
A) Retained earnings at the end of the current year would be correct.
B) Retained earnings at the end of the current year would be overstated.
C) Retained earnings at the end of the current year would be understated.
D) Net income for the current year would be correct.
Q3) Merchandise that has been sold but not yet recorded in the accounts should not be included in the physical inventory at year-end.
A)True
B)False
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Page 10
Chapter 9: Plant and Intangible Assets
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Sample Questions
Q1) Goodwill-financial reporting considerations
Cabot Corporation's balance sheet at December 31, 2009, includes an asset entitled goodwill in the amount of $900,000, net of accumulated amortization.
(a) Briefly explain what is meant by the term goodwill.
(b) Under what circumstances is goodwill recorded in the accounting records? Include in your Answer a specific situation in which Cabot would have recorded the goodwill mentioned above.
Q2) The legal life of most patents is:
A) 5 years.
B) 20 years.
C) 40 years.
D) 50 years.
Q3) An asset which costs $28,800 and has accumulated depreciation of $6,000 is sold for $21,600. What amount of gain or loss will be recognized when the asset is sold?
A) A gain of $1,200.
B) A loss of $1,200.
C) A loss of $7,200.
D) A gain of $7,200.
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11
Chapter 10: Liabilities
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Sample Questions
Q1) On March 1, 2011, five-year bonds are sold for $508,026 that have a face value of $500,000 and an interest rate of 10%. Interest is paid semi-annually on March 1 and September 1. Using the straight-line amortization method, prepare the borrower's journal entries on:
March 1, 2011; September 1, 2011; December 31, 2011; and March 1, 2012.
Q2) There is a tax advantage for a company to issue bonds in lieu of stocks.
A)True
B)False
Q3) The entry made by Webster Company to record issuance of the bonds payable at December 31, 2011, includes:
A) A debit to Cash of $1,000,000.
B) A debit to Discount on Bonds Payable of $30,000.
C) A credit to Bonds Payable of $970,000.
D) A credit to Bond Interest Payable of $30,000.
Q4) Companies may understate liabilities so as not to be perceived as risky by credit rating agencies.
A)True
B)False
Q5) Payroll-related expenses
Shown below is a summary of the annual payroll data of Revere Ironworks:
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Chapter 11: Stockholders Equity: Paid-In Capital
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Sample Questions
Q1) On January 1, 2011, Aili Corporation issued 60,000 shares of its total 200,000 authorized shares of $4 par value common stock for $18 per share. On December 31, 2011, Aili Corporation's common stock is trading at $32 per share. Assume Aili Corporation decides to issue an additional 10,000 shares of its common stock on December 31, 2011. How will the above increase in value affect Jupiter?
A) Aili can issue the 10,000 shares at a higher price than the initial 60,000 shares.
B) Aili can sell the 10,000 shares for $32 each, as well as collect an additional $14 per share for each of the 60,000 shares sold initially.
C) Aili reports a gain of $14 per share on all stock sold during the year.
D) Paid-in capital at the end of 2011 will be $2,240,000 (i.e., 70,000 shares times $32 per share).
Q2) If preferred stock is convertible, it is so at the option of the:
A) Board of directors.
B) CEO.
C) CFO.
D) Stockholders.
Q3) The total amount of legal capital: $__________
Q4) The total amount of paid-in capital: $__________
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Page 13
Chapter 12: Income and Changes in Retained Earnings
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Sample Questions
Q1) Which of the following is (are) not true about a stock dividend?
A) Total stockholders' equity does not change when a stock dividend is declared or when it is distributed.
B) Between the time a stock dividend is declared and when it is distributed, the company's commitment is presented in the balance sheet as a current liability.
C) Stock dividends do not change the relative portion of the company owned by individual stockholders.
D) Stock dividends have no impact on the amount of the company's assets.
Q2) Recent rulings by the SEC now require all corporations to prepare an expanded version of the Statement of Retained Earnings showing all equity accounts and their changes for the last three years.
A)True
B)False
Q3) A statement of stockholders' equity is not a required financial statement and need not be prepared along with a statement of retained earnings.
A)True
B)False
Q4) What was the average issue price per share of preferred stock?
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Page 14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) On the basis of the above information alone, what is Global Data's net cash flow from financing activities?
A) $147,000 net cash used for financing activities.
B) $145,500 net cash used for financing activities.
C) $206,100 net cash used for financing activities.
D) $500,100 net cash used for financing activities.
Q2) Cash flows from investing activities include all of the following except:
A) Cash proceeds from selling investments.
B) Cash proceeds from collections on loans.
C) Cash advanced to borrowers.
D) Cash proceeds from borrowing.
Q3) Products that tie in with a company's other products are called complementary products.
A)True
B)False
Q4) Companies that show profits on the income statement will always show positive cash flows from operating activities.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) A company should carry the amount of working capital necessary to conduct operations, not necessarily maximize its working capital.
A)True
B)False
Q2) The following information is available from the annual report of Frixell, Inc.: Which of the following statements are correct? (More than one statement may be correct.)
A) The return on equity exceeds the return on assets.
B) The current ratio is .625 to 1.
C) Working capital is $1,200,000.
D) None of the above answers is correct.
Q3) A company cannot be increasing its market share if its net sales are declining.
A)True
B)False
Q4) Current assets are those assets that can be converted into cash within a year and never longer.
A)True
B)False
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Chapter 15: Global Business and Accounting
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Sample Questions
Q1) Which of the following environmental factors does not impact the cost of doing business in a foreign country?
A) Sales and Use taxes in the United States.
B) Laws regulating the transfer of profits out of a country.
C) Tax and tariff regulations.
D) Restricted access to communication and transportation networks.
Q2) Making accurate estimates of costs is a challenge for global companies.
A)True
B)False
Q3) Low individualism and high long-term orientation is indicative of which culture?
A) United States.
B) Great Britain.
C) Japan.
D) Germany.
Q4) Establishing international accounting standards is the responsibility of:
A) Securities and Exchange Commission.
B) International Accounting Standards Board.
C) Financial Accounting Standards Board.
D) Accounting Association of America.
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Chapter 16: Management Accounting: a Business Partner
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Q1) The three basic types of manufacturing costs are direct materials, direct labor and manufacturing overhead.
A)True
B)False
Q2) A schedule of the cost of finished goods manufactured summarizes the flow of manufacturing costs into and out of the finished goods inventory account.
A)True
B)False
Q3) The total amount of inventory to be included in Elite's August31<sup>st</sup> balance sheet amounts to:
A) $135,000.
B) $210,000.
C) $160,000.
D) Some other amount.
Q4) Which of the following is a period cost?
A) Direct materials used.
B) Direct labor costs applicable to production.
C) Manufacturing overhead.
D) Advertising expense.
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Chapter 17: Job Order Cost Systems and Overhead
Allocations
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Q1) An overhead application rate is a device used to assign overhead costs to units of product in proportion to some "activity base" that can be traced directly to the manufactured products.
A)True
B)False
Q2) Which of the following would be the most appropriate basis for allocating the costs of plant insurance which covers equipment theft and damage?
A) Direct labor hours.
B) Value of equipment.
C) Machine hours.
D) Square feet of plant space.
Q3) What are the total manufacturing overhead costs allocated to the Strollers for the current month?
A) $69,837.
B) $102,873.
C) $37,290.
D) $210,000.
Q4) What is the work in process at November 30? $___________
Q5) What is the cost of goods sold during November? $___________
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Chapter 18: Process Costing
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Sample Questions
Q1) Costs flow through a process costing system in the same sequence as actual products move through the assembly process.
A)True
B)False
Q2) Nut House manufactures and sells jars of peanut butter. All of the company's output passes through five production processes, which are performed in sequential order.
Identify the correct answer assuming that process costing is in use.
A) The processing departments may define "units of output" differently.
B) Costs transferred from one processing department are not charged to the next processing department (or to finished goods).
C) The cost accounting system does not separately measure the per-unit cost of each manufacturing process.
D) Some portion of total manufacturing overhead should be charged to each processing department.
Q3) The total cost of the 10,000 cases transferred to finished goods in May was $__________.
Q4) The unit cost per case of mustard incurred by the Bottling Department in May was $__________.
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Chapter 19: Costing and the Value Chain
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Q1) Activity-based management is a subset of activity-based costing.
A)True
B)False
Q2) During which element of manufacturing cycle time is value added to products?
A) Storage and waiting time.
B) Processing time.
C) Movement time.
D) Inspection time.
Q3) As a percentage of total costs, which quality cost category is the highest?
A) Prevention.
B) Internal failure.
C) Appraisal.
D) External failure.
Q4) "ISO 9000" certification requires a detailed audit and documentation of the processes and procedures a company has implemented for quality conformance.
A)True
B)False
Q5) Resourceful's manufacturing efficiency ratio is ___________%.
Q6) Which activities might be reduced or eliminated should Efficient implement a JIT system?
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Perkins Corporation manufactures two products; data are shown below: If Perkins' monthly fixed costs average $425,000, what is its break-even point expressed in sales dollars?
A) $1,320,000.
B) $1,400,000.
C) $1,250,000.
D) $990,000.
Q2) A product sells for $125, variable costs are $80, and fixed costs are $45,000. If the selling price can be increased by 20% with a similar increase in variable costs, how many less units would have to be sold to earn $300,000?
A) 5,595 units.
B) 7,667 units.
C) 1,278 units.
D) 6,389 units.
Q3) Executive salaries are typically considered variable costs.
A)True
B)False
Q4) At the original selling price of $50 per unit, how many units must Paulsen sell to break even?
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Chapter 21: Incremental Analysis
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Q1) Aircraft Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a special valve used in assembling one of its products. The unit cost of producing this valve includes variable costs of $70 and fixed costs of $60. The valves could be purchased from an outside supplier at $77 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company's operating income to:
A) Increase by $26,000.
B) Increase by $17,000.
C) Decrease by $9,000.
D) Decrease by $29,000.
Q2) Differential costs are those that are the same among alternatives.
A)True
B)False
Q3) Which of the following types of cost are always relevant to a decision?
A) Sunk costs.
B) Average costs.
C) Incremental costs.
D) Fixed costs.
Q4) Joint costs allocated to product MB total: $_____________
Page 23
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Chapter 22: Responsibility Accounting and Transfer Pricing
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Q1) Return on assets: _____________%
Q2) If a company wanted to evaluate the manager's ability to control costs, the company would probably look at the:
A) Performance margin.
B) Responsibility margin.
C) Contribution margin.
D) None of the above.
Q3) Refer to the above information. The contribution margin of the local branch is:
A) $5,500,000
B) $2,400,000.
C) $2,246,000.
D) $3,254,000.
Q4) Which of the following is a common fixed cost to the sales departments in a department store?
A) Salaries of store security personnel.
B) Salaries of sales department managers.
C) Cost of goods sold.
D) Depreciation on fixtures used exclusively in a specific sales department.
Q5) Responsibility margin: $_____________
Q6) Contribution margin ratio: _____________%
Page 24
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Chapter 23: Operational Budgeting
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Q1) Which of the following is considered a financial budget estimate?
A) The manufacturing cost budget.
B) The cost of goods sold budget.
C) The operating expense budget.
D) The prepayments budget.
Q2) As the volume of output decreases:
A) Fixed costs per unit will increase.
B) Fixed costs per unit will decrease.
C) Fixed costs per unit will not change.
D) Fixed costs in total will decrease.
Q3) A flexible budget is used to evaluate:
A) Costs that should have been incurred for a level of output achieved.
B) Costs that should have been incurred for a level of output considered to be normal.
C) How variable unit costs change as output changes.
D) How flexible management was at adapting to changes in business conditions.
Q4) A company's operating cycle is the time between purchases of direct materials and conversion of these materials back into cash.
A)True
B)False
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Chapter 24: Standard Cost Systems
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Q1) Standard costs are typically reviewed once per year.
A)True
B)False
Q2) Standard cost system materials variances
Levron Corporation manufactures a line of cosmetics. The standard price of the ingredients in its beauty cream is $7 per ounce; the standard amount of material allowed per jar is 1.25 ounces. During December, 5,300 jars were produced, requiring 6,784 ounces of ingredients at a total direct materials cost of $37,312.
(a) Calculate the materials price variance for December. Indicate whether it is favorable (F) or unfavorable (U). $___________.
(b) Who is responsible for this variance? _________.
(c) Calculate the materials quantity variance for December. Indicate whether it is favorable (F) or unfavorable (U). $___________.
(d) What is Levron Corporation's total materials variance for December? Indicate whether it is favorable (F) or unfavorable (U). $___________.
Q3) A variance is said to be unfavorable when actual costs exceed standard costs.
A)True
B)False
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26
Chapter 25: Rewarding Business Performance
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Q1) Identify and explain the components of management compensation and the tradeoffs that compensation designers make.
Q2) Return on investment indicates the profitability that can be expected from one dollar of sales.
A)True
B)False
Q3) Residual income is calculated by subtracting the minimum acceptable return on the average invested capital from the operating income.
A)True
B)False
Q4) Stock based performance evaluation of managers is considered more risky than accounting based performance evaluation.
A)True
B)False
Q5) To increase return on sales, a manager could decrease cost of goods sold while increasing revenues.
A)True
B)False
Q6) Explain the importance of incentive systems for motivating performance.
Page 27
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Chapter 26: Capital Budgeting
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Q1) The shortcomings of the payback method
What are the major shortcomings of relying too heavily upon the payback period in evaluating capital investment decisions?
Q2) Payback period: ____________ years
Q3) Which of the following is not a capital budgeting decision?
A) Whether to acquire a subsidiary company.
B) Whether to expand a product line.
C) Whether to fill a special order.
D) Whether to purchase a fleet of trucks.
Q4) Annual increase in Port's net income: $_____________
Q5) Which of the following is not an important financial consideration in capital budgeting?
A) The timing of the investment's future cash flows.
B) The investment's future profitability.
C) The sunk costs related to the investment.
D) The initial cost of the investment and its estimated salvage value.
Q6) What is the net present value of the cutting machine discounted at an annual rate of 10%, if the present value of a ten-year $1 annuity discounted at 10% is 6.145?
$_____________
Q7) Return on average investment: _____________%
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Chapter 28: Forms of Business Organization
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52 Verified Questions
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Sample Questions
Q1) The salaries paid to partners are shown as an expense on the income statement while the salary taken by a sole proprietor is debited to a drawing account.
A)True
B)False
Q2) When a sole proprietorship incorporates, the assets of the new business are recorded at cost.
A)True
B)False
Q3) Which of the following is a characteristic of a corporation?
A) Declaration of a dividend by the stockholders.
B) Appointment of officers by the stockholders.
C) Transferability of shares of stock.
D) Unlimited liability.
Q4) The journal entry when a dividend is declared for $150,000 would be:
A) A Above.
B) B Above.
C) C Above.
D) D Above.
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Chapter 27: The Time Value of Money: Future Amounts and
Present Values Answer Key
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Sample Questions
Q1) If you receive $20,000 as a gift and invest it at 12% compounded quarterly, how much will you have at the end of three years?
A) $32,020.60.
B) $28,515.20.
C) $22,497.20.
D) $14,027.60.
Q2) If I invest $100 at the end of each year for four years at 6% how much will I have at the end of the fourth year?
A) $421.24.
B) $437.46.
C) $563.71.
D) $432.95.
Q3) Annuities may provide equal amounts to an investor at fixed periods of time over the life of an investment.
A)True
B)False
Q4) Explain how compound interest applies to the time value of money.
Q5) Explain what is meant by the "time value of money." Provide examples.
Page 30
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