Business Accounting
Midterm Exam
Course Introduction
Business Accounting provides an introduction to the fundamental principles and procedures of financial accounting as used in business organizations. The course covers the preparation, analysis, and interpretation of financial statements, as well as an understanding of accounting cycles, double-entry bookkeeping, and key accounting concepts. Students will learn how to record and summarize financial transactions, evaluate financial performance, and use accounting information for decision-making within a business context, laying the groundwork for more advanced accounting studies and professional practices.
Recommended Textbook
Financial Accounting 12th Edition by C. William Thomas
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14 Chapters
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Chapter 1: The Financial Statements
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Sample Questions
Q1) To be useful,accounting information must have the fundamental qualitative characteristics of:
A)comparability and relevance.
B)relevance and faithful representation.
C)materiality and understandability.
D)faithful representation and timeliness.
Answer: B
Q2) Liabilities are:
A)a form of paid-in capital.
B)future economic benefits to which a company is entitled.
C)debts payable to outsiders called creditors.
D)the outflow of resources that decrease common stock.
Answer: C
Q3) The income statement:
A)is not dated.
B)must cover only a month in time.
C)covers a defined period of time.
D)reports the results of operations since the inception of the business.
Answer: C
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Page 3
Chapter 2: Transaction Analysis
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Sample Questions
Q1) Posting is the process of copying data from the ledger to the journal.
A)True
B)False
Answer: False
Q2) Every business transaction involves at least one debit and at least one credit.
A)True
B)False
Answer: True
Q3) Posting is:
A)copying the information from the journal to the trial balance.
B)entering the data into the journal.
C)copying the information from the journal to the ledger.
D)copying the information from the ledger to the financial statements.
Answer: C
Q4) Posting accounting transactions avoids the necessity of journalizing transactions. A)True
B)False
Answer: False
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Page 4
Chapter 3: Accrual Accounting Income
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Sample Questions
Q1) The financial statements can be prepared from the adjusted trial balance.
A)True
B)False
Answer: True
Q2) The managers of a company are concerned about how certain transactions will affect ratios used in loan agreements.
A)True
B)False
Answer: True
Q3) On December 31,2019,salaries owed to employees total $4,050.These will be paid on January 4,2020.An adjusted trial balance prepared on December 31,2019,includes which of the following?
A)Salaries Expense,$4,050 and Salaries Payable,$4,050
B)Salaries Payable,$4,050 and Unearned Salaries Revenue,$4,050
C)Unearned Salaries,$4,050
D)Unearned Salaries,$4,050 and Salaries Payable,$4,050
Answer: A
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Chapter 4: Internal Control Cash
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Sample Questions
Q1) A bank statement included a NSF check from customer Kim Fields for $2,100.The journal entry to record this reconciling item should:
A)debit NSF and credit Cash for $2,100.
B)debit Cash and credit Accounts Receivable for $2,100.
C)debit Accounts Receivable and credit Cash for $2,100.
D)debit Cash and credit NSF for $2,100.
Q2) Marjorie Company's cash balance per the books at the end of the month was $8,600.After comparing the company's records with the monthly bank statement,Marjorie's accountant identified the following reconciling items: outstanding checks,$800;deposits in transit,$700;bank service charge,$10;and NSF check,$200.The bank collection of a note receivable was $1,000 plus interest of $100.There also was an EFT payment of $160.What is the adjusted book balance at the end of the month?
A)$9,490
B)$9,390
C)$8,500
D)$9,330
Q3) Payments by check or EFT represent an important internal control.
A)True
B)False
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Page 6
Chapter 5: Receivables and Revenue
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Q1) A company has net credit sales of $950,000,a beginning balance of net receivables of $71,000,and an ending balance of net receivables of $95,000.Its days' sales outstanding is: (Round any intermediary calculations to two decimal places and your final answer to the nearest day. )
A)27 days.
B)11 days.
C)32 days.
D)36 days.
Q2) We sell to a customer paying with Visa and the fee is 2%.Part of the transaction would include a debit to:
A)Sales Revenue.
B)Sales Discount.
C)Accounts Receivable.
D)Credit Card Discount Expense.
Q3) The general ledger has a separate account receivable for each customer.
A)True
B)False
Q4) The maker of a note is the borrower.
A)True
B)False
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Chapter 6: Inventory Cost of Goods Sold
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Sample Questions
Q1) The inventory method used by a company affects:
A)net income on the income statement.
B)the income taxes to be paid.
C)the ending inventory on the balance sheet.
D)all of the above.
Q2) In the periodic inventory system,the Inventory account is debited for the purchases made during the year.
A)True
B)False
Q3) Under a perpetual inventory system,the journal entry to record the purchase of inventory on account will include a:
A)debit to Inventory and a credit to Cash.
B)debit to Inventory and a credit to Accounts Payable.
C)debit to Accounts Payable and a credit to Inventory.
D)debit to Purchases and a credit to Accounts Payable.
Q4) Another term for gross profit is:
A)gross income.
B)gross sales.
C)gross margin.
D)gross operating income.
8
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Chapter 7: Plant Assets, natural Resources, Intangibles
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Sample Questions
Q1) Treating a capital expenditure as an immediate expense:
A)overstates assets and stockholders' equity in the year of the error.
B)understates assets and stockholders' equity in the year of the error.
C)understates assets and overstates stockholders' equity in the year of the error.
D)overstates assets and understates stockholders' equity in the year of the error.
Q2) All intangible assets must be amortized.
A)True
B)False
Q3) Which of the following statements is INCORRECT?
A)The cost of land includes fencing and paving.
B)The cost of any asset is the sum of all the costs incurred to bring the asset to its intended use.
C)The cost of a leasehold improvement should be amortized over the shorter of its useful life or the term of the lease.
D)All of the above statements are correct.
Q4) At the end of its useful life,the book value of a plant asset must be zero.
A)True
B)False
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Page 9
Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) Large companies,like Amazon,typically pay most of their financing expenses through accounts payable.
A)True
B)False
Q2) Amounts owed for products or services purchased on account are accounts payable.
A)True
B)False
Q3) Short-term notes payable to banks are often used to finance business operations.
A)True
B)False
Q4) Contingent liabilities can never be long term.
A)True
B)False
Q5) When a business receives cash from customers before earning the revenue,the ________ account is credited.
A)Accounts Receivable
B)Sales Tax Payable
C)Accounts Payable
D)Unearned Revenue
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) A ________ may allow the company leasing the asset to own it after a period of time.
A)operating lease
B)convertible lease
C)finance lease
D)all of the above
Q2) If a bond is retired before maturity,the journal entry to record the retirement by the issuer will include a credit to Cash.
A)True
B)False
Q3) Solderman Company issued $510,000,7%,10-year bonds for $422,800 with a market rate of 9%.The effective interest method of amortization is used and interest is paid annually.The journal entry on the first interest payment date would include a:
A)credit to Interest Expense of $35,700.
B)credit to Cash of $38,052.
C)credit to Cash of $35,700.
D)credit to Interest Expense of $38,052.
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11
Chapter 10: Stockholders Equity
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Sample Questions
Q1) Dividend payments are a type of financing activity because the company is paying stockholders for the use of their money.
A)True
B)False
Q2) Another name for Paid-in Capital in Excess of Par is Additional Paid-in Capital.
A)True
B)False
Q3) When treasury stock is purchased,accountants record treasury stock at:
A)the stock's par value.
B)the stock's original selling price.
C)the stock's cost which is current market value.
D)the difference between the original selling price and the par value.
Q4) Convertible preferred stock is usually convertible into the issuer's common stock at the discretion of the preferred stockholder.
A)True B)False
Q5) A 2-for-1 stock split will decrease total assets. A)True
B)False
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Chapter 11: The Statement of Cash Flows
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Q1) When converting net income to net cash provided by operating activities on the statement of cash flows,indirect method,which of the following is NOT added to net income?
A)gain on sale of land
B)decrease in inventory
C)decrease in accounts receivable
D)depreciation expense
Q2) Purchases of treasury stock would be reported on a statement of cash flows as:
A)operating activities.
B)investing activities.
C)financing activities.
D)noncash investing and financing activities.
Q3) Sweeten Corporation had sales of $890,000.The beginning accounts receivable balance was $66,000 and the ending accounts receivable balance was $250,000.The cash collected from customers for this reporting period is:
A)$640,000.
B)$706,000.
C)$956,000.
D)$1,074,000.
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Page 13
Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) When comparing companies of different sizes,vertical analysis is a useful tool.
A)True
B)False
Q2) Which of the following would be most helpful in the comparison of different size companies?
A)horizontal analysis
B)comparison of their net incomes
C)comparison of their working capital balances
D)preparation of common-size financial statements
Q3) The formula for the percentage change in a financial statement line item is the current year amount:
A)divided by the base year amount.
B)minus the base year amount divided by the base year amount.
C)minus the base year amount divided by current year amount.
D)added to the base year amount divided by the base year amount.
Q4) In vertical analysis:
A)a base amount is optional.
B)a base amount is required.
C)line items from balance sheets are examined only.
D)line items from income statements are examined only.
Page 14
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Chapter 13: Investments
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Sample Questions
Q1) In consolidation accounting,a year-end elimination entry is required to add the subsidiary company's stockholders' equity accounts to those of the parent company.
A)True
B)False
Q2) On January 1,2019,Dodge Company purchases $106,000,4% bonds at a price of 90.5 and a maturity date of January 1,2029.Dodge Company intends to hold the bonds until their maturity date and has the ability to do so.Interest is paid semiannually,on January 1 and July 1.Dodge Company has a calendar year end.The entry to record the purchase of the bond investment on January 1,2019,is:
A)debit Held-to-Maturity Investment in Bonds for $106,000 and credit Cash for $106,000.
B)debit Held-to-Maturity Investment in Bonds for $95,930 and credit Cash for $95,930.
C)debit Cash for $106,000 and credit Bonds Payable for $106,000.
D)debit Cash for $95,930 and credit Investment in Bonds for $95,930.
Q3) The market prices of bonds fluctuate inversely with market interest rates.
A)True
B)False
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Chapter 14: Time Value of Money
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Sample Questions
Q1) Most business decision makers solve present-value problems with Excel because the present-value tables are limited to the interest rates in the columns and the number of periods in the rows.
A)True
B)False
Q2) A single amount of $10,500 is to be received in 3 years.If the single amount is discounted at 8% for 3 periods,the present value is ________.The present value of $1 for 3 periods at 8% is 0.794.The present value of an ordinary annuity of $1 for 3 periods at 8% is 2.577.(Round your final answer to the nearest dollar. )
A)$8,316
B)$10,500
C)$8,337
D)$27,059
Q3) The term present value means today's value of a future payment or a series of future payments,assuming that those payments include interest at the current market rate.
A)True
B)False
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