Business Accounting
Mock Exam
Course Introduction
Business Accounting is a foundational course designed to introduce students to the principles and practices essential to understanding and managing financial information in business organizations. The course covers key topics such as the accounting cycle, preparation of financial statements, recording of business transactions, and the analysis and interpretation of financial data. Students will learn how to use accounting information for decision-making and gain insights into regulatory frameworks, ethical considerations, and the role of accounting in business strategy. Emphasis is placed on practical applications through real-world examples, ensuring students develop the critical skills necessary for careers in business, finance, and accounting.
Recommended Textbook
Financial and Managerial Accounting Information for Decisions 5th Edition by John J Wild
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Chapter 1: Introducing Accounting in Business
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Questions
Q1) If the assets of a business increased $15,000 during a period of time and its equity decreased $4,000 during the same period,liabilities in the business must have:
A) Increased $11,000
B) Decreased $11,000
C) Increased $19,000
D) Decreased $19,000
E) Increased $61,000
Answer: C
Q2) A company borrows $125,000 from the Eastside Bank and receives the loan proceeds in cash.This represents a(n):
A) Revenue activity
B) Operating activity
C) Expense activity
D) Investing activity
E) Financing activity
Answer: E
Q3) Identify the three basic forms of business organizations.
Answer: The three basic forms of business organizations are sole proprietorships,partnerships,and corporations.
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Page 3
Chapter 2: Analyzing and Recording Transactions
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Q1) Generally,the ordering of accounts in a trial balance typically follows their identification number from the chart of accounts: assets,liabilities,equity,revenues,and expenses.
A)True
B)False
Answer: True
Q2) Which of the following statements is correct?
A) The left side of a T-account is the credit side.
B) Debits decrease asset and expense accounts and increase liability, equity, and revenue accounts.
C) The left side of a T-account is the debit side.
D) Credits increase asset and expense accounts and decrease liability, equity, and revenue accounts.
E) In certain circumstances the total amount debited need not equal the total amount credited for a particular transaction.
Answer: C
Q3) Increases in assets are _______________,while increases in liabilities are
Answer: debited,credited
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Page 4
Chapter 3: Adjusting Accounts and Preparing Financial Statements
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Sample Questions
Q1) The Retained Earnings account has a credit balance of $17,000 before closing entries are made.If total revenues for the period are $55,200,total expenses are $39,800 and dividends are $9,000,what is the ending balance in the Retained Earnings account after all closing entries are made?
A) $8,000
B) $15,400
C) $23,400
D) $17,000
E) $32,400
Answer: C
Q2) An asset that cost $50,000 was purchased on January 1.The asset has an estimated useful life of three years and an estimated salvage value of $3,200.Using the straight-line method,prepare the necessary adjusting journal entry for the end of the year.
Answer: Depreciation Expense .$15,600
Q3) In preparing statements from the adjusted trial balance,the balance sheet must be prepared first.
A)True
B)False
Answer: False
Page 5
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Chapter 4: Accounting for Merchandising Operations
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Q1) Sales discounts on credit sales can benefit a seller by decreasing the delay in receiving cash and reducing future collection efforts.
A)True
B)False
Q2) Beginning merchandise inventory plus the net cost of purchases is equal to the merchandise available for sale.
A)True
B)False
Q3) An account used in the periodic inventory system that is not used in the perpetual inventory system is:
A) Merchandise Inventory
B) Sales
C) Sales Returns and Allowances
D) Accounts Payable
E) Purchases
Q4) The gross margin ratio equals net sales less ___________ divided by net sales.
Q5) What does FOB stand for? Differentiate between FOB shipping point (or FOB factory)and FOB destination?
Q6) Identify and explain the key components of income for a merchandising company.
Page 6
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Chapter 5: Inventories and Cost of Sales
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Q1) The conservatism constraint requires that when more than one estimate of the amounts that are to be received or paid in the future exist and these estimates are about equally likely,then the less optimistic amount is used.
A)True
B)False
Q2) Neither GAAP nor IFRS allow inventory to be adjusted upward beyond the original cost.
A)True
B)False
Q3) All incidental costs of inventory acquisition and handling,whether necessary or not,are assigned to inventory.
A)True
B)False
Q4) There is no simple rule for inventory turnover,except that a high ratio is preferable provided inventory is adequate to meet demand.
A)True
B)False
Q5) What is the effect of an error in the ending inventory balance on the income statement?
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Chapter 6: Cash and Internal Controls
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Q1) Basic bank services such as bank accounts,bank deposits,and checking contribute to the control and safeguarding of cash.
A)True
B)False
Q2) Assume that the custodian of a $450 petty cash fund has $62.50 in coins and currency plus $382.50 in receipts at the end of the month.The entry to replenish the petty cash fund will include:
A) A debit to Cash for $377.50.
B) A credit to Cash Over and Short for $5.00.
C) A debit to Petty Cash for $382.50.
D) A credit to Cash for $387.50.
E) A debit to Cash for $387.50.
Q3) The internal document prepared by a department manager that informs the purchasing department of its needs is the:
A) Purchase requisition
B) Purchase order
C) Invoice
D) Receiving report
E) Invoice approval
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Page 8
Chapter 7: Accounts and Notes Receivable
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Q1) Outdoors Unlimited accepts the Explorer credit card from its customers.Explorer charges a 3.5% service fee and pays Outdoors Unlimited the amount net of Explorer charges once a month.During February,Outdoors Unlimited sold $27,000 worth of merchandise to customers using the Explorer charge card.On February 28,Outdoor Unlimited sent the $27,000 worth of credit card receipts to Explorer.On March 4,Outdoors Unlimited received cash proceeds from Explorer for the February credit sales less the service charge.Prepare the general journal entries to record February sales and the March 4 cash receipt.
Q2) The accounting principle that requires financial statements (including notes)to report all relevant information about the operations and financial condition of a company is called:
A) Relevance
B) Full disclosure
C) Evaluation
D) Materiality
E) Matching
Q3) The matching principle requires use of the direct write-off method of accounting for bad debts.
A)True
B)False
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Chapter 8: Long-Term Assets
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Q1) ___________________ are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.
Q2) On July 1 of the current year,a company purchased and placed in service a machine with a cost of $240,000.The company estimated the machine's useful life to be four years or 60,000 units of output with an estimated salvage value of $60,000.During the current year,15,000 units were produced.
Prepare the necessary December 31 adjusting journal entry to record depreciation for the current year assuming the company uses:
a.The straight-line method of depreciation.
b.The units-of-production method of depreciation.
c.The double-declining balance method of depreciation.
Q3) What are the general accounting procedures for recording asset disposals?
Q4) Plant assets are assets that are held for sale.
A)True
B)False
Q5) A company recently paid $1,500,000 to buy a building with an estimated useful life of 20 years and a salvage value of $25,000.Calculate the depreciation expense for the third year after acquisition using the double-declining-balance depreciation.
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Chapter 9: Current Liabilities
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Q1) A _____________________ shows the pay period dates,hours worked,gross pay,deductions,and net pay of each employee for every pay period.
Q2) FUTA is the abbreviation for social security taxes.
A)True
B)False
Q3) Sales taxes payable:
A) Is an estimated liability.
B) Is a contingent liability.
C) Is a current liability for retailers.
D) Is a business expense.
E) Is a long-term liability.
Q4) _________________ are probable future payments of assets or services that a company is currently obligated to make as a result of past transactions or events.
Q5) Employers are required to pay state and federal payroll taxes.
A)True
B)False
Q6) A _______________________ is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle,whichever is longer.
11
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) A corporation issued 8% bonds with a par value of $1,000,000,receiving a $20,000 premium.On the interest date five years later,after the bond interest was paid and after 40% of the premium had been written off,the corporation purchased the entire issue on the open market at 99 and retired it.The gain or loss on this retirement is:
A) $0
B) $10,000 gain
C) $10,000 loss
D) $22,000 gain
E) $22,000 loss
Q2) A company calls $150,000 par value of bonds with a carrying value of $147,950.The company calls the bonds at $151,000.Prepare the journal entry to record the retirement of the bonds.
Q3) A company issued 9.2%,10-year bonds with a par value of $100,000.Interest is paid semiannually.The market interest rate on the issue date was 10% and the issuer received $95,016 cash for the bonds.On the first semiannual interest date,what amount of cash should be paid to the holders of these bonds for interest?
Q4) _____________________ bonds can be exchanged for a fixed number of shares of the issuing corporation's common stock.
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Page 12
Chapter 11: Corporate Reporting and Analysis
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Q1) A dividend preference for preferred stock means that:
A) Preferred stockholders receive their dividends before common shareholders.
B) Preferred shareholders are guaranteed dividends.
C) Dividends are paid quarterly.
D) Preferred stockholders prefer dividends more than common stockholders.
E) Dividends must be declared on preferred stock.
Q2) The price-earnings (PE)ratio is calculated by dividing ___________________________ by
Q3) What is the effect of dividend preferences on preferred stock? Explain how a dividend is distributed in the case of cumulative preferred stock with dividends in arrears.
Q4) ________________________ is the number of shares that a corporation's charter allows it to sell.
Q5) A corporation began the current year with $250,000 of unappropriated retained earnings.During the current year it earned $120,000 of net (after-tax)income,declared $75,000 of cash dividends,paid $50,000 of the cash dividends and purchased treasury stock costing $40,000.Calculate the current year-end balance in retained earnings.
Q6) What is treasury stock? How is the purchase and sale of treasury stock recorded?
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Q7) _________________ is a corporation's own stock that has been reacquired.
Chapter 12: Reporting Cash Flows
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Sample Questions
Q1) The reporting of investing and financing activities is _________________ under the direct and indirect methods of preparing the statement of cash flows.
Q2) Both cash dividends received and interest received are considered to be investing inflows.
A)True
B)False
Q3) _____________ activities include the cash effects of transactions and events that determine net income.
Q4) Probably the most important section of the statement of cash flows in analyzing the financial performance of a company's ongoing business is the ____________ section.
Q5) The cash flow on total assets ratio is computed by dividing _____________ by ____________.
Q6) Northwest Corporation's salaries expense was $18.0 million.What is the amount of cash that the company paid for salaries if the Salaries Payable account increased by $4.0 million?
Q7) Explain how the cash flows from operating activities section of the statement of cash flows is prepared when using the direct method.
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Chapter 13: Analysis of Financial Statements
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Sample Questions
Q1) For the following financial statement items,calculate trend percents using 2010 as the base year:
\[\begin{array} { | l | r | r | r | r | r | }
\hline & { 2014 } & { 2013 } & { 2012 } & { 2011 } & { 2010 } \\
\hline \text { Sales } & \$ 1,195,400 & \$ 1,118,000 & \$ 1,049,000 & \$ 963,200 & \$ 860,000 \\
\hline \text { Cost of sales } & 752,400 & 704,000 & 671,000 & 616,700 & 559,000 \\
\hline \text { Gross profit } & \$ 443,000 & \$ 414,000 & \$ 378,000 & \$ 346,500 & \$ 301,000 \\
\hline
\end{array}\]
Q2) Dividing accounts receivable by net sales and multiplying the result by 365 is equal to the:
A) Profit margin
B) Days' sales uncollected
C) Accounts receivable turnover ratio
D) Average accounts receivable ratio
E) Current ratio
Q3) Identify and explain the four building blocks of financial statement analysis.
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Page 15
Chapter 14: Managerial Accounting Concepts and Principles
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Q1) The focus of financial accounting is on an organization's projects,processes,and subdivisions,and the focus of managerial accounting is on the whole organization.
A)True
B)False
Q2) Ending raw materials inventory divided by raw materials used multiplied by 365 is the _________________________.
Q3) Direct costs are incurred for the benefit of more than one cost object.
A)True
B)False
Q4) A manufacturer's cost of goods manufactured is the sum of direct materials,direct labor,and factory overhead costs incurred in producing products.
A)True
B)False
Q5) _____________________ rejects the notions of "good enough" or "acceptable" and challenges employees and managers to continuously experiment with new and improved business practices.
Q6) A manufacturer's inventory that is not completely finished is called
Page 16
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Chapter 15: Job Order Costing and Analysis
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Q1) If actual overhead incurred during a period exceeds applied overhead,the difference will be a credit balance in the Factory Overhead account at the end of the period.
A)True
B)False
Q2) A manufacturing company uses an overhead allocation rate based on direct labor cost.The company's Goods in Process Inventory account has a $15,000 debit balance after all posting is completed,and the cost sheet of the one job still in process shows direct material costs of $6,600 and direct labor costs of $3,000.What is the company's overhead application rate?
Q3) The amount by which the overhead applied to jobs during a period exceeds the overhead incurred during the period is known as:
A) Adjusted overhead.
B) Estimated overhead.
C) Predetermined overhead.
D) Underapplied overhead.
E) Overapplied overhead.
Q4) Briefly describe how manufacturing firms dispose of overapplied or underapplied factory overhead.
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Chapter 16: Process Costing
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Q1) A company uses a process cost accounting system.The following information is available regarding direct labor for the current year:
\[\begin{array} {l l }
\text { Goods in process, January } 1 & 5,500 \text { units, } 80 \% \\ &\text { complete } \\
\text { Goods in process, December } 31 & 8,800 \text { units, } 40 \% \\ &\text { complete } \\
\text { Units completed and transferred to } & \\
\text { Finished goods } & 46,900 \text { units } \\
\text { Direct labor costs during the year } & \$ 266,300 \end{array}\]
(a) Calculate the equivalent units of production for direct labor for the year using weighted average.
(b) Calculate the average cost per equivalent unit for direct labor (round to the nearest cent).
Q2) In process costing,indirect materials are charged directly to Goods in Process Inventory.
A)True
B)False
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Page 18
Chapter 17: Activity-Based Costing and Analysis
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Q1) Name and briefly describe three overhead rate methods.
Q2) Fischer Company identified the following activities,costs,and activity drivers: \[\begin{array} { | l | c | c | }
\hline \text { Activity } & \text { Expected Costs } & \text { Expected Activity } \\
\hline \text { Handling parts } & \$ 425,000 & 25,000 \text { parts in stock } \\
\hline \text { Inspecting product } & \$ 390,000 & 940 \text { batches } \\
\hline \text { Processing purchase orders } & \$ 220,000 & 440 \text { orders } \\
\hline \text { Designing packaging } & \$ 230,000 & 5 \text { models } \\ \hline
\end{array}\]
a.Compute a plantwide overhead rate assuming the company assigns overhead based on 70,000 budgeted direct labor hours (Round to two decimals).
b.Compute separate rates for each of the four activities using the activity based costing.
Q3) Explain cost flows for the departmental overhead rate method.
Q4) Explain cost flows for activity-based costing.
Q5) What is the basic principle underlying activity-based costing?
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Chapter 18: Cost-Volume-Profit Analysis
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Q1) Total variable costs change proportionately with changes in output activity.
A)True
B)False
Q2) The high-low method can be used to derive an estimated line of cost behavior.
A)True
B)False
Q3) A break-even point can be calculated either in units or in dollars.
A)True
B)False
Q4) The contribution margin per unit expressed as a percentage of the product's selling price is the:
A) Volume variance.
B) Margin of safety.
C) Contribution margin ratio.
D) Break-even point.
E) Rate of return on sales.
Q5) The ratio of the volumes of the various products sold by a company is called the
Q6) What is operating leverage? How can the degree of operating leverage be used in analyzing changes in sales?
Page 20
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Chapter 19: Variable Costing and Performance Reporting
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Q1) Decko Industries reported the following monthly data: \(\begin{array}{ll}
\text { Units produced } & 52,000 \text { units } \\
\text { Sales price } & \$ 33 \text { per unit } \\
\text { Direct materials } & \$ 1.50 \text { per unit } \\
\text { Direct labor } & \$ 2.50 \text { per unit } \\
\text { Variable overhead } & \$ 3.50 \text { per unit } \\
\text { Fixed overhead } & \$ 234.000 \text { in total } \end{array}\)
What is the company's contribution margin for this month if 50,000 units were sold?
A) $1,326,000
B) $1,716,000
C) $1,275,000
D) $1,650,000
E) $1,450,000
Q2) On a contribution margin income statement,expenses are grouped according to
Q3) ________________________ is the exact point where revenues equal expenses.
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Chapter 20: Master Budgets and Performance Planning
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Q1) A master budget refers to a company's sales budget that includes all of its segments or departments.
A)True
B)False
Q2) The budgeted purchases of pounds of raw material B during May should be:
A) 1,418 pounds
B) 1,460 pounds
C) 1,502 pounds
D) 264 pounds
E) 283 pounds
Q3) The master budget is a small component of the comprehensive budget.
A)True
B)False
Q4) A ________________________ is a continuously revised budget that adds future months or quarters to replace months or quarters that have lapsed.
Q5) The task of preparing a budget should be the sole task of the most important department in an organization.
A)True
B)False
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Chapter 21: Flexible Budgets and Standard Costs
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Q1) Chips Co.assigned direct labor cost to its products in May for 1,300 standard hours of direct labor at the standard $8 per hour rate.The direct labor rate variance for the month was $200 favorable and the direct labor efficiency variance was $150 favorable.Prepare the journal entry to charge Goods in Process Inventory for the standard labor cost of the goods manufactured in May and to record the direct labor variances.Assuming that the direct labor variances are immaterial,prepare the journal entry that Chips would make to close the variance accounts.
Q2) A flexible budget is also called a _______________ budget.
Q3) A company had a $22,000 favorable direct labor efficiency variance during a time period when the standard rate per direct labor hour was $22 and the actual rate per direct labor hour was $21.If the standard direct labor hours allowed for production were 5,000,what is the amount of actual direct labor hours worked during this period?
A) 6,000 hours
B) 4,000 hours
C) 88,000 hours
D) 110,000 hours
E) 22,000 hours
Q4) Identify and explain the primary differences between fixed and flexible budgets.
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Page 23
Chapter 22: Decentralization and Performance Measurement
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Q1) A service department is usually evaluated as a profit center.
A)True
B)False
Q2) A department's direct expenses can be entirely avoided if the department manager carefully controls and monitors operations.
A)True
B)False
Q3) Describe the information found on a responsibility accounting performance report.
Q4) How is residual income calculated and how do managers use it?
Q5) What is a profit center?
Q6) The price that should be used to record transfers between divisions in the same company is called the divisional price.
A)True
B)False
Q7) A ______________________ incurs costs without directly generating revenues.
Q8) The ________________________________ is a system of performance measures,including nonfinancial measures,used to assess company and division manager performance.
Page 24
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Chapter 23: Relevant Costing for Managerial Decisions
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Q1) A company must decide between scrapping or rebuilding units that do not pass inspection.The company has 15,000 such units that cost $6 per unit to manufacture.The units were built to satisfy a special order,which must still be satisfied if the defective units are scrapped.The units can be sold as scrap for $2.50 each or they can be reworked for $4.50 each and sold for the full price of $9 each.If the units are sold as scrap,the company will have to build 15,000 replacement units and sell them at the full price.
Required:
a.What is the net return from selling the units as scrap?
b.What is the net return from reworking and selling the units?
c.Should the company sell the units as scrap or rework them?
Q2) Relevant costs are also known as ___________________.
Q3) What is a sunk cost? When would it be relevant to a short-term managerial decision?
Q4) Good management accounting indicates that projects be evaluated using relevant data.In choosing among alternatives,what factors (considerations)are relevant?
Q5) A cost-plus method of determining a product's selling price adds a _________________________ to total product cost to reach a target price.
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Chapter 24: Capital Budgeting and Investment Analysis
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Q1) The net cash flow of a particular investment project:
A) Does not take income taxes into consideration.
B) Equals the total of the inflows of the project.
C) Equals the total of the outflows of the project.
D) Does not include depreciation.
E) Is equal to operating income each period.
Q2) A company is considering a proposal to invest $22,000 in a project that would provide the following net cash flows:
\[\begin{array} { l r }
\text { Year 1 } & \$ 2,000 \\
\text { Year 2 } & 4,000 \\
\text { Year 3 } & 15,000 \\
\text { Year 4 } & 18,000
\end{array}\]
Compute the project's payback period.
Q3) The time value of money concept works on the principle that a dollar tomorrow is worth more than a dollar today.
A)True
B)False
Q4) Internal rate of return is expressed as a _________________.
Page 26
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Chapter 25: Accounting With Special Journals
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Q1) The ledger that contains the financial statement accounts of a company is the:
A) General ledger
B) General journal
C) Special ledger
D) Special journal
E) Column balance ledger
Q2) The main difference in the sales journal under the perpetual and periodic inventory system is:
A) The column to record cost of goods sold and inventory amounts sold that is used under the perpetual system but not the periodic.
B) The sales tax receivable column that is used under the perpetual system but not the periodic.
C) The sales tax payable column that is used under the perpetual system but not the periodic.
D) The accounts receivable column that is used under the perpetual system but not the periodic.
E) The column for recording cash that is used under the perpetual system but not the periodic.
Q3) Discuss how technology-based information systems affect accounting.
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Chapter 26: Time Value of Money
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Q1) From the perspective of a depositor,a savings account is a liability with interest.
A)True
B)False
Q2) Future value can be found if the interest rate (i),the number of periods (n),and the present value (p)are known.
A)True
B)False
Q3) At an annual interest rate of 8% compounded annually,$5,300 will accumulate to a total of $7,210.65 in five years.
A)True
B)False
Q4) An ordinary annuity refers to a series of equal payments made or received at the end of equal intervals.
A)True
B)False
Q5) An annuity is a series of equal payments occurring at equal intervals.
A)True
B)False
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Chapter 27: Investments and International Operations
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176 Verified Questions
176 Flashcards
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Sample Questions
Q1) IFRS requires uniform accounting policies to be used throughout the group of consolidated subsidiaries.
A)True
B)False
Q2) Investments in equity securities where the investor has a controlling influence are accounted for using the ________________________________.
Q3) Define the return on total assets and explain how it is used to measure a company's financial performance.
Q4) Investments in trading securities are always short-term investments. A)True
B)False
Q5) Savan Co.purchased 14,000 shares of Briton Corporation's 40,000 shares of common stock on December 31,2012.This represented 35% of Briton's outstanding shares and gave Savan Co.significant influence over Briton's management and operations.On October 11,2013,Briton declared and paid cash dividends of $30,000.On December 31,2013,Briton reported net income of $125,000 for the year.Prepare the journal entries Savan Co.should record to account for its investment in Briton Corporation during 2013.
Q6) Explain how to record the sale of trading securities.
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Chapter 28: Accounting for Partnerships
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126 Verified Questions
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Sample Questions
Q1) Baldwin and Tanner formed a partnership.Baldwin's initial capital account balance was $125,000 and Tanner's was $105,000.They agreed to share income and loss as follows: Baldwin 40%,Tanner 60%.Income was $102,000 in year 1 and $150,000 in year 2.Assume they each withdrew $10,000 per year.Calculate the capital balances for Baldwin and Tanner at the end of year 2.
Q2) When a partner leaves a partnership,the withdrawing partner is entitled to a bonus if the recorded equity is overstated.
A)True
B)False
Q3) Elaine Valero is a limited partner in a marketing and design firm.During the previous year her return on partnership equity was 14%.During this time,the beginning and ending balances in her capital account were $210,000 and $230,000 respectively.What was Elaine's partnership net income for this year?
A) $29,400.00
B) $30,800.00
C) $32,200.00
D) $1,500,000.00
E) $1,642,857.14
Q4) Partner return on equity is calculated as ______________________________.
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