Business Accounting Practice Exam
Course Introduction
Business Accounting introduces students to the fundamental principles and practices of accounting as they apply to business organizations. The course covers key topics such as the accounting cycle, preparation and analysis of financial statements, recording and reporting of business transactions, and the use of accounting information in decision-making. Emphasis is placed on understanding and applying generally accepted accounting principles (GAAP), internal controls, and the ethical responsibilities of accountants. By the end of the course, students will be equipped with foundational accounting knowledge essential for evaluating financial performance and making informed business decisions.
Recommended Textbook
Horngrens Financial and Managerial Accounting 6th Edition by Tracie L. Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) In a limited-liability company (LLC),the members are personally liable for the debts of the business.
A)True
B)False
Answer: False
Q2) Indicate the effects on the accounting equation of the following business transactions of Garland Service Corporation for b)to d)below.Use proper account titles.Transaction a)is answered as a guide.
a)Received cash from Trent Garland issued common stock to him.
b) Collected cash on accounts receivable (created 20 days earlier).
c) Purchased office supplies on account.
d) Paid cash for the current month's electric bill.
Answer: a)Increase asset (Cash); Increase equity (Common Stock)
b)Increase asset (Cash);Decrease asset (Accounts Receivable)
c)Increase asset (Office Supplies);Increase liability (Accounts Payable)
d)Decrease asset (Cash);Decrease Equity (Utility Expense)
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Page 3
Chapter 2: Recording Business Transactions
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Q1) In a trial balance,total debits must always equal total credits.
A)True
B)False
Answer: True
Q2) Prepaid Rent is a(n)________ account and has a normal ________ balance.
A)asset;debit
B)liability;credit
C)liability;debit
D)asset;credit
Answer: A
Q3) Transactions are first record in a ________.
A)chart of accounts
B)trial balance
C)journal
D)ledger
Answer: C
Q4) An accounts receivable requires the business to pay cash in the future.
A)True
B)False
Answer: False
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Chapter 3: The Adjusting Process
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Q1) Under accrual basis accounting,an expense is recorded only when cash is paid.
A)True
B)False
Answer: False
Q2) On January 1,2017,the Accounts Receivable of Martha,Inc.had a debit balance of $150,000.During January,the company provided services for $400,000 on account.The company collected $240,000 from its customers on account in January.What was the ending balance in the Accounts Receivable account at the end of January?
A)$160,000
B)$550,000
C)$310,000
D)$400,000
Answer: C
Q3) Revenue that has been earned but not yet collected in cash is called a(n)________.
A)accrued revenue
B)deferred expense
C)deferred revenue
D)accrued expense
Answer: A
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Chapter 4: Completing the Accounting Cycle
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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) A list of the accounts and their balances at the end of the period,after journalizing and posting the closing entries,is called ________.
A)chart of accounts
B)adjusted trial balance
C)post-closing trial balance
D)pre-closing balance sheet
Q3) Net income (loss)is the difference between the total debits and the total credits in the income statement columns of the worksheet.
A)True
B)False
Q4) List the steps of the accounting cycle that take place during the period.
Q5) Why are temporary accounts not included in the post-closing trial balance?
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Chapter 5: Merchandising Operations
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Q1) Which of the following is true of the gross profit percentage?
A)Gross profit percentage is the same for companies in all industries.
B)Gross profit percentage is used to measure the solvency of a company.
C)The gross profit percentage is one of the most carefully watched measures of profitability.
D)A service company must show its gross profit percentage in its income statement.
Q2) Under the perpetual inventory system,when a seller grants a sales allowance,________.
A)Merchandise Inventory is debited
B)a credit memo is issued
C)Estimated Refunds Payable are increased
D)the seller receives any nonstandard goods
Q3) When a company uses a perpetual inventory system,all merchandise transactions are updated as they occur.However,the inventory account may not show the correct balance at all times.
A)True
B)False
Q4) List four items from an invoice that are needed to record a purchase of merchandise inventory.
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Chapter 6: Merchandise Inventory
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Questions
Q1) Assuming that costs are changing during the accounting period,under the last-in,first-out inventory costing method,the amount of cost of goods sold calculated using the perpetual inventory system will usually differ from the amount calculated using the periodic inventory system.
A)True
B)False
Q2) Kim's Retail had 800 units of inventory on hand at the end of the year.These were recorded at a cost of $15 each using the last-in,first-out (LIFO)method.The current replacement cost is $11 per unit.The selling price charged by Kim's Retail for each finished product is $18.In order to record the adjusting entry needed under the lower-of-cost-or-market rule,the Merchandise Inventory will be ________.
A)debited by $8,800
B)credited by $8,800
C)debited by $3,200
D)credited by $3,200
Q3) Companies determine the number of units on hand from perpetual inventory records backed up by a physical count.
A)True
B)False
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Page 8
Chapter 7: Internal Control and Cash
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Sample Questions
Q1) It is important for a business to identify policies which ensure that all customers are treated similarly and that results can be measured effectively.
A)True
B)False
Q2) A system cannot be overcome or broken into if its internal controls are properly designed and structured.
A)True
B)False
Q3) The Sarbanes-Oxley Act was passed by the Public Company Accounting Oversight Board.
A)True
B)False
Q4) The two common methods of processing credit and debit card transactions are gross and net.
A)True
B)False
Q5) Burglar alarms,fire alarms,and security cameras improve internal control.
A)True
B)False
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Chapter 8: Receivables
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Q1) Under GAAP,which of the following is NOT an acceptable method of estimating the amount of bad debt expense at the end of the accounting period?
A)percent-of-receivables
B)percent-of-sales
C)direct write-off
D)aging-of-receivables
Q2) The entity that signs the promissory note and promises to pay the required amount is the ________.
A)maker of the note
B)banker of the note
C)holder of the note
D)payee of the note
Q3) Both Smith Enterprises and Jones Enterprises have credit terms of 2/10,net 30.The days' sales in receivables are 40 for Smith Enterprises and 35 for Jones Enterprises.Analyze this information.
Q4) Accounts receivable are also called trade receivables.
A)True
B)False
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10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Q1) The book value of a plant asset is reported on the balance sheet as the cost of the asset minus accumulated depreciation.
A)True B)False
Q2) The process of allocating the cost of a plant asset over its useful life is known as cost reduction.
A)True B)False
Q3) Discarding plant assets involves disposing of the asset for no cash.
A)True B)False
Q4) The cost of furniture and fixtures includes all costs to ready the asset for its intended use.
A)True B)False
Q5) Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash.Omit explanation.
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Chapter 10: Investments
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Q1) Trading debt investments include ________.
A)debt securities that the investor expects to hold longer than one year or debt securities that are not readily marketable
B)investments in debt securities that are not readily marketable and that the investor intends to hold until they mature
C)investments in debt securities that the investor intends to hold until they mature
D)debt securities that the investor plans to sell in the very near future
Q2) Hometown Resources,Inc.has a 9% rate of return on total assets and the industry average is 12%.How was the 9% rate of return on total assets computed? Comment on this information.
Q3) Which of the following is true of available-for-sale (AFS)debt investments?
A)They are always reported as current assets in the balance sheet.
B)They are always reported as long-term assets in the balance sheet.
C)They are reported as current assets on the balance sheet only if the business expects to sell them within the first two years.
D)They are reported as long-term assets on the balance sheet only if they are planned to be held for longer than a year.
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Page 12
Chapter 11: Current Liabilities and Payroll
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Q1) Hank earns $24.00 per hour with time-and-a-half for hours in excess of 40 per week.He worked 50 hours at his job during the first week of March 2018.Hank pays income taxes at 15% and 7.65% for OASDI and Medicare.All of his income is taxable under FICA.Determine Hank's net pay for the week.(Do not round any intermediate calculations,and round your final answer to the nearest cent. )
A)$1122.00
B)$1021.02
C)$835.80
D)$799.80
Q2) On December 31,2018,Globe,Inc.borrowed $500,000 by signing a five-year,8% note payable.The note is payable in five yearly installments of $100,000 plus interest,due at the end of every year beginning on December 31,2019.Which portion is classified as the long-term portion of Notes Payable at December 31,2018?
Q3) Dallas Corp.has gross pay for March of $50,000.The journal entry to record salaries expense would include a debit to Salaries and Wages Payable for $50,000.
A)True
B)False
Q4) What is a contingent liability? Provide two examples of contingencies. To view all questions and flashcards with answers, click on the resource link above.
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Chapter 12: Long-Term Liabilities
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Q1) A bond is issued at a discount when a bond's stated interest rate is ________.
A)equal to the market interest rate
B)more than the effective interest rate
C)less than the market interest rate
D)more than the market interest rate
Q2) On July 1,2018,Jordie Equipment Dealer issued $600,000 of 9% bonds payable that mature in seven years.These bonds were issued at face value and pay interest each June 30 and December 31.Each semiannual interest payment is $27,000.
A)True
B)False
Q3) On January 1,2018,Allgood Company purchased equipment and signed a six-year mortgage note for $186,000 at 15%.The note will be paid in equal annual installments of $49,148,beginning January 1,2019.Calculate the portion of interest expense paid on the third installment.(Round your answer to the nearest whole number. )
A)$49,148
B)$21,048
C)$27,900
D)$164,752
Q4) When computing a bond's cash flow for interest,which interest rate is used? Why?
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Chapter 13: Stockholders Equity
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Q1) Scotland Corporation had net income for 2018 of $80,000.Scotland had 13,000 shares of common stock outstanding at the beginning of the year and 24,000 shares of common stock outstanding at the end of the year.There were 12,000 shares of preferred stock outstanding all year.During 2018,Scotland declared and paid preferred dividends of $21,000.What is Scotland's earnings per share? (Round the answer to two decimal places. )
A)$3.33
B)$3.19
C)$4.32
D)$2.46
Q2) Preferred stockholders ________.
A)are guaranteed that they will not have a loss on their investment
B)are guaranteed to receive an annual dividend payment
C)receive a set percentage of corporation net income
D)receive a dividend preference over common stockholders
Q3) A stock split can involve issuing more shares of stock than authorized in the corporate charter.
A)True
B)False
Q4) List the four basic rights of stockholders.
Page 15
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Chapter 14: The Statement of Cash Flows
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Q1) Which of the following sections of the statement of cash flows include activities that affect current assets and current liabilities on the balance sheet? (Assume the indirect method is used. )
A)the investing activities section
B)the financing activities section
C)the operating activities section
D)the non-cash investing and financing section
Q2) The statement of cash flows is dated the same as the balance sheet.
A)True
B)False
Q3) List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.
Q4) Planned investments and cash dividends are deducted from ________ to arrive at free cash flow.
A)net cash provided by operating activities
B)net cash provided by investing activities
C)net cash provided by financing activities
D)net income
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Page 16
Chapter 15: Financial Statement Analysis
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Q1) Grand Office Supply reported the following gross profit percentages: 2017: 37.5%;2018: 36.2%;2019: 20.8%.The industry average is 35%.What are some possible reasons for the decline in 2019?
Q2) Candle Shop,Inc.has net sales on account of $1,800,000.The average net accounts receivable are $680,000.Calculate the days' sales in receivables.(Use 365 days for any calculations.Round any intermediate calculations and your final answer to two decimal places. )
A)322.42 days
B)365.00 days
C)137.74 days
D)2)65 days
Q3) Which of the following is NOT a part of a corporation's annual report?
A)report of independent registered public accounting firm
B)MD&A
C)notes to financial statements
D)employees' pay rates
Q4) In a vertical analysis of the balance sheet,the base amount is total liabilities.
A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Q1) A company's president or chief executive officer (CEO)is selected by the stockholders.
A)True
B)False
Q2) Which of the following would be considered a product cost for a manufacturing company?
A)salary of the sales manager
B)salary of the CEO
C)salaries of the accounting staff
D)salary of the production manager
Q3) For decision-making purposes,________ are often divided into prime costs and conversion costs.
A)fixed costs
B)product costs
C)period costs
D)sunk costs
Q4) The value chain includes both the upstream and downstream activities of a business.
A)True
B)False
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Chapter 17: Job Order Costing
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Q1) During the year,a company incurred $522,000 of manufacturing overhead costs and allocated $483,000 of manufacturing overhead costs.At year-end,the adjustment entry needed to adjust the Manufacturing Overhead account balance to zero will include a debit to Cost of Goods Sold.
A)True
B)False
Q2) Leonard Manufacturing Systems uses job order costing and a perpetual inventory system.When recording the sale of a job,which account(s)is(are)debited?
Q3) Zephyros Corporation had estimated manufacturing overhead costs for the coming year to be $301,000.The total estimated direct labor hours and machine hours for the coming year are 7000 and 13,000,respectively.Manufacturing overhead costs are allocated based on direct labor hours.What is the predetermined overhead allocation rate? (Round your answer to the nearest cent. )
A)$23.15 per machine hour
B)$15.05 per direct labor hour
C)$43.00 per direct labor hour
D)$1.86 per machine hour
Q4) Why would the manager of a service company need to use job order costing?
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Chapter 18: Process Costing
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Q1) In a production cost report,the number of total units to account for consists of ________.The weighted-average method is used.
A)units in process at the beginning of the period and units started or added during the period
B)units in process at the end of the period and units started or added during the period C)units in process at the beginning of the period and units remaining at the end of the period
D)units of completed and transferred out products and total units produced
Q2) On September 30,the Drying Department of Jamoca,Inc.had ending Work-in-Process Inventory that was 28% complete for materials and 23% complete for conversion costs.The company uses the FIFO method.This means that for the ending Work-in-Process inventory,________% of materials and ________% of the conversion costs were added during September.
A)77;72
B)72;77
C)23;28
D)28;23
Q3) How is a production cost report prepared using the FIFO method?
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Chapter
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Q1) When a manufacturer changes from using a single plantwide predetermined overhead rate to multiple predetermined overhead allocation rates,the product unit cost may be more accurate.
A)True
B)False
Q2) When preparing the report to analyze a proposed quality improvement program,which of the following are included in the costs to continue without the quality improvement program?
A)prevention and appraisal
B)prevention and internal failure
C)internal and external failure
D)appraisal and external failure
Q3) The predetermined overhead allocation rate is an estimated overhead cost per unit of the allocation base and is calculated at the beginning of the accounting period.
A)True
B)False
Q4) List and briefly describe the four types of quality-related costs.
Q5) Managers can use activity-based management to make what two kinds of decisions?
Q6) Define target cost.How is target cost determined? Page 21
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) Awanita Enterprises sells computer flash drives for $3.16 per unit.Unit variable cost is $0.06.The breakeven point in units is 3600,and expected sales in units are 4300.What is the margin of safety in dollars?
A)$2170
B)$2212
C)$42
D)$11,376
Q2) The high-low method is used to ________.
A)determine the highest price that can be charged for a product
B)separate mixed costs into their variable and fixed components
C)identify the relevant and irrelevant costs of a business
D)determine the sales level at highest capacity
Q3) The degree of operating leverage for Madrigal Company is 2.The actual operating income is $14,000.If the company expects a 25% increase in sales,operating income should increase by $3,500.
A)True
B)False
Q4) Managers can use CVP relationships to conduct sensitivity analysis.
A)True
B)False
Page 23
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Chapter 21: Variable Costing
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Q1) Which of the following will appear as a line item in the traditional format of an income statement?
A)contribution margin
B)total variable costs (manufacturing and non-manufacturing)
C)total fixed costs (manufacturing and non-manufacturing)
D)gross profit
Q2) Variable costing prepares the income statement using the traditional format.
A)True
B)False
Q3) Under absorption costing,all product costs are first recorded as assets in inventory accounts,and later transferred to the Cost of Goods Sold account when sold.
A)True
B)False
Q4) The traditional income statement format calculates operating income as gross profit minus selling and administrative expenses.
A)True
B)False
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Chapter 22: Master Budgets
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Q1) List the three sections of the cash budget for a merchandising company.
Q2) Which of the following statements is true of the capital expenditures budget?
A)It is a part of the financial budget.
B)It must be completed after the budgeted income statement is prepared.
C)It includes the sales budget.
D)It must be completed before the cash budget is prepared.
Q3) The ________ details how the business expects to go from the beginning cash balance to the desired ending cash balance.
A)capital expenditures budget
B)budgeted income statement
C)cash flow statement
D)cash budget
Q4) For a merchandising company,the final step in the process of creating the master budget is the preparation of the ________.
A)budgeted balance sheet
B)operating budget
C)budgeted statement of retained earnings
D)cash budget
Q5) For a merchandising company,what is the final step in the master budget process?
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) A variance is the difference between an actual amount and the budgeted amount.
A)True
B)False
Q2) Which department is usually responsible for a direct labor cost variance attributable to inexperienced workers on the assembly line?
A)purchasing
B)production
C)human resources
D)engineering
Q3) Which of the following will result in an unfavorable direct labor cost variance?
A)Actual direct labor hours exceed standard direct labor hours.
B)Actual direct labor hours are less than standard direct labor hours.
C)The actual direct labor cost per hour exceeds the standard direct labor cost per hour.
D)The actual direct labor cost per hour is less than the standard direct labor cost per hour.
Q4) When recording direct materials usage,what does an unfavorable direct materials efficiency variance represent? Will this variance have a debit or credit balance?
Q5) What does the fixed overhead cost variance measure?
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Regardless of the type of responsibility center,responsibility reports should focus on information,not blame.
A)True
B)False
Q2) Operating income alone does not indicate how efficiently a segment is using its assets.
A)True
B)False
Q3) Key performance indicators (KPIs)are summary performance measures that help managers assess whether the company is achieving its goals.
A)True
B)False
Q4) A lag indicator is a performance measure that forecasts future performance. A)True B)False
Q5) The transfer price should be an amount between the market price and the variable cost.
A)True B)False
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Chapter 25: Short-Term Business Decisions
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Q1) Adorn Furniture manufactures a small table and a large table.The small table sells for $800,has variable costs of $560 per table,and takes 10 direct labor hours to manufacture.The large table sells for $1620,has variable costs of $980,and takes eight direct labor hours to manufacture.Calculate the contribution margin per direct labor hour for the small table.
A)$240 per direct labor hour
B)$64 per direct labor hour
C)$24 per direct labor hour
D)$56 per direct labor hour
Q2) A sunk cost is a cost that was incurred in the past and cannot be changed regardless of what future action is taken.
A)True
B)False
Q3) In making product mix decisions under constraining factors,which of the following is the key to choosing the product type to be maximized?
A)revenue per unit
B)contribution margin per unit of product
C)contribution margin per unit of the constraint
D)gross profit per unit using traditional costing
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Chapter 26: Capital Investment Decisions
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Q1) A major criticism of the payback method is that it focuses only on the time to recover the investment and ignores profitability.
A)True
B)False
Q2) Management uses several different methods in evaluating potential capital investments.Identify and briefly discuss the four methods outlined in the text.
Q3) All else being equal,the shorter the investment period,the higher the total amount of interest earned.
A)True
B)False
Q4) You have just won the lottery and have three payout options:
1.$1,000,000 now
2.$150,000 at the end of each year for the next ten years
3.$2,000,000 at the end of ten years.
What is a common basis for comparison that you can use to decide which option to choose? Explain your answer.
Q5) List two strengths and one weakness of the accounting rate of return capital budgeting method.
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Chapter 27: Accounting Information Systems
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Q1) In a typical computerized accounting information system,________.
A)transactions must be recorded in debit and credit format
B)the software automatically knows to record a debit or a credit
C)transactions are posted manually
D)spreadsheets must be used to produce financial statements
Q2) Enterprise resource planning systems are software systems that can integrate all of a company's functions,departments,and data into a single system.
A)True
B)False
Q3) Which of the following is true of source documents in an accounting information system?
A)All journal entries can be considered as source documents in an accounting information system.
B)Source documents provide control and reliability in an accounting information system.
C)A manual document cannot be considered as a source document in an accounting information system.
D)In a manual accounting information system,source documents refer to financial statements.
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