Business Accounting
Practice Questions
Course Introduction
Business Accounting provides an essential foundation in the principles and practices of accounting as applied to business operations. The course covers topics such as the accounting cycle, preparation and analysis of financial statements, and the use of accounting information for decision-making purposes. Students will explore areas including revenue recognition, expense measurement, asset valuation, liabilities, and owners' equity. By combining theoretical concepts with practical applications, the course equips learners with skills to record, summarize, and interpret financial data, enabling informed business decisions in both small and large organizations.
Recommended Textbook
Financial and Managerial Accounting 9th Edition by Belverd E. Needles
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Page 2
Chapter 1: Uses of Accounting Information and the Financial Statements
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Sample Questions
Q1) The statement of cash flows discloses significant events related to the operating,investing,and financing activities of a business.
A)True
B)False
Answer: True
Q2) The retained earnings figure is typically divided into par value and additional paid-in capital.
A)True
B)False
Answer: False
Q3) The declaration of a dividend will reduce net income.
A)True
B)False
Answer: False
Q4) The topic of foreign exchange rates relates most closely to the concept of A) separate entity.
B) money measure.
C) nonexchange transactions.
D) business transactions.
Answer: B
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Chapter 2: Analyzing Business Transactions
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Sample Questions
Q1) If Accounts Receivable has debit postings of $29,000,credit postings of $22,000,and a normal ending balance of $24,000,which of the following was its beginning balance?
A) $31,000 Dr.
B) $17,000 Dr.
C) $17,000 Cr.
D) $31,000 Cr.
Answer: B
Q2) A $4,000 machine is purchased by paying $1,000 cash and issuing a promissory note for the remainder.The journal entry should include a
A) credit to Machinery.
B) credit to Notes Payable.
C) credit to Notes Receivable.
D) debit to Cash.
Answer: B
Q3) An increase in revenue is recorded with a credit.
A)True
B)False
Answer: True
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4
Chapter 3: Measuring Business Income
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Sample Questions
Q1) Which of the following situations involves a deferral?
A) Recording accrued interest
B) Recording depreciation
C) Recording unrecorded wages
D) Recording unrecorded revenue
Answer: B
Q2) Which of the following is an example of an accrual?
A) The purchase of office supplies
B) Wages expense incurred but not yet paid
C) Tuition revenue collected in advance
D) Payment of two years' insurance in advance
Answer: B
Q3) Accounting periods of greater than a year are called interim periods.
A)True
B)False
Answer: False
Q4) Assets are converted to revenues as they benefit the company.
A)True
B)False
Answer: False
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Chapter 3: Supplement - Closing Entries and the Work Sheet
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Sample Questions
Q1) The Adjusted Trial Balance columns of the work sheet are prepared by combining the Trial Balance and Adjustments columns of the work sheet.
A)True
B)False
Q2) When a company has earned a net income,the net income amount is entered on the work sheet on the
A) credit side of the Income Statement columns and the debit side of the Balance Sheet columns.
B) debit side of both the Income Statement and the Balance Sheet columns.
C) debit side of the Income Statement columns and the credit side of the Balance Sheet columns.
D) credit side of both the Income Statement and the Balance Sheet columns.
Q3) Why would a large company probably benefit more from a work sheet than would a very small company?
Q4) The process of crossfooting requires vertical addition and subtraction.
A)True B)False
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Chapter 4: Financial Reporting and Analysis
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Sample Questions
Q1) The profit margin equals
A) net sales divided by net income.
B) gross margin divided by net income.
C) net income divided by gross margin.
D) net income divided by net sales.
Q2) Current assets divided by current liabilities is known as the
A) profit margin.
B) current ratio.
C) working capital.
D) capital structure.
Q3) Natural resources,such as coal mines and oil wells,are classified as intangible assets.
A)True
B)False
Q4) Why is it important for a company to maintain the same accounting methods and practices from period to period?
Q5) Earnings per share,often called net income per share,is the net income earned on each share of common stock.
A)True
B)False
Page 7
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Chapter 5: The Operating Cycle and Merchandising Operations
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Sample Questions
Q1) Use this information to answer the following question. \(\begin{array}{|l|r|r|}\hline
\text { Account Name } & \text { Debit } & \text { Credit } \\
\hline \text { Sales } & & 300,000 \\
\text { Sales Returns and Allowances } & 10,000 & \\
\text { Purchases } & 62,000 & \\\text { Purchases Returns and Allowances } & & 8,000 \\
\text { Freight-In } & 12,000 & \\
\text { Selling Expenses } & 30,000 & \\
\text { General and Administrative Expenses } & 110,000 & \\
\hline
\end{array}\) In addition,beginning merchandise inventory was $22,000 and ending merchandise inventory was $14,000.
Cost of goods sold for the period was
A) $74,000.
B) $62,000.
C) $88,000.
D) $58,000.
Q2) Why is the separation of duties an important control activity in a good system of internal control?
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Chapter 6: Inventories
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Sample Questions
Q1) Goods held on consignment are
A) kept for sale on the premises of the consignor.
B) included as part of no one's ending inventory.
C) never owned by the consignee.
D) included in the consignee's ending inventory.
Q2) The term cost flow refers to the association of costs with their assumed flow in the operation of a business.
A)True
B)False
Q3) Which of the following costs normally would be included in the inventory cost?
A) Ordering costs
B) Receiving costs
C) Applicable taxes
D) Storage costs
Q4) Inventory is an example of a long-term asset.
A)True
B)False
Q5) The higher the inventory turnover,the higher the days' inventory on hand.
A)True
B)False
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) The matching rule relates to credit losses by stating that Uncollectible Accounts Expense should be recorded
A) in the period of the loss.
B) for an exact amount.
C) in the same period as allowed for tax purposes.
D) in the period of the sale.
Q2) When an individual uses a debit card to make a purchase,the amount of the purchase is deducted directly from that individual's bank account.
A)True
B)False
Q3) Which of the following would be added to the balance per books on a bank reconciliation?
A) Deposits in transit
B) Outstanding checks
C) Service charges
D) Notes collected by the bank
Q4) Notes receivable and cash are examples of short-term financial assets.
A)True
B)False
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Chapter 8: Current Liabilities and Fair Value Accounting
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Sample Questions
Q1) You win the grand prize and can choose between receiving $100,000 today or $20,000 per year for seven years.Ignoring income taxes,how would you go about making your decision?
Q2) A liability must never be classified as current if it is due in more than one year.
A)True
B)False
Q3) If the net present value of a proposed investment is negative,it means that the investment should not be made.
A)True
B)False
Q4) The term wages refers to the compensation of employees who are paid at a monthly or yearly rate.
A)True
B)False
Q5) Which of the following most likely is an example of an accrued liability?
A) Salaries payable
B) Accounts payable
C) Current portion of long-term debt
D) Sales tax payable
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Chapter 9: Long Term Assets
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Sample Questions
Q1) An expenditure for which of the following items would be considered a revenue expenditure?
A) Plant assets
B) Ordinary repair
C) Addition
D) Betterment
Q2) A specialized piece of equipment closely associated with a mine is most likely to be depreciated over a shorter than normal useful life because the A) equipment will be fully utilized.
B) income tax laws require that a shorter life be used.
C) equipment contains certain defects.
D) mine is expected to be fully depleted in the shorter length of time.
Q3) A $750 gain on the sale of an asset means that $750 in cash was received.
A)True
B)False
Q4) Which of the following is not a characteristic of all long-term assets?
A) Possess physical substance
B) Not for resale
C) Used in operations of business
D) Useful life of more than a year
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Chapter 10: Long-Term Liabilities
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Sample Questions
Q1) Knollwood Corporation issued $281,000 of 30-year,8 percent bonds at 106 on one of its semi-annual interest dates.The straight-line method of amortization is to be used.After 11 years,what is the carrying value of the bonds?
A) $289,430
B) $289,992
C) $288,025
D) $291,678
Q2) When all the bonds of an issue mature at the same time,they are called serial bonds.
A)True
B)False
Q3) It is illegal for a company to use depreciation methods for financial reporting that differ from those used for income tax return purposes.
A)True
B)False
Q4) The present value of a bond is always less than the face value of the bond.
A)True
B)False
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13
Chapter 11: Contributed Capital
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Sample Questions
Q1) The word preferred in the phrase preferred stock means that an owner of preferred stock has some advantages over a bondholder.
A)True
B)False
Q2) A dividend that represents a return to the stockholders of a part of their paid-in capital rather than a distribution out of retained earnings is called a liquidating dividend.
A)True
B)False
Q3) The par value of the common stock represents the A) amount entered into the corporation's Common Stock account when a share is issued.
B) liquidation value of the stock.
C) market value of a share of stock.
D) amount the corporation received when the stock was issued.
Q4) To evaluate the amount of dividends they receive,investors use the ratio called A) Price Earning ratio
B) Dividend yield ratio
C) Return on Equity
D) Current ratio
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Chapter 12: Investments
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Sample Questions
Q1) The cash amounts of purchases and sales of investments appear in which section of the statement of cash flows?
A) Operating activities
B) Investing activities
C) Financing activities
D) Noncash investing and financing activities
Q2) When the market value of available-for-sale securities exceeds cost,an unrealized gain appears in stockholders' equity as an addition.
A)True
B)False
Q3) In preparing consolidated financial statements,all of the following commonly require elimination entries except a(n)
A) intercompany loan.
B) purchase from a nonaffiliated.
C) intercompany sale.
D) intercompany investment.
Q4) Trading securities are valued on the balance sheet at market value.
A)True
B)False
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Chapter 13: The Corporate Income Statement and the Statement of Stockholders Equity
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Sample Questions
Q1) Which of the following income statement figures probably would be the best predictor of a corporation's future performance?
A) Total revenues
B) Income from continuing operations
C) Net income
D) Income before extraordinary items
Q2) On December 31,2009,Kallman Corporation had 160,000 shares of common stock issued and outstanding.On April 1,2010,an additional 40,000 shares of common stock were issued for cash.During 2010,Kallman declared and paid dividends of $150,000 on its 20,000 shares of nonconvertible preferred stock.Net income for 2010 amounted to $400,000.Kallman's earnings per share of common stock (rounded to the nearest cent)for 2010 are
A) $1.25.
B) $1.32.
C) $2.00.
D) $2.11.
Q3) Specifically,what gives rise to the Deferred Income Taxes account?
Q4) Distinguish between cash and retained earnings.
Page 16
Q5) Draw two distinctions between accounting for a stock split and accounting for a stock dividend.
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) The primary purpose of the statement of cash flows is to provide information about a company's cash receipts and cash payments during an accounting period.
A)True
B)False
Q2) A negative free cash flow indicates that the company has met all its planned cash commitments and has cash available to reduce debt or to expand.
A)True
B)False
Q3) Royer Corporation engaged in this transaction: Issued common stock for cash.
Indicate which section,if any,the above transaction would appear in,or relate to,on a statement of cash flows.
A) Operating activities section
B) Does not represent a cash flow
C) Investing activities section
D) Financing activities section
Q4) On the lines below,provide the components for the calculation of free cash flow.
Q5) How is it possible for a company to show a net loss for a given year,yet produce positive net cash flows from operating activities?
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Chapter 15: The Changing Business Environment - a Managers Perspective
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Q1) "Hours of inspection" is an example of a nonfinancial performance measure. A)True
B)False
Q2) Primary processes in the value chain are comprised of
A) marketing, legal and accounting services.
B) research and development, marketing, supply, design, production, distribution, and information systems.
C) research and development, design, supply, production, marketing, distribution and customer service.
D) human resources, legal services, information systems and management accounting.
Q3) Activity-based management's primary goal is to reduce A) nonvalue-adding costs.
B) defects.
C) inventory size.
D) machine setup time.
Q4) Similar to financial accounting reports,management accounting reports are standardized in format.
A)True
B)False
18
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Chapter 16: Cost Concepts and Cost Allocation
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Sample Questions
Q1) Cost of goods manufactured is equal to
A) Direct Materials + Direct Labor + Overhead.
B) Beginning Work in Process Inventory + Total Manufacturing Costs - Ending Work in Process Inventory.
C) Beginning Work in Process Inventory + Period Costs - Ending Work in Process Inventory.
D) Beginning Work in Process Inventory + Product Costs.
Q2) Another term for product cost is
A) period cost.
B) direct cost.
C) value-adding cost.
D) inventoriable cost.
Q3) The factory personnel whose wages are traceable directly to a product include A) maintenance personnel.
B) support personnel.
C) factory supervisors.
D) employees who help to shape the product.
Q4) Actual overhead plus overapplied overhead equals applied overhead. A)True B)False
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Chapter 17: Costing Systems- Job Order Costing
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Q1) A zero balance in Finished Goods Inventory at the start of the period means all previously completed products have been shipped.
A)True
B)False
Q2) Job costs in a service organization end up in the Finished Goods Inventory account when a job is completed.
A)True
B)False
Q3) The balance in the Work in Process account equals the
A) balance in the Finished Goods Inventory account.
B) balance in the Cost of Goods Sold account.
C) balances on the job cost sheets of uncompleted jobs.
D) balance in the Overhead account.
Q4) In a job order costing system,at the end of the accounting period,the balance in the subsidiary ledger for unfinished jobs should equal the ending balance in the Work in Process Inventory account.
A)True
B)False
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Chapter 18: Costing Systems- Process Costing
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Q1) Average costing method disregards the previous period cost of units started last period.
A)True B)False
Q2) The most commonly used method to assign costs to products in process costing is the FIFO costing method.
A)True B)False
Q3) The use of the FIFO method would result in a company's process cost report showing
A) units transferred out as one amount with no distinction made for beginning inventory.
B) units transferred out as two amounts: one for beginning inventory and the other for units started and completed during the month.
C) units transferred out as two amounts: one for units completed during the period and one for ending inventory.
D) units transferred out as three amounts: one for beginning inventory, one for units started and completed during the period, and one for ending inventory.
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21
Chapter 19: Value-Based Systems- Abm and Lean
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Sample Questions
Q1) A just-in-time operation seeks to eliminate all product support functions.
A)True
B)False
Q2) For work done during August,Printing Press Company incurred direct materials costs of $130,000 and conversion costs of $226,000.The company employs a traditional operating philosophy.At the end of August,it was determined that the Work in Process Inventory account had been assigned $1,000 of costs,and the ending balance of the Finished Goods Inventory account was $3,000.There were no beginning inventory balances.How much was cost of goods manufactured during August?
A) $356,000
B) $355,000
C) $353,000
D) $352,000
Q3) Many indirect costs in a traditional system become direct costs in a JIT system.
A)True
B)False
Q4) Cost traceability is decreased in a just-in-time operating environment.
A)True
B)False
Q5) How can activity-based systems help managers in a global marketplace?
Page 22
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Chapter 20: Cost Behavior Analysis
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Sample Questions
Q1) The engineering method of separating costs is sometimes called a time and motion study.
A)True
B)False
Q2) When managers plan,they may use cost behavior to decide how to change the mix of products to meet changing demand.
A)True
B)False
Q3) The breakeven point is the point at which
A) fixed costs equal variable costs.
B) contribution margin equals fixed costs.
C) sales equal variable costs.
D) fixed costs equal sales.
Q4) The contribution margin and the gross margin can be used interchangeably.
A)True B)False
Q5) Cost-volume-profit analysis is not appropriate for service businesses.
A)True
B)False
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Chapter 21: The Budgeting Process
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Q1) Roger Wills & Company estimates the following for 2010: \(\begin{array}{lr}
\text { Sales (all on account) } & \$ 800,000 \\
\text { Collections of accounts receivable } & 700,000 \\
\text { Proceeds from bond issuance } & 500,000 \\
\text { Proceeds from sale of common stock } & 300,000 \\
\text { Merchandise bought on credit } & 650,000 \\
\text { Payments of accounts payable } & 500,000 \\
\text { Cash payments of expenses } & 70,000 \\
\text { Cash purchase of equipment } & 140,000 \\
\text { Depreciation of equipment } & 15,000 \\
\text { Payment on notes payable } & 30,000 \end{array}\)
The ending cash balance for 2009 was $200,000. Prepare a cash budget to determine the ending cash balance for 2010.
Q2) The Budget Committee oversees each stage in the preparation of a master budget. A)True B)False
Q3) Describe three benefits budgeting provides to an organization's success.
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Page 24
Chapter 22: Performance Management and Evaluation
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Q1) Many organizations utilize responsibility accounting A) to assist in building performance measures for the organization. B) to assist in performance management and evaluation. C) solely to evaluate how well employees are handling their responsibilities. D) as an alternative to generally accepted accounting principles.
Q2) Compute the asset turnover (rounded to two decimal places)for the Tim Tom investment center as shown below. \[\begin{array} { l r } & \text { Tim Tom subsidiary } \\
\text { Total sales } & 1,600 \\
\text { Operating income } & \$ 100\\
\text { Average as5ets invested }&\$900 \\
\text { Profit marpin } & \text { ? } \\
\text { A55et turnever } & \text { ? } \\
\text { ROI }& \text { ? } \end{array}\]
A) 1.78
B) 0.56
C) 0.11
D) 9.00
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Chapter 23: Standard Costing and Variance Analysis
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Q1) When actual capacity exceeds expected capacity,the result is a(n)
A) favorable fixed overhead volume variance.
B) favorable materials quantity variance.
C) unfavorable overhead variance.
D) unfavorable materials quantity variance.
Q2) A favorable fixed overhead volume variance for a manufacturing company could indicate
A) the creation of excess inventory.
B) the actual overhead exceeded the budgeted overhead.
C) sales exceeded production.
D) variable overhead costs were less than fixed overhead costs.
Q3) Under which of the following circumstances would the base used to calculate the variable overhead rate be the same as that used for the fixed overhead rate?
A) When actual labor hours are the same as budgeted labor hours
B) When standard indirect labor hours agree with standard direct labor hours
C) In most circumstances; the base used for each calculation is normally the same.
D) When the number of labor hours expected to be incurred for the period is the same as normal capacity direct labor hours
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Chapter 24: Short Run Decision Analysis
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Q1) The common costs shared by two or more products before they are split off are called joint costs.
A)True
B)False
Q2) Irrelevant costs are costs that are
A) different among alternatives.
B) avoidable costs.
C) opportunity costs.
D) sunk costs.
Q3) Avoidable costs are important for
A) sales mix decisions.
B) pricing decisions for special orders.
C) sell or process-further decisions.
D) decisions to eliminate unprofitable segments.
Q4) Sunk costs are omitted from decision analysis
A) always.
B) never.
C) sometimes.
D) only if immaterial.
Q5) What are the two steps in the analysis for a sales mix decision?
Page 27
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Chapter 25: Capital Investment Analysis
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Q1) The accounting rate-of-return method does not consider the time value of money.
A)True
B)False
Q2) The accounting rate-of-return method is difficult to comprehend and apply.
A)True
B)False
Q3) Various parts of the organization that are involved in capital investment analysis include all of the following except
A) financial analysts
B) marketing specialists
C) creditors
D) managers
Q4) The discount rate used in net present value calculations is the company's minimum rate of return.
A)True
B)False
Q5) Discuss the qualitative factors that should be considered in the evaluation of proposals in addition to the quantitative factors.
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Chapter 26: Pricing Decisions,incltarget Costing and Transfer Pricing
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Q1) The long-term objectives of a company need not include statements concerning pricing policy.
A)True
B)False
Q2) Transfer prices affect the revenues and costs of the divisions involved but do not affect the revenues and costs of the company as a whole.
A)True
B)False
Q3) Market research shows potential customers will buy a particular product at a selling price of $3,100.If the desired profit is 28 percent of target cost,the company should make the product if the cost does not exceed
A) $3,100.
B) $868.
C) $2,232.
D) $2,422.
Q4) A manager may deviate from the four pricing rules if a specific short-term objective is being targeted.
A)True
B)False
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Chapter 27: Quality Management and Measurement
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Q1) Many traditional management information systems do not produce meaningful results for today's business environment.
A)True
B)False
Q2) The Deming Application Prize for quality originated in Japan.
A)True
B)False
Q3) The last step in ensuring the production of high-quality products is to have a sound product design.
A)True
B)False
Q4) The first step in ensuring the production of high-quality products is to have a sound product design.
A)True
B)False
Q5) Reducing the costs of quality and increasing overall product quality can be achieved simultaneously.
A)True
B)False
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Chapter 28: Financial Analysis of Performance
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Q1) If dividends declared per share during 2008 (the base year),2009,and 2010 are $2.40,$1.80,and $3.84,respectively,the index numbers assigned to 2009 and 2010,respectively,are
A) 75 and 160.
B) 60 and 165.
C) 180 and 150.
D) 133.3 and 180.
Q2) A company is referred to as a diversified company or a conglomerate if it operates in
A) many related industries.
B) many unrelated industries.
C) many and varied locations throughout the world.
D) one single major industry.
Q3) Interim financial statements report data for a period of more than one year.
A)True
B)False
Q4) Dividends yield is a market strength ratio.
A)True
B)False
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