Business Accounting
Pre-Test Questions
Course Introduction
Business Accounting is an essential course that introduces students to the fundamental concepts and principles underlying the accounting process within a business context. The course covers topics such as recording financial transactions, preparing and interpreting financial statements, understanding the regulatory framework, and analyzing financial information to support decision-making. Students will gain practical skills in bookkeeping, budgeting, and using accounting software, as well as learn how to apply ethical considerations to financial reporting. This foundation equips students with the knowledge needed to manage business finances effectively and supports further studies in accounting and finance.
Recommended Textbook
Financial Accounting 15th Edition by Jan Williams
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Page 2
Chapter 1: Accounting: Information for Decision Making
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Sample Questions
Q1) Which of the following is not an objective of generally accepted accounting principles?
A) To minimize the amount of income taxes owed.
B) To ensure that both preparers and users of financial statements understand the concepts and assumptions used in presenting information within these statements.
C) To enhance the relevance and reliability of information contained in financial statements.
D) To increase the comparability of financial statements prepared by different companies.
Answer: A
Q2) The designation of CPA is given by:
A) Universities.
B) States.
C) The AICPA.
D) The SEC.
Answer: B
Q3) The information is historical in nature. It reports the results of events and transactions that have already occurred.
Answer: Financial
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Page 3
Chapter 2: Basic Financial Statements
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Sample Questions
Q1) Decreases in owners' equity are caused by:
A) Purchases of assets and payment of liabilities.
B) Purchases of assets and incurrence of liabilities.
C) Payment of liabilities and unprofitable operations.
D) Distributions of assets to the owner and unprofitable operations.
Answer: D
Q2) Forms of Business Organization
State and describe the three most common forms of business organizations in the United States.
Answer: (1) Sole Proprietorship-One person, unlimited liability, and owner acts as manager.
(2) Partnership-Two or more persons and owners are personally responsible for debts.
(3) Corporation-Stockholders are owners, limited liability, ease of transfer of ownership, and separate entity under the law.
Q3) The collection of an account receivable will cause total assets to decrease.
A)True
B)False
Answer: False
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4
Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) In a ledger, debit entries cause:
A) Increases in owners' equity, decreases in liabilities, and increases in assets.
B) Decreases in liabilities, increases in assets, and decreases in owners' equity.
C) Decreases in assets, decreases in liabilities, and increases in owners' equity.
D) Decreases in assets, increases in liabilities, and increases in owners' equity.
Answer: B
Q2) A journal entry to record revenue could include each of the following, except:
A) A credit to a revenue account.
B) A credit to the Capital Stock account.
C) A debit to Cash.
D) A debit to Accounts Receivable.
Answer: B
Q3) Liability accounts should only be debited and never credited.
A)True
B)False
Answer: False
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) One of the purposes of adjusting entries is to convert assets to expenses.
A)True
B)False
Q2) Assume Fisher Company usually earns taxable income, but sustains a loss in the current period. The entry to record income taxes expense in the current period will most likely: (indicate all correct answers.)
A) Increase the amount of that loss.
B) Include a credit to the Income Taxes Expense account.
C) Be an adjusting entry, rather than an entry to record a transaction completed during the period.
D) Include a credit to Income Taxes Payable.
Q3) According to attendance records, $4,800 of the Unearned Admission Revenue has been earned in January. Compute the balance in the following accounts after the proper adjustment is made.
Unearned Admission Revenue account balance $__________
Admission Revenue account balance $__________
Q4) All assets should be depreciated.
A)True
B)False
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Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Sample Questions
Q1) Return on equity is a commonly used measure of a company's solvency.
A)True
B)False
Q2) Publicly owned companies are typically managed by their stockholders.
A)True
B)False
Q3) The purpose of the after-closing trial balance is to give assurance that the accounts are in balance and ready for the new accounting period.
A)True
B)False
Q4) For a publicly held company, indicate which of the following activities are likely to occur at or shortly after year-end. (More than one answer may be correct.)
A) Preparing of income tax returns.
B) Adjusting and closing the accounts.
C) Drafting disclosures that accompany financial statements.
D) An audit of the financial statements by a firm of CPAs.
Q5) Dividends are closed out directly to retained earnings at year-end.
A)True
B)False
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Chapter 6: Merchandising Activities
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Sample Questions
Q1) If management wants to know the cost and quantity of merchandise on hand at all times, the business will probably:
A) Use a periodic inventory system.
B) Maintain an inventory subsidiary ledger.
C) Take a complete physical inventory each day.
D) Debit all purchases of merchandise directly to the Cost of Goods Sold account.
Q2) The following information is available: Calculate the gross profit:
A) $0.
B) $1,500.
C) $450.
D) $900.
Q3) Sutton Supplies reports net sales of $3,750,000, net income of $375,000, and gross profit of $900,000. The company's cost of goods sold is:
A) $1,700,000.
B) $1,900,000.
C) $3,375,000.
D) $2,850,000.
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8
Chapter 7: Financial Assets
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Sample Questions
Q1) At the start of the current year, Minuteman Corporation had a credit balance in the Allowance for Doubtful Accounts of $1,800. During the year a monthly provision of 2% of sales was made for uncollectible accounts. Sales for the year were $600,000, and $5,600 of accounts receivable were written off as worthless. No recoveries of accounts previously written off were made during the year. The year-end financial statements should show:
A) Uncollectible accounts expense of $13,800.
B) Allowance for Doubtful Accounts with a credit balance of $8,200.
C) Allowance for Doubtful Accounts with a credit balance of $6,400.
D) Uncollectible accounts expense of $5,600.
Q2) A debit memoranda from a bank indicates that they have decreased your cash balance.
A)True
B)False
Q3) Short-term investments in marketable securities may not be reported in the balance sheet at values higher than original cost.
A)True
B)False
Q4) What is the adjusted cash balance in the September 30 bank reconciliation?
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Chapter 8: Inventories and the Cost of Goods Sold
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Sample Questions
Q1) Assume that the replacement cost of this monitor at year-end is $220 per unit. Using the FIFO flow assumption and the lower-of-cost-or-market rule, Castle TV should write down the carrying value of this inventory by:
A) $0.
B) $1,000.
C) $2,000.
D) $3,000.
Q2) Under the LIFO flow assumption, the cost of this item to be included as inventory in the company's year-end balance sheet is:
A) $36,000.
B) $42,000.
C) $36,500.
D) $37,500.
Q3) The lower-of-cost-or-market rule:
A) Is used in conjunction with the other inventory cost flow assumptions.
B) Cannot be used if LIFO or FIFO are also used.
C) Can be used in conjunction with LIFO but not FIFO.
D) Can only be used with the specific identification cost flow assumption.
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Chapter 9: Plant and Intangible Assets
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Sample Questions
Q1) Annual depreciation expense is increased when salvage values are small.
A)True
B)False
Q2) On April 8, 2009, Jupitor Corp. acquired equipment at a cost of $480,000. The equipment is to be depreciated by the straight-line method over six years with no provision for salvage value. Depreciation for fractional years is computed by rounding the ownership period to the nearest month. Depreciation expense recognized in 2009 will be:
A) $53,333.
B) $66,667.
C) $60,000.
D) $80,000.
Q3) An asset which costs $18,800 and has accumulated depreciation of $6,000 is sold for $11,600. What amount of gain or loss will be recognized when the asset is sold?
A) A gain of $1,200.
B) A loss of $1,200.
C) A loss of $7,200.
D) A gain of $7,200.
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11
Chapter 10: Liabilities
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Sample Questions
Q1) Bonds payable are a means of dividing a very large, long-term liability among many creditors, some of whom may participate in the loan only for a short period of time.
A)True
B)False
Q2) Temple Corporation purchased a piece of real estate, paying $400,000 cash and financing $700,000 of the purchase price with a 10-year, 15% installment note. The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year. In this situation:
A) The aggregate amount of the monthly payments is $700,000.
B) Each monthly payment is greater than the amount of interest accruing each month.
C) The portion of each payment representing interest expense will increase over the 10-year period, since principal is being paid off, yet the payment amount does not decrease.
D) The portion of each monthly payment representing repayment of principal remains the same throughout the 10-year period.
Q3) How much of the first payment made on December 31, 2009, is allocated to repayment of principal? $________
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Page 12
Chapter 11: Stockholders Equity: Paid-In Capital
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Sample Questions
Q1) The par value of the common stock of a large listed corporation:
A) Tends to establish a ceiling for the market price of the stock.
B) Tends to establish a floor for the market price of the stock.
C) Represents legal capital and is not related to the market price of the stock.
D) Is increased by net income and decreased by dividends.
Q2) Which of the following individuals has the most power to influence corporate policy on a long-term basis?
A) A shareholder owning 60% of the outstanding common stock.
B) A shareholder owning 80% of the outstanding preferred stock.
C) The treasurer of the corporation.
D) The controller of the corporation.
Q3) A stock split will normally increase the market price of the stock and decrease the number of shares on the market.
A)True
B)False
Q4) When a stockholder sends in a proxy statement to a corporation he or she owns stock in, they relinquish their voting rights to the officers of the corporation.
A)True
B)False
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Chapter 12: Income and Changes in Retained Earnings
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Sample Questions
Q1) A small stock dividend of 5,000 shares was declared and distributed during 2009. What was the market price per share on the date of declaration?
A) $82 per share.
B) $80 per share.
C) $2 per share.
D) $78 per share.
Q2) The statement of stockholders' equity:
A) Is a required financial statement.
B) May be issued as a substitute for the statement of retained earnings.
C) Shows the changes during the year in all stockholders' equity accounts except retained earnings.
D) Is a statement sent to each stockholder showing that person's return on equity.
Q3) The expropriation (seizure of) of a multinational company's assets by a government is an example of a discontinued operation item.
A)True
B)False
Q4) Stock dividends
What is the effect of a stock dividend?
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14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) When applying the direct method in a statement of cash flows, the amount of depreciation is added to net income.
A)True
B)False
Q2) Total cash proceeds received by Johnson from sales of plant assets during the current year amounted to:
A) $13,000.
B) $104,000.
C) $195,000.
D) $41,000.
Q3) The statement of cash flows is designed to assist users in assessing each of the following, except:
A) The ability of a company to remain liquid.
B) The major sources of cash receipts during the period.
C) The company's profitability.
D) The reasons why net cash flow from operating activities differ from net income.
Q4) Dividends paid belong in the operating section of the statement of cash flows.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) Supreme's price-earnings ratio at year end was:
A) 25.
B) 22.
C) 100.
D) 4.
Q2) The financial ratio intended to measure the effectiveness with which management has utilized the resources of the business, regardless of how these resources are financed, is:
A) Gross profit rate.
B) Current ratio.
C) Return on assets.
D) Return on equity.
Q3) What is the current ratio?
A) 5.0 to 1.
B) 1.5 to 1.
C) .7 to 1.
D) .8 to 1.
Q4) Inventory is an example of a quick asset.
A)True
B)False
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Chapter 15: Global Business and Accounting
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Sample Questions
Q1) Although cultural differences are significant in business dealings, they pose no difficulties to the design and implementation of an accounting system.
A)True
B)False
Q2) A U. S. public corporation's decision to globalize impacts all of following except:
A) Internal procedures.
B) Who owns stock in the company.
C) Production processes.
D) Accounting outputs.
Q3) An international joint venture is a company owned by two or more companies from different countries.
A)True
B)False
Q4) An increase in the exchange rate between a transaction date and the date of payment will cause the debtor to incur a loss.
A)True
B)False
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Chapter 16: The Time Value of Money
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Sample Questions
Q1) How much must I invest today in order to have $25,000 in 5 years assuming 12% interest compounded annually?
A) $14,185.75.
B) $15,888.00.
C) $18,681.50.
D) $17.624.00.
Q2) As the discount rate required by an investor increases, the present value of an investment decreases.
A)True
B)False
Q3) Explain what is meant by the "time value of money." Provide examples.
Q4) A future amount is the dollar amount to which a present value will ______________ over time.
A) vanish.
B) accumulate.
C) disappear.
D) remain.
Q5) The future value of an investment gradually increases toward the present amount. A)True
B)False
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