Business Accounting
Question Bank
Course Introduction
Business Accounting introduces students to the fundamental principles and practices of accounting within a business context. The course covers key topics such as the accounting cycle, preparation and interpretation of financial statements, concepts of assets, liabilities, and equity, as well as the use of accounting information for decision-making purposes. Emphasis is placed on understanding how accounting systems support business operations and strategies, with practical examples and exercises designed to develop proficiency in recording, analyzing, and reporting financial transactions. This course provides a foundational understanding for students pursuing further studies in business, finance, or entrepreneurship.
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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Sample Questions
Q1) Which of the following events is NOT recorded by accountants?
A)purchase of a building for $200,000 cash
B)effects of an economic boom
C)sale of merchandise on account
D)signing a $400,000 note to purchase land
Answer: B
Q2) Lawton Corporation records business transactions in dollars and disregards changes in the value of a dollar over time.Which of the following accounting assumptions does this represent?
A)economic entity assumption
B)going concern assumption
C)accounting period assumption
D)monetary unit assumption
Answer: D
Q3) Members of a limited-liability company (LLC)are not personally liable for the debts of the business.
A)True
B)False
Answer: True
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Page 3
Chapter 2: Recording Business Transactions
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Q1) A trial balance summarizes the ledger by listing all the accounts with their balances at a point in time.
A)True
B)False
Answer: True
Q2) A chart of accounts is a detailed record of the changes in a particular asset,liability,or equity account during a specified period.
A)True
B)False
Answer: False
Q3) Journalizing a transaction involves ________.
A)calculating the balance in an account using journal entries
B)posting the account balances in the chart of accounts
C)preparing a summary of account balances
D)recording the data only in the journal
Answer: D
Q4) Each category of the accounting equation contains accounts.
A)True
B)False
Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Hudson Landscaping Service bought equipment for $9,600 on January 1,2019.It has an estimated useful life of five years and zero residual value.Hudson uses the straight-line method to calculate depreciation and records depreciation expense in the books at the end of every month.As of June 30,2019,the book value of this equipment shown on its balance sheet will be ________.
A)$8,640
B)$9,600
C)$10,560
D)$9,760
Answer: A
Q2) Which of the following assumes that the financial statements of a business can be prepared for specific periods?
A)matching principle
B)revenue recognition principle
C)time period concept
D)adjusting entry principle
Answer: C
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Page 5
Chapter 4: Completing the Accounting Cycle
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Q1) The statement of retained earnings shows how retained earnings changed during the period due to acquiring assets and paying liabilities.
A)True
B)False
Q2) Which of the following accounts will be included in a post-closing trial balance?
A)Accumulated Depreciation-Building
B)Rent Expense
C)Interest Expense
D)Service Revenue
Q3) In regards to a company using a computerized accounting system,which of the following statements is incorrect?
A)Closing entries are completed in a matter of seconds.
B)The accountant must manually prepare the closing entries.
C)The software identifies the temporary accounts.
D)The Retained Earnings balance is up-to-date.
Q4) The Salaries Payable account is a permanent account.
A)True
B)False
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) FOB destination represents a situation in which the buyer takes title to the goods after the goods leave the seller's place of business.
A)True
B)False
Q2) Weston Jewelers uses the perpetual inventory system.On April 2,Weston sold merchandise with a cost of $1,257 for $2,200 to a customer on account with the terms 3/15,n/30.Weston paid $125 for delivery of the merchandise.Calculate the amount of net sales revenue.(Round any intermediary calculations and your final answer to the nearest dollar. )
A)$2,325
B)$2,200
C)$2,134
D)$1,257
Q3) The Merchandise Inventory account is only used in a perpetual inventory system. A)True
B)False
Q4) What does the gross profit percentage measure? How is it computed?
Q5) List the three steps,in order of occurrence,of the operating cycle of a merchandising business.
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Chapter 6: Merchandise Inventory
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Q1) Given the same purchase and sales data,and assuming the cost of inventory is rising,the costing methods for inventory will result in different amounts for net income.
A)True
B)False
Q2) An overstatement of ending merchandise inventory in the current period results in an overstatement of net income in the current period.
A)True
B)False
Q3) When a company uses the last-in,first-out (LIFO)method,the cost of goods sold represents the costs of most recently purchased goods,and the ending inventory represents the oldest costs.
A)True
B)False
Q4) A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000.Under the conservatism principle,it should choose to show it at $100,000.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Q1) The bank statement reveals an EFT payment made to one of the company's suppliers that has not yet been recorded in the journal.How would this information be included on the bank reconciliation?
A)an addition on the bank side
B)a deduction on the bank side
C)a deduction on the book side
D)an addition on the book side
Q2) A check was written by a business for $549 but was recorded erroneously in the Cash account as $459.How would this error be included on the bank reconciliation?
A)an addition on the book side
B)a deduction on the bank side
C)a deduction on the book side
D)an addition on the bank side
Q3) A cash equivalent is a highly liquid investment that can be converted into cash in one year or less.
A)True
B)False
Q4) Define internal control.
Q5) List and briefly discuss the five components of internal control.
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Chapter 8: Receivables
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Sample Questions
Q1) The maturity date for a six-month note issued on January 15 would be ________.
A)July 15
B)July 14
C)July 16
D)July 10
Q2) On June 16,2018,Evergreen Inc.wrote off the $200 receivable from customer M.Simmons.On October 14,2018,Evergreen unexpectedly receives $200 cash from M.Simmons.How should Evergreen record the $200 payment from M.Simmons? Evergreen uses the allowance method.
A)debit Cash and credit Bad Debts Expense
B)debit Accounts Receivable - M.Simmons and credit Allowance for Bad Debts;debit Cash and credit Accounts Receivable - M.Simmons
C)debit Accounts Receivable - M.Simmons and credit Bad Debts Expense;debit Cash and credit Accounts Receivable - M.Simmons
D)debit Cash and credit Allowance for Bad Debts
Q3) Accounts Receivable are generally reported at the gross amount on the balance sheet.
A)True
B)False
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Page 10
Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) Which of the following is included in the cost of a plant asset?
A)amounts paid to make the asset ready for its intended use
B)regular repair and maintenance costs
C)replacement of damaged parts of the asset
D)wages of workers who use the asset in normal operations
Q2) Goodwill is the excess cost of an acquired company over the market value of its net assets.
A)True
B)False
Q3) Which of the following asset categories would include the cost of clearing land and removing unwanted buildings?
A)land
B)buildings
C)land improvements
D)machinery and equipment
Q4) When a plant asset is disposed of,the business must ________.
A)immediately replace it
B)ensure that the plant asset is obsolete or worn out
C)comply with the conservatism principle and record losses but not gains
D)bring the depreciation up to date
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Chapter 10: Investments
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Sample Questions
Q1) Securities are represented by a certificate and are commonly traded on an exchange.
A)True
B)False
Q2) At the end of each accounting period,trading debt securities must be adjusted and reported at fair value.
A)True
B)False
Q3) Under the equity method,dividend revenue is treated as ________.
A)a debit to revenue from investments
B)dividend revenue
C)a return of capital
D)a credit to current assets
Q4) Available-for-sale (AFS)debt investments that are expected to be held longer than a year are reported as ________.
A)equity
B)current assets
C)long-term assets
D)either current assets or long-term assets
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
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) If the likelihood of a future event is reasonably possible,how should the company report the contingency?
Q3) Unearned revenue arises because the business receives goods or services before payment has been made.
A)True
B)False
Q4) Only contingencies that are probable and can be estimated are recorded as a liability and an accrued expense.
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Q1) The current portion of notes payable is the principal amount that will be paid within two years of the balance sheet date,and the remaining portion is long term.
A)True
B)False
Q2) The interest rate on which cash payments to bondholders are based is the
A)market rate
B)discount rate
C)stated rate
D)amortization rate
Q3) The balance in the Bonds Payable account is a credit of $77,000.The balance in the Discount on Bonds Payable is a debit of $3,600.The balance sheet will report the bond balance as $80,600.
A)True
B)False
Q4) The difference between mortgages payable and notes payable is that notes payable are always secured by specific assets.
A)True
B)False
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Chapter 13: Stockholders Equity
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Sample Questions
Q1) Interest revenue and interest expense are not included in the calculation of income from continuing operations.
A)True
B)False
Q2) On December 2,2018,Eshares,Inc.purchases land.In payment for the land,Eshares,Inc.issues 6000 shares of common stock with $6 par value.The land has been appraised at a market value of $430,000.Which of the following is included in the journal entry to record this transaction?
A)debit Common Stock-$6 Par Value for $36,000 and debit Paid-In Capital in Excess of Par-Common $394,000
B)credit Common Stock-$6 Par Value for $36,000 and credit Paid-In Capital in Excess of Par-Common $394,000
C)credit Common Stock-$6 Par Value for $430,000
D)debit Cash $430,000
Q3) Paid-in capital and retained earnings are internally generated equity.
A)True
B)False
Q4) List the four basic rights of stockholders.
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Chapter 14: The Statement of Cash Flows
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Q1) List (in the correct order)and briefly discuss the five steps that are followed when preparing the statement of cash flows by the indirect method.
Q2) For the year ended December 31,2019,the Statement of Cash Flows for Mississippi Family Auto Supply shows the following information: Net Cash Used by Operating Activities,$(70,000);Net Cash Provided by Investing Activities,$48,000;and Net Cash Provided by Financing Activities,$42,000.Cash has increased by $169,000.
A)True B)False
Q3) In preparing a statement of cash flows using the indirect method,the Depreciation Expense ________.
A)is added back as an adjustment to Net Income in the operating activities section
B)is shown as a negative cash flow in the investing activities section
C)is added back to Purchases of Plant Assets under investing activities
D)is shown as a negative cash flow under operating activities
Q4) The total change in cash for the period reconciles the statement of cash flows. A)True B)False
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Chapter 15: Financial Statement Analysis
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Q1) An external auditor is responsible for assessing the effectiveness of a company's internal controls.
A)True
B)False
Q2) 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?
Q3) Ratio analysis ________.
A)cannot be used to evaluate a company's financial condition
B)is used most effectively to compare a company against other companies in the same industry and to denote trends within the company
C)cannot be used to compare a company against other companies in the same industry because the necessary information is not available
D)cannot be used to evaluate a company's performance
Q4) What is an annual report? Briefly describe the key parts of the annual report.
Q5) List the three ways to analyze financial statements.State what each of these ways provides to investors and creditors.
Q6) What is a common-size statement? Why are these statements useful?
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Chapter 16: Introduction to Managerial Accounting
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Q1) What is Total Quality Management (TQM)?
A)a philosophy of supplying customers with superior products and services
B)an exchange of information with suppliers and customers to create efficient and effective processes
C)a software system that integrates a company's functions,departments,and data into a single system
D)a system that speeds the transformation of raw materials into finished products
Q2) Most companies structure their organizations along departments or divisions.
A)True
B)False
Q3) Unit cost per service is calculated by dividing total costs by the total number of services provided.
A)True B)False
Q4) Planning requires managers to look to the future and establish goals for the business.
A)True
B)False
Q5) Define direct cost.
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Chapter 17: Job Order Costing
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Q1) The journal entry to record direct labor costs actually incurred involves a debit to the
A)Work-in-Process Inventory account
B)Wages Payable account
C)Manufacturing Overhead account
D)Raw Materials Inventory account
Q2) Gardner Machine Shop estimates manufacturing overhead costs for the coming year at $303,000.The manufacturing overhead costs will be allocated based on direct labor hours.Gardner estimates 6000 direct labor hours for the coming year.In January,Gardner completed Job A33,which used 50 machine hours and 24 direct labor hours.What was the amount of manufacturing overhead allocated to Job A33? (Round any intermediate calculations to the nearest cent,and your final answer to the nearest dollar. )
A)$1212
B)$2525
C)$3737
D)$6060
Q3) Define a process costing system and list two types of businesses that would use a process costing system.
Q4) Why would the manager of a service company need to use job order costing?
Page 19
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Chapter 18: Process Costing
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Q1) If a business operates in an industry that experiences significant cost changes,should the business prepare its production cost report using the FIFO method or the weighted-average method? Explain your answer.
Q2) The Polishing Department of Gaura,Inc.had 18,000 units in process on June 1 and received 30,000 units from the Machining Department.What is the number of units to account for by the Polishing Department for June? The company uses the FIFO costing method.
A)30,000 units
B)18,000 units
C)48,000 units
D)12,000 units
Q3) What are conversion costs? In determining equivalent units of production,why are conversion costs calculated separately from direct materials?
Q4) Production cost reports prepared using the first-in,first-out (FIFO)method assume that the first units started in the production process are the last units completed and sold.
A)True
B)False
Q5) How is a production cost report prepared using the FIFO method?
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Chapter
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Q1) The common factor in all quality management systems is the desire to
A)improve performance
B)increase the number of quality inspections
C)complete repairs in a timely manner
D)ignore the costs and benefits of changes to products
Q2) Which of the following statements is true of costing systems?
A)Many traditional costing systems can distort product costs and profitability.
B)Traditional costing systems tend to be more costly than activity-based costing systems.
C)Activity-based costing systems tend to combine various costs into a single cost pool.
D)Activity-based costing systems tend to use fewer cost pools than does a traditional costing system.
Q3) Companies using just-in-time production systems are far more vulnerable to production shutdowns if they receive defective raw materials.
A)True
B)False
Q4) How do just-in-time production systems differ from traditional production systems in their approach to raw materials and labor?
Page 21
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Chapter 20: Cost-Volume-Profit Analysis
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Q1) When the variable cost per unit decreases,the contribution margin on each unit sold also decreases.
A)True
B)False
Q2) The dollar amount that provides for covering fixed costs and then provides for operating income is called ________.
A)variable cost
B)total cost
C)contribution margin
D)margin of safety
Q3) Operating leverage predicts the effects that fixed costs have on operating income when ________.
A)production is discontinued
B)there are no sales returns
C)variable costs change
D)sales volume changes
Q4) Increases in sales price per unit ________ contribution margin per unit and ________ the breakeven point.
Q5) How is the contribution margin ratio calculated?
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Chapter 21: Variable Costing
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Q1) Absorption costing is more appropriate than variable costing for making plant production capacity decisions in the long run.
A)True B)False
Q2) In variable costing,fixed manufacturing overhead is considered a period cost because ________.
A)these costs are indirectly related to production B)these are not incurred in the period in which the units are produced C)these costs are incurred whether or not the company manufactures any goods D)these costs are direct costs incurred for production
Q3) The fixed manufacturing overhead is considered a product cost in variable costing and a period cost in absorption costing.
A)True B)False
Q4) In the variable costing income statement,variable costs are reported separately from fixed costs.
A)True B)False
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Chapter 22: Master Budgets
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Q1) Which of the following would NOT appear on a cash budget for a manufacturer?
A)Depreciation Expense
B)Cash payments for direct materials purchases
C)Salaries paid
D)Utilities paid
Q2) Budgeted purchases of direct materials is determined by adding direct materials needed for production to the desired direct materials in ending inventory.
A)True
B)False
Q3) The most important part of a budgeting system is getting managers and employees to accept the budget.
A)True
B)False
Q4) In the cost of goods sold budget,projected manufacturing cost per unit of product sold does NOT include ________ cost per unit.
A)sales commission
B)direct materials
C)variable manufacturing overhead
D)direct labor
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Which of the following amounts of a flexible budget changes,within the specified relevant range,with changes in sales volume?
A)sales price per unit
B)total fixed costs
C)variable cost per unit
D)total contribution margin
Q2) Benefit Pillow Company projected sales of 75,000 units for the year at a unit sales price of $14.00.Actual sales for the year were 70,000 units at $19.00 per unit.Variable costs were budgeted at $4.00 per unit,and the actual variable cost was $4.90 per unit.Budgeted fixed costs totaled $377,000 while actual fixed costs amounted to $410,000.What is the flexible budget variance for operating income?
A)$323,000 unfavorable
B)$254,000 favorable
C)$254,000 unfavorable
D)$287,000 favorable
Q3) A standard is a sales price,cost,or quantity that is expected under normal conditions.
A)True
B)False
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Which of the following is a key performance indicator of the customer perspective in a balanced scorecard?
A)defect rate
B)employee satisfaction
C)gross margin growth
D)number of repeat customers
Q2) List two objectives in setting transfer prices.
Q3) The financial perspective of the balanced scorecard is concerned with ________.
A)how customers perceive the business and its products and services
B)the company's ability to improve and create value
C)which business processes the company must excel in to meet expectations
D)whether investors and creditors view the company favorably
Q4) A high rate of employee turnover indicates that ________.
A)employees of the organization leave their jobs frequently
B)pay packages of employees are at par with that of the industry
C)the employee retention ratio is also high
D)employees also participate in the decision-making process
Q5) A lag indicator is a performance measure that forecasts future performance.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) 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
Q2) Links Golf Course is planning for the coming golfing season.Investors would like to earn a 10% return on the company's $60,000,000 of assets.The company primarily incurs fixed costs to groom the greens and fairways.Fixed costs are projected to be $32,000,000 for the season.About 600,000 rounds of golf are expected to be played each year.Variable costs are about $15 per round of golf.Links Golf Course is a price-taker and will not be able to charge more than its competitors,who charge $75 per round of golf.Compute the operating profit that will be earned.
A)$4,000,000
B)$6,000,000
C)$86,000,000
D)$45,000,000
Q3) A constraint is a factor that restricts the production or sale of a product,which varies from company to company.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) Which of the following best describes the profitability index?
A)an index of projects based on their net income
B)the ratio of present value of net cash inflows to initial investment
C)the ratio of total cash inflows to initial investment
D)an array of possible investment outcomes at different discount rates
Q2) An operational asset used for a long period of time is known as a capital asset.
A)True
B)False
Q3) An annuity is a stream of equal cash payments made at equal time intervals.
A)True
B)False
Q4) Which capital budgeting method uses accrual accounting,rather than net cash inflows,as a basis for calculations?
A)payback
B)accounting rate of return
C)net present value
D)internal rate of return
Q5) Management uses several different methods in evaluating potential capital investments.Identify and briefly discuss the four methods outlined in the text.
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Chapter 27: Accounting Information Systems
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Q1) Cash sales are recorded in the ________ journal.
A)general
B)sales
C)cash receipts
D)cash sales
Q2) 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
Q3) Entry-level software packages for accounting information systems are difficult to use and require a complete knowledge of GAAP.
A)True
B)False
Q4) List the four special journals that are often used in a manual accounting information system.State what types of transactions are recorded in each of these special journals.
Q5) List and briefly discuss the three basic components of an accounting information system.
Q6) List and describe two features of an effective accounting information system.
Page 29
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