Business Accounting
Review Questions
Course Introduction
Business Accounting is an essential course that introduces students to the fundamental principles and practices of accounting as they apply to modern business organizations. The course covers key topics such as the accounting cycle, preparation and interpretation of financial statements, management of assets and liabilities, and concepts of revenue and expense recognition. Students will develop a solid understanding of bookkeeping, the use of accounting software, and the role of accounting information in managerial decision-making. Emphasis is placed on the ethical considerations and regulatory frameworks governing accounting practices, equipping learners with the practical skills needed for effective financial analysis and business strategy development.
Recommended Textbook
Horngrens Accounting The Financial Chapters 12th Edition by Tracie L. Miller-Nobles
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Chapter 1: Accounting and the Business Environment
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Q1) Controller
A)Specializes in accounting and financial management knowledge
B)Serves the general public
C)Performs reviews of companies to ensure compliance to rules and regulations
D)Compiles financial statements, interacts with auditors, oversees regulatory reporting Answer: D
Q2) Assets are something of value that the business owns or has control of.
A)True
B)False
Answer: True
Q3) An accounting firm collected cash on account.As a result of this transaction,total assets,liabilities,and equity are all unchanged.
A)True
B)False
Answer: True
Q4) Liabilities represent creditors' claims on the business's assets.
A)True
B)False Answer: True
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Chapter 2: Recording Business Transactions
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Q1) Which of the following accounts decreases with a credit?
A)Cash
B)Owner,Capital
C)Accounts Payable
D)Unearned Revenue
Answer: A
Q2) A journal entry for a $85 payment for rent expense was posted as a debit to Salaries Expense and a credit to Cash.Which of the following statements correctly states the effect of the error on the trial balance?
A)The sum of the credits will equal the sum of the debits.
B)The sum of the debits will exceed the sum of the credits by $85.
C)The sum of the debits will exceed the sum of the credits by $170.
D)The sum of the credits will exceed the sum of the debits by $170.
Answer: A
Q3) Balancing errors can be detected by computing the difference between total debits and total credits on the trial balance.List three actions that can then be used to find the errors.
Answer: 1.Search the trial balance for a missing account.
2.Divide the difference between total debits and total credits by 2.
3.Divide the out-of-balance amount by 9.
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Accrued revenue represents the receipt of cash before the revenue has been earned.
A)True
B)False
Answer: False
Q2) If an adjusting entry includes a debit to Rent Expense,it indicates that the payment of rent had been previously recorded as a(n)________.
A)deferred expense
B)depreciation expense
C)accrued expense
D)accrued revenue
Answer: A
Q3) Adjusting entries do not update balance sheet accounts.
A)True
B)False Answer: False
Q4) Under cash basis accounting,an expense is recorded only when cash is paid.
A)True
B)False Answer: True
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Chapter 4: Completing the Accounting Cycle
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Q1) After closing entries have been posted,________.
A)the ending balance of Moses,Capital has been properly updated.
B)only permanent accounts carry balances.
C)Moses,Withdrawals has been closed into Moses,Capital
D)All of the above statements are correct.
Q2) Under which of the following categories would Accounts Payable appear?
A)Long-term assets
B)Current assets
C)Long-term liabilities
D)Current liabilities
Q3) Salaries Payable,Accounts Payable,and Unearned Revenue are examples of ________.
A)short-term investments
B)fixed assets
C)current liabilities
D)long-term liabilities
Q4) Which financial statement is prepared last?
A)income statement
B)balance sheet
C)statement of owner's equity
D)The financial statements can be prepared in any order.
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Chapter 5: Merchandising Operations
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Q1) An entity that buys goods and sells them to consumers at a markup is a ________.
A)retailer
B)wholesaler
C)manufacturer
D)producer
Q2) Under the perpetual inventory system,two journal entries are used to record the sale of merchandise.One entry records the Sales Revenue and another entry records the Cost of Goods Sold.
A)True
B)False
Q3) Describe how the cost of goods sold is calculated when using the periodic inventory system.
Q4) Gift Shops Unlimited's unadjusted Merchandise Inventory at December 31,2019 was $7,600.The cost associated with the physical count of inventory on hand on December 31,2019 was $7,350.In addition,Gift Shops Unlimited estimated approximately $800 of merchandise sold on account will be returned with a cost of $450.Assume a perpetual inventory system is used.
Requirements:
1.Journalize the adjustment for inventory shrinkage.Omit explanation.
2.Journalize the adjustment for estimated sales returns.Omit explanation.
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Chapter 6: Merchandise Inventory
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Q1) The goal of reporting realistic figures and never overstating assets or net income applies to the ________.
A)conservatism principle
B)materiality concept
C)disclosure principle
D)consistency principle
Q2) A company that uses the periodic inventory provides the following information:
1.Beginning Inventory $15,000
2)Net Purchases $93,000
At the end of the period,the physical count of inventory reveals that $13,000 of inventory is on hand.
What is the amount of cost of goods sold?
A)$93,000
B)$121,000
C)$95,000
D)$80,000
Q3) Costas Company purchased inventory on account for $6,500.Prepare the journal entry to record the purchase of inventory on account.(Assume a perpetual inventory system. )Omit explanation.
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Chapter 7: Accounting Information Systems
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Q1) Which of the following is an example of a source document in a computerized accounting information system?
A)purchase invoices
B)balance sheet
C)cash payments journal
D)income statement
Q2) In an accounting information system,source documents are the documents which
A)are not needed if a computerized system is used
B)detail the strategic planning of the business
C)have complete information about the financial statements
D)provide the evidence and data for accounting transactions
Q3) Entries from the purchases journal are posted monthly to the accounts payable subsidiary ledger and daily to the general ledger.
A)True
B)False
Q4) Describe the transactions recorded in the purchases journal.
Q5) Define enterprise resource planning (ERP)systems and state one advantage and one disadvantage of ERP systems.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) Lane Outfitters Company,a retailer,accepts payment through credit cards.During August,credit card sales amounted to $12,000.The processor charges a 3% fee.Assuming that the credit card processor uses the gross method,prepare the journal entries,on the books of Lane Outfitters,for the credit card sales and the payment of fees.(Ignore cost of goods sold. )Omit explanation.
Q2) A company received a bank statement with a balance of $6,100.Reconciling items included a bookkeeper error of $400-a $400 check recorded as $800-two outstanding checks totaling $810,a service charge of $24,a deposit in transit of $270,and interest revenue of $21.What is the adjusted bank balance?
A)$5,205
B)$5,160
C)$4,757
D)$5,560
Q3) A deposit ticket is a document that instructs a bank to pay the designated person a specified amount of money.
A)True
B)False
Q4) Fifth National Bank requires mandatory vacations and job rotation.
Q5) List and briefly discuss the five components of internal control.
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Chapter 9: Receivables
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Q1) In order to keep accurate records about the collection of cash for a previously written off account,a business should re-establish the Accounts Receivable by debiting the receivable account.
A)True
B)False
Q2) On January 1,Cooper Company accepted a one-year note for $5,000 at 4% from one of its customers.When the note matured on December 31,the customer was unable to pay,and the company treated it as a dishonored note.Prepare the journal entry that Cooper will make to record the dishonored note.Omit explanation.
Q3) When using the allowance method,the write-off of a receivable ________.
A)involves a contra-revenue account
B)reduces the amount of the Allowance for Bad Debts account
C)decreases net income
D)affects the net realizable value of accounts receivable
Q4) The entry to write off an account under the allowance method affects net income at the time of entry.
A)True
B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Q1) For tax purposes,an asset is fully depreciated to a book value of zero.
A)True
B)False
Q2) Depreciation is the allocation of a plant asset's cost to expense over its useful life.
A)True
B)False
Q3) Provide definitions for the following terms.
1.Depreciation
2.Extraordinary Repair
3.Property,Plant,and Equipment
Q4) The units-of-production method is used to compute depletion expense.
A)True
B)False
Q5) An asset is considered to be obsolete when a newer asset can perform the job more efficiently.
A)True
B)False
Q6) Prepare the journal entry to record the acquisition of fences and signs for $5,000 cash.Omit explanation.
Page 12
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Chapter 11: Current Liabilities and Payroll
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Q1) When determining how businesses record or do not record contingent liabilities,which is NOT one of the three likelihoods that that are considered?
A)remote
B)reasonably probable
C)probable
D)reasonably possible
Q2) It is mandatory for both the employer and employee to pay ________.
A)FICA
B)SUTA
C)employee income tax
D)federal unemployment tax
Q3) On April 1,2019,Orbit Services received $8000 in advance of performing the services from a customer for three months of service - April,May and June.What would be the journal entry to adjust the accounts at the end of May? (Do not round any intermediate calculations,and round your final answer to the nearest dollar. )
A)Debit Service Revenue $2667,and credit Unearned Revenue $2667.
B)Debit Unearned Revenue $5333,and credit Service Revenue $5333.
C)Debit Unearned Revenue $8000,and credit Service Revenue $8000.
D)Debit Service Revenue $5333,and credit Accounts Receivable $5333.
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Chapter 12: Partnerships
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Q1) Admission of a new partner to a partnership,by purchasing an existing partner's interest,simply transfers capital from one partner's account to another.
A)True
B)False
Q2) If the partnership agreement specifies a method for sharing profits but not losses,then losses are shared the same way as profits.
A)True
B)False
Q3) Adam,Bill,and Charlie are partners.The profit and loss sharing rule between them is 4:6:1,with Bill receiving the largest share and Charlie receiving the smallest.The partnership incurs a net loss of $72,000.While closing the Income Summary ________.(Do not round any intermediate calculations. )
A)Income Summary will be debited for $72,000
B)Adam,Capital will be debited for $26,182
C)Adam,Capital will be credited for $39,273
D)Charlie,Capital will be credited for $39,273
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Chapter 13: Corporations
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Q1) Preferred stockholders receive a dividend preference over common stockholders.
A)True
B)False
Q2) A profitable corporation may make distributions to stockholders in the form of bonuses.
A)True
B)False
Q3) Regarding the issuance of stock,which of the following statements is incorrect?
A)Large corporations cannot finance all their operations through borrowing,so they raise capital by issuing stock.
B)A company can sell its stock directly to stockholders,or it can use the services of the state's Securities and Exchange Commission.
C)The issue price is the amount the corporation receives from issuing its stock.
D)Large corporations need huge quantities of money.
Q4) The journal entry for the purchase of treasury stock includes a credit to Cash. A)True
B)False
Q5) Define treasury stock and provide two reasons why a corporation would purchase treasury stock.
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Chapter 14: Long-Term Liabilities
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Q1) When using the effective-interest amortization method,the amount of the interest expense is calculated using the carrying value of the bonds and the market interest rate.
A)True
B)False
Q2) Present value is the amount a person would invest now to receive a greater amount in the future.
A)True
B)False
Q3) When a bond is issued at a premium,the interest expense calculation using the effective-interest amortization method uses the carrying amount of the bonds and the market rate of interest.
A)True
B)False
Q4) List three disadvantages of borrowing.
Q5) Simple interest means that interest is calculated on the principal and on all previously earned interest.
A)True B)False
Q6) When computing the present value of a bond,which interest rate is used? Why?
Page 16
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Chapter 15: Investments
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Q1) Which of the following is included in comprehensive income?
A)Foreign currency translation adjustments
B)Owners' investments
C)Purchase of capital assets
D)Payment of dividends
Q2) For each of the following scenarios,state the type of investment:
1.Available-for-sale debt investment
2.No significant influence equity investment
3.Trading debt investment
4.Significant influence equity investment
5.Held-to-maturity debt investment
6.Controlling interest equity investment
Indicate your answer by placing the correct number next to the scenario.
a.________ Arnold Corp.owns a debt security in Brady Corp.Arnold plans on holding the debt for thirty days.
b.________ Maxwell Inc.owns 70% of the voting stock of Russell Corp.
c.________ Millie Inc.owns a debt security of Auntie Inc.Millie intends to and has the ability to hold the debt security until maturity.
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Chapter 16: The Statement of Cash Flows
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Q1) The cash flow from investing activities section appears exactly the same,whether the company uses the direct or the indirect method to prepare the statement of cash flows.
A)True
B)False
Q2) Merchandise Inventory increased $28,000 and Accounts Payable decreased $19,600 during the year.Accounts Payable relates only to the acquisition of merchandise inventory.Sales were $796,000 and Cost of Goods Sold was $549,700.Compute the payment made to the suppliers for inventory.
A)$577,700
B)$569,300
C)$597,300
D)$47,600
Q3) Investors and management use the statement of cash flows to evaluate a firm's profitability.
A)True
B)False
Q4) The statement of cash flows is dated the same as the balance sheet.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) Dollar value bias is the bias one sees from comparing numbers in relative (dollars)rather than absolute (percentage)terms.
A)True
B)False
Q2) List the three ways to analyze financial statements.State what each of these ways provides to investors and creditors.
Q3) Which of the following is NOT a decision tool based on working capital?
A)cash ratio
B)acid-test ratio
C)current ratio
D)dividend payout ratio
Q4) The horizontal analysis is computed by which of the following formulas?
A)((earlier period amount - later period amount)/base period amount)× 100
B)(later period amount/earlier period amount)× 100
C)(base period amount/dollar amount of change)× 100
D)(dollar amount of change/base period amount)× 100
Q5) An annual report provides information about a company's financial condition. A)True B)False
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