Business Accounting
Study Guide Questions
Course Introduction
Business Accounting is a foundational course that introduces students to the essential principles and practices of financial and managerial accounting within a business context. Covering key topics such as the accounting cycle, preparation and analysis of financial statements, asset and liability management, and budgeting, the course equips students with the tools necessary to record, interpret, and communicate financial information. Emphasis is placed on understanding the role of accounting in decision-making, internal control, and regulatory compliance, preparing students for further study or entry-level roles in business and finance.
Recommended Textbook
Horngrens Financial and Managerial Accounting 4th Edition by Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following is the correct order of preparation of financial statements?
A)income statement statement of retained earnings balance sheet statement of cash flows
B)statement of retained earnings balance sheet income statement statement of cash flows
C)balance sheet statement of retained earnings income statement statement of cash flows
D)balance sheet income statement statement of retained earnings statement of cash flows
Answer: A
Q2) Sunlight Company has assets and equity that amount to $270,000 and $90,000,respectively.Liabilities will be ________.
A)$60,000
B)$360,000
C)$270,000
D)$180,000
Answer: D
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Page 3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The ability of a company to repay its liabilities can be determined from its
A)bankers
B)creditors
C)debt ratio
D)journal
Answer: C
Q2) The process of transferring data from the ledger to the journal is called posting.
A)True
B)False
Answer: False
Q3) A business makes a cash payment to a supplier on account for Office Supplies which were purchased earlier.Which of the following accounts will be credited?
A)Cash
B)Accounts Payable
C)Office Supplies
D)Utilities Expense
Answer: A
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) If an adjusting entry includes a debit to Rent Expense,that would indicate that the payment of rent had been previously recorded as a(n)________.
A)prepaid expense
B)depreciation expense
C)accrued expense
D)accrued revenue
Answer: A
Q2) The account names in a worksheet are taken from and listed in the same order as the ________.
A)balance sheet
B)audit report
C)journal
D)chart of accounts
Answer: D
Q3) An adjusting entry is completed ________.
A)at the beginning of the accounting period
B)at the end of the accounting period
C)when the balance sheet is prepared
D)when accounts need to be balanced in the ledger
Answer: B
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) The smaller the current ratio,the higher is the ability of a firm to repay its current debts.
A)True
B)False
Q2) Provide the closing entry for Service Revenue.
Q3) Which of the following accounts will have an ending balance after the closing process is completed?
A)Dividends
B)Rent Expense
C)Accumulated Depreciation
D)Service Revenue
Q4) Property,plant,and equipment are categorized as ________.
A)current assets
B)fixed assets
C)long-term investments
D)short-term investments
Q5) The closing process helps in measuring each period's net income separately from all other periods.
A)True
B)False
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Gilbert Inc.generated sales revenues of $1,000,000 in the year 2015.Its cost of goods sold amounted to $400,000.Calculate Gilbert's gross profit percentage.
A)40%
B)60%
C)167%
D)250%
Q2) Under the perpetual inventory system,what is the difference between a sales return and a sales allowance?
A)A sales return reduces the amount receivable from the customer,but an allowance does not.
B)A sales return involves an adjustment to Merchandise Inventory,but a sales allowance does not.
C)A sales return requires a debit to Sales Returns and Allowances,but a sales allowance does not.
D)A sales return is not deducted from sales revenue to calculate net sales,but sales allowance is added to sale revenue.
Q3) Give the journal entry to close the Sales Revenue account.
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) A company purchased 100 units for $20 each on January 31.It purchased 100 units for $30 on February 28.It sold 150 units for $45 each from March 1 through December 31.If the company uses the last-in,first-out inventory costing method,what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system.)
A)$4,000
B)$3,000
C)$2,000
D)$5,000
Q2) Which of the following is the correct formula to calculate days' sales in inventory?
A)Days' sales in inventory = 365 days × Inventory turnover
B)Days' sales in inventory = 365 days + Inventory turnover
C)Days' sales in inventory = 365 days ÷ Inventory turnover
D)Days' sales in inventory = 365 days - Inventory turnover
Q3) Pluto Inc.purchased 500 units of inventory at $25 per unit by payment of cash.Provide the journal entry to record the purchase of inventory.(Assume a perpetual inventory system.)
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Journal entries that are necessitated by reconciling items on the book side of the reconciliation include either a debit to Cash or a credit to Cash.
A)True
B)False
Q2) In a bank reconciliation,a NSF check will be shown on the book side of the reconciliation.
A)True
B)False
Q3) Which of the following is an attribute of the internal control procedure-competent,reliable,and ethical personnel?
A)the criticality of information system
B)the need of training and supervision of employees
C)monitoring of internal controls by external auditors
D)purchase of burglar alarms
Q4) Cash and cash equivalents are divided by ________ to determine the cash ratio.
A)total current liabilities
B)fixed assets
C)equity
D)total long-term liabilities
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Chapter 8: Receivables
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Sample Questions
Q1) The maturity value of a note is the sum of the principal minus interest due at maturity.
A)True
B)False
Q2) The Allowance for Bad Debts account has a credit balance of $2,000.The company's management estimates that 2% of net credit sales will be uncollectible for the year 2015.Net credit sales for the year amounted to $250,000.What will be the amount of Bad Debts Expense reported on the income statement for 2015?
A)$5,000
B)$3,075
C)$2,875
D)$2,675
Q3) Sales through credit cards and debit cards are journalized in the same way as credit sales are journalized.
A)True
B)False
Q4) Interest rates are generally stated on a monthly basis.
A)True
B)False
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Chapter 9: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) A company purchased a computer on July 1,2015 for $50,000.Estimated useful life of the computer was 5 years and it has no residual value.Which of the following methods should be used to best match its expense against the revenue it produces?
A)the units-of-production method
B)the straight-line method
C)the double-declining-balance method
D)the first-in,first-out method
Q2) Which of the following items should be amortized?
A)natural resources
B)goodwill
C)patents,copyrights,trademarks
D)tangible property,plant,and equipment,other than land
Q3) Which of the following is an intangible asset?
A)copyright
B)building
C)land
D)equipment
Q4) On June 30,2015,Regal Furniture discarded fully depreciated equipment costing $35,000.Journalize the disposal of the equipment.
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Chapter 10: Investments
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Sample Questions
Q1) When a firm receives interest revenue on a bond,the equity remains unchanged.
A)True
B)False
Q2) The owner of a bond or stock of a corporation is referred to as the investor.
A)True
B)False
Q3) Which of the following is an example of investment income from securities?
A)deferred tax assets
B)depreciation of long-term assets
C)sale of fixed assets
D)interest earned from debt investments
Q4) When a company invests in equity securities with 20% or more,but less than 50%,ownership in the investee's voting stock,the investor can significantly influence the investee's decisions.
A)True B)False
Q5) A company that is controlled by another corporation is called a parent company. A)True B)False
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Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Berkley's gross pay for the week is $780.Berkley's yearly pay is under the limit for OASDI.Assume that the rate for state and federal unemployment compensation taxes is 6.2%,and that Berkley's pay year-to-date has not yet exceeded the $7,000 cap.What is the amount of state and federal unemployment tax that his employer must record as payroll tax expense and pay to the federal and state governments?
A)$110.10
B)$108.03
C)$59.67
D)$48.36
Q2) Northwest Inc.records indicate that January sales on account were $109,000.The company's management estimates warranty expense to be 3.6% of sales.Provide the journal entry to record warranty expense.
Q3) Steve,an employee of Panache Inc.,has gross salary for March of $5,000.The entire amount is under the OASDI limit of $110,100,and thus subject to FICA.The total amount of employee FICA tax is $565.(Assume a FICA-OASDI Tax of 4.2% and FICA-Medicare Tax of 1.45 %.)
A)True
B)False
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) Blandings Glassware Company issues $1,000,000 of 8%,10-year bonds at 98 on February 28,2015.The bond pays interest on February 28 and August 31.On August 31,2015,how much cash did Blandings pay out to bondholders?
A)$41,000
B)$40,000
C)$80,000
D)$39,000
Q2) Which of the following is the amount the borrower must pay back to the bondholders on maturity?
A)market value
B)present value
C)stated interest value
D)principal amount
Q3) Bonds are short-term debt issued to multiple lenders called bondholders,usually in increments of $1,000.
A)True
B)False
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Page 14
Chapter 13: Stockholders Equity
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Sample Questions
Q1) The journal entry for the purchase of treasury stock includes a credit to the Cash account.
A)True
B)False
Q2) Dallkin Corporation issued 5,000 shares of common stock on January 1,2015.The stock has no par value and was sold at $18 per share.The journal entry for this transaction would include a ________.
A)debit to Cash for $90,000 and a credit to Common Stock-No-Par Value for $90,000
B)debit to Cash for $90,000 and a credit to Paid-In Capital in Excess of Par-Common for $600,000
C)credit to Cash for $90,000 and a debit to Common Stock-No-Par Value for $90,000 D)credit to Cash for $90,000,a debit to Paid-In Capital in Excess of Par-Common for $5,000,and a debit to Common Stock-No-Par Value for $85,000
Q3) A stock split decreases par value per share,whereas stock dividends do not affect par value per share.
A)True B)False
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Page 15
Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) On a direct method statement of cash flows,cash received from selling merchandise would be considered a ________.
A)cash inflow from investing activities
B)cash inflow from operating activities
C)cash outflow from financing activities
D)cash outflow for financing activities
Q2) Qtopia Electric Company uses the direct method to prepare its statement of cash flows.It has reported Operating Expenses of $63,000 on its income statement for the year 2014.If the balance in Accrued Liabilities has gone up by $6,000 during the year,then $6,000 will have to be added to $63,000 as part of the process to calculate payments to suppliers for operating expenses.
A)True
B)False
Q3) The financing activities section of the statement of cash flows includes activities that affect current assets and current liabilities on the balance sheet.
A)True
B)False
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16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.
A)True B)False
Q2) Management's discussion and analysis section of the annual report is the company's attempt to explain its financial statements and discuss its performance.
A)True B)False
Q3) Gains and losses on the sale of plant assets are also reported as discontinued operations.
A)True
B)False
Q4) The audit report attests to the fairness of the presentation of the financial statements.
A)True B)False
Q5) The price/earnings ratio shows the market price of $1 of earnings.
A)True B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Manufacturing businesses produce their own products,but merchandising businesses do not.
A)True
B)False
Q2) Manufacturing businesses have inventory accounts,but merchandising businesses do not.
A)True B)False
Q3) Which of the following will be classified as a conversion cost?
A)cost of raw materials
B)depreciation on factory equipment
C)salary of sales personnel
D)depreciation on office furniture
Q4) Product costs are expensed ________.
A)when the products are consumed or sold
B)when the accounting period they are incurred in comes to an end
C)when the products are transferred to Work-in-Process Inventory account
D)when the market value of products goes above the recorded value
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Chapter 17: Job Order Costing
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Sample Questions
Q1) Which of the following statements is true of costing systems?
A)A process costing system would be used by manufacturers of custom-made perfumes.
B)A job order costing system would be used by manufacturers of baking utensils.
C)A construction company would likely use a process costing system.
D)An accounting firm would likely use a job order costing system.
Q2) What was the balance in Finished Goods Inventory at year-end?
A)$90,500
B)$19,500
C)$42,500
D)$45,000
Q3) The journal entry for adjustment of underallocated manufacturing overhead includes a ________.
A)credit to Finished Goods Inventory
B)credit to Manufacturing Overhead
C)debit to Work-in-Process Inventory
D)credit to Cost of Goods Sold
Q4) At the end of the year,Delta Inc.has an unadjusted debit balance in the Manufacturing Overhead account of $3,950.Provide the year-end adjusting entry needed to clear the balance to zero.
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Chapter 18: Process Costing
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Sample Questions
Q1) In addition to the above,the costs per equivalent unit were $1.20 for direct materials and $5.75 for conversion costs.Using this data,calculate the cost of the units that were transferred out of the Mixing Department and into the Refining Department.
A)$211,600
B)$48,000
C)$222,400
D)$37,200
Q2) Morewell Inc.has two processes-Coloring Department and Mixing Department.Michael sold 350 gallons on account at $110 per gallon.The total cost of processing was $385,000 for 5,500 gallons of paint.Throughout the year,the company used a predetermined overhead allocation rate to allocate $75,000 and $65,000 of indirect costs to the Coloring Department and Mixing Department,respectively.The actual overhead cost incurred amounted to $150,000 at the end of the year.Record the necessary journal entries for the sale of goods and for adjustment of over- or underallocated manufacturing overhead at the end of the year.
Q3) A process costing system is generally used by companies that produce homogeneous products.
A)True
B)False
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Page 20
Chapter 19: Cost Management Systems: Activity-Based, just-In-Time, and Quality Management Systems
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Sample Questions
Q1) Under the just-in-time costing system,a credit purchase of raw materials is recorded by ________.
A)debiting the Raw Materials Inventory account
B)crediting the Conversion Costs account
C)debiting the Raw and In-Process Inventory account
D)crediting the Cash account
Q2) The first step in developing an activity-based costing system is to identify the activities that will be used to assign the manufacturing overhead.
A)True
B)False
Q3) Traditional costing systems employ multiple allocation rates,but an activity-based costing system uses only one rate for allocating manufacturing overhead.
A)True
B)False
Q4) Which of the following is the correct formula to calculate the target cost?
A)Target Cost = Target Sales Price + Desired Profit
B)Target Cost = Target Sales Price - Desired Profit
C)Target Cost = Target Sales Price
D)Target Cost = Desired Profit + Research and Development Expenses
21
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Chapter 20: Cost-Volume-Profit Analysis
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Sample Questions
Q1) The Purely Pizza Company sells pizzas in two different sizes-medium and large.The number of medium pizzas sold is twice the number of large pizzas sold.The contribution margin of a medium pizza is $10 and the contribution margin of a large pizza is $16.The weighted average contribution margin is $15.
A)True
B)False
Q2) Which of the following formulae is the right formula for calculating contribution margin ratio?
A)Contribution margin ratio = Contribution margin + Net sales revenue
B)Contribution margin ratio = Contribution margin ÷ Net sales revenue
C)Contribution margin ratio = Contribution margin × Net sales revenue
D)Contribution margin ratio = Contribution margin - Net sales revenue
Q3) When the variable cost per unit increases,the total number of units required to breakeven also increases.
A)True
B)False
Q4) Total fixed costs can change from one relevant range to another.
A)True
B)False
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Chapter 21: Variable Costing
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Sample Questions
Q1) Venlite Inc.produces and sells cosmetic products.Currently,the company is operating at 70% of its capacity.The selling price of its product is $30 per unit and it incurs a full cost of $25 to produce each unit.Its yearly fixed manufacturing overhead amounts to $20,000.The company has received a one-time order for supplying 5,000 units at $26 per unit.This order can be executed within the excess production capacity and will not involve any additional costs.To make this decision,the management of Venlite should use ________.
A)absorption costing as the decision is long-term in nature
B)variable costing as the decision is short-term in nature
C)absorption costing as the decision is short-term in nature
D)variable costing as the decision is long-term in nature
Q2) Absorption costing is used to analyze contribution margin.
A)True
B)False
Q3) The level of inventory on hand at the end of the year does not affect the amount of operating income calculated under variable costing and absorption costing.
A)True
B)False
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Page 23
Chapter 22: Master Budgets
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Sample Questions
Q1) Which of the following is useful to combine the data of different segments using different software,for the purpose of creating companywide budgets?
A)Accounting development manual
B)Budgeting software
C)Financial analysis software
D)Budget creation manual
Q2) In a company with different business units,individual managers make decisions by changing various assumptions of its budget in order to determine how the modifications would affect the operational and financial results.This is an example of ________.
A)financial statement analysis
B)responsibility accounting
C)sensitivity analysis
D)zero-based budgeting
Q3) Budgets provide a benchmark that motivates employees and helps managers evaluate performance.
A)True
B)False
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Page 24
Chapter 23: Flexible Budgets and Standard Cost Systems
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Sample Questions
Q1) A static budget is prepared for only one level of sales volume.
A)True
B)False
Q2) Emerald Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor.Emerald uses standard costs to prepare its flexible budget.For the first quarter of 2015,direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound
Direct labor: 4 hours per unit; $15 per hour
During the first quarter,Emerald produced 5,000 units of this product.Actual direct materials and direct labor costs were $65,000 and $325,000,respectively. For the purpose of preparing the flexible budget,what is the total standard direct labor cost at a production volume of 5,000 units?
A)$75,000
B)$150,000
C)$300,000
D)$325,000
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) WAX-D Inc.has a division that manufactures a component that sells for $150 and has a variable cost of $45.Another division of the company wants to purchase the component.Fixed cost per unit of component is $25.What is the minimum transfer price if the division is operating below its capacity?
A)$50
B)$45
C)$70
D)$40
Q2) Which of the following is the correct formula for calculating residual income (RI)?
A)Weighted average cost of capital - Net operating profit after tax
B)Operating income - Minimum acceptable operating income
C)Historical cost of assets - Accumulated depreciation
D)Operating income ÷ Average assets
Q3) One of the advantages of decentralization is that it allows top management to concentrate on long-term strategic planning.
A)True
B)False
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Chapter 25: Short-Term Business Decisions
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Q1) A company produces 1,000 packs of chicken feed per month.The sales price is $4 per pack.Variable cost is $1.50 per unit,and fixed costs are $1,800 per month.Management is considering adding a vitamin supplement to improve the value of the product.The variable cost will go up from $1.50 to $1.90 per unit,and fixed costs will go up by 20%.The company will price the new product at $5 per pack.How will this affect operating income?
A)Operating income will go down by $150 per month.
B)Operating income will remain unchanged.
C)Operating income will go down by $400 per month.
D)Operating income will go up by $240 per month.
Q2) The company is thinking of dropping product line F because it is showing an operating loss.Assuming fixed costs are unavoidable,if Macaulay drops product line F and does not replace it,what effect will this have on operating income?
A)Operating income will increase $5,000.
B)Operating income will increase $20,000.
C)Operating income will increase $25,000.
D)Operating income will decrease $20,000.
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Chapter 26: Capital Investment Decisions
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Sample Questions
Q1) Calculate accounting rate of return for Proposal Y.
A)8.95%
B)10.21%
C)7.50%
D)6.57%
Q2) Under conditions of limited resources,when a company is comparing several investments with different amounts of initial outlay,the decision should be made on the basis of the ________.
A)highest total cash inflows
B)shortest payback period
C)highest profitability index
D)highest NPV
Q3) The acquisition or construction of a capital asset is known as a capital investment. A)True
B)False
Q4) The accounting rate of return is also known as average rate of return or annual rate of return.
A)True B)False
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Chapter 27: Accounting Information Systems
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Sample Questions
Q1) The Other Accounts DR columns of a purchases journal are used for recording merchandise inventory and office supplies.
A)True
B)False
Q2) An accounting information system is said to have good flexibility,if it ________.
A)works smoothly with the business's employees and organizational structure
B)safeguards a business's assets and reduces the likelihood of fraud and errors
C)provides information that will improve decision making and reduce uncertainty
D)accommodates changes in the business over time
Q3) A cash payments journal is a special journal used to record ________.
A)only the cash payments by currency
B)the net of the cash payments and cash receipts by currency
C)cash payments by check and currency
D)the net of cash payments and cash receipts by check and currency
Q4) Which of the following is an example of hardware?
A)monitor
B)malware
C)firewall
D)operating system
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