Business Accounting
Test Preparation
Course Introduction
Business Accounting introduces students to the fundamental principles and practices of accounting within a business context. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, recording of financial transactions, and the interpretation of accounting information for decision-making. Students will gain an understanding of key concepts, including assets, liabilities, equity, revenues, and expenses, and learn how accounting supports the planning, control, and evaluation of business operations. The course also explores ethical standards in accounting and provides practical skills for managing financial information in organizations of various sizes.
Recommended Textbook
Financial Accounting 11th Edition by W.
Steve Albrecht
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24 Chapters
2549 Verified Questions
2549 Flashcards
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Page 2
Chapter 1: Accounting Information: Users and Uses
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47 Verified Questions
47 Flashcards
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Sample Questions
Q1) Which of the following is NOT an important aspect of management accounting?
A) Planning
B) Product design
C) Implementing plans
D) Controlling costs
Answer: B
Q2) Which of the following is NOT true of the Financial Accounting Standards Board (FASB)?
A) It consists of five full-time members
B) It is a government agency
C) It seeks consistency for its proposed standards
D) It has no legal power to enforce the standards it sets
Answer: B
Q3) The current standard-setting board for accounting in the private sector is the
A) Financial Accounting Standards Board (FASB)
B) Securities and Exchange Commission (SEC)
C) International Accounting Standards Board (IASB)
D) American Accounting Association (AAA)
Answer: A
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Page 3
Chapter 2: Financial Statements: An Overview
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117 Verified Questions
117 Flashcards
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Sample Questions
Q1) Another name for the income statement is
A) Statement of cash flows
B) Statement of financial position
C) Statement of earnings
D) Retained earnings statement
Answer: C
Q2) Which of the following classifications refers to those activities associated with buying and selling long-term assets?
A) Investing
B) Operating
C) Borrowing
D) Financing
Answer: A
Q3) Which of the following is NOT included in the statement of retained earnings?
A) Dividends
B) Net income
C) Beginning of year retained earnings
D) Owner investment
Answer: D
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Page 4
Chapter 3: The Accounting Cycle: The Mechanics of Accounting
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109 Verified Questions
109 Flashcards
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Sample Questions
Q1) Expense accounts
A) Are increased with credit entries
B) Are increased with debit entries
C) Normally have credit balances
D) Are closed to the capital stock account
Answer: B
Q2) Borrowing money from a bank
A) Increases assets and decreases liabilities
B) Increases liabilities and decreases assets
C) Decreases assets and decreases liabilities
D) Increases assets and increases liabilities
Answer: D
Q3) The entry to record the payment of a note with interest usually includes a
A) Debit to Cash
B) Credit to Note Payable
C) Debit to Interest Expense
D) Credit to Note Receivable
Answer: C
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Chapter 4: Completing the Accounting Cycle
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112 Verified Questions
112 Flashcards
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Sample Questions
Q1) Which of the following will occur if an adjusting entry to record an unrecorded receivable is NOT made?
A) Both revenues and assets will be understated.
B) Both revenues and assets will be overstated.
C) Revenues will be understated, but assets will be overstated.
D) Assets will be understated, but revenues will be overstated.
Q2) Which of the following sources provides the raw material to prepare the financial statements?
A) Income statement from previous year
B) Balance sheet from previous year
C) Adjusted trial balance
D) Unadjusted trial balance
Q3) Garcia Company has received advance payment for services yet to be performed. This prepayment is an example of a(n)
A) Unrecorded liability
B) Unrecorded receivable
C) Prepaid expense
D) Unearned revenue
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6
Chapter 5: Internal Controls: Ensuring the Integrity of Financial Information
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107 Verified Questions
107 Flashcards
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Sample Questions
Q1) Blake Co. provided $5,000 of consulting services to Simmons Co. for which they have not yet received payment. When Blake billed Simmons for the consulting services, Blake mistakenly journalized and posted the transaction as a $5,000 debit to Accounts Receivable and a $5,000 credit to Unearned Consulting Fees. The entry Blake needs to make to correct this error is
A) Debit Unearned Consulting Fees and credit Consulting Fees Earned for $5,000
B) Debit Unearned Consulting Fees and credit Accounts Receivable for $5,000
C) Debit Consulting Fees Earned and credit Accounts Receivable for $5,000
D) Debit Consulting Fees Earned and credit Unearned Consulting Fees for $5,000
Q2) If an external auditor suspects wrongdoing in financial statements, the concerns should be addressed to
A) The audit committee
B) The management of the company
C) The Securities and Exchange Commission
D) The board of directors
Q3) Recording Rent Expense as Wage Expense
A) Overstates income
B) Understates expenses
C) Understates owner's equity
D) None of these are correct
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Chapter 6: Receivables: Selling a Product or a Service
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114 Verified Questions
114 Flashcards
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Sample Questions
Q1) The direct write-off method of accounting for bad debts
A) Often fails to match bad debt losses with sales for the same period
B) Is subject to a significant amount of estimation error
C) Causes accounts receivable to appear on the balance sheet at their estimated net realizable value
D) Requires that losses from bad debts be recorded in the period in which sales are made
Q2) The Talmage Company owns several shopping malls. One of the shopping malls is undergoing an underground renovation. Copeland Construction is the construction company that is performing these renovations. According to GAAP, when is the most appropriate time to recognize revenue from this construction project?
A) When the contract to perform the service was signed
B) When the construction work was started
C) At the end of each year, as a percentage completed for that year
D) After the project is completely finished
Q3) List and describe the three most common cash controls that companies use to safeguard cash.
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Chapter 7: Inventory and the Cost of Sales
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148 Verified Questions
148 Flashcards
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Sample Questions
Q1) Refer to Exhibit 7-3. Given the information above, determine the amount of ending inventory.
A) $73,600
B) $105,600
C) $70,400
D) $102,400
Q2) If the ending inventory is overstated, net income for the same period will be
A) Unaffected
B) Overstated
C) Understated
D) Cannot be determined from the information given
Q3) Hughes Medical Supply, a retail business, had net sales of $92,400 during January. Purchases of merchandise during the month amounted to $42,700, of which $27,400 had been paid for by the end of January. The merchandise purchased had a retail sales value of $59,000. On January 1, inventory on hand cost $26,180 and had a retail sales value of $39,400. Traditionally, Hughes' gross margin percentage has been 30 percent. Use the gross margin estimation method to determine the cost of Hughes' inventory at the end of January.
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9
Chapter 8: Completing the Operating Cycle
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93 Flashcards
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Sample Questions
Q1) Which of the following is NOT a component of pension expense?
A) Interest cost
B) Pension payment
C) Service cost
D) Return on pension fund assets
Q2) A pension fund is "under-funded" when the
A) Market value of the pension fund assets is greater than the estimated pension liability
B) The pension expense is greater than the annual payment to the pension fund
C) The pension expense is less than the annual payment to the pension fund
D) Market value of the pension fund assets is less than the estimated pension liability
Q3) Deferred income taxes arise from
A) Differences between accounting standards and IRS rules
B) The postponement of tax payments due to cash shortage
C) A special tax created by the IRS
D) A net loss
Q4) Accounting rules give specific instructions on whether to expense or capitalize research and development costs and advertising costs. List the rules associated with these two costs.
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Chapter 9: Investments: Property, Plant, and Equipment and Intangible Assets
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130 Verified Questions
130 Flashcards
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Sample Questions
Q1) Occasionally, events occur that change an asset's value after purchase. Which of the following is true regarding these changes in value?
A) Reductions in asset value are recognized.
B) Increases in asset value are recognized.
C) Both decreases and increases are recognized.
D) Neither decreases nor increases are recognized.
Q2) Under U.S. accounting rules (generally accepted accounting principles), an asset is impaired when
A) The asset's fair value is less than the book value
B) The asset's future cash inflows are less than the book value
C) The asset's market value is less than the book value
D) The asset's cost is less than the book value
Q3) A truck that cost $19,200 and was expected to last 5 years was scrapped after 3 years. If the truck was being depreciated on a straight-line basis (with no salvage value), the loss recognized on disposal would be
A) $19,200
B) $7,680
C) $9,600
D) $11,520
Page 11
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Chapter 10: Financing: Long-Term Liabilities
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113 Verified Questions
113 Flashcards
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Sample Questions
Q1) At the end of each year, a mortgage is reported under how many sections of the balance sheet?
A) 1
B) 2
C) 3
D) 4
Q2) The effective interest rate of a 10-year, 8 percent, $1,000 bond issued at 103 would be approximately
A) 7.5 percent
B) 7.8 percent
C) 8.0 percent
D) 8.2 percent
Q3) You have just purchased an automobile for $15,000 and will be financing it at 12 percent interest compounded monthly for 5 years. Your monthly payment will be
A) $4,161.15
B) $3,068.49
C) $1,802.02
D) $333.67
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Chapter 11: Financing: Equity
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86 Flashcards
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Sample Questions
Q1) Refer to Exhibit 11-1. Given the information above, if Pelletier pays a $64,000 dividend, and if the preferred stock is cumulative and two years' dividends are in arrears, common stockholders will receive
A) $32,000
B) $52,000
C) $58,000
D) $46,000
Q2) Dividends declared are reported on the
A) Income statement as an expense
B) Balance sheet as an asset
C) Statement of retained earnings
D) Income statement as a revenue
Q3) Which of the following is a characteristic of the corporate form of business organization?
A) Unlimited liability
B) Limited life
C) Ease of formation
D) Double taxation
Q4) Identify the three types of organizations and list the characteristics of each one.
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Chapter 12: Investments: Debt and Equity Securities
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89 Flashcards
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Sample Questions
Q1) If 2,500 shares of stock are purchased for $90 per share and are sold one year later for $82 per share, what is the net gain or loss on sale? (Assume that there are no transaction costs.)
A) $20,000 gain
B) $20,000 loss
C) $2,500 gain
D) $2,500 loss
Q2) In general, consolidated financial statements should be prepared
A) When a corporation owns more than 20% of the common stock of another company
B) When a corporation owns more than 50% of the common stock of another company
C) Only when a corporation owns 100% of the common stock of another company
D) Whenever the market value of the stock investment is significantly lower than its cost
Q3) Refer to Exhibit 12-1. Given the information above, on August 26, Augsburg should
A) Credit Investment in Trading Securities for $22,000
B) Credit Realized Gain on Sale of Securities for $1,600
C) Credit Realized Gain on Sale of Securities for $1,200
D) Debit Dividend Revenue for $23,600
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Chapter 13: Statement of Cash Flows
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97 Flashcards
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Sample Questions
Q1) Simpson purchased money market funds with cash during the current year. This transaction will result in a decrease in cash from
A) Operating activities
B) Financing activities
C) Investing activities
D) No change in cash will occur
Q2) Refer to Exhibit 13-3. Assuming that all of De Soto's equipment purchases are for cash, how much cash was used to purchase equipment during the year?
A) $42,000
B) $50,000
C) $70,000
D) $78,000
Q3) Refer to Exhibit 13-5. Given the information above, net cash inflow (outflow) from ALL activities is
A) $22,000
B) $40,000
C) ($58,000)
D) ($98,000)
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15
Chapter 14: Analyzing Financial Statements
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91 Flashcards
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Sample Questions
Q1) Which of the following below generally is the most useful in analyzing companies of different sizes?
A) Comparative statements
B) Common-sized financial statements
C) Price-level accounting
D) Audit report
Q2) A useful tool in financial statement analysis is the common-size financial statement. What does this tool enable the financial analyst to do?
A) Evaluate financial statements of companies within a given industry of approximately the same value.
B) Determine which companies in the same industry are at approximately the same stage of development.
C) Ascertain the relative potential of companies of similar size in different industries.
D) Compare the mix of revenue, and expenses, and determine efficient use of resources within a company over time or between companies within a given industry without respect to relative size.
Q3) List five efficiency ratios and write out the equation for each one.
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16
Chapter 15: Management Accounting and Cost Concepts
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102 Verified Questions
102 Flashcards
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Sample Questions
Q1) Capital budgeting is:
A) The continual evaluation of the profitability of the various product lines and divisions.
B) The systematic planning for long-term investments in operating assets.
C) Broad, long-range planning.
D) Planning decisions regarding current operations and those of the immediate future.
Q2) Which is usually conducted by executive level management?
A) Evaluating
B) Strategic planning
C) Operational budgeting
D) Controlling
Q3) The primary internal users of accounting information are:
A) Investors
B) Creditors
C) Analysts
D) Managers
Q4) List and describe the three management functions.
Q5) List and describe the two types of long-run planning and the two types of short-run planning.
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Chapter 16: Cost Flows and Business Organizations
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136 Flashcards
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Sample Questions
Q1) Which of the following costs would NOT be classified as a product cost?
A) Cost of raw materials
B) Cost of labor for factory employees
C) Salary of the Vice President of Manufacturing
D) Salary of the Vice President of Finance
Q2) At year-end, a service company has a credit balance in the overhead account. This means that:
A) Overhead has been overapplied to services
B) Overhead has been underapplied to services
C) Overhead has not been applied to services
D) Estimated overhead was more than actual overhead
Q3) Which of the following would NOT properly be classified as manufacturing overhead?
A) Nails used to manufacture furniture
B) Custodial wages for factory custodians
C) Wood to manufacture cabinets
D) Insurance on factory
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Chapter 17: Activity-Based Costing
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Sample Questions
Q1) Refer to Exhibit 17-4. The cost of sewing per tent is:
A) $20.00
B) $60.00
C) $160.00
D) $300.00
Q2) Refer to Exhibit 17-4. The total manufacturing cost per tent is:
A) $128
B) $140
C) $255
D) $268
Q3) If activity-based costing is used, assembly would be classified as a:
A) Unit-level activity
B) Batch-level activity
C) Product line activity
D) Facility support activity
Q4) If activity-based costing is used, purchase orders would be classified as a:
A) Unit-level activity
B) Batch-level activity
C) Product line activity
D) Facility support activity
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Chapter 18: Budgeting and Control
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Sample Questions
Q1) In a personal budget, the amount of income left after covering the withdrawals and fixed expenditures is referred to as:
A) Necessary expenditures
B) Disposable income
C) Retirement savings
D) Federal withholdings
Q2) Which of the following types of budgeting procedures is the most effective for measuring performance?
A) Static budgeting
B) Capital budgeting
C) Flexible budgeting
D) Strategic budgeting
Q3) The formula underlying the budget for direct materials usage is:
A) Desired ending inventory + Units needed for production - Beginning inventory
B) Desired ending inventory + Units needed for production + Beginning inventory
C) Desired ending inventory - Units needed for production + Beginning inventory
D) Total units needed for production × Cost of materials
Q4) Describe the differences between authoritative budgeting and participative budgeting. Include advantages of each type of budgeting.
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Chapter 19: Controlling Cost and Profit
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Sample Questions
Q1) Refer to Exhibit 19-9. Using the information above, compute the variable manufacturing overhead spending variance for Lyman, Inc.
A) $10,000 favorable
B) $10,000 unfavorable
C) $6,500 favorable
D) $6,500 unfavorable
Q2) Refer to Exhibit 19-2. Based on the information above, the number of direct labor hours that should have been used is:
A) 5,900 hours
B) 6,000 hours
C) 6,100 hours
D) 6,200 hours
Q3) Centralization refers to the concept of having decision-making authority in the hands of:
A) Segment managers
B) Top management
C) Individual employees
D) Operational managers
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21
Chapter 20: Inventory Management and Variable and
Absorption Costing
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88 Verified Questions
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Sample Questions
Q1) The private investigation firm of Watson & Holmes is conducting an investigation for a wealthy movie star. The investigation is estimated to take 6 months to complete and will use $2,000 in supplies, $120,000 in labor, and $80,000 in overhead. Watson & Holmes' cost of capital is 12%. What are the financial holding costs on this project?
A) $0
B) $3,030
C) $6,060
D) $12,120
Q2) The private investigation firm of Watson & Holmes is conducting an investigation for a wealthy movie star. The investigation is estimated to take 6 months to complete and will use $2,000 in supplies, $120,000 in labor, and $80,000 in overhead. Watson & Holmes' cost of capital is 12%. At the end of the sixth month, Watson & Holmes finds that the investigation will take an additional 2 months to complete and another $80,000 in labor and overhead. What are the additional financial holding costs for the 2 extra months on this project?
A) $4,840
B) $5,640
C) $8,880
D) $11,700
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Chapter 21: Cost Behavior and Decisions Using C-V-P Analysis
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Sample
Questions
Q1) A company with a cost-volume-profit structure of $50X = $30X + $20,000 will earn a 20% return on revenues when it sells:
A) 1,000 units
B) 2,000 units
C) 1,500 units
D) 3,000 units
Q2) Refer to Exhibit 21-8. Point E on the profit graph represents the:
A) Profit area
B) Total costs
C) Loss area
D) Break-even point
Q3) A company that has a per-unit contribution margin of $140 and fixed costs of $126,000 will break even when it sells:
A) 600 units
B) 800 units
C) 900 units
D) 1,200 units
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Page 23
Chapter 22: Relevant Information and Decisions
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Sample Questions
Q1) The relevant costs of buying a component from a supplier are:
A) Direct labor costs
B) Opportunity costs
C) Variable manufacturing costs
D) Prices charged by the supplier
Q2) Costs that are never relevant to a decision because they are always the same are:
A) Sunk costs
B) Variable costs
C) Differential costs
D) Opportunity costs
Q3) Costs that are NOT the responsibility of any specific segment, product, or department are:
A) Common costs
B) Differential costs
C) Sunk costs
D) Fixed costs
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24
Chapter 23: Capital Investment Decisions
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Sample Questions
Q1) The net present value of a proposed investment represents the:
A) Present value of the cash inflows less the present value of the cash outflows
B) Cash flows less the original investment
C) Cash flows less the present value of the cash flows
D) Present value of the cash flows plus the present value of the original investment
Q2) Hildale Hotels has been told that it must install a fire sprinkler system. System A would cost $400,000 immediately, but it would not add to annual operating costs. System B costs only $250,000, but it would add $25,000 a year to operating costs. Both systems have a useful life of 10 years. The hotel's hurdle rate is 12%. Given the data provided, with a present value of an annuity for 10 years at 12% of 5.650 and a present value of $1 for 10 years at 12% of 0.322, the company should:
A) Select System A
B) Select System B
C) Be indifferent about the two alternatives
D) Try to obtain additional data; as is, the answer cannot be determined
Q3) List and describe the three aspects of capital investment decisions that are critical to long-run profitability.
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Page 25
Chapter 24: New Measures of Performance
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Sample Questions
Q1) The weighted average cost of capital is:
A) The average return expected by both equity owners and debt holders
B) The average return expected by equity owners
C) The average return expected by debt holders
D) The net operating profit after taxes
Q2) The formula for economic value added is:
A) Net operating profit after tax - (Minimum required rate of return × Invested capital)
B) Net operating profit after tax - (Weighted average cost of capital × Average total assets)
C) Net operating profit before tax - (Minimum required rate of return × Average total assets)
D) Net operating profit after tax - (Weighted average cost of capital × Invested capital)
Q3) Which of the following requires that quality be manufactured rather than inspected into products?
A) ABC
B) JIT
C) Restructured environment
D) TMP
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