Business Accounting
Test Preparation
Course Introduction
Business Accounting provides students with a comprehensive understanding of the fundamental principles and concepts underlying the accounting process in business organizations. The course covers key topics such as the accounting cycle, preparation and analysis of financial statements, recording of business transactions, and the role of accounting information in decision-making. Students will gain practical skills in evaluating financial performance, interpreting accounting data, and understanding regulatory frameworks, enabling them to apply accounting knowledge in real-world business contexts.
Recommended Textbook
Horngren's Accounting 11th Edition by
Tracie L. Miller Nobles
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4664 Verified Questions
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) For an accounting equation to balance,a transaction must affect both sides of the equation.
A)True
B)False
Answer: False
Q2) Exchange Company collected $14,000 from one of its customers,the amount owed from the previous month.How does this affect the accounting equation for Exchange?
A)assets increase by $14,000;liabilities decrease by $14,000
B)assets increase by $14,000;assets decrease by $14,000
C)assets increase by $14,000;liabilities increase by $14,000
D)assets increase by $14,000;equity increases by $14,000
Answer: B
Q3) ________ are the owner's contributions of cash or other assets.
A)Assets
B)Owner's Withdrawals
C)Owner's Capital
D)Liabilities
Answer: C
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3
Chapter 2: Recording Business Transactions
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Sample Questions
Q1) An asset account is increased by a debit.
A)True
B)False
Answer: True
Q2) For Office Supplies,the category of account and its normal balance is ________.
A)liabilities and a debit balance
B)assets and a debit balance
C)liabilities and a credit balance
D)assets and a credit balance
Answer: B
Q3) The trial balance is also known as the balance sheet.
A)True
B)False
Answer: False
Q4) Cash is a(n)________ account and has a normal ________ balance.
A)asset;debit
B)liability;credit
C)liability;debit
D)asset;credit
Answer: A
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Unearned Revenue is a(n)________ account and carries a normal ________ balance.
A)liability;credit
B)asset;credit
C)revenue;debit
D)asset;debit
Answer: A
Q2) Kittery Services purchased computers that are to be used in its consultancy services.Based on the matching principle,the related account that should appear on the income statement for the year ended December 31,2016 is ________.
A)Depreciation Expense
B)Service Revenue
C)Accumulated Depreciation
D)Equipment Expense
Answer: A
Q3) An expense that has been incurred but not yet paid is called a(n)________.
A)accrued revenue
B)deferred expense
C)deferred revenue
D)accrued expense
Answer: D
Page 5
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) An increase in the current ratio implies that the profitability of the company has increased from the previous period.
A)True B)False
Q2) The permanent accounts-assets,liabilities,and stockholders' equity-are closed to the Owner,Capital account.
A)True B)False
Q3) Ellis Service Company had the following unadjusted balances at December 31,2016: Salaries Payable,$0;Salaries Expense,$12,000.The following transactions took place on December 31,2016:
Accrued Salaries Expense,$5,000 Closed the Salaries Expense account. The following transaction took place on January 4,2017: Paid salaries of $6,000.This payment included $5,000 that was accrued on December 31,2016 and $1,000 for the first few days in January 2017.
Prepare the journal entry for January 4,2017,assuming that reversing entries were not made.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) A wholesaler is a merchandiser who buys merchandise from a manufacturer and sells the same to a retailer.
A)True
B)False
Q2) A merchandiser uses a perpetual inventory system.The third step in the process of closing the accounts of a merchandiser is to ________.
A)make the revenue accounts equal to zero via the Income Summary account
B)make the Income Summary account equal to zero via the Owner,Withdrawals account
C)make the expense accounts equal to zero via the Income Summary account
D)make the Income Summary account equal to zero via the Owner,Capital account
Q3) Which of the following is added to operating income to arrive at net income?
A)sales revenue
B)cost of goods sold
C)interest revenue
D)operating expenses
Q4) Operating income is gross profit minus operating expenses.
A)True
B)False
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) A high rate of inventory turnover indicates difficulty in selling inventory.
A)True
B)False
Q2) The consistency principle states that a business should use the same accounting methods and procedures from period to period.
A)True
B)False
Q3) Changing from the LIFO (Last-In,First-Out)to the specific identification method of valuing inventory ignores the principle of ________.
A)conservatism
B)consistency
C)disclosure
D)materiality
Q4) In a period of rising costs,the last-in,first-out (LIFO)method results in higher cost of goods sold and lower net income than the first-in,first-out (FIFO)method.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) The collection of time records is an accounting information system activity that is classified as a business transaction involving the sale of merchandise inventory.
A)True
B)False
Q2) Define enterprise resource planning (ERP)systems and state one advantage and one disadvantage of ERP systems.
Q3) The sales journal is used for all sales of merchandise inventory.
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) When using a periodic inventory system,the Merchandise Inventory DR column,in the purchases journal,is replaced with a column titled Cost of Goods Sold DR.
A)True
B)False
Q6) List and briefly discuss the three basic components of an accounting information system.
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) A way to account for petty cash by maintaining a constant balance in the petty cash account and which at any time requires that cash plus petty cash tickets must total the amount allocated to the petty cash fund,is known as the ________.
A)control system
B)voucher system
C)balanced system
D)imprest system
Q2) When a check is issued,the party who is paying the cash is referred to as the ________.
A)payee
B)maker
C)bank signatory
D)depositor
Q3) A deposit receipt is ________.
A)retained by the customer as proof of a deposit transaction
B)the same as a signature card
C)used by the bank as an alternative to a remittance advice
D)given by the customer to the bank as a proof of deposit
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Chapter 9: Receivables
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Sample Questions
Q1) In order to keep accurate records about the collection of cash for a previously written off account,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) Calculate the interest on a 90-day,12% note for $45,000.(Use a 360-day year to compute interest.Round your answer to the nearest dollar. )
A)$2,700
B)$1,350
C)$5,400
D)$450
Q3) Which of the following statements is true?
A)Accounts receivable are more liquid than cash.
B)Notes receivable are always classified as current assets.
C)Notes receivable usually have longer collection terms than accounts receivable.
D)Accounts receivable are liabilities.
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11
Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) A company's accountant capitalized a payment that should have been recorded as a revenue expenditure.How will this error affect the company's financial statements?
A)Net income will be understated.
B)Expenses will be overstated.
C)Assets will be overstated.
D)Liabilities will be overstated.
Q2) All intangible assets must be amortized each year.
A)True
B)False
Q3) Which of the following statements is incorrect?
A)The life cycle of a plant asset includes: acquisition,usage,and disposal.
B)Depreciation is recorded on all plant assets.
C)Plant assets not currently being used in business operations are classified as long-term investments.
D)Plant assets are long-lived tangible assets used in the operations of a business.
Q4) The use of MACRS is acceptable for financial reporting under GAAP.
A)True
B)False
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) Barter,Inc.sold goods for $894,500 on account.The company operates in a state that imposes a 6% sales tax.What is the amount of the sales tax payable to the state?
A)$53,670
B)$26,835
C)$13,418
D)$107,340
Q2) A contingency was evaluated at year-end and considered to have a remote possibility of becoming an actual liability.If this is not reported on the balance sheet or in the notes to the financial statements,it could be considered a violation of generally accepted accounting principles.
A)True
B)False
Q3) If the likelihood of a future event is reasonably possible,how should the company report the contingency?
Q4) At the maturity of a note payable,a borrower will pay ________.
A)the principal plus interest
B)the principal amount only
C)the interest amount only
D)the principal minus interest
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Chapter 12: Partnerships
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Sample Questions
Q1) Which of the following is true of a partnership?
A)All partnership firms are public firms.
B)Partnership firms have a limited life.
C)The owners of the partnership have limited liabilities for the partnership's debts.
D)The maximum loss an owner of a partnership can incur is the invested amount.
Q2) Steve owns 64% and Mark owns 36% of a partnership business.They purchase equipment with a suggested value of $9,600.The current market value of the equipment at the time of purchase was $9,100.At the time of the balance sheet preparation,depreciation of $160 was recorded.Based on the information provided,which of the following is true of the partnership balance sheet?
A)The Equipment account will be debited at $9,100 on the date of purchase.
B)The Equipment account will be debited at $8,940 on the date of purchase.
C)The Equipment account will be debited at $9,600 on the date of purchase.
D)The Equipment account will be debited at $9,440 on the date of purchase.
Q3) In comparison to a corporation,the owners of a general partnership ________.
A)have limited claim on the profits generated by the business
B)are restricted from dissolving the business without prior notice to the SEC
C)have an unlimited personal liability for the debts of the business
D)are taxed at two levels
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Page 14
Chapter 13: Corporations
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Sample Questions
Q1) The journal entry for the purchase of treasury stock includes a credit to Cash.
A)True
B)False
Q2) Stock dividends are declared by the ________.
A)chief financial officer of the company
B)board of directors of the company
C)chief executive officer of the company
D)stockholders of the company
Q3) Most states prohibit corporations from paying a dividend if a deficit will occur.
A)True
B)False
Q4) Which of the following statements is true of a corporation?
A)Shareholders can be required to pay debts of the corporation.
B)Shares of stock cannot be readily purchased and sold by investors on an organized stock exchange.
C)Shareholders are authorized to sign contracts or make business commitments on behalf of the corporation.
D)Corporations pay income tax on corporate earnings,and shareholders pay income tax on corporate dividends.
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Chapter 14: Long-Term Liabilities
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Sample Questions
Q1) The difference between mortgages payable and notes payable is that notes payable are always secured by specific assets.
A)True
B)False
Q2) Which of the following statements is true if a bond's stated interest rate is higher than the market rate?
A)The bond will be issued at a premium.
B)The bond will be issued at par.
C)The bond will be issued at a discount.
D)The bond will be issued for an amount lower than the maturity value.
Q3) Bonds are short-term debt issued to multiple lenders called bondholders,usually in increments of $1,000 per bond.
A)True
B)False
Q4) Callable bonds are bonds that the issuer may call and pay off at a specified price whenever the issuer wants.
A)True
B)False
Q5) When computing the present value of a bond,which interest rate is used? Why?
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Chapter 15: Investments
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Sample Questions
Q1) Short-term investments ________.
A)are debt and equity securities that the investor expects to hold for more than a year
B)are investments in debt securities or equity securities in which the investor holds less than 50 percent of the voting stock and that the investor plans to sell in the very near future
C)are investments in debt and equity securities that are highly liquid and that the investor intends to convert to cash within one year
D)are investments in debt securities that the investor intends to hold until maturity
Q2) The fair value method is used to account for available-for-sale investments because they are normally sold in the near future at their current market value.
A)True
B)False
Q3) When a company acquires a long-term bond investment,by paying cash,total assets remain unchanged.
A)True
B)False
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Chapter 16: The Statement of Cash Flows
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Sample Questions
Q1) Which of the following items are included as an operating activity on the statement of cash flows,using the direct method?
A)purchase of treasury stock
B)payment of dividends
C)issuance of stock
D)payment of interest expense
Q2) Martin Ceramics Company sold equipment for cash.The income statement shows a gain on the sale of $920.The net book value of the asset was $3,610.Which of the following statements describes the cash effect of the transaction?
A)negative cash flow of $4,530 for financing activities
B)negative cash flow of $2,690 for operating activities
C)positive cash flow of $4,530 from investing activities
D)positive cash flow of $2,690 from investing activities
Q3) List and discuss three ways in which the statement of cash flows helps financial statement users.
Q4) The direct method restates the income statements in terms of cash.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Sample Questions
Q1) If the debt ratio is too high,the company may be unable to pay its debts.
A)True
B)False
Q2) The relationship between total liabilities and total assets is the ________.
A)debt ratio
B)debt to equity ratio
C)current ratio
D)earnings per share
Q3) The formula for calculating the cash ratio is calculated is ________.
A)(Cash)/ Total liabilities
B)(Cash + Cash equivalents)/ Total current liabilities
C)(Cash + Cash equivalents)/ Total assets
D)(Cash equivalents)/ Total current liabilities
Q4) When performing vertical analysis of a balance sheet,the base amount is ________.
A)total assets
B)total cash and cash equivalents
C)net income
D)gross profit
Q5) What is an annual report? Briefly describe the key parts of the annual report.
Page 19
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Chapter 18: Introduction to Managerial Accounting
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Sample Questions
Q1) Direct costs and indirect costs can be easily traced directly to a cost object.
A)True
B)False
Q2) Which of the following is an objective of managerial accounting?
A)to generate a company's financial statements for tax reporting
B)to provide information to business managers to assist them in controlling their business
C)to provide information to shareholders to assist them with their investment decisions
D)to ensure that the reports produced for internal and external business purposes are GAAP compliant
Q3) Anything for which managers want a separate measurement of cost is called a
A)responsibility center
B)cost object
C)profit object
D)conversion cost
Q4) Service companies sell their time,skills,and knowledge.
A)True
B)False
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Chapter 19: Job Order Costing
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Sample Questions
Q1) On January 1 Primary Manufacturing had a beginning balance in Work-in-Process Inventory of $80,400 and a beginning balance in Finished Goods Inventory of $22,000.During the year,Primary incurred manufacturing costs of $352,000. In addition,the following transactions occurred during the year:
Job A-12 was completed for a total cost of $121,000 and was sold for $125,000.
Job A-13 was completed for a total cost of $201,000 and was sold for $213,000.
Job A-15 was completed for a total cost $64,000 but was not sold as of year-end. The Manufacturing Overhead account had an unadjusted credit balance of $11,000,and was adjusted to zero at year-end.
What was the final balance in the Cost of Goods Sold account?
A)$311,000 debit balance
B)$333,000 debit balance
C)$322,000 debit balance
D)$11,000 credit balance
Q2) For a service company,such as an accounting firm,each client is considered a job.
A)True
B)False
Q3) Why would the manager of a service company need to use job order costing?
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Chapter 20: Process Costing
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Sample Questions
Q1) The Assembly Department of ZigZag,Inc. ,manufacturer of computers,incurred $280,000 in direct material costs and $70,000 in conversion costs.The equivalent units of production for direct materials and conversion costs are 1,000 and 800,respectively.The cost per equivalent unit of production for direct materials is ________.(Round your answer to the nearest cent. )
A)$87.50
B)$70.00
C)$350.00
D)$280.00
Q2) Under the first-in,first-out (FIFO)method,prior period costs are not merged with current period costs.
A)True
B)False
Q3) How is a production cost report prepared using the FIFO method?
Q4) In a process costing system,a department's total production costs incurred in a particular period must equal the total costs transferred out of the department.
A)True
B)False
Q5) Why are extra journal entries required in a process costing system?
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Chapter 21: Cost-Volume-Profit Analysis
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Sample Questions
Q1) 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
Q2) Schmidt Company sells glass vases at a wholesale price of $3 per unit.The variable cost of manufacture is $1.75 per unit.The fixed costs are $18,000 per month.Schmidt sold 5,500 units during this month.Calculate Schmidt's operating income (loss)for this month.
A)$9,625
B)$11,125
C)$(11,125)
D)$(18,000)
Q3) Total fixed costs can change from one relevant range to another.
A)True
B)False
Q4) Contribution margin is the amount that contributes to covering variable costs.
A)True
B)False
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Chapter 22: Master Budgets
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Sample Questions
Q1) When preparing the selling and administrative expense budget,there is no need to separate mixed costs into the fixed and variable components.
A)True
B)False
Q2) The capital expenditures budget represents the company's plan for purchasing the long-term assets.
A)True
B)False
Q3) The budget process is a loop that consists of ________.
A)planning,acting,and controlling
B)developing strategies,planning,acting,and controlling
C)developing strategies,planning,and acting
D)developing strategies,acting,and controlling
Q4) Use of advanced technology makes it more cost effective for managers to conduct sensitivity analysis.
A)True
B)False
Q5) What is the cornerstone of the master budget for a merchandising company? Why?
Q6) List the three sections of the cash budget.
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) In a standard cost system,the standard overhead allocation rate replaces the predetermined overhead allocation rate but the concept is the same.
A)True
B)False
Q2) The static budget,at the beginning of the month,for Onyx Décor Company,follows:
Static budget:
Sales volume: 1,100 units;Sales price: $70.00 per unit
Variable costs: $32.00 per unit;Fixed costs: $38,000 per month
Operating income: $3,800
Actual results,at the end of the month,follows:
Actual results:
Sales volume: 980 units;Sales price: $75.00 per unit
Variable costs: $35.00 per unit;Fixed costs: $34,200 per month
Operating income: $5,000
Calculate the flexible budget variance for sales revenue.
A)$5,760 U
B)$5,760 F
C)$4,900 U
D)$4,900 F
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) Operating income alone does not indicate how efficiently a segment is using its assets.
A)True
B)False
Q2) The practice of comparing a company's achievements against the best practices in the industry is known as goal congruence.
A)True
B)False
Q3) Atom,Inc.has a division that manufactures a component that sells for $160 and has a variable cost of $50.Another division of the company wants to purchase the component.Fixed cost per unit of the component is $20.What is the minimum transfer price if the division is operating at capacity?
A)$160
B)$50
C)$70
D)$20
Q4) Define market-based transfer price.When should market-based transfer pricing be used? Explain your answer.
Q5) List two objectives in setting transfer prices.
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Chapter 25: Short-Term Business Decisions
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Q1) Target full product cost equals the revenue at the market price minus the desired profit.
A)True
B)False
Q2) Valuable Electronics uses a standard part in the manufacture of different types of radios.The total cost of producing 29,000 parts is $105,000,which includes fixed costs of $50,000 and variable costs of $55,000.The company can buy the part from an outside supplier for $2 per unit and avoid 30% of the fixed costs.Assume that the company can use the freed manufacturing space to make another product that can earn a profit of $16,000.If Valuable outsources,what will be the effect on operating income?
A)increase of $28,000
B)decrease of $28,000
C)decrease of $15,000
D)increase of $16,000
Q3) Define the terms Relevant Cost and Sunk Cost.
Q4) Differential analysis is a common approach to making long-term business decisions.
A)True
B)False
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Chapter 26: Capital Investment Decisions
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Q1) The payback method is used only when the net cash inflows from a capital investment are the same for each period.
A)True
B)False
Q2) Which of the following situations suggests the acceptance of an investment proposal?
A)The present value of the net cash inflows exceeds the initial investment.
B)The IRR is lower than the hurdle rate.
C)The cash inflows are less than the initial investment.
D)The investment will have a residual value.
Q3) The process for calculating present values is often called discounting future cash flows because future amounts are discounted to their present value.
A)True
B)False
Q4) Discounted cash flow methods incorporate compound interest by assuming that companies will reinvest future cash flows when they are received.
A)True
B)False
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