Business Accounting
Test Questions
Course Introduction
Business Accounting is an introductory course designed to provide students with a comprehensive understanding of the fundamental principles and practices of financial and managerial accounting. The course covers key topics such as the accounting cycle, preparation and analysis of financial statements, bookkeeping techniques, and internal controls. Students will also explore the role of accounting in decision-making processes, budgeting, and performance evaluation within various types of organizations. Emphasis is placed on developing practical skills in recording business transactions, understanding the regulatory environment, and interpreting accounting information to inform strategic business decisions.
Recommended Textbook
Financial Accounting 15th Edition by Jan Williams
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Page 2
Chapter 1: Accounting: Information for Decision Making
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Sample Questions
Q1) Management accounting information is oriented toward the future while financial accounting information is historical in nature.
A)True
B)False
Answer: True
Q2) The general purpose financial statements prepared annually by a corporation would not include the:
A) Balance sheet.
B) Income tax return.
C) Income statement.
D) Statement of cash flows.
Answer: B
Q3) Financial accounting information is:
A) Designed to assist investors and creditors.
B) Not used by managers and in income tax returns.
C) Called "special-purpose" accounting information.
D) Not applicable to individuals.
Answer: A
Q4) The information is summarized in a set of statements distributed to the public.
Answer: Financial
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Chapter 2: Basic Financial Statements
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Sample Questions
Q1) A statement of cash flows for February, would report net cash flows from investing activities of:
A) $4,000.
B) $47,000.
C) $53,600.
D) $96,600.
Answer: A
Q2) The total liabilities of Hogan's Company on the balance sheet are $270,000; this amount is equal to three-fourths of the total assets. What is the amount of owners' equity?
A) $202,500.
B) $90,000.
C) $360,000.
D) $630,000.
Answer: B
Q3) The payment of a liability causes an increase in owners' equity.
A)True
B)False
Answer: False
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Page 4
Chapter 3: The Accounting Cycle: Capturing Economic Events
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Sample Questions
Q1) The price of the goods sold or services rendered during a given accounting period is called:
A) Net income.
B) Profit.
C) Revenue.
D) Equity.
Answer: C
Q2) Which of the following explains the debit and credit rules relating to the recording of revenue and expenses?
A) Expenses appear on the left side of the balance sheet and are recorded by debits; revenue appears on the right side of the balance sheet and is recorded by credits.
B) Expenses appear on the left side of the income statement and are recorded by debits; revenue appears on the right side of the income statement and is recorded by credits.
C) Revenue increases owners' equity and is recorded by a credit; expenses decrease owners' equity and are recorded as debits.
D) The realization principle and the matching principle.
Answer: C
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Chapter 4: The Accounting Cycle: Accruals and Deferrals
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Sample Questions
Q1) As of January 31, Princess Company owes $500 to Butler Co. for equipment rented during January. If no adjustment is made for this item at January 31, how will Princess's financial statements be affected?
A) Cash will be overstated at January 31.
B) Net income for January will be overstated.
C) Owners' equity will be understated.
D) The financial statements will be accurate since the $500 does not have to be paid yet.
Q2) The adjusting entry to recognize an unrecorded expense is necessary:
A) When an expense is paid in advance.
B) When an expense has been neither paid nor recorded as of the end of the accounting period.
C) Whenever an expense remains unpaid at the end of an accounting period.
D) Because the accountant is likely to forget to pay these unrecorded expenses.
Q3) What amount of interest expense has accrued on the bank loan?
A) $6,400.
B) $7,000.
C) $7,200.
D) $7,800.
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6
Chapter 5: The Accounting Cycle: Reporting Financial
Results
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Sample Questions
Q1) For a publicly held company, indicate which of the following activities are likely to occur at or shortly after year-end. (More than one answer may be correct.)
A) Preparing of income tax returns.
B) Adjusting and closing the accounts.
C) Drafting disclosures that accompany financial statements.
D) An audit of the financial statements by a firm of CPAs.
Q2) Which statement is true regarding the Income Statement?
A) Losses do not appear on income statements.
B) Dividends reduce net income.
C) Dividends declared increase net income.
D) Both losses and gains appear on an income statement.
Q3) The net income percentage can be measured by dividing net income by total revenue.
A)True
B)False
Q4) The current ratio is a measure of short-term debt paying ability.
A)True
B)False
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Chapter 6: Merchandising Activities
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Sample Questions
Q1) What is the cost of goods sold?
A) $9,800.
B) $33,600.
C) $32,200.
D) $43,400.
Q2) If cost of goods sold is $480,000 and the gross profit rate is 40%, what is the gross profit?
A) $320,000.
B) $288,000.
C) $480,000.
D) $1,200,000.
Q3) Which of the following businesses is most likely to use a periodic inventory system?
A) An aircraft manufacturer.
B) A supermarket that is part of a national chain.
C) An independently owned art gallery with a manual accounting system.
D) A beer bar.
Q4) The average gross profit margin is a measure of relative profitability.
A)True
B)False
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Chapter 7: Financial Assets
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Sample Questions
Q1) The accounts receivable turnover rate for Baldwin Corporation is 8, and for Basinger Company is 10. These statistics indicate that:
A) Basinger collects its accounts receivable within 10 days on average; Baldwin collects its accounts receivable in 8 days on average.
B) Basinger writes off as uncollectible a greater percentage of its accounts receivable than does Baldwin Company.
C) Basinger collects its accounts receivable faster than does Baldwin Company.
D) Basinger makes on average 10 credit sales annually to each of its customers, while Baldwin makes 8 credit sales to each customer.
Q2) The financial statements of Baxter Corporation include an Unrealized Holding Gain on Investments. This item:
A) Is included in the income statement.
B) Is shown as a reduction in total stockholders' equity.
C) Indicates that Baxter's marketable securities have a current market value higher than cost.
D) Indicate that Baxter Corporation sold marketable securities during the period at a gain.
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Chapter 8: Inventories and the Cost of Goods Sold
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Sample Questions
Q1) Assume that Castle TV, Inc. uses the FIFO flow assumption. The cost of the 200 units in inventory at year-end is:
A) $41,500.
B) $46,000.
C) $37,000.
D) $83,000.
Q2) The principle of consistency prohibits a company from changing an inventory valuation method once one is selected.
A)True
B)False
Q3) In a period of rising prices, a company is most likely to use the FIFO method of pricing inventory if:
A) Each item in the inventory is unique.
B) Management wants the same unit cost assigned to items sold and items remaining in inventory.
C) Management's primary objective is to minimize income taxes.
D) Management wants the company's income statement to indicate the highest possible amounts of gross profit and net income.
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10
Chapter 9: Plant and Intangible Assets
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Sample Questions
Q1) Tomassi Company paid $450,000 to acquire a piece of real estate consisting of land and an office building with a parking lot. In this situation:
A) The purchase price should be apportioned among the Land, Land Improvement, and Building accounts.
B) The entire purchase price should be debited to the Plant and Equipment account.
C) Land, Land Improvement, and Building accounts should each be debited for the respective appraisal value of each item.
D) Allocation of the entire $450,000 to Land results in an understatement of net income in the current and future accounting periods.
Q2) Land and a warehouse were acquired for $890,000. What amounts should be recorded in the accounting records for land and for the warehouse if an appraisal showed the estimated values to be $400,000 for the land and $700,000 for the warehouse?
A) $400,000 for land; $490,000 for warehouse.
B) $323,960 for land; $566,040 for warehouse.
C) $400,000 for land; $700,000 for warehouse.
D) $190,000 for land; $700,000 for warehouse.
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11
Chapter 10: Liabilities
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Sample Questions
Q1) The amortization of discount on bonds payable reduces the amount of interest expense recognized during the period.
A)True
B)False
Q2) How much must Noble pay South Bank on May 1, Year 2, when the note matures?
A) $80,000.
B) $89,600.
C) $84,800.
D) $82,400.
Q3) Interest expense on this bond issue reported in Cricket's Year 1, income statement is:
A) $2,400,000.
B) $4,800,000.
C) $5,400,000.
D) $7,200,000.
Q4) A commitment, such as a contract to pay a baseball player $5,000,000 a year for five years, should be listed as a long-term liability.
A)True
B)False
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Page 12
Chapter 11: Stockholders Equity: Paid-In Capital
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Sample Questions
Q1) Perez Corporation has 100,000 shares of $1 par value common stock and 20,000 shares of 8% cumulative preferred stock, $100 par value, outstanding. The balance in Retained Earnings at the beginning of the year was $1,600,000, and one year's dividends were in arrears. Net income for the current year was $870,000. If Perez Corporation paid a dividend of $2 per share on its common stock, what is the balance in Retained Earnings at the end of the year?
A) $2,150,000.
B) $2,270,000.
C) $2,110,000.
D) $1,950,000.
Q2) When no-par stock is issued:
A) The entire amount received is credited to the Additional Paid-in Capital account.
B) The issue price is credited to the Capital Stock account.
C) There is no legal capital created because there is no par or stated value.
D) The transaction usually involves only an exchange for non-cash assets or services, since the stock has no value on the stock exchanges.
Q3) The total amount of legal capital: $__________
Q4) The average issue price per share of preferred stock: $_____ per share
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Page 13
Chapter 12: Income and Changes in Retained Earnings
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Sample Questions
Q1) Donnell Corp. had 100,000 shares of 8% preferred stock, $100 par, and 500,000 shares of $1 par common stock outstanding throughout the year. Net income for the year was $4,800,000, and Donnell declared and distributed a cash dividend of $4 per share on its common stock. Earnings per share amounted to:
A) $8.80.
B) $4.00.
C) $8.00.
D) $2.00.
Q2) Sovereign Foods suffered a $1,500,000 loss (net of tax) when the FDA prohibited the sale of food products containing red dye no. 3. On its other products, Sovereign Foods had net sales of $6,580,000 and costs and other expenses of $6,505,000. Which of the following statements is not true? (Ignore taxes)
A) Sovereign Foods reports a net loss of $1,425,000 for the current year.
B) Sovereign Foods reports income before extraordinary items of $75,000.
C) Sovereign Foods combines the $1,500,000 loss with its other costs and expenses of $6,505,000, since this item does not qualify for any special disclosure.
D) Sovereign Foods shows the $1,500,000 loss in a separate section of the income statement as an extraordinary item.
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Page 14
Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) How should purchases, sales, and depreciation of plant assets be classified in Hierarchy's statement of cash flows for the current year? (Assume the direct method is used by Hierarchy.)
A) Purchases of plant assets are classified as operating activities; sales of plant assets are classified as financing activities; depreciation is classified as an operating activity.
B) Purchases of plant assets and depreciation are classified as investing activities; sales of plant assets are classified as operating activities.
C) Purchases and sales of plant assets are classified as investing activities; depreciation does not appear as an operating, financing, or investing activity.
D) Since plant assets are used to generate income from operations, purchases, sales, and depreciation of plant assets are all classified as operating activities.
Q2) Compute the amount of cash received from customers during the current year.
A) $1,548,750.
B) $1,564,500.
C) $1,533,000.
D) $1,806,000.
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15
Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) A company cannot be increasing its market share if its net sales are declining.
A)True
B)False
Q2) The return on average total assets during the year (rounded to the nearest percent) was:
A) 24%.
B) 34%.
C) 79%.
D) Some other answer.
Q3) Eleva Corporation's operating cycle (in days) for 2011 is:
A) 158.8 days.
B) 122.0 days.
C) 213.4 days.
D) 188.0 days.
Q4) Supreme's price-earnings ratio at year end was:
A) 25.
B) 22.
C) 100.
D) 4.
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Chapter 15: Global Business and Accounting
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Sample Questions
Q1) At the current exchange rate of $1.40 per British pound, a one-day pass to Worldwide Theme Park of Florida sells for 45 pounds at travel agencies throughout Great Britain. If the exchange rate increases to $1.70 per pound, what will happen to the price of a one-day pass sold in Great Britain?
A) The price will be unchanged.
B) The price will fall to 37 pounds.
C) The price will increase to 54 pounds.
D) The price will fall by 12 pounds.
Q2) Although cultural differences are significant in business dealings, they pose no difficulties to the design and implementation of an accounting system.
A)True
B)False
Q3) The number of dollars equivalent to \(\times\)5,250,000 on this date is:
A) $40,110.00.
B) $687,172.50.
C) $87,225.50.
D) Depends upon whether the item is a receivable or a payable.
Q4) Explain the major provisions of the Foreign Corrupt Practices Act as amended in 1986.
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Chapter 16: The Time Value of Money
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Sample Questions
Q1) Financial instruments are recorded at:
A) Future values.
B) Present values plus interest.
C) Present values less interest.
D) Present values.
Q2) A future amount is the dollar amount to which a present value will ______________ over time.
A) vanish.
B) accumulate.
C) disappear.
D) remain.
Q3) An annuity due assumes the cash flow will occur at the beginning of the period.
A)True
B)False
Q4) The future value of an annuity is:
A) Always more than the present value.
B) Always less than the present value.
C) Equal to the present value.
D) Double the present value.
Q5) Explain what is meant by the "time value of money." Provide examples.
Page 18
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