Business Accounting
Textbook Exam Questions
Course Introduction
Business Accounting is an introductory course designed to provide students with a comprehensive understanding of fundamental accounting principles, practices, and their application in business environments. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, recording and interpreting financial transactions, and the use of accounting information for decision-making. Students will also explore key concepts including assets, liabilities, equity, revenue, and expenses, as well as the regulatory framework governing accounting practices. By the end of the course, students will develop the skills necessary to interpret financial data and communicate relevant accounting information effectively within a business context.
Recommended Textbook
Using Financial Accounting Information The Alternative to Debits and Credits 10th Edition by Gary
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Chapter 1: Accounting As a Form of Communication
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Q1) Which of the following would be classified as external users of financial statements?
A)Stockholders and management of the company
B)The controller of the company and a company's stockholders
C)The company's marketing managers
D)The creditors and stockholders of the company
Answer: D
Q2) If a company prepares a statement of retained earnings,net income plus dividends are added to beginning retained earnings on this statement.
A)True
B)False
Answer: False
Q3) A grocery store is an example of a wholesaler.
A)True
B)False
Answer: False
Q4) Owners of corporations are called ____________________.
Answer: stockholders
Q5) _____________ is the type of accounting used by external parties.
Answer: Financial accounting
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Chapter 2: Financial Statements and the Annual Report
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Q1) Which of the following events will cause a company's current ratio to rise?
A)The collection of an account receivable
B)Selling land for cash
C)The discharge of an account payable by signing a short-term note payable
D)None of these are correct
Answer: B
Q2) Read the information about Hopper,Inc.Which ratio are you able to calculate given only the information provided by Hopper?
A)Profit margin
B)Current ratio
C)Working capital
D)Gross profit percentage
Answer: A
Q3) Tavella Co.applies the consistency convention.What does this mean?
A)Tavella Co.uses the same names for all its expenses as its competitors.
B)Tavella Co.has selected certain accounting principles that can never be changed.
C)Tavella Co.applies the same accounting principles each accounting period.
D)Tavella Co.applies the same accounting principles as its competitors.
Answer: C
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Chapter 3: Processing Accounting Information
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Q1) Debits are good and credits are bad in financial terms.
A)True
B)False
Answer: False
Q2) If a company purchases equipment by issuing a note payable,its total assets will not change.
A)True
B)False
Answer: False
Q3) A debit entry increases assets,decreases liabilities,or decreases stockholders' equity.
A)True
B)False
Answer: True
Q4) A trial balance can be as informal as an adding machine tape with the account titles penciled in next to the debit and credit amounts.
A)True
B)False
Answer: True
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Chapter 4: Income Measurement and Accrual Accounting
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Q1) Carpenter Transport Company purchased a truck at a cost of $60,000 on January 1,2013.The truck has an estimated useful life of nine years and a $15,000 residual value.
A. How much depreciation expense should be reported for the year 2017 ?
B. What is the total amount of accumulated depreciation at December 31,2017 ?
C. Show how the truck and the related accumulated depreciation would appear on Carpenter's December 31,2017, balance sheet immediately after the adjustments are recorded and posted.
D. Is the amount on the balance sheet what the truck could probably be sold for on December 31,2017? What principle governs?
E. How much depreciation expense should be reported for the year 2018 ?
Q2) Accountants often prepare work sheets at the end of an accounting period in place of financial statements.
A)True
B)False
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Chapter 5: Inventories and Cost of Goods Sold
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Q1) The effect of a misstatement of the year-end inventory is limited to the net income for that year.
A)True
B)False
Q2) How much will Goldman report as its cost of goods sold in its 2016 income statement?
A)$161,500
B)$172,300
C)$161,300
D)None of these choices
Q3) When did title to the merchandise transfer from Jay Zee Music Company to Park?
A)June 5,2017
B)June 10,2017
C)June 13,2017
D)Cannot be determined from the information provided
Q4) The gross profit ratio is computed by dividing net sales by gross profit.
A)True
B)False
Q5) The inventory of a(n)__________ consists of three distinct types of costs: direct materials,direct labor,and manufacturing overhead.
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Chapter 6: Cash and Internal Control
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Q1) Which of the following items would be added to the balance per bank statement on a bank reconciliation?
A)Outstanding checks
B)Deposit in transit
C)Service charge assessed by the bank
D)Interest collected by the bank on a customer note
Q2) Which of the following represents the subset of board of directors that acts as a direct contact between stockholders and the independent accounting firm?
A)External auditors
B)Internal audit staff
C)Audit committee
D)Stockholders' representative
Q3) The only reason a company needs to create an internal control system is to deter intentional fraudulent acts.
A)True
B)False
Q4) Typically the classification known as "readily available" refers to investments that are converted into cash in __________ months or less.
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Chapter 7: Receivables and Investments
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Q1) Which of the following statements is true regarding the two allowance methods used to account for bad debts?
A)The percentage of net credit sales approach takes into account the existing balance in the Allowance for Doubtful Accounts account.
B)The direct write-off method takes into account the existing balance in the Allowance for Doubtful Accounts account.
C)The percentage of accounts receivable approach takes into account the existing balance in the Allowance for Doubtful Accounts account.
D)The direct write-off method does a better job of matching revenues and expenses.
Q2) Refer to the data for Sliders Company. ?
Determine the balance of Accounts Receivable at December 31,2017.
Q3) The accounts receivable turnover ratio is a measure of how well a company manages its receivables.
A)True
B)False
Q4) Identify two methods of accelerating cash from sales.
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Chapter 8: Operating Assets: Property, Plant, and Equipment, and Intangibles
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Q1) All intangible assets should be amortized.
A)True
B)False
Q2) Given below are costs incurred by Bunker Company during 2017 and 2018.Bunker follows the policy of decreasing the Intangible Asset account directly as amortized. Research was conducted to discover a new product and costs of $200,000 in 2017 and $80,000 in 2018 were incurred.After several months,a product was created and a patent secured for a cost of $150,000,effective as of July 1,2018.The company expects to have increased revenues of $500,000 over the next several years.The patent is expected to be useful for the next ten years.
A. Prepare a partial income statement for the year ended December \( 31,2018 \).
B. How should the \( \$ 80,000 \) cost incurred in 2018 be reported on the financial statements?
Q3) Explain how the costs associated with operating assets are reported on the balance sheet.
Q4) Distinguish between tangible and intangible operating assets.
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Chapter 9: Current Liabilities, Contingencies, and the Time
Value of Money
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Q1) A firm's year ends on December 31.Its tax is computed and submitted to the U.S.Treasury on March 15 of the following year.When should the taxes be reported as a liability?
Q2) $2,000 invested today at 12% with compound interest will yield $2,480 in two years.
A)True
B)False
Q3) If the annual interest is 12%,but the compounding is done quarterly,then the interest rate is 4% per period.
A)True
B)False
Q4) What is meant by the term current maturities of long-term debt in the Current Liabilities section of the balance sheet?
Q5) A contingent liability is recorded if it is probable and can be reasonably estimated. A)True
B)False
Q6) When a bank deducts the interest on a note in advance,the note has been
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Chapter 10: Long-Term Liabilities
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Q1) When a bond issue is retired early,the amount of unamortized discount or premium is not considered in the calculation of a gain or loss.
A)True
B)False
Q2) In an operating lease,the lessee has acquired sufficient rights of ownership and control of the property to be considered its owner.
A)True
B)False
Q3) The effective interest rate method of amortization amortizes the discount or premium in a manner that produces a constant amount of interest expense from period to period.
A)True
B)False
Q4) The excess of the face value of bonds over the issue price is known as a premium.
A)True
B)False
Q5) Bonds were issued at a(n)__________ when the issue price exceeds the face value.
Q6) An alternate term for a timing difference is a __________.
Page 12
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Chapter 11: Stockholders Equity
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Q1) An arbitrary amount that is stated on the face of the stock certificate is __________.
Q2) Perry Corporation issues 20,000 shares of $0.50 par common stock for $6 per share;the Additional Paid-In Capital-Common account will increase by A)$110,000.
B)$10,000.
C)$120,000.
D)$130,000.
Q3) Treasury stock is reported as a reduction in stockholders' equity.
A)True
B)False
Q4) Comprehensive income is the increase in net assets resulting from all transactions occurring during an accounting period except stockholders' investments and dividends. A)True
B)False
Q5) Assuming no preferred stock exists,total stockholders' equity divided by the number of shares of common stock outstanding is equal to the __________.
Q6) Stock issued by the firm,but then repurchased and not retired,is __________.
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Chapter 12: The Statement of Cash Flows
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Q1) A building with a cost of $163,000 and accumulated depreciation of $32,000 was sold for an $11,000 gain.When using the indirect method,the cash generated from this investing activity was $131,000.
A)True
B)False
Q2) Pilot Company reported the following information for 2017 and 2018: \[\begin{array} { l r }
\text { Prepaid insurance, December } 31,2017 & \$ 2,400 \\
\text { Prepaid insurance, December } 31,2018 & 1,500 \\
\text { Insurance expense-2018 } & 14,200
\end{array}\]
How much cash was paid for insurance during 2018?
A)$13,300
B)$14,200
C)$15,100
D)$15,700
Q3) __________ is a noncash expense related to plant assets.
Q4) The objective of the indirect method is to reconcile net income to net cash flow from
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Chapter 13: Financial Statement Analysis
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Q1) Which combination of ratios will best analyze Stetson's income statement performance?
A)Earnings per share,gross profit,and profit margin ratio
B)Gross profit ratio,return on common stockholders' equity ratio,debt-to-equity ratio
C)Debt-to-equity ratio,gross profit ratio,and profit margin ratio
D)Current ratio,gross profit ratio,and return on common stockholders' equity ratio
Q2) Which of the following ratios is the best measure in analyzing a company's ability to pay interest on long-term debt and to repay the long-term debt over several years?
A)Debt-to-equity ratio
B)Times interest earned ratio
C)Debt service coverage ratio
D)Acid-test ratio
Q3) What is meant by the concept of "activity" as it relates to turnover ratios? Explain.
Q4) Trend analysis is another name for __________ analysis.
Q5) What three specific ratios are especially useful for creditors and lenders?
Q6) What is the best way to assess solvency? Explain.
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Chapter 14: International Financial Reporting Standards
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Q1) The state of economic development can affect accounting standards.
A)True
B)False
Q2) Significant differences exist in terms on financial statements around the world.For example,another name for what we know as Additional Paid-In Capital in the United States is
A)Share Capital.
B)Capital Reserves.
C)Provisions for Other Risks.
D)Deferred Income.
Q3) Significant differences exist in terms on financial statements around the world.For example,another name for what we know as Contingent Liabilities in the United States is A)Share Capital.
B)Capital Reserves.
C)Provisions for Other Risks.
D)Deferred Income.
Q4) Companies in Mexico have to begin using IFRS by 2020.
A)True
B)False
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