Business Administration - Accounting Concentration Final
Exam Questions
Course Introduction
The Business Administration - Accounting Concentration program equips students with a strong foundation in core business principles while offering in-depth study of accounting practices and theory. This concentration covers essential topics such as financial and managerial accounting, auditing, taxation, and accounting information systems. Students develop analytical and problem-solving skills necessary for interpreting financial data, preparing financial statements, ensuring regulatory compliance, and supporting organizational decision-making. The curriculum also emphasizes ethical standards and the strategic role of accounting in business management, preparing graduates for careers in public or private accounting, financial analysis, and related fields.
Recommended Textbook
Intermediate Accounting 9th Edition by J.
David Spiceland
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Page 2
Chapter 1: Environment and Theoretical Structure of Financial Accounting
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Q1) Which of the following is not a provision of the Public Company Accounting Reform and Investor Protection Act of 2002 (Sarbanes-Oxley)? The Act:
A) Changed the entity responsible for setting auditing standards.
B) Increased corporate executive responsibility for financial statements.
C) Limited nonaudit services that can be performed by auditors for audit clients.
D) Changed the entity responsible for setting accounting standards.
Answer: D
Q2) Revenue recognition
A)Basis of measurement for fixed assets.
B)Reporting of all information that could affect decisions.
C)Occurs when goods or services are transferred to the customer.
D)Discounts future cash flows.
E)Application of GAAP sometimes avoided under this constraint.
Answer: C
Q3) Compute Amazon's cost of goods sold for the year.
Answer: Gross profit = Net sales - Cost of goods sold
Therefore, Cost of goods sold = Net sales - Gross profit = $10,711 - 2,456 = $8,255
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Chapter 2: Review of the Accounting Process
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Q1) Describe the difference between external events and internal events, and provide two examples of each.
Answer: External events involve an <b>exchange</b> between the<b> company </b>and a <b>separate economic entity</b>. Examples include purchasing inventory on account or borrowing money from a bank. Internal events directly affect the financial position of the company but <b>do not involve exchange transactions with another entity</b>. Examples include depreciation of equipment or use of supplies.
Q2) Recording revenue before it is collected is an example of:
A) A prepaid expense transaction.
B) A deferred revenue transaction.
C) An accrued liability transaction.
D) An accrued receivable transaction.
Answer: D
Q3) The adjusting entry required to record accrued expenses includes:
A) A credit to cash.
B) A debit to an asset.
C) A credit to an asset.
D) A credit to liability.
Answer: D
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Page 4
Chapter 3: The Balance Sheet and Financial Disclosures
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Q1) Rent collected in advance is:
A) An asset account in the balance sheet.
B) A liability account in the balance sheet.
C) A shareholders' equity account in the balance sheet.
D) A temporary account, not in the balance sheet at all.
Answer: B
Q2) Current assets include cash and all other assets expected to become cash or be consumed:
A) Within one year.
B) Within one operating cycle.
C) Within one year or one operating cycle, whichever is shorter.
D) Within one year or one operating cycle, whichever is longer.
Answer: D
Q3) Accrued liabilities:
A) Are generally paid in services rather than cash.
B) Result from payment before services are received.
C) Result from services received before payment is made.
D) Are deferred charges to expense.
Answer: C
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Page 5
Chapter 4: The
Income
and the Statement of Cash Flows
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Q1) Tropical Tours reported revenue of $400,000 for its year ended December 31, 2018. Accounts receivable at December 31, 2017 and 2018, were $35,000 and $32,000, respectively. Using the direct method for reporting cash flows from operating activities, Tropical Tours would report cash collected from customers of:
A) $400,000.
B) $397,000.
C) $403,000.
D) $365,000.
Q2) Shady Lane's income tax payable account decreased from $14 million to $12 million during 2018. If its income tax expense was $80 million, what was shown as an operating cash flow under the direct method?
A) A cash outflow of $12 million.
B) A cash outflow of $78 million.
C) A cash outflow of $80 million.
D) A cash outflow of $82 million.
Q3) Material restructuring costs are reported as an element of income from continuing operations.
A)True
B)False
Page 6
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Chapter 5: Revenue Recognition
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Q1) Stayman Associates has sold a good to a buyer and wants to recognize revenue. Which of the following is an indicator that control of a good has passed from Stayman to the buyer?
A) Buyer has scheduled delivery.
B) Buyer has a strong credit history, such that bad debts are reasonably estimable.
C) Buyer has not scheduled delivery.
D) Buyer has assumed the risk and rewards of ownership.
Q2) Prepare Veras' June 30 journal entry to account for the revenue earned from June 1June 30, as well as any necessary adjustments to revenue presumed to have been previously recorded.
Q3) Prepare Veras' March 31 journal entry to record the revenue earned from March 1March 31, as well as any appropriate adjustments to the revenue already presumed recorded as earned from January 1 - February 28.
Q4) Prepare Portelli's May 31 journal entry to record the revenue earned in May, as well as any appropriate adjustments to the revenue earned in April.
Q5) Assuming Brunetti uses the most likely value to estimate the variable consideration, calculate the transaction price.
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Page 7
Chapter 6: Time Value of Money Concepts
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Q1) Spielberg Inc. signed a $200,000 noninterest-bearing note due in five years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. What is the value of this debt at its inception?
A) $200,000.
B) $178,000.
C) $118,690.
D) $222,000.
Q2) Kunkle Company wishes to earn 20% annually on its investments. If Kunkle makes an investment that equals or exceeds that rate, it considers it a success. Assume that Kunkle invests $2 million and gets $500,000 in return at the end of each year for X years. What is the minimum value of X (number of years) for which Kunkle will consider the investment a success? Assume that Kunkle can't invest for fractional parts of a year.
A) 4 years.
B) 6 years.
C) 7 years.
D) 9 years.
Q3) Briefly describe the difference between simple interest and compound interest.
Q4) Provide two examples of the use of present value techniques in accounting.
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Page 8
Chapter 7: Cash and Receivables
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Q1) When a creditor's receivable becomes impaired, the receivable is revalued based on the discounted present value of currently expected cash flows at the loan's original effective rate.
A)True
B)False
Q2) COSO defines internal control as a process, affected by an entity's board of directors, management, and other personnel, designed to provide reasonable assurance regarding the achievement of objectives in:
A) Effectiveness and efficiency of operations.
B) Reliability of financial advice.
C) Compliance with local ordinances.
D) All of these answer choices are correct.
Q3) Guido Properties owes First State Bank $60 million under a 7% note with two years remaining to maturity. Due to financial difficulties of Guido, the previous year's interest ($4.2 million) was not received. The bank agrees to settle the note receivable and accrued interest receivable in exchange for land having a fair value of $44 million. Required: Compute the loss on troubled debt restructuring that the bank would record.
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Chapter 8: Inventories: Measurement
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Q1) Thompson's 2018 gross profit ratio is:
A) 25%.
B) 19%.
C) 20%.
D) None of these answer choices are correct.
Q2) Ending inventory using the LIFO method is:
A) $650.
B) $1,000.
C) $707.
D) $600.
Q3) The use of LIFO in accounting for a firm's inventory:
A) Usually matches the physical flow of goods through the business.
B) Is usually used for internal management purposes.
C) Usually provides a better match of expenses with revenues.
D) None of these answer choices are correct.
Q4) Dollar-value LIFO eliminates the risk of LIFO liquidations.
A)True
B)False
Q5) Briefly explain the advantages of dollar-value LIFO (DVL).
Q6) What additional income tax payments did the 2014 liquidation cost SUPERVALU?
Page 10
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Chapter 9: Inventories: Additional Issues
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Q1) Under the conventional retail method, the denominator in the cost-to-retail percentage includes:
A) Net markups and net markdowns.
B) Neither net markups nor net markdowns.
C) Net markups, but not net markdowns.
D) Net markdowns, but not net markups.
Q2) In applying the lower of cost or net realizable value rule, the inventory of apparel would be valued at:
A) $108,000.
B) $90,000.
C) $110,000.
D) $99,000.
Q3) To the nearest thousand, the estimated ending inventory at cost is (round cost-to-retail ratio to whole percentage):
A) $16,000.
B) $15,000.
C) $13,000.
D) $19,000.
Q4) Determine the inventory book value for Products A, B, and C.
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Chapter 10: Property, Plant, and Equipment and Intangible Assets: Acquisition
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Q1) The fixed-asset turnover ratio provides:
A) The rate of decline in asset lives.
B) The rate of replacement of fixed assets.
C) The amount of sales generated per dollar of fixed assets.
D) The decline in book value of fixed assets compared to capital expenditures.
Q2) What amount of interest expense, if any, would Corso record on December 31, 2018, the company's fiscal year end?
A) $17,147.
B) $20,000.
C) $68,687.
D) $80,000.
Q3) What is the amount of interest that Crocus should capitalize in 2018, using the specific interest method (rounded to the nearest thousand dollars)?
A) $7,248,000 (rounded).
B) $7,283,000 (rounded).
C) $8,740,000 (rounded).
D) None of these answer choices are correct.
Q4) What disclosures are required relative to interest costs incurred during the year?
Page 12
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Chapter 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition
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Q1) The physical life of a depreciable asset is bounded by its service life.
A)True
B)False
Q2) In 2018, the internal auditors of KJI Manufacturing discovered the following material errors made in prior years:
1. Equipment was purchased on June 30, 2016, for $100,000. The purchase was incorrectly recorded as a debit to repair and maintenance expense. The equipment has a useful life of five years and no residual value.
2. On March 31, 2017, $50,000 was paid to a contractor to landscape the area around a manufacturing plant including the installation of a sprinkler system. The expenditure was debited to the Land account. The landscaping is expected to have a 20-year useful life and no residual value.
KJI uses the straight-line method of depreciation for all depreciable assets.
Required:
1. Prepare the journal entries at December 31, 2018, to correct the errors (ignore income taxes).
2. Prepare the journal entries to record 2018 depreciation for any assets recorded in requirement.
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Page 13
Chapter 12: Investments
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Q1) Consolidated financial statements are prepared when one company has:
A) Accounted for the investment using the equity method.
B) Accounted for the investment as securities available for sale.
C) Control over another company.
D) None of these answer choices are correct.
Q2) Bourne, Inc. acquired 50% of David Webb Enterprises for $5,000,000 on January 1, 2018. The total fair value and book value of Webb's identifiable net assets was $8,000,000 on that date. During 2018 Webb recognized net income of $1,000,000 and paid dividends of $1,200,000. Webb had a fair value of $11,000,000 as of December 31, 2018.
Required: Determine the amounts that will be associated with the Investment in Webb account and the Goodwill calculated upon the purchase of Webb's stock, assuming Bourne accounts for the Webb investment under the equity method.
Q3) Assume Gibson Company is an equal partner in a joint venture with Glover Company. Each company owns 50% of Pesci Company, and equally shares decision-making authority.
Required:
Describe how U.S. GAAP and IFRS differ in how they would have Gibson account for this investment.
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Chapter 13: Current Liabilities and Contingencies
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Q1) The concept of substance over form influences the classification of obligations expected to be refinanced.
A)True B)False
Q2) On November 1, 2018, Ziegler Products issued a $200,000, 9-month, noninterest-bearing note to the bank. Interest was discounted at a 12% discount rate.
Required:
1. Prepare the appropriate journal entry by Ziegler to record the issuance of the note.
2. Determine the effective interest rate.
3. Suppose the note had been structured as a 12% note with interest and principal payable at maturity. Prepare the appropriate journal entry to record the issuance of the note by Ziegler.
4. Prepare the appropriate journal entry on December 31, 2018, to accrue interest expense on the note described requirement 3, for the 2018 financial statements.
Q3) Revenue is recognized upon sale of gift cards, rather than being deferred.
A)True B)False
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Chapter 14: Bonds and Long-Term Notes
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Q1) Assuming that Auerbach issued the bonds for $255,369,000, what would the company report for its net bond liability balance at December 31, 2018, rounded up to the nearest thousand?
A) $252,369,000.
B) $256,369,000.
C) $256,200,000.
D) $257,030,070.
Q2) Crawford Inc. has bonds outstanding during a year in which the general (risk-free) rate of interest has risen. Crawford elected the fair value option for the bonds upon issuance. What will the company report for the bonds in its income statement for the year?
A) Interest expense and a gain.
B) Interest expense and a loss.
C) A gain and no interest expense.
D) Interest expense and no gain or loss.
Q3) An implicit or imputed rate of interest must be used when long-term notes are issued at a stated rate of interest that is materially different from the market rate of interest.
A)True
B)False
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Chapter 15: Leases
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Q1) The following relate to an operating lease agreement:
a. The lease term is 3 years, beginning January 1, 2018.
b. The leased asset cost the lessor $4,000,000 and had a useful life of eight years with no residual value. The lessor uses straight-line depreciation for its depreciable assets.
c. Annual lease payments at the beginning of each year were $685,000.
d. Direct costs incurred by the lessor to consummate the completed lease transaction were $12,000.
Required:
Prepare the appropriate journal entries for the lessor from the beginning of the lease through the end of the lease term. Round your answers to the nearest whole dollar amounts.
Q2) A sales-type lease is reported in the lessor's balance sheet as:
A) An asset.
B) A liability.
C) Interest revenue.
D) A contra account to lease liability.
Q3) What is a purchase option? How does it affect accounting for a lease?
Q4) Discuss the financial statement disclosure requirements for all leases entered into by the lessor.
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Chapter 16: Accounting for Income Taxes
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Q1) For the current year ($ in millions), Centipede Corp. had $80 in pretax accounting income. This included warranty expense of $6 and $20 in depreciation expense. Two million of warranty costs were incurred, and MACRS depreciation amounted to $35. In the absence of other temporary or permanent differences, what was Centipede's taxable income?
A) $73 million.
B) $69 million.
C) $63 million.
D) $49 million.
Q2) GAAP regarding accounting for income taxes requires which of the following procedures?
A) Computation of deferred tax assets and liabilities based on temporary differences.
B) Computation of deferred income tax based on permanent differences.
C) Computation of income tax expense based on taxable income.
D) Computation of deferred income tax based on temporary and permanent differences.
Q3) Will LMC report $819.9 million as a liability in its balance sheet at December 31, 2018? Explain.
Q4) What is a valuation allowance for deferred tax assets and when is it used?
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) Differentiate between a defined contribution pension plan and a defined benefit pension plan.
Q2) What is different about the expected postretirement benefit obligation and the accumulated postretirement benefit obligation?
Q3) Choice between PBO and ABO
A)Risk borne by employee.
B)Return on plan assets lower or (higher) than expected.
C)Increase in the PBO.
D)Used by actuaries to adjust for the time value of money.
E)Actuarial estimate of other postretirement benefits to be received by participants.
F)Trade-off between relevance and reliability.
Q4) A statement of comprehensive income does not include:
A) Net income.
B) Losses from the return on assets exceeding expectations.
C) Losses from changes in estimates regarding the PBO.
D) Prior service cost.
Q5) What are the possible components of pension expense? Which of these elements would exist in every defined benefit plan?When would the remaining elements arise?
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Chapter 18: Shareholders Equity
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Q1) The transaction was for the:
A) Issue of 2 million shares of common stock at par.
B) Issue of common stock for $150 million in cash.
C) Receipt of $20 per share for a new stock issue.
D) All of these answer choices are correct.
Q2) Earnings-price ratio
A)May be increased when net income increases.
B)A feature of preferred stock.
C)May be reduced when shares are retired.
D)Designed to increase the market value of stock.
E)Reduces the net proceeds from selling shares.
Q3) Treasury stock transactions never increase retained earnings or net income.
A)True
B)False
Q4) Authorized common stock refers to the total number of shares:
A) Outstanding.
B) Issued.
C) Issued and outstanding.
D) That can be issued.
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Grant date
A)Require(s) compensation expense regardless of condition satisfaction.
B)Date on or after which employees can buy stock with options.
C)An important factor in option pricing models.
D)Date on which options are awarded.
E)The amount paid to convert the option into stock.
Q2) Preferred dividends would not be subtracted from earnings when computing basic earnings per share in a year when the dividends are not declared if the preferred stock is:
A) Noncumulative.
B) Convertible.
C) Participating.
D) Cumulative.
Q3) Basic earnings per share ignores:
A) All potential common shares.
B) Some potential common shares, but not others.
C) Dividends declared on noncumulative preferred stock.
D) Stock splits.
Q4) What is the "if converted method"?
Q5) How is a complex capital structure different from a simple capital structure?
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Chapter 20: Accounting Changes and Error Corrections
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Q1) The cumulative effect of most changes in accounting principle is reported:
A) In the income statement between income from continuing operations and net income.
B) In the income statement after income and before income tax.
C) In the income statement before income from continuing operations.
D) In the balance sheet accounts affected.
Q2) Retrospective restatement usually is not used for a:
A) Change in accounting estimate.
B) Change in accounting principle.
C) Change in entity.
D) Correction of error.
Q3) A company failed to record unrealized gains of $20 million on its available for sale debt security investments. Its tax rate is 30%. As a result of this error, comprehensive income would be:
A) Understated by $14 million.
B) Understated by $6 million.
C) Understated by $20 million.
D) Unaffected.
Q4) How may accounting changes detract from accounting information?
Q5) Name and briefly describe the three categories of accounting changes.
Page 22
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Chapter 21: The Statement of Cash Flows Revisited
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Q1) Do the statement of cash flows and its related disclosure note report only transactions that cause an increase or decrease in cash? Explain.
Q2) Cash paid for taxes and interest must be disclosed on the face of the statement or in the disclosure notes under both the direct and indirect methods of reporting cash flows from operating activities.
A)True
B)False
Q3) A company reported interest expense of $540,000 for the year. Interest payable was $35,000 and $75,000 at the beginning and the end of the year, respectively. What was the amount of interest paid?
A) $580,000.
B) $615,000.
C) $500,000.
D) $575,000.
Q4) Amounts held in cash equivalent investments must be reported separately from amounts held as cash in the statement of cash flows.
A)True
B)False
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