Business Administration
Exam Solutions
Course Introduction
Business Administration is a comprehensive course designed to introduce students to the foundational principles and practices involved in running and managing modern organizations. The course covers key topics such as organizational structure, management theories, human resources, marketing, finance, operations, and strategic planning. By examining real-world scenarios and case studies, students will develop critical thinking, problem-solving, and decision-making skills that are essential for effective leadership and successful business operations in a competitive global environment.
Recommended Textbook
Horngren's Financial and Managerial Accounting 6th Edition by Tracie L. Miller Nobles
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Page 2
Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Which of the following financial statements reports that total assets are equal to total liabilities plus total stockholders' equity?
A) Statement of retained earnings
B) Statement of cash flows
C) Income statement
D) Balance sheet
Answer: D
Q2) Which of the following financial statements reports an increase or decrease in net cash during a specific period of time?
A) Income statement
B) Statement of retained earnings
C) Statement of cash flows
D) Cash budget
Answer: C
Q3) The distribution of dividends represents an increase in retained earnings.
A)True
B)False
Answer: False
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The first step in the journalizing and posting process is to ________.
A) post the journal entry to the ledger
B) identify the accounts involved and the account type
C) decide whether each account increases or decreases
D) record the transaction in the journal
Answer: B
Q2) Which of the following is a liability account?
A) Service Revenue
B) Building
C) Prepaid Rent
D) Unearned Revenue
Answer: D
Q3) When a business records an accrued utility liability, the Utilities Expense account is credited.
A)True
B)False
Answer: False
Q4) What are two ways in which a company can improve its debt ratio?
Answer: Increase assets
Reduce debt
Page 4
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) Revenue that has been earned but not yet collected in cash is called a(n)
A) accrued revenue
B) deferred expense
C) deferred revenue
D) accrued expense
Answer: A
Q2) Financial statements are prepared from the balances in a(n) ________.
A) general journal
B) chart of accounts
C) unadjusted trial balance
D) adjusted trial balance
Answer: D
Q3) There is a natural link between some expenses and revenues.
A)True
B)False
Answer: True
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Page 5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) In a balance sheet, assets are classified as either current or long term, depending on their liquidity.
A)True
B)False
Q2) The financial statements are prepared from the ________.
A) adjusted trial balance
B) chart of accounts
C) statement of retained earnings
D) unadjusted trial balance
Q3) Generally Accepted Accounting Principles (GAAP) require every organization to prepare reversing entries.
A)True
B)False
Q4) Which of the following would be considered a long-term asset?
A) Accounts Payable
B) Land
C) Office Supplies
D) Retained Earnings
Q5) List the steps of the accounting cycle that take place at the end of the period.
Page 6
Q6) List the steps of the accounting cycle that take place during the period.
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Chapter 5: Merchandising Operations
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Sample Questions
Q1) Value Electronics, Inc. started its operations on January 1, 2019. Value engages in buying and selling different types of electronic gadgets. The first step in its operating cycle would be to ________.
A) collect cash from customers
B) sell goods to customers
C) purchase inventory from vendors
D) record the sales in accounts
Q2) A retailer sells, for cash, a television set with a two-year service contract. The retailer initially records the cash received for the service contract as Unearned Revenue.
A)True
B)False
Q3) The gross profit percentage is one of the most carefully watched measures of ________.
A) profitability
B) liquidity
C) solvency
D) marketability
Q4) Describe how the cost of goods sold is calculated when using the periodic inventory system.
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Chapter 6: Merchandise Inventory
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Sample Questions
Q1) Under International Financial Reporting Standards (IFRS), which of the following statements regarding the lower-of-cost-or-market rule is incorrect?
A) It is not necessary to record inventory at the lower-of-cost-or-market.
B) The market value is defined as net realizable value.
C) If the historical cost is higher than the net realizable value, the inventory must be written down.
D) The IFRS approach results in fewer write-downs of inventory than U.S. GAAP.
Q2) Each inventory costing method matches the flow of inventory costs in a business and is used to determine ending inventory and cost of goods sold.
A)True
B)False
Q3) Fast selling inventory is less likely to ________.
A) become worthless
B) require higher storage costs
C) require higher insurance costs
D) All statements are correct.
Q4) A high rate of inventory turnover indicates difficulty in selling inventory.
A)True
B)False
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) Which of the following statements regarding a lock-box system is incorrect?
A) Customers send their checks directly to a post office box that belongs to the company.
B) Internal control is tight because company personnel never touch incoming cash.
C) A bank employee empties the box daily and records the deposits into the company's bank account.
D) Cash is put into the company's bank account quickly.
Q2) In reconciling a bank statement, the bank balance is $1,500, and the checkbook balance is $2,105. Which of the following is the most probable reason for the checkbook balance being larger than the bank balance?
A) The bank has not cleared certain outstanding checks.
B) The bank has added interest revenue to the account balance.
C) A deposit in transit was made at the end of the month.
D) The bank received an EFT from a customer.
Q3) In a large company, the person in charge of signing checks is the controller.
A)True
B)False
Q4) List the five components of internal control.
Q5) List and briefly discuss the five components of internal control.
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Chapter 8: Receivables
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Sample Questions
Q1) Which of the following statements is true of the direct write-off method?
A) GAAP requires public companies to follow the direct write-off method.
B) It provides better matching of revenues with expenses.
C) It results in more accurate net income than any other method.
D) It is only suitable for small companies that have very few uncollectible receivables.
Q2) When a company is using the direct write-off method, and an account is written off, the journal entry consists of a ________.
A) debit to Accounts Receivable and a credit to Cash
B) credit to Accounts Receivable and a debit to Bad Debts Expense
C) debit to the Allowance for Bad Debts and a credit to Accounts Receivable
D) credit to Accounts Receivable and a debit to Interest Expense
Q3) On August 14, Park Avenue Bank lent $240,000 to City Coffee Shop on a 75 day, 2% note. What is the maturity value of the note? (Use a 360-day year and round answers to the nearest dollar.)
A) $240,986
B) $241,000
C) $240,000
D) $244,800
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10
Chapter 9: Plant Assets, Natural Resources, and Intangibles
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Sample Questions
Q1) The asset turnover ratio is calculated by dividing cost of goods sold by average total assets.
A)True
B)False
Q2) The cost of an asset is $10,000,000, and its residual value is $100,000. Estimated useful life of the asset is four years. Prepare the schedule of depreciation using the double-declining-balance method of accounting.
Q3) On June 30, 2018, Clooney Printers purchased a printer for $59,000. It expects the printer to last for four years and have a residual value of $6000. Compute the depreciation expense on the printer for the year ended December 31, 2018, using the straight-line method. (Round any intermediate calculations to two decimal places, and your final answer to the nearest dollar.)
A) $13,250
B) $6625
C) $14,750
D) $7729
Q4) Intangibles with an indefinite life are tested for impairment annually.
A)True
B)False
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Chapter 10: Investments
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Sample Questions
Q1) On April 1, 2018, Morton Company invests $50,000 in Johnson Company stock. Johnson pays Morton a $2,000 dividend on November 30, 2018. Morton sells the Johnson stock on December 31, 2018 for $54,500. Assume the investment is categorized as a short-term equity investment and that Morton does not have significant influence over Johnson.
Requirements:
1. Journalize the transactions for Morton's investment in Johnson's stock.
2. What was the net effect of the investment on Morton's net income for the year ended December 31, 2018.
Q2) Provide definitions for the following types of investments.
A) Held-to-maturity debt investment
B) Significant influence equity investment
C) Trading debt investment
Q3) A(n) ________ represents stock ownership in another company and sometimes pays dividends.
A) debt security
B) Treasury bill
C) corporate bond
D) equity security
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Page 12
Chapter 11: Current Liabilities and Payroll
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Sample Questions
Q1) The old age, survivors, and disability insurance component of FICA tax is imposed on the entire amount of an individual employee's earnings.
A)True
B)False
Q2) The current period earnings column of the payroll register only includes regular and overtime earnings.
A)True
B)False
Q3) If a contingency that is probable can be reasonably estimated, a liability is recorded and an expense is accrued.
A)True
B)False
Q4) Which of the following is an example of an estimable probable contingency?
A) FICA Taxes Payable
B) Income Taxes Payable
C) Warranty Payable
D) Accounts Payable
Q5) If the likelihood of a future event is remote, how should the company report the contingency?
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Chapter 12: Long-Term Liabilities
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Sample Questions
Q1) On January 1, 2018, Waller Sales issued $30,000 in bonds for $23,300. These are eight-year bonds with a stated rate of 11%, and pay semiannual interest. Waller Sales uses the straight-line method to amortize the bond discount. After the second interest payment on December 31, 2018, what is the bond carrying amount? (Round your intermediate answers to the nearest cent, and your final answer to the nearest dollar.)
A) $24,138
B) $23,719
C) $30,000
D) $23,300
Q2) If a bond's stated interest rate is lower than the market rate, which of the following is true?
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 higher than the maturity value.
Q3) Unlike cash dividends, which are optional payments to stockholders, the interest payments on bonds are required.
A)True
B)False
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Page 14
Chapter 13: Stockholders Equity
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Sample Questions
Q1) Small stock dividends increase the Paid-In Capital in Excess of Par account.
A)True
B)False
Q2) Noncumulative preferred stock is in arrears if the dividend has not been paid for the year.
A)True
B)False
Q3) The declaration of a cash dividend does not create an obligation for the corporation.
A)True
B)False
Q4) The retained earnings of a corporation is ________.
A) internally generated equity that is earned by profitable operations that is not distributed to stockholders
B) externally generated equity that is contributed by shareholders
C) externally generated equity that is acquired from banks and other creditors
D) internally generated equity that is received from employee stock purchases
Q5) Small stock dividends are accounted for at the stock's par value.
A)True
B)False
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Chapter 14: The Statement of Cash Flows
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Sample Questions
Q1) Under IFRS, interest revenue and dividend income may be reported either as an operating activity or an investing activity.
A)True
B)False
Q2) The spreadsheet starts with the beginning statement of cash flows and concludes with the ending statement of cash flows.
A)True
B)False
Q3) On the statement of cash flows, the investing activities section is shown after the financing activities section.
A)True
B)False
Q4) Which of the following sections of the statement of cash flows includes the issuance of stock and the payment of cash dividends?
A) the investing activities section
B) the financing activities section
C) the operating activities section
D) the non-cash investing and financing section
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) Regarding the profit margin ratio, which of the following statements is incorrect?
A) The higher the profit margin ratio, the more sales dollars end up as profit.
B) The profit margin ratio is computed by dividing net sales by net income.
C) The profit margin ratio shows how much net income a business earns on every $1.00 of sales.
D) The profit margin ratio focuses on the profitability of a company and is often reported in the business press.
Q2) Ratio analysis is used most effectively to measure a company against other companies in different industries.
A)True
B)False
Q3) An adverse opinion is issued if the auditor finds that the financial statements are not presented fairly.
A)True
B)False
Q4) No single ratio tells the whole picture of any company's performance.
A)True
B)False
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Chapter 16: Introduction to Managerial Accounting
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Sample Questions
Q1) Define indirect materials and give two examples of indirect materials for a manufacturing company.
Q2) Merchandising companies, like service companies, do not use a Cost of Goods Sold account.
A)True
B)False
Q3) Service companies sell their time, skills, and knowledge.
A)True
B)False
Q4) Which of the following is most likely a service company?
A) a law firm
B) a car dealership
C) a grocery store
D) a bakery
Q5) 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
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Chapter 17: Job Order Costing
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Sample Questions
Q1) At the end of the year, Metro, Inc. has an unadjusted credit balance in the Manufacturing Overhead account of $890. Which of the following is the year-end adjusting entry needed to adjust the account?
A) A debit to Cost of Goods Sold of $890 and a credit to Finished Goods Inventory of $890
B) A debit to Manufacturing Overhead of $890 and a credit to Finished Goods Inventory of $890
C) A debit to Manufacturing Overhead of $890 and a credit to Cost of Goods Sold of $890
D) A debit to Cost of Goods Sold of $890 and a credit to Manufacturing Overhead of $890
Q2) Pluto Travel Services provided the following information:
Direct labor rate: $50 per hour
Predetermined allocation rate for indirect costs: $22 per direct labor hour
Pluto is negotiating a job with a new client. The job will require 11 hours of direct labor. If Pluto wishes to have at least a 15% gross profit on the revenues, it needs to record $716 of revenues.
A)True
B)False
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Page 19
Chapter 18: Process Costing
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Sample Questions
Q1) Direct labor costs are accumulated in the Manufacturing Overhead account. Process costing is used.
A)True
B)False
Q2) When raw materials are purchased on account, the Accounts Payable account is credited. Process costing is used.
A)True
B)False
Q3) If a business operates in an industry that experiences significant cost changes, it would be to its benefit to use the first-in, first-out (FIFO) method.
A)True
B)False
Q4) In a process costing system, equivalent units must be calculated separately for materials and conversion costs.
A)True B)False
Q5) How is a production cost report prepared using the FIFO method?
Q6) What does the concept of equivalent units of production allow businesses to measure?
Page 20
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Chapter 19: Cost Management Systems: Activity-Based
Just-In-Time
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Sample Questions
Q1) Nguyen, Inc. has received a bid for 15,000 units. The costing estimates show that the average cost per unit for this bid will be $500. The company uses cost-based pricing and adds 20% markup to total costs. What total price will Nguyen ask for the entire order?
A) $9,000,000
B) $7,500,000
C) $1,500,000
D) $6,000,000
Q2) Camilleri, Inc. completed the production of 500 units with standard costs of $520 for direct materials and $75 for conversion costs. During the current year, it incurred $260,000 for direct materials and $44,000 for conversion costs. The company uses a just-in-time costing system. Record the adjusting entry for the amount of underallocated or overallocated conversion costs. Omit explanation.
Q3) Marino, Inc. completed the production of 500 units with standard costs of $520 for direct materials and $75 for conversion costs. During the current year, it incurred $260,000 for direct materials and $31,000 for conversion costs. The company uses a just-in-time costing system. Record the adjusting entry for the amount of underallocated or overallocated conversion costs. Omit explanation.
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Chapter 20: Cost Volume Profit Analysis
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Sample Questions
Q1) When the total fixed costs increase, the breakeven point ________.
A) increases
B) decreases
C) decreases proportionately
D) remains the same
Q2) Within the relevant range, the total fixed costs and the variable cost per unit remain the same.
A)True
B)False
Q3) A traditional income statement classifies costs by ________; that is, costs are classified as either ________ costs or ________ costs.
A contribution margin income statement classifies costs by ________; that is, costs are classified as either ________ costs or ________ costs.
Q4) The high-low method requires the identification of the lowest and highest levels of total costs, not activity, over a period of time.
A)True
B)False
Q5) How is the contribution margin ratio calculated?
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Chapter 21: Variable Costing
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Sample Questions
Q1) Exceptional Events provides event management services. The company has three employees, each assigned to specific customers. The company considers each employee's territory as a business segment. The following data relate to its three segments for the month of June: \[\begin{array} { | l | r | r | r | }
\hline & \text { Maribel } & \text { Jessica } & \text { Timothy } \\
\hline \text { Sale revenue } & \$ 8000 & \$ 10,600 & \$ 13,350 \\
\hline \text { Variable costs } & \$ 5700 & \$ 7000 & \$ 12,000 \\
\hline
\end{array}\] The business segments had the following number of customers: Maribel, 25; Jessica, 29; and Timothy, 34. The total fixed costs for the month amount to $3500. What is the operating income of Exceptional Events for the month of June?
A) $7250
B) $3750
C) $31,950
D) $2300
Q2) Absorption costing considers fixed selling and administrative costs as product costs.
A)True
B)False
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Chapter 22: Master Budgets
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Sample Questions
Q1) Components of the master budget are the operating budget, the capital expenditures budget, and the financial budget.
A)True
B)False
Q2) The sales budget is considered the cornerstone of the master budget because
A) the level of sales affects almost all of the other elements of the master budget.
B) it is prepared last and summarizes all of the other elements of the budget.
C) it plays a minor role in the preparation of the operating budget.
D) it determines the amount of materials to purchase for production.
Q3) Budgeting software is often designed as a component of the company's Enterprise Resource Planning (ERP) system.
A)True
B)False
Q4) The last step in the preparation of the master budget is the budgeted income statement.
A)True
B)False
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Page 24
Chapter 23: Flexible Budgets and Standard Cost Systems
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Sample Questions
Q1) A new factory manager was hired for a company that was experiencing slow production rates and lower production volumes than demanded by management. Upon investigation, the manager found that the workers were poorly motivated and not closely supervised. Midway through the quarter, an incentive program was initiated, and cash bonuses were given when workers hit their production targets. Within a short time, production output increased, but the bonuses had to be charged to the direct labor budget. This could produce a(n) ________.
A) unfavorable direct materials cost variance
B) unfavorable direct materials efficiency variance
C) favorable direct labor efficiency variance
D) favorable direct labor cost variance
Q2) Global Engineering's actual operating income for the current year is $58,000. The flexible budget operating income for actual sales volume is $39,000, while the static budget operating income is $53,000. What is the sales volume variance for operating income?
A) $14,000 favorable
B) $5000 unfavorable
C) $14,000 unfavorable
D) $5000 favorable
Q3) List the direct materials variances, and briefly describe each.
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Chapter 24: Responsibility Accounting and Performance Evaluation
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Q1) Dantone, Inc. provides the following information: \[\begin{array} { | l | r | }
\hline \text { Profit margin ratio } & 5 \% \\
\hline \text { Asset turnover ratio } & 2 \text { times } \\
\hline \text { Net sales } & \$ 450,000 \\
\hline \text { Target rate of return } & 9 \% \\
\hline
\end{array}\] Calculate the return on investment.
A) 10%
B) 45%
C) 4%
D) 14%
Q2) Cost center responsibility reports typically focus on the flexible budget variance. A)True
B)False
Q3) The primary objective in setting transfer prices is to A) maximize profits for the company as a whole.
B) maximize profits for the selling division. C) minimize the cost to the purchasing division. D) maximize profits for the purchasing division.
Page 26
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Chapter 25: Short-Term Business Decisions
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Q1) Outrigger Leisure Products sells 2200 kayaks per year at a price of $450 per unit. Outrigger sells in a highly competitive market and uses target pricing. The company has $1,000,000 of assets and the shareholders wish to make a profit of 17% on assets. Fixed costs are $450,000 per year and cannot be reduced. Assume all products produced are sold. What are the target variable costs?
A) $139,401
B) $1,000,000
C) $820,000
D) $370,000
Q2) Louis Company is considering replacing its multi-functional copier system with a new system. Which costs would be relevant to its decision and which costs would be irrelevant?
Q3) A constraint is a factor that restricts the production or sale of a product, which varies from company to company.
A)True
B)False
Q4) Define joint cost. Should joint costs be considered in the decision to sell or further process the product? Explain your answer.
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Chapter 26: Capital Investment Decisions
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Q1) A company seeking investment opportunities has collected the following information: \(\begin{array}{|l|r|r|r|r|}
\hline& \text { Project A } & \text { Project B } & \text { ProjectC } & \text { Project D } \\
\hline \text { Initial investment } & \$ 400,000 & \$ 250,000 & \$ 150,000 & \$ 270,000
\\\hline \text { PV of cash inflows } & \$ 570,000 & \$ 295,000 & \$ 210,000 & \$ 282,000 \\
\hline \text { Payback period (years) } & 3.6 & 3.0 & 4.75 & 3.5 \\
\hline \text { NPV of project } & \$ 170,000 & \$ 45,000 & \$ 60,000 & \$ 12,000 \\
\hline \text { Profitability index } & 1.43 & 1.18 & 1,40 & 1.04 \\ \hline
\end{array}\) If the company makes a decision based on the net present value, which project will be selected?
A) Project A
B) Project B
C) Project C
D) Project D
Q2) What are the strengths of the net present value capital budgeting method?
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Chapter 27: Understanding Accounting Information Systems
and their Components
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Q1) A general ledger is an accounting journal designed to record one specific type of transaction.
A)True B)False
Q2) Which of the following is an example of a source document in a computerized accounting information system?
A) statement of cash flows
B) balance sheet
C) bank checks
D) general ledger
Q3) The purchases journal is a special journal that ________.
A) has special columns for credits to merchandise inventory
B) is used to record all purchases of merchandise inventory
C) has a special column for debits to accounts payable
D) is used to record merchandise inventory, office supplies, and other assets purchased on account
Q4) Generally, all transactions are recorded in both a special journal and the general journal.
A)True B)False
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