Business Administration with Accounting Specialization Exam Review
Course Introduction
Business Administration with Accounting Specialization is a comprehensive program designed to equip students with a solid foundation in core business principles while emphasizing the critical role of accounting in organizational decision-making. The course covers a broad spectrum of topics including financial and managerial accounting, business strategy, marketing, economics, and organizational behavior.
Students gain practical skills in financial analysis, budgeting, auditing, and tax planning, enabling them to interpret financial data and guide business strategies effectively.
Interactive case studies and real-world projects enhance problem-solving abilities, preparing graduates for dynamic careers in accounting, finance, and management within diverse business environments.
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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Sample Questions
Q1) Elements of financial statements do not include:
A) Monetary unit.
B) Investments by owners.
C) Comprehensive income.
D) Losses.
Answer: A
Q2) An important argument in support of historical cost information is:
A) Relevance.
B) Predictive quality for future cash flows.
C) Materiality.
D) Verifiability.
Answer: D
Q3) Which of the following is typically characterized as a principle, rather than an assumption?
A) Periodicity.
B) Monetary unit.
C) Conservatism.
D) Full disclosure.
Answer: D
Page 3
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Chapter 2: Review of the Accounting Process
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Sample Questions
Q1) The payment of cash to a supplier would be recorded in a purchases journal.
A)True
B)False
Answer: False
Q2) The statement of shareholders' equity discloses the changes in the temporary shareholders' equity accounts.
A)True
B)False
Answer: False
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
Q4) Prepare an income statement for China Tea Company for the year ended December 31, 2018.
Answer: 11ea937b_366c_29c5_a419_99cf3ccaa5cf_TB2599_00
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Chapter 3: The Balance Sheet and Financial Disclosures
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Sample Questions
Q1) Current assets
Answer: Current assets (CA/Current Liabilities (CL)) = 3; therefore, CA = 3CL
Quick assets (QA/Current Liabilities) = 2.25; therefore, QA = 2.25CL
QA = CA Inventory = CA $150,000
2.25CL = 3CL $150,000
.75CL = $150,000
CL = $200,000
CA = 3CL = $600,000
Q2) The quick ratio is:
A) The liquidity ratio divided by the equity ratio.
B) Current assets minus inventory divided by current liabilities minus accounts payable.
C) Current assets minus inventory and prepaid items divided by current liabilities.
D) Cash divided by accounts payable.
Answer: C
Q3) Altoid Co.'s long term debt to equity ratio. Round your answer to two decimal places.
Answer: $600/$1,150 = .52 Long-term debt to equity
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Chapter 4: The Income Statement, Comprehensive Income, and
the Statement of Cash Flows
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Sample Questions
Q1) In a recent press release, Foot Locker Inc. reported that its fiscal first-quarter net income fell 46% due to losses related to discontinued operations, but earnings from continuing operations jumped 19% amid a modest increase in sales. The specialty athletic retailer said net income was $20 million for the quarter ended May 4, compared with net income of $37 million a year earlier. The latest results included a loss of $18 million from discontinued operations. Last year, the company had earnings of $5 million, or four cents a share, from discontinued operations. Foot Locker said earnings from continuing operations were $38 million, compared with $32 million a year earlier. Discuss how Foot Locker's press release relates to its earnings quality.
Q2) Lucia Ltd. reported net income of $135,000 for the year ended December 31, 2018. January 1 balances in accounts receivable and accounts payable were $29,000 and $26,000, respectively. Year-end balances in these accounts were $30,000 and $24,000, respectively. Assuming that all relevant information has been presented, Lucia's cash flows from operating activities would be:
A) $132,000.
B) $134,000.
C) $136,000.
D) $138,000.
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Chapter 5: Revenue Recognition
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Sample Questions
Q1) Other competing sellers in the same region charge an average of $250 for a set of goggles and $750 for the lessons, if sold separately. Beaumont Company usually sells at a 5% discount compared to other shops, since it is a bit farther away from the ocean.
Required:
What would be Beaumont's stand-alone selling price of the goggles and the lessons, based on adjusted market assessment approach?
Q2) Vendor-specific objective evidence of separate sales prices is required for multiple-element software contracts, but estimated selling prices can be used for other multiple-element contracts under U.S. GAAP.
A)True
B)False
Q3) Assume Brunetti uses the "expected value" approach, but is very uncertain of that estimate due to a lack of experience with similar arrangements. What would be the appropriate transaction price?
Q4) Are the following separate performance obligations: prepayments, quality-assurance warranty, extended warranty, right of return? For each, indicate yes or no, and explain.
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Chapter 6: Time Value of Money Concepts
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Sample Questions
Q1) MBI Company's largest computer has a cash selling price of $200,000. A customer wishes to buy the computer on a lease purchase plan over five years, with the first payment to be made at the inception of the lease. Interest is at 10%.
Required:
a. Compute the amount of the annual lease payment and the gross amount due (total payments) under the lease.
b. Compute the amount of interest income earned by MBI for the first year of the lease.
Q2) Suppose that Healdsburg renegotiates the 8% notes on December 31, 2023, when the going interest rate is 8%. Healdsburg agrees to make 12 equal annual installments, commencing on December 31, 2024, rather than pay the annual interest payments and the $225 million in a single amount at maturity. What would the annual payments be?
Q3) The total cash interest payments in 2018 for these notes.
Q4) Column 4 is an interest table for the:
A) Present value of an ordinary annuity of $1.
B) Future value of an ordinary annuity of $1.
C) Present value of an annuity due of $1.
D) Future value of an annuity due of $1.
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Chapter 7: Cash and Receivables
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Sample Questions
Q1) The journal entry to record the replenishment of a petty cash fund includes a credit to the petty cash fund.
A)True
B)False
Q2) Priscilla's Exotic Pets discounted a note receivable without recourse and the sales criteria were met. The discounting is recorded as:
A) A secured borrowing.
B) Only note disclosure of the arrangement is required.
C) A sale.
D) None of these answer choices are correct.
Q3) Securitization of receivables is a type of secured borrowing.
A)True
B)False
Q4) Accounts receivable are normally reported at the:
A) Present value of future cash receipts.
B) Current value plus accrued interest.
C) Expected amount to be received.
D) Current value less expected collection costs.
Q5) Define what it is meant by internal control.
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Chapter 8: Inventories: Measurement
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Sample Questions
Q1) ATC's gross profit ratio (rounded) in 2018 is:
A) 53.4%.
B) 51.9%.
C) 50.3%.
D) None of these answer choices are correct.
Q2) Chavez Inc. adopted dollar-value LIFO on January 1, 2018, when the inventory value was $850,000. The December 31, 2018, ending inventory at year-end cost was $950,000 and the cost index for the year is 1.08.
Required:
Compute the dollar-value LIFO inventory valuation (rounded) for the December 31, 2018, inventory.
Q3) Under the gross method, purchase discounts taken are:
A) Deducted from interest expense.
B) Added to net purchases.
C) Added to interest income.
D) Deducted from purchases.
Q4) Required: Compute the January 31 ending inventory and cost of goods sold for January, assuming Denver uses average cost and a periodic inventory system.
Q5) What additional income tax payments did the 2014 liquidation cost SUPERVALU?
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Chapter 9: Inventories: Additional Issues
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Sample Questions
Q1) Harlequin Co. adopted the dollar-value LIFO retail method at the beginning of 2018 (its base year). Its beginning inventory for 2018 was $36,000 at cost and $72,000 at retail prices. At the end of 2018, it computed its estimated ending inventory at retail to be $110,000. Assuming its cost-to-retail percentage for 2018 transactions was 60%, and that the retail price index at the end of 2018 was 1.10, what is the inventory balance that Harlequin Co. would report in its 12/31/2018 balance sheet?
A) $66,000.
B) $54,480.
C) $110,000.
D) $60,000.
Q2) What should be the reported value of Sullivan's inventory?
A) $500,000.
B) $440,000.
C) $470,000.
D) $490,000.
Q3) Purchase returns and purchase discounts are ignored when computing cost-to-retail ratios for the retail method.
A)True
B)False
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Page 11
Chapter 10: Property, Plant, and Equipment and Intangible Assets: Acquisition
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Sample Questions
Q1) In Case A, Grand Forks would record the new equipment at:
A) $65,000.
B) $75,000.
C) $50,000.
D) $60,000.
Q2) The initial cost of property, plant, and equipment includes all the identifiable expenditures necessary to bring the asset to its desired condition and location for use.
A)True
B)False
Q3) Research and development expense for a given period includes:
A) The full cost of newly acquired equipment that has an alternative future use.
B) Depreciation on a research and development facility.
C) Research and development conducted on a contract basis for another entity.
D) Patent filing and legal costs.
Q4) A distinguishing characteristic of intangible assets is that the extent and timing of their future benefits typically are highly uncertain.
A)True
B)False
Q5) Briefly explain how R&D is reported in financial statements.
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Chapter 11: Property, Plant, and Equipment and Intangible
Assets: Utilization and Disposition
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Sample Questions
Q1) Kelly Company and its subsidiaries are engaged in the manufacture and marketing of ready-to-eat cereal and convenience foods. In its annual report to shareholders, Kelly disclosed the following: DISPOSITIONS
Last year, the Company sold certain assets and liabilities of the Leader's Bagels business to Aura Foods Inc. for $275 million in cash. As a result of this transaction, the Company recorded a pretax charge of $178.9 million ($119.3 million after tax or $.29 per share). This charge included approximately $57 million for disposal of other assets associated with the Leader's business, which were not purchased by Aura. Disposal of these other assets was completed during the current year. The original reserve of $57 million exceeded actual losses from asset sales and related disposal costs by approximately $9 million. This amount was recorded as a credit to other income (expense), net during the current year.
Required:
Explain how the Kelly transactions described could be interpreted as an example of earnings management.
Q2) Use a T-account to show the balances and changes during 2018 in Buffalo Burgers' Property, Plant and Equipment account and its Accumulated depreciation-Property, Plant & Equipment account.
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Chapter 12: Investments
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Q1) Under IFRS No. 9, equity investments are classified as either "fair value through other comprehensive income (FVOCI)" or "fair value through profit and loss (FVPL)."
A)True
B)False
Q2) In 2017, Kirby made two adjustments to its available for sale investments.
Required:
Briefly explain the adjustments and why they occurred.
Q3) Companies need to consider GAAP regarding fair value measurements when determining the fair value of an investment that distinguishes between various levels of inputs to fair value determination.
Required:
Describe the various levels of inputs, explaining key aspects that distinguish them, and indicate which level is most preferred and which is least preferred.
Q4) Under the equity method of accounting for a stock investment, cash dividends received are considered a reduction of the investee's net assets.
A)True
B)False
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Chapter 13: Current Liabilities and Contingencies
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Q1) Amounts withheld from employees in connection with payroll often represent liabilities to be remitted to third parties.
A)True
B)False
Q2) Orange Co. can estimate the amount of loss that will occur if a foreign government expropriates some of the company's assets in that country. If expropriation is reasonably possible, a loss contingency should be:
A) Disclosed but not accrued as a liability.
B) Disclosed and accrued as a liability.
C) Accrued as liability but not disclosed.
D) Neither accrued as a liability nor disclosed.
Q3) The concept of substance over form influences the classification of obligations expected to be refinanced.
A)True
B)False
Q4) Unlike the Social Security tax there is no maximum wage base for the Medicare portion of the FICA tax.
A)True
B)False
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Chapter 14: Bonds and Long-Term Notes
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Sample Questions
Q1) The rate of return on shareholders' equity indicates:
A) The margin of safety provided to creditors.
B) The extent of "trading on the equity" or financial leverage.
C) Profitability without regard to how resources are financed.
D) The effectiveness of employing resources provided by owners.
Q2) 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.
Q3) What is meant by the "market rate" of interest, the "effective rate" of interest, and the "yield rate" of interest?
Q4) Debt issue costs
A)Market rate higher than stated rate.
B)Market rate less than stated rate.
C)Legal, accounting, printing.
D)No maturity payment.
E)Many separate maturity dates.
Page 16
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Chapter 15: Leases
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Q1) If the leaseback portion of a sale-leaseback transaction meets the criteria to be a finance lease:
A) The seller-lessee will record a right-of-use asset.
B) The seller-lessee will record interest revenue.
C) The seller-lessee will record a gain or loss on the sale of an asset.
D) The seller-lessee will record a note payable.
Q2) Diablo Company leased a machine from Juniper Corporation on January 1, 2018. The machine has a fair value of $20,000,000. The lease agreement calls for four equal payments at the end of each year in the amount of $6,309,410. The useful life of the machine was expected to be four years with no residual value. The appropriate interest rate for this lease is 10%.
Required:
Round your answers to the nearest whole dollar amounts.
1. Prepare the journal entry for Diablo Company at the beginning of the lease.
2. Prepare the journal entry for the first lease payment (ignore amortization).
3. Prepare the journal entry for the second lease payment (ignore amortization).
Q3) Is it possible that a finance lease under IFRS be classified as an operating lease under U.S. GAAP? Explain.
Q4) Discuss the economic advantages of leasing.
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Chapter 16: Accounting for Income Taxes
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Q1) Assuming no other deferred tax items exist in a particular year, a net operating loss (NOL) carryforward can only be result in the balance sheet at the end of the NOL year showing:
A) A receivable under current assets for an income tax refund.
B) A current deferred tax asset.
C) A noncurrent deferred tax asset.
D) Both a current and a noncurrent deferred tax asset.
Q2) Deferred tax asset
A)Is usually a revenue or expense item that is excluded or not deductible in determining taxable income.
B)Is reduced by a valuation allowance if realization of future tax benefit is not more likely than not.
C)Arises when future taxable amounts are created by temporary differences.
D)Is the process of allocating income taxes among two or more reporting periods.
E)Will always create a deferred tax asset.
Q3) A temporary difference originates in one period and reverses, or turns around, in one or more later periods.
A)True
B)False
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Chapter 17: Pensions and Other Postretirement Benefits
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Q1) Service cost
A)Included in the calculation of pension expense.
B)Retirement benefits specified by formula.
C)Reduce(s) both the PBO and plan assets.
D)Protection for employee pension rights.
E)Reported as a shareholders' equity account.
Q2) What was PVE's pension expense for the year?
A) $250.
B) $50.
C) $68.
D) $62.
Q3) The PBO is increased by:
A) An increase in the average life expectancy of employees.
B) Amortization of prior service cost.
C) An increase in the actuary's assumed discount rate.
D) A return on plan assets that is lower than expected.
Q4) The projected benefit obligation may be less reliable than the accumulated benefit obligation.
A)True
B)False
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Chapter 18: Shareholders Equity
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Q1) Earnings-price ratio
A)Similar to an S corporation, but no limit on number of owners.
B)Net income as a percentage of average book value.
C)Paid-in capital and/or retained earnings affected when sold.
D)Preferred practice is to disclose in the notes to the financial statements.
E)Used in evaluating stock performance.
Q2) Share issue cost
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) When a property dividend is declared, the reduction in retained earnings is for:
A) The book value of the property on the date of declaration.
B) The book value of the property on the date of distribution.
C) The fair value of the property on the date of distribution.
D) The fair value of the property on the date of declaration.
Q4) The balance sheet reports the balances of shareholders' equity accounts. What additional information is provided by the statement of shareholders' equity?
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Chapter 19: Share-Based Compensation and Earnings Per Share
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Q1) Which of the following statements is true regarding share appreciation rights (SAR) payable in cash?
A) Any change in estimated total compensation is recorded as a prior adjustment.
B) The total amount of compensation is not known for certain until the date the SAR is exercised.
C) The liability is adjusted only to reflect each additional year of service.
D) None of these answer choices are correct.
Q2) On January 1, 2018, D Corp. granted an employee an option to purchase 6,000 shares of D's $5 par common stock at $20 per share. The options became exercisable on December 31, 2019, after the employee completed two years of service. The option was exercised on January 10, 2020. The market prices of D's stock were as follows: January 1, 2018, $30; December 31, 2019, $50; and January 10, 2020, $45. An option pricing model estimated the value of the options at $8 each on the grant date. For 2018, D should recognize compensation expense of:
A) $0.
B) $24,000.
C) $30,000.
D) $60,000.
Q3) What is the advantage of stock appreciation rights over stock options?
Page 21
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Chapter 20: Accounting Changes and Error Corrections
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Q1) Some inventory errors are described as "self-correcting" in that they have the opposite financial statement effect in the period following the errors, thereby "correcting" the original account balance errors.
Required:
Given this "self-correcting" feature, discuss why these errors should not be ignored and describe the steps needed to correct these errors.
Q2) What is the difference between U.S. GAAP and IFRS with regard to the correction of accounting errors?
Q3) Annual depreciation expense on a building purchased a few years ago (using the straight-line method) is $5,000. The cost of the building was $100,000. The current book value of the equipment (January 1, 2018) is $85,000. At the time of purchase, the asset was estimated to have a zero salvage value. On January 1, 2018, the company decided to reduce the original useful life by 25% and to establish a salvage value of $5,000. The firm also decided double-declining-balance depreciation was more appropriate. Ignore tax effects.
Required:
(1.) Record the journal entry, if any, to report the accounting change.
(2.) Record the annual depreciation for 2018.
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Chapter 21: The Statement of Cash Flows Revisited
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Q1) Investing cash outflow
A)Issuance of bonds at a discount for cash.
B)Depreciation expense.
C)Acquisition of a building for cash.
D)Payment of semi-annual interest on bonds payable.
E)Decrease in accounts payable.
Q2) Kinney reported cost of goods sold of $168,114,150 in its fiscal 2018 income statement. Compute Kinney's net inventory purchases during the year.
Q3) Which of the following is not classified as an operating activity?
A) Interest paid on long-term debt.
B) Dividends received on common stock.
C) Dividends paid on common stock.
D) Payments on accounts payable.
Q4) When one enters a $50,000 credit entry to the Land account in a spreadsheet for the statement of cash flows, it represents a negative change in that account and probably is due to selling such assets.
A)True
B)False
Q5) Is depreciation a source of cash? Explain.
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