Business Finance
Question Bank
Course Introduction
Business Finance provides an in-depth overview of financial management principles and practices within a business context. The course covers topics such as financial statement analysis, time value of money, capital budgeting, risk and return, cost of capital, and sources of financing. Students learn how to evaluate investment opportunities, manage working capital, and make sound financial decisions that enhance organizational value. Emphasis is placed on understanding the role of financial markets and institutions, ethical considerations, and the impact of global financial trends on business operations.
Recommended Textbook
Corporate Financial Accounting 12th Edition by Carl
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Page 2
S. Warren
Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) At December 31,2011,Martin Consultants has assets of $430,000 and liabilities of $205,000.Using the accounting equation and considering each case independently,determine the following:
a.Total Stockholders' Equity as of December 31,2011.
b.Total Stockholders' Equity as of December 31,2012,assuming that assets increased by $12,000 and liabilities increased by $15,000 in 2012.
c.Total Stockholders' Equity as of December 31,2012,assuming that assets decreased by $8,000 and liabilities increased by $14,000 during 2012.
Answer: a.$430,000 - 205,000 = $225,000
b.($430,000 + 12,000)- ($205,000 + 15,000)= $222,000
c.($430,000 - $8,000)- ($205,000 + 14,000)= $203,000
Q2) Explain the interrelationship between the balance sheet and the statement of cash flows.
Answer: The cash reported on the balance sheet is also reported as the end-of-period cash on the statement of cash flows.
Q3) What are the three sections of the statement of cash flows?
Answer: Operating Activities,Investing Activities,and Financing Activities
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Page 3
Chapter 2: Analyzing Transactions
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Sample Questions
Q1) \(\begin{array}{|c|c|c|c|c|}
\hline \text { March } & 6 & \text { Casih } && 2,500 & \\
\hline & & \text { UnearnedFees } & && 2,500 \\
\hline & & \text { ????????????} & & \\
\hline
\end{array}\)
What is the best explanation for this journal entry?
A)Received cash for services performed.
B)Received cash for services to be performed in the future.
C)Paid cash in advance for services to be done.
D)Paid cash for services to be performed.
Answer: B
Q2) Transactions are initially entered into a record called a journal.
A)True
B)False Answer: True
Q3) The T account got its name because it resembles the letter "T."
A)True
B)False Answer: True
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) The entry to adjust the accounts for wages accrued at the end of the accounting period is
A)debit Wages Payable;credit Wages Income
B)debit Wages Income;credit Wages Payable
C)debit Wages Payable;credit Wages Expense
D)debit Wages Expense;credit Wages Payable
Answer: D
Q2) Adjusting entries affect only expense and asset accounts.
A)True
B)False
Answer: False
Q3) Which one of the accounts below would likely be included in an accrual adjusting entry?
A)Insurance Expense
B)Prepaid Rent
C)Interest Expense
D)Unearned Rent
Answer: C
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5
Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Which of the following accounts will not be closed to Income Summary at the end of the fiscal year?
A)Salaries Expense
B)Fees Earned
C)Unearned Rent
D)Depreciation Expense
Q2) Closing entries are entered directly on to the work sheet.
A)True
B)False
Q3) The natural business year
A)is a fiscal year that ends when business activities are at its lowest point.
B)is a calendar year that ends when business activities are at its lowest point.
C)is a fiscal year that ends when business activities are at its highest point.
D)is a calendar year that ends when business activities are at its highest point.
Q4) The chart of accounts,the journal,and the ledger are essential parts of the accounting system.
A)True
B)False
Q5) Explain how net income or loss is determined by using the work sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Which account will be included in both service and merchandising companies closing entries?
A)Sales
B)Cost of Merchandise Sold
C)Purchase Discounts
D)Sales Returns and Allowances
Q2) Sellers and buyers are required to record trade discounts.
A)True
B)False
Q3) The inventory system employing accounting records that continuously disclose the amount of inventory is called
A)retail
B)periodic
C)physical
D)perpetual
Q4) In a merchandise business,sales minus operating expenses equals net income.
A)True
B)False
Q5) Prepare a multiple-step income statement for Armour Co.from the following data for the year ended December 31,2014.
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Chapter 6: Inventories
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Sample
Questions
Q1) Garrison Company uses the retail method of inventory costing.They started the year with an inventory that had a retail cost of $45,000.During the year they purchased an inventory with a retail cost of $300,000.After performing a physical inventory,they calculated their inventory cost at retail to be $80,000.The mark up is 100% of cost.Determine the ending inventory at its estimated cost.
A)$160,000
B)$80,000
C)$40,000
D)$45,000
Q2) During a period of consistently rising prices,the method of inventory that will result in reporting the greatest cost of merchandise sold is
A)FIFO
B)LIFO
C)average cost
D)weighted average
Q3) A business using the retail method of inventory costing determines that merchandise inventory at retail is $2,300,000.If the ratio of cost to retail price is 55%,what is the amount of inventory to be reported on the financial statements?
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Chapter 7: Sarbanes-Oxley, internal Control, and Cash
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Sample Questions
Q1) A $140 petty cash fund has cash of $20 and receipts of $117.The journal entry to replenish the account would include a credit to
A)Cash for $20.
B)Cash Over and Short for $3.
C)Petty Cash for $120.
D)Cash for $120.
Q2) All bank memos reported on the bank reconciliation require entries in the company's accounts.
A)True
B)False
Q3) A check drawn by a company for $340 in payment of a liability was recorded in the journal as $430.This item would be included on the bank reconciliation as a(n)
A)addition to the balance per the company's records
B)addition to the balance per the bank statement
C)deduction from the balance per the bank statement
D)deduction from the balance per the company's records
Q4) On August 3rd,Sonar Sales decides to establish a $275.00 Petty Cash Account to relieve the burden on Accounting.
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Page 9
Chapter 8: Receivables
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Sample Questions
Q1) Notes Receivable and Accounts Receivable can also be called trade receivables.
A)True
B)False
Q2) The balance in Allowance for Doubtful Accounts will directly impact the end of period adjustment for the bad debt expense when using which of the following methods?
A)Allowance method
B)Direct write-off method
C)Accrual method
D)declining value method
Q3) When companies sell their receivables to other companies,the transaction is called factoring.
A)True
B)False
Q4) On June 30th (the end of the period)Brown Company has a credit balance of $2,275 in Allowance for Doubtful Accounts.An evaluation of accounts receivable indicates that the proper balance should be $30,025.Journalize the appropriate adjusting entry.
Q5) Discuss the similarities and differences between accounts receivables,notes receivables and other receivables.
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Chapter 9: Fixed Assets and Intangible Assets
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Sample Questions
Q1) A machine costing $57,000 with a 6-year life and $54,000 depreciable cost was purchased January 1,2015.Compute the yearly depreciation expense using straight-line depreciation.
Q2) Ordinary gains from the sale of fixed assets should be reported in the other income section of the income statement.
A)True
B)False
Q3) Determine the depreciation,for the year of acquisition and for the following year,of a fixed asset acquired on October 1 for $500,000,with an estimated life of 5 years,and residual value of $50,000,using (a)the declining-balance method at twice the straight-line rate and (b)the straight-line method.Assume a fiscal year ending December 31.
Q4) When minor errors occur in the estimates used in the determination of depreciation,the amounts recorded for depreciation expense in the past should be corrected.
A)True B)False
Q5) All property,plant,and equipment assets are depreciated over time.
A)True B)False
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Chapter 10: Current Liabilities and Payroll
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Sample Questions
Q1) For proper matching of revenues and expenses,the estimated cost of fringe benefits must be recognized as an expense of the period during which the employee earns the benefits.
A)True
B)False
Q2) Garrett Company sells merchandise with a one year warranty.In 2012,sales consisted of 3,500 units.It is estimated that warranty repairs will average $15 per unit sold,and 30% of the repairs will be made in 2012 and 70% in 2013.In the 2012 income statement,Garrett should show warranty expense of
A)$36,750
B)$15,750
C)$52,500
D)$0
Q3) The cost of a product warranty should be included as an expense in the A)period the cash is collected for a product sold on account
B)future period when the cost of repairing the product is paid
C)period of the sale of the product
D)future period when the product is repaired or replaced
Q4) List five internal controls that relate directly to payroll.
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Chapter 11: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) On January 1,2011 a company had the following data:
- issued 10,000 shares of $2.00 par value common stock for $12.00 per share - issued 3,000 shares of $50 par value 6% cumulative preferred stock for $70 per share - purchased 1,000 shares of previously issued common stock for $15.00 per share
Q2) Paid-in capital may originate from real estate donated to the corporation.
A)True
B)False
Q3) A corporation has 10,000 shares of $100 par value stock outstanding.If the corporation issues a 5-for-1 stock split,the number of shares outstanding after the split will be 40,000.
A)True
B)False
Q4) The price at which a stock can be sold depends upon a number of factors.Which statement below is not one of those factors?
A)the financial condition,earnings record,and dividend record of the corporation
B)investor expectations of the corporation's earning power
C)how high the par value is
D)general business and economic conditions and prospects
Page 13
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Chapter 12: Long-Term Liabilities: Bonds and Notes
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Sample Questions
Q1) An installment note payable for a principal amount of $94,000 at 6% interest requires Lawson Company to repay the principal and interest in equal annual payments of $22,315 beginning December 31,2014,for each of the next five years.After the final payment,the carrying amount on the note will be
A)$ 1,263
B)$21,053
C)$22,315
D)$ 0
Q2) On January 1,2011,Zero Company obtained a $52,000,four-year,6.5% installment note from Regional Bank.The note requires annual payments of $15,179,beginning on December 31,2011.The December 31,2012 carrying amount in the amortization table for this installment note will be equal to:
A)$26,000
B)$27,635
C)$21,642
D)$28,402
Q3) An equal stream of periodic payments is called an annuity.
A)True
B)False
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Page 14
Chapter 13: Investments and Fair Value Accounting
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Sample
Questions
Q1) An investor purchased 500 shares of common stock,$25 par,for $19,250.Subsequently,100 shares were sold for $35 per share.What is the amount of gain or loss on the sale?
A)$3,500 gain
B)$350 gain
C)$350 loss
D)$500 gain
Q2) If the proceeds from the sale of bond investments exceeds the carrying amount of the bonds,a gain is realized.
A)True
B)False
Q3) Available-for-sale securities are securities that management expects to sell in the future,but are not actively traded for profit.
A)True
B)False
Q4) On April 1,2015,ValueTime,Inc.had a market price per common share of $24.For the previous year ValueTime paid a dividend of $1.50 per share.Compute the dividend yield for ValueTime,Inc.
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15
Chapter 14: Statement of Cash Flows
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Sample Questions
Q1) Master Designs Company has cash flows for operating activities of $350,000.Cash flows used for investments in property,plant,and equipment totaled $65,000,of which 70% of this investment was used to replace machinery to maintain existing capacity. What is the free cash flow for Master Designs?
Q2) The order of presentation of activities on the statement of cash flows is
A)operating,investing,and financing.
B)operating,financing,and investing.
C)financing,operating,and investing.
D)financing,investing,and operating.
Q3) There is no difference in the Investing and Financing sections of the statement of cash flows using the indirect and direct method.
A)True
B)False
Q4) A major disadvantage of the indirect method of reporting cash flows from operating activities is that the difference between the net amount of cash flows from operating activities and net income is emphasized.
A)True
B)False
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Page 16
Chapter 15: Financial Statement Analysis
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Sample Questions
Q1) The ratio of fixed assets to long-term liabilities provides a measure of a firm's ability to pay dividends.
A)True
B)False
Q2) An extraordinary loss of $300,000 that results in income tax savings of $90,000 should be reported as an extraordinary loss (net of tax)of $210,000 on the income statement.
A)True
B)False
Q3) Using measures to assess a business's ability to pay its current liabilities is called current position analysis.
A)True
B)False
Q4) When you are interpreting financial ratios,it is useful to compare a company's ratios to some form of standard.
A)True
B)False
Q5) Why would you compare or not compare Coca-Cola and Pepsi-Cola (PepsiCo)as companies to each other?
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