Business Finance
Study Guide Questions
Course Introduction
Business Finance introduces students to the principles and practices of financial management within organizations. The course covers topics such as time value of money, risk and return, financial statement analysis, short- and long-term financial planning, capital budgeting, cost of capital, and working capital management. Through case studies and problem-solving exercises, students learn how financial decisions impact the overall strategic objectives of a business, preparing them to analyze financial information and make informed recommendations in a professional context.
Recommended Textbook
Financial Managerial Accounting 14th Edition by Carl Warren
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Chapter 1: Introduction to Accounting and Business
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Sample Questions
Q1) About 90% of the businesses in the United States are organized as corporations.
A)True
B)False
Answer: False
Q2) The business entity assumption means that
A) the owner is part of the business entity
B) an entity is organized according to state or federal statutes
C) an entity is organized according to the rules set by the FASB
D) the entity is an individual economic unit for which data are recorded,analyzed,and reported
Answer: D
Q3) Managerial accounting information is used by external and internal users equally.
A)True
B)False
Answer: False
Q4) Prepare a balance sheet for the current year ended March 31.
Answer: 11ea8952_b5d8_f6da_861b_5b75de2a6d66_TB6238_00
Q5) Prepare a statement of retained earnings for the current year ended March 31. Answer: 11ea8952_b5d8_f6d9_861b_658e86ca2d01_TB6238_00
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Chapter 2: Analyzing Transactions
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Sample Questions
Q1) Which of the following is not a useful step in finding errors on the trial balance?
A) Determine the difference between debits and credits and look for the amount.
B) Determine the difference between debits and credits and change any account to make the trial balance correct.
C) Determine the difference between debits and credits,divide the amount by 2,and look for the amount.
D) Determine the difference between debits and credits,divide the amount by 9,and if it divides evenly,look for a transposition or slide error.
Answer: B
Q2) Liability accounts are increased by debits.
A)True
B)False
Answer: False
Q3) Journalizing always eliminates fraudulent activity.
A)True
B)False
Answer: False
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Chapter 3: The Adjusting Process
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Sample Questions
Q1) At the end of the current year,$3,700 fees have been earned but have not been billed to clients.Journalize the adjusting entry to record the accrued fees.
Answer: 11ea8952_b5af_4f33_861b_453915879c48_TB6238_00
Q2) What is the purpose of the adjusted trial balance?
A) to verify that all of the adjusting entries have been posted
B) to verify that the net income (loss)is correctly reported
C) to verify that no adjusting journal entry has been omitted
D) to verify that the debits and credits balance
Answer: D
Q3) Deferred revenue is revenue that is
A) earned and the cash has been received
B) earned but the cash has not been received
C) not earned and the cash has not been received
D) not earned but the cash has been received
Answer: D
Q4) A contra asset account for Land will normally appear on the balance sheet.
A)True
B)False
Answer: False
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Chapter 4: Completing the Accounting Cycle
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Sample Questions
Q1) Once the adjusted trial balance is in balance,the flow of accounts will now go into the financial statements.
A)True
B)False
Q2) Which of the following is not an essential part of the accounting records?
A) the journal
B) the ledger
C) the chart of accounts
D) the end-of-period spreadsheet
Q3) The chart of accounts,the journal,and the ledger are essential parts of the accounting system.
A)True
B)False
Q4) Accrued expenses are ordinarily listed on the balance sheet as current assets.
A)True
B)False
Q5) All income statement accounts will be closed at the end of the period.
A)True
B)False
Q6) Describe a classified balance sheet.
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Chapter 5: Accounting for Merchandising Businesses
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Sample Questions
Q1) Which of the following accounts has a normal debit balance?
A) Accounts Payable
B) Inventory
C) Sales
D) Interest Revenue
Q2) A retailer purchases merchandise with a catalog list price of $30,000.The retailer receives a 15% trade discount and has credit terms of 2 / 10,n / 30.How much cash will be needed to pay this invoice within the discount period?
A) $30,000
B) $24,900
C) $29,400
D) $24,990
Q3) Under a periodic inventory system,the accounts Purchases,Purchases Returns and Allowances,Purchases Discounts,and Freight In are found on the balance sheet.
A)True
B)False
Q4) The abbreviation FOB stands for "free on board."
A)True
B)False
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Chapter 6: Inventories
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Sample Questions
Q1) One negative effect of carrying too much inventory is risk that customers will change their buying habits.
A)True
B)False
Q2) A physical inventory should be taken at the end of every month.
A)True
B)False
Q3) Assuming that the company uses the perpetual inventory system,determine the gross profit for the month of May using the LIFO cost method.
A) $348
B) $452
C) $444
D) $356
Q4) The lower-of-cost-or-market method of determining the value of ending inventory can be applied on an item by item,by major classification of inventory,or by the total inventory.
A)True
B)False
Q5) Average cost periodic (round average to nearest cent)
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Chapter 7: Internal Control and Cash
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Sample Questions
Q1) An element of internal control is
A) risk assessment
B) journals
C) subsidiary ledgers
D) controlling accounts
Q2) A voucher system is an example of an internal control procedure over cash payments.
A)True
B)False
Q3) Which of the following would not be included with the cash and cash equivalents on the balance sheet?
A) commercial paper
B) short-term receivables
C) cash short and over
D) money market mutual funds
Q4) In preparing a bank reconciliation,the amount of a canceled check omitted from the journal is added to the balance per company's records.
A)True
B)False
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Chapter 8: Receivables
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Sample Questions
Q1) Allowance for Doubtful Accounts has a credit balance of $500 at the end of the year (before adjustment),and bad debt expense is estimated at 3% of credit sales.If credit sales are $300,000,the amount of the adjusting entry to record the estimated uncollectible accounts receivable is
A) $8,500
B) $9,500
C) $9,000
D) Cannot be determined
Q2) In computing the maturity date of a note,the date the note is issued is included but the due date is omitted.
A)True
B)False
Q3) The party promising to pay a note at maturity is the maker.
A)True
B)False
Q4) Fellows Corporation has determined that the $2,700 accounts receivable due from Andrew Stevens is uncollectible.Compare the journal entry that is required under the direct write-off method to the journal entry that is required using the allowance method.
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Page 10
Chapter 9: Long-Term Assets: Fixed and Intangible
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Sample Questions
Q1) If a fixed asset,such as a computer,were purchased on January 1 for $3,750 with an estimated life of 3 years and a salvage or residual value of $150,the journal entry for monthly expense under straight-line depreciation is
A) Depreciation Expense 100
Accumulated Depreciation 100
B) Depreciation Expense 1,200
Accumulated Depreciation 1,200
C) Accumulated Depreciation 1,200
Depreciation Expense 1,200
D) Accumulated Depreciation 100
Depreciation Expense 100
Q2) Intangible assets differ from property,plant,and equipment assets in that they lack physical substance.
A)True
B)False
Q3) The cost of computer equipment does not include the consultant's fee to supervise installation of the equipment.
A)True
B)False
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Page 11
Chapter 10: Liabilities: Current,installment Notes,and
Contingencies
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Sample Questions
Q1) Vacation pay payable is reported on the balance sheet as a(n)
A) current liability or long-term liability,depending upon when the vacations will be taken by employees
B) current liability
C) expense
D) long-term liability
Q2) Most employers are levied a tax on payrolls for
A) sales tax
B) medical insurance premiums
C) federal unemployment compensation tax
D) union dues
Q3) Which is not a determinate in calculating federal income taxes withheld from an individual's pay?
A) marital status
B) types of earnings
C) gross pay
D) number of withholding allowances
Q4) List five internal controls that relate directly to payroll.
Page 12
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Chapter 11: Liabilities: Bonds Payable
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Sample Questions
Q1) One reason a dollar today is worth more than a dollar 1 year from today is the time value of money.
A)True
B)False
Q2) The balance in Discount on Bonds Payable that is applicable to bonds due in three years would be reported on the balance sheet in the section entitled
A) investments
B) long-term liabilities
C) current assets
D) intangible assets
Q3) The interest expense recorded on an interest payment date is increased
A) only if the market rate of interest is less than the stated rate of interest on that date
B) by the amortization of premium on bonds payable
C) by the amortization of discount on bonds payable
D) only if the bonds were sold at face value
Q4) Only callable bonds can be purchased by the issuing corporation before maturity.
A)True
B)False
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Chapter 12: Corporations: Organization, stock Transactions, and Dividends
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Sample Questions
Q1) The amount of a corporation's retained earnings that has been restricted / appropriated should be reported in the notes to the financial statements.
A)True
B)False
Q2) A corporation has 50,000 shares of $25 par stock outstanding that has a current market value of $150 per share.If the corporation issues a 5-for-1 stock split,the market value of the stock after the split will be approximately
A) $25
B) $150
C) $5
D) $30
Q3) Texas Inc.has 10,000 shares of 6%,$125 par value cumulative preferred stock and 50,000 shares of $1 par value common stock outstanding at December 31.What is the annual dividend on the preferred stock?
A) $60 per share
B) $75,000 in total
C) $10,000 in total
D) $0.75 per share
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Chapter 13: Statement of Cash Flows
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Sample Questions
Q1) Cash dividends of $50,000 were declared during the year.Cash dividends payable were $10,000 and $5,000 at the beginning and end of the year,respectively.The amount of cash for the payment of dividends during the year is
A) $55,000
B) $50,000
C) $65,000
D) $60,000
Q2) If a gain of $11,000 is realized in selling (for cash)office equipment having a book value of $55,000,the total amount reported in the cash flows from investing activities section of the statement of cash flows is
A) $44,000
B) $11,000
C) $55,000
D) $66,000
Q3) Cash flows from financing activities,as part of the statement of cash flows,would include any payments for dividends.
A)True
B)False
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Chapter 14: Financial Statement Analysis
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Sample Questions
Q1) A balance sheet shows cash,$75,000; marketable securities,$115,000; receivables,$150,000; and inventories,$222,500.Current liabilities are $225,000.The current ratio is 2.5.
A)True
B)False
Q2) In a common-sized income statement,100% is the A) net cost of goods sold
B) net income
C) gross profit
D) sales
Q3) What information is generally included in the Management Discussion and Analysis (MD&A)section of a corporate annual report?
Q4) Earnings per share amounts are only required to be presented for income from continuing operations and net income on the face of the statement.
A)True
B)False
Q5) Define solvency and profitability.How are they alike?
Q6) What is a major advantage of using percentages rather than dollar changes in doing horizontal and vertical analysis?
Page 16
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Chapter 15: Introduction to Managerial Accounting
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Sample Questions
Q1) Which of the following is an example of direct labor cost for a cell phone manufacturer?
A) cost of oil lubricants for factory machinery
B) cost of wages of assembly worker
C) salary of plant supervisor
D) cost of phone components
Q2) The costs of materials and labor that do not enter directly into the finished product are classified as cost of goods sold.
A)True
B)False
Q3) Work in process inventory on December 31 of the current year is $44,000.Work in process inventory increased by 60% during the year.Cost of goods manufactured amounts to $275,000.What are the total manufacturing costs incurred in the current year?
A) $291,500
B) $302,000
C) $275,750
D) $233,750
Q4) Differentiate between period and product costs,including examples of each type of cost.
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Chapter 16: Job Order Costing
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Sample Questions
Q1) A difference in quantity of materials used on two comparable jobs may be caused by
A) inadequately trained employees
B) poor quality materials
C) employee carelessness
D) all of these
Q2) If the underapplied factory overhead amount is immaterial,it is transferred to Cost of Goods Sold at the end of the fiscal year.
A)True
B)False
Q3) serves as the basis for recording direct labor on a job cost sheet
A)job cost sheets
B)materials requisitions
C)receiving report
D)time tickets
E)cost allocation
Q4) The job order costing system is used by service firms to determine revenues,expenses,and ultimately profit.
A)True
B)False
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Chapter 17: Process Cost Systems
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Sample Questions
Q1) Conversion costs include materials,direct labor,and factory overhead.
A)True
B)False
Q2) At the beginning of the period,there were 500 units in process that were 60% complete as to conversion costs and 100% complete as to direct materials costs.During the period,4,500 units were started and completed.Ending inventory contained 340 units that were 30% complete as to conversion costs and 100% complete as to materials costs.Assume that the company uses the FIFO process cost method.Round cost per unit figures to two cents,i.e.,$2.22,when calculating total costs. The total costs that will be transferred into Finished Goods for units started and completed were
A) $161,775
B) $156,960
C) $162,855
D) $161,505
Q3) Equivalent units of production are always the same as the total number of physical units finished during the period.
A)True
B)False
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Chapter 18: Activity-Based Costing
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Q1) The Roget Factory has determined that its budgeted factory overhead budget for the year is $15,500,000.They plan to produce 2,000,000 units.Budgeted direct labor hours are 1,050,000 and budgeted machine hours are 750,000.Using the single plantwide factory overhead rate based on direct labor hours,calculate the factory overhead rate for the year.
A) $14.76
B) $20.67
C) $7.75
D) $77.50
Q2) Service companies can effectively use multiple department overhead rate costing to compute product (service)costs.
A)True
B)False
Q3) Calculate the cost of services for a haircut.
A) $4.00
B) $7.50
C) $3.50
D) $11.50
Q4) Calculate the cost of services for a highlight.
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Chapter 19: Cost-Volume-Profit Analysis
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Q1) Assuming no other changes,operating income will be the same under both the variable and absorption costing methods when the number of units manufactured equals the number of units sold.
A)True
B)False
Q2) The contribution margin ratio is
A) the same as the variable cost ratio
B) the same as profit
C) the portion of equity contributed by the stockholders
D) the same as the profit-volume ratio
Q3) Which of the graphs in Figure 21-1 illustrates the nature of a mixed cost?
A) Graph 2
B) Graph 3
C) Graph 4
D) Graph 1
Q4) If yearly insurance premiums are increased,this change in fixed costs will result in an increase in the break-even point.
A)True
B)False
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Chapter 20: Variable Costing for Management Analysis
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Sample Questions
Q1) The beginning inventory is 5,000 units.All of the units manufactured during the period and 3,000 units of the beginning inventory were sold.The beginning inventory fixed costs are $25 per unit,and variable costs are $55 per unit.Determine (a)whether variable costing income from operations is less than or greater than absorption costing income from operations,and (b)the difference in variable costing and absorption income from operations.
Q2) On the variable costing income statement,deduction of the variable cost of goods sold from sales yields gross profit.
A)True
B)False
Q3) Which of the following would be included in the cost of a product manufactured according to absorption costing?
A) advertising expense
B) sales salaries
C) depreciation expense on factory building
D) office supplies costs
Q4) The contribution margin and the manufacturing margin are usually equal.
A)True
B)False
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Chapter 21: Budgeting
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Sample Questions
Q1) The budgeting process does not involve which of the following activities?
A) Specific goals are established.
B) Periodic comparison of actual results to goals.
C) Execution of plans to achieve goals.
D) Increase in sales by increasing marketing efforts.
Q2) What is the amount of cash excess or deficiency (after considering the minimum cash balance required)for March?
A) excess of $214,200
B) excess of $15,800
C) deficiency of $60,000
D) excess of $25,300
Q3) Sleep Tight,Inc.manufactures bedding sets.The budgeted production is for 52,000 comforters this year.Each comforter requires 1.5 hours to cut and sew the material.The cost of cutting and sewing labor is $12.50 per hour.Determine the direct labor budget for this year.
Q4) Budgeted production of Product A for the year would be
A) 22,400 units
B) 20,400 units
C) 20,000 units
D) 12,200 units
Page 23
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Chapter 22: Evaluating Variances From Standard Costs
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Q1) Which of the following conditions normally would not indicate that standard costs should be revised?
A) The engineering department has revised product specifications in responding to customer suggestions.
B) The company has signed a new union contract that increases the factory wages on average by $3.50 an hour.
C) Actual costs differed from standard costs for the preceding week.
D) The average price of raw materials increased from $4.68 per pound to $4.82 per pound.
Q2) The amount of the fixed factory overhead volume variance is
A) $2,000 favorable
B) $2,000 unfavorable
C) $2,500 unfavorable
D) $0
Q3) Since the controllable variance measures the efficiency of using variable overhead resources,if budgeted variable overhead exceeds actual results,the variance is favorable.
A)True
B)False
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Chapter 23: Evaluating Decentralized Operations
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Q1) What is the service department charge rate for the Personnel Department?
A) $2,758
B) $3,200
C) $3,077
D) $1,000
Q2) The excess of divisional income from operations over a minimum acceptable amount of divisional income from operations is
A) profit margin
B) residual income
C) rate of return on investment
D) gross profit
Q3) The ratio of income from operations to sales,which is also a factor in the DuPont formula for determining the rate of return on investment,is called A) profit margin
B) indirect expenses
C) investment turnover
D) cost
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Chapter 24: Differential Analysis and Product Pricing
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Q1) What cost concept used in applying the cost-plus approach to product pricing includes only desired profit in the markup?
A) product cost concept
B) variable cost concept
C) sunk cost concept
D) total cost concept
Q2) Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative.
A)True
B)False
Q3) Lockrite Security Company manufacturers home alarms.Currently,it is manufacturing one of its components at a total cost of $45 which includes fixed costs of $15 per unit.An outside provider of this component has offered to sell Lockrite the component for $40.Provide a differential analysis of the outside purchase proposal.
Q4) Differential analysis only considers the short-term (one-year)effects of discontinuing a product.
A)True
B)False
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Chapter 25: Capital Investment Analysis
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Q1) In calculating the present value of an investment in equipment,the present value of the residual value should be added to the cash inflows.
A)True
B)False
Q2) Which method of evaluating capital investment proposals uses the concept of present value to compute a rate of return?
A) average rate of return
B) accounting rate of return
C) cash payback period
D) internal rate of return
Q3) A company is considering the purchase of a new machine for $48,000.Management expects that the machine can produce sales of $16,000 each year for the next 10 years.Expenses are expected to include direct materials,direct labor,and factory overhead totaling $8,000 per year plus depreciation of $4,000 per year.All revenues and expenses except depreciation are on a cash basis.The payback period for the machine is 6 years.
A)True
B)False
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Chapter 26: Lean Manufacturing and Activity Analysis
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Sample Questions
Q1) How are the objectives of lean manufacturing achieved?
A) Product-oriented production layout
B) Employee involvement
C) Supplier partnering
D) All of the above
Q2) Reducing wait time is not linked to reducing inventory.
A)True
B)False
Q3) From the foregoing information,determine the amount of the conversion costs charged to Raw and In Process Inventory during August.
A) $369,840
B) $408,480
C) $428,800
D) $473,600
Q4) Maximum effectiveness and efficiency are reached when the lean philosophy is used mainly by manufacturers.
A)True
B)False
Q5) From the above schedule,compute the percentage of non-value-added activities.
Q6) From the above schedule,calculate the (a)prevention and (b)appraisal costs.
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