Business Fundamentals
Study Guide Questions
Course Introduction
Business Fundamentals introduces students to the essential concepts and practices that underpin the modern business environment. Covering key topics such as organizational structure, management, marketing, finance, operations, and entrepreneurship, the course provides a comprehensive overview of how businesses operate and succeed in competitive markets. Students will explore decision-making processes, business ethics, and the impact of globalization, while developing foundational skills necessary for further study or entry into the business world. Through real-world case studies and interactive learning, this course lays a strong foundation for understanding the dynamic role of business in society.
Recommended Textbook
College Accounting A Practical Approach 12th Canadian Edition by Jeffrey Slater
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Chapter 1: Accounting Concepts and Procedures
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Q1) Bob purchased a new computer for the company on account. The transaction will:
A)increase Computer; increase Capital.
B)decrease Cash; increase Accounts Payable.
C)decrease Cash; increase Computer.
D)increase Computer; increase Accounts Payable.
Answer: D
Q2) Owner's withdrawals:
A)decrease assets.
B)increase expenses.
C)increase liabilities.
D)decrease withdrawals.
Answer: A
Q3) The left side of the accounting equation must always equal the right side of the equation.
A)True
B)False
Answer: True
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Chapter 2: Debits and Credits: Analyzing and Recording
Business Transactions
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Q1) The debit side of all accounts decreases the balance and the credit side increases all accounts.
A)True
B)False
Answer: False
Q2) One asset would be debited and another credited if:
A)the business provided services to a cash customer.
B)the business paid a creditor.
C)the business bought supplies paying cash.
D)the business provided services to a credit customer.
Answer: C
Q3) The owner of BobCats R Us paid his personal MasterCard bill using a company check. The correct entry to record the transaction is:
A)credit Cash; debit Capital.
B)credit Cash; debit Supplies Expense.
C)credit Cash; debit Withdrawals.
D)credit Cash; debit Accounts Receivable.
Answer: C
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Chapter 3: Beginning the Accounting Cycle
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Q1) The proper sequence used in recording a business transaction is:
A)analyze, post, journalize, record the account balance, and complete the reference column in the journal.
B)analyze, journalize, post, record the account balance, and complete the reference column in the journal.
C)analyze, journalize, post, complete the reference column in the journal, and record the account balance.
D)journalize, analyze, post, record the account balance, and complete the reference column in the journal.
Answer: B
Q2) The twelve-month period a business chooses for its accounting period is a(n): A)calendar year.
B)accounting period.
C)fiscal year.
D)accounting cycle.
Answer: C
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Chapter 4: The Accounting Cycle Continued
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Q1) Original cost of equipment is not adjusted on the worksheet.
A)True
B)False
Q2) The worksheet is the first financial statement prepared.
A)True
B)False
Q3) The beginning capital balance used on the Statement of Owner's Equity is obtained from:
A)the worksheet in the balance sheet credit column.
B)the worksheet in the income statement credit column.
C)the amount calculated on the statement of owner's equity.
D)the general ledger.
Q4) What type of account is Salaries Payable?
A)Asset
B)Expense
C)Liability
D)Owner's equity
Q5) Accumulated Depreciation is a contra-asset account found on the balance sheet.
A)True
B)False
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Chapter 5: The Accounting Cycle Completed
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Q1) The ending balances in the ledger after posting the adjusting entries, will be the same amounts that are found on the worksheet in the adjusted trial balance column.
A)True
B)False
Q2) Depreciation Expense is closed to Income Summary, but Accumulated Depreciation is not closed.
A)True
B)False
Q3) After posting the closing entries, which of the following accounts is most likely not to have a zero balance?
A)Prepaid Insurance
B)Advertising Expense
C)J. Smith, Withdrawals
D)Medical Fees
Q4) How do you close a revenue account?
A)Debit Capital; credit Revenue
B)Credit Capital; debit Revenue
C)Credit Income Summary; debit Revenue
D)Debit Income Summary; credit Revenue
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Chapter 6: Banking Procedure and Control of Cash
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Q1) When the bank pays a check written by the company, it would:
A)credit the customer's bank account.
B)debit the customer's bank account.
C)debit the cash account on the company's books
D)no increase or decrease is made to the company's bank account.
Q2) When a bank credits your account, it is decreasing the balance.
A)True
B)False
Q3) What is the difference between a debit and credit memorandum?
Q4) The drawer writes the check.
A)True
B)False
Q5) Riley's Limousines' entry to establish a $75 petty cash fund for the office would include a:
A)debit to Cash for $75.
B)credit to Petty Cash for $75.
C)credit to Cash for $75.
D)debit to Office Expense for $75.
Q6) ________ Owner withdrew money from the company for personal use
Q7) ________ Establishment of petty cash
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Chapter 7: Calculating Pay and Payroll Taxes: The
Beginning of the Payroll Process
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Q1) Carrie Stein's hourly wage is $40.00, and she worked 42 hours during the week. Assuming an overtime rate of time and a half over 40 hours, Carrie's gross pay is:
A)$1,780.
B)$1,720.
C)$2,580.
D)$1,600.
Q2) Insurance paid in advance by employers to protect their employees against loss due to injury or death incurred during employment is:
A)life insurance.
B)worker's compensation insurance.
C)liability insurance.
D)health insurance.
Q3) Which of the following would not typically be an employee payroll withholding?
A)Unemployment taxes
B)Medical Insurance
C)State income tax
D)Social Security
Q4) Explain what is meant by the cumulative gross earnings.
Q5) List the purposes of Federal Insurance Contributions Act.
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Chapter 8: Paying, Recording, and Reporting Payroll and Payroll Taxes: the Conclusion of the Payroll Process
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Q1) Compute the total overtime earnings. ________
Q2) FIT Payable has a credit normal balance.
A)True
B)False
Q3) A monthly depositor:
A)is an employer who only has to deposit Form 941 taxes on the 15th day of the month (or next banking day).
B)is determined by the amount of Form 941 taxes that they paid in the prior year.
C)will remain a monthly depositor, once classified, for one year at which time they will be reevaluated.
D)All of the above answers are correct.
Q4) The employer's annual Federal Unemployment Tax Return is:
A)Form 940.
B)Form 941.
C)Form W-4.
D)Form 8109.
Q5) There is no limit on the amount of taxes paid for SUTA.
A)True
B)False
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Chapter 9: Sales and Cash Receipts
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Q1) The accounts receivable subsidiary ledger shows the amount owed from each customer.
A)True
B)False
Q2) Kristi's pottery sold 200 tiles at $25.00 each to a charge customer, terms 1/10, n/30. Which entry is required to record this transaction?
A)Debit Cash for $5,000; credit Tile Sales for $5,000
B)Debit Accounts Receivable for $4,050; credit Tile Sales for $4,050
C)Debit Accounts Receivable for $4,050; debit Sales Discount for $50.00, and credit Tile Sales for $5,000
D)Debit Accounts Receivable for $5,000; credit Tile Sales for $5,000
Q3) A wholesale customer returned merchandise having already paid for it within the cash discount period. The return will be recorded with:
A)a credit to an asset account.
B)a credit to a liability account.
C)a credit to Capital.
D)None of these are correct.
Q4) Compare and discuss a discount period versus a credit period.
Q5) Explain how the record keeping differs between a cash sale and a credit sale.
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Chapter 10: Purchases and Cash Payments
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Q1) The freight paid on goods purchased F.O.B. Shipping Point was not recorded. This error will cause:
A)net income to be overstated.
B)net income to be understated.
C)net income to not be affected.
D)total liabilities to be overstated.
Q2) Which of the following accounts is a contra-cost account?
A)Accumulated Depreciation
B)Purchases Returns and Allowances
C)Sales Returns and Allowances
D)Sales Discount
Q3) A characteristic of Purchases Returns and Allowances is:
A)it has a normal credit balance.
B)it increases when merchandise is returned.
C)it decreases cost.
D)All of the above are correct.
Q4) If a debit memorandum is issued, the buyer will reduce their accounts receivable.
A)True
B)False
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Chapter 11: Preparing a Worksheet for a Merchandise Company
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Q1) The beginning inventory is assumed to be sold; therefore, it is added to cost of goods sold.
A)True
B)False
Q2) Beginning and ending inventories are $700 and $600, respectively. The income statement debit and credit columns of the worksheet total $2,500 and $2,500, respectively, not including the adjustment amounts for beginning and ending inventories. The net income or loss for the period is:
A)$150 net income.
B)$150 net loss.
C)$100 net income.
D)$100 net loss.
Q3) Joe received $5,000 in advance for renting part of his building. What is the entry to record the receipt of payment?
A)Debit Cash; credit Rent Expense
B)Debit Cash; credit Prepaid Rent
C)Debit Cash; credit Unearned Rent
D)Debit Cash; credit Rental Income
Q4) Discuss the reasons a company would consider using a periodic inventory system.
Page 13
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Chapter 12: Completion of the Accounting Cycle for a Merchandise Company
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Q1) Merchandise purchased for resale under the perpetual inventory method is added to:
A)Merchandise Inventory.
B)Sales.
C)Purchases.
D)Inventory Expense.
Q2) When closing sales, which of the following accounts will also be closed?
A)Sales Returns and Allowances
B)Purchases Discount
C)Purchases
D)Owner's Capital
Q3) How is Income Summary closed if the company had a net loss?
A)Credit Income Summary; debit Capital
B)Debit Income Summary; credit Capital
C)Debit Capital; credit Withdrawals
D)Debit Withdrawals; credit Capital
Q4) Adjusting journal entries still need to be made after the worksheet; otherwise the account balances will not be correct.
A)True
B)False
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Chapter 13: Accounting for Bad Debts
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Q1) If the allowance method of accounting for uncollectible receivables is used, what general ledger account is credited to write off a customer's account as uncollectible?
A)Bad Debts Expense
B)Accounts Receivable
C)Accounts Payable
D)Bad Debts Recovered
Q2) Sylvia's, Inc., decreases Allowance for Doubtful Accounts $700 at year-end. As a result:
A)net assets decrease.
B)net income is unchanged.
C)net assets increase.
D)net realizable value assets decreases.
Q3) A debit balance in Allowance for Doubtful Accounts indicates the estimate for Bad Debts was too high.
A)True
B)False
Q4) The Allowance account is a contra-liability account.
A)True
B)False
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Chapter 14: Notes Receivable and Notes Payable
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Q1) A promissory note:
A)is a written promise to pay.
B)is an oral promise to pay.
C)is due in 30 days.
D)entitles the maker to a discount.
Q2) An adjustment that must be made for the accrued interest on a note payable is to:
A)debit Interest Expense and credit Interest Income.
B)credit Interest Expense and debit Interest Income.
C)debit Interest Expense and credit Interest Payable.
D)debit Interest Expense and credit Cash.
Q3) The maturity date for a four-month note dated January 31 is:
A)May 1.
B)April 30.
C)May 31.
D)April 29.
Q4) The formula for calculating interest on a note is: principal x rate x time.
A)True
B)False
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Chapter 15: Accounting for Merchandise Inventory
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Q1) Chewy Candy has a beginning inventory of $1,000. June purchases were $3,000, and retail sales were $5,000. The store has a normal gross profit of 50%. What is the June 30 estimated ending inventory at cost under the gross profit method?
A)$2,100
B)$2,000
C)$1,700
D)$1,500
Q2) A method that uses average gross profit rate and net sales to compute inventory is:
A)the retail method.
B)the LIFO.
C)the weighted-average method.
D)None of these answers are correct.
Q3) Sold merchandise for cash. - Periodic
Debit ________ & ________ Credit ________ & ________
Q4) Last year's ending inventory was overstated. This error would cause:
A)this period's net income to be overstated.
B)this period's net income to be understated.
C)this period's end assets to be overstated.
D)None of these are correct.
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Chapter 16: Accounting for Property, Plant, Equipment, and Intangible Assets
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Q1) What would be the depreciation expense in year 1, using units-of-production, for a molding machine that cost $18,000, had a useful life of 3 years, no residual value, and an estimated total machine hours of 36,000? Production in year 1 was 10,000 hours.
A)$2,667
B)$4,000
C)$6,000
D)$5,000
Q2) Corbin Corporation has a plant asset with a cost of $30,000 that is traded for a similar asset priced at $60,000. Assuming accumulated depreciation of $25,000 and a trade-in allowance of $7,500, what is the cost basis for the new asset?
A)$47,500
B)$57,500
C)$50,000
D)$50,500
Q3) Some of the past depreciation is canceled in recording an extraordinary repair.
A)True
B)False
Q4) A budgeted item such as a building is listed as a ________.
Page 18
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Chapter 17: Partnership
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Q1) The income/loss agreement was ignored when closing the income summary and all income was distributed evenly. This error would cause:
A)the total owner's equity to be overstated.
B)the total owner's equity to be understated.
C)the total owner's equity to be unaffected.
D)the ending assets to be overstated.
Q2) The profit and loss ratio is required to be equally divided between and among the partners.
A)True
B)False
Q3) Partners Jessica and Jill receive salary allowances of $5,000 and $10,000, respectively. They share income and losses in a 3:1 ratio. If the partnership suffers a $21,000 loss, by how much would Jessica's capital decrease?
A)$15,750
B)$10,750
C)$16,000
D)$22,000
Q4) Closed the income summary to the partners' accounts with a net income. Debit ________ & ________ & ________ Credit ________ & ________ &
Page 19
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Chapter 18: Corporations: Organizations and Stock
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Q1) Sunrise Online issued 500 shares of its $10 common stock in exchange for equipment with a fair market value of $7,500. The entry to record the transaction would include a:
A)debit to Equipment for $5,000.
B)debit to Common Stock for $5,000.
C)credit to Paid-in Capital in Excess of Par Value for $2,500.
D)credit to Common Stock Subscribed for $5,000.
Q2) Shares of outstanding stock always equal the number of shares of authorized stock. A)True
B)False
Q3) Nature's Honey Corporation received the final installment of $1,000 on a stock subscription for 20 shares of $100 par value common stock. After recording the cash receipt, the entry to issue the stock would include a:
A)debit to Paid-in Capital in Excess of Par for $2,000.
B)credit to Paid-in Capital in excess of Par for $2,000.
C)credit to Common Stock for $2,000.
D)credit to Organization Cost for $2,000.
Q4) Sold common stock at a price above par accepting a subscription.
Debit ________ & ________ & ________ Credit ________ & ________ &
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Chapter 19: Corporations: Stock Values, Dividends, Treasury
Stocks, and Retained Earnings
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Q1) The date of record for cash dividends is:
A)the date the board of directors pays a dividend.
B)the date established by the board of directors that determines who will receive dividends.
C)the date that creates a liability for the company.
D)None of these answers are correct.
Q2) Changes in retained earnings can result from:
A)effects of prior period adjustments.
B)net income or net loss.
C)dividends being declared.
D)All of these answers are correct.
Q3) A prior period adjustment for depreciation would affect what account in the stockholders' equity section?
A)Capital Stock
B)Paid-in Capital in Excess of Par-Common Stock
C)Retained Earnings
D)Appropriations
Q4) If a redemption value is not stated, market value is used instead.
A)True
B)False
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Chapter 20: Corporations and Bonds Payable
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Q1) On October 1, German Company issued 12%, 10-year, $400,000 bonds at 105. Interest dates are April 1 and October 1. The amount of straight-line amortization for the current calendar year is:
A)$250.
B)$1000.
C)$2,000.
D)$500.
Q2) All other factors being equal, issuing bonds rather than issuing stock will:
A)increase earnings per share.
B)decrease earnings per share.
C)have no effect on earnings per share.
D)Cannot be determined from information given.
Q3) Discount on Bonds Payable is a:
A)contra-asset account.
B)contra-liability account.
C)contra-equity account.
D)None of these answers are correct.
Q4) What is the purpose of a bond sinking fund?
Q5) Deposited cash in a bond sinking fund.
Debit ________ & ________ & ________ Credit ________ & ________ &
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Chapter 21: Statement of Cash Flows
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Q1) Which of the following adjustments would be in error if made to net income when computing cash from operations using the indirect method?
A)Add an increase in Accounts Payable
B)Add Depreciation Expense
C)Add an increase in Accounts Receivable
D)None of the above
Q2) The statement of cash flows provides information about all of the following except:
A)organizing activities.
B)investing activities.
C)operating activities.
D)financing activities.
Q3) Cash generated from operating activities may be computed by using:
A)the indirect method.
B)the direct method.
C)either the direct or indirect method.
D)the combination method.
Q4) One section of a statement of cash flows is purchasing activities.
A)True
B)False
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Chapter 22: Analyzing Financial Statements
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Q1) The net sales for James, Inc. were $4,000,000; net income was $510,000; and gross profit was $1,300,000. The return on sales ratio would be:
A)12.75%.
B)32.50%.
C)45.25%.
D)39.23%.
Q2) If management wishes to know how well the inventory is moving for a business, they could use the:
A)accounts receivable turnover.
B)inventory turnover.
C)acid test ratio.
D)current ratio.
Q3) Isaiah Company has net income before interest and taxes of $720,000; beginning total assets of $2,100,000; and ending total assets of $2,300,000. Isaiah's return on total assets is:
A)32.7%.
B)11.2%.
C)3.1%.
D)31.3%.
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Chapter 23: The Voucher System
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Q1) The entry to record payment of a voucher for an invoice after the discount period under the gross method will include:
A)a debit to Vouchers Payable.
B)a credit to Purchase Discounts.
C)a debit to Discounts Lost.
D)None of these are correct.
Q2) Which of the following is not a part of internal control?
A)Separation of duties
B)No purchases are made without approval.
C)A voucher system is used.
D)None of these answers are correct.
Q3) Prepared voucher #425 for a note payable. The principle amounts to $2,500 and there is $100 of interest which has not been accrued.
Debit
Q4) If a purchase return or allowance occurs after the posting of the original voucher, the original voucher is cancelled.
A)True
B)False
Q5) Any change in an already recorded voucher dictates the ________ of that voucher.
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Chapter 24: Departmental Accounting
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Q1) The accountant must always consider operating expenses, such as rent and advertising, when determining gross profit for a department.
A)True
B)False
Q2) The data processing department of a tax firm would be a profit center.
A)True
B)False
Q3) Direct expenses, such as salaries, can be traced to a particular department.
A)True
B)False
Q4) Which of the following would be a direct expense?
A)Depreciation expense
B)Sales salaries
C)Building expense
D)Administrative expense
Q5) An example of a cost center is:
A)a Holiday Inn.
B)the restaurant in a motel.
C)the administrative department in a motel.
D)the catering department in a motel.
26
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Chapter 25: Manufacturing Accounting
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Q1) Journal entries crediting Payroll and debiting Work-in-Process Inventory are made for:
A)administrative salaries.
B)hourly manufacturing labor.
C)foremen's salaries.
D)raw materials.
Q2) Total manufacturing costs incurred include:
A)direct labor costs.
B)raw materials costs.
C)manufacturing overhead.
D)all of the above.
Q3) From the following transactions, prepare the appropriate general journal entries for the month of April.
a. Raw materials costing $60,000 were issued from the storeroom.
b. Direct labor of $53,000 was charged to production.
c. Indirect labor costs of $17,000 were incurred.
d. Overhead was applied at the rate of 40% of direct labor dollars.
e. Completed products costing $42,000 were transferred to finished goods.
f. Products costing $32,000 were sold.
Q4) Describe the three elements of manufacturing cost.
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