Introduction to Business Accounting Test Bank
Course Introduction
Introduction to Business Accounting provides students with the foundational concepts and principles of accounting as they relate to business operations. The course covers essential topics such as the accounting cycle, preparation and analysis of financial statements, basic bookkeeping, internal controls, and the ethical standards governing financial reporting. Students gain practical skills in recording and summarizing business transactions, understanding how financial information is used in decision-making, and interpreting key financial ratios to assess business performance. This course is ideal for those seeking a broad understanding of accounting's role in business and serves as a stepping stone for further study in the field.
Recommended Textbook
Cornerstones of Financial Accounting 3rd Edition by Jay Rich
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Chapter 1: Accounting and the Financial Statements
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Sample Questions
Q1) Which one of the following items is a classification on the Classified Balance Sheet?
A)operating accounts
B)stockholders' equity
C)revenues and expenses
D)net income and dividends
Answer: B
Q2) Refer to Bay Camera. What is the company's Net Income for the current year?
A)$22,500
B)$32,500
C)$42,500
D)$80,000
Answer: B
Q3) On a multiple-step income statement, operating income results from subtracting total operating expenses from which of the following amounts?
A)gross margin
B)cost of goods sold
C)income before taxes
D)net sales
Answer: A
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Page 3
Chapter 2: The Accounting Information System
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Sample Questions
Q1) The process of transferring amounts from the book of original entry into specific account records is referred to as
A)journalizing.
B)posting.
C)analyzing.
D)classifying.
Answer: B
Q2) Only events that can be measured with sufficient reliability will be recognized in the accounting system.
A)True
B)False Answer: True
Q3) Under the double-entry system of accounting, every transaction is entered in at least two accounts on opposite sides of a T-account.
A)True
B)False Answer: True
Q4) Prepaid Insurance Answer: A
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Chapter 3: Accrual Accounting
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Sample Questions
Q1) Which of the following situations violates the matching principle during 2013 for a real estate company that pays its agents on commission?
A)Sales commissions are charged to expense in 2013 on all sales made in 2013 even though some of the commissions have not been paid.
B)Insurance expense is recognized for the total cost of a 1-year policy purchased in July 2013.
C)Wages expense is recognized in 2013 even though payday is not until sometime in 2014.
D)Sales commissions paid in 2013 for 2014 commissions are recorded as prepaid expenses for 2013.
Answer: B
Q2) Cash
Answer: B
Q3) According to the revenue recognition principle, revenues are recognized when they are ____________________ and ____________________.
Answer: earned, collection reasonably assured collection reasonably assured, earned
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Page 5
Chapter 4: Internal Control and Cash
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Sample Questions
Q1) A Day Spa accepted a check from a customer as payment for services. Unfortunately, the customer's check bounced. The journal entry required on the company's books as a result of this bank reconciliation item will
A)decrease total assets.
B)decrease stockholders' equity.
C)Both a and
D)have no net impact on total assets.
Q2) Segregation of duties
Q3) Refer to Dance Town Academy. How will the interest earned on the checking account be handled on a bank reconciliation?
A)add to the balance from the company records
B)subtract from the balance from the company records
C)add to the bank statement balance
D)subtract from the bank statement balance
Q4) The process of ensuring that the company's accounting records are consistent with the bank's accounting records
Q5) Amounts on deposit with financial institutions and investments primarily held in money market accounts, with original maturities of less than 90 days
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Chapter 5: Sales and Receivables
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Sample Questions
Q1) Accounts receivable are shown on the balance sheet at their net realizable value.
A)True
B)False
Q2) Indicates that the earnings process is substantially complete.
Q3) Allatoona Landing reported net credit sales of $1,250,000 and cost of goods sold of $900,000 for 2013. Its beginning balance of Accounts Receivable was $175,000. The accounts receivable balance decreased by $25,000 during 2013. Rounded to two decimal places, what is the company's accounts receivable turnover rate for 2013?
A)7.14
B)7.69
C)8.33
D)11.03
Q4) Refer to Atlantis Tropicals. Assume that the net realizable value is $210,000 after the adjustment for bad debts in 2013. How much is the net realizable value of accounts receivable after a customer's account of $15,000 is written off? Explain why.
Q5) Refer to Aardvark Resale. Determine the balance of Accounts Receivable at December 31, 2013.
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Page 7
Chapter 6: Cost of Goods Sold and Inventory
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Sample Questions
Q1) Refer to the information provided for Satoor, Inc. Who is responsible for payment of the transportation costs on the merchandise sold?
A)seller
B)buyer
C)split equally between the two companies
D)Cannot be determined from the information provided.
Q2) Refer to the information provided for Aaron Corporation. Calculate net income.
A)$144,500
B)$70,500
C)$65,500
D)$58,000
Q3) During periods of stable purchase prices, FIFO produces the highest ending inventory relative to the other inventory costing methods.
A)True
B)False
Q4) When merchandise is sold FOB destination, the seller is responsible for the shipping costs.
A)True B)False
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Chapter 7: Operating Assets
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Sample Questions
Q1) When plant assets are purchased in a group, each asset is debited to the respective plant asset account for its fair market value at the time of acquisition.
A)True
B)False
Q2) A company purchased a patent for $100,000 at the beginning of 2013 which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in 2013?
A)$0
B)$5,000
C)$20,000
D)$100,000
Q3) A company should choose a depreciation method that A)best allocates the original cost of the asset to the periods benefited by the use of the asset.
B)saves the most taxes.
C)minimizes net income
D)shows the highest amount of net income.
Q4) Cost less residual value
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Chapter 8: Current and Contingent Liabilities
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Sample Questions
Q1) Liabilities created by adjusting entries
Q2) Fringe benefits
Q3) When a company uses past experience to estimate the amount of likely warranty claims in the future, a current liability account must be created.
A)True
B)False
Q4) Every month, Glacier Distributors orders shipping supplies from a particular vendor. On February 13, 2013, the company orders supplies amounting to $21,000 on account, payable on March 15, 2013. Due to an unexpected decline in business, the company is unable to pay its vendor on March 15th, and so asked for a payment extension. The vendor granted the extension but requires the company to sign a note that specifies 7.5% interest beginning March 15, 2013, with a due date of July 15, 2013. The company pays the amount in full on July 15, 2013.
Prepare the necessary journal entries for Glacier Distributors on February 13th, March 15th, and July 15th.
Q5) (Cash + Marketable Securities + Accounts Receivable)/ Current Liabilities
Q6) An accrued liability that represents the cost of borrowing.
Q7) The current ratio is computed by dividing current assets by
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Chapter 9: Long-Term Liabilities
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Sample Questions
Q1) When evaluating a company's solvency, an investor's major concern is whether all debt has been properly recorded.
A)True
B)False
Q2) Debt that does not have collateral and is thus unsecured.
Q3) The two promises made by a bond issuer to the purchaser of the bond are to pay periodic interest and to ___________________.
Q4) Liabilities that do not mature within one year.
Q5) An advantage of financing with debt rather than stock is that interest expense is ____________________ for tax purposes.
Q6) Bonds are issued at a ____________________ when the issue price exceeds the face value.
Q7) The Premium on Bonds Payable account is shown on the balance sheet as A)a contra asset.
B)a reduction of an expense.
C)a separate valuation account that increases the bond liability to market value at the issue date
D)a subtraction from a long-term liability.
Q8) Occurs when a bond is issued for an amount that is less than the principal.
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Chapter 10: Stockholders Equity
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Sample Questions
Q1) Which of the following statements is true regarding a corporation's purchase of treasury stock?
A)The cost of treasury stock is a reduction in stockholders' equity.
B)Dividends must still be paid on treasury stock because it is still issued.
C)Treasury stock is reported as an asset because it is considered an investment in the corporation's own stock.
D)Treasury stock is no longer considered issued once it is back in the hands of the issuer.
Q2) When a corporation issued stock to stockholders, explain the use of the account for paid-in capital in excess of par value.
Q3) Distinguish between stock warrants and stock options.
Q4) Refer to Labor Finders, Inc. The company's 2015 stock repurchase payout ratio is reported as
A)6.67%.
B)77.19%.
C)28.00%.
D)66.67%.
Q5) A measure of the proportion of dividends to earnings.
Q6) Compare and contrast stock dividends and stock splits.
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Chapter 11: The Statement of Cash Flows
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Sample Questions
Q1) Paid the cash dividends.
Q2) Sold common stock for cash.
Q3) Include cash received from the sale of property, plant, and equipment and cash paid to purchase equity securities.
Q4) ____________________ activities involve long-term liabilities and stockholders' equity.
Q5) A(n)____________________ occurs when the cash received from selling an item of property, plant, and equipment is greater than the book value of the asset sold. It is also shown in the operating activities section of the statement of cash flows prepared using the indirect method.
Q6) Provides several pieces of information needed to prepare the cash flow statement.
Q7) Which balance sheet accounts are most affected by operating activities?
A)Current assets and current liabilities.
B)Long-term assets.
C)Long-term liabilities.
D)Stockholders' equity.
Q8) Issued long term mortgage to acquire land and a building.
Q9) Recognized a gain on the sale of securities.
Page 13
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Chapter 12: Financial Statement Analysis
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Sample Questions
Q1) The gross profit percentage decreased from 36.5% in 2014 to 24.8% in 2015. What is the trend in this change?
A)This increase represents an upward, or favorable, trend.
B)This increase represents a downward, or negative, trend.
C)The answer depends upon whether net sales increased or decreased during the period.
D)The trend cannot be determined unless the dollar amount of the change is also know.
Q2) Trend analysis is another name for ____________________ analysis.
Q3) Total liabilities
Q4) Refer to Red Oak Manufacturing. The total leverage per the DuPont analysis computation is
A)2.30.
B)2.64.
C)12.40.
D)15.20.
Q5) Measures the proportion of each sales dollar that is profit.
Q6) Various financial ratios, including payout ratios, are categorized as ____________________ ratios.
Q7) Measure of a company's success in earning a return for the common stockholders.
Page 14
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Chapter 13: Investments
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Sample Questions
Q1) Debt investments that management intends to hold until the debt contract requires the borrower to repay the debt in its entirety
Q2) Which method of accounting for investments recognizes income when income is earned by the investee?
A)fair value method
B)amortized cost method
C)trading method
D)equity method
Q3) If the investor holds 50% or more of the common stock of the investee, then the two corporations are no longer separate accounting entities and therefore must prepare ____________________ financial statements, which combine information about the two corporations as if they were a single company.
Q4) If the investor holds 50% or more of the investee's outstanding common stock, then the investor is referred to as the parent and the investee is called the subsidiary.
A)True
B)False
Q5) Represents an ownership interest in a corporation, usually common stock
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Chapter 14: Time Value of Money
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Sample Questions
Q1) Marvin's Manufacturing can invest in a new process, but will need to purchase new equipment. The cost of the equipment is $75,000 and needs to be in place in 8 years. The company invests the money at 8% interest compounded semiannually. How much will they need to invest in order to have $75,000 in 8 years?
Q2) Jay has made a deal with his daughter to start a car fund for when she graduates college in 6 years. He has found an investment that will yield an interest rate of 8% per year. If he wants to have $25,000 to spend on the car for his daughter, how much must he initially invest?
A)$15,754.28
B)$16,113.45
C)$13,772.55
D)$14,038.95
Q3) Cash flows are described as either single cash flows or _______________.
Q4) Harlan Fuller needs $2,000 in 7 years. What amount must he invest in a 6% savings bond?
A)$1,425.98
B)$1,330.12
C)$9,533.08
D)$8,200.40
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