Introduction to Business Chapter Exam Questions
Course Introduction
Introduction to Business offers a foundational overview of the world of business, exploring key concepts such as management, marketing, finance, operations, entrepreneurship, and the global business environment. This course is designed to familiarize students with the roles businesses play in the economy, the different forms of business ownership, and the ethical and social responsibilities of organizations. Through case studies, real-world examples, and interactive activities, students will gain valuable insights into how businesses operate, grow, and adapt to changing markets. It serves as a stepping stone for further study in business and prepares students with practical knowledge for personal and professional success.
Recommended Textbook
Horngren's Accounting 11th Edition by Tracie L. Miller Nobles
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Chapter 1: Accounting and the Business Environment
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Sample Questions
Q1) Accountants assume that the dollar's purchasing power is stable.
A)True
B)False
Answer: True
Q2) Which of the following appears on both the statement of owner's equity and the balance sheet?
A)Ending capital account
B)Total assets
C)Total revenues
D)Net income
Answer: A
Q3) Myers Landscaping Company performs lawn mowing services for its customers.Payments for the current month's services are expected to be received next month.How does this transaction affect the accounting equation of Myers Landscaping?
A)liabilities increase and equity decreases
B)assets and equity increase
C)assets and equity decrease
D)liabilities and equity increase
Answer: B
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Chapter 2: Recording Business Transactions
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Sample Questions
Q1) The Owner's Capital account is a separate account in the ________ category of the accounting equation.
A)equity
B)asset
C)liability
D)revenue
Answer: A
Q2) The normal balance of an account is the increase side of the account.
A)True
B)False Answer: True
Q3) When a business records an accrued utility liability,the Utilities Expense account is credited.
A)True
B)False Answer: False
Q4) A business paid salaries of $6,000 in cash.Record the transaction in the journal. Answer: 11ea8a42_4ef0_cd4a_8b44_8bea5956d5d5_TB5024_00
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Chapter 3: The Adjusting Process
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Q1) The Family Dental Company prepays the rent on its dental office.On July 1,the corporation paid $18,000 for 6 months of rent.How much Rent Expense should Family Dental Company record the three months ended September 30 under the cash basis? Why?
Answer: Family Dental should report Rent Expense of $18,000 because expenses are recorded when cash is paid.
Q2) The expected value of a depreciable asset at the end of its useful life is called
A)book value
B)residual value
C)accrued revenue
D)accrued expense
Answer: B
Q3) If a company fails to make an adjusting entry for deferred expense,the assets will be overstated.Assume the deferred expense is initially recorded as an asset.
A)True
B)False
Answer: True
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Chapter 4: Completing the Accounting Cycle
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Q1) In which of the columns of a worksheet would a net loss be found?
A)in the balance sheet credit column and the income statement debit column
B)in the balance sheet debit column and the income statement credit column
C)in the unadjusted trial balance credit column,the adjusted trial balance credit column,and the balance sheet credit column
D)in the unadjusted trial balance debit column,the adjusted trial balance debit column,and the balance sheet debit column
Q2) Generally Accepted Accounting Principles (GAAP)require every organization to prepare reversing entries.
A)True
B)False
Q3) An income statement includes ________.
A)Land and Salaries Payable
B)Owner's Capital and Owner's Withdrawals
C)Furniture and Cash
D)Service Revenue and Utilities Expense
Q4) The adjusting process zeroes out all revenue accounts and all expense accounts.
A)True
B)False
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Chapter 5: Merchandising Operations
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Q1) Net sales revenue is equal to sales revenue less cost of goods sold.
A)True
B)False
Q2) Journalize the following transactions for a merchandiser that uses the perpetual inventory system.
On January 8,inventory was sold for $6,000 on account.Credit terms were 3/15,n/30 (cost $4,500).On January 17,cash was received in full settlement of the January 8 sale.
Q3) Gross profit represents the mark-up on ________.
A)sales revenue
B)merchandise inventory
C)operating expenses
D)transportation cost
Q4) G-mart,a small-scale grocer,wants to introduce an inventory system to track its inventory.G-mart does not currently use optical scanning registers and computer systems.The perpetual inventory system is most suitable for its operations.
A)True
B)False
Q5) What does the gross profit percentage measure? How is it computed?
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Chapter 6: Merchandise Inventory
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Q1) A company purchased 80 units for $20 each on January 31.It purchased 190 units for $25 each on February 28.It sold 190 units for $80 each from March 1 through December 31.If the company uses the first-in,first-out inventory costing method,what is the amount of Cost of Goods Sold on the income statement for the year ending December 31? (Assume that the company uses a perpetual inventory system. )
A)$1,600
B)$4,750
C)$4,350
D)$6,350
Q2) An overstatement of ending merchandise inventory in the current period results in an understatement of net income in the current period.
A)True
B)False
Q3) A company is uncertain whether a complex transaction should result in an asset being recorded at $100,000 or at $150,000.Under the conservatism principle,it should choose to show it at $100,000.
A)True
B)False
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Chapter 7: Accounting Information Systems
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Sample Questions
Q1) Because of the risk of fraud,electronic invoices and electronic receiving reports are seldom used in accounting information systems.
A)True
B)False
Q2) Blue Company has four customers: A,B,C,and D.The accounts receivable balance in the general ledger is $9,383 and the accounts receivable subsidiary ledger of customers A,C,and D have $1,546,$2,696,and $3,440,respectively.Calculate the amount in the accounts receivable subsidiary ledger account of customer B.
A)$7,682
B)$3,247
C)$2,391
D)$1,701
Q3) Entries in the sales journal are posted to both the accounts receivable subsidiary ledger and the general ledger.
A)True
B)False
Q4) The sales journal is used for all sales of merchandise inventory.
A)True
B)False
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Chapter 8: Internal Control and Cash
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Sample Questions
Q1) The petty cash fund has a current balance of $200.Based on activity in the fund,it is determined that the balance needs to be changed to $400.Which journal entry is needed to make this change?
A)Debit the Petty Cash account and credit the Cash account for $400.
B)No journal entry is needed because this change only involves cash.
C)Debit the Petty Cash account and credit the Cash account for $200.
D)Debit the Cash account and credit the Petty Cash account for $200.
Q2) Which of the following is an attribute of the internal control procedure-assignment of responsibilities?
A)To validate their accounting records,a company should have an audit by an external accountant.
B)The company should separate the custody of assets from accounting.
C)The external auditors will monitor internal controls.
D)Each position has clearly assigned responsibilities.
Q3) The journal entry to replenish a petty cash fund includes a debit to the Petty Cash account and a credit to the Expense account.
A)True
B)False
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Chapter 9: Receivables
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Sample Questions
Q1) The Allowance for Bad Debts is a contra account to Accounts Receivable.
A)True
B)False
Q2) What is the maturity value of a 3-month,13% note for $50,000? (Round any intermediate calculations to two decimal places,and your final answer to the nearest dollar. )
A)$52,000
B)$56,500
C)$51,625
D)$50,000
Q3) On January 16,Whole Circle,Inc.sold $5,000 merchandise to Smith,on account.Whole Circle could not collect cash from Smith and wrote off the account.Prepare a journal entry to record the write-off,assuming Whole Circle uses the allowance method.
Q4) When using the allowance method,the receipt of a payment on receivables that have been written-off requires an entry to reverse the write-off to the Allowance for Bad Debts account and an entry to record the receipt of cash.
A)True
B)False
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Chapter 10: Plant Assets, natural Resources, and Intangibles
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Sample Questions
Q1) The use of MACRS is acceptable for financial reporting under GAAP.
A)True
B)False
Q2) Which of the following costs related to a business car would be capitalized?
A)the cost to install an engine with higher horsepower
B)the cost to change the oil
C)the cost to replace a broken windshield
D)the cost of new tires
Q3) Exchanges of plant assets that have commercial substance require any gain or loss on the transaction to be recognized.
A)True
B)False
Q4) If a company uses the contra account,Accumulated Amortization,this account is typically shown on the balance sheet.
A)True
B)False
Q5) The double-declining-balance method is an accelerated method of depreciation. A)True
B)False
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Chapter 11: Current Liabilities and Payroll
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Q1) On April 1,2017,Planet Services received $14,200 in advance of performing the services from a customer for three months of service - April,May and June.What would be the journal entry to adjust the accounts at the end of May? (Do not round any intermediate calculations,and round your final answer to the nearest dollar. )
A)Debit Service Revenue $4,733,and credit Unearned Revenue $4,733.
B)Debit Unearned Revenue $9,467,and credit Service Revenue $9,467.
C)Debit Unearned Revenue $14,200,and credit Service Revenue $14,200.
D)Debit Service Revenue $9,467,and credit Accounts Receivable $9,467.
Q2) When a company co-signs a note payable for another entity,a current liability must be recorded.
A)True
B)False
Q3) Statewide Sales,Inc.has gross pay for March of $45,000.Which of the following is included in the journal entry to record salaries expense?
A)credit Salaries and Wages Expense
B)debit Cash
C)debit Salaries and Wages Payable
D)debit Salaries and Wages Expense
Q4) What is a contingent liability? Provide two examples of contingencies.
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Chapter 12: Partnerships
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Q1) A(n)________ must carry large insurance policies to protect the public in case the partnership is found guilty of malpractice.
A)general partnership
B)S Corporation
C)limited liability partnership
D)C Corporation
Q2) When a partner withdraws his or her interest in the partnership,both assets and equity will decrease.
A)True
B)False
Q3) Which of the following is true of the assets of a partnership?
A)The partner who is more actively involved in the daily business affairs is considered to be the sole owner of the partnership's assets.
B)Any new assets purchased by the partnership are jointly owned by each partner.
C)When a partner contributes a particular asset to the firm,he is considered to be the sole owner of the asset.
D)In case of liquidation of assets,the partners must be paid based on the profit sharing ratio of the partnership.
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Chapter 13: Corporations
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Q1) Treasury stock is recorded at cost,without reference to par value.
A)True
B)False
Q2) A stock split can involve issuing more shares of stock than authorized in the corporate charter.
A)True
B)False
Q3) Which of the following is included in the entry to record the issuance of 5,000 shares of $8 par value common stock at $22 per share cash?
A)Cash is debited for $110,000.
B)Common Stock is debited for $40,000.
C)Common Stock is credited for $110,000.
D)Paid-In Capital in Excess of Par-Common is debited for $70,000.
Q4) Preferred Stock is included in the long-term asset section of the balance sheet.
A)True
B)False
Q5) On November 1,2017,Roosevelt,Inc.declared a dividend of $3.00 per share.Roosevelt,Inc.has 20,000 shares of common stock outstanding and no preferred stock.Prepare the journal entry to record this transaction.
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Chapter 14: Long-Term Liabilities
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Q1) On March 1,2016,Vantage Services issued a 9% long-term notes payable for $30,000.It is payable over a 14-year term in $2,143 principal installments on March 1 of each year,beginning March 1,2017.Each yearly installment will include both principal repayment of $2,143 and interest payment for the preceding one-year period.The journal entry to pay the first installment will include a debit to Interest Expense for $2,700.
A)True
B)False
Q2) The interest rate that investors demand to earn for loaning their money is known as the ________.
A)yield to maturity
B)coupon rate
C)differential rate
D)market interest rate
Q3) Using the effective-interest amortization method,the amount of premium amortization remains the same over the life of the bond.
A)True
B)False
Q4) What is the difference between simple interest and compound interest?
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Chapter 15: Investments
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Q1) Debt securities do not include U.S.government securities.
A)True
B)False
Q2) A parent company is a company that ________.
A)is controlled by another corporation
B)owns a controlling interest in another company
C)is the first to begin operations in an industry
D)has a trading investment in another company
Q3) Companies invest in trading investments with the intent of ________.
A)increasing the amount of long-term assets
B)gaining the controlling rights of the investee
C)holding the investment until maturity
D)generating a profit on a quick sale
Q4) When there is an unrealized loss on trading investments,the ________ will decrease.
A)total equity
B)cash
C)total liabilities
D)long-term investments
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Chapter 16: The Statement of Cash Flows
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Q1) The only part that differs in a statement of cash flows prepared by the direct method from one prepared by the indirect method is the ________.
A)financing activities section
B)investing activities section
C)operating activities section
D)non-cash investing and financing activities section
Q2) Rubin Installations Company uses the direct method to prepare its statement of cash flows.Rubin has reported cost of goods sold of $95,000 on its income statement for 2017.If the balance in the Merchandise Inventory account decreased by $6,000 during the year,then $6,000 needs to be added to $95,000 to calculate payments to suppliers for inventory purchases.
A)True
B)False
Q3) The financing activities section of the statement of cash flows includes activities that affect current assets and current liabilities.
A)True
B)False
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Chapter 17: Financial Statement Analysis
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Q1) There are three main ways to analyze financial statements.Which of the following does not represent one of these ways of analyzing financial statements?
A)horizontal analysis
B)ratio analysis
C)financial statement analysis
D)vertical analysis
Q2) Horizontal analysis is the study of percentage changes in comparative financial statements.
A)True
B)False
Q3) Which of the following is used to see how a company's operating expenses,as a percentage of net sales,have changed from one year to the next?
A)vertical analysis
B)horizontal analysis
C)ratio analysis
D)analysis of internal control system
Q4) The disposal of a business segment is reported as discontinued operations.
A)True
B)False
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Chapter 18: Introduction to Managerial Accounting
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Q1) In a manufacturing plant,indirect materials costs such as lubricants and cleaning fluids are product costs.
A)True
B)False
Q2) The IMA Standards of Ethical Practice include confidentiality,competence,credibility,and integrity.
A)True
B)False
Q3) Indirect materials costs are included in manufacturing overhead.
A)True
B)False
Q4) For decision-making purposes,________ costs are often divided into prime costs and conversion costs.
A)fixed costs
B)product costs
C)period costs
D)sunk costs
Q5) In manufacturing,the cost objects are often units of product.
A)True
B)False
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Chapter 19: Job Order Costing
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Q1) For a service company,such as an accounting firm,each client is considered a job.
A)True
B)False
Q2) The journal entry to record $1,600 of direct labor and $250 of indirect labor incurred will include debit(s)to the ________.
A)Manufacturing Overhead account for $1,850
B)Work-in-Process Inventory account for $1,600 and Finished Goods Inventory account for $250
C)Finished Goods Inventory account for $1,850
D)Work-in-Process Inventory account for $1,600 and Manufacturing Overhead account for $250
Q3) The cost of goods manufactured is recorded with a debit to the Finished Goods Inventory account and a credit to the Work-in-Process Inventory account. A)True
B)False
Q4) What causes manufacturing overhead to be underallocated? When manufacturing overhead is underallocated,will the Manufacturing Overhead account have a debit or a credit balance?
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Chapter 20: Process Costing
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Q1) The costs that are transferred out from one process to another process become transferred in costs for the receiving process.
A)True
B)False
Q2) Costs assigned to goods sold are transferred to the Cost of Goods Sold account from the ________.
A)Finished Goods Inventory account
B)Work-in-Process Inventory account
C)Raw Materials Inventory account
D)Sales Revenue account
Q3) A production cost report helps managers identify the costs that can be reduced in the production process.
A)True
B)False
Q4) Cost amounts that are transferred out of one department become the transferred in cost for the next department.
A)True
B)False
Q5) Why are extra journal entries required in a process costing system?
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Chapter 21: Cost-Volume-Profit Analysis
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Q1) Which of the following is considered a period cost under variable costing but not under absorption costing?
A)fixed selling and administrative costs
B)variable manufacturing costs
C)fixed manufacturing overhead
D)variable selling and administrative costs
Q2) Birch Company sells two products,X and Y.For the coming year,Birch predicts the sale of 6,000 units of X and 12,000 units of Y.The contribution margins of the two products are $6 and $4,respectively.The weighted-average contribution margin would be $5.00.
A)True
B)False
Q3) When there is no beginning Finished Goods Inventory and all the goods that are produced are sold,the operating income ________.
A)will be higher under absorption costing than variable costing
B)will be lower under absorption costing than variable costing
C)will be higher than the gross profit under variable costing
D)will be the same for both absorption costing and variable costing
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Chapter 22: Master Budgets
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Q1) Regarding the sales budget,which of the following statements is incorrect?
A)The forecast of sales revenue is the cornerstone of the master budget.
B)The level of sales affects expenses and almost all other elements of the master budget.
C)The budgeted sales are carried from the sales budget to the balance sheet.
D)Budgeted total sales for each product equal the sales price multiplied by the expected number of units sold.
Q2) Sensitivity analysis is a what-if technique.
A)True
B)False
Q3) Define sensitivity analysis.Why do managers conduct sensitivity analysis during the budget process?
Q4) The inventory costing method affects the process of preparing the cost of goods sold budget.
A)True
B)False
Q5) List the three sections of the cash budget.
Q6) The budgeted income statement shows operating income and net income.
A)True
B)False
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Chapter 23: Flexible Budgets and Standard Cost Systems
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Q1) Favorable variances are contra expenses and therefore decrease Cost of Goods Sold.
A)True
B)False
Q2) A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing wastage of valuable direct materials.The production manager decided to purchase a higher grade of materials that would be more reliable,but he was worried that the cost of the new materials might negatively affect operating income.This would produce a(n)________.
A)unfavorable direct materials cost variance
B)favorable direct labor cost variance
C)favorable direct labor efficiency variance
D)unfavorable direct materials efficiency variance
Q3) When recording direct materials usage,what does an unfavorable direct materials efficiency variance represent? Will this variance have a debit or credit balance?
Q4) What does the fixed overhead volume variance measure?
Q5) What does the variable overhead efficiency variance measure?
Q6) List the direct materials variances,and briefly describe each.
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Chapter 24: Cost Allocation and Responsibility Accounting
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Q1) In a ________,the manager is responsible for generating revenues and controlling costs.
A)cost center
B)profit center
C)revenue center
D)transfer pricing center
Q2) Companies with diverse products can obtain better costing information using multiple departmental rates rather than using activity-based costing.
A)True
B)False
Q3) Operating income alone does not indicate how efficiently a segment is using its assets.
A)True
B)False
Q4) The balanced scorecard is a performance evaluation system that requires management to consider financial measures of performance,but not nonfinancial measures.
A)True
B)False
Q5) List two objectives in setting transfer prices.
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Chapter 25: Short-Term Business Decisions
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Q1) Differential analysis is a method that looks at how operating income would differ under each budget scenario.
A)True B)False
Q2) Haskins Products sells 2,200 kayaks per year at a sales price of $500 per unit.Haskins sells in a highly competitive market and uses target pricing.The company has calculated its target full product cost at $750,000 per year.Total variable costs are $250,000 per year and cannot be reduced.Assume all products produced are sold.What are the target fixed costs?
A)$1,100,000
B)$350,000
C)$250,000
D)$500,000
Q3) List three questions managers should consider when deciding whether to drop a product or a business segment.
Q4) Differential analysis is a common approach to making long-term business decisions.
A)True B)False
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Chapter 26: Capital Investment Decisions
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Q1) When the internal rate of return is the same as the required rate of return,the net present value of an investment will be positive.
A)True
B)False
Q2) Which of the following is the rate of return,based on discounted cash flows,a company can expect to earn by investing in a capital asset?
A)accounting rate of return
B)bank interest rate
C)internal rate of return
D)return on investment
Q3) When comparing several investments with the same initial cost,the decision should be made on the basis of the ________.
A)highest total cash inflows
B)longest payback period
C)highest NPV
D)highest ARR
Q4) List two strengths and one weakness of the accounting rate of return capital budgeting method.
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