Small Business Accounting
Final Test Solutions
Course Introduction
Small Business Accounting provides students with a comprehensive understanding of the foundational accounting principles and practices essential for managing the finances of small enterprises. The course covers key topics such as bookkeeping, preparation and analysis of financial statements, budgeting, payroll, tax obligations, and internal controls tailored to the needs of small businesses. Emphasis is placed on the use of accounting software and technology to streamline accounting processes and ensure compliance with regulatory requirements. Students will develop the practical skills necessary to record transactions, monitor cash flow, make informed financial decisions, and support the growth and sustainability of small businesses.
Recommended Textbook
College Accounting A Practical Approach 12th Edition by Jeffrey Slater
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25 Chapters
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Chapter 1: Accounting Concepts and Procedures
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Sample Questions
Q1) The type of business organization that can continue indefinitely is known as a:
A)sole proprietorship.
B)partnership.
C)corporation.
D)None of the above
Answer: C
Q2) A purchase of a vehicle for cash would have what affect on the accounting equation?
A)Total asset amount remains the same.
B)Total liabilities are overstated.
C)Total owner's equity is overstated.
D)Both A and B are correct.
Answer: A
Q3) The payment of accounts payable would:
A)increase both assets and liabilities.
B)increase assets and decrease liabilities.
C)decrease both assets and liabilities.
D)decrease assets and increase liabilities.
Answer: C
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Page 3
Chapter 2: Debits and Credits: Analyzing and Recording
Business Transactions
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Sample Questions
Q1) The Accounts Receivable account is increased by a debit.
A)True
B)False
Answer: True
Q2) A debit to an expense account was posted to a revenue account.This error would cause:
A)assets to be overstated.
B)liabilities to be overstated.
C)revenue to be understated.
D)None of the above are correct.
Answer: C
Q3) An account is said to have a debit balance if:
A)the footing of the debits exceeds the footing of the credits.
B)there are more entries on the debit side than on the credit side.
C)its normal balance is debit without regard to the amounts or number of entries on the debit side.
D)the last entry of the accounting period was posted on the debit side.
Answer: A
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Chapter 3: Beginning the Accounting Cycle
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Sample Questions
Q1) A debit to a liability account was posted to an expense account.This would cause:
A)assets to be overstated.
B)liabilities to be understated.
C)owner's equity to be overstated.
D)expenses to be overstated.
Answer: D
Q2) Revenue is traditionally recognized in the accounting records when:
A)cash is received.
B)services are rendered.
C)it is incurred.
D)None of the answers are correct.
Answer: B
Q3) If Cash has been debited,it is likely that:
A)the owner made an investment.
B)a charge customer made a payment.
C)the business borrowed cash from the bank.
D)All of these are possible.
Answer: D
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5
Chapter 4: The Accounting Cycle Continued
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Sample Questions
Q1) Depreciation of equipment was recorded twice this period.This would:
A)overstate expenses and overstate assets.
B)overstate expenses and understate assets.
C)understate expenses and overstate assets.
D)understate expenses and understate assets.
Q2) Depreciation Expense is debited when recording the depreciation for the period.
A)True B)False
Q3) What is the purpose of adjusting entries? Discuss the effect of not preparing adjusting entries on various accounts.
Q4) After the adjustment for depreciation has been made,the original cost of the equipment:
A)increases with a credit.
B)decreases with a debit.
C)remains the same.
D)None of these answers are correct.
Q5) Revenue is recorded when earned,and expenses are recorded only when paid. A)True B)False
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Chapter 5: The Accounting Cycle Completed
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Sample Questions
Q1) When revenue is closed:
A)Owner's Capital will be debited.
B)Income Summary will be debited.
C)Income Summary will be credited.
D)None of these are correct.
Q2) A real account is the same as a permanent account.
A)True
B)False
Q3) Determine the ending owner's equity of a business having a beginning owner's equity of $4,200,withdrawals of $1,500,and after closing the revenues and expenses Income Summary has a credit balance of $4,750.
$ ________
Q4) When the balance in the Income Summary account is a debit,the company has:
A)incurred a net loss.
B)incurred a net income.
C)had more revenue than expenses.
D)made an error in their closing entries.
Q5) Why will the Income Summary account never appear on a financial statement?
Q6) What are the major goals of the closing process?
Page 7
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Chapter 6: Banking Procedure and Control of Cash
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Sample Questions
Q1) \[\begin{array} { | l | l | l | l | l | }
\hline & \text { Column } 1 & \text { Column 2 } & \text { Column 3 } & \text { Column } 4 \\
\hline \text { Misc. Expense } & & & & \\
\hline
\end{array}\]
Q2) The Petty Cash account is used to pay for small items such as postage stamps and supplies.
A)True
B)False
Q3) Determine the cash short (-)or over (+)given the following: The balance per the petty cash account $100
The count of coin and currency amounts to $20
There are receipts: for telephone costs of $25,for supplies of $6,for transportation $6,for funeral flowers $38
$ ________
Q4) The normal balance of the Petty Cash account is a credit.
A)True
B)False
Q5) ________ Bought Supplies on account
Page 8
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Chapter 7: Calculating Pay and Payroll Taxes: The
Beginning of the Payroll Process
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Sample Questions
Q1) \[\begin{array} { | l | l | l | }
\hline & \text { Employer } & \text { Employee } \\
\hline \text { State income tax } & & \\ \hline \end{array}\]
Q2) A pay period is defined as: A)weekly.
B)bi-weekly.
C)monthly.
D)All of the above are correct.
Q3) An employee earns $32 per hour.She worked 55 hours the third week of January. Calculate the gross pay.
The business is involved in interstate commerce.
Federal Income Tax rate = 20%
State Income Tax rate = 5%
FICA rate OASDI = 6.2% and Medicare = 1.45%
FUTA rate = .8%
SUTA rate = 5.6%
$ ________
Q4) Explain what is meant by the cumulative gross earnings.
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Chapter 8: Paying,recording,and Reporting Payroll and Payroll Taxes: The Conclusion of the Payroll Process
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Sample Questions
Q1) An employer must always use a calendar year for payroll purposes.
A)True
B)False
Q2) Compute the total deductions.________
Q3) The balance in the Wages and Salaries Expense account is equal to net pay.
A)True
B)False
Q4) Compute the employees' FICA-Medicare.________
Q5) Which form contains information about gross earnings and is given to the employee by January 31?
A)Form W-2
B)Form W-3
C)Form SS-4
D)Form W-4B
Q6) The individual employee earnings for all employees in a company are summarized on the W-3 form.
A)True
B)False
Q7) Compute the total deductions.________
Q8) Compute the net pay.________
10
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Chapter 9: Sales and Cash Receipts
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Sample Questions
Q1) The document indicating to the customer that the seller is reducing the amount owed by the customer is:
A)credit memorandum.
B)sales discount.
C)sales returns and allowances.
D)schedule of accounts receivable.
Q2) Determine the amount to be paid within the discount period for a previous sale with an invoice price of $10,000,subject to credit terms of 1/10,n/30.
$ ________
Q3) Determine the amount of cash collected on a credit sale in the amount of $4,500,subject to a 6% sales tax when $500 worth of merchandise has already been returned for credit.
$ ________
Q4) Sales discounts are not taken on which of the following?
A)Sales Tax
B)Freight
C)Merchandise returned
D)Sales Discounts are not taken on any of the above.
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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Sample Questions
Q1) Purchases is a(n):
A)cost.
B)asset.
C)liability.
D)revenue.
Q2) Returned merchandise paid for within the discount period for a Cash refund.This will be recorded with:
A)a credit to a liability.
B)a credit to an asset.
C)a debit to a liability.
D)a debit to an asset.
Q3) The accounts payable subsidiary ledger:
A)lists accounts alphabetically.
B)lists accounts for which the company owes money.
C)has a controlling account in the general ledger.
D)All of the above are correct.
Q4) Explain the difference between F.O.B.shipping point and F.O.B.destination.
Q5) If a debit memorandum is issued,the buyer will reduce their accounts receivable.
A)True
B)False
13
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Chapter 11: Preparing a Worksheet for a Merchandise Company
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Sample Questions
Q1) \(\begin{array} { | l | l | l | l | }
\hline & \text { Column } 1 & \text { Column } 2 & \text { Column } 3 \\
\hline \text { Purchases } & & & \\
\hline \end{array}\)
Q2) What financial statement shows the amount for Freight-In?
A)Balance Sheet
B)Statement of Owner's Equity
C)Income Statement
D)Trial balance
Q3) Adjustments are journalized before recording them in the worksheet.
A)True
B)False
Q4) The income statement columns on a worksheet have subtotals as follows: debit column,$10,500,and credit column,$9,000.This indicates that:
A)the company incurred a net loss of $1,500.
B)the company earned a net income of $500.
C)there was an error in the adjustments columns.
D)there was an error in the income statement columns.
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Q5) Discuss the reasons a company would consider using a periodic inventory system.
Chapter 12: Completion of the Accounting Cycle for a Merchandise Company
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Sample Questions
Q1) Land is listed first under Plant,Property and Equipment. A)True
B)False
Q2) \(\begin{array} { | l | l | l | l | l | }
\hline & \text { Column 1 } & \text { Column 2 } & \text { Column 3 } & \text { Column 4 } \\
\hline \text { Purchases } & & & & \\ \hline \end{array}\)
Q3) The post-closing trial balance would include Sales and Purchases.
A)True
B)False
Q4) In which section does Interest Revenue appear in the Income Statement?
A)Other Income
B)Other Expense
C)Selling Expenses
D)Administrative Expenses
Q5) Reversing entries are recorded on the first day of the new accounting period. A)True
B)False
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Chapter 13: Accounting for Bad Debts
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Sample Questions
Q1) Bad Debts Expense is recorded in the year the sale was earned when using the income statement allowance approach.
A)True
B)False
Q2) Wrote off an account using the allowance method.
Debit account ________ Credit account ________
Q3) Which of the following situations would more likely not result in bad debts?
A)The company extends credit easily.
B)The company has a strict credit policy.
C)The company has a cash only policy.
D)None of these answers are correct.
Q4) The Allowance for Doubtful Accounts is listed on the balance sheet under the caption:
A)owner's equity.
B)current liabilities.
C)current assets.
D)fixed assets.
Q5) The normal balance of the Bad Debts Expense account is a debit.
A)True
B)False
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Chapter 14: Notes Receivable and Notes Payable
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Sample Questions
Q1) \(\begin{array} { | l | l | l | l | l | }
\hline & \text { Column 1 } & \text { Column 2 } & \text { Column 3 } & \text { Column } 4 \\
\hline \text { Interest expense } & & & & \\
\hline \end{array}\)
Q2) If a company does not pay its note payable on the agreed upon date,the note: A)is renewed automatically for the same period of time.
B)is discounted at a higher rate of interest.
C)is dishonored by the vendor.
D)is automatically placed in collection with an outside agency.
Q3) The proper entry to make when a note is paid on the maturity date depends on whether the note is an interest-bearing or non-interest-bearing note.
A)True
B)False
Q4) A promissory note received in granting a time extension to a charge customer.
Debit ________ & ________ Credit ________ & ________
Q5) Sold merchandise on account.
Debit ________ & ________ Credit ________ & ________
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Chapter 15: Accounting for Merchandise Inventory
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Sample Questions
Q1) A customer returned merchandise that had been paid for within a discount period for credit.The entry was recorded with a debit to Sales Returns and Allowances and a credit to Accounts Receivable for the net amount.This error would cause:
A)the period end assets to be understated.
B)the period end liabilities to be understated.
C)the period's net income to be understated.
D)None of these are correct.
Q2) Office Supplies bought on account were returned for credit and recorded with a debit to Accounts Payable and a credit to Merchandise Inventory.This error would cause:
A)the period end Cost of Goods Sold to be understated.
B)the period end Cost of Goods Sold to be overstated.
C)the period's net income to be understated.
D)None of these are correct.
Q3) Items that are very similar,such as canned goods in a grocery store would be costed using the ________ system of inventory valuation.
Q4) LIFO reflects most recent costs for inventory on the balance sheet.
A)True
B)False
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Page 18
Chapter 16: Accounting for Property, plant, equipment, and Intangible Assets
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Sample Questions
Q1) A company purchased new computer equipment from a local vendor.An employee offered to pick up the equipment and received a speeding ticket on his way back to the office.The cost of the speeding ticket should be charged to the cost of the equipment.
A)True
B)False
Q2) The Cutcut Mower Service owned a truck with an original cost of $70,000 on which there is accumulated depreciation of $60,000.The truck is exchanged for a new truck priced at $100,000 with a trade-in allowance of $16,000 and the balance in cash.
a.The book value of the old truck is ________.
b.The gain on the exchange is ________.
c.The cost basis in the new truck,assuming accounting rules is ________.
Q3) A loss on disposal of an asset is listed as:
A)a liability on the balance sheet.
B)an asset on the balance sheet.
C)other expense on the income statement.
D)other income on the income statement.
Q4) Define and compare capital expenditures and revenue expenditures.
Q5) Payments for ordinary maintenance of an asset are called ________.
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Chapter 17: Partnership
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Q1) The Brad and Marcia partnership agree to admit Fred with a one-third interest for $5,000.Brad and Marcia's capital balances are $3,000,and $7,000,respectively,and they share profits and losses equally.The entry to admit Brad would include:
A)debit Cash $5,000; credit Fred,Capital $5,000.
B)debit Cash $5,000; credit Brad,Capital $2000; debit Marcia,Capital $2000; credit Fred,Capital $5,000.
C)debit Cash $5,000; credit Brad,Capital $2,500; credit Marsha,Capital $2,500.
D)debit Cash $5,000; debit Brad,Capital $2,500; credit Marcia,Capital $2500; credit Fred,Capital $5,000.
Q2) A profit and loss ratio may not be based on capital contributions.
A)True
B)False
Q3) The partnership dissolves when a partner leaves.This characteristic is called: A)mutual agency.
B)limited life.
C)limited liability. D)unlimited life.
Q4) Able partner invested cash in the business.
Debit ________ & ________ & ________ Credit ________ & ________ &
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Chapter 18: Corporations: Organizations and Stock
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Q1) When a corporation has only one class of stock,it will be common stock.
A)True
B)False
Q2) R.Red formed a corporation with an authorization of 20,000 shares of $50 par,6% non-cumulative preferred stock and 100,000 shares of $10 par common stock.The following selected transactions were completed during the first year of operations.Journalize the transactions omitting explanations. \(\text {Jan 10}\) \(\quad \) \(\text {Issued 20,000 shares of common stock at par for cash.}\)
\(\quad \) \(\quad \) \(\quad \) \(\text {31}\)\(\text { Issued 20,000 shares of common stock in exchange for land, buildings, and}\) \(\quad \) \(\quad \) \(\quad \) \(\text {Equipment with fair market prices of \(\$ 52,000 , \$ 125,000\), and \(\$ 48,000\), respectively.}\) \(\text {Feb 24}\) \(\quad \)\(\text {Issued 2,000 shares of preferred stock at \(\$ 54\) for cash.}\)
Q3) Sold common stock at a price equal to the par value.
Debit ________ & ________ & ________ Credit ________ & ________ &
Q4) Describe a stock subscription plan.
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Chapter 19: Corporations: Stock Values, dividends, treasury
Stocks, and Retained
Earnings
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Q1) The entry to record the payment of a cash dividend would include a:
A)debit to Dividends Payable; credit to Cash.
B)debit to Retained Earnings; credit to Cash.
C)credit to Dividends Declared,debit to Cash.
D)debit to Cash,credit to Retained Earnings.
Q2) Which of the following statements is false of treasury stock?
A)It has a right to dividends.
B)It has a right to vote.
C)It is stock that is outstanding.
D)All of the statements are false.
Q3) Prepare the following stock dividend journal entries for Tamera,Inc. \(\text {June 19}\) \(\quad \) \(\text {Declared a \(7 \%\) stock dividend to common stockholders. The stock has a par value of \(\$ 13\) and a}\) \(\quad \) \(\quad \) \(\quad \) \(\quad \) \(\text { current market value of \(\$ 14\). There are 60,000 shares of common stock outstanding.}\) \(\text {July 2}\) \(\quad \) \(\text {The stock dividend is issued.}\)
Q4) The date of record determines who receives the declared dividends. A)True B)False
Page 22
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Chapter 20: Corporations and Bonds Payable
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Q1) Using the straight-line method,the semiannual bond interest expense of a 12%,$300,000,15-year bond issued at 95 is:
A)$36,500.
B)$35,500.
C)$18,500.
D)$17,500.
Q2) Miranda Corporation issued $200,000 of 12%,10-year bonds for $220,000.The entry to record the issuance of the bonds includes a:
A)debit to Bonds Payable for $200,000.
B)credit to Premium on Bonds Payable for $20,000.
C)credit to Bonds Payable for $220,000.
D)credit to Cash for $220,000.
Q3) Bonds that may be redeemed at a certain price level are known as:
A)callable bonds.
B)debenture bonds.
C)serial bonds.
D)convertible bonds.
Q4) Recorded the interest earned on the bond sinking fund. Debit ________ & ________ & ________ Credit ________ & ________ &
Page 23
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Chapter 21: Statement of Cash Flows
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Q1) The purpose of a cash flow statement is to show the inflows and outflows of cash.
A)True
B)False
Q2) One section of a statement of cash flows is purchasing activities.
A)True
B)False
Q3) A business issues 10-year bonds payable in exchange for common stock.This transaction would be reported on the statement of cash flows in:
A)operating activities.
B)financing activities.
C)investing activities.
D)a separate schedule.
Q4) The final cash amount on the statement of cash flows must match the cash balance shown on the balance sheet.
A)True
B)False
Q5) Discuss the purpose of a statement of cash flows,and describe its components.
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Chapter 22: Analyzing Financial Statements
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Q1) The lower the times interest earned ratio,the more likely it is that interest payments will not be made.
A)True
B)False
Q2) If management wishes to measure how effectively the assets were used in generating a profit,they could use the:
A)rate of return on total assets.
B)rate of return on common stockholders' equity.
C)return on sales.
D)times interest earned.
Q3) If current assets are $60,000 and current liabilities are $50,000,the current ratio is:
A)0.8:1.
B)8.3:1.
C)2.1:1.
D)1.2:1
Q4) Define two types of comparative income statements and compare the information provided by them.
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25
Chapter 23: The Voucher System
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Q1) Important control features provided by a voucher system:
A)assure only approved invoices are paid.
B)centralize the recording of all expenditures in one place-the voucher register.
C)include using the check register along with the voucher register.
D)All of these answers are correct.
Q2) When a purchase is made,the business will:
A)credit Vouchers Payable.
B)enter a voucher in the voucher register.
C)debit Purchases.
D)All of the above.
Q3) 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.
Q4) Written authorizations for cash payments are called vouchers.
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) When a company tracks gross profit by department,the sales journal has separate columns for Sales for each department.
A)True
B)False
Q2) Carla's building expenses,which are indirect,are based on each department's square footage.Department A occupies 35,000 square feet.Department B occupies 55,000 square feet,and Department C occupies 10,000 square feet.If the building expenses total $250,000,how much is allocated to Department B?
A)$83,333
B)$137,500
C)$87,500
D)$25,000
Q3) Direct expenses and indirect expenses are separated in determining contribution margin.
A)True
B)False
Q4) Explain the difference between a "cost center" and a "profit center."
Q5) Why would it be advisable for a company to keep separate accounting records for various departments?
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Chapter 25: Manufacturing Accounting
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Q1) When actual costs are not known until the end of the month,an estimated application rate should be determined so that the total weekly costs can be applied.
A)True
B)False
Q2) Molly Manufacturing is using a manufacturing overhead application rate of 125% of machine hours.Machine hours are $9/hour and uses 35 hours.How much overhead should be applied to the job?
A)$315.00
B)$393.75
C)($393.75)
D)($315.00)
Q3) If a company had a beginning balance of $5,000 in Raw Materials,an ending balance of $3,000 and purchased $27,000 of materials during the month,then the raw material cost for the month was $29,000.
A)True
B)False
Q4) Describe the three elements of manufacturing cost.
Q5) Sold products on account.
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